As filed with
the Securities and Exchange Commission on December 13,
2010
Registration
No. 333-170978
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Pre-effective Amendment
No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
BroadSoft, Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
7372
|
|
52-2130962
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
9737
Washingtonian Boulevard,
Suite 350
Gaithersburg, Maryland 20878
(301) 977-9440
(Address,
including zip code, and telephone number, including area code,
of registrants principal executive
offices)
Michael
Tessler
President and Chief Executive Officer
BroadSoft, Inc.
9737 Washingtonian Boulevard,
Suite 350
Gaithersburg,
Maryland 20878
(301) 977-9440
(Name,
address, including zip code, and telephone number, including
area code, of agent for service)
Copies
to:
|
|
|
|
|
Mark D. Spoto
Darren K. DeStefano
Christina L. Novak
Cooley LLP
One Freedom Square
Reston Town Center
11951 Freedom Drive
Reston, Virginia 20190
(703) 456-8000
|
|
Mary Ellen Seravalli, Esq.
Vice President and General Counsel
BroadSoft, Inc.
9737 Washingtonian Boulevard,
Suite 350
Gaithersburg, Maryland 20878
(301) 977-9440
|
|
Jorge A. del Calvo, Esq.
Craig E. Chason, Esq.
Matthew B. Swartz, Esq.
Pillsbury Winthrop Shaw
Pittman LLP
1650 Tysons Boulevard
Suite 1400
McLean, Virginia 22102
(703) 770-7900
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date
of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. 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):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer o
|
|
Non-accelerated
filer þ
(Do not check if a smaller
reporting company)
|
|
Smaller reporting
company o
|
CALCULATION OF
REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed Maximum
|
|
|
Proposed Maximum
|
|
|
Amount of
|
Title of Each Class of
|
|
|
Amount to be
|
|
|
Offering
|
|
|
Aggregate
|
|
|
Registration
|
Securities To be Registered
|
|
|
Registered (1)
|
|
|
Price per Share (2)
|
|
|
Offering Price (2)
|
|
|
Fee (3)
|
Common Stock, par value $0.01 per share
|
|
|
6,095,000
|
|
|
$24.10
|
|
|
$146,889,500
|
|
|
$10,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes shares that the underwriters have the option to
purchase.
|
|
|
(2) |
Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the
Securities Act on the basis of the average of the high and low
prices of BroadSoft, Inc.s common stock as reported on The
NASDAQ Global Market on December 6, 2010.
|
|
|
(3) |
$8,909 of such fee was previously paid by BroadSoft.
|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not
permitted.
|
Subject
to Completion. Dated December 13, 2010.
5,300,000
Shares
Common Stock
BroadSoft is offering 500,000 of the shares to be sold in the
offering. The selling stockholders identified in this prospectus
are offering an additional 4,800,000 shares. BroadSoft will
not receive any of the proceeds from the sale of the shares
being sold by the selling stockholders.
Our common stock is currently listed on the NASDAQ Global Market
under the symbol BSFT. On December 10, 2010,
the last reported sale price of our common stock was $24.96.
See Risk Factors on page 9 to read about
factors you should consider before buying shares of the common
stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to BroadSoft
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to the selling stockholders
|
|
$
|
|
|
|
$
|
|
|
To the extent that the underwriters sell more than 5,300,000
shares of common stock, the underwriters have the option to
purchase up to an additional 795,000 shares from selling
stockholders at the public offering price less the underwriting
discount.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2010.
|
|
Goldman,
Sachs & Co. |
Jefferies & Company |
|
|
|
Cowen
and Company |
Needham & Company, LLC |
Pacific Crest Securities |
Prospectus
dated ,
2010.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider in making your investment decision. Before
investing in our common stock, you should carefully read this
entire prospectus, including our consolidated financial
statements and the related notes thereto and the information set
forth under the sections Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, in each case included
in this prospectus. Unless the context otherwise requires, we
use the terms BroadSoft, company,
we, us and our in this
prospectus to refer to BroadSoft, Inc. and, where appropriate,
our consolidated subsidiaries.
Overview
We are the leading global provider of software that enables
fixed-line, mobile and cable service providers to deliver voice
and multimedia services over their Internet protocol-based, or
IP-based, networks. Our software, BroadWorks, enables our
service provider customers to provide enterprises and consumers
with a range of cloud-based, or hosted, IP multimedia
communications, such as hosted IP private branch exchanges, or
PBXs, video calling, unified communications, or UC,
collaboration and converged mobile and fixed-line services. For
the year ended December 31, 2009, Infonetics Research,
Inc., or Infonetics, a leading industry research firm, estimated
that our global market share of multimedia application server
software was approximately 33%. BroadWorks performs a critical
network function by serving as the software element that
delivers and coordinates voice, video and messaging
communications through a service providers
IP-based
network. Service providers use BroadWorks to offer services that
generate new revenue, reduce subscriber churn, capitalize on
their investments in
IP-based
networks and help them migrate services from their legacy,
circuit-based networks to their IP-based networks. We believe we
are well-positioned to enable service providers to capitalize on
their
IP-based
network investments by efficiently and cost-effectively offering
a broad suite of services to their end-users.
BroadWorks delivers and coordinates the enterprise, consumer,
mobile and trunking communications applications that service
providers offer through their
IP-based
networks. BroadWorks is installed on industry-standard servers,
typically located in service providers data centers. It
interoperates with service providers core networks,
accesses other networks for interworking with end-users
communications devices and connects to service providers
support and billing systems.
We began selling BroadWorks in 2001. Over 425 service providers,
located in more than 65 countries, including 15 of the top
25 telecommunications service providers globally as measured by
revenue in the first three quarters of 2009, have purchased our
software. We sell our products to service providers both
directly and indirectly through distribution partners, such as
telecommunications equipment vendors, value-added resellers, or
VARs, and other distributors.
Industry
We believe telecommunications service providers are facing
significant challenges to their traditional business models,
including declining revenues in their legacy businesses, rapidly
evolving customer communications demands and the need to
generate returns on their increasing investments in
IP-based
networks. Historically, service providers derived much of their
revenue from providing reliable voice and high speed data
access. However, these legacy services have been increasingly
commoditized as technological and regulatory changes have
brought increased competition and lower prices. At the same
time, enterprises and consumers have started to seek new and
enhanced cloud-based communications services, such as hosted
voice and multimedia communications, converged mobile and
fixed-line services, video calling and collaboration. These new
and enhanced services provide service providers with
opportunities to counter falling legacy revenues and increase
subscriber growth. Service providers are utilizing their
existing
IP-based
networks to deliver these services.
1
Although these
IP-based
networks were originally built to deliver high speed data, they
are being configured, through the use of new network software,
to efficiently enable the broader, richer services that
subscribers increasingly demand.
We believe that, as service providers look to rapidly introduce
new services, many of which include multimedia and not merely
voice communications, they require network elements that are
capable of coordinating delivery of a large and rapidly
increasing number of applications, operating across
heterogeneous network elements and devices, ensuring high levels
of reliability and quality and efficiently scaling as more
subscribers are added. It is no longer efficient for the
responsibility of application delivery to reside in network
elements such as softswitches. These elements are dedicated to
other crucial network roles, are not designed to deliver
multimedia applications and are typically limited in the number
of network elements with which they interact. In addition,
because these network elements are generally dispersed
throughout a service providers network, deploying, scaling
and managing these multimedia services is even more difficult.
The BroadSoft
Solution
BroadWorks is installed on industry-standard servers, typically
located in service providers data centers. It utilizes
well-defined interfaces to interoperate with service
providers core networks, accesses other networks for
interworking with end-users communications devices and
connects to service providers support and billing systems
for management and charging functions. We believe we are
well-positioned to enable service providers to capitalize on
their
IP-based
network investments by efficiently and cost-effectively offering
a broad suite of essential and value-added services to their
end-users. BroadWorks provides service providers several key
advantages when they offer voice and multimedia services on
their
IP-based
networks, including:
|
|
|
|
|
Rapid delivery of enterprise and consumer multimedia
services from a single platform. We believe
BroadWorks provides the most extensive set of features and
applications available on a single platform for fixed-line,
mobile and cable broadband access networks, for both enterprise
and consumer applications.
|
|
|
|
Demonstrated carrier adoption globally across many service
provider networks. Over 425 service providers in
more than 65 countries have purchased our software, including 15
of the top 25 telecommunications service providers globally.
|
|
|
|
Broad interoperability across network equipment vendors,
network architectures and devices. BroadWorks
interoperates with all significant network architectures (such
as IP Multimedia Subsystems, or IMS, and Next Generation Network
architectures), access types, infrastructures and protocols and
integrates and interoperates with the major network equipment
vendors core network solutions.
|
|
|
|
Extensive technology and device partner
ecosystem. BroadWorks interoperates with more than
450 devices, including approximately 300 customer premises-based
equipment, or CPE, devices, such as IP phones, computer-based
soft-phones, conferencing devices, IP gateways, mobile phones
and consumer electronics.
|
|
|
|
Scalable architecture and carrier-grade
reliability. Our applications are designed to scale
to support hundreds of millions of subscribers with a
carrier-grade level of reliability.
|
|
|
|
Leadership in emerging standards and
requirements. We are actively involved in the
development of the IMS, session initiation protocol, or SIP, and
multimedia telephony, or MMTel, standards, as well as several
other standards that we expect to shape our market in the
future. BroadWorks is the application server supporting what we
believe to be the worlds largest IMS deployment, based on
the number of subscribers. Furthermore, as of December 31,
2009, we have shipped over 7.8 million IMS voice over IP
subscriber lines. These lines represent 48% of the
16.8 million total lines we have shipped.
|
2
Our
Strategy
Our goal is to strengthen our position as the leading global
provider of multimedia application servers by enabling service
providers to increase revenue opportunities by delivering
feature-rich services to their enterprise and consumer
subscribers and to leverage their investment in their
IP-based
networks. Key elements of our strategy include:
|
|
|
|
|
Extend our technology leadership and product depth and
breadth. We intend to provide an
industry-leading
solution through continued focus on product innovation and
substantial investment in research and development for new
features, applications and services.
|
|
|
|
Drive revenue growth by:
|
|
|
|
|
|
Assisting our current service provider customers to sell
more of their currently-deployed BroadWorks
services. We support our service provider customers
by regularly offering enhanced and new features to their current
applications as well as providing tools and training to help
them market their services to subscribers.
|
|
|
|
Selling new applications and features to our current
service provider customers. Although our initial
engagement with a service provider may be for a single
initiative or business unit, once BroadWorks is implemented by a
service provider, we believe we are well-positioned to sell
additional applications and features to that service provider.
|
|
|
|
Continuing to acquire new customers. Our
customers are located around the world and include 15 of the top
25 telecommunications service providers globally. We believe we
are well positioned to grow by adding customers in regions where
we already have a strong presence, by expanding our geographic
footprint and by penetrating more deeply into some types of
service provider customers, such as additional cable and mobile
service providers.
|
|
|
|
|
|
Pursue selected acquisitions and collaborations that
complement our strategy. We intend to continue to
pursue acquisitions and collaborations where we believe they are
strategic to strengthen our leadership position.
|
Risk
Factors
Our business is subject to numerous risks, as more fully
described in the section entitled Risk Factors
beginning on page 8. You should consider carefully such
risks before deciding to invest in our common stock. These risks
include, among others:
|
|
|
|
|
We are substantially dependent upon the commercial success of
one product, BroadWorks.
|
|
|
|
Infringement claims are common in our industry and third
parties, including competitors, have and could in the future
assert infringement claims against us.
|
|
|
|
We are generally obligated to indemnify our customers for
certain expenses and liabilities resulting from intellectual
property infringement claims relating to our software.
|
|
|
|
Our success depends in large part on service providers
continued deployment of, and investment in, their
IP-based
networks.
|
|
|
|
We have incurred losses in the past and may incur further losses
in the future and our revenue may not grow or may decline.
|
|
|
|
Our revenue, operating results and gross margin can fluctuate
significantly and unpredictably from quarter to quarter and from
year to year and we expect they will continue to do so, which
could cause the trading price of our stock to decline.
|
|
|
|
Lengthy and unpredictable sales cycles may force us to either
assume unfavorable pricing or payment terms and conditions or to
abandon a sale altogether.
|
3
|
|
|
|
|
Our products must interoperate with many different networks,
software applications and hardware products and this
interoperability will depend on the continued prevalence of open
standards.
|
|
|
|
We depend largely on the continued services of our co-founders,
Michael Tessler, our President and Chief Executive Officer, and
Scott Hoffpauir, our Chief Technology Officer.
|
|
|
|
We face intense competition in our markets, especially from
larger, better-known companies, and we may lack sufficient
financial or other resources to maintain or improve our
competitive position.
|
Our Corporate
Information
We were incorporated on November 17, 1998 in Delaware. Our
principal executive office is located at 9737 Washingtonian
Boulevard, Suite 350, Gaithersburg, Maryland 20878 and our
telephone number is
(301) 977-9440.
Our website address is www.broadsoft.com. The information
contained on, or that can be accessed through, our website is
not part of, and is not incorporated into, this prospectus.
BroadSoft, BroadWorks, the BroadSoft
logo, Innovation Calling and other trademarks or
service marks of BroadSoft, Inc. appearing in this prospectus
are the property of BroadSoft, Inc. This prospectus contains
additional trade names, trademarks and service marks of others,
which are the property of their respective owners.
4
THE
OFFERING
|
|
|
Common stock offered by us |
|
500,000 shares |
|
|
|
Common stock offered by the selling stockholders |
|
4,800,000 shares |
|
|
|
Common stock to be outstanding after this offering |
|
25,347,095 shares |
|
|
|
Use of proceeds |
|
We expect the net proceeds to us from this offering, after
expenses, to be approximately $11.8 million, based upon an
assumed public offering price of $24.96 per share, which was the
last reported sales price of our common stock on the Nasdaq
Global Market on December 10, 2010. We intend to use the
net proceeds from this offering for working capital and general
corporate purposes. |
|
|
|
|
|
We will not receive any of the proceeds from the sale of shares
by the selling stockholders. We intend to use any proceeds we
receive from the exercise of options by the selling stockholders
in connection with this offering for working capital and general
corporate purposes. See Use of Proceeds. |
|
|
|
Risk factors |
|
See the section titled Risk Factors beginning on
page 9 and the other information included in this
prospectus for a discussion of factors you should carefully
consider before deciding to invest in our common stock. |
|
|
|
NASDAQ Global Market symbol |
|
BSFT |
The number of shares of our common stock to be outstanding after
this offering is based on 24,711,018 shares of common stock
outstanding as of September 30, 2010 and includes an
aggregate of 15,066 shares issued pursuant to a restricted stock
grant and early exercise of stock options that are subject to
repurchase and therefore are not considered outstanding for
accounting purposes. The number of shares to be outstanding
after this offering is also adjusted to include
76,195 shares of common stock issued upon the net exercise
of a common stock warrant by one of the selling stockholders
after September 30, 2010, an aggregate of
59,882 shares to be issued upon exercise of stock options
by selling stockholders in connection with this offering and the
500,000 shares we are issuing in this offering. As of
September 30, 2010, we had 24,711,018 shares of common
stock outstanding, which excludes the following shares:
|
|
|
|
|
1,984,892 shares of our common stock issuable, as of
September 30, 2010, upon the exercise of options
outstanding under our 1999 Stock Incentive Plan and our Amended
and Restated 2009 Equity Incentive Plan, or 2009 Plan, at a
weighted average exercise price of $2.23 per share (59,882 of
these shares are to be issued upon the exercise of stock options
at a weighted average exercise price of $2.08 by selling
stockholders in connection with this offering);
|
|
|
|
|
|
294,771 shares of our common stock issuable upon the
vesting of restricted stock units, or RSUs, outstanding, as of
September 30, 2010, under our 2009 Equity Incentive Plan
that will vest at various dates following the completion of this
offering;
|
|
|
|
|
|
116,551 shares of our common stock issuable, as of
September 30, 2010, upon the exercise of an outstanding
common stock warrant at an exercise price of $8.58 per share
(this warrant was net exercised for a total of
76,195 shares of common stock subsequent to
September 30, 2010);
|
|
|
|
|
|
239,395 shares of our common stock reserved for future
grants, as of September 30, 2010, under our 2009 Plan; and
|
5
|
|
|
|
|
additional shares that may be reserved for future issuance under
our amended and restated 2009 Plan as a result of automatic
annual increases in the share reserve beginning January 1, 2011.
|
Unless otherwise indicated, all information in this prospectus
reflects and assumes the following:
|
|
|
|
|
a 6-for-1 reverse stock split of our common stock and redeemable
convertible preferred stock which was effected on June 14,
2010; and
|
|
|
|
|
|
no exercise by the underwriters of their option to purchase up
to 795,000 additional shares of our common stock from
selling stockholders in this offering.
|
6
SUMMARY
CONSOLIDATED FINANCIAL DATA
You should read the summary consolidated financial data in
conjunction with Use of Proceeds,
Capitalization, Selected Consolidated
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and related notes, all
included elsewhere in this prospectus.
The summary consolidated financial data as of September 30,
2010 and for the nine months ended September 30, 2009 and
2010 are derived from our unaudited condensed consolidated
financial statements included elsewhere in this prospectus. The
summary consolidated financial data for the years ended
December 31, 2007, 2008 and 2009 are derived from our
audited consolidated financial statements included elsewhere in
this prospectus. Our results of operations for any prior period
are not necessarily indicative of results of operations that
should be expected in any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
46,328
|
|
|
$
|
40,121
|
|
|
$
|
37,942
|
|
|
$
|
27,237
|
|
|
$
|
32,215
|
|
Maintenance and professional services
|
|
|
15,272
|
|
|
|
21,708
|
|
|
|
30,945
|
|
|
|
22,349
|
|
|
|
27,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
61,600
|
|
|
|
61,829
|
|
|
|
68,887
|
|
|
|
49,586
|
|
|
|
59,848
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
|
4,899
|
|
|
|
4,404
|
|
|
|
4,432
|
|
|
|
3,279
|
|
|
|
3,616
|
|
Maintenance and professional services (1)
|
|
|
7,270
|
|
|
|
8,649
|
|
|
|
12,142
|
|
|
|
9,558
|
|
|
|
10,556
|
|
Amortization of intangibles
|
|
|
400
|
|
|
|
414
|
|
|
|
800
|
|
|
|
629
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
12,569
|
|
|
|
13,467
|
|
|
|
17,374
|
|
|
|
13,466
|
|
|
|
14,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49,031
|
|
|
|
48,362
|
|
|
|
51,513
|
|
|
|
36,120
|
|
|
|
45,105
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1)
|
|
|
26,431
|
|
|
|
30,774
|
|
|
|
28,534
|
|
|
|
21,628
|
|
|
|
22,601
|
|
Research and development (1)
|
|
|
12,763
|
|
|
|
15,876
|
|
|
|
16,625
|
|
|
|
12,147
|
|
|
|
14,230
|
|
General and administrative (1)
|
|
|
10,295
|
|
|
|
12,074
|
|
|
|
11,405
|
|
|
|
8,561
|
|
|
|
10,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
49,489
|
|
|
|
58,724
|
|
|
|
56,564
|
|
|
|
42,336
|
|
|
|
47,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(458
|
)
|
|
|
(10,362
|
)
|
|
|
(5,051
|
)
|
|
|
(6,216
|
)
|
|
|
(1,962
|
)
|
Other expense (income)
|
|
|
279
|
|
|
|
(78
|
)
|
|
|
1,469
|
|
|
|
1,010
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(737
|
)
|
|
|
(10,284
|
)
|
|
|
(6,520
|
)
|
|
|
(7,226
|
)
|
|
|
(2,836
|
)
|
Provision for income taxes
|
|
|
1,021
|
|
|
|
952
|
|
|
|
1,333
|
|
|
|
1,000
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,758
|
)
|
|
|
(11,236
|
)
|
|
|
(7,853
|
)
|
|
|
(8,226
|
)
|
|
|
(3,199
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(75
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(1,683
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,849
|
)
|
|
$
|
(8,223
|
)
|
|
$
|
(3,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share available to BroadSoft, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(0.24
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,067
|
|
|
|
6,208
|
|
|
|
6,285
|
|
|
|
6,279
|
|
|
|
13,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
163
|
|
|
$
|
182
|
|
|
$
|
325
|
|
|
$
|
283
|
|
|
$
|
155
|
|
Sales and marketing
|
|
|
628
|
|
|
|
856
|
|
|
|
1,088
|
|
|
|
926
|
|
|
|
604
|
|
Research and development
|
|
|
255
|
|
|
|
456
|
|
|
|
741
|
|
|
|
665
|
|
|
|
463
|
|
General and administrative
|
|
|
622
|
|
|
|
1,422
|
|
|
|
1,475
|
|
|
|
1,324
|
|
|
|
984
|
|
7
|
|
|
|
|
|
|
As of September 30,
2010
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,488
|
|
Working capital
|
|
|
20,808
|
|
Total assets
|
|
|
99,580
|
|
Notes payable and bank loans, less current portion
|
|
|
1,194
|
|
Total liabilities
|
|
|
69,299
|
|
Total stockholders (deficit) equity
|
|
|
30,281
|
|
8
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Before you invest in our common stock, you should carefully
consider the following risks, as well as general economic and
business risks, and all of the other information contained in
this prospectus. Any of the following risks could have a
material adverse effect on our business, operating results and
financial condition and cause the trading price of our common
stock to decline, which would cause you to lose all or part of
your investment. When determining whether to invest, you should
also refer to the other information contained in this
prospectus, including our consolidated financial statements and
the related notes thereto.
Risks Related to
Our Business
We are
substantially dependent upon the commercial success of one
product, BroadWorks. If the market for BroadWorks does not
develop as we anticipate, our revenue may decline or fail to
grow, which would adversely affect our operating results and
financial condition.
Our future revenue growth depends upon the commercial success of
our voice and multimedia application server software,
BroadWorks. We derive a substantial portion of our revenue from
licensing BroadWorks and related products and services. During
2007, 2008, 2009 and the nine months ended September 30,
2010, BroadWorks licenses and related services represented 100%,
97%, 82% and 82% of our revenue, respectively. We expect revenue
from BroadWorks and related products and services to continue to
account for the significant majority of our revenue for the
foreseeable future.
Because we generally sell licenses of BroadWorks on a perpetual
basis and deliver new versions and upgrades to customers who
purchase maintenance contracts, our future license revenue is
dependent, in part, on the success of our efforts to sell
additional BroadWorks licenses to our existing service provider
customers. The sale of additional licenses to service providers
depends upon their increasing the number of their customers
subscribing to
IP-based
communications services rather than traditional services and the
purchasing by those subscribers of additional service offerings
that use our applications. These service providers may choose
not to expand their use of, or make additional purchases of,
BroadWorks or might delay additional purchases we expect. These
events could occur for a number of reasons, including because
their customers are not subscribing to
IP-based
communications services in the quantities expected, because
services based upon our applications are not sufficiently
popular or because service providers migrate to a software
solution other than BroadWorks. If service providers do not
adopt, purchase and successfully deploy BroadWorks, our revenue
could grow at a slower rate or decrease.
In addition, because our sales are derived substantially from
one product, our share price could be disproportionately
affected by market perceptions of current or anticipated
competing products, allegations of intellectual property
infringement or other matters. These perceptions, even if
untrue, could cause our stock price to decline.
Infringement
claims are common in our industry and third parties, including
competitors, have and could in the future assert infringement
claims against us including for past infringement, which could
force us to redesign our software and incur significant
costs.
The IP-based
communications industry is highly competitive and
IP-based
technologies are complex. Companies file patents covering these
technologies frequently and maintain programs to protect their
intellectual property portfolios. Some of these companies
actively search for, and routinely bring claims against, alleged
infringers. Our products are technically complex and compete
with the products of significantly larger companies.
On October 22, 2010, we were named as a defendant in a
lawsuit brought by EON Corp. IP Holdings, LLC in the United
States District Court for the Eastern District of Texas. The
lawsuit seeks
9
unspecified damages for alleged infringement of a patent. We
intend to defend this lawsuit vigorously, but we cannot be
certain of any particular outcome and an adverse outcome in this
lawsuit could have a material adverse effect on our business. As
a newly public company, we believe that we may become
increasingly subject to third-party infringement claims.
The likelihood of our being subject to additional infringement
claims may be greater as a result of our real or perceived
success in selling products to customers, as the number of
competitors in our industry grows and as we add functionality to
our products. We may in the future receive communications from
third parties alleging that we may be infringing their
intellectual property rights. The visibility we receive from
being a public company may result in a greater number of such
allegations. Regardless of the merit of third-party claims that
we infringe their rights, these claims could:
|
|
|
|
|
be time consuming and costly to defend;
|
|
|
|
divert our managements attention and resources;
|
|
|
|
cause product shipment and installation delays;
|
|
|
|
require us to redesign our products, which may not be feasible
or cost-effective;
|
|
|
|
cause us to cease producing, licensing or using software or
products that incorporate challenged intellectual property;
|
|
|
|
damage our reputation and cause customer reluctance to license
our products; or
|
|
|
|
require us to pay amounts for past infringement or enter into
royalty or licensing agreements to obtain the right to use a
necessary product or component, which may not be available on
terms acceptable to us, or at all.
|
It is possible that other companies hold patents covering
technologies similar to one or more of the technologies that we
incorporate into our products. In addition, new patents may be
issued covering these technologies. Unless and until the
U.S. Patent and Trademark Office issues a patent to an
applicant, there is no reliable way to assess the scope of the
potential patent. We may face claims of infringement from both
holders of issued patents and, depending upon the timing, scope
and content of patents that have not yet been issued, patents
issued in the future. The application of patent law to the
software industry is particularly uncertain because the time
that it takes for a software-related patent to issue is lengthy,
which increases the likelihood of pending patent applications
claiming inventions whose priority dates may pre-date
development of our own proprietary software. This uncertainty,
coupled with litigation or the potential threat of litigation
related to our intellectual property, could adversely affect our
business, revenue, results of operations, financial condition
and reputation.
We are
generally obligated to indemnify our customers for certain
expenses and liabilities resulting from intellectual property
infringement claims regarding our software, which could force us
to incur substantial costs.
We have agreed, and expect to continue to agree, to indemnify
our customers for certain expenses or liabilities resulting from
claimed infringement of intellectual property rights of third
parties with respect to our software. As a result, in the case
of infringement claims against these customers, we could be
required to indemnify them for losses resulting from such claims
or to refund license fees they have paid to us. Some of our
customers have in the past brought claims against us for
indemnification in connection with infringement claims brought
against them and we may not succeed in refuting such claims in
the future. We are currently disputing an indemnity claim
asserted against us by one of our customers. This customer is
seeking $3.6 million for reimbursement of a portion of the
legal expenses incurred by it in defending a patent infringement
lawsuit filed against it by another one of our customers. While
we believe this indemnity claim is without merit and we have and
plan to continue to vigorously dispute this claim, the customer
seeking indemnity from us has substantially greater resources
than we do. If a customer, including the one currently asserting
the claim against
10
us, elects to invest resources in enforcing a claim for
indemnification against us, we could incur significant costs
disputing it. If we do not succeed in disputing it, we could
face substantial liability.
We may be
unable to adequately protect our intellectual property rights in
internally developed systems and software and efforts to protect
them may be costly.
Our ability to compete effectively is dependent in part upon the
maintenance and protection of systems and software that we have
developed internally. While we hold issued patents and pending
patent applications covering certain elements of our technology,
patent laws may not provide adequate protection for portions of
the technology that are important to our business. In addition,
our pending patent applications may not result in issued
patents. We have largely relied on copyright, trade secret and,
to a lesser extent, trademark laws, as well as confidentiality
procedures and agreements with our employees, consultants,
customers and vendors, to control access to, and distribution
of, technology, software, documentation and other confidential
information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our technology
without authorization. If this were to occur, we could lose
revenue as a result of competition from products infringing our
technology and we may be required to initiate litigation to
protect our proprietary rights and market position.
U.S. patent, copyright and trade secret laws offer us only
limited protection and the laws of some foreign countries do not
protect proprietary rights to the same extent. Accordingly,
defense of our proprietary technology may become an increasingly
important issue as we continue to expand our operations and
product development into countries that provide a lower level of
intellectual property protection than the United States.
Policing unauthorized use of our technology is difficult and the
steps we take may not prevent misappropriation of the technology
we rely on. If competitors are able to use our technology
without recourse, our ability to compete would be harmed and our
business would be materially and adversely affected.
We may elect to initiate litigation in the future to enforce or
protect our proprietary rights or to determine the validity and
scope of the rights of others. That litigation may not be
ultimately successful and could result in substantial costs to
us, the diversion of our management attention and harm to our
reputation, any of which could materially and adversely affect
our business and results of operations.
We may not be
able to obtain necessary licenses of third-party technology on
acceptable terms, or at all, which could delay product sales and
development and adversely impact product quality.
We have incorporated third-party licensed technology into our
current products. For example, we use a third-party database as
the core database for our applications server. We anticipate
that we are also likely to need to license additional technology
from third parties to develop new products or product
enhancements in the future. Third-party licenses may not be
available or continue to be available to us on commercially
reasonable terms. The inability to retain any third-party
licenses required in our current products or to obtain any new
third-party licenses to develop new products and product
enhancements could require us to obtain substitute technology of
lower quality or performance standards or at greater cost, and
delay or prevent us from making these products or enhancements,
any of which could seriously harm the competitive position of
our products.
Our success
depends in large part on service providers continued
deployment of, and investment in, their
IP-based
networks.
Our products are predominantly used by service providers to
deliver voice and multimedia services over
IP-based
networks. As a result, our success depends significantly on
these service providers continued deployment of, and
investment in, their
IP-based
networks. Service providers deployment of
IP-based
networks and their migration of communications services to
IP-based
11
networks is still in its early stages, and these service
providers continued deployment of, and investment in,
IP-based
networks depends on a number of factors outside of our control.
Among other elements, service providers legacy networks
include PBXs, Class 5 switches and other equipment that may
adequately perform certain basic functions and could have
remaining useful lives of 20 or more years and, therefore, may
continue to operate reliably for a lengthy period of time. Many
other factors may cause service providers to delay their
deployment of, or reduce their investments in, their
IP-based
networks, including capital constraints, available capacity on
legacy networks, competitive conditions within the
telecommunications industry and regulatory issues. If service
providers do not continue deploying and investing in their
IP-based
networks at the rates we expect, for these or other reasons, our
operating results will be materially adversely affected.
The loss of,
or a significant reduction in orders from, one or more major
customers or through one or more major distribution partners
would reduce our revenue and harm our results.
For the year ended December 31, 2009, Verizon Corporate
Services Group Inc., or Verizon, accounted for 10% of our total
revenue. Additionally, Ericsson AB, one of our distribution
partners, and its controlled entities, which we refer to
collectively as Ericsson, accounted for approximately 16%, 17%
and 11% of our total revenue for the years ended
December 31, 2007, 2008 and 2009, respectively.
Accordingly, as a result of the current significance of both
Verizon and Ericsson to our business, the loss of either Verizon
as a customer or Ericsson as a distribution partner could have a
material adverse effect on our results of operations. In
addition, under our agreements with Verizon and Ericsson,
neither party is required to purchase any minimum amount of our
products or services. Furthermore, because of the variability of
the buying practices of our larger customers, the composition of
our most significant customers is likely to change over time. If
we experience a loss of one or more significant customers or
distribution partners, or if we suffer a substantial reduction
in orders from one or more of these customers or distribution
partners and we are unable to sell directly or indirectly to new
customers or increase orders from other existing customers to
offset lost revenue, our business will be harmed.
In addition, continued consolidation in the telecommunications
industry has further reduced the number of potential customers.
This consolidation heightens the likelihood of our dependence on
a relatively small number of customers and distribution partners
and increases the risk of quarterly and annual fluctuations in
our revenue and operating results. In addition, given the
current global economic conditions, there is a risk that one or
more of our customers or distribution partners could cease
operations. Any downturn in the business of our key customers or
distribution partners could significantly decrease our sales,
which could adversely affect our total revenue and results of
operations.
We have
incurred losses in the past and may incur further losses in the
future and our revenue may not grow or may
decline.
We have incurred significant losses since inception and, as of
September 30, 2010, we had an accumulated deficit of
$99.7 million. We have incurred net losses in each fiscal
year since inception and we may not be profitable in the future.
Our recent net losses were $1.7 million for 2007,
$11.2 million for 2008, $7.8 million for 2009 and
$3.2 million for the nine months ended September 30,
2010. In addition, we expect our expenses to grow in the future,
including an increase in our internal and external financial,
accounting and legal expenses resulting from operating as a
public company. If our revenue does not grow to offset these
increased expenses, we may not be able to achieve or maintain
profitability. Further, our historical revenue and expense
trends may not be indicative of our future performance. In fact,
in the future we may not experience any growth in our revenue or
our revenue could decline. If any of these occur, our stock
price could decline materially.
12
Our revenue,
operating results and gross margin can fluctuate significantly
and unpredictably from quarter to quarter and from year to year,
and we expect they will continue to do so, which could cause the
trading price of our stock to decline.
The rate at which our customers order our products, and the size
of these orders, are highly variable and difficult to predict.
In the past, we have experienced significant variability in our
customer purchasing practices on a quarterly and annual basis,
and we expect that this variability will continue, as a result
of a number of factors, many of which are beyond our control,
including:
|
|
|
|
|
demand for our products and the timing and size of customer
orders;
|
|
|
|
length of sales cycles;
|
|
|
|
length of time of deployment of our products by our customers;
|
|
|
|
customers budgetary constraints;
|
|
|
|
competitive pressures; and
|
|
|
|
general economic conditions.
|
As a result of this volatility in our customers purchasing
practices, our license revenue has historically fluctuated
unpredictably on a quarterly and annual basis and we expect this
to continue for the foreseeable future. Our budgeted expense
levels depend in part on our expectations of future revenue.
Because any substantial adjustment to expenses to account for
lower levels of revenue is difficult and takes time, if our
revenue declines our operating expenses and general overhead
would likely be high relative to revenue, which could have a
material adverse effect on our operating margin and operating
results.
In addition to the unpredictability of customer orders, our
quarterly and annual results of operations are also subject to
significant fluctuation as a result of the application of
accounting regulations and related interpretations and policies
regarding revenue recognition under accounting principles
generally accepted in the United States, or GAAP. Compliance
with these revenue recognition rules has resulted in our
deferral of the recognition of revenue in connection with the
sale of our software licenses, maintenance and professional
services. The majority of our deferred revenue balance consists
of software license orders that do not meet all the criteria for
revenue recognition and the undelivered portion of maintenance.
Although we typically use standardized license agreements
designed to meet current revenue recognition criteria under
GAAP, we must often negotiate and revise terms and conditions of
these standardized agreements, particularly in multi-element
transactions with larger customers who often desire customized
features, which causes us to defer revenue until all elements
are delivered. As our transactions increase in complexity with
the sale of larger, multi-product licenses, negotiation of
mutually acceptable terms and conditions with our customers can
require us to defer recognition of revenue on such licenses.
The cumulative effects of these factors could result in large
fluctuations and unpredictability in our quarterly and annual
operating results. This variability and unpredictability could
result in our failing to meet the expectations of securities
industry analysts or investors for any period. If we fail to
meet or exceed such expectations for these or any other reasons,
the market price of our shares could fall substantially and we
could face costly securities class action suits. Therefore, you
should not rely on our operating results in any quarter or year
as being indicative of our operating results for any future
period.
Lengthy and
unpredictable sales cycles may force us either to assume
unfavorable pricing or payment terms and conditions or to
abandon a sale altogether.
Our initial sales cycle for a new customer ranges generally
between six and 12 months and sometimes more than two years
and can be very unpredictable due to the generally lengthy
service provider evaluation and approval process for our
products, including internal reviews and capital expenditure
approvals. Moreover, the evolving nature of the market may lead
prospective customers to postpone their purchasing decisions
pending resolution of standards or adoption of technology by
13
others. Sales also typically involve extensive product testing
and network certification. Additionally, after we make an
initial sale to a customer, its implementation of our products
can be very time consuming, often requiring six to
24 months or more, particularly in the case of larger
service providers. This lengthy implementation and deployment
process can result in a significant delay before we receive an
additional order from that customer. As a result of these
lengthy sales cycles, we are sometimes required to assume terms
or conditions that negatively affect pricing or payment for our
product to consummate a sale. Doing so can negatively affect our
gross margin and results of operations. Alternatively, if
service providers ultimately insist upon terms and conditions
that we deem too onerous or not to be commercially prudent, we
may incur substantial expenses and devote time and resources to
potential relationships that never result in completed sales or
revenue. If this result becomes prevalent, it could have a
material adverse impact on our results of operations.
Our products
must interoperate with many different networks, software
applications and hardware products, and this interoperability
will depend on the continued prevalence of open
standards.
Our products are designed to interoperate with our
customers existing and planned networks, which have varied
and complex specifications, utilize multiple protocol standards,
software applications and products from numerous vendors and
contain multiple products that have been added over time. As a
result, we must attempt to ensure that our products interoperate
effectively with these existing and planned networks. To meet
these requirements, we have and must continue to undertake
development and testing efforts that require significant capital
and employee resources. We may not accomplish these development
efforts quickly or cost-effectively, or at all. If our products
do not interoperate effectively, installations could be delayed
or orders for our products could be cancelled, which would harm
our revenue, gross margins and our reputation, potentially
resulting in the loss of existing and potential customers. The
failure of our products to interoperate effectively with our
customers networks may result in significant warranty,
support and repair costs, divert the attention of our
engineering personnel from our software development efforts and
cause significant customer relations problems.
We have entered into arrangements with a number of equipment and
software vendors for the use or integration of their technology
with our products. These arrangements give us access to, and
enable our products to interoperate with, various products that
we do not otherwise offer. If these relationships terminate, we
may have to devote substantially more resources to the
development of alternative products and processes, and our
efforts may not be as effective as the combined solutions under
our current arrangements. In some cases, these other vendors are
either companies that we compete with directly, or companies
that have extensive relationships with our existing and
potential customers and may have influence over the purchasing
decisions of those customers. Some of our competitors may have
stronger relationships with some of our existing and potential
vendors and, as a result, our ability to have successful
interoperability arrangements with these companies may be
harmed. Our failure to establish or maintain key relationships
with third-party equipment and software vendors may harm our
ability to successfully market and sell our products.
Additionally, the interoperability of our products with multiple
different networks is significantly dependent on the continued
prevalence of standards for IP multimedia services, such as IMS.
Some of our existing and potential competitors are network
equipment providers who could potentially benefit from the
deployment of their own proprietary non-standards-based
architectures. If resistance to open standards by network
equipment providers becomes prevalent, it could make it more
difficult for our products to interoperate with our
customers networks, which would have a material adverse
effect on our ability to sell our products to service providers.
14
We may not be
able to detect errors or defects in our products until after
full deployment and product liability claims by customers could
result in substantial costs.
Our products are sophisticated and are designed to be deployed
in large and complex telecommunications networks. Because of the
nature of our products, they can only be fully tested when
substantially deployed in very large networks with high volumes
of telecommunications traffic. Some of our customers have only
recently begun to commercially deploy our products and they may
discover errors or defects in the software, or the products may
not operate as expected. Because we may not be able to detect
these problems until full deployment, any errors or defects in
our software could affect the functionality of the networks in
which they are deployed. As a result, the time it may take us to
rectify errors can be critical to our customers. Because of the
complexity of our products, it may take a material amount of
time for us to resolve errors or defects, if we can resolve them
at all. The likelihood of such errors or defects is heightened
as we acquire new products from third parties, whether as a
result of acquisitions or otherwise.
If one of our products fails, and we are unable to fix the
errors or other performance problems expeditiously, or at all,
we could experience:
|
|
|
|
|
damage to our reputation, which may result in the loss of
existing or potential customers and market share;
|
|
|
|
payment of liquidated damages for performance failures;
|
|
|
|
loss of, or delay in, revenue recognition;
|
|
|
|
increased service, support, warranty, product replacement and
product liability insurance costs, as well as a diversion of
development resources; and
|
|
|
|
costly and time-consuming legal actions by our customers, which
could result in significant damages.
|
Any of the above events would likely have a material adverse
impact on our business, revenue, results of operations,
financial condition and reputation.
The quality of
our support and services offerings is important to our
customers, and if we fail to offer high quality support and
services, customers may not buy our products and our revenue may
decline.
Once our products are deployed within our customers
networks, our customers generally depend on our support
organization to resolve issues relating to those products. A
high level of support is critical for the successful marketing
and sale of our products. If we are unable to provide the
necessary level of support and service to our customers, we
could experience:
|
|
|
|
|
loss of customers and market share;
|
|
|
|
a failure to attract new customers, including in new geographic
regions;
|
|
|
|
increased service, support and warranty costs and a diversion of
development resources; and
|
|
|
|
network performance penalties, including liquidated damages for
periods of time that our customers networks are inoperable.
|
Any of the above results would likely have a material adverse
impact on our business, revenue, results of operations,
financial condition and reputation.
If we do not
introduce and sell new and enhanced products in a timely manner,
customers may not buy our products and our revenue may
decline.
The market for communications software and services is
characterized by rapid technological advances, frequent
introductions of new products, evolving industry standards and
recurring or unanticipated changes in customer requirements. To
succeed, we must effectively anticipate, and adapt in a timely
manner to, customer requirements and continue to develop or
acquire new products and features that meet market demands and
technology and architectural trends. This requires us to
15
identify and gain access to or develop new technologies. The
introduction of new or enhanced products also requires that we
carefully manage the transition from older products to minimize
disruption in customer ordering practices and ensure that new
products can be timely delivered to meet demand. We may also
require additional capital to achieve these objectives and we
may be unable to obtain adequate financing on terms satisfactory
to us, or at all, when we require it. As a result, our ability
to continue to support our business growth and to respond to
business challenges could be significantly limited. It is also
possible that we may allocate significant amounts of cash and
other development resources toward products or technologies for
which market demand is lower than anticipated and, as a result,
are abandoned. For example, we recently announced BroadCloud, a
cloud-based hosted infrastructure whereby we will deliver
applications via our cloud, and we cannot guarantee that
BroadCloud will be successful.
Developing our products is expensive, complex and involves
uncertainties. We may not have sufficient resources to
successfully manage lengthy product development cycles. In 2007,
2008, 2009 and the nine months ended September 30, 2010,
our research and development expenses were $12.8 million,
or 20.7% of our total revenue, $15.9 million, or 25.7% of
our total revenue, $16.6 million, or 24.1% of our total
revenue and $14.2 million, or 24% of our total revenue,
respectively. We believe we must continue to dedicate a
significant amount of resources to our research and development
efforts to remain competitive. These investments may take
several years to generate positive returns and they may never do
so. In addition, we may experience design, manufacturing,
marketing and other difficulties that could delay or prevent the
development, introduction or marketing of new products and
enhancements. If we fail to meet our development targets, demand
for our products will decline.
Furthermore, because our products are based on complex
technology, we can experience unanticipated delays in
developing, improving or deploying them. Each phase in the
development of our products presents serious risks of failure,
rework or delay, any one of which could impact the timing and
cost effective development of such product and could jeopardize
customer acceptance of the product. Intensive software testing
and validation are critical to the timely introduction of
enhancements to several of our products and schedule delays
sometimes occur in the final validation phase. Unexpected
intellectual property disputes, failure of critical design
elements and a variety of other execution risks may also delay
or even prevent the introduction of these products. In addition,
the introduction of new products by competitors, the emergence
of new industry standards or the development of entirely new
technologies to replace existing product offerings could render
our existing or future products obsolete. If our products become
technologically obsolete, customers may purchase solutions from
our competitors and we may be unable to sell our products in the
marketplace and generate revenue, which would likely have a
material adverse effect on our financial condition, results of
operations or cash flows.
We may have
difficulty managing our growth, which could limit our ability to
increase sales and adversely affect our business, operating
results and financial condition.
We have experienced significant growth in sales and operations
in recent years. We expect to continue to expand our research
and development, sales, marketing and support activities. Our
historical growth has placed, and planned further growth is
expected to continue to place, significant demands on our
management, as well as our financial and operational resources,
to:
|
|
|
|
|
manage a larger organization;
|
|
|
|
increase our sales and marketing efforts and add additional
sales and marketing personnel in various regions worldwide;
|
|
|
|
recruit, hire and train additional qualified staff;
|
|
|
|
control expenses;
|
|
|
|
manage operations in multiple global locations and time zones;
|
|
|
|
broaden our customer support capabilities;
|
16
|
|
|
|
|
integrate acquisitions, such as our acquisitions of the M6
application server product line from GENBAND, Sylantro Systems
Corporation, or Sylantro, Packet Island and Casabi, Inc., or
Casabi;
|
|
|
|
implement appropriate operational, administrative and financial
systems to support our growth; and
|
|
|
|
maintain effective financial disclosure controls and procedures.
|
If we fail to manage our growth effectively, we may not be able
to execute our business strategies and our business, financial
condition and results of operations would be adversely affected.
We depend
largely on the continued services of our co-founders, Michael
Tessler, our President and Chief Executive Officer, and Scott
Hoffpauir, our Chief Technology Officer, and the loss of either
of them may impair our ability to grow our
business.
The success of our business is largely dependent on the
continued services of our senior management and other highly
qualified technical and management personnel. In particular, we
depend to a considerable degree on the vision, skills,
experience and effort of our co-founders, Michael Tessler, our
President and Chief Executive Officer, and Scott Hoffpauir, our
Chief Technology Officer. Neither of these officers is bound by
a written employment agreement and either of them therefore may
terminate employment with us at any time with no advance notice.
The replacement of either of these two officers would likely
involve significant time and costs and the loss of either of
these officers would significantly delay or prevent the
achievement of our business objectives.
If we are
unable to retain or hire key personnel, our ability to develop,
market and sell products could be harmed.
We believe that there is, and will continue to be, intense
competition for highly skilled technical and other personnel
with experience in our industry in the Washington, D.C.
area, where our headquarters are located, and in other locations
where we maintain offices. We must provide competitive
compensation packages and a high-quality work environment to
hire, retain and motivate employees. If we are unable to retain
and motivate our existing employees and attract qualified
personnel to fill key positions, we may be unable to manage our
business effectively, including the development, marketing and
sale of existing and new products, which could have a material
adverse effect on our business, financial condition and
operating results. To the extent we hire personnel from
competitors, we may be subject to allegations that they have
been improperly solicited or divulged proprietary or other
confidential information.
Volatility in, or lack of performance of, our stock price may
also affect our ability to attract and retain key personnel. Our
executive officers are, or will soon be, vested in a substantial
amount of shares of common stock or stock options. Employees may
be more likely to terminate their employment with us if the
shares they own or the shares underlying their vested options
have significantly appreciated in value relative to the original
purchase prices of the shares or the exercise prices of the
options, or if the exercise prices of the options that they hold
are significantly above the market price of our common stock. If
we are unable to retain our employees, our business, operating
results and financial condition will be harmed.
Our exposure
to the credit risks of our customers may make it difficult to
collect accounts receivable and could adversely affect our
operating results and financial condition.
In the course of our sales to customers, we may encounter
difficulty collecting accounts receivable and could be exposed
to risks associated with uncollectible accounts receivable. The
recent challenging economic conditions may have impacted some of
our customers ability to pay their accounts payable. While
we attempt to monitor these situations carefully and attempt to
take appropriate measures to collect accounts receivable
balances, we have written down accounts receivable and written
off doubtful accounts in prior periods and may be unable to
avoid accounts
17
receivable write-downs or write-offs of doubtful accounts in the
future. Such write-downs or write-offs could negatively affect
our operating results for the period in which they occur and
could harm our operating results.
The worldwide
economic downturn may adversely affect our operating results and
financial condition.
Financial markets around the world have experienced extreme
disruption since 2008, which is reflected by extreme volatility
in securities prices, severely diminished liquidity and credit
availability, rating downgrades of certain investments and
declining valuations of others. While these conditions have not
impaired our ability to access credit markets and finance
operations to date, there can be no assurance that there will
not be a further deterioration in financial markets and
confidence in major economies that may present future
difficulties if we require access to these credit markets. These
economic developments affect businesses in a number of ways. The
current tightening of credit in financial markets adversely
affects the ability of our existing and potential customers and
suppliers to obtain financing for significant purchases and
operations and could result in a decrease in demand for our
products and services. Our customers ability to pay for
our solutions may also be impaired, which may lead to an
increase in our allowance for doubtful accounts and write-offs
of accounts receivable. Additionally, the adverse global
economic conditions could force one or more of our key customers
or distribution partners to cease operations altogether. Our
global business is also adversely affected by decreases in the
general level of economic activity, such as decreases in
business and consumer spending. We are unable to predict the
likely duration and severity of the current disruption in
financial markets and adverse economic conditions in the United
States and other countries. Should these economic conditions
result in our not meeting our revenue growth objectives, it may
have a material adverse effect on our financial condition,
results of operations, or cash flows.
During the
past three years we made four acquisitions, and we may undertake
additional strategic transactions to further expand our
business, which may pose risks to our business and dilute the
ownership of our stockholders.
As part of our growth strategy, during the past three years, we
made four acquisitions. In August 2008, we acquired M6 and in
December 2008, we acquired Sylantro. The M6 and Sylantro
acquisitions enabled us to acquire additional customers and
associated technology. In October 2009, we acquired Packet
Island, a software as a service, or SaaS, provider of
service-based quality of experience assessment and monitoring
tools for
IP-based
voice and video networks and services, which represents a
complementary product offering for us. Our acquisition of Casabi
in October 2010, a provider of cloud-based personalized content
and messaging applications, expands our SaaS offerings. Whether
we realize the anticipated benefits from these transactions will
depend in part upon our ability to service and satisfy new
customers gained as part of these acquisitions, the continued
integration of the acquired businesses, the performance of the
acquired products, the capacities of the technologies acquired
and the personnel hired in connection with these transactions.
Accordingly, our results of operations could be adversely
affected from transaction-related charges, amortization of
intangible assets and charges for impairment of long-term assets.
We have evaluated, and expect to continue to evaluate, other
potential strategic transactions. We may in the future acquire
businesses, products, technologies or services to expand our
product offerings, capabilities and customer base, enter new
markets or increase our market share. We cannot predict the
number, timing or size of future acquisitions, or the effect
that any such acquisitions might have on our operating results.
Because of our size, any of these transactions could be material
to our financial condition and results of operations. We have
limited experience with such transactions, and the anticipated
benefits of acquisitions may never materialize. Some of the
areas where we may face acquisition-related risks include:
|
|
|
|
|
diverting management time and potentially disrupting business;
|
18
|
|
|
|
|
expenses, distractions and potential claims resulting from
acquisitions, whether or not they are completed;
|
|
|
|
reducing our cash available for operations and other uses;
|
|
|
|
retaining and integrating employees from any businesses we
acquire;
|
|
|
|
the issuance of dilutive equity securities or the incurrence or
assumption of debt to finance the acquisition;
|
|
|
|
incurring possible impairment charges, contingent liabilities,
amortization expense or write-offs of goodwill;
|
|
|
|
integrating and supporting acquired businesses, products or
technologies;
|
|
|
|
integrating various accounting, management, information, human
resources and other systems to permit effective management;
|
|
|
|
unexpected capital expenditure requirements;
|
|
|
|
insufficient revenues to offset increased expenses associated
with the acquisitions;
|
|
|
|
opportunity costs associated with committing time and capital to
such acquisitions; and
|
|
|
|
acquisition-related litigation.
|
Foreign acquisitions would involve risks in addition to those
mentioned above, including those related to integration of
operations across different cultures and languages, currency
risks and the particular economic, political and regulatory
risks associated with specific countries. We may not be able to
address these risks successfully, or at all, without incurring
significant costs, delays or other operating problems that could
disrupt our business and have a material adverse effect on our
financial condition.
Our use of
open source software could impose limitations on our ability to
commercialize our products.
We incorporate open source software into our products. Although
we closely monitor our use of open source software, the terms of
many open source software licenses have not been interpreted by
U.S. courts, and there is a risk that such licenses could
be construed in a manner that could impose unanticipated
conditions or restrictions on our ability to sell our products.
In such event, we could be required to make our proprietary
software generally available to third parties, including
competitors, at no cost, to seek licenses from third parties to
continue offering our products, to re-engineer our products or
to discontinue the sale of our products in the event
re-engineering cannot be accomplished on a timely basis or at
all, any of which could adversely affect our revenues and
operating expenses.
If we fail to
maintain proper and effective internal controls, our ability to
produce accurate financial statements could be impaired, which
would adversely affect our operating results, our ability to
operate our business and our stock price.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place to produce accurate financial
statements is a costly and time-consuming effort that needs to
be re-evaluated frequently. As of the end of fiscal year 2006,
our auditor notified us of its opinion that there were material
weaknesses in our internal controls related to revenue
recognition. Specifically, it was determined that we had
recognized revenue from certain customer contracts that we
should have deferred, which led to our restatement of financial
statements for the years ended December 31, 2004 and 2005.
Although we have remediated this material weakness in internal
controls, we may in the future have additional material
weaknesses in our internal financial and accounting controls and
procedures.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting
19
and the preparation of financial statements for external
purposes in accordance with GAAP. Our management does not expect
that our internal control over financial reporting will prevent
or detect all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any,
within our company will have been detected.
We will be required, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley
Act, to furnish a report by management on, among other things,
the effectiveness of our internal control over financial
reporting for the year ending December 31, 2011. This
assessment will need to include disclosure of any material
weaknesses identified by our management in our internal control
over financial reporting, as well as a statement that our
auditors have issued an attestation report on our
managements assessment of our internal controls. We are
expending significant resources to develop the necessary
documentation and testing procedures required by
Section 404. We cannot be certain that the actions we are
taking to improve our internal controls over financial reporting
will be sufficient, or that we will be able to implement our
planned processes and procedures in a timely manner. In
addition, if we are unable to produce accurate financial
statements on a timely basis, investors could lose confidence in
the reliability of our financial statements, which could cause
the market price of our common stock to decline and make it more
difficult for us to finance our operations and growth.
We incur
significant costs as a result of being a public company, which
may adversely affect our operating results and financial
condition.
As a public company, we incur significant accounting, legal and
other expenses that we did not incur as a private company. We
also incur costs associated with corporate governance
requirements, including requirements under the Sarbanes-Oxley
Act, as well as rules implemented by the SEC and The NASDAQ
Stock Market. In addition, the recently passed Dodd-Frank Wall
Street Reform and Consumer Protection Act contains various
provisions applicable to the corporate governance functions of
public companies. These rules and regulations have increased our
legal and financial compliance costs and made some activities
more time-consuming and costly. In addition, we incur additional
costs associated with our public company reporting requirements
and we expect those costs to increase in the future. For
example, we will be required to devote significant resources to
complete the assessment and documentation of our internal
control system and financial process under Section 404 of
the Sarbanes-Oxley Act, including an assessment of the design of
our information systems. We will incur significant costs to
remediate any material weaknesses, we identify through these
efforts. We also expect these rules and regulations to make it
more expensive for us to maintain directors and
officers liability insurance and we may be required to
accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for us to attract and retain
qualified persons to serve on our board of directors, our board
committees or as executive officers. We cannot predict or
estimate the amount of additional costs we may incur or the
timing of such costs.
New laws and regulations, as well as changes to existing laws
and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street
Reform and Consumer Protection Act and rules adopted by the SEC
and The NASDAQ Stock Market, would likely result in increased
costs to us as we respond to their requirements, which may
adversely effect our operating results and financial condition.
Man-made
problems such as computer viruses or terrorism may disrupt our
operations and could adversely affect our operating results and
financial condition.
Despite our implementation of network security measures, our
servers are vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with our
computer
20
systems. Any such event could have a material adverse effect on
our business, operating results, and financial condition.
Efforts to limit the ability of third parties to disrupt the
operations of the Internet or undermine our own security efforts
may be ineffective. In addition, the continued threat of
terrorism and heightened security and military action in
response to this threat, or any future acts of terrorism, may
cause further disruptions to the economies of the United States
and other countries and create further uncertainties or
otherwise materially harm our business, operating results, and
financial condition. Likewise, events such as widespread
electrical blackouts could have similar negative impacts. To the
extent that such disruptions or uncertainties result in delays
or cancellations of customer orders or the manufacture or
shipment of our products, our business, operating results,
financial condition and reputation could be materially and
adversely affected.
Changes in
effective tax rates or adverse outcomes resulting from
examination of our income or other tax returns could adversely
affect our operating results and financial
condition.
Our future effective tax rates could be subject to volatility or
adversely affected by a number of factors, including:
|
|
|
|
|
earnings being lower than anticipated in countries where we have
lower statutory tax rates and higher than anticipated earnings
in countries where we have higher statutory tax rates;
|
|
|
|
changes in the valuation of our deferred tax assets and
liabilities;
|
|
|
|
expiration of, or lapses in, the research and development tax
credit laws;
|
|
|
|
expiration or non-utilization of net operating losses;
|
|
|
|
tax effects of stock-based compensation;
|
|
|
|
costs related to intercompany restructurings; or
|
|
|
|
changes in tax laws, regulations, accounting principles or
interpretations thereof.
|
In addition, we are subject to the continuous examination of our
income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse
outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes.
Outcomes from these continuous examinations could have a
material adverse effect on our financial condition, results of
operations or cash flows.
Risks Related to
the Telecommunications Industry
We face
intense competition in our markets, especially from larger,
better-known companies, and we may lack sufficient financial or
other resources to maintain or improve our competitive
position.
The worldwide markets for our products and services are highly
competitive and continually evolving and we expect competition
from both established and new companies to increase. Our primary
competitors include companies such as Alcatel-Lucent SA, Avaya
Inc., Cisco Systems, Inc., Ericsson, Huawei Technologies Co.,
Ltd., Metaswitch Networks, Nokia-Siemens Networks B.V., GENBAND
and Sonus Networks, Inc. Many of our existing and potential
competitors have substantially greater financial, technical,
marketing, intellectual property and distribution resources than
we have. Their resources may enable them to develop superior
products, or they could aggressively price, finance and bundle
their product offerings to attempt to gain market adoption or to
increase market share. In addition, our customers could also
begin using open source software, such as Asterisk, which is
incorporated in the products of Digium, Inc., as an alternative
to BroadWorks. If our competitors offer deep discounts on
certain products in an effort to gain market share or to sell
other products or services, or if a significant number of our
customers use open source software as an alternative to
BroadWorks, we may then need to lower the prices of our products
and services,
21
change our pricing models, or offer other favorable terms to
compete successfully, which would reduce our margins and
adversely affect our operating results.
In addition to price competition, increased competition may
result in other aggressive business tactics from our
competitors, such as:
|
|
|
|
|
emphasizing their own size and perceived stability against our
smaller size and narrower recognition;
|
|
|
|
providing customers one-stop shopping options for
the purchase of network equipment and application server
software;
|
|
|
|
offering customers financing assistance;
|
|
|
|
making early announcements of competing products and employing
extensive marketing efforts;
|
|
|
|
assisting customers with marketing and advertising directed at
their subscribers; and
|
|
|
|
asserting infringement of their intellectual property rights.
|
The tactics described above can be particularly effective in the
concentrated base of service provider customers to whom we offer
our products. Our inability to compete successfully in our
markets would harm our operating results and our ability to
achieve and maintain profitability.
Competitive
pressures in the telecommunications industry may increase and
impact our customers purchasing decisions, which could
reduce our revenue.
The economic downturn has contributed to a slowdown in
telecommunications industry spending, dramatic reductions in
capital expenditures, financial difficulties and, in some cases,
bankruptcies experienced by service providers. Our customers are
under increasing competitive pressure from companies within
their industry and other participants that offer, or seek to
offer, overlapping or similar services. These pressures are
likely to continue to cause our customers to seek to minimize
the costs of the software platforms that they purchase and may
cause static or reduced expenditures by our customers or
potential customers. These competitive pressures may also result
in pricing becoming a more important factor in the purchasing
decisions of our customers. Increased focus on pricing may favor
low-cost vendors and our larger competitors that can spread the
effect of price discounts across a broader offering of products
and services and across a larger customer base.
We expect the developments described above to continue to affect
our business by:
|
|
|
|
|
potentially making it difficult to accurately forecast revenue
and manage our business;
|
|
|
|
exposing us to potential unexpected declines in revenue; and
|
|
|
|
exposing us to potential losses because we expect that a high
percentage of our operating expenses will continue to be fixed
in the short-term.
|
Any one or a combination of the above effects could materially
and adversely affect our business, operating results and
financial condition.
Our business
depends upon the success of service providers who are vulnerable
to competition from free or low-cost providers of
IP-based
communications services.
We sell software licenses to service providers, who then seek to
persuade their customers to subscribe to
IP-based
communications services that run on our software. The number of
licenses a service provider purchases from us is based in large
part on the number of customers the service provider expects
will subscribe to its
IP-based
communications services. When the number of customers using the
service providers IP services running on our software
exceeds the number of licenses, the service provider must
purchase additional licenses from us. Accordingly, the growth of
our business depends upon the success of service providers in
attracting new subscribers to
IP-based
communications services.
22
Our dependence on service providers exposes us to a number of
risks, including the risk that service providers will not
succeed in growing and maintaining their IP subscriber base.
Among the reasons that service providers may not succeed in
growing or maintaining subscriptions to
IP-based
communications is the prevalence of alternative
IP-based
communications providers who offer services free or for low
cost. Current providers of free or low-cost
IP-based
communication include Skype, JaJah, Yahoo Messenger and
GoogleVoice.
If service providers do not succeed in growing and maintaining
their IP subscriber base for any reason, including failure to
effectively compete with competitors offering free or low-cost
services, then our business, financial condition and results of
operations would be harmed.
Consolidation
in the telecommunications industry will likely continue and
result in delays or reductions in capital expenditure plans and
increased competitive pricing pressures, which could reduce our
revenue.
The telecommunications industry has experienced significant
consolidation over the past several years. We expect this trend
to continue as companies attempt to strengthen or retain their
market positions in an evolving industry and as businesses are
acquired or are unable to continue operations. Consolidation
among our customers, distribution partners and technology
partners may cause delays or reductions in capital expenditure
plans and increased competitive pricing pressures as the number
of available customers and partners declines and their relative
purchasing power increases in relation to suppliers.
Additionally, the acquisition of one of our customers,
distribution partners or technology partners by a company that
uses or sells the products of one of our competitors could
result in our loss of the customer or partner if the acquiring
company elects to switch the acquired company to our
competitors products. Moreover, the consolidation in the
number of potential customers and distribution partners could
increase the risk of quarterly and annual fluctuations in our
revenue and operating results. Any of these factors could
adversely affect our business, financial condition and results
of operations.
Regulation of
IP-based
networks and commerce may increase, compliance with these
regulations may be time-consuming, difficult and costly and, if
we fail to comply, our sales might decrease.
In general, the telecommunications industry is highly regulated.
However, there is less regulation associated with access to, or
delivery of, services on
IP-based
networks. We could be adversely affected by regulation of
IP-based
networks and commerce in any country where we do business,
including the United States. Such regulations could include
matters such as using voice over IP protocols, encryption
technology and access charges for service providers. The
adoption of such regulations could prohibit entry into a target
market or force the withdrawal of such products in that
particular jurisdiction. As a result, overall demand for our
products could decrease and, at the same time, the cost of
selling our products could increase, either of which, or the
combination of both, could have a material adverse effect on our
business, operating results and financial condition.
In addition, the convergence of the public switched telephone
network, or PSTN, and
IP-based
networks could become subject to governmental regulation,
including the imposition of access fees or other tariffs, that
adversely affects the market for our products and services. User
uncertainty regarding future policies may also affect demand for
communications products such as ours. We may be required, or we
may otherwise deem it necessary or advisable, to alter our
products to address actual or anticipated changes in the
regulatory environment. Our inability to timely alter our
products or address any regulatory changes may have a material
adverse effect on our financial condition, results of operations
or cash flows.
23
Risks Related to
Our International Operations
We are exposed
to risks related to our international operations and failure to
manage these risks may adversely affect our operating results
and financial condition.
We market, license and service our products globally and have a
number of offices around the world. During the years ended
December 31, 2007, 2008 and 2009 and the nine months ended
September 30, 2010, 55%, 55%, 48% and 51% of our revenue,
respectively, was attributable to our international customers.
As of September 30, 2010, approximately 39% of our
employees were located abroad. We expect that our international
activities will be dynamic over the foreseeable future as we
continue to pursue opportunities in international markets.
Therefore, we are subject to risks associated with having
worldwide operations. These international operations will
require significant management attention and financial resources.
International operations are subject to inherent risks and our
future results could be adversely affected by a number of
factors, including:
|
|
|
|
|
requirements or preferences for domestic products, which could
reduce demand for our products;
|
|
|
|
differing technical standards, existing or future regulatory and
certification requirements and required product features and
functionality;
|
|
|
|
management communication and integration problems related to
entering new markets with different languages, cultures and
political systems;
|
|
|
|
greater difficulty in collecting accounts receivable and longer
collection periods;
|
|
|
|
difficulties and costs of staffing and managing foreign
operations;
|
|
|
|
the uncertainty of protection for intellectual property rights
in some countries;
|
|
|
|
potentially adverse tax consequences, including regulatory
requirements regarding our ability to repatriate profits to the
United States; and
|
|
|
|
political and economic instability and terrorism.
|
Additionally, our international operations expose us to risks of
fluctuations in foreign currency exchange rates. To date, the
significant majority of our international sales have been
denominated in U.S. dollars, although most of our expenses
associated with our international operations are denominated in
local currencies. As a result, a decline in the value of the
U.S. dollar relative to the value of these local currencies
could have a material adverse effect on the gross margins and
profitability of our international operations. Additionally, an
increase in the value of the U.S. dollar relative to the
value of these local currencies results in our products being
more expensive to potential customers and could have an adverse
impact on our pricing or our ability to sell our products
internationally. To date, we have not used risk management
techniques to hedge the risks associated with these
fluctuations. Even if we were to implement hedging strategies,
not every exposure can be hedged and, where hedges are put in
place based on expected foreign currency exchange exposure, they
are based on forecasts that may vary or that may later prove to
have been inaccurate. As a result, fluctuations in foreign
currency exchange rates or our failure to successfully hedge
against these fluctuations could have a material adverse effect
on our operating results and financial condition.
We rely
significantly on distribution partners to sell our products in
international markets, the loss of which could materially reduce
our revenue.
We sell our products to telecommunication service providers both
directly and, particularly in international markets, indirectly
through distribution partners such as telecommunications
equipment vendors, VARs and other distributors. We believe that
establishing and maintaining successful relationships with these
distribution partners is, and will continue to be, important to
our financial success. Recruiting and retaining qualified
distribution partners and training them in our technology
24
and product offerings requires significant time and resources.
To develop and expand our distribution channel, we must continue
to scale and improve our processes and procedures that support
our channel, including investment in systems and training.
In addition, existing and future distribution partners will only
partner with us if we are able to provide them with competitive
products on terms that are commercially reasonable to them. If
we fail to maintain the quality of our products or to update and
enhance them, existing and future distribution partners may
elect to partner with one or more of our competitors. In
addition, the terms of our arrangements with our distribution
partners must be commercially reasonable for both parties. If we
are unable to reach agreements that are beneficial to both
parties, then our distribution partner relationships will not
succeed.
The reduction in or loss of sales by these distribution partners
could materially reduce our revenue. For example, Ericsson
accounted for approximately 11% and 9% of our total revenue for
the year ended December 31, 2009 and the nine months ended
September 30, 2010, respectively. If we fail to maintain
relationships with our distribution partners, fail to develop
new relationships with other distribution partners in new
markets, fail to manage, train or incentivize existing
distribution partners effectively, fail to provide distribution
partners with competitive products on terms acceptable to them,
or if these partners are not successful in their sales efforts,
our revenue may decrease and our operating results could suffer.
We have no long-term contracts or minimum purchase commitments
with any VARs or telecommunications equipment vendors, and our
contracts with these distribution partners do not prohibit them
from offering products or services that compete with ours,
including products they currently offer or may develop in the
future and incorporate into their own systems. Some of our
competitors may have stronger relationships with our
distribution partners than we do and we have limited control, if
any, as to whether those partners implement our products, rather
than our competitors products, or whether they devote
resources to market and support our competitors products,
rather than our offerings. Our failure to establish and maintain
successful relationships with distribution partners could
materially adversely affect our business, operating results and
financial condition.
We are subject
to governmental export and import controls that could subject us
to liability or impair our ability to compete in international
markets.
Our products are subject to United States export controls and
may be exported outside the United States only with the required
level of export license or through an export license exception,
because certain of our products contain encryption technology.
In addition, various countries regulate the import of certain
encryption technology and have enacted laws that could limit our
ability to distribute certain of our products or could limit our
customers ability to implement these products in those
countries. Changes in our products or changes in export and
import regulations may create delays in the introduction of our
products in international markets, prevent our customers with
international operations from deploying our products throughout
their networks or, in some cases, prevent the export or import
of our products to certain countries altogether. Any change in
export or import laws and regulations, shifts in approach to the
enforcement or scope of existing laws and regulations, or change
in the countries, persons or technologies targeted by such
regulations, could result in decreased use of our products by,
or in our decreased ability to export or sell our products to,
existing or potential customers with international operations.
Any decreased use of our products or limitation on our ability
to export or sell our products would likely adversely affect our
business, operating results and financial condition.
25
We may not
successfully sell our products in certain geographic markets or
develop and manage new sales channels in accordance with our
business plan.
We expect to continue to sell our products in certain geographic
markets where we do not have significant current business and to
a broader customer base. To succeed in certain of these markets,
we believe we will need to develop and manage new sales channels
and distribution arrangements. Because we have limited
experience in developing and managing such channels, we may not
be successful in further penetrating certain geographic regions
or reaching a broader customer base. Failure to develop or
manage additional sales channels effectively would limit our
ability to succeed in these markets and could adversely affect
our ability to grow our customer base and revenue.
Risks Related to
this Offering and Ownership of Our Common Stock
Our stock
price may be volatile, and you may not be able to resell shares
of our common stock at or above the price you
paid.
Prior to our IPO, there was no public market for our common
stock and an active trading market may not be sustained. If an
active trading market for our stock is sustained, our stock
price nevertheless may be highly volatile and could be subject
to wide fluctuations in response to various factors, some of
which are beyond our control. These factors include those
discussed in this Risk Factors section and others
such as:
|
|
|
|
|
a slowdown in the telecommunications industry or the general
economy;
|
|
|
|
quarterly or annual variations in our results of operations or
those of our competitors;
|
|
|
|
changes in earnings estimates or recommendations by securities
analysts;
|
|
|
|
announcements by us or our competitors of new products or
services, significant contracts, commercial relationships,
capital commitments or acquisitions;
|
|
|
|
developments with respect to intellectual property rights;
|
|
|
|
our ability to develop and market new and enhanced products on a
timely basis;
|
|
|
|
our commencement of, or involvement in, litigation;
|
|
|
|
departure of key personnel; and
|
|
|
|
changes in governmental regulations.
|
In addition, in recent years, the stock markets generally, and
the market for technology stocks in particular, have experienced
extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of
those companies. Broad market and industry factors may seriously
affect the market price of our common stock, regardless of our
actual operating performance. In the past, class action
litigation has often been instituted against companies whose
securities have experienced periods of volatility in market
price. Securities litigation brought against us following
volatility in our stock price, regardless of the merit or
ultimate results of such litigation, could result in substantial
costs, which would hurt our financial condition and operating
results and divert managements attention and resources
from our business.
Securities
analysts may not publish favorable research or reports about our
business or may publish no information which could cause our
stock price or trading volume to decline.
The trading market for our common stock will be influenced by
the research and reports that industry or financial analysts
publish about us and our business. We do not control these
analysts. As a newly public company, we may be slow to attract
research coverage and the analysts who publish information about
our common stock will have had relatively little experience with
our company, which could affect their ability to accurately
forecast our results and make it more likely that we fail to
meet their estimates. In the event we obtain securities or
industry analyst coverage, if any of the analysts who cover us
issue an adverse opinion regarding our stock price, our stock
price would likely decline. If one or more of these analysts
cease coverage of our company or fail to regularly publish
reports
26
covering us, we could lose visibility in the market, which in
turn could cause our stock price or trading volume to decline.
Our executive
officers, directors, principal stockholders and their respective
affiliates could exert significant influence over matters
requiring stockholder approval, which may not be in your best
interests.
We anticipate that our executive officers, directors, principal
stockholders and their respective affiliates will beneficially
own or control an aggregate of approximately 26% of our
outstanding common stock after this offering. Accordingly, these
stockholders, if they were to act together, would have
substantial influence over the outcome of corporate actions
requiring stockholder approval, including the election of
directors and the approval of significant corporate transactions
and they may in some instances exercise this influence in a
manner that advances their best interests and not necessarily
those of other stockholders. This concentration of ownership may
have the effect of delaying, preventing or deterring a change in
control, could deprive you of the opportunity to receive a
premium for your common stock as part of a sale and could
adversely affect the market price of our common stock.
Our management
might apply the proceeds of this offering and the remaining net
proceeds from our initial public offering in ways that do not
increase the value of your investment.
We intend to use the proceeds of this offering and the remaining
net proceeds from our initial public offering for working
capital and general corporate purposes, including expanding our
development, operations, marketing and sales departments. We may
also use a portion of the proceeds for the future acquisition
of, or investment in, complementary businesses, products or
technologies. Our management has broad discretion as to the use
of these proceeds and you will be relying on the judgment of our
management regarding the application of these proceeds. We might
apply these proceeds in ways with which you do not agree, or in
ways that do not yield a favorable return. If our management
applies these proceeds in a manner that does not yield a
significant return, if any, on our investment of these net
proceeds, it would adversely affect the market price of our
common stock.
You will incur
immediate and substantial dilution in the book value of your
shares.
The assumed public offering price of our common stock is
substantially higher than the net tangible book value per share
of our common stock. Investors purchasing common stock in this
offering will pay a price per share that substantially exceeds
the book value of our tangible assets after subtracting our
liabilities. As a result, investors purchasing common stock in
this offering will incur immediate dilution of $23.61 per share,
based upon an assumed public offering price of $24.96 per
share which was the last reported sales price of our common
stock on the Nasdaq Global Market on December 10, 2010. If
the holders of outstanding options exercise those options, you
will suffer further dilution.
The market
price of our common stock could drop substantially if a
significant number of shares of our common stock are sold into
the market.
If our existing stockholders sell, or indicate an intent to
sell, a significant number of shares of our common stock in the
public market, the trading price of our common stock could
decline significantly and could decline below the price you paid
for your shares. Based on the number of shares outstanding as of
September 30, 2010, we expect to have outstanding
25,347,095 shares of common stock following the completion
of this offering, including 76,195 shares of common stock
issued upon the net exercise of a common stock warrant by one of
the selling stockholders after September 30, 2010, and
assuming no exercise of our outstanding options other than those
options being exercised by certain selling stockholders for the
purpose of selling shares in this offering. Of these shares,
12,773,508 shares of common stock (including the shares
sold in this offering) will be freely tradable, without
restriction, in the public market after this offering. An
additional 628,097 shares that are
27
presently subject to the
lock-up
relating to our initial public offering but are not being sold
in, or subject to
lock-up
agreements or obligations relating to, this offering will be
freely tradable, without restriction, on December 21, 2010
upon the expiration of the
lock-up
relating to our initial public offering. An additional
474,274 shares are held by employees that, pursuant to our
insider trading window policy, will be restricted from public
sale until the third business day after we publicly announce our
financial results for the fourth quarter of 2010, which we
expect to do in early March 2011. The remaining
11,471,216 shares will be eligible for sale in the public
market, subject to certain legal and contractual limitations,
following the expiration of the
90-day
lock-up
agreements or obligations pertaining to this offering.
As of September 30, 2010, we had outstanding options to
purchase 2,913,424 shares and unvested RSUs covering
294,771 shares under our equity incentive plans. Of these,
59,882 shares will be issued upon the exercise of options
being exercised by certain selling stockholders in connection
with this offering and being sold in this offering and an
additional 736,693 shares subject to outstanding options
and 6,819 shares issuable upon the vesting of outstanding
RSUs will be vested and eligible for sale in the public market
in accordance with our insider trading window policy, subject to
legal and contractual limitations, beginning on the third
business day after we publicly announce our financial results
for the fourth quarter of 2010, which we expect to do in early
March 2011). After the
lock-up
agreements pertaining to this offering expire and based on
options and RSUs outstanding as of September 30,
2010, and assuming no exercise of our outstanding options
other than those options exercised by certain selling
stockholders for the purpose of selling such shares in this
offering, an additional 1,370,820 shares subject to
outstanding options and 59,723 shares issuable upon the
vesting of outstanding RSUs will be vested and eligible for sale
in the public market. The remaining shares subject to
outstanding options and RSUs will be eligible for sale in the
public market from time to time following the vesting of these
awards. Finally, from time to time, the additional shares
reserved for future issuance under our equity incentive plans
will also become eligible for sale in the public market, subject
to the grant and vesting of these awards and certain other legal
and contractual limitations.
Additionally, Goldman, Sachs & Co. may, in its sole
discretion, permit our officers, directors, employees and
current stockholders to sell shares, including shares issuable
upon the exercise of vested options, prior to the expiration of
these
lock-up
agreements.
Additionally, after the completion of this offering, the holders
of an aggregate of approximately 11.1 million shares
of our common stock, or their transferees, as well as additional
shares that may be acquired by certain holders in the future,
have rights, subject to some conditions, to require us to file
one or more registration statements covering their shares or to
include their shares in registration statements that we may file
for ourselves or other stockholders. Once we register the
issuance of these shares, they can be freely sold in the public
market. If these additional shares are sold, or if it is
perceived that they will be sold, in the public market, the
trading price of our common stock could decline.
We do not
intend to pay dividends for the foreseeable future and our stock
may not appreciate in value.
We currently intend to retain our future earnings, if any, to
finance the operation and growth of our business and do not
expect to pay any cash dividends in the foreseeable future. As a
result, the success of an investment in shares of our common
stock will depend upon any future appreciation in its value.
There is no guarantee that shares of our common stock will
appreciate in value or that the price at which our stockholders
have purchased their shares will be able to be maintained.
Provisions in
our charter documents and under Delaware law could discourage
potential acquisition proposals, could delay, deter or prevent a
change in control and could limit the price certain investors
might be willing to pay for our common stock.
Our certificate of incorporation and bylaws include provisions
that may delay or prevent an acquisition of us or a change in
our management. These provisions include a classified board of
28
directors with three-year staggered terms, a prohibition on
actions by written consent of our stockholders and the ability
of our board of directors to issue preferred stock without
stockholder approval. In addition, because we are incorporated
in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which
prohibits stockholders owning in excess of 15% of our
outstanding voting stock from merging or combining with us in
certain circumstances. Although we believe these provisions
collectively provide for an opportunity to receive higher bids
by requiring potential acquirors to negotiate with our board of
directors, they would apply even if the offer may be considered
beneficial by some stockholders. In addition, these provisions
may frustrate or prevent attempts by our stockholders to replace
or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which
is responsible for appointing the members of our management.
These provisions could discourage potential acquisition
proposals or could delay, deter or prevent a change in control,
including transactions that may be in the best interests of our
stockholders. Additionally, these provisions could limit the
price certain investors might be willing to pay for our common
stock.
29
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, particularly in the sections titled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, contains forward-looking statements,
within the meaning of the Private Securities Litigation Reform
Act of 1995, that involve substantial risks and uncertainties.
All statements other than statements of historical facts
contained in this prospectus, including statements regarding our
future financial condition, business strategy and plans and
objectives of management for future operations, are
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
believe, will, may,
estimate, continue,
anticipate, intend, should,
plan, expect, predict,
could, potentially or the negative of
these terms or other similar expressions. We have based these
forward-looking statements largely on our current expectations
and projections about future events and financial trends that we
believe may affect our financial condition, results of
operations, business strategy and financial needs. These
forward-looking statements are subject to a number of risks,
uncertainties and assumptions described under the section titled
Risk Factors and elsewhere in this prospectus,
regarding, among other things:
|
|
|
|
|
our dependence on the success of BroadWorks;
|
|
|
|
our dependence on our service provider customers to sell
services using our applications;
|
|
|
|
claims that we infringe intellectual property rights of others;
|
|
|
|
our ability to protect our intellectual property;
|
|
|
|
intense competition;
|
|
|
|
any potential loss of or reductions in orders from certain
significant customers;
|
|
|
|
our ability to predict our revenue, operating results and gross
margin accurately;
|
|
|
|
the length and unpredictability of our sales cycles;
|
|
|
|
our ability to expand our product offerings;
|
|
|
|
our international operations;
|
|
|
|
our significant reliance on distribution partners in
international markets;
|
|
|
|
our ability to sell our products in certain markets;
|
|
|
|
our ability to manage our growth;
|
|
|
|
the attraction and retention of qualified employees and key
personnel;
|
|
|
|
the interoperability of our products with service provider
networks;
|
|
|
|
the quality of our products and services, including any
undetected errors or bugs in our software; and
|
|
|
|
our ability to maintain proper and effective internal controls.
|
These risks are not exhaustive. Other sections of this
prospectus may include additional factors that could adversely
impact our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we
assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in, or implied
by, any forward-looking statements.
You should not rely upon forward-looking statements as
predictions of future events. We cannot assure you that the
events and circumstances reflected in the forward-looking
statements will be achieved or occur. Although we believe that
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of
activity, performance or
30
achievements. Except as required by law, we undertake no
obligation to update publicly any forward-looking statements for
any reason after the date of this prospectus to conform these
statements to actual results or to changes in our expectations.
You should read this prospectus and the documents that we
reference in this prospectus and have filed as exhibits to the
registration statement on
Form S-1,
of which this prospectus is a part, that we have filed with the
SEC with the understanding that our actual future results,
levels of activity, performance and achievements may be
materially different from what we expect. We qualify all of our
forward-looking statements by these cautionary statements.
INDUSTRY AND
MARKET DATA
This prospectus also contains market and industry data that we
have obtained from analysis and reports of third parties.
Although we believe that the analysis and reports are reliable,
we have not independently verified the accuracy of this
information.
31
USE OF
PROCEEDS
We estimate that the net proceeds we will receive from this
offering will be approximately $11.8 million, based on an
assumed public offering price of $24.96 per share (the last
reported sales price of our common stock on the Nasdaq Global
Market on December 10, 2010), after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us. We will not receive any of the proceeds
from the sale of shares by the selling stockholders, although we
will bear the costs, other than underwriting discounts and
commissions, associated with those sales. However, we will
receive proceeds from the exercise of options being exercised by
certain of the selling stockholders in connection with this
offering.
We intend to use the net proceeds from this offering, and any
proceeds we receive from the exercise of stock options by the
selling stockholders in connection with this offering, for
working capital and other general corporate purposes, including
expanding our development, operations, marketing and sales
departments. We may also use a portion of the proceeds for the
future acquisition of, or investment in, complementary
businesses, products or technologies. However, we do not have
agreements or commitments for any specific acquisitions at this
time and we have not allocated specific amounts of net proceeds
for any of these purposes.
Our management will have broad discretion in the application of
the net proceeds and investors will be relying on the judgment
of our management regarding the application of the net proceeds
of this offering. Pending these uses, we plan to invest these
net proceeds in short-term, interest bearing obligations,
investment grade instruments, certificates of deposit or direct
or guaranteed obligations of the United States. The goal with
respect to the investment of these net proceeds is capital
preservation and liquidity so that such funds are readily
available to fund our operations.
PRICE RANGE OF
COMMON STOCK
Our common stock commenced trading on the Nasdaq Global Market
under the symbol BSFT on June 16, 2010. The
following table sets forth, for the periods indicated, the high
and low reported sales prices of our common stock as reported on
the Nasdaq Global Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
2010
|
|
|
|
|
|
|
|
|
Second quarter (from June 16, 2010)
|
|
$
|
9.00
|
|
|
$
|
7.83
|
|
Third quarter
|
|
$
|
10.42
|
|
|
$
|
7.34
|
|
Fourth quarter (through December 10, 2010)
|
|
$
|
25.93
|
|
|
$
|
8.70
|
|
As of December 10, 2010, there were 254 holders of record
of our common stock. The last reported sale price of the common
stock on December 10, 2010 was $24.96 per share.
DIVIDEND
POLICY
We have never declared or paid dividends on our capital stock.
We currently intend to retain all available funds and any future
earnings to support operations and to finance the growth and
development of our business. We do not intend to declare or pay
cash dividends on our common stock in the foreseeable future.
Any future determination to pay dividends will be made at the
discretion of our board of directors subject to applicable laws,
and will depend upon, among other factors, our results of
operations, financial condition, contractual restrictions and
capital requirements.
32
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
restricted cash and our capitalization as of September 30,
2010 on:
|
|
|
|
|
an as adjusted basis to give effect to the sale by us of shares
of common stock in this offering at an assumed public offering
price of $24.96 per share (the last reported sales price of our
common stock on the Nasdaq Global Market on December 10,
2010), and our receipt of the estimated net proceeds from that
sale after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
|
You should read this table together with the sections of this
prospectus entitled Selected Consolidated Financial
Data, Description of Capital Stock and
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and
|
|
|
|
per share data)
|
|
|
Cash and cash equivalents
|
|
$
|
49,488
|
|
|
$
|
61,314
|
|
Restricted cash
|
|
|
1,057
|
|
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,545
|
|
|
$
|
62,371
|
|
|
|
|
|
|
|
|
|
|
Notes payable and bank loans (including current portion)
|
|
$
|
2,373
|
|
|
$
|
2,373
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000,000 shares
authorized and no shares issued or outstanding, actual and as
adjusted
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 100,000,000 shares
authorized and 24,695,952 shares issued and outstanding,
actual; 100,000,000 shares authorized and
25,195,952 shares issued and outstanding, as adjusted
|
|
|
247
|
|
|
|
252
|
|
Additional paid-in capital
|
|
|
131,419
|
|
|
|
143,240
|
|
Accumulated other comprehensive loss
|
|
|
(1,712
|
)
|
|
|
(1,712
|
)
|
Accumulated deficit
|
|
|
(99,673
|
)
|
|
|
(99,673
|
)
|
|
|
|
|
|
|
|
|
|
Total BroadSoft, Inc. stockholders equity
|
|
|
30,281
|
|
|
|
42,107
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
32,654
|
|
|
$
|
44,480
|
|
|
|
|
|
|
|
|
|
|
The table above excludes, as of September 30, 2010, the
following shares:
|
|
|
|
|
an aggregate of 15,066 shares issued pursuant to a
restricted stock grant and early exercise of stock options that
are subject to repurchase;
|
|
|
|
|
|
1,984,892 shares of our common stock issuable upon the
exercise of options outstanding under our 1999 Stock Incentive
Plan and our 2009 Plan at a weighted average exercise price of
$2.23 per share (including an aggregate of 59,882 shares of
common stock that will be issued upon the exercise of stock
options with a weighted average exercise price of $2.08 per
share by certain selling stockholders in connection with this
offering);
|
|
|
|
|
|
294,771 shares of our common stock issuable upon the
vesting of RSUs outstanding under our 2009 Plan that will vest
at various dates following the completion of this offering;
|
33
|
|
|
|
|
116,551 shares of our common stock issuable upon the
exercise of an outstanding common stock warrant at an exercise
price of $8.58 per share (this warrant was net exercised for a
total of 76,195 shares of common stock subsequent to
September 30, 2010);
|
|
|
|
|
|
239,395 additional shares of our common stock reserved for
future grants under our 2009 Plan; and
|
|
|
|
additional shares that may be reserved for future issuance under
our amended and restated 2009 Plan as a result of automatic
annual increases in the share reserve beginning January 1,
2011.
|
34
DILUTION
Dilution is the amount by which the offering price paid by the
purchasers of the shares of common stock sold in the offering
exceeds the net tangible book value per share of common stock
after the offering. Net tangible book value per share is
determined at any date by subtracting our total liabilities from
the total book value of our tangible assets and dividing the
difference by the number of shares of common stock deemed to be
outstanding at that date.
Our net tangible book value as of September 30, 2010 was
$22.2 million, or $0.90 per share. After giving effect to
the receipt of approximately $11.8 million of estimated net
proceeds from our sale of shares of common stock in this
offering at an assumed public offering price of $24.96 per share
(the last reported sales price of our common stock on the Nasdaq
Global Market on December 10, 2010), our as adjusted net
tangible book value as of September 30, 2010 would have
been $34.0 million, or $1.35 per share. This represents an
immediate increase in net tangible book value of $0.45 per share
to existing stockholders and an immediate dilution of $23.61 per
share to new investors purchasing shares of common stock in the
offering. The following table illustrates this substantial and
immediate per share dilution to new investors.
|
|
|
|
|
|
|
|
|
Public offering price per share
|
|
|
|
|
|
$
|
24.96
|
|
Net tangible book value per share at September 30, 2010
|
|
|
0.90
|
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share after giving
effect to this offering
|
|
|
|
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book value per share to new investors
|
|
|
|
|
|
$
|
23.61
|
|
|
|
|
|
|
|
|
|
|
35
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial
data together with Managements Discussion and
Analysis of Financial Condition and Results of Operations,
our consolidated financial statements and the related notes
included in this prospectus.
The selected consolidated financial data as of
September 30, 2010 and for the nine months ended
September 30, 2009 and 2010 are derived from our unaudited
condensed consolidated financial statements included in this
prospectus. The selected consolidated financial data as of
December 31, 2008 and 2009 and for the years ended
December 31, 2007, 2008 and 2009 are derived from our
audited consolidated financial statements included in this
prospectus. The selected consolidated financial data as of
December 31, 2005, 2006 and 2007 and for the years ended
December 31, 2005 and 2006 are derived from our audited
consolidated financial statements that are not included in this
prospectus. Our results of operations are not necessarily
indicative of results of operations that should be expected in
any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
21,544
|
|
|
$
|
28,280
|
|
|
$
|
46,328
|
|
|
$
|
40,121
|
|
|
$
|
37,942
|
|
|
$
|
27,237
|
|
|
$
|
32,215
|
|
Maintenance and professional services
|
|
|
4,876
|
|
|
|
8,559
|
|
|
|
15,272
|
|
|
|
21,708
|
|
|
|
30,945
|
|
|
|
22,349
|
|
|
|
27,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
26,420
|
|
|
|
36,839
|
|
|
|
61,600
|
|
|
|
61,829
|
|
|
|
68,887
|
|
|
|
49,586
|
|
|
|
59,848
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
|
3,720
|
|
|
|
5,012
|
|
|
|
4,899
|
|
|
|
4,404
|
|
|
|
4,432
|
|
|
|
3,279
|
|
|
|
3,616
|
|
Maintenance and professional services (1)
|
|
|
1,885
|
|
|
|
3,471
|
|
|
|
7,270
|
|
|
|
8,649
|
|
|
|
12,142
|
|
|
|
9,558
|
|
|
|
10,556
|
|
Amortization of intangibles
|
|
|
133
|
|
|
|
400
|
|
|
|
400
|
|
|
|
414
|
|
|
|
800
|
|
|
|
629
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
5,738
|
|
|
|
8,883
|
|
|
|
12,569
|
|
|
|
13,467
|
|
|
|
17,374
|
|
|
|
13,466
|
|
|
|
14,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,682
|
|
|
|
27,956
|
|
|
|
49,031
|
|
|
|
48,362
|
|
|
|
51,513
|
|
|
|
36,120
|
|
|
|
45,105
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1)
|
|
|
12,105
|
|
|
|
19,234
|
|
|
|
26,431
|
|
|
|
30,774
|
|
|
|
28,534
|
|
|
|
21,628
|
|
|
|
22,601
|
|
Research and development (1)
|
|
|
7,976
|
|
|
|
11,568
|
|
|
|
12,763
|
|
|
|
15,876
|
|
|
|
16,625
|
|
|
|
12,147
|
|
|
|
14,230
|
|
General and administrative (1)
|
|
|
3,092
|
|
|
|
5,849
|
|
|
|
10,295
|
|
|
|
12,074
|
|
|
|
11,405
|
|
|
|
8,561
|
|
|
|
10,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
23,173
|
|
|
|
36,651
|
|
|
|
49,489
|
|
|
|
58,724
|
|
|
|
56,564
|
|
|
|
42,336
|
|
|
|
47,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,491
|
)
|
|
|
(8,695
|
)
|
|
|
(458
|
)
|
|
|
(10,362
|
)
|
|
|
(5,051
|
)
|
|
|
(6,216
|
)
|
|
|
(1,962
|
)
|
Other expense (income), net
|
|
|
25
|
|
|
|
(204
|
)
|
|
|
279
|
|
|
|
(78
|
)
|
|
|
1,469
|
|
|
|
1,010
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,516
|
)
|
|
|
(8,491
|
)
|
|
|
(737
|
)
|
|
|
(10,284
|
)
|
|
|
(6,520
|
)
|
|
|
(7,226
|
)
|
|
|
(2,836
|
)
|
Provision for income taxes
|
|
|
354
|
|
|
|
515
|
|
|
|
1,021
|
|
|
|
952
|
|
|
|
1,333
|
|
|
|
1,000
|
|
|
|
363
|
|
Net loss
|
|
|
(2,870
|
)
|
|
|
(9,006
|
)
|
|
|
(1,758
|
)
|
|
|
(11,236
|
)
|
|
|
(7,853
|
)
|
|
|
(8,226
|
)
|
|
|
(3,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
(125
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(2,870
|
)
|
|
$
|
(8,881
|
)
|
|
$
|
(1,683
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,849
|
)
|
|
$
|
(8,223
|
)
|
|
$
|
(3,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share available to BroadSoft, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.54
|
)
|
|
$
|
(1.60
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(0.24
|
)
|
Shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
5,341
|
|
|
|
5,543
|
|
|
|
6,067
|
|
|
|
6,208
|
|
|
|
6,285
|
|
|
|
6,279
|
|
|
|
13,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
45
|
|
|
$
|
194
|
|
|
$
|
163
|
|
|
$
|
182
|
|
|
$
|
325
|
|
|
$
|
283
|
|
|
$
|
155
|
|
Sales and marketing
|
|
|
7
|
|
|
|
463
|
|
|
|
628
|
|
|
|
856
|
|
|
|
1,088
|
|
|
|
926
|
|
|
|
604
|
|
Research and development
|
|
|
|
|
|
|
258
|
|
|
|
255
|
|
|
|
456
|
|
|
|
741
|
|
|
|
665
|
|
|
|
463
|
|
General and administrative
|
|
|
27
|
|
|
|
398
|
|
|
|
622
|
|
|
|
1,422
|
|
|
|
1,475
|
|
|
|
1,324
|
|
|
|
984
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,664
|
|
|
$
|
6,554
|
|
|
$
|
10,717
|
|
|
$
|
14,353
|
|
|
$
|
22,869
|
|
|
$
|
20,901
|
|
|
$
|
49,488
|
|
Working capital
|
|
|
(1,608
|
)
|
|
|
(7,326
|
)
|
|
|
3,200
|
|
|
|
5,918
|
|
|
|
2,924
|
|
|
|
3,568
|
|
|
|
20,808
|
|
Total assets
|
|
|
16,963
|
|
|
|
28,579
|
|
|
|
33,167
|
|
|
|
55,808
|
|
|
|
66,663
|
|
|
|
57,708
|
|
|
|
99,580
|
|
Redeemable preferred stock
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
54,566
|
|
|
|
54,566
|
|
|
|
64,866
|
|
|
|
67,366
|
|
|
|
68,866
|
|
|
|
67,366
|
|
|
|
|
|
Notes payable and bank loans, less current portion
|
|
|
|
|
|
|
2,412
|
|
|
|
|
|
|
|
18,838
|
|
|
|
14,035
|
|
|
|
17,642
|
|
|
|
1,194
|
|
Total liabilities
|
|
|
15,976
|
|
|
|
33,905
|
|
|
|
28,063
|
|
|
|
56,846
|
|
|
|
71,277
|
|
|
|
64,372
|
|
|
|
69,299
|
|
Total stockholders (deficit) equity
|
|
|
(57,899
|
)
|
|
|
(64,212
|
)
|
|
|
(64,082
|
)
|
|
|
(72,724
|
)
|
|
|
(77,800
|
)
|
|
|
(78,350
|
)
|
|
|
30,281
|
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with the
Selected Consolidated Financial Data section of this
prospectus and our consolidated financial statements and related
notes appearing elsewhere in this prospectus. Our audited
consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States, or GAAP. This discussion contains forward-looking
statements that involve risks and uncertainties. As a result of
many factors, such as those set forth under the Risk
Factors and Special Note Regarding Forward-Looking
Statements sections and elsewhere in this prospectus, our
actual results may differ materially from those anticipated in
these forward-looking statements.
Overview
We are the leading global provider of software that enables
fixed-line, mobile and cable service providers to deliver voice
and multimedia services over their IP-based networks. Our
software enables our service provider customers to provide
enterprises and consumers with a range of cloud-based, or
hosted, IP multimedia communications, such as hosted PBXs, video
calling, UC, collaboration and converged mobile and fixed-line
services. Over 425 service providers, located in more than 65
countries, including 15 of the top 25 telecommunications service
providers globally, have purchased our software. We sell our
software, maintenance and professional services through our
direct sales force and indirectly through approximately 53
distribution partners, including some of the largest
telecommunications equipment vendors in the world.
We were founded in November 1998 and we began generating revenue
in 2001. From inception to June 2010, we raised
approximately $70.9 million in cash proceeds through the
issuance of preferred stock. In June 2010, we completed the
initial public offering, or IPO, of our common stock in which we
issued and sold 5,048,131 shares of common stock at a
public offering price of $9.00 per share. We raised a total of
$45.5 million in gross proceeds from the IPO, or
$40.0 million in net proceeds after deducting underwriting
discounts and commissions of $3.2 million and other
estimated offering costs of $2.3 million. Upon the closing
of the IPO, all shares of our then-outstanding redeemable
convertible preferred stock automatically converted into an
aggregate of 12,962,405 shares of common stock. In
connection with the closing, we used $4.3 million of the
net proceeds from the IPO to redeem and subsequently cancel all
outstanding shares of our Series A redeemable preferred
stock. After the closing of the IPO, we used approximately
$14.3 million of the net proceeds from the IPO to repay the
outstanding balance under our credit facility with ORIX Venture
Finance LLC, or ORIX, which we refer to as the ORIX Loan.
With the funds raised from these offerings, we have invested
significantly in research and development activities. In
addition, we have acquired five businesses, which have provided
us with additional customers and contributed to our revenue
growth. A substantial majority of our revenue is generated from
sales of licenses of BroadWorks and related maintenance and
professional services. We increased our revenue from
$1.4 million in 2001 to $68.9 million in 2009.
Our Business
Model
We sell our software and services to telecommunications service
providers through our direct sales force and distribution
partners. Our distribution partners include telecommunications
equipment vendors and VARs. Typically, we sell software licenses
with maintenance, support and upgrades and we invoice for
licenses upon delivery. While we generally recognize license
revenue upon delivery, we defer revenue if any of the applicable
revenue recognition criteria have not been satisfied. We
recognize revenue for maintenance contracts ratably over the
service period, which is typically 12 months. As a result,
the revenue deferral of software orders that do not meet revenue
recognition criteria and the sale of maintenance contracts
increases our deferred revenue balance. Such increases in
deferred revenue contributed significantly to our positive cash
flows from operating activities in 2009. As discussed below, we
view deferred revenue and cash flows from operating
38
activities as key financial metrics. During the year ended
December 31, 2009, our total deferred revenue balance
increased by $18.9 million to $40.0 million and our
cash provided by operating activities was $10.4 million.
We are a global, geographically diversified business. Since
2007, more than 40% of our total revenue in each year has been
generated outside of the Americas region, which consists of
North, South and Central America. In 2009, 59% of our total
revenue was generated from the Americas (primarily from the
United States), 26% of our total revenue was generated from the
Europe, Middle East and Africa region, or EMEA, and 15% was
generated from the Asia Pacific region, or APAC. We generally
denominate our sales globally in U.S. dollars, while our
international expenses are typically denominated in local
currencies.
Key Operating and
Financial Performance Metrics
We monitor the key operating and financial performance metrics
set forth below to help us evaluate growth trends, establish
budgets, measure the effectiveness of our sales and marketing
efforts and assess operational efficiencies. We discuss revenue,
gross profit and gross margin below under
Components of Operating Results and we
discuss our cash and cash equivalents under
Liquidity and Capital Resources.
Deferred revenue and cash flows from operating activities are
discussed immediately following the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
As of and for the
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
10,717
|
|
|
$
|
14,353
|
|
|
$
|
22,869
|
|
|
$
|
20,901
|
|
|
$
|
49,488
|
|
Total deferred revenue (1)
|
|
|
14,687
|
|
|
|
21,179
|
|
|
|
40,047
|
|
|
|
31,089
|
|
|
|
54,298
|
|
(Decrease) increase in deferred revenue (2)
|
|
|
(7,518
|
)
|
|
|
6,492
|
|
|
|
18,868
|
|
|
|
9,911
|
|
|
|
14,251
|
|
Revenue (2)
|
|
|
61,600
|
|
|
|
61,829
|
|
|
|
68,887
|
|
|
|
49,586
|
|
|
|
59,848
|
|
Gross profit
|
|
|
49,031
|
|
|
|
48,362
|
|
|
|
51,513
|
|
|
|
36,120
|
|
|
|
45,105
|
|
Gross margin
|
|
|
80
|
%
|
|
|
78
|
%
|
|
|
75
|
%
|
|
|
73
|
%
|
|
|
75
|
%
|
Cash (used in) provided by operating activities
|
|
|
(3,679
|
)
|
|
|
(5,011
|
)
|
|
|
10,427
|
|
|
|
9,487
|
|
|
|
10,392
|
|
|
|
|
(1) |
|
Consists of current and non-current deferred revenue. |
|
(2) |
|
For 2008, includes the impact of the acquisitions of M6 and
Sylantro. |
Deferred Revenue. Our deferred revenue
consists of the net aggregate amounts that have been invoiced
but that have not yet been recognized as revenue. The majority
of our deferred revenue balance consists of software license
orders that do not meet all the criteria for revenue recognition
and the undelivered portion of maintenance. We monitor our
deferred revenue balance because it represents a significant
portion of revenue to be recognized in future periods. For a
discussion of our revenue recognition policies, see
Critical Accounting Policies and Significant
Judgments and Estimates Revenue Recognition.
(Decrease) Increase in Deferred Revenue. The
increase (decrease) in deferred revenue illustrates how the
balance in deferred revenue has changed over a period of time.
We monitor the increase or decrease in our deferred revenue
balance plus revenue we recognized in a particular period as a
measure of our sales activity for that period. In addition, an
increase in deferred revenue is a key component of cash flows
from operating activities.
Cash Flows from Operating Activities. We
monitor cash flows from operating activities as an additional
measure of our overall business performance, which enables us to
analyze our financial
39
performance without the effects of certain non-cash items such
as depreciation, amortization and stock-based compensation
expenses. Additionally, cash flows from operating activities
takes into account the impact of changes in deferred revenue,
which reflects the receipt of cash payment for software and
services before they are recognized as revenue. As a result, our
cash flows from operating activities are significantly impacted
by changes in deferred revenue.
Components of
Operating Results
Revenue
We derive our revenue from the sale of licenses, maintenance and
professional services. We recognize revenue when all revenue
recognition criteria have been met in accordance with software
revenue recognition guidance. This guidance provides that
revenue should be recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or
determinable and collection is probable.
Our total revenue consists of the following:
|
|
|
|
|
Licenses. We derive license revenue from the
sale of perpetual software licenses. We price our software based
on the types of features and applications provided and on the
number of subscriber licenses sold. These factors impact the
average selling price of our licenses and the comparability of
average selling prices. Our license revenue may vary
significantly from quarter to quarter or from year to year as a
result of long sales and deployment cycles, variations in
customer ordering practices and the application of
managements judgment in applying complex revenue
recognition rules. Since 2007, our recognized license revenue
has sequentially declined year over year. For the years ended
December 31, 2007, 2008 and 2009, our total license revenue
was $46.3 million, $40.1 million and
$37.9 million, respectively. Notwithstanding the general
decline in recognized license revenue over these periods, we do
not believe these declines are the only meaningful measure of
our level of sales activity during these periods because of the
impact of software license orders for these periods that were
not yet recognized as revenue and therefore were recorded as
deferred license revenue. See Key Operating
and Financial Performance Metrics
(Decrease)/Increase in Deferred Revenue. Our deferred
license revenue balance consists of software orders that do not
meet all the criteria for revenue recognition. We are unable to
predict the proportion of orders that will meet all the criteria
for revenue recognition relative to those orders that will not
meet all such criteria and, as a result, we can not forecast
whether these historical trends in recognized license revenue,
and corresponding increases in deferred license revenue, will
continue.
|
|
|
|
Maintenance and professional services. We
sell annual maintenance contracts with our software licenses.
These contracts provide for software updates, upgrades and
technical support. Our typical warranty on licensed software is
90 days and, during this period, our customers are entitled
to receive maintenance and support without the purchase of a
maintenance contract. After the expiration of the warranty
period, our customers must purchase an annual maintenance
contract to continue receiving ongoing software maintenance and
customer support. We also sell professional services, which
consist of implementation, training and consulting services.
|
Cost of
Revenue
Our total cost of revenue consists of the following:
|
|
|
|
|
Cost of license revenue. A substantial
majority of the cost of license revenue consists of royalties
paid to third parties whose technology or products are sold as
part of BroadWorks and, to a lesser extent, amortization of
acquired technology. Most of these royalty payments are for the
underlying embedded data base technology within BroadWorks for
which we currently pay a fixed fee per quarter. Such costs are
expensed in the period in which they are incurred.
|
40
|
|
|
|
|
Cost of maintenance and professional services
revenue. Cost of maintenance and professional
services revenue consists primarily of personnel-related
expenses and other direct costs associated with the support,
maintenance and implementation of our software licenses, as well
as training and consulting services. Personnel expenses include
salaries, commissions, benefits, bonuses, reimbursement of
expenses and stock-based compensation. Such costs are expensed
in the period in which they are incurred.
|
Gross
Profit
Gross profit is the calculation of total revenue minus cost of
revenue. Our gross profit as a percentage of revenue, or gross
margin, has been and will continue to be affected by a variety
of factors, including:
|
|
|
|
|
Mix of license, maintenance and professional services
revenue. We generate higher gross margins on
license revenue compared to maintenance and professional
services revenue.
|
|
|
|
Growth or decline of license revenue. A
substantial portion of cost of license revenue is fixed and is
expensed in the period in which it occurs. This cost consists
primarily of the royalty payments to our embedded database
provider. If license revenue increases, these fixed payments
will decline as a percentage of revenue. If license revenue
declines, these fixed payments will increase as a percentage of
revenue.
|
|
|
|
Impact of deferred revenue. If revenue is
deferred because we are unable to determine vendor-specific
objective evidence, or VSOE, of fair value for any undelivered
element within an arrangement, all of the revenue derived from
the arrangement is deferred, including license, maintenance and
professional services revenue, until all elements for which we
could not determine VSOE have been delivered. However, the cost
of revenue, including the costs of license, maintenance and
professional services, is expensed in the period in which it is
incurred. Therefore, if relatively more revenue is deferred in a
particular period, gross margin would decline in that period.
Due in part to the significant growth in deferred revenue from
2007 to 2009, our gross margin declined from 80% to 78% to 75%,
for the years ended December 31, 2007, 2008 and 2009,
respectively. Because the ability to recognize revenue on sales
depends largely on the terms of the sale arrangement, and
because we are not able to predict the proportion of orders that
will not meet all the criteria for revenue recognition, we
cannot forecast whether these historical trends in gross margin
will continue.
|
Operating
Expenses
Operating expenses consist of sales and marketing, research and
development and general and administrative expenses. Salaries
and personnel costs are the most significant component of each
of these expense categories. We grew from 260 employees at
December 31, 2007 to 358 employees at
September 30, 2010 and we expect to continue to hire new
employees to support our anticipated growth.
Sales and marketing expenses. Sales and
marketing expenses consist primarily of salaries and personnel
costs for our sales and marketing employees, including
stock-based compensation, commissions and bonuses. Additional
expenses include marketing programs, consulting, travel and
other related overhead. We expect our sales and marketing
expenses to increase in the foreseeable future as we further
increase the number of our sales and marketing professionals and
expand our marketing activities. Through leveraging our sales
and marketing personnel and our indirect sales channel, we
expect sales and marketing expenses will decrease as a
percentage of total revenue as sales grow.
Research and development expenses. Research
and development expenses primarily consist of salaries and
personnel costs for development employees, including stock-based
compensation and bonuses. Additional expenses include costs
related to development, quality assurance and testing of new
software and enhancement of existing software, consulting,
travel and other related overhead.
41
We engage third-party international and domestic consulting
firms for various research and development efforts, such as
software development, documentation, quality assurance and
software support. We intend to continue to invest in our
research and development efforts, including by hiring additional
development personnel and by using outside consulting firms for
various research and development efforts. We believe continuing
to invest in research and development efforts is essential to
maintaining our competitive position. We expect research and
development expenses to increase in the foreseeable future but
to decrease as a percentage of total revenue as sales grow.
General and administrative expenses. General
and administrative expenses primarily consist of salary and
personnel costs for administration, finance and accounting,
legal, information systems and human resources employees,
including stock-based compensation and bonuses. Additional
expenses include consulting and professional fees, travel,
insurance and other corporate expenses.
Stock-Based
Compensation
We include stock-based compensation as part of cost of revenue
and operating expenses in connection with the grant or
modification of stock options and other equity awards to our
directors, employees and consultants. We apply the fair value
method in accordance with authoritative guidance for determining
the cost of stock-based compensation. The total cost of the
grant or modification is measured based on the estimated fair
value of the award at the date of grant. The fair value is then
recognized as stock-based compensation expense over the
requisite service period, which is the vesting period, of the
award. We recorded stock-based compensation expense of
$1.7 million, $2.9 million, $3.6 million and
$2.2 million for the years ended December 31, 2007,
2008 and 2009 and the nine months ended September 30, 2010,
respectively.
Of the stock-based compensation expense recorded for the nine
months ended September 30, 2010, $0.4 million related
to the vesting of restricted stock units, or RSUs, covering an
aggregate of 172,492 shares that were subject to a
performance-based vesting condition and that vested in full upon
the completion of the IPO.
Based on stock options and other equity awards outstanding as of
September 30, 2010, we expect to recognize future expense
related to the non-vested portions of such options and other
equity awards in the amount of $2.5 million over a weighted
average period of approximately 1.2 years.
In April 2008, our compensation committee and board of directors
approved an amendment to the terms of outstanding stock options
held by employees and a non-employee director having an exercise
price of $12.42 per share to reduce the exercise price of such
options to $8.58 per share, which was the then-current fair
market value, or FMV, of our common stock. As of the repricing
date, we determined that the aggregate incremental value of the
awards resulting from the repricing was $0.2 million, which
amount is being recognized over the remaining service period for
the repriced options.
Since April 2009, we have granted RSUs covering an aggregate of
485,682 shares to certain of our executive officers, key
employees and directors, of which 294,355 are presently
outstanding. All of these RSUs have a term of 10 years and are
settled in shares of our common stock, although the vesting
provisions of the RSUs vary.
In all instances, the vesting of the RSUs is subject to the
recipients continued service through the date of vesting.
Because of the performance-based vesting conditions of the
awards, we have not yet recognized all of the expense in
connection with these grants.
In June 2009, our compensation committee and board of directors
approved programs to offer eligible directors, employees and
certain consultants the ability to exchange outstanding options
with exercise prices in excess of $2.40 per share for new option
awards with an exercise price equal to the then-current FMV of
$2.40 per share. Generally, for those employees who participated
in this exchange, any portion of an exchanged option that was
vested prior to March 1, 2009 was subject to
42
a new two-year vesting period, although our executive officers
and directors who participated in this exchange were not subject
to this new vesting. As of the date of the exchange, we
estimated that the aggregate incremental fair value of the
awards resulting from the exchange was $2.0 million, which
amount is being recognized over the remaining service period for
the exchanged options. This exchange offer is described in more
detail under the caption Compensation Discussion and
Analysis Compensation Components Equity
Incentive Compensation 2009 Restricted Stock Unit
Grants and Stock Option Exchange Offer.
On June 15, 2010, we granted, RSUs covering an aggregate of
162,062 shares of common stock, 3,544 of which were vested upon
grant. We also granted, on the pricing of our initial public
offering, options to purchase an aggregate of 255,838 shares of
common stock to our employees, 5,072 of which were vested upon
grant. The exercise price of these stock options was equal to
the initial public offering price per share. Effective as of the
first day of trading after pricing of our initial public
offering, we granted an option to purchase 25,000 shares of
common stock to a director, the exercise price for which was the
last trading price per share of our common stock on the NASDAQ
Global Market on the date of grant. These grants are generally
subject to time-based vesting of four years. In connection with
these grants, we expect to record an aggregate expense of
approximately $2.4 million over the vesting periods of the
awards, based on the initial public offering price of $9.00 per
share.
Other (Income)
Expense, Net
Other (income) expense, net consists primarily of interest
income, interest expense and change in the fair value of the
preferred stock warrants. Interest income represents interest
received on our cash and cash equivalents and restricted cash.
Interest expense consists primarily of the interest accrued on
outstanding borrowings under our loan and security agreement
with ORIX Venture Finance LLC, or ORIX, which we refer to as the
ORIX Loan, and our installment bank loan with Bank of America
Leasing and Capital, LLC, or Bank of America. We expect interest
expense to decrease in future periods as a result of our
repayment, in the quarter ended June 30, 2010, of all
amounts outstanding under the ORIX Loan.
Income Tax
Expense
Income tax expense consists of U.S. federal, state and
foreign income taxes. We are required to pay income taxes in
certain states and foreign jurisdictions. To date, we have not
been required to pay U.S. federal income taxes because of
our current and accumulated net operating losses.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our managements discussion and analysis of our financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenue and expenses during the reported period. In
accordance with GAAP, we base our estimates on historical
experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully
described in Note 2 to our consolidated financial
statements appearing elsewhere in this prospectus, we believe
the following accounting policies are critical to the process of
making significant judgments and estimates in the preparation of
our consolidated financial statements.
43
Revenue
Recognition
We follow specific guidance applicable to software companies to
determine when revenue should be recognized. We derive
substantially all of our revenue from the sale of software
licenses and from the sale of maintenance for those licenses and
professional services. We generally license our software in
combination with maintenance and may also include professional
services. We evaluate revenue recognition on a
contract-by-contract
basis because the terms of each arrangement may vary. The
accounting related to license revenue in the software industry
is complex and affected by interpretation of rules that are
subject to change. As a result, the evaluation of our
contractual arrangements often requires judgments and estimates
that affect the timing of revenue recognition. Specifically, we
are required to make judgments concerning: whether the fees are
fixed or determinable; whether collection of our fees is
reasonably assured; whether professional services are essential
to the functionality of the related software; and whether we
have verifiable objective evidence of the fair value of our
software and services.
For license, maintenance and professional services revenue, our
judgment is required to assess the probability of collection,
which is generally based on the evaluation of customer-specific
information, historical collection experience and economic
market conditions. If market conditions decline or if the
financial condition of our customers deteriorates, we may be
unable to determine that collectability is probable and we could
be required to defer the recognition of revenue until we receive
payment.
In accordance with software revenue recognition guidance, we
recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, acceptance is received, if
applicable, the amount of fees to be paid by the customer are
fixed or determinable and collectability is probable and VSOE of
fair value exists for all undelivered elements. We generally do
not license software on a stand-alone basis. Therefore,
allocation of fees to the software component of multiple element
arrangements is determined using the residual method. If we are
unable to determine VSOE for any undelivered element included
within an arrangement, we defer revenue recognition until all
elements for which we could not determine VSOE have been
delivered.
License
Revenue
We sell software licenses to service providers through our
direct sales force and indirectly through distribution partners.
For direct sales, we generally consider a purchase order or
executed sales quote, when combined with a master license
agreement, to constitute evidence of an arrangement. In the case
of sales through distribution partners, we generally consider a
purchase order or executed sales quote, when combined with a
reseller or similar agreement with the distribution partner, and
evidence of the distribution partners customer, to
constitute evidence of an arrangement. For sales through
distribution partners for which we are not able to ascertain
proof of the distribution partners customer, we defer
revenue until we are able to do so.
We consider delivery to have occurred when the customer is given
electronic access to the licensed software and a license key for
the software has been delivered or made available. Instances in
which all ordered software features are not delivered are
considered to be partial deliveries. Since we cannot determine
VSOE of an undelivered software feature in the case of a partial
delivery, we defer revenue recognition on all elements of such
order until delivery for all ordered software features is
complete.
Acceptance of our licensed software generally occurs upon
delivery. From time to time, we have agreed with certain
customers to a specific set of acceptance criteria. In such
cases, we defer revenue until these acceptance criteria have
been met.
Our sales generally consist of multiple elements: software
licenses, maintenance and professional services. We calculate
the amount of revenue allocated to the software license by
determining the fair value of the undelivered elements, which
often are maintenance and professional services, and subtracting
it from the total order amount. We establish VSOE of the fair
value of maintenance based
44
on the renewal price as stated in the agreement and as charged
in the first optional renewal period under the arrangement. Our
VSOE for professional services is determined based on an
analysis of our historical daily rates when these services are
sold separately from the software license.
The warranty period for our licensed software is generally
90 days. During this period, the customer receives
technical support and has the right to unspecified product
upgrades on an
if-and-when
available basis. For these periods, we defer a portion of the
license fee and recognize it ratably over the warranty period.
Our recognized license revenue has sequentially declined year
over year since 2007. For the years ended December 31,
2007, 2008 and 2009, our total license revenue was
$46.3 million, $40.1 million and $37.9 million,
respectively. Notwithstanding the general decline in recognized
license revenue over these periods, we do not believe these
declines are the only meaningful measure of our level of sales
activity during these periods because of the impact of software
license orders for these periods that were not yet recognized as
revenue and therefore were recorded as deferred license revenue.
See Key Operating and Financial Performance
Metrics (Decrease)/Increase in Deferred
Revenue. As described above, our license revenue is
subject to significant fluctuation as a result of the
application of accounting regulations and related
interpretations and policies regarding revenue recognition. Our
deferred license revenue balance consists of software orders
that do not meet all the criteria for revenue recognition. We
are unable to predict the proportion of orders that will meet
all the criteria for revenue recognition relative to those
orders that will not meet all such criteria. As a result, we
cannot forecast whether these historical trends in recognized
license revenue, and corresponding increases in deferred license
revenue, will continue.
As of September 30, 2010, our deferred license revenue
balance was $28.2 million, the current portion of which was
$27.8 million.
Maintenance
and Professional Services Revenue
We typically sell software in combination with maintenance.
Maintenance is generally renewable annually at the option of the
customer. Rates for maintenance, including subsequent renewal
rates, are typically established based upon a specific
percentage of net license fees as set forth in the arrangement
with the customer. Maintenance revenue is recognized ratably
over the maintenance period, assuming all other criteria of
revenue recognition have been met.
Revenue from professional services is recognized as services are
performed. Professional services are not considered essential to
the functionality of the licensed software.
As of September 30, 2010, our deferred maintenance and
professional services revenue balance was $26.1 million,
the current portion of which was $24.4 million.
Software
Development Costs
Software development costs incurred prior to the establishment
of technological feasibility are expensed as incurred as
research and development expense. Software development costs
incurred subsequent to the establishment of technological
feasibility, if any, are capitalized until the software is
available for general release to customers. For each software
release, judgment is required to evaluate when technological
feasibility has occurred. Historically, we have determined that
technological feasibility has been established at approximately
the same time as our general release of such software to
customers. Therefore, to date, we have not capitalized any
software development costs.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at realizable value, net of an
allowance for doubtful accounts that is maintained for estimated
losses that would result from the inability of some customers to
make payments as they become due. The allowance is based on an
analysis of past due amounts and ongoing credit
45
evaluations. Customers are generally evaluated for
creditworthiness through a credit review process at the time of
each order. Our collection experience has been consistent with
our estimates.
Business
Combinations
In a business combination, we allocate the purchase price to the
acquired business identifiable assets and liabilities at
their acquisition date fair values. The excess of the purchase
price over the amount allocated to the identifiable assets and
liabilities, if any, is recorded as goodwill. The excess, if
any, of the fair value of the identifiable assets acquired and
liabilities assumed over the consideration transferred is
recognized as a gain within other income in the consolidated
statement of operations as of the acquisition date.
To date, the assets acquired and liabilities assumed in our
business combinations have primarily consisted of acquired
working capital and definite-lived intangible assets. The
carrying value of acquired working capital is assumed to be
equal to its fair value, given the short-term nature of these
assets and liabilities. We estimate the fair value of
definite-lived intangible assets acquired using a discounted
cash flow approach, which includes an analysis of the future
cash flows expected to be generated by such assets and the risk
associated with achieving such cash flows. The key assumptions
used in the discounted cash flow model include the discount rate
that is applied to the discretely forecasted future cash flows
to calculate the present value of those cash flows and the
estimate of future cash flows attributable to the acquired
intangible assets, which include revenue, operating expenses and
taxes.
Goodwill
Goodwill represents the excess of: (a) the aggregate of the
fair value of consideration transferred in a business
combination, over (b) the fair value of assets acquired,
net of liabilities assumed. Goodwill is not amortized, but is
subject to annual impairment tests as described below.
We test goodwill for impairment annually on December 31, or
more frequently if events or changes in business circumstances
indicate the asset might be impaired. Examples of such events or
circumstances include the following:
|
|
|
|
|
a significant adverse change in our business climate;
|
|
|
|
unanticipated competition;
|
|
|
|
a loss of key personnel;
|
|
|
|
a more likely than not expectation that a significant portion of
our business will be sold; or
|
|
|
|
the testing for recoverability of a significant asset group
within the reporting unit.
|
Goodwill is tested for impairment at the reporting unit level
using a two-step approach. The first step is to compare the fair
value of the reporting unit to the carrying value of the net
assets assigned to the reporting unit. If the fair value of the
reporting unit is greater than the carrying value of the net
assets assigned to the reporting unit, the assigned goodwill is
not considered impaired. If the fair value is less than the
reporting units carrying value, step two is required to
measure the amount of the impairment, if any. In the second
step, the fair value of goodwill is determined by deducting the
fair value of the reporting units identifiable assets and
liabilities from the fair value of the reporting unit as a
whole, as if the reporting unit had just been acquired and the
purchase price were being initially allocated. If the carrying
value of goodwill exceeds the implied fair value, an impairment
charge would be recorded to operating expenses in the
consolidated statement of operations in the period the
determination is made.
We have determined that we have one reporting unit, BroadSoft,
Inc., which is the consolidated entity. To determine the fair
value of our reporting unit as a whole, we use a discounted cash
flow analysis, which requires significant assumptions and
estimates about our future operations. Significant judgments
inherent in this analysis include the determination of an
appropriate discount rate and the
46
amount and timing of expected future cash flows. The cash flows
utilized in our 2007 through 2009 discounted cash flow analyses
were based on three- to five-year financial forecasts, which in
turn were based on the annual budgets developed internally by
management, plus an estimated terminal value. The primary driver
of our discrete future cash flow projections is our revenue
growth assumptions and we estimate future operating expenses on
a
percentage-of-revenue
basis. For 2007 and 2008, the terminal value assumption was
based on an assumed perpetual free cash flow growth rate. For
2009, the terminal value assumption was based on a multiple of
revenues from the last year of discrete projected cash flows. We
used discount rates ranging from 19% to 25% for our 2007 through
2009 annual impairment tests performed at December 31.
These discount rates were based on an assessment of our weighted
average cost of capital.
Based on the results of our annual goodwill impairment testing
in 2007 through 2009, the fair value of the company exceeded its
book value by a substantial margin. Therefore, the second step
of the impairment test was not required to be performed and no
goodwill impairment was recognized. However, there can be no
assurance that goodwill will not be impaired at any time in the
future.
Intangible
Assets
We acquired intangible assets in connection with certain of our
business acquisitions. These assets were recorded at their
estimated fair values at the acquisition date and are amortized
over their respective estimated useful lives using a method of
amortization that reflects the pattern in which the economic
benefits of the intangible assets are used. Estimated useful
lives are determined based on our historical use of similar
assets and the expectation of future realization of revenue
attributable to the intangible assets. Changes in circumstances,
such as technological advances or changes to our business model,
could result in the actual useful lives differing from our
current estimates. In those cases where we determine that the
useful life of an intangible asset should be shortened, we
amortize the net book value in excess of the estimated salvage
value over its revised remaining useful life. We did not revise
our useful life estimates attributed to any of our intangible
assets in 2007, 2008 or 2009.
The estimated useful lives used in computing amortization of
intangible assets are as follows:
|
|
|
|
|
Customer relationships
|
|
|
5-7 years
|
|
Developed technology
|
|
|
4-5 years
|
|
Non-compete agreement
|
|
|
1 year
|
|
Trade names
|
|
|
4 years
|
|
Impairment of
Long-Lived Assets
We review our long-lived assets, including property and
equipment and intangible assets, for impairment whenever events
or changes in circumstances indicate the carrying amount of an
asset or an asset group may not be recoverable. Typical
indicators that an asset may be impaired include:
|
|
|
|
|
a significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition;
|
|
|
|
a current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset; or
|
|
|
|
a current expectation that, more likely than not, a
long-lived asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful
life.
|
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future
undiscounted net cash flows expected to be generated by the
assets. Assets to be disposed of are recorded at the lower of
the carrying amount or fair value less costs to sell.
Recoverability measurement and estimating of undiscounted cash
flows for assets to be held and
47
used is done at the lowest possible levels for which there are
identifiable assets. If such assets are considered impaired,
generally the amount of impairment recognized would be equal to
the amount by which the carrying amount of the assets exceeds
the fair value of the assets, which the company would compute
using a discounted cash flow approach. Estimating future cash
flows attributable to our long-lived assets requires significant
judgment and projections may vary from cash flows eventually
realized. We did not record an impairment charge as a result of
our 2007 and 2008 recoverability measurements of long-lived
assets. During the fourth quarter of 2009, we recognized an
impairment totaling $0.1 million on the property and
equipment held by one of our foreign subsidiaries.
Stock-Based
Compensation
New and modified stock-based compensation arrangements, such as
stock options, stock appreciation rights, or SARs, restricted
stock and RSUs, awarded to directors, employees and consultants
are measured at fair value at each grant or modification date.
Management estimates the fair value of our stock-based
compensation arrangements using a binomial options pricing
model, or the binomial lattice model, and the fair value related
to the portion of awards granted that is ultimately expected to
vest is generally recognized as compensation expense over the
requisite service period.
Determination
of the fair value of stock-based compensation
grants
The determination of the fair value of stock-based compensation
arrangements is affected by a number of variables, including
estimates of the fair value of our stock price, expected stock
price volatility, risk-free interest rate and projected stock
option exercise behaviors. We utilize the binomial option
pricing model to measure the estimated fair value of stock
option awards. Certain of the assumptions are as follows,
expressed on a weighted average basis during the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year Ended December 31,
|
|
Ended September 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free interest rate
|
|
|
4.2
|
%
|
|
|
1.9
|
%
|
|
|
1.7
|
%
|
|
|
0.4
|
%
|
|
|
2.1
|
%
|
Expected volatility
|
|
|
47
|
%
|
|
|
38
|
%
|
|
|
61
|
%
|
|
|
14
|
%
|
|
|
62
|
%
|
We have assumed no dividend yield because we do not expect to
pay dividends in the near future, which is consistent with our
history of not paying dividends. The risk-free interest rate
assumption is based upon observed interest rates for constant
maturity U.S. Treasury securities consistent with the term
of our employee stock options. The expected life of a stock
option is derived from the binomial lattice model, and is based
on several factors, including the contract life, exercise
factor, post-vesting termination rate and volatility. The
expected exercise factor, which is the ratio of the fair value
of common stock on the expected exercise date to the exercise
price, and expected post-vesting termination rate, which is the
expected rate at which employees are likely to terminate after
vesting occurs, are based on our analysis of actual historical
behavior by stock option holders. Expected volatility is based
on the historical volatility of comparable public companies,
including public communications software and telecommunications
companies. The weighted-average expected term output from the
2007, 2008, 2009 and nine months ended September 30, 2009
and 2010 binomial lattice models were 5.0, 3.7, 6.0, 1.4 and 8.3
years, respectively.
Our estimate of pre-vesting forfeitures, or forfeiture rate, is
based on our analysis of historical behavior by stock option
holders. The estimated forfeiture rate is applied to the total
estimated fair value of the awards, as derived from the binomial
lattice model, to compute the stock-based compensation expense,
net of pre-vesting forfeitures, to be recognized in our
consolidated statements of operations.
48
The following table summarizes, for 2008, 2009 and the nine
months ended September 30, 2010, the number of shares of
our common stock subject to cash-settled SARs and RSUs granted
and stock options that were newly granted or repriced, the
associated per share base or exercise price of the award and the
estimated FMV per share of our common stock on the event date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
Estimated Fair
|
|
|
SARs and Shares
|
|
Per Share
|
|
Shares
|
|
Market Value
|
|
|
Underlying
|
|
Exercise or Base
|
|
Underlying
|
|
of Common
|
Event Date (1)
|
|
Options
|
|
Price
|
|
RSUs
|
|
Stock
|
|
April 2008 (2)
|
|
|
956,825
|
|
|
|
$8.58
|
|
|
|
|
|
|
|
$8.58
|
|
January 2009
|
|
|
405,623
|
|
|
|
2.40
|
|
|
|
|
|
|
|
2.40
|
|
April 2009
|
|
|
|
|
|
|
|
|
|
|
167,493
|
|
|
|
2.40
|
|
June 2009 (3)
|
|
|
1,962,547
|
|
|
|
2.40
|
|
|
|
|
|
|
|
2.40
|
|
November 2009
|
|
|
|
|
|
|
|
|
|
|
9,999
|
|
|
|
3.90
|
|
January 2010
|
|
|
|
|
|
|
|
|
|
|
3,333
|
|
|
|
4.98
|
|
February 2010
|
|
|
|
|
|
|
|
|
|
|
124,997
|
|
|
|
6.18
|
|
June 2010
|
|
|
280,838
|
|
|
|
9.00
|
|
|
|
162,062
|
|
|
|
9.00
|
|
July 2010
|
|
|
31,745
|
|
|
|
8.60
|
|
|
|
4,666
|
|
|
|
8.60
|
|
November 2010
|
|
|
116,350
|
|
|
|
9.00
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In April 2010, we issued an additional RSU covering an aggregate
of 1,666 shares of common stock. In June 2010, we issued
additional RSUs covering an aggregate of 162,062 shares and
options exercisable for an aggregate of 255,838 shares with an
exercise price equal to the initial public offering price per
share of this offering. |
|
(2) |
|
Consists of new grants of stock options to purchase an aggregate
of 709,480 shares, new grants of cash-settled SARs
underlying an aggregate of 3,666 shares and the repricing
of options to purchase an aggregate of 243,679 shares. |
|
(3) |
|
Consists of stock options to purchase an aggregate of
1,821,068 shares issued pursuant to the exchange offer and
new grants of additional stock options to purchase an aggregate
of 141,479 shares. |
Determination
of the Fair Value of Common Stock on Grant or Modification
Dates
Prior to our initial public offering in June 2010, we were a
private company with no active public market for our common
stock. Therefore, in response to Section 409A of the
Internal Revenue Code of 1986, as amended, or the Code, and
related regulations issued by the IRS, management has
periodically determined the estimated per share fair value of
our common stock at various dates using contemporaneous
valuations consistent with the American Institute of Certified
Public Accountants Practice Aid, Valuation of
Privately-Held Company Equity Securities Issued as
Compensation, or the Practice Aid. In conducting these
valuations, management considered all objective and subjective
factors that it believed to be relevant in each valuation
conducted, including managements best estimate of our
business condition, prospects and operating performance at each
valuation date. Within the contemporaneous valuations performed
by our management, a range of factors, assumptions and
methodologies were used. The significant factors included:
|
|
|
|
|
the fact that we were a private technology company with illiquid
securities;
|
|
|
|
our historical operating results;
|
|
|
|
our discounted future cash flows, based on our projected
operating results;
|
|
|
|
valuations of comparable public companies;
|
|
|
|
the potential impact on common stock of liquidation preference
rights of preferred stock for certain valuation scenarios;
|
49
|
|
|
|
|
our stage of development and business strategy;
|
|
|
|
the likelihood of achieving a liquidity event for shares of our
common stock, such as an IPO or sale of our company, given
prevailing market conditions; and
|
|
|
|
the state of the IPO market for similarly situated
privately-held technology companies.
|
The dates of our contemporaneous valuations have not always
coincided with the dates of our stock-based compensation grants
and modifications. In such instances, our process for
determining FMV of our common stock on such grant or
modification dates has been, first, for our management to
present its estimate of the FMV of the underlying shares of our
common stock to our audit committee. Managements estimates
have been based on the most recent contemporaneous valuation of
our shares of common stock and its assessment of additional
objective and subjective factors it believed were relevant and
which may have changed from the date of the most recent
contemporaneous valuation through the date of the grant or
modification. After considering the information presented by
management, the audit committee recommended a fair value
estimate to our compensation committee, which assessed the
recommendation and rendered its final fair value determination.
The additional factors considered when determining changes in
fair value between the most recent contemporaneous valuation and
the grant or modification dates included, when available, the
prices paid in recent transactions in our securities between our
existing stockholders and other third parties. While these
transactions were not consummated in a highly liquid market, we
believe they were transacted among active, sophisticated
investors. We believe that the prices paid by the buyers in
these transactions represented the fair value of the securities
sold, based on several factors related to the transactions,
including the relatively large size of the transactions, the
sophistication of the buyers and sellers and the fact that these
transactions were, to our knowledge, negotiated at arms-length.
Transactions that we considered in assessing the fair value of
our shares of common stock included:
|
|
|
|
|
sales of our convertible preferred stock by venture capital and
other institutional investors to new and existing investors in
March 2008 (which sale also included shares of common stock),
September 2009 and January 2010; and
|
|
|
|
sales of our common stock by certain former employees to new and
existing investors in November 2009.
|
Common Stock
Valuation Methodologies
For the contemporaneous valuations of our common stock that we
performed prior to September 2009, our management estimated, as
of the various valuation dates, our enterprise value on a
continuing operations basis, primarily using the income and
market approaches, which are both acceptable valuation methods
in accordance with the Practice Aid. The income approach
utilized the discounted cash flow, or DCF, methodology based on
managements financial forecasts and projections, as
described further below. The market approach utilized the market
multiple and comparable transaction methodologies based on
comparable public companies equity pricing and comparable
acquisition transactions, as described further below. Management
placed greater reliance on the income and market multiple
approaches, and less emphasis on the comparative transaction
approach because of the limited number of recent comparable
transactions. When appropriate, management also placed
significant emphasis on the pricing of recent transactions
involving our equity securities, which we view as a strong
indicator of the value of illiquid securities such as ours. Each
contemporaneous valuation also reflects a marketability
discount, resulting from the illiquidity of our common stock.
For the DCF methodology, management prepared detailed annual
projections of future cash flows over a period of four years,
which we refer to as the discrete projection period, and applied
a terminal value assumption to the final year within the
discrete projection period to estimate the total value of the
cash flows beyond the final year. Our projections of future cash
flows were based on our estimated net debt-free cash flows.
These cash flows were then discounted to the valuation date at
an
50
estimated cost of capital. We derived the estimated cost of
capital by applying an average venture capital rate of return
for different types of funds and a weighted-average cost of
capital of comparable public companies. The terminal multiple
applied to the final year within the discrete projection period
to determine the value of cash flows beyond the final year was
derived from the market multiple and comparable transaction
estimates. Management believes that the procedures employed in
the DCF methodology, including estimating the net debt-free cash
flows, discount rate and terminal multiple, are reasonable and
consistent with the Practice Aid.
For the comparative transactions methodology, we first
determined a range of implied revenue multiples (reflecting the
ratio of the purchase price paid in the transactions to the
target companies trailing 12 months revenue prior to
the acquisition date) for comparable companies that were
recently sold. We then applied these multiples to our actual
trailing 12 months revenue, after which we applied a
discount to the resulting value to reflect the lower value
attributable to a minority position. Our analysis of comparable
transactions for the valuations described below included both
software and services companies, especially those enterprise
software firms selling into particular vertical or specialized
markets, such as security software companies and firms selling
to telecommunications service providers. We selected these
comparable transactions because of the limited number of
transactions between companies competing directly and
exclusively in our market segment.
For the market multiple methodology, management determined, as
of the valuation date, a range of trading multiples for a group
of comparable public companies, based on trailing 12 months
and estimated future revenues. These multiples were then applied
to our actual trailing 12 months and projected revenues as
of the valuation date. In this prospectus, we refer to the group
of companies we used for these methodologies as the Comparable
Public Companies. In selecting the Comparable Public Companies,
management focused on companies with annual revenues under
$500 million that sell either
IP-related
or mobility technology products to telecommunications service
providers. For the contemporaneous valuations conducted in 2008,
the group of Comparable Public Companies consisted of the six
public companies that, at the time, we considered to be most
comparable to the company. In January 2009, we expanded the
group of Comparable Public Companies to add three other public
companies that we considered to be comparable to the company and
removed one company that had been acquired. Management used the
same eight Comparable Public Companies when conducting the
market multiple analyses for each of the contemporaneous
valuations that it performed in 2009 and 2010, as described in
greater detail below.
The valuation ranges resulting from calculations using the
foregoing methodologies were then combined to determine an
estimated overall enterprise value, which was then reduced by
the value of our debt (net of cash) and aggregate value of our
outstanding preferred stock as of each valuation date to
estimate the aggregate value available to our common equity
holders. The per share value of our common stock was estimated
by dividing the resulting value by the number of diluted shares
of common stock outstanding, using the treasury method. We also
applied marketability discounts as considered appropriate to
reflect the illiquidity of our common stock. The number of
outstanding shares used in determining diluted shares of common
stock outstanding included shares issuable upon the exercise of
outstanding stock options and warrants to purchase
Series C-1
redeemable convertible preferred stock, shares of restricted
stock, options reserved for issuance, shares issued in
connection with early exercises of stock options and, for
valuations occurring after April 2009, RSUs expected to vest
upon an IPO as of the valuation date.
Details of the assumptions and judgments reflected in the
contemporaneous valuations and the additional factors considered
when determining changes in fair value between the most recent
contemporaneous valuation and the grant or modification date are
presented below.
51
March 17, 2008 Valuation. We conducted a
contemporaneous valuation of our common stock as of
March 17, 2008. The valuation methodologies employed in
determining the FMV of our common stock and the results of these
methodologies are set forth below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.9x and 2.0x
trailing 12 months revenue, between 1.55x and 1.65x
estimated revenue for the first year after the valuation date
and between 1.3x and 1.4x estimated revenue for the second year
following the valuation date. When applied to our trailing
12 months revenue and our projections, the market multiple
methodology yielded an enterprise valuation range of
$121 million to $128 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 23% and a
terminal value assumption of between 1.95x and 2.05x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$169 million to $184 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 3.0x and 3.3x
trailing 12 months revenue. When applied to our trailing
12 months revenue, and after applying a minority discount,
the comparative transaction methodology yielded a valuation
range of $154 million to $170 million.
|
|
|
|
Arms-length transactions in our equity securities among
third parties. In March 2008, a venture capital
fund stockholder sold shares of our common stock and
Series B-1
and
Series C-1
redeemable convertible preferred stock to a third party at a
blended price per share of $8.58. The enterprise valuation
implied by this transaction price was $157 million.
|
Based on these methodologies, we estimated our enterprise value
to be in a range of $155 million to $180 million.
After deducting the value of indebtedness (net of cash),
preferred stock and other common share equivalents and applying
a marketability discount, the estimated aggregate value
attributable to common stockholders was between $43 million
and $51 million, or $6.96 to $8.28 per share, and we
estimated the FMV of our common stock to be $8.58 per share as
of March 17, 2008. In April 2008, we granted new stock
options with an exercise price of $8.58 per share and
cash-settled SARs with a base price of $8.58 per share. Also in
April 2008, we repriced options to reduce the exercise price
from $12.42 per share to $8.58 per share. Our compensation
committee and board of directors determined that $8.58 per share
was the FMV of our common stock on the applicable grant and
repricing dates.
September 30, 2008 Valuation. We
conducted a contemporaneous valuation of our common stock as of
September 30, 2008, whereby we estimated the FMV of our
common stock to be $2.40 per share. The primary
factors that supported this estimate, and which contributed to
the substantial decrease in the estimated FMV of our common
stock between March 17, 2008 and September 30, 2008
were:
|
|
|
|
|
lower than expected operating results, including revenue and
profitability metrics, for the quarter ended September 30,
2008;
|
|
|
|
reduced revenue and profitability expectations by our board of
directors for 2008 and subsequent years;
|
|
|
|
our adoption of a plan to reduce personnel and other costs by
approximately 10% in response to the global economic downturn
and our boards revised expectations of future financial
results;
|
|
|
|
uncertainties about our business as a result of the broader
economic trends occurring during this period, particularly
because of our dependence on capital spending by communications
service providers;
|
|
|
|
the contraction of the worldwide credit markets in the fall of
2008 and its consequences;
|
52
|
|
|
|
|
widespread, significant reluctance of institutional and other
investors to invest capital in private companies on acceptable
terms, if at all;
|
|
|
|
substantially decreased acquisition activity, including among
technology companies;
|
|
|
|
the failure of equity markets to support IPOs by technology
companies;
|
|
|
|
substantial declines in the equity valuations of the Comparable
Public Companies; and
|
|
|
|
a significant increase in our indebtedness resulting from our
borrowing $15.0 million from ORIX, which also imposed
significant financial and operating covenants on our business.
|
The valuation methodologies employed in determining the FMV of
our common stock and the results produced by applying these
methodologies are set forth below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.2x and 1.4x
trailing 12 months revenue and between 1.1x and 1.3x
estimated revenue for the first year after the valuation date.
When applied to our trailing 12 months revenue and our
revenue projections, the market multiple methodology yielded an
enterprise valuation range of $77 million to
$91 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 25% and a
terminal value assumption of between 1.35x and 1.45x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$71 million to $80 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 1.9x and 2.1x
trailing 12 months revenue. When applied to our trailing
12 months revenue, and after applying a minority discount,
the comparative transaction methodology yielded a valuation
range of $96 million to $106 million.
|
Based on these methodologies, we estimated our enterprise value
to be in a range of $80 million to $100 million. The
reduction in our enterprise value between March 17, 2008
and September 30, 2008 had a disproportionate impact on the
value attributable to our common equity because of the seniority
of our indebtedness and the liquidation preferences of our
preferred stock. After deducting the value of indebtedness (net
of cash), preferred stock and other common share equivalents and
applying a marketability discount, the estimated aggregate value
attributable to common stockholders was between
$6.5 million and $19.5 million, or $1.02 to $3.12 per
share and we estimated the FMV of our common stock to be $2.40
per share as of September 30, 2008.
January 2009 Stock Option Grants. We granted
stock options in January 2009 with an exercise price of $2.40
per share, which our compensation committee determined was the
FMV of our common stock on the grant date. In determining the
FMV of our common stock on the grant date, our compensation
committee placed significant emphasis on the September 30,
2008 contemporaneous valuation described above, and also
considered the following factors:
|
|
|
|
|
the substantial business uncertainties that we continued to
face, particularly because of our dependence on capital spending
by telecommunications service providers;
|
|
|
|
the uncertain impact of our recent expense reduction measures
and the fact that we were contemplating additional expense
reduction measures in 2009;
|
|
|
|
the dilutive impact on our common stock of the issuance of
Series E redeemable convertible preferred stock issued in
December 2008 as consideration for the Sylantro acquisition, as
well as additional indebtedness assumed in connection with that
acquisition;
|
|
|
|
the continuing, substantial declines in the valuations of the
equity securities of the Comparable Public Companies; and
|
53
|
|
|
|
|
the results of the continued deterioration of worldwide capital
markets, which caused institutional and other investors to
remain reluctant to invest in private companies, the
unavailability of the IPO market to technology companies and
limited acquisition activity among technology companies.
|
Relative to the September 30, 2008 valuation, the market
multiples of the Comparable Public Companies had declined to
approximately 50% of their September 30, 2008 levels.
However, because the assumptions underlying the other valuation
methodologies remained substantially similar to their levels as
of September 30, 2008, our compensation committee estimated
that our enterprise value remained in a range between
$80 million to $100 million, and concluded that the
FMV of our common stock remained $2.40 per share as of the grant
date of the options.
March 31, 2009 Valuation. We conducted a
contemporaneous valuation of our common stock as of
March 31, 2009 whereby we estimated the FMV of our common
stock to be $2.40 per share. The valuation methodologies
employed in determining the FMV of our common stock and the
results produced by applying these methodologies are set forth
below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.15x and 1.35x
trailing 12 months revenue, between 1.05x and 1.25x
estimated revenue for the first year following the valuation
date and between 0.95x and 1.15x estimated revenue for the
second year following the valuation date. When applied to our
trailing 12 months revenue and our projections, the market
multiple methodology yielded an enterprise valuation range of
$72 million to $86 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 20% and a
terminal value assumption of between 1.3x and 1.4x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$81 million to $92 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 1.5x and 2.0x
trailing 12 months revenue. When applied to our trailing
12 months revenue, the comparative transaction methodology
yielded a valuation range of $77 million to
$102 million.
|
Based on these methodologies, we estimated that our enterprise
value continued to be in a range of $80 million to
$100 million as of March 31, 2009. After deducting the
value of indebtedness and preferred stock and applying a
marketability discount, the estimated aggregate value
attributable to our common stockholders was between
$3.5 million and $17.3 million, or $0.54 to $2.76 per
share, and we estimated the FMV of our common stock to be $2.40
per share as of March 31, 2009.
June 2009 Stock Option Grants. In June 2009,
we granted new stock options with an exercise price of $2.40 per
share. We also repriced eligible stock options tendered in
option exchange programs to reduce the exercise price to $2.40
per share. Our compensation committee and board of directors
determined that the FMV of our common stock on the grant dates
was $2.40 per share. In determining the FMV of our common stock
on the grant dates, our compensation committee and board of
directors placed significant emphasis on the March 31, 2009
contemporaneous valuation described above and also considered
the following factors:
|
|
|
|
|
While equity values of the Comparable Public Companies had
increased since their relative low points in the first quarter
of 2009, those companies trading multiples were still at a
slight discount to their trading multiples as of
September 30, 2008, when the FMV of our common stock was
initially estimated to be $2.40 per share.
|
|
|
|
The market multiple valuation methodology had, in connection
with prior valuations, generally yielded the lowest enterprise
value among the methodologies we used in our prior valuations
and the assumptions underlying the other methodologies had not
changed materially since March 31, 2009.
|
54
As a result, our compensation committee and board of directors
believed that the improvement in trading prices of the
Comparable Public Companies did not materially alter the
estimated FMV of our common stock. Therefore, our compensation
committee and board of directors concluded that the FMV of our
common stock remained $2.40 per share as of the grant dates of
these options.
Subsequent
Valuations
Due to our improved financial results, improved expectations of
capital purchasing by communications service providers and
indications of improvement in the market for IPOs in general,
the possibility of undertaking an IPO appeared greater to us
during the second half of 2009. As a result, management began
using the probability-weighted expected return method, or the
PWER method, outlined in the Practice Aid, for its
contemporaneous valuations of our common stock and increased the
frequency at which it conducts contemporaneous valuations to
quarterly. Under the PWER method, shares of preferred stock and
common stock are valued separately based on the
probability-weighted average expected future returns,
considering various future outcomes of our operations and
liquidity events. Such events include a continued operations
scenario and two scenarios assuming that an IPO would be
consummated (one scenario that assumed an IPO in June 2010 and
one scenario that assumed an IPO in September 2010). The
valuation methodologies employed in connection with the
continued operations scenario were consistent with the valuation
methodologies we used in our previous contemporaneous valuations.
September 30, 2009 Valuation. As
of September 2009, we had not commenced a formal process to
pursue an IPO, and there continued to be significant uncertainty
concerning the receptivity of the capital markets to an IPO.
Additionally, we still faced relatively high operational and
financial performance uncertainties over a planning horizon.
Accordingly, for the September 30, 2009 valuation, we
assigned a weight of 70% for the continued operations scenario
and a weight of 15% for each of the two IPO scenarios.
Continued
Operations Scenario
The valuation methodologies employed in determining the FMV of
our common stock under the continued operations scenario and the
results of these methodologies are set forth below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.3x and 1.4x
trailing 12 months revenue and between 1.2x and 1.3x
estimated revenue for the first year after the valuation date.
When applied to our trailing 12 months revenue and revenue
projections, the market multiple methodology yielded an
enterprise valuation range of $95 million to
$103 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 20% and a
terminal value assumption of between 1.35x and 1.45x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$113 million to $125 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 1.5x and 2.0x
trailing 12 months revenue. When applied to our trailing
12 months revenue, and after applying a minority discount,
the comparative transaction methodology yielded a valuation
range of $86 million to $113 million.
|
|
|
|
Arms-length transactions in our equity securities among
third parties. In September 2009, a corporate
stockholder sold
Series C-1
redeemable convertible preferred stock to third parties at a
price per share of $3.96. The implied enterprise valuation based
on this transaction price was $85 million.
|
Based on these methodologies, we estimated the enterprise value
of our company in a continued operations scenario to be in a
range of $100 million to $115 million. After deducting
the value of indebtedness (net of cash), preferred stock and
other common share equivalents, the
55
estimated aggregate value attributable to common stockholders
was estimated to be $30.9 million. A marketability discount
was then applied, resulting in an estimated per share value for
common stock of $3.72 per share. The primary factors that
contributed to the increase in the estimated FMV of our common
stock under the continued operations scenario between
June 30, 2009 and September 30, 2009 were:
|
|
|
|
|
improved operating results, including
quarter-over-quarter
growth and cash flow positive performance;
|
|
|
|
improved comparable public company valuations;
|
|
|
|
an arms-length third-party sale of our preferred stock; and
|
|
|
|
improving capital markets.
|
IPO
Scenarios
For each of the IPO scenarios, based on prevailing market
multiples, we assumed that, on an enterprise basis, our company
would be valued at 2.0x trailing 12 months revenue. After
deducting the estimated value of an IPO discount, as well as
deducting the value of indebtedness (net of cash), preferred
stock and other common share equivalents, the estimated
aggregate value attributable to common stockholders was
estimated to be between $39.8 million and $40.6 million,
respectively, for each of the IPO scenarios. We then discounted
these values back to the valuation date of September 30,
2009, and applied a marketability discount, which yielded a per
share value of our common stock of $4.56 for the first IPO
scenario and $4.38 for the second IPO scenario.
Based on the relative weights of the continued operations and
IPO scenarios, we estimated the FMV of our common stock to be
$3.90 per share as of September 30, 2009.
December 31, 2009 Valuation. During the
fourth quarter of 2009, we began preparations for a possible IPO
of our common stock. Following the November 5, 2009 meeting
of our board of directors, management and the board of directors
undertook a process to evaluate underwriters for a potential
IPO. As a result, for the December 31, 2009 valuation, the
continued operations scenario was assigned a 50% probability and
the two IPO scenarios were each assigned a 25% probability. We
increased the relative IPO probabilities for the
December 31, 2009 valuation because we had, by then,
initiated a process to pursue an IPO, but recognized that there
still existed significant uncertainty related to the
consummation of an IPO, including continuing uncertainties of
the future capital markets and the economy.
Continued
Operations Scenario
The valuation methodologies employed in determining the FMV of
our common stock under the continued operations scenario and the
results of these methodologies, are set forth below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.4x and 1.5x
trailing 12 months revenue, between 1.2x and 1.3x estimated
revenue for the first year after the valuation date and between
1.1x and 1.2x estimated revenue for the second year after the
valuation date. When applied to our trailing 12 months
revenue and revenue projections, the market multiple methodology
yielded an enterprise valuation range of $102 million to
$111 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 20% and a
terminal value assumption of between 1.45x and 1.55x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$120 million to $133 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 1.75x and
2.25x trailing 12 months revenue. When applied to our
trailing 12 months revenue,
|
56
|
|
|
|
|
and after applying a minority discount, the comparative
transaction methodology yielded a valuation range of
$101 million to $129 million.
|
|
|
|
|
|
Arms-length transactions in our equity securities among
third parties. In November 2009, three holders of
common stock sold their shares to third-party investors at a
price per share of $3.30. The implied enterprise valuation based
on this transaction price was $83 million.
|
Based on these methodologies, we estimated the enterprise value
in a continued operations scenario to be in a range of
$110 million to $125 million. After deducting the
value of indebtedness (net of cash), preferred stock and other
common share equivalents, the estimated aggregate value
attributable to common stockholders was estimated to be
$35.2 million. A marketability discount was then applied,
resulting in an estimated per share value for common stock of
$4.20 per share. The primary factors that contributed to the
increase in the estimated FMV of our common stock under the
continued operations scenario between September 30, 2009
and December 31, 2009 were:
|
|
|
|
|
continued improved operating results, including
quarter-over-quarter
growth and cash flow positive performance;
|
|
|
|
improved comparable public company valuations;
|
|
|
|
arms-length third-party sales of our common stock;
|
|
|
|
continued improvement in the capital markets; and
|
|
|
|
efforts we undertook to prepare for a possible IPO of our common
stock.
|
IPO
Scenarios
For each of the IPO scenarios, based on prevailing market
multiples, we assumed that, on an enterprise basis, our company
would be valued at 2.5x trailing 12 months revenue. After
deducting the estimated value of an IPO discount, as well as
deducting the value of indebtedness (net of cash), preferred
stock and other common share equivalents, the estimated
aggregate value attributable to common stockholders was
estimated to be between $47.2 million and $48.2 million,
respectively, for each of the IPO scenarios. We then discounted
these values back to the valuation date of December 31,
2009 and applied a marketability discount, which yielded a per
share value of our common stock of $5.88 for the first IPO
scenario and $5.64 for the second IPO scenario.
Based on the relative weights of the continued operations and
IPO scenarios, we estimated the FMV of our common stock to be
$4.98 per share as of December 31, 2009.
February 12, 2010 Valuation. During the
first quarter of 2010, we continued our preparations for a
possible IPO of our common stock. On January 15, 2010,
management, our external legal counsel, our independent
registered public accounting firm, the proposed underwriters and
their external legal counsel held an organizational meeting to
formally begin the IPO process and underwriter due diligence
process. The preparation of the registration statement for the
offering and other matters related to the offering continued
into February. On February 12, 2010, in connection with its
customary annual review of executive compensation, our
compensation committee approved the issuance of RSUs to our
executive officers. As described above, we conducted a
contemporaneous valuation of our common stock as of the grant
date of these awards.
As a result of the continued progress toward an IPO during
January and February 2010, for the February 12, 2010
valuation, the continued operations scenario was assigned a 30%
probability and IPO scenario 1 and IPO scenario 2 were assigned
probabilities of 40% and 30%, respectively. We increased the
relative IPO probabilities for the February 12, 2010
valuation because we had, by then, held our organizational
meeting for the initial public offering and begun the
registration statement drafting process. However, we recognized
that there still existed significant uncertainty related to the
57
consummation and timing of an IPO, including continuing
uncertainties regarding the future capital markets and the
economy, as well as our future results.
Continued
Operations Scenario
The valuation methodologies employed in determining the FMV of
our common stock under the continued operations scenario and the
results of these methodologies as of February 12, 2010, are
set forth below:
|
|
|
|
|
Market multiple. The range of multiples for
the Comparable Public Companies was between 1.6x and 1.7x
trailing 12 months revenue, between 1.4x and 1.5x estimated
revenue for the first year after the valuation date and between
1.3x and 1.4x estimated revenue for the second year after the
valuation date. When applied to our trailing 12 months
revenue and revenue projections, the market multiple methodology
yielded an enterprise valuation range of $119 million to
$128 million.
|
|
|
|
Discounted cash flow. Based on our projected
operating results and assuming a discount rate of 20% and a
terminal value assumption of between 1.65x and 1.75x projected
revenue for the fourth year of the discrete projection period,
the DCF methodology yielded a valuation range of
$137 million to $150 million.
|
|
|
|
Comparative transactions. The range of
multiples for comparable transactions was between 1.75x and
2.25x trailing 12 months revenue. When applied to our
trailing 12 months revenue, and after applying a minority
discount, the comparative transaction methodology yielded a
valuation range of $103 million to $131 million.
|
|
|
|
Arms-length transactions in our equity securities among
third parties. In January 2010, three third-party
institutional investors sold their shares of Series E
preferred stock to another third-party institutional investor at
a price per share of $4.50.
|
Based on these methodologies, we estimated the enterprise value
in a continued operations scenario to be in a range of
$120 million to $150 million. After deducting the
value of indebtedness (net of cash), preferred stock and other
common share equivalents, the estimated aggregate value
attributable to common stockholders was estimated to be
$41.7 million. A marketability discount was then applied,
resulting in an estimated per share value for common stock of
$4.92 per share. The primary factors that contributed to the
increase in the estimated FMV of our common stock under the
continued operations scenario between December 31, 2009 and
February 12, 2010 were that comparable public company
revenue multiples and DCF terminal value multiples improved
modestly given improvement in underlying stock market
performance. However, the amount of the increase in the
estimated FMV of our common stock was impacted by the price per
share paid in an arms-length transaction of the companys
preferred stock.
IPO
Scenarios
For each of the IPO scenarios, based on prevailing market
multiples, we assumed that, on an enterprise basis, our company
would be valued at 2.75x trailing 12 months revenue. This
multiple increased modestly from the December 31, 2009
valuation based on improvements in the overall capital markets,
the receptivity of investors to technology company IPOs, and
improvement in the valuations of peer public companies. After
deducting the estimated value of an IPO discount, as well as
deducting the value of indebtedness (net of cash), preferred
stock and other common share equivalents, the estimated
aggregate value attributable to common stockholders was
estimated to be between $52.6 million and
$53.5 million, respectively, for each of the IPO scenarios.
We then discounted these values back to the valuation date of
February 12, 2010 and applied a marketability discount,
which yielded a per share value of our common stock of $6.78 for
the first IPO scenario and $6.54 for the second IPO scenario.
58
Based on the relative weights of the continued operations and
IPO scenarios, we estimated the FMV of our common stock to be
$6.18 per share as of February 12, 2010.
March 31, 2010 Update. Following the
February 12, 2010 valuation, we continued to make progress
towards a possible IPO, including the filing of a registration
statement, of which this prospectus is a part, on March 15,
2010. As of March 31, 2010, we updated our estimate of the
FMV of our common stock based on our February 12, 2010
valuation and the factors below.
As a result of our continued progress toward an IPO, for this
update, the probability weight for the continued operations
scenario was lowered to a 20% probability and the probability
weight for IPO scenario 1 increased to 50%. The probability
weight for IPO scenario 2 remained at 30%. We increased the
relative IPO probabilities because we had, by then, filed a
registration statement for the offering, but we recognized that
there still existed significant uncertainty related to the
consummation of an IPO. In this regard, we recognized the
continuing uncertainties in the future capital markets and the
economy, as well as regarding our future results.
For the continued operations scenario, we evaluated the
significant increase in market multiples since February 12,
2010, which resulted in a higher valuation range using the
market multiple methodology, although the valuations based on
the DCF and comparable transactions methodologies did not
increase. In addition, we incorporated the impact of the still
recent arms-length transaction in our preferred stock which
implied a significantly lower enterprise value. Based on that
evaluation, our estimated enterprise value in the continued
operations scenario was unchanged from the February 12,
2010 valuation. After deducting the value of indebtedness (net
of cash), preferred stock and other common share equivalents,
the estimated aggregate value attributable to common
stockholders was estimated to be $50.3 million. A
marketability discount was then applied, resulting in an
estimated per share value for common stock of $4.92 per share.
For each of the IPO scenarios, based on the increase in our
comparable company market multiple valuations between
February 12, 2010 and March 31, 2010, we assumed that,
on an enterprise basis, our company would be valued at
4.0-4.125x trailing 12 months revenue. After deducting the
estimated IPO discount, as well as deducting the value of
indebtedness (net of cash), preferred stock and other common
share equivalents, the aggregate value attributable to common
stockholders was estimated to be between $77.4 million and
$78.5 million for each of the IPO scenarios. We then
discounted these values back to the valuation date of
March 31, 2010 and applied a marketability discount, which
yielded a per share value of our common stock of $10.02 for the
first IPO scenario and $9.60 for the second IPO scenario.
Based on the relative weights of the continued operations and
IPO scenarios, we estimated the FMV of our common stock to be
$8.88 per share as of March 31, 2010.
The primary factors that contributed to the increase in the
estimated FMV of our common stock between February 12, 2010
and March 31, 2010 was the increase in the valuations of
the Comparable Public Companies by approximately 40%, which
significantly impacted the estimated valuation of the company
using the market multiple methodology, and the increased
probability of completing an initial public offering.
Income
Taxes
We use the liability method to account for income taxes, which
requires an asset and liability approach for the recognition of
deferred tax assets and liabilities for the expected future tax
consequences attributable to temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and their respective tax bases and for
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured by applying enacted statutory tax
rates applicable to the future years in which deferred amounts
are expected to be settled or realized.
59
Realization of net deferred tax assets is dependent on
generating sufficient future taxable income prior to the
expiration of the operating loss and tax credit carryforwards.
Based on an assessment of positive and negative evidence,
including historical net operating losses and our limited
history of generating positive taxable income, we determined
that it was more likely than not that our future taxable income
would not be sufficient to realize our net operating losses and
tax credit carryforwards in the United States and certain
foreign jurisdictions. Therefore, valuation allowances in the
amount of $38.7 million at September 30, 2010 have
been established to reduce deferred tax assets to the amount
expected to be realized. These valuation allowances would be
reversed and recognized as a benefit in Provision for Income
Taxes in our consolidated statement of operations at such time
that realization is believed to be more likely than not.
Effective January 1, 2007, we adopted FASB guidance for
uncertainty in income taxes that requires the application of a
more likely than not threshold to the recognition and
derecognition of uncertain tax positions. If the recognition
threshold is met, this guidance permits us to recognize a tax
benefit measured at the largest amount of the tax benefit that,
in our judgment, is more likely than not to be realized upon
settlement. If recognized, our unrecognized tax benefits at
September 30, 2010, totaling $0.4 million, would not
have a material impact on the provision for income taxes or the
effective tax rate since it would result in a corresponding
adjustment to the valuation allowance. We do not expect material
changes in unrecognized tax benefits within the next twelve
months.
At September 30, 2010, we had U.S. net operating loss
carryforwards of approximately $78.1 million and research
and experimentation tax credit carryforwards of
$2.5 million, which are scheduled to begin to expire in
2019. We acquired approximately $10.0 million of these net
operating loss carryforwards in 2008 and 2009, which amount
reflects the impact of the annual limitation on net operating
loss carryforwards due to ownership changes. We have not accrued
a provision for income taxes on undistributed earnings of
$0.3 million of certain foreign subsidiaries, since such
earnings are considered to be reinvested indefinitely. If the
earnings were distributed, we would be subject to federal income
and foreign withholding taxes. Determination of an unrecognized
deferred income tax liability with respect to such earnings is
not practicable.
Results of
Operations
Comparison of the
Three Months Ended September 30, 2010 and 2009
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue by Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
12,877
|
|
|
|
58
|
%
|
|
$
|
10,170
|
|
|
|
56
|
%
|
|
$
|
2,707
|
|
|
|
27
|
%
|
Maintenance and
professional services
|
|
|
9,396
|
|
|
|
42
|
|
|
|
8,024
|
|
|
|
44
|
|
|
|
1,372
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
22,273
|
|
|
|
100
|
%
|
|
$
|
18,194
|
|
|
|
100
|
%
|
|
$
|
4,079
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
11,780
|
|
|
|
53
|
%
|
|
$
|
10,300
|
|
|
|
57
|
%
|
|
$
|
1,480
|
|
|
|
14
|
%
|
EMEA
|
|
|
7,252
|
|
|
|
33
|
|
|
|
4,708
|
|
|
|
26
|
|
|
|
2,544
|
|
|
|
54
|
|
APAC
|
|
|
3,241
|
|
|
|
14
|
|
|
|
3,186
|
|
|
|
17
|
|
|
|
55
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
22,273
|
|
|
|
100
|
%
|
|
$
|
18,194
|
|
|
|
100
|
%
|
|
$
|
4,079
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Total revenue for the three months ended September 30, 2010
increased by 22%, or $4.1 million, to $22.3 million,
compared to the same period in 2009. This growth was driven by a
27% increase in license revenue and a 17% increase in
maintenance and professional services revenue. Additionally,
deferred revenue grew by $7.4 million for the three months
ended September 30, 2010, compared to growth of
$3.5 million for the same period in 2009. Substantially all
of the deferred revenue growth in 2010 was attributable to
increased sales of software licenses and related maintenance and
professional services.
Total revenue from the Americas for the three months ended
September 30, 2010 increased by 14%, or $1.5 million,
to $11.8 million compared to the same period in 2009. The
increase in Americas revenue for the three months ended
September 30, 2010 was due to growth in software license
sales and associated maintenance and professional services.
Europe, Middle East and Africa, or EMEA, total revenue for the
three months ended September 30, 2010 increased by 54%, or
$2.5 million, to $7.3 million compared to the same
period in 2009. The increase in EMEA revenue in the three months
ended September 30, 2010 was due to growth in software
license sales and associated maintenance and professional
services. Asia Pacific, or APAC, total revenue for the three
months ended September 30, 2010 remained relatively
unchanged at $3.2 million compared to the same period in
2009.
License
Revenue
License revenue for the three months ended September 30,
2010 increased by 27%, or $2.7 million, to
$12.9 million. Deferred license revenue grew by
$6.4 million for the three months ended September 30,
2010, compared to growth of $2.3 million for the same
period in 2009. The increase in revenue for the three months
ended September 30, 2010 was primarily related to growth in
sales of software licenses. This growth was most significant in
license sales for enterprise users, particularly our hosted UC
applications. The increase in deferred revenue for the three
months ended September 30, 2010 was primarily driven by a
number of orders for which there were undelivered elements,
incomplete evidence of an arrangement or non-standard payment
terms.
Maintenance and
Professional Services Revenue
Maintenance and professional services revenue for the three
months ended September 30, 2010 increased by 17%, or
$1.4 million, to $9.4 million, compared to the same
period in 2009. Deferred maintenance and professional services
revenue grew by $0.9 million for the three months ended
September 30, 2010, compared to growth of $1.2 million
for the same period in 2009. The increase in maintenance and
professional services revenue was the result of growth in our
installed base of customers and licenses.
61
Cost of
Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Related
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
1,560
|
|
|
|
12
|
%
|
|
$
|
1,235
|
|
|
|
12
|
%
|
|
$
|
325
|
|
|
|
26
|
%
|
Maintenance and
professional services
|
|
|
3,329
|
|
|
|
35
|
|
|
|
3,016
|
|
|
|
38
|
|
|
|
313
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
4,889
|
|
|
|
22
|
|
|
$
|
4,251
|
|
|
|
23
|
|
|
$
|
638
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
11,317
|
|
|
|
88
|
%
|
|
$
|
8,935
|
|
|
|
88
|
%
|
|
$
|
2,382
|
|
|
|
27
|
%
|
Maintenance and
professional services
|
|
|
6,067
|
|
|
|
65
|
|
|
|
5,008
|
|
|
|
62
|
|
|
|
1,059
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
17,384
|
|
|
|
78
|
|
|
$
|
13,943
|
|
|
|
77
|
|
|
$
|
3,441
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes amortization of intangibles aggregating $186
and $210 for the three months ended September 30, 2010 and,
2009, respectively.
For the three months ended September 30, 2010, our gross
profit increased by 25%, or $3.4 million, to
$17.4 million. Gross margin increased to 78% during the
three months ended September 30, 2010 compared to 77% for
the same period in 2009. We experienced an increase in both
license revenue gross profit and maintenance and professional
services revenue gross profit for the three months ended
September 30, 2010, primarily due to growth in license
revenue and maintenance and professional services revenue.
License cost of revenue increased by 26% to $1.6 million
for the three months ended September 30, 2010. This
increase was primarily due to a $0.1 million increase in
royalties attributed to the increase in license revenue. For the
three months ended September 30, 2010, license gross profit
increased by 27% to $11.3 million, and license gross margin
remained 88% as compared to the same period in 2009.
Maintenance and professional services cost of revenue increased
by 10% to $3.3 million in the three months ended
September 30, 2010 as compared to the same period in 2009.
The increase in maintenance and professional services cost of
revenue was primarily due to an increase in personnel costs
allocated to cost of revenue due to an increase in the number of
research and development employees working directly on specific
features for certain customers and an increase in professional
services personnel. For the three months ended
September 30, 2010, maintenance and professional services
gross profit increased by 21% to $6.0 million, with a
corresponding increase in gross margin to 65% compared to 62%
for the same period in 2009, due to higher utilization of
maintenance and professional services resources.
62
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Sales and marketing
|
|
$
|
7,789
|
|
|
|
35
|
%
|
|
$
|
7,034
|
|
|
|
39
|
%
|
|
$
|
755
|
|
|
|
11
|
%
|
Research and
development
|
|
|
4,787
|
|
|
|
21
|
|
|
|
3,864
|
|
|
|
21
|
|
|
|
923
|
|
|
|
24
|
|
General and
administrative
|
|
|
3,349
|
|
|
|
15
|
|
|
|
2,683
|
|
|
|
15
|
|
|
|
666
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
|
$
|
15,925
|
|
|
|
71
|
%
|
|
$
|
13,581
|
|
|
|
75
|
%
|
|
$
|
2,344
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing. Sales and marketing
expense increased by 11%, or $0.8 million, to
$7.8 million for the three months ended September 30,
2010. The primary driver of this increase is a $0.4 million
increase in headcount costs driven by growth in sales
commissions related to higher revenues.
Research and Development. Research and
development expense increased by 24%, or $0.9 million, to
$4.8 million for the three months ended September 30,
2010. This increase was primarily due to a $0.4 million
increase in personnel costs, primarily from an increase in
headcount, and a $0.3 million increase in consulting
expenses.
General and Administrative. General and
administrative expense increased by 25%, or $0.7 million,
to $3.3 million for the three months ended
September 30, 2010. This increase was primarily
attributable to a $0.4 million increase in personnel costs
and an increase of $0.3 million in professional services
fees. Much of these increases are attributable to the associated
expenses of becoming a public company.
Income from
Operations
We had income from operations of $1.5 million for the three
months ended September 30, 2010, compared $0.4 million
for the same period in 2009. The increase in income from
operations for the three months ended September 30, 2010
was a result of the $3.4 million increase in gross profit,
partially offset by a $2.3 million increase in total
operating expenses described above.
Other (Income)
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
(18
|
)
|
|
|
*
|
|
|
$
|
(7
|
)
|
|
|
*
|
|
|
$
|
(11
|
)
|
|
|
157
|
%
|
Interest expense
|
|
|
31
|
|
|
|
*
|
|
|
|
349
|
|
|
|
2
|
%
|
|
|
(318
|
)
|
|
|
(91
|
)
|
Other (income) expense
|
|
|
|
|
|
|
*
|
|
|
|
(3
|
)
|
|
|
*
|
|
|
|
3
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
13
|
|
|
|
*
|
|
|
$
|
339
|
|
|
|
2
|
%
|
|
$
|
(326
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 1%
NM= Not meaningful
63
Interest income for the three months ended September 30,
2010 was relatively unchanged as compared to the same period in
2009. Interest expense decreased by $0.3 million as a
result of the voluntary early repayment of the ORIX Loan in June
2010. Other expense for the three months ended
September 30, 2010 was unchanged as compared to the same
period in 2009. We do not anticipate incurring significant other
(income) expense in the future, because of the conversion of our
preferred stock warrants into warrants to purchase common stock
in connection with the closing of the IPO, as a result of which,
we are no longer required to recognize the change in fair value
of such warrants as other (income) expense.
Provision for
Income Taxes
Provision for income taxes was $0.2 million for the three
months ended September 30, 2010, compared to expense of
$0.4 million for the same period in 2009. The income tax
provision relates primarily to foreign taxes. Changes in our
taxes are due primarily to the change in the mix of earnings by
jurisdiction. The tax rate was negative for each period, which
is primarily due to historical losses in the United States, for
which we have continued to record a full valuation against our
U.S. deferred taxes.
Comparison of the
Nine Months Ended September 30, 2010 and 2009
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue by Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
32,215
|
|
|
|
54
|
%
|
|
$
|
27,237
|
|
|
|
55
|
%
|
|
$
|
4,978
|
|
|
|
18
|
%
|
Maintenance and
professional services
|
|
|
27,633
|
|
|
|
46
|
|
|
|
22,349
|
|
|
|
45
|
|
|
|
5,284
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
59,848
|
|
|
|
100
|
%
|
|
$
|
49,586
|
|
|
|
100
|
%
|
|
$
|
10,262
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
34,089
|
|
|
|
57
|
%
|
|
$
|
29,983
|
|
|
|
60
|
%
|
|
$
|
4,106
|
|
|
|
14
|
%
|
EMEA
|
|
|
15,960
|
|
|
|
27
|
|
|
|
12,054
|
|
|
|
24
|
|
|
|
3,906
|
|
|
|
32
|
|
APAC
|
|
|
9,799
|
|
|
|
16
|
|
|
|
7,549
|
|
|
|
16
|
|
|
|
2,250
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
59,848
|
|
|
|
100
|
%
|
|
$
|
49,586
|
|
|
|
100
|
%
|
|
$
|
10,262
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the nine months ended September 30, 2010
increased by 21%, or $10.3 million, to $59.8 million,
compared to the same period in 2009. This growth was driven by
an 18% increase in license revenue and a 24% increase in
maintenance and professional services revenue. Additionally,
deferred revenue grew by $14.3 million for the nine months
ended September 30, 2010, compared to growth of
$9.9 million for the same period in 2009. Substantially all
of the deferred revenue growth in 2010 was attributable to
increased sales of software licenses and related maintenance and
professional services.
Total revenue from the Americas for the nine months ended
September 30, 2010 increased by 14%, or $4.1 million,
compared to the same period in 2009. The increase in Americas
revenue for the nine months ended September 30, 2010 was
due to growth in software license sales and associated
maintenance and professional services. EMEA total revenue during
the nine months ended September 30, 2010 increased by 32%,
or $3.9 million, compared to the same period in 2009. The
64
increase in EMEA revenue in the nine months ended
September 30, 2010 was primarily a result of growth in
sales of software licenses and associated maintenance and
professional services. APAC total revenue for the nine months
ended September 30, 2010 increased by 30%, or
$2.3 million, compared to the same period in 2009. The
increase in APAC revenue for the nine months ended
September 30, 2010 was due to growth in software license
sales and associated maintenance and professional services.
License
Revenue
License revenue for the nine months ended September 30,
2010 increased by 18%, or $5.0 million, to
$32.2 million. Deferred license revenue grew by
$8.7 million for the nine months ended September 30,
2010, compared to growth of $6.2 million for the same
period in 2009. The increase in revenue for the nine months
ended September 30, 2010 was primarily related to growth in
sales of software licenses. The increase in deferred revenue for
the nine months ended September 30, 2010 was primarily
driven by a number of orders for which there were undelivered
elements, incomplete evidence of an arrangement or non-standard
payment terms.
Maintenance and
Professional Services Revenue
Maintenance and professional services revenue for the nine
months ended September 30, 2010 increased by 24%, or
$5.3 million, to $27.6 million. Deferred maintenance
and professional services revenue grew by $5.6 million for
the nine months ended September 30, 2010, compared to
growth of $3.7 million for the same period in 2009. The
increase in maintenance and professional services revenue and
deferred revenue was the result of growth in our installed base
of customers and licenses.
Cost of
Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Related
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
4,187
|
|
|
|
13
|
%
|
|
$
|
3,908
|
|
|
|
14
|
%
|
|
$
|
279
|
|
|
|
7
|
%
|
Maintenance and
professional services
|
|
|
10,556
|
|
|
|
38
|
|
|
|
9,558
|
|
|
|
43
|
|
|
|
998
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
14,743
|
|
|
|
25
|
|
|
$
|
13,466
|
|
|
|
27
|
|
|
$
|
1,277
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
28,028
|
|
|
|
87
|
%
|
|
$
|
23,329
|
|
|
|
86
|
%
|
|
$
|
4,699
|
|
|
|
20
|
%
|
Maintenance and professional services
|
|
|
17,077
|
|
|
|
62
|
|
|
|
12,791
|
|
|
|
57
|
|
|
|
4,286
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
45,105
|
|
|
|
75
|
|
|
$
|
36,120
|
|
|
|
73
|
|
|
$
|
8,985
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes amortization of intangibles aggregating $571
and $629 for the nine months ended September 30, 2010 and
2009, respectively.
For the nine months ended September 30, 2010, our total
gross profit increased by 25%, or $9.0 million, to
$45.1 million. Gross margin increased to 75% during the
nine months ended September 30, 2010 compared to 73% for
the same period in 2009. The increase in total gross margin from
the nine months ended September 30, 2010 as compared to the
same period in 2009
65
was primarily a result of growth in maintenance and professional
services revenue relative to the corresponding cost of revenue
which did not increase proportionately.
License cost of revenue increased 7% to $4.2 million for
the nine months ended September 30, 2010 as compared to the
same period in 2009. This increase was primarily due to an
increase in royalties to third parties for software licenses
attributed to the increase in license revenue. License gross
profit increased by 20% to $28.0 million, with a
corresponding increase in gross margin to 87% for the nine
months ended September 30, 2010 compared to 86% for the
same period in 2009. The increase in gross profit was due to the
proportionately larger increase in revenue relative to the fixed
cost portion of license revenue, such as certain royalties to
third parties for software licenses and amortization of
intangibles.
Maintenance and professional services cost of revenue increased
by 10% to $10.6 million in the nine months ended
September 30, 2010, compared to the same period in 2009.
The increase in maintenance and professional services cost of
revenue was primarily due to an increase in personnel costs
allocated to cost of revenue due to an increase in the number of
research and development employees working directly on specific
features for certain customers and an increase in professional
services personnel. Maintenance and professional services gross
profit increased by 34% to $17.1 million, with a
corresponding increase in gross margin to 62% for the nine
months ended September 30, 2010 compared to 57% for the
same period in 2009. The increase was due to higher utilization
of maintenance and professional services resources.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Sales and marketing
|
|
$
|
22,601
|
|
|
|
38
|
%
|
|
$
|
21,628
|
|
|
|
44
|
%
|
|
$
|
973
|
|
|
|
4
|
%
|
Research and development
|
|
|
14,230
|
|
|
|
24
|
|
|
|
12,147
|
|
|
|
24
|
|
|
|
2,083
|
|
|
|
17
|
|
General and administrative
|
|
|
10,236
|
|
|
|
17
|
|
|
|
8,561
|
|
|
|
17
|
|
|
|
1,675
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
47,067
|
|
|
|
79
|
%
|
|
$
|
42,336
|
|
|
|
85
|
%
|
|
$
|
4,731
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing. Sales and marketing
expense increased by 4%, or $1.0 million, to
$22.6 million for the nine months ended September 30,
2010. This increase is attributed to a $0.6 million
increase in headcount costs driven by an increase in sales
commissions related to higher revenues, and a $0.1 million
increase in consulting expenses.
Research and Development. Research and
development expense increased by 17%, or $2.1 million, to
$14.2 million for the nine months ended September 30,
2010. This increase was primarily due to a $1.3 million
increase in personnel costs, primarily resulting from an
increase in research and development headcount, and a
$0.8 million increase in consulting expenses. We will
continue to invest in research and development as we expand our
platform, including our recently announced BroadCloud hosted
application delivery platform.
General and Administrative. General and
administrative expense increased by 20%, or $1.7 million,
to $10.2 million for the nine months ended
September 30, 2010. This increase was primarily
attributable to a $1.1 million increase in professional
services fees and a $0.5 million
66
increase in personnel costs. Much of these increases are
attributable to the associated expenses of becoming a public
company.
Loss from
Operations
We incurred a loss from operations of $2.0 million for the
nine months ended September 30, 2010, compared to a loss
from operations of $6.2 million for the same period in
2009. The decrease in loss from operations for the nine months
ended September 30, 2010 was a result of the
$9.0 million increase in gross profit, partially offset by
a $4.7 million increase in total operating expenses
described above.
Other (Income)
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
(30
|
)
|
|
|
*
|
|
|
$
|
(36
|
)
|
|
|
*
|
|
|
$
|
6
|
|
|
|
(17
|
)%
|
Interest expense
|
|
|
730
|
|
|
|
1
|
%
|
|
|
1,053
|
|
|
|
2
|
%
|
|
|
(323
|
)
|
|
|
(31
|
)
|
Other expense (income)
|
|
|
174
|
|
|
|
*
|
|
|
|
(7
|
)
|
|
|
*
|
|
|
|
181
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
874
|
|
|
|
1
|
%
|
|
$
|
1,010
|
|
|
|
2
|
%
|
|
$
|
(136
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 1%
NM=Not meaningful
Interest income remained relatively unchanged for the nine
months ended September 30, 2010. Interest expense decreased
by $0.3 million as a result of the voluntary early
repayment of the ORIX Loan in June 2010. Other expense increased
mainly due to the increase in the fair value of preferred stock
warrants prior to their conversion to common stock warrants of
$0.1 million during the nine months ended
September 30, 2010 compared to 2009 as a result of the
increase in the estimated fair value of the company. We do not
anticipate incurring significant other (income) expense in the
future, because of the conversion of our preferred stock
warrants into warrants to purchase common stock in connection
with the closing of the IPO, as a result of which, we are no
longer required to recognize the change in fair value of such
warrants as other (income) expense.
Provision for
Income Taxes
Provision for income taxes was $0.4 million for the nine
months ended September 30, 2010, compared to
$1.0 million for the same period in 2009. The income tax
provision relates primarily to foreign taxes. Changes in our
taxes are due primarily to the change in the mix of earnings by
jurisdiction. The tax rate was negative for each period, which
is primarily due to historical losses in the United States, for
which we have continued to record a full valuation against our
U.S. deferred taxes.
67
Comparison of
Years Ended December 31, 2008 and 2009
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue by Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
40,121
|
|
|
|
65
|
%
|
|
$
|
37,942
|
|
|
|
55
|
%
|
|
|
$(2,179)
|
|
|
|
(5
|
)%
|
Maintenance and professional services
|
|
|
21,708
|
|
|
|
35
|
|
|
|
30,945
|
|
|
|
45
|
|
|
|
9,237
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,829
|
|
|
|
100
|
%
|
|
$
|
68,887
|
|
|
|
100
|
%
|
|
|
$7,058
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
32,954
|
|
|
|
53
|
%
|
|
$
|
40,380
|
|
|
|
59
|
%
|
|
|
$7,426
|
|
|
|
23
|
%
|
EMEA
|
|
|
21,078
|
|
|
|
34
|
|
|
|
17,969
|
|
|
|
26
|
|
|
|
(3,109
|
)
|
|
|
(15
|
)
|
APAC
|
|
|
7,797
|
|
|
|
13
|
|
|
|
10,538
|
|
|
|
15
|
|
|
|
2,741
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,829
|
|
|
|
100
|
%
|
|
$
|
68,887
|
|
|
|
100
|
%
|
|
|
$7,058
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the year ended December 31, 2009
increased by 11%, or $7.1 million, to $68.9 million,
compared to 2008. Additionally, deferred revenue grew by
$18.9 million in 2009, compared to growth of
$6.5 million in 2008. Substantially all of the deferred
revenue growth in 2009 was attributable to increased sales of
BroadWorks licenses and related maintenance and professional
services.
Total revenue from the Americas for the year ended
December 31, 2009 increased by 23%, or $7.4 million,
compared to 2008. Deferred revenue from the Americas grew by
$9.6 million in 2009, compared to growth of
$5.7 million in 2008. The increase in 2009 revenue was
primarily related to the acquisition of M6 and Sylantro in 2008.
The growth in deferred revenue was attributable to increased
sales of BroadWorks and associated maintenance and professional
services. EMEA total revenue decreased by 15%, or
$3.1 million, compared to 2008, while EMEA deferred revenue
grew by $4.1 million in 2009, compared to a decline of
$2.3 million in 2008. The decline in EMEA revenue and the
increase in EMEA deferred revenue in 2009 was primarily a result
of a shift from indirect sales through distribution partners to
direct sales in the EMEA, which we believe has lengthened our
sales cycles in the region, as well as a small number of large
orders received in 2009 for which there were undelivered
elements. APAC total revenue increased by 35%, or
$2.7 million, compared to 2008. APAC deferred revenue grew
by $5.2 million in 2009, compared to growth of
$3.1 million in 2008. The increase in APAC revenue was due
to both growth in sales of BroadWorks and associated maintenance
and professional services and to the acquisition of M6. The
increase in APAC deferred revenue was due to sales of BroadWorks
and associated maintenance and professional services.
License
Revenue
License revenue for the year ended December 31, 2009
decreased by 5%, or $2.2 million, to $37.9 million.
Deferred license revenue grew by $11.9 million for the year
ended December 31, 2009, compared to growth of
$2.2 million in 2008. The increase in deferred revenue in
2009 was primarily driven by a number of large orders for which
there were undelivered elements. As a result, license revenue as
a percent of total revenue decreased from 65% to 55%.
Additionally, the change in license
68
revenue during 2009 includes a $3.9 million increase
related to M6 and Sylantro due to their inclusion in our results
of operations for the full year of 2009.
Maintenance and
Professional Services Revenue
Maintenance and professional services revenue for the year ended
December 31, 2009 increased by 43%, or $9.2 million,
to $30.9 million. Deferred maintenance and professional
services revenue grew by $7.0 million in 2009, compared to
growth of $4.3 million in 2008. The increase in maintenance
and professional services revenue was the result of growth in
our installed base of customers and licenses, including a
$6.8 million increase in maintenance and professional
services revenue from the inclusion of the results of M6 and
Sylantro in our results of operations for the full year of 2009.
Cost of
Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Related
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
|
$4,818
|
|
|
|
12
|
%
|
|
|
$5,232
|
|
|
|
14
|
%
|
|
|
$414
|
|
|
|
9
|
%
|
Maintenance and professional services
|
|
|
8,649
|
|
|
|
40
|
|
|
|
12,142
|
|
|
|
39
|
|
|
|
3,493
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
13,467
|
|
|
|
22
|
%
|
|
$
|
17,374
|
|
|
|
25
|
%
|
|
|
$3,907
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
35,303
|
|
|
|
88
|
%
|
|
$
|
32,710
|
|
|
|
86
|
%
|
|
$
|
(2,593
|
)
|
|
|
(7
|
)%
|
Maintenance and professional services
|
|
|
13,059
|
|
|
|
60
|
|
|
|
18,803
|
|
|
|
61
|
|
|
|
5,744
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
48,362
|
|
|
|
78
|
%
|
|
$
|
51,513
|
|
|
|
75
|
%
|
|
|
$3,151
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amortization of intangibles aggregating $414 for 2008
and $800 for 2009. |
For the year ended December 31, 2009, our gross profit
increased by 7%, or $3.2 million, to $51.5 million.
Gross margin declined from 78% to 75% from 2008 to 2009. The
decrease in total gross margin from 2008 to 2009 was primarily a
result of growth in deferred license revenue, for which no
corresponding expenses were deferred.
During 2009, license cost of revenue increased by 9% to
$5.2 million. This increase was primarily due to an
increase in amortization of intangibles, primarily as a result
of our acquisition of Sylantro. Given this increase and the
reduction in license revenue, and the proportional increase in
deferred revenue, our license gross profit declined by 7% to
$32.7 million, with a corresponding decline in gross margin
from 88% to 86%, for 2009.
Maintenance and professional services cost of revenue increased
by 40%, or $3.5 million, during 2009. The increase in
maintenance and professional services cost of revenue was
primarily due to a $1.8 million increase in personnel costs
as a result of the Sylantro and M6 acquisitions, a
$0.9 million increase in royalties for third-party software
maintenance, a $1.4 million growth in personnel costs
allocated to cost of revenue due to an increase in the number of
research and development
69
employees working directly on specific features for certain
customers, partially offset by a $0.7 million decrease in
third-party consulting expenses. Maintenance and professional
services gross profit increased by 44% to $18.8 million,
with a corresponding increase in gross margin from 60% to 61%,
for 2009.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Sales and marketing
|
|
$
|
30,774
|
|
|
|
50
|
%
|
|
$
|
28,534
|
|
|
|
41
|
%
|
|
$
|
(2,240
|
)
|
|
|
(7
|
)%
|
Research and
development
|
|
|
15,876
|
|
|
|
26
|
|
|
|
16,625
|
|
|
|
24
|
|
|
|
749
|
|
|
|
5
|
|
General and
administrative
|
|
|
12,074
|
|
|
|
20
|
|
|
|
11,405
|
|
|
|
17
|
|
|
|
(669
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
58,724
|
|
|
|
96
|
%
|
|
$
|
56,564
|
|
|
|
82
|
%
|
|
$
|
(2,160
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing. Sales and
marketing expense decreased by 7%, or $2.2 million, during
the year ended December 31, 2009. The decrease was
primarily due to a $1.1 million reduction in marketing
programs and a $1.0 million decrease in travel expenses, as
a result of cost control measures implemented in response to the
economic downturn in late 2008 and 2009.
Research and Development. Research and
development expense increased by 5%, or $0.7 million,
during the year ended December 31, 2009. This increase was
primarily due to a $1.4 million increase in personnel
costs, primarily resulting from an increase in research and
development headcount, and a $0.3 million increase in
stock-based compensation expense, partially offset by a
$1.4 million decrease in personnel costs that were
allocated to cost of revenue as a result of an increase in the
number of research and development employees working directly on
specific features for certain customers. Our number of full-time
research and development employees increased from 91 at
December 31, 2008 to 115 at December 31, 2009 as we
continued to invest in research and development.
General and Administrative. General and
administrative expense decreased by 6%, or $0.7 million,
during the year ended December 31, 2009. This decrease was
primarily attributable to a $0.6 million reduction in
outside consulting expenses during 2009, as part of our cost
control measures.
Loss from
Operations
We incurred a loss from operations of $5.1 million for the
year ended December 31, 2009, compared to a loss from
operations of $10.4 million in 2008. The decrease in loss
from operations is a result of the $3.2 million increase in
gross profit and the $2.2 million decrease in total
operating expenses described above.
70
Other (Income)
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
|
$(173)
|
|
|
|
*
|
%
|
|
|
$(39)
|
|
|
|
*
|
%
|
|
|
$134
|
|
|
|
(77
|
)%
|
Interest expense
|
|
|
521
|
|
|
|
1
|
|
|
|
1,398
|
|
|
|
2
|
|
|
|
877
|
|
|
|
168
|
|
Other (income) expense
|
|
|
(426
|
)
|
|
|
(1
|
)
|
|
|
110
|
|
|
|
*
|
|
|
|
536
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expense
|
|
|
$(78)
|
|
|
|
*
|
%
|
|
$
|
1,469
|
|
|
|
2
|
%
|
|
$
|
1,547
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 1%
NM=Not meaningful
The decrease in interest income for the year ended
December 31, 2009 was due to lower interest rates earned on
borrowings, despite higher cash balances during 2009. Interest
expense increased 168%, or $0.9 million, for the year ended
December 31, 2009 due to interest incurred on the ORIX
Loan. We expect interest expense to decrease in future periods
as a result of our repayment of all amounts outstanding under
the ORIX Loan with a portion of the net proceeds of this
offering.
Other expense increased mainly due to the increase in the fair
value of preferred stock warrants of $0.1 million in 2009
as a result of the increase in the estimated fair value of the
company as of December 31, 2009 compared to other income of
$0.4 million in 2008 as a result of the decrease in the
estimated fair value of the company as of December 31,
2008. Upon the completion of this offering, all outstanding
shares of our convertible preferred stock will automatically
convert to common stock and our results of operations will no
longer be impacted by these warrants.
Provision for
Income Taxes
Provision for income tax was $1.3 million for the year
ended December 31, 2009, compared to $1.0 million in
2008. The income tax provision relates primarily to foreign
taxes. Changes in our taxes are due primarily to the change in
the mix of earnings by jurisdiction. We also incurred an income
tax expense of $0.1 million in 2009 related to the sale of
a subsidiary. The tax rate was negative for each year, which is
primarily due to historical losses in the United States, for
which we have continued to record a full valuation against our
U.S. deferred taxes.
71
Comparison of
Years Ended December 31, 2007 and 2008
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue by Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
46,328
|
|
|
|
75
|
%
|
|
$
|
40,121
|
|
|
|
65
|
%
|
|
$
|
(6,207
|
)
|
|
|
(13
|
)%
|
Maintenance and professional services
|
|
|
15,272
|
|
|
|
25
|
|
|
|
21,708
|
|
|
|
35
|
|
|
|
6,436
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,600
|
|
|
|
100
|
%
|
|
$
|
61,829
|
|
|
|
100
|
%
|
|
|
$229
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
34,070
|
|
|
|
55
|
%
|
|
$
|
32,954
|
|
|
|
53
|
%
|
|
$
|
(1,116
|
)
|
|
|
(3
|
)%
|
EMEA
|
|
|
19,611
|
|
|
|
32
|
|
|
|
21,078
|
|
|
|
34
|
|
|
|
1,467
|
|
|
|
7
|
|
APAC
|
|
|
7,919
|
|
|
|
13
|
|
|
|
7,797
|
|
|
|
13
|
|
|
|
(122
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,600
|
|
|
|
100
|
%
|
|
$
|
61,829
|
|
|
|
100
|
%
|
|
|
$229
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the year ended December 31, 2008 was
$61.8 million, which was substantially unchanged from 2007.
However, deferred revenue grew by $6.5 million in 2008,
compared to a decline of $7.5 million in 2007. The deferred
revenue growth in 2008 was attributable to deferred revenue
acquired in connection with the acquisitions of M6 and Sylantro,
as well as increased sales of BroadWorks licenses and related
maintenance and professional services.
Total revenue from the Americas for the year ended
December 31, 2008 decreased by 3%, or $1.1 million,
compared to 2007. Deferred revenue from the Americas grew by
$5.7 million in 2008, compared to a decline of
$6.0 million in 2007. EMEA total revenue for the year ended
December 31, 2008 increased by 7%, or $1.5 million,
compared to 2007. EMEA deferred revenue declined by
$2.3 million in 2008, compared to a decline of
$0.4 million in 2007. APAC total revenue for the year ended
December 31, 2008 was substantially unchanged compared to
2007. APAC deferred revenue grew by $3.1 million in 2008,
compared to a decline of $1.1 million in 2007.
License
Revenue
License revenue for the year ended December 31, 2008
decreased by 13%, or $6.2 million, to $40.1 million.
Deferred license revenue grew by $2.2 million for the year
ended December 31, 2008, compared to a decline of
$9.7 million in 2007. The change in license revenue in 2008
includes a $0.6 million increase related to M6 and
Sylantro, as a result of the acquisition of these businesses
during 2008.
Maintenance and
Professional Services Revenue
Maintenance and professional services revenue for the year ended
December 31, 2008 increased by 42%, or $6.4 million,
to $21.7 million. Deferred maintenance and professional
services revenue grew by $4.3 million in 2008, compared to
growth of $2.2 million in 2007. The increase in recognized
and deferred revenue was the result of growth in our installed
base of customers and licenses, including a $1.3 million
increase in maintenance and professional services revenue
attributable to M6 and Sylantro, which were acquired in 2008.
72
Cost of
Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Related
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
|
$5,299
|
|
|
|
11
|
%
|
|
|
$4,818
|
|
|
|
12
|
%
|
|
|
$(481)
|
|
|
|
(9
|
)%
|
Maintenance and professional services
|
|
|
7,270
|
|
|
|
48
|
|
|
|
8,649
|
|
|
|
40
|
|
|
|
1,379
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
12,569
|
|
|
|
20
|
%
|
|
$
|
13,467
|
|
|
|
22
|
%
|
|
|
$898
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
$
|
41,029
|
|
|
|
89
|
%
|
|
$
|
35,303
|
|
|
|
88
|
%
|
|
$
|
(5,726
|
)
|
|
|
(14
|
)%
|
Maintenance and professional services
|
|
|
8,002
|
|
|
|
52
|
|
|
|
13,059
|
|
|
|
60
|
|
|
|
5,057
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
49,031
|
|
|
|
80
|
%
|
|
$
|
48,362
|
|
|
|
78
|
%
|
|
|
$(669)
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amortization of intangibles aggregating $400 for 2007
and $414 for 2008. |
For the year ended December 31, 2008, our gross profit
declined by 1%, or $0.7 million, to $48.4 million.
Gross profit as a percentage of revenue declined from 80% to 78%
from 2007 to 2008.
License cost of revenue decreased by 9% to
$4.8 million during 2008. The decrease in license cost
of revenue was primarily due to a decrease in royalty expense,
particularly related to the database technology we embed in our
software. However, as a result of the reduction in license
revenue and the associated increase in deferred revenue, license
gross profit declined 14% to $35.3 million for 2008.
License gross margin declined from 89% to 88% from 2007 to 2008.
Maintenance and professional services cost of revenue increased
by 19%, or $1.4 million, during 2008. The increase in
maintenance and services cost of revenue was primarily due to a
$0.4 million increase in personnel costs related to the M6
acquisition and a $0.1 million increase in royalties for
third-party software maintenance. Maintenance and professional
services gross profit increased by 63%, or $5.1 million,
during 2008.
The decrease in total gross profit percentage in 2008 from 2007
was primarily due to the change in revenue mix toward
maintenance and professional services revenue, which offers
lower gross profit margins than license revenue. This change
during 2008 was primarily a result of the recognition in 2007 of
a significant amount of previously deferred revenue.
73
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Sales and marketing
|
|
$
|
26,431
|
|
|
|
43
|
%
|
|
$
|
30,774
|
|
|
|
50
|
%
|
|
$
|
4,343
|
|
|
|
16
|
%
|
Research and development
|
|
|
12,763
|
|
|
|
21
|
|
|
|
15,876
|
|
|
|
26
|
|
|
|
3,113
|
|
|
|
24
|
|
General and administrative
|
|
|
10,295
|
|
|
|
17
|
|
|
|
12,074
|
|
|
|
20
|
|
|
|
1,779
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
49,489
|
|
|
|
81
|
%
|
|
$
|
58,724
|
|
|
|
96
|
%
|
|
$
|
9,235
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing. Sales and marketing
expense increased by 16%, or $4.3 million, during the year
ended December 31, 2008. This increase was primarily due to
a $3.1 million increase in personnel costs, as we increased
headcount during 2008, and a $0.2 million increase in
stock-based compensation. Our number of full-time sales and
marketing employees increased from 94 at December 31, 2007
to 103 at December 31, 2008. The increase in sales and
marketing expense during 2008 also includes a $0.5 million
increase in consulting expenses.
Research and development. Research and
development expense increased by 24%, or $3.1 million,
during the year ended December 31, 2008. This increase was
primarily due to a $1.9 million increase in personnel costs
as we increased headcount and a $0.2 million increase in
stock-based compensation. Our number of full-time research and
development employees increased from 88 at December 31,
2007 to 91 at December 31, 2008 as we continued to invest
in research and development.
General and administrative. General and
administrative expense increased by 17%, or $1.8 million,
during the year ended December 31, 2008. This increase was
primarily due to a $0.8 million increase in personnel costs
and a $0.8 million increase in stock-based compensation
expense.
Loss from
Operations
We incurred a loss from operations of $10.4 million for the
year ended December 31, 2008, compared to a loss from
operations of $0.5 million in 2007. The increase in loss
from operations is primarily attributable to the
$9.2 million increase in operating expenses described above
and a decrease in gross profit of $0.7 million.
74
Other (Income)
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Change
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
(265
|
)
|
|
|
*
|
%
|
|
|
$(173)
|
|
|
|
*
|
%
|
|
|
$92
|
|
|
|
(35
|
)%
|
Interest expense
|
|
|
324
|
|
|
|
1
|
|
|
|
521
|
|
|
|
1
|
|
|
|
197
|
|
|
|
61
|
|
Other (income) expense
|
|
|
220
|
|
|
|
*
|
|
|
|
(426
|
)
|
|
|
(1
|
)
|
|
|
(646
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expense
|
|
$
|
279
|
|
|
|
*
|
%
|
|
|
$(78)
|
|
|
|
*
|
%
|
|
$
|
(357
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 1%
NM = Not meaningful
The decrease in interest income for the year ended
December 31, 2008 was due to lower average cash balances
during 2008 and decline in interest rates. Interest expense
increased for the year ended December 31, 2008 due to
higher average borrowings during 2008, including interest
expense on the ORIX Loan in the last quarter of 2008.
Other income increased mainly due to the decrease in the fair
value of preferred stock warrants of $0.4 million in 2008
as a result of the decline in the estimated fair value of the
company as of December 31, 2008 compared to other expense
of $0.2 million in 2007 as a result of the increase in the
estimated fair value of the company as of December 31, 2007.
Provision for
Income Taxes
Provision for income tax was $1.0 million for the year
ended December 31, 2008, which was substantially unchanged
from 2007. The income tax provision relates primarily to foreign
taxes. The annual tax rate was negative for 2007 and 2008, which
is primarily due to historical losses in the United States, for
which we have continued to record a full valuation against our
U.S. deferred taxes.
75
Quarterly Results
of Operations
The tables below show our unaudited consolidated quarterly
results of operations for each of our eleven most recently
completed quarters, as well as the percentage of total revenue
(or, for cost of revenue line items only, the percentage of the
related revenue type) for each line item shown. This information
has been derived from our unaudited financial statements, which,
in the opinion of management, have been prepared on the same
basis as our audited financial statements and include all
adjustments, consisting of normal recurring adjustments and
accruals, necessary for the fair presentation of the financial
information for the quarters presented. This information should
be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
$10,344
|
|
|
$
|
10,039
|
|
|
$
|
7,835
|
|
|
$
|
11,903
|
|
|
|
$7,066
|
|
|
$
|
10,001
|
|
|
$
|
10,170
|
|
|
$
|
10,705
|
|
|
|
$8,784
|
|
|
$
|
10,555
|
|
|
$
|
12,877
|
|
Maintenance and professional services
|
|
|
4,729
|
|
|
|
5,084
|
|
|
|
5,626
|
|
|
|
6,269
|
|
|
|
6,594
|
|
|
|
7,731
|
|
|
|
8,024
|
|
|
|
8,596
|
|
|
|
9,021
|
|
|
|
9,216
|
|
|
|
9,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
15,073
|
|
|
|
15,123
|
|
|
|
13,461
|
|
|
|
18,172
|
|
|
|
13,660
|
|
|
|
17,732
|
|
|
|
18,194
|
|
|
|
19,301
|
|
|
|
17,805
|
|
|
|
19,771
|
|
|
|
22,273
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (1)
|
|
|
1,163
|
|
|
|
1,260
|
|
|
|
1,198
|
|
|
|
1,197
|
|
|
|
1,323
|
|
|
|
1,351
|
|
|
|
1,235
|
|
|
|
1,323
|
|
|
|
1,409
|
|
|
|
1,218
|
|
|
|
1,560
|
|
Maintenance and professional services
|
|
|
2,058
|
|
|
|
2,105
|
|
|
|
2,181
|
|
|
|
2,305
|
|
|
|
2,908
|
|
|
|
3,634
|
|
|
|
3,016
|
|
|
|
2,584
|
|
|
|
3,385
|
|
|
|
3,842
|
|
|
|
3,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
3,221
|
|
|
|
3,365
|
|
|
|
3,379
|
|
|
|
3,502
|
|
|
|
4,231
|
|
|
|
4,985
|
|
|
|
4,251
|
|
|
|
3,907
|
|
|
|
4,794
|
|
|
|
5,060
|
|
|
|
4,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,852
|
|
|
|
11,758
|
|
|
|
10,082
|
|
|
|
14,670
|
|
|
|
9,429
|
|
|
|
12,747
|
|
|
|
13,943
|
|
|
|
15,394
|
|
|
|
13,011
|
|
|
|
14,711
|
|
|
|
17,384
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
7,305
|
|
|
|
8,604
|
|
|
|
7,968
|
|
|
|
6,897
|
|
|
|
7,091
|
|
|
|
7,503
|
|
|
|
7,034
|
|
|
|
6,906
|
|
|
|
7,101
|
|
|
|
7,710
|
|
|
|
7,789
|
|
Research and development
|
|
|
3,865
|
|
|
|
3,914
|
|
|
|
4,005
|
|
|
|
4,092
|
|
|
|
4,192
|
|
|
|
4,090
|
|
|
|
3,864
|
|
|
|
4,479
|
|
|
|
4,491
|
|
|
|
4,952
|
|
|
|
4,787
|
|
General and administrative
|
|
|
2,724
|
|
|
|
3,275
|
|
|
|
2,562
|
|
|
|
3,513
|
|
|
|
2,801
|
|
|
|
3,077
|
|
|
|
2,683
|
|
|
|
2,844
|
|
|
|
3,273
|
|
|
|
3,608
|
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
13,894
|
|
|
|
15,793
|
|
|
|
14,535
|
|
|
|
14,502
|
|
|
|
14,084
|
|
|
|
14,670
|
|
|
|
13,581
|
|
|
|
14,229
|
|
|
|
14,865
|
|
|
|
16,270
|
|
|
|
15,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(2,042
|
)
|
|
|
(4,035
|
)
|
|
|
(4,453
|
)
|
|
|
168
|
|
|
|
(4,655
|
)
|
|
|
(1,923
|
)
|
|
|
362
|
|
|
|
1,165
|
|
|
|
(1,854
|
)
|
|
|
(1,559
|
)
|
|
|
1,459
|
|
Other (income) expense
|
|
|
(194
|
)
|
|
|
26
|
|
|
|
100
|
|
|
|
(10
|
)
|
|
|
334
|
|
|
|
337
|
|
|
|
339
|
|
|
|
459
|
|
|
|
489
|
|
|
|
371
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,848
|
)
|
|
|
(4,061
|
)
|
|
|
(4,553
|
)
|
|
|
178
|
|
|
|
(4,989
|
)
|
|
|
(2,260
|
)
|
|
|
23
|
|
|
|
706
|
|
|
|
(2,343
|
)
|
|
|
(1,930
|
)
|
|
|
1,446
|
|
Provision for income taxes
|
|
|
320
|
|
|
|
252
|
|
|
|
86
|
|
|
|
294
|
|
|
|
245
|
|
|
|
383
|
|
|
|
373
|
|
|
|
332
|
|
|
|
281
|
|
|
|
(156
|
)
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
$(2,168)
|
|
|
$
|
(4,313
|
)
|
|
$
|
(4,639
|
)
|
|
|
$(116)
|
|
|
|
$(5,234)
|
|
|
$
|
(2,643
|
)
|
|
|
$(350)
|
|
|
|
$374
|
|
|
|
$(2,624)
|
|
|
$
|
(1,774
|
)
|
|
|
1,209
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to BroadSoft, Inc.
|
|
|
$(2,168)
|
|
|
$
|
(4,313
|
)
|
|
$
|
(4,639
|
)
|
|
|
$(116)
|
|
|
|
$(5,233)
|
|
|
$
|
(2,642
|
)
|
|
|
$(349)
|
|
|
|
$375
|
|
|
|
$(2,624)
|
|
|
$
|
(1,774
|
)
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes amortization of
intangibles as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100
|
|
|
|
$100
|
|
|
|
$104
|
|
|
|
$110
|
|
|
|
$210
|
|
|
|
$210
|
|
|
|
$210
|
|
|
|
$170
|
|
|
|
$192
|
|
|
$
|
192
|
|
|
$
|
186
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
2010
|
|
2010
|
|
2010
|
|
|
(Unaudited)
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
69
|
%
|
|
|
66
|
%
|
|
|
58
|
%
|
|
|
66
|
%
|
|
|
52
|
%
|
|
|
56
|
%
|
|
|
56
|
%
|
|
|
55
|
%
|
|
|
49
|
%
|
|
|
53
|
%
|
|
|
58
|
%
|
Maintenance and professional services
|
|
|
31
|
|
|
|
34
|
|
|
|
42
|
|
|
|
34
|
|
|
|
48
|
|
|
|
44
|
|
|
|
44
|
|
|
|
45
|
|
|
|
51
|
|
|
|
47
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses (as a % of license revenue)
|
|
|
11
|
%
|
|
|
13
|
%
|
|
|
15
|
%
|
|
|
10
|
%
|
|
|
19
|
%
|
|
|
14
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
16
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
Maintenance and professional services (as a % of maintenance and
professional services revenue)
|
|
|
44
|
|
|
|
41
|
|
|
|
39
|
|
|
|
37
|
|
|
|
44
|
|
|
|
47
|
|
|
|
38
|
|
|
|
30
|
|
|
|
38
|
|
|
|
42
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
21
|
|
|
|
22
|
|
|
|
25
|
|
|
|
19
|
|
|
|
31
|
|
|
|
28
|
|
|
|
23
|
|
|
|
20
|
|
|
|
27
|
|
|
|
26
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
79
|
|
|
|
78
|
|
|
|
75
|
|
|
|
81
|
|
|
|
69
|
|
|
|
72
|
|
|
|
77
|
|
|
|
80
|
|
|
|
73
|
|
|
|
74
|
|
|
|
78
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
48
|
|
|
|
57
|
|
|
|
59
|
|
|
|
38
|
|
|
|
52
|
|
|
|
42
|
|
|
|
39
|
|
|
|
36
|
|
|
|
40
|
|
|
|
39
|
|
|
|
35
|
|
Research and development
|
|
|
26
|
|
|
|
26
|
|
|
|
30
|
|
|
|
23
|
|
|
|
31
|
|
|
|
23
|
|
|
|
21
|
|
|
|
23
|
|
|
|
25
|
|
|
|
25
|
|
|
|
21
|
|
General and administrative
|
|
|
18
|
|
|
|
22
|
|
|
|
19
|
|
|
|
19
|
|
|
|
21
|
|
|
|
17
|
|
|
|
15
|
|
|
|
15
|
|
|
|
18
|
|
|
|
18
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
92
|
|
|
|
105
|
|
|
|
108
|
|
|
|
80
|
|
|
|
104
|
|
|
|
82
|
|
|
|
75
|
|
|
|
74
|
|
|
|
83
|
|
|
|
82
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(13
|
)
|
|
|
(27
|
)
|
|
|
(33
|
)
|
|
|
1
|
|
|
|
(35
|
)
|
|
|
(10
|
)
|
|
|
2
|
|
|
|
6
|
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
7
|
|
Other (income) expense
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(12
|
)
|
|
|
(27
|
)
|
|
|
(34
|
)
|
|
|
1
|
|
|
|
(37
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
4
|
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
7
|
|
Provision for income taxes
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(14
|
)
|
|
|
(29
|
)
|
|
|
(35
|
)
|
|
|
(1
|
)
|
|
|
(39
|
)
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(15
|
)
|
|
|
(9
|
)
|
|
|
6
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to BroadSoft, Inc.
|
|
|
(14
|
)%
|
|
|
(29
|
)%
|
|
|
(35
|
)%
|
|
|
(1
|
)%
|
|
|
(39
|
)%
|
|
|
(14
|
)%
|
|
|
(2
|
)%
|
|
|
2
|
%
|
|
|
(15
|
)%
|
|
|
(9
|
)%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
|
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
2010
|
|
2010
|
|
2010
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
Additional Key Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$6,703
|
|
|
|
$5,481
|
|
|
|
$17,556
|
|
|
|
$14,353
|
|
|
|
$16,778
|
|
|
|
$18,057
|
|
|
|
$20,901
|
|
|
|
$22,869
|
|
|
|
$24,100
|
|
|
$
|
47,366
|
|
|
$
|
49,488
|
|
Total deferred revenue
|
|
|
13,311
|
|
|
|
16,828
|
|
|
|
15,668
|
|
|
|
21,179
|
|
|
|
25,133
|
|
|
|
27,584
|
|
|
|
31,089
|
|
|
|
40,047
|
|
|
|
46,315
|
|
|
|
46,940
|
|
|
|
54,298
|
|
Increase (decrease) in total deferred revenue
|
|
|
(1,375
|
)
|
|
|
3,517
|
|
|
|
(1,160
|
)
|
|
|
5,511
|
|
|
|
3,954
|
|
|
|
2,451
|
|
|
|
3,505
|
|
|
|
8,958
|
|
|
|
6,268
|
|
|
|
625
|
|
|
|
7,358
|
|
Cash (used in) provided by operating activities
|
|
|
(2,789
|
)
|
|
|
(6,975
|
)
|
|
|
(261
|
)
|
|
|
5,014
|
|
|
|
2,998
|
|
|
|
2,489
|
|
|
|
4,003
|
|
|
|
937
|
|
|
|
2,464
|
|
|
|
4,408
|
|
|
|
3,520
|
|
Variability in
Quarterly Results
Our quarterly results vary significantly as a result of many
factors, many of which are outside our control. These factors
include customer ordering practices and deployment cycles, the
impact of deferred revenue and general economic conditions. In
addition, increased customer purchases at year-end have
generally positively impacted sales activity in the fourth
quarter, which can result in fewer customer orders in the first
quarter. Results of operations during the third quarter of 2008
were adversely impacted as a result of the global economic
downturn. Results of operations in the first
77
quarter of 2009 were affected by increases in deferred revenue
and the impact of seasonal factors that typically adversely
impact our first quarter sales. Our historical results should
not be considered a reliable indicator of our future results of
operations.
Our total quarterly revenue has generally increased, with
revenue increasing from $13.5 million in the quarter ended
September 30, 2008 to $22.3 million in the quarter
ended September 30, 2010. Our increase in quarterly revenue
is mainly due to the increase in maintenance and professional
services revenue. The increases in maintenance revenue are
primarily due to increases in the total number of software
licenses sold to customers and the high percentage of renewal
agreements for post-contract maintenance and support, including
customer relationships acquired through the M6 and Sylantro
acquisitions. The increase in professional services revenue is a
result of an increase in the demand for our professional
services from customers using our software.
Gross margin has fluctuated on a quarterly basis primarily due
to changes in revenue and deferred revenue and shifts in the mix
of sales between licenses, maintenance and professional
services. In 2008, license gross margin fluctuated on a
quarterly basis as expenses remained relatively unchanged for
each quarter, but license revenue fluctuated due to the reasons
discussed above. However, in 2009, license gross margin
increased each sequential quarter as license revenue increased
and expenses decreased during the third and fourth quarters. In
2008, maintenance and professional services gross margin
fluctuated on a quarterly basis as expenses remained relatively
unchanged for each quarter, while maintenance and professional
services revenue fluctuated due to the reasons discussed above.
However, in 2009, maintenance and professional services gross
margin increased sequentially each quarter due to maintenance
and professional services revenue increasing each quarter
without a proportionate increase in related costs.
Liquidity and
Capital Resources
Resources
Since the beginning of 2009, we have funded our operations
principally with cash provided by operating activities, which
has resulted primarily from growth in revenue and deferred
revenue. In June 2010, we completed our IPO through which we
raised net proceeds of $40.0 million.
Upon the closing of the IPO, all shares of our then-outstanding
redeemable convertible preferred stock automatically converted
into common stock. In connection with the closing of the IPO, we
used $4.3 million of the net proceeds from the IPO to
redeem and subsequently cancel all outstanding shares of our
Series A redeemable preferred stock. Also in June 2010, we
used approximately $14.3 million of the net proceeds from
the IPO to repay the outstanding balance under the ORIX Loan. As
a result of the completion of the IPO, the conversion of our
redeemable convertible preferred stock into common stock, the
redemption of the Series A redeemable preferred stock and
the repayment of the ORIX Loan, we have substantially increased
our existing capital resources and reduced our financial
commitments.
78
Cash, Cash
Equivalents and Working Capital
The following table presents a summary of our cash and cash
equivalents, accounts receivable, working capital and cash flows
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
As of and for the Year Ended
|
|
Nine Months Ended
|
|
|
December 31,
|
|
September 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
10,717
|
|
|
$
|
14,353
|
|
|
$
|
22,869
|
|
|
$
|
20,901
|
|
|
$
|
49,488
|
|
Accounts receivable, net
|
|
|
15,804
|
|
|
|
21,413
|
|
|
|
25,471
|
|
|
|
17,997
|
|
|
|
30,611
|
|
Working capital
|
|
|
3,200
|
|
|
|
5,918
|
|
|
|
2,924
|
|
|
|
3,568
|
|
|
|
20,808
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(3,679
|
)
|
|
|
(5,011
|
)
|
|
|
10,427
|
|
|
|
9,487
|
|
|
|
10,392
|
|
Investing activities
|
|
|
(1,412
|
)
|
|
|
(8,776
|
)
|
|
|
694
|
|
|
|
(905
|
)
|
|
|
(3,123
|
)
|
Financing activities
|
|
|
9,148
|
|
|
|
17,597
|
|
|
|
(2,684
|
)
|
|
|
(2,102
|
)
|
|
|
19,314
|
|
Our cash and cash equivalents at September 30, 2010 were
held for working capital and other general corporate purposes
and were invested primarily in demand deposit accounts or money
market funds. We do not enter into investments for trading or
speculative purposes. Restricted cash, which totaled
$1.1 million at September 30, 2010 and is not included
in cash and cash equivalents, consists primarily of certificates
of deposit that secure letters of credit related to operating
leases for office space.
Operating
Activities
For the nine months ended September 30, 2010, operating
activities provided $10.4 million in net cash compared to
$9.5 million for the same period in 2009, primarily as a
result of a net loss of $3.2 million and an increase in
accounts receivable of $5.2 million that was offset by a
$14.3 million increase in deferred revenue, which was
attributable primarily to increased sales of our software, and
non-cash items, such as depreciation and amortization of
$1.8 million, amortization of software licenses of
$1.4 million and stock-based compensation expense of
$2.2 million.
For the year ended December 31, 2009, operating activities
provided $10.4 million in cash, primarily as a result of a
net loss of $7.9 million that was offset by an
$18.9 million increase in deferred revenue, which was
attributable primarily to increased sales of our software, and
non-cash items, such as depreciation and amortization of
$2.2 million, amortization of software licenses of
$1.8 million and stock-based compensation expense of
$3.6 million. Cash provided by operating activities was
adversely impacted by a $4.1 million increase in accounts
receivable resulting from increased sales activity and a
$3.5 million decrease in accounts payable and other
liabilities primarily due to the payment of liabilities incurred
through the acquisition of M6 and Sylantro.
For the year ended December 31, 2008, operating activities
used $5.0 million in cash, primarily as a result of a net
loss of $11.2 million that was partially offset by a
$2.5 million increase in deferred revenue (exclusive of
deferred revenue acquired through acquisitions) and non-cash
items, such as depreciation and amortization of
$1.7 million, amortization of software licenses of
$2.2 million and stock-based compensation expense of
$2.9 million. Cash used in operating activities was
adversely impacted by a $1.6 million increase in accounts
receivable (exclusive of accounts receivable acquired through
acquisitions) resulting from increased sales activity and a
$0.7 million decrease in accounts payable.
For the year ended December 31, 2007, operating activities
used $3.7 million in cash as a result of a net loss of
$1.8 million and a $7.5 million decrease in deferred
revenue that was attributable primarily to the recognition of a
significant amount of revenue during 2007 that had been deferred
79
between 2004 and 2006, partially offset by non-cash items, such
as depreciation and amortization of $1.5 million,
amortization of software licenses of $2.1 million and
stock-based compensation expense of $1.7 million.
Investing
Activities
Our investing activities have consisted primarily of purchases
of property and equipment, as well as business acquisitions.
For the nine months ended September 30, 2010, net cash used
in investing activities was $3.1 million, compared to
$0.9 million for the same period in 2009. This increase was
attributed to a $0.5 million restricted cash deposit to
secure a new operating lease and $1.4 million increase in
purchases of property and equipment, much of which was for
leasehold improvements and equipment for new office space.
For the year ended December 31, 2009, net cash provided by
investing activities was $0.7 million, consisting of
$0.8 million of cash received in connection with our
acquisition of Packet Island, which we acquired for stock, and
the release of restricted cash of $0.7 million, partially
offset by the purchase of property and equipment of
$0.8 million.
For the year ended December 31, 2008, net cash used in
investing activities was $8.8 million, consisting primarily
of $6.4 million for the acquisition of third-party
software, $1.3 million for the purchases of property and
equipment, $0.6 million for new certificates of deposit
that are securing letters of credit and $0.5 million for
net assets acquired in the acquisitions of M6 and Sylantro.
For the year ended December 31, 2007, net cash used in
investment activities was $1.4 million, consisting
primarily of purchases of property and equipment.
Financing
Activities
For the nine months ended September 30, 2010, net cash
provided by financing activities was $19.3 million,
compared to cash used in financing activities of
$2.1 million for the same period in 2009. This amount
consisted primarily of the net proceeds of our IPO of
$40.0 million, partially offset by repayment of the ORIX
Loan and other loan balances in the aggregate of
$16.3 million and the $4.3 million payment for the
redemption and subsequent cancellation of all outstanding shares
of our Series A redeemable preferred stock.
For the year ended December 31, 2009, net cash used in
financing activities was $2.7 million, consisting primarily
of the repayment of outstanding indebtedness.
For the year ended December 31, 2008, net cash provided by
financing activities was $17.6 million, consisting
primarily of $15.0 million of proceeds from the ORIX Loan
and $6.4 million of debt incurred in connection with our
purchase of third-party software, partially offset by net debt
repayments of $4.0 million.
For the year ended December 31, 2007, net cash provided by
financing activities was $9.1 million, consisting primarily
of $9.9 million of net proceeds from the issuance of
Series D redeemable convertible preferred stock,
$0.3 million from the exercise of outstanding warrants and
$0.3 million from the exercise of stock options, partially
offset by debt repayments of $1.4 million.
Credit
Facilities
ORIX
Loan
On September 26, 2008, we entered into a $15.0 million
credit facility with ORIX. In June 2010, we voluntarily repaid
the outstanding balance of this loan in full. The ORIX Loan
required 42 equal monthly principal payments of approximately
$0.4 million beginning in April 2010 and was scheduled to
mature in September 2013. Borrowings under this agreement bore
interest at a rate equal to 3.0%
80
plus the greater of (a) the prime rate and (b) the
LIBOR rate plus 2.5%, provided that in no event could the
interest rate on the ORIX Loan be less than 7.0% per annum.
Bank of America
Installment Loan
We have an installment loan with Bank of America, in the
original principal amount of $6.4 million, to finance the
payment of a one-time license and maintenance fee in connection
with our license of certain third party software. The interest
rate on the loan is fixed at 4.0%. The loan provides for
scheduled quarterly principal repayments of $0.4 million
with the final principal payment due on April 1, 2012. As
of September 30, 2010, the liability for the installment
bank loan was approximately $2.4 million.
Operating and
Capital Expenditure Requirements
We believe that the net proceeds from this offering, together
with the cash generated from operations, our current cash
balances and interest income we earn on these balances will be
sufficient to meet our anticipated cash requirements through at
least the next 12 months. In the future, we expect our
operating and capital expenditures to grow as we increase
headcount, expand our business activities, grow our customer
base and implement and enhance our information technology and
enterprise resource planning system. As sales grow, we expect
our accounts receivable balance to increase. Any such increase
in accounts receivable may not be completely offset by increases
in accounts payable and accrued expenses, which would likely
result in greater working capital requirements.
If our available cash resources and net proceeds from this
offering are insufficient to satisfy our liquidity requirements,
we may seek to sell equity or convertible debt securities or
enter into a credit facility. The sale of equity and convertible
debt securities may result in dilution to our stockholders and
those securities may have rights senior to those of our common
shares. If we raise additional funds through the issuance of
convertible debt securities, these securities could contain
covenants that would restrict our operations. We may require
additional capital beyond our currently anticipated amounts.
Additional capital may not be available on reasonable terms, or
at all.
Our estimates of the period of time through which our financial
resources will be adequate to support our operations and the
costs to support research and development and our sales and
marketing activities are forward-looking statements and involve
risks and uncertainties and actual results could vary materially
and negatively as a result of a number of factors, including the
factors discussed in the section Risk Factors of
this prospectus. We have based our estimates on assumptions that
may prove to be wrong and we could utilize our available capital
resources sooner than we currently expect.
Our short- and long-term capital requirements will depend on
many factors, including the following:
|
|
|
|
|
our ability to generate cash from operations;
|
|
|
|
our ability to control our costs;
|
|
|
|
the emergence of competing or complementary technological
developments;
|
|
|
|
the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights or
participating in litigation-related activities; and
|
|
|
|
the acquisition of businesses, products and technologies.
|
81
Contractual
Obligations
We have contractual obligations for non-cancelable office space,
notes payable and other short-term and long-term liabilities.
The following table discloses aggregate information about our
contractual obligations and periods in which payments are due as
of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2011 through
|
|
|
2013 through
|
|
|
2016 and
|
|
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2015
|
|
|
beyond
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
|
$8,782
|
|
|
|
$245
|
|
|
|
$2,365
|
|
|
|
$2,916
|
|
|
|
$3,256
|
|
Bank of America Installment Loan
|
|
|
2,352
|
|
|
|
|
|
|
|
2,352
|
|
|
|
|
|
|
|
|
|
Other short-term and long-term liabilities
|
|
|
950
|
|
|
|
449
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$12,105
|
|
|
|
$715
|
|
|
|
$5,218
|
|
|
|
$2,916
|
|
|
|
$3,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in the table above do not include contingent
payments potentially payable to GENBAND Inc., or GENBAND, in
connection with our acquisition of the M6 application server
business from GENBAND. Pursuant to the terms of the acquisition
agreement, we are required to make a payment to GENBAND equal to
15% of annual qualifying sales related to M6 for three years
from the acquisition date of August 27, 2008. In the first
and second year following the acquisition, we incurred an
obligation of $0.6 million and $0.8 million,
respectively, pursuant to this requirement.
As of September 30, 2010, we had unrecognized tax benefits
of $0.4 million, which did not include any interest or
penalties. We do not expect to recognize any of these benefits
in 2010. Furthermore, we are not able to provide a reliable
estimate of the timing of future payments relating to these
unrecognized benefits.
Off-Balance Sheet
Arrangements
As of September 30, 2010, we did not have any significant
off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of SEC
Regulation S-K.
Quantitative and
Qualitative Disclosure About Market Risk
We are exposed to market risk related to changes in interest
rates and foreign currency exchange rates. We do not use
derivative financial instruments for speculative, hedging or
trading purposes, although in the future we may enter into
interest rate or exchange rate hedging arrangements to manage
the risks described below.
Interest Rate
Risk
The interest rates are fixed on all outstanding loan balances,
so we do not have exposure to risks associated with increases in
variable rates tied to indexes. We maintain a short-term
investment portfolio consisting mainly of highly liquid
short-term money market funds, which we consider to be cash
equivalents. Our restricted cash consists primarily of
certificates of deposit that secure letters of credit related to
operating leases for office space. These securities and
investments earn interest at variable rates and, as a result,
decreases in market interest rates would generally result in
decreased interest income.
82
Foreign
Currency Exchange Risk
With international operations, we face exposure to adverse
movements in foreign currency exchange rates. These exposures
may change over time as business practices evolve and if our
exposure increases, adverse movement in foreign currency
exchange rates would have a material adverse impact on our
financial results. Historically, our primary exposures have been
related to
non-U.S. dollar
denominated operating expenses in Canada, Europe and the APAC
region. As a result, our results of operations would generally
be adversely affected by a decline in the value of the
U.S. dollar relative to these foreign currencies. However,
based on the size of our international operations and the amount
of our expenses denominated in foreign currencies, we would not
expect a 10% decline in the value of the U.S. dollar from
rates on September 30, 2010 to have a material effect on
our financial position or results of operations. Substantially
all of our sales contracts are currently denominated in
U.S. dollars. Therefore, we have minimal foreign currency
exchange risk with respect to our revenue.
Recent
Accounting Pronouncements
Business combinations and noncontrolling interests. On
January 1, 2009, we adopted the authoritative guidance
issued by the Financial Accounting Standards Board, or the FASB,
on business combinations. The guidance addresses the manner in
which the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the
acquired business. This guidance also provides standards for
recognizing and measuring the goodwill acquired in the business
combination and for disclosure of information to enable users of
the financial statements to evaluate the nature and financial
effects of the business combination. The guidance applies
prospectively to business combinations with an acquisition date
on or after the date the guidance became effective. Our
acquisition of Packet Island on October 19, 2009 was
accounted for under this guidance.
In April 2009, the FASB issued guidance relating to accounting
for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This pronouncement
amends the guidance on business combinations to clarify the
initial and subsequent recognition, subsequent accounting and
disclosure of assets and liabilities arising from contingencies
in a business combination. This pronouncement requires that
assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value, as determined in accordance with guidance for fair value
measurements, if the acquisition-date fair value can be
reasonably estimated. If the acquisition-date fair value of an
asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be
recognized in accordance with the accounting guidance for
contingencies. This pronouncement became effective as of
January 1, 2009, and the provisions of the pronouncement
are applied prospectively to business combinations with an
acquisition date on or after the date the guidance became
effective. The adoption of this pronouncement did not have a
material impact on our financial position or results of
operations.
Concurrent with the issuance of the new business combinations
guidance, the FASB issued guidance on noncontrolling interests.
This guidance which we applied prospectively as of
January 1, 2009 (except for the presentation and disclosure
requirements, which are being applied retrospectively to all
periods presented), did not have a material impact on our
results of operations, cash flows or financial position.
Intangible assets. On January 1, 2009, we adopted
the authoritative guidance issued by the FASB which revises the
factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset. This guidance is intended to
improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to
measure the fair value of the asset under GAAP. This guidance
applies prospectively to intangible assets that are acquired on
or after January 1, 2009. The adoption of this guidance did
not have a material impact on our consolidated financial
statements.
83
Fair value measurements and disclosures. On
January 1, 2009, we adopted authoritative guidance issued
by the FASB on fair value measurements of nonfinancial assets
and liabilities, other than non-financial assets and liabilities
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), which
already were subject to the FASB guidance. The adoption of this
guidance did not have a material impact on our consolidated
financial statements.
In April 2009, the FASB issued additional guidance on fair value
measurements and disclosures. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
under current market conditions. The new guidance requires an
evaluation of whether there has been a significant decrease in
the volume and level of activity for the asset or liability in
relation to normal market activity for the asset or liability.
If there has been a significant decrease in activity,
transactions or quoted prices may not be indicative of fair
value and a significant adjustment may need to be made to those
prices to estimate fair value. Additionally, an entity must
consider whether the observed transaction was orderly (that is,
not distressed or forced). If the transaction was orderly, the
obtained price can be considered a relevant, observable input
for determining fair value. If the transaction is not orderly,
other valuation techniques must be used when estimating fair
value. This guidance, which we applied prospectively as of
June 30, 2009, did not impact our results of operations,
cash flows or financial position.
Revenue recognition. Effective January 1, 2010, we
adopted new accounting guidance for revenue arrangements with
multiple deliverables that are outside of the scope of previous
authoritative software revenue recognition guidance. The new
accounting guidance provides that, when vendor-specific
objective evidence or third-party evidence of selling price is
not available, a best estimate of the selling price is required
to separate deliverables and allocate arrangement consideration
based on the relative selling prices of the separate
deliverables (the relative selling price method).
The relative selling price method allocates any discount in the
arrangement proportionately to each deliverable on the basis of
each deliverables selling price. We concluded the new
accounting guidance did not have a material impact on our
results of operations, cash flows or financial position during
the three and nine months ended September 30, 2010, as the
guidance applied only to the sale of certain products offered by
us, which sales were not significant.
Effective January 1, 2010, we adopted new accounting
guidance for revenue recognition for arrangements that include
software elements. Under the new guidance, tangible products
containing software components and non-software components that
function together to deliver the tangible products
essential functionality are excluded from the scope of software
revenue recognition guidance and will be subject to other
relevant revenue recognition guidance. We concluded the new
accounting guidance did not have a material impact on our
results of operations, cash flows or financial position during
the three and nine months ended September 30, 2010, as the
guidance applied only to the sale of certain products offered by
us, which sales were not significant.
Effective January 1, 2010, we adopted new accounting
guidance amending the disclosure requirements related to
recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and
liabilities between Level 1 inputs (quoted prices in active
market for identical assets or liabilities) and Level 2
inputs (significant other observable inputs) of the fair value
measurement hierarchy, including the reasons and the timing of
the transfers. Additionally, for all interim and year-end
reporting periods beginning December 31, 2010, the guidance
requires separate disclosure of purchases, sales, issuance and
settlements of assets and liabilities measured using
Level 3 fair value measurements (significant unobservable
inputs). There were no transfers of assets or liabilities
between Levels 1 and 2 of the fair value measurement
hierarchy during the three and nine months ended
September 30, 2010. In conjunction with the IPO, the
Series C-1
preferred stock warrants converted to common stock warrants. As
a result, we reclassified the
Series C-1
preferred stock warrants from Level 3 liabilities to
additional paid in capital (APIC). We will include
these additional disclosures, as applicable, in our interim and
year-end financial statements in future periods.
84
BUSINESS
Overview
We are the leading global provider of software that enables
fixed-line, mobile and cable service providers to deliver voice
and multimedia services over their Internet protocol-based, or
IP-based, networks. Our software, BroadWorks, enables our
service provider customers to provide enterprises and consumers
with a range of cloud-based, or hosted, IP multimedia
communications, such as hosted IP private branch exchanges, or
PBXs, video calling, unified communications, or UC,
collaboration and converged mobile and fixed-line services. For
the year ended December 31, 2009, Infonetics Research,
Inc., or Infonetics, a leading industry research firm, estimated
that our global market share of multimedia application server
software was approximately 33%. BroadWorks performs a critical
network function by serving as the software element that
delivers and coordinates voice, video and messaging
communications through a service providers
IP-based
network. Service providers use BroadWorks to offer services that
generate new revenue, reduce subscriber churn, capitalize on
their investments in
IP-based
networks and help them migrate services from their legacy,
circuit-based networks to their IP-based networks. We believe
that we are well-positioned to enable service providers to
capitalize on their
IP-based
network investments by efficiently and cost-effectively offering
a broad suite of services to their end-users.
The market for communications services is changing. Enterprises
and consumers are increasingly demanding new and better ways to
communicate, including by voice, video, mobile, instant
messaging and text messaging. Many of these users also seek
greater features and functionality to enhance their experience
with these types of communications. At the same time,
enterprises and consumers are also demanding that their
communications be flexible and cost-effective. We believe that
in response, service providers are shifting toward providing
cloud-based, real-time multimedia communications service
offerings. The delivery of these services from legacy network
infrastructure is difficult and impractical. As a result, many
service providers are looking to software to enable their
IP-based
networks to deliver the communications services that their
subscribers demand.
BroadWorks delivers and coordinates the enterprise, consumer,
mobile and trunking communications applications that service
providers offer through their
IP-based
networks. BroadWorks is installed on industry-standard servers,
typically located in service providers data centers. It
interoperates with service providers core networks,
accesses other networks for interworking with end-users
communications devices and connects to service providers
support and billing systems.
We began selling BroadWorks in 2001. Over 425 service providers,
located in more than 65 countries, including 15 of the top 25
telecommunications service providers globally as measured by
revenue in the first three quarters of 2009, have purchased our
software. We sell our products to service providers both
directly and indirectly through distribution partners such as
telecommunications equipment vendors, VARs and other
distributors.
Industry
We believe telecommunications service providers are facing
significant challenges to their traditional business models,
including declining revenues in their legacy businesses, rapidly
evolving customer communications demands and the need to
generate returns on their increasing investments in
IP-based
networks. Historically, service providers derived much of their
revenue from providing reliable voice and high speed data
access. However, these legacy services have been increasingly
commoditized as technological and regulatory changes have
brought increased competition and lower prices. At the same
time, enterprises and consumers have started to seek new and
enhanced cloud-based communications services, such as hosted
voice and multimedia communications, converged mobile and
fixed-line services, video calling and collaboration. These new
and enhanced services provide service providers with
opportunities to counter falling legacy revenues and increase
subscriber growth. Service providers are utilizing their
existing
IP-based
networks to deliver these services.
85
Although these
IP-based
networks were originally built to deliver high speed data, they
are being configured, through the use of new network software,
to efficiently enable the broader, richer services that their
subscribers increasingly demand.
Demand for
Voice and Multimedia Services
Service providers are delivering these services to enterprise
and consumer customers. Enterprise subscribers include small,
medium and large businesses, universities and governments and
range in size from a few end-users to tens of thousands.
Consumer subscribers include individuals and families purchasing
communications services for their personal and residential use.
Enterprises
Enterprises require communication features and functionality
that are varied and, in many cases, complex. For many years,
four-digit dialing, multi-party conferencing and video
conferencing have been common enterprise needs. Historically,
enterprises have purchased voice and data access from service
providers and deployed customer premises-based equipment, or
CPE, such as private branch exchanges, or PBXs, to help deliver
this functionality. Infonetics estimates that during 2009
enterprises spent over $7.7 billion on PBX equipment.
Enterprises could avoid the costly purchase of CPE by obtaining
these services directly from a service providers network,
often called hosted services. However, enterprises frequently
required greater features and functionality than could
previously be delivered efficiently from service providers
legacy voice networks.
As service providers further invest in their
IP-based
networks, they are able to enhance the quality and functionality
of their cloud-based communications, which has enabled service
providers to increase the volume of communications services
delivered to customers as hosted offerings. Concurrently, we
believe a number of trends are driving increased demand for
cloud-based services, including:
|
|
|
|
|
Accelerating rate of technology
change. Communications technology is evolving
rapidly, with the frequent introduction of new devices and
services and an increase in the number of ways people interact.
Keeping pace with this change becomes difficult and expensive in
a CPE-based environment where the investment to interoperate
with new devices or provide new services must be fully borne by
the enterprise. Furthermore, CPE vendors operate proprietary
systems with typically higher prices and limited selection of
end-point devices. As new services are added, equipment upgrades
are often required and, unless the equipment of all constituents
within the enterprise is upgraded, functionality can remain
limited. Furthermore, as mobile and other communications
services are increasingly integrated, the difficulty of using a
CPE-based approach is compounded by the complexity of these
additions. Cloud-based hosted services deliver communications
services from the network itself, are centrally managed by the
service provider and deliver uniform service across an
enterprise. This increased efficiency and the ability of service
providers to offer new services across their entire subscriber
base also allows service providers to deliver services at lower
cost.
|
|
|
|
Shift towards unified communications. UC is
the integration of voice and video calling and conferencing with
instant and text messaging, presence information, collaboration
tools and
e-mail. UC
increases significantly the number of devices to be supported,
the number of network interconnect points and the associated
amount of required network integration. We also believe UC
increases the pace at which enterprises will seek to introduce
new services. CPE-based UC solutions can be complex, expensive
and consume significant time and resources as compared to
cloud-based solutions.
|
|
|
|
Increased acceptance of cloud-based
services. Enterprises are increasingly obtaining
mission-critical IT services, such as computing and storage,
from the cloud. We believe the positive experiences and savings
enterprises can achieve with cloud-based IT systems will drive
enterprises to continue to move other important functions, such
as communications services, into the cloud.
|
86
Consumers
Service providers have experienced a high degree of subscriber
attrition, partially due to their limited ability to
differentiate service offerings. To retain subscribers and
introduce new revenue streams, service providers have bundled
services into integrated packages. To date, bundled services
have included voice, TV and internet services, with mobile
increasingly included, and are commonly referred to as either
triple play or quad play.
To further increase revenue and decrease subscriber churn,
service providers are expanding beyond triple and quad play and
are starting to offer services such as video calling, single
number mobile and fixed-line dialing and messaging and
integration with household devices, such as television set top
boxes. At the same time, we believe that the proliferation of
new devices, such as smart wireless phones and home video
phones, is driving increased consumer demand for expanded
service offerings. We believe that this trend has been
accelerated by the emerging multimedia telephony, or MMTel,
standard. Service providers are increasingly demanding MMTel in
their IP telephony implementations so they can seamlessly offer
multimedia telephony to their consumer subscribers.
As communications evolve from voice to multimedia, devices
proliferate and modes of communications broaden, service
providers are finding that services delivered to one category of
subscriber, enterprise or consumer, are starting to drive demand
for similar services in the other category. For example,
consumers personal use of their smart wireless phones for
varied modes of communications, such as instant messaging, or
IM, e-mail
and voice, can create expectations for multimedia and
collaboration services within the enterprises where they work.
Conversely, in the work context, when consumers experience
converged mobile and fixed-line services, such as one number
calling, find me/follow me, single unified voicemail,
e-mail
delivery of voicemail, etc., or video calling, they may seek
similar services to use in their personal communications. In
addition, the division between enterprise and consumer
communications is blurring, as workforces become more mobile and
people seek to work either part- or full-time from their homes.
We believe that this dynamic increases overall demand for
multimedia services and provides service providers opportunities
to enable feature-rich services across their subscriber bases.
Challenges in
Enabling Multimedia Services on
IP-based
Networks
Historically, applications such as voice messaging, call
forwarding and call waiting were delivered from within the core
network by network elements, such as legacy Class 5 and
softswitches. These applications were voice-focused, limited in
nature and changed infrequently. We believe that, as service
providers look to rapidly introduce new services, many of which
include multimedia and not merely voice communications, they
require network elements that are capable of:
|
|
|
|
|
Coordinating delivery of a large and rapidly increasing
number of applications. Each new application
requires coordination within the service providers network
to ensure that the application is authorized, appropriately
charged for and delivered in a way that is appropriate to the
end-user based on the device and user preferences.
|
|
|
|
Operating across heterogeneous network elements and
devices. Most service providers networks
consist of network equipment and software from multiple vendors.
In addition, service providers subscribers and end-users
operate a variety of devices. New applications must seamlessly
navigate these varied network elements and devices without
impacting functionality.
|
|
|
|
Ensuring high levels of reliability and
quality. Service providers and their subscribers
are accustomed to a high level of reliability and quality and
expect similar levels of reliability and quality from new
applications.
|
87
|
|
|
|
|
Efficiently scaling as more subscribers are
added. As more subscribers purchase applications
and service providers acquire new subscribers, service providers
need to be able to efficiently add capacity without increasing
complexity.
|
It is no longer efficient for the responsibility of application
delivery to reside in network elements such as softswitches.
These elements are dedicated to other crucial network roles, are
not designed to deliver multimedia applications and are
typically limited in the number of network elements with which
they interact. In addition, because these network elements are
generally dispersed throughout a service providers
network, deploying, scaling and managing these multimedia
services through these network elements is even more difficult.
The BroadSoft
Solution
To meet these challenges, many service providers are deploying a
separate voice and multimedia application server that is
specifically designed to deliver multimedia services as part of
their network architecture. A voice and multimedia application
server is the dedicated network software element that delivers
and coordinates voice, video and messaging communications. In
addition, many service providers are shifting their networks
toward new all-IP-based network architectures, such as IP
Multimedia Subsystem, or IMS. Within these new all-IP
architectures, the application server is a defined function or
layer.
BroadWorks is the industrys leading voice and multimedia
application server. BroadWorks is installed on industry-standard
servers, typically located in service providers data
centers. As illustrated below, BroadWorks utilizes well-defined
interfaces to interoperate with service providers core
networks, accesses other networks for interworking with
end-users communications devices and connects to service
providers support and billing systems for management and
charging functions.
88
We believe that we are well-positioned to enable service
providers to capitalize on their
IP-based
network investments by efficiently and cost-effectively offering
a broad suite of essential and value-added services to their
end-users. BroadWorks provides service providers several key
advantages when they offer voice and multimedia services on
their
IP-based
networks, including:
|
|
|
|
|
Rapid delivery of enterprise and consumer multimedia
services from a single platform. We believe
BroadWorks provides the most extensive set of features and
applications available on a single platform for fixed-line,
mobile and cable broadband access networks, for both enterprise
and consumer applications. We currently offer more than 150
licensable applications, such as custom ringback, conferencing,
call centers, unified messaging and simultaneous ringing. As our
customers and their subscribers demand additional applications,
we believe the breadth of our existing applications, our
commitment to innovation and our Xtended Web 2.0 APIs,
which we describe below, all position us to continue offering
cost-effective, feature-rich applications to meet our
customers needs.
|
|
|
|
Demonstrated carrier adoption globally across many service
provider networks. Over 425 service providers
in more than 65 countries have purchased our software,
including 15 of the top 25 telecommunications service
providers globally.
|
|
|
|
Broad interoperability across network equipment vendors,
network architectures and devices. BroadWorks
interoperates with all significant network architectures (such
as IMS and Next Generation Network, or NGN, architectures),
access types, infrastructures and protocols. Service providers
are able to migrate their BroadWorks implementation from pre-IMS
to IMS with a simple feature change within our software. In
addition, BroadWorks integrates and interoperates with the major
network equipment vendors core network solutions. We
believe this independence helps service providers implement
innovative multimedia application server functions in a
cost-effective manner because BroadWorks can be deployed without
expensive, complex collateral changes to service providers
networks. BroadWorks is presently deployed in service provider
networks consisting of each of the major vendors pre-IMS
and IMS core technologies.
|
|
|
|
Extensive technology and device partner
ecosystem. BroadWorks interoperates with more than
450 devices, including approximately 300 CPE devices, such as IP
phones, computer-based soft-phones, conferencing devices, IP
gateways, mobile phones and consumer electronics. We work
closely with CPE vendors to create a positive overall end-user
experience with simplified provisioning, troubleshooting,
enhanced feature functionality and synchronized device and
server state. In addition, BroadWorks session initiation
protocol, or SIP, trunking interoperates with most of the major
IP PBX offerings.
|
|
|
|
Scalable architecture and carrier-grade
reliability. Our applications are designed to scale
to support hundreds of millions of subscribers. With our
innovative geographic redundancy solution, BroadWorks can be
deployed in a fault-tolerant architecture that has achieved a
carrier-grade system availability of greater than 99.999%. In
addition, we were recently awarded TL 9000 certification for our
quality management system.
|
|
|
|
Leadership in emerging standards and
requirements. We are actively involved in the
development of the IMS, SIP and MMTel standards, as well as
several other standards that we expect to shape our market in
the future. BroadWorks is the application server supporting what
we believe to be the worlds largest IMS deployment based
on the number of subscribers. Furthermore, as of
December 31, 2009, we have shipped over 7.8 million
IMS voice over IP subscriber lines. These lines represent 48% of
the 16.8 million total lines we have shipped. We were also
instrumental in founding the SIPConnect working group of the
SIPForum, an industry forum promoting the SIP protocol. We
believe this technology leadership, together with our work with
industry standards organizations, allows us to anticipate
emerging standards and will help us shape future industry
practices.
|
89
Strategy
Our goal is to strengthen our position as the leading global
provider of multimedia application servers by enabling service
providers to increase revenue opportunities by delivering
feature-rich services to their enterprise and consumer
subscribers and to leverage their investment in
IP-based
networks. Key elements of our strategy include:
|
|
|
|
|
Extend our technology leadership and product depth and
breadth. We intend to provide an industry-leading
solution through continued focus on product innovation and
substantial investment in research and development for new
features, applications and services. In 2009, we delivered
approximately 300 new features and in 2010 we plan to deliver
additional new features, including additional mobile business
applications, voice and text messaging over long term evolution,
or LTE, a rich communications suite, or RCS, applications for
presence awareness and instant messaging and cloud-based web
collaborations. We believe our ability to innovate is advanced
by feedback gathered from our extensive customer relationships,
allowing us to better meet our customers needs and
anticipate market demand.
|
|
|
|
Drive revenue growth by:
|
|
|
|
|
|
Assisting our current service provider customers to sell
more of their currently-deployed
BroadWorks-based
services. We support our service provider customers
by regularly offering enhanced and new features to their current
applications as well as providing tools and training to help
them market their services to subscribers. As an example, we
provide training and marketing materials to our customers
sales and marketing teams to assist them in selling services
based on BroadWorks.
|
|
|
|
Selling new applications and features to our current
service provider customers. Although our initial
engagement with a service provider may be for a single
initiative or business unit, once BroadWorks is implemented by a
service provider, we believe that we are well-positioned to sell
additional applications and features to that service provider.
|
|
|
|
Continuing to acquire new customers. Our
customers are located around the world and include 15 of the top
25 telecommunications service providers globally. We believe we
are well positioned to grow, both by adding customers in regions
where we already have a strong presence and also by expanding
our geographic footprint. We also intend to penetrate more
deeply into some types of service provider customers, such as
additional cable and mobile service providers.
|
|
|
|
|
|
Pursue selected acquisitions and collaborations that
complement our strategy. To date, we have
successfully completed several acquisitions and have also
collaborated with a number of industry-leading companies on
technology initiatives. We intend to continue to pursue
acquisitions and collaborations where we believe they are
strategic to strengthen our leadership position.
|
Products
BroadWorks enables service providers to offer their subscribers
a comprehensive portfolio of enterprise and consumer
communications services from a common network platform. We
typically license BroadWorks on a per-subscriber, per-feature
basis and we can deploy it in a variety of network
configurations, matching the needs of fixed-line, mobile and
cable service providers.
BroadSoft
Enterprise Applications
Hosted Unified
Communications
Hosted unified communications enables service providers to offer
enterprises advanced IP PBX and UC features through a hosted
service rather than through premises-based equipment, such as
PBXs. As enterprise needs become more complex and as enterprise
budgets are more closely
90
controlled, we believe that enterprise demand for cost-effective
and feature-rich applications such as multimedia, mobility and
UC is growing. We also believe that the delivery of advanced IP
PBX and UC features in a cloud-based hosted model is simpler to
implement and more cost efficient for both the service provider
and enterprise customer than
premises-based
alternatives.
The advanced IP PBX and UC features we offer to enterprises
through BroadWorks hosted unified communications
application include:
|
|
|
|
|
PBX functionality such as call control, call waiting, call
forwarding and conference calling, in each case across multiple
locations;
|
|
|
|
real-time multimedia communications support for voice and video
calling;
|
|
|
|
integration of offerings across fixed and mobile devices and
networks;
|
|
|
|
integrated voice, video and fax messaging;
|
|
|
|
enhanced features such as auto attendants, call centers and
conferencing;
|
|
|
|
UC features, such as presence awareness, IM and
e-mail
integration and collaboration;
|
|
|
|
quality of service monitoring and reporting;
|
|
|
|
open APIs for third-party application development that
complement the core call control functionality;
|
|
|
|
clients, which are devices and software that request
information, for feature control and administration;
|
|
|
|
regulatory functions such as emergency calling (E911) and lawful
intercept (CALEA); and
|
|
|
|
geographic redundancy and disaster recovery.
|
SIP
Trunking
BroadWorks SIP trunking enables service providers to
provide IP interconnectivity and additional services to
enterprises that already have CPE-based IP PBXs, PBXs
and/or video
endpoints. With SIP trunking, service providers are able to
bundle voice, which interconnects to either circuit or
IP-based
networks, and data over a single converged IP pipe, creating a
more economical offering than can be achieved with separate
voice and data connections. We believe that BroadWorks-powered
service providers can differentiate their SIP trunking service
offerings and increase revenue by offering enhanced services
such as UC, video, mobility, global four-digit dialing and
business continuity, in connection with their core SIP trunking
service offerings.
Since BroadWorks hosted UC and SIP trunking applications
share the same software and platform, service providers can
easily and cost-effectively expand their addressable markets by
offering hosted UC services in conjunction with SIP trunking.
This hybrid offering is attractive to multi-site enterprises
that have some environments using premises-based PBXs and others
that are hosted. Despite their complex legacy systems, service
providers can use BroadWorks to deliver a consistent set of
mobility, multimedia and application integration capabilities to
all end-users across these enterprises.
BroadSoft
Consumer Applications
Our consumer IP applications offer voice and multimedia
telephony services with voice calling, video calling, enhanced
messaging, content sharing and web interfaces. They also provide
full regulatory compliance for fixed-line, mobile and cable
service providers. Additionally, we enable BroadWorks-powered
service providers to differentiate their offerings through
advanced feature sets for managing family and small
office/residential office communications, including multiple
lines, video calling and mobility support.
91
BroadSoft
Xtended
The purpose of our Xtended program is to enable our service
provider customers to create
and/or
deploy highly differentiated
IP-based
communications services on the BroadWorks platform. Xtended is
premised on three operating principles:
|
|
|
|
|
Expanding familiarity with web services
APIs. The powerful RESTful Xtended Services
Interface, or Xsi, exposes the BroadWorks platform to other
applications;
|
|
|
|
Maintaining community. An innovative
developer community driven by the Xtended developer program is
created; and
|
|
|
|
Promoting commerce. The Xtended
Marketplace allows developers to monetize their applications by
enabling end-users of BroadSoft-powered networks to directly
browse and purchase their applications through online
Application Stores, most often from their service providers.
|
While Xtended is still at an early stage of market acceptance,
we hope that the applications that will be made available in the
Xtended Marketplace will increase functionality for subscribers,
which will in turn make them more likely to maintain their
subscriptions with our customers.
Technology
We have invested significant time and financial resources into
the development of our suite of product offerings. Our code base
comprises over three million lines of software code refined over
11 years and 17 major releases. While the predominant
industry approach has been to use proprietary standards, which
greatly limits interoperability, our technology strategy is to
adopt and extend leading open standards with the objectives of
providing the widest level of interoperability in the industry.
Our products implement a diverse set of industry protocols such
as SIP, DIAMETER, SNMP, SOAP and RESTful-based interfaces,
allowing for the successful penetration of the service provider
market across different types of architectures, access types and
infrastructures.
BroadWorks technology consists of software-based server
functions and software clients designed for scalability and
performance. Our server functions provide a number of discrete
capabilities, including call control and signaling, media
processing and provisioning interfaces to back office
infrastructure. Our software clients run on a variety of CPE
devices, including PCs, mobile devices and conferencing
equipment. Our open interfaces allow service providers to
quickly and easily integrate the servers with back office
systems, web portals and network infrastructure and also permits
them to deploy applications that complement the functionality of
the servers. Because the BroadWorks solution reaches the service
providers subscribers, we believe that this
end-to-end
integration is critical to ensure that the usability, look and
feel of the service offering is superior.
The key elements of our technology are:
|
|
|
|
|
SIP. We believe that we have the
industrys most customer-tested and fully functioned SIP
stack. Because we developed the software ourselves, we can
rapidly customize it and resolve any related issues. We have
developed SIP extensions for many advanced PBX functions such as
advanced call control and bridged line appearances. Our SIP
stack provides programmable controls on a per-device basis to
allow for maximum compatibility and interoperability. We have
achieved full interoperability with over 450 SIP-based devices
and applications. We have validated our stack and deployed it
with leading IMS core network vendors.
|
|
|
|
Java-based. BroadWorks is one of the
first real-time Java-based applications in the
telecommunications industry. Java allows for rapid software
development with better quality than traditional programming
languages such as C/C++, without reliance on third-party service
delivery platforms. We manage all of the BroadWorks software
source code with the exception of the database technology, which
is provided by Oracle. We leverage open source
|
92
|
|
|
|
|
software, when appropriate, for swift
time-to-market
and reduced research and development expenses.
|
|
|
|
|
|
Call control. We have developed a
patented architecture for service definition, service execution,
interface abstraction, event routing and service precedence.
This provides an extensible pattern for creating and adding new
services
and/or
interfaces without an impact on existing functionality.
Interfaces are abstracted so that services can be written to
work with any protocol. This approach yields a product that we
believe is easier to test and subsequently has fewer defects as
evidenced by current support for over 150 services. BroadSoft
has evolved the service operating system to natively support the
IMS call model.
|
|
|
|
Geographic redundancy. We have designed
a geographic redundancy solution tailored for call control that
requires no special software and uses standard IP networking
configurations with standard IP addressing. This solution
supports seamless failover for server outages and IP networking
issues. It also allows for placement of servers in any geography
without distance limitations. The solution is supported by
leading IMS core network vendors and session border controller
vendors. Our solution has proven greater than 99.999%
reliability with over five years of historical data.
|
|
|
|
Common OAMP platform. BroadWorks has a
common management container for all BroadSoft servers, providing
consistent functions for operations, administration, management
and provisioning, or OAMP. It supports identical carrier grade
management interfaces on all servers and includes functions for
command line interfaces, alarms, statistics, configuration,
charging, security and provisioning. It is fully tested and
validated with leading carrier network management systems and
customer care systems and proven carrier grade in over 50
Tier 1 telecommunications service providers. It works on
standard servers as well as virtualized servers.
|
|
|
|
Media resource framework. We have
developed a completely software-based media resource framework
for dual-tone multi-frequency detection, media playback,
recording, conferencing and repeating. The framework supports
all de facto standard audio and video codecs. It supports the
Internet Engineering Task Force, or IETF, and the
3rd
Generation Partnership Project, or 3GPP, standard protocols,
including the standard format for specifying interactive voice
dialogues between a human and a computer (VoiceXML) and call
control extensible markup language, or CCXML, which provides
telephony support to VoiceXML. The framework can be integrated
with all leading voice recognition and
text-to-speech
engines. Using an exclusively software-based technology has
allowed us to offer a very high capacity media server using
low-cost,
off-the-shelf
hardware platforms. We developed the media server framework
internally using open source software. We believe that it not
only provides us with a technical advantage over our
competition, but also a strong commercial advantage since we can
bundle this technology with BroadWorks.
|
Global Support
Services
The provision of a broad range of professional support services
is an integral part of our business model. We offer services
designed to deliver comprehensive support to our service
provider customers and distribution partners through every stage
of product deployment. Our services can be categorized as
follows:
|
|
|
|
|
Pre-sales support. Our worldwide sales
engineering group works with our direct sales force to provide
demonstrations, architecture consulting, interoperability
testing and related services in connection with product sales
opportunities to establish the capability, functionality,
scalability and interoperability of our software with a service
providers network.
|
|
|
|
Professional services. Our professional
services group provides installation services, such as planning,
consulting and staging of software on the customers
hardware, as well as
|
93
|
|
|
|
|
installation and network integration services, project
management and remote upgrades. We also offer our customers the
option of longer-term engagements in the form of resident
engineer services. In addition, we offer a full suite of
consulting services including network planning, network
architecture definition, back office consulting and solution
verification.
|
|
|
|
|
|
Global operations centers. We maintain
operations centers around the world to provide our customers
with post-installation services, such as platform support and
maintenance services. Members of our technical assistance center
and regional project management and professional services teams
provide remote assistance to customers via these locations and
our in-depth web support portal, including periodic updates for
our software products, and product documentation. To respond to
our customers needs, our customer services personnel are
available 24 hours a day, seven days a week and accessible
by phone,
e-mail and,
when required, on-site via a professional services engagement.
|
|
|
|
Training. We offer an array of training
services to our customers, which include systems administration,
provisioning and product version update courses. We present
these courses regularly at our regional centers and headquarters
and we also can deliver customized versions of the courses at
customer sites. We also offer product and feature training via
streaming video courses, which we refer to as our eLearning
offerings, as well as a full product certification program that
is available through our BroadSoft University website.
|
|
|
|
Market acceleration. Our
go-to-market
consultants help service providers prepare to launch, market and
sell their service offerings to their end-users. We generally
seek to help them by providing a best-practice framework and
resources such as templates, marketing workshops and planning
guides, to accelerate the launch and development of our
applications to their network subscribers.
|
We believe our commitment to providing high-quality services to
our customers provides us with a competitive advantage by
helping us to retain customers and to identify new revenue
opportunities.
Sales and
Marketing
We market and sell our products and services directly, through
our internal sales force, and indirectly, through our
distribution partners, such as VARs and system integrators. For
the years ended December 31, 2007, 2008 and 2009 and the
nine months ended September 30, 2010, approximately 63%,
60%, 63% and 68%, respectively, of our revenue was generated
through direct sales, and 37%, 40%, 37% and 32%, respectively,
was generated indirectly through distribution partners.
Direct sales. Our direct sales team sells our
products and services to service providers worldwide and
supports the sales efforts of our various distribution partners.
We have sales and sales support employees in 17 countries
supporting our customers and distribution partners in more than
65 countries.
Distribution partners. In an effort to
acquire new customers, we sometimes enter into non-exclusive
distribution or reseller agreements with distribution partners,
such as VARs and system integrators. We predominantly engage
with a distribution partner in connection with marketing to
international service providers. Our agreements with our
distribution partners typically have a duration of one to two
years and provide for a full spectrum of sales and marketing
services, product implementation services, technical and
training support and warranty protection. These agreements
generally do not contain minimum sales requirements and we
ordinarily do not offer contractual rights of return or price
protection to our distribution partners. As of
September 30, 2010, we had approximately 53 distribution
partners. Our partners include many of the largest networking
and telecommunications equipment vendors in the world, as well
as regionally focused system and network integrators. We may
seek to selectively add distribution partners, particularly in
additional countries outside the United States, to complement or
expand our business.
94
Marketing and product management. Our
marketing and product management teams focus their marketing
efforts on increasing our company and brand awareness,
heightening product awareness and specifying our competitive
advantages, as well as generating qualified sales leads from
existing and prospective customers. As part of marketing our
products and services, we communicate enhancements and new
capabilities, convey reference solutions that we develop with
our partners and announce successful end-user market offerings
jointly with our service providers. Within our industry, we work
to influence next generation service architectures and service
provider requirements globally by actively contributing to
industry-related standards organizations, conferences,
publications and analyst consulting services. Additionally, we
work closely with service providers to develop subscriber
loyalty and share successful best practices through user
conferences,
on-site
seminars, monthly webinars, social networking campaigns and
newsletters.
Research and
Development
Continued investment in research and development is critical to
our business. We have assembled a team of engineers primarily
engaged in research and development, with expertise in various
fields of communications and software development. Our research
and development department is responsible for designing,
developing and enhancing our software products and performing
product testing and quality assurance activities, as well as
ensuring the interoperability of our products with third-party
hardware and software products. We also validate and produce
solution guides for joint reference solutions with our partners
that specify infrastructure components and management functions.
We employ advanced software development tools, including
automated testing, performance and capacity testing, source code
control, requirements traceability and defect tracking systems.
Research and development expense totaled $12.8 million for
2007, $15.9 million for 2008, $16.6 million for 2009
and $14.2 million for the nine months ended
September 30, 2010.
Customers
Our products and services have been sold to more than 425
service providers in over 65 countries. These companies have
either purchased products and services directly from us or have
purchased our software through one of our distribution partners.
Our installed customer base includes 15 of the top 25
telecommunications service providers globally. Our customers
include fixed-line, mobile, cable and Internet service
providers. As a result of the diversity of service providers
comprising our customer base, our products are used in a broad
array of services, applications, network types and business
models worldwide.
The following is a partial listing of our service provider
customers, including those who acquired our software through our
distribution partners, as of September 30, 2010:
The
Americas
|
|
|
|
|
Comcast Cable Communications Management, LLC
|
|
|
|
CommPartners, LLC
|
|
|
|
IP Networked Services, Inc., a subsidiary of Automatic Data
Processing, Inc. (ADP)
|
|
|
|
New Global Telecom, Inc.
|
|
|
|
NuVox Communications, Inc. (acquired by Windstream Corporation)
|
|
|
|
PAETEC Communications, Inc.
|
|
|
|
Speakeasy Inc.
|
|
|
|
TDS Telecommunications Corporation
|
|
|
|
U.S. TelePacific Corp.
|
95
|
|
|
|
|
Verizon Corporate Services Group Inc.
|
|
|
|
XO Holdings, Inc.
|
Europe, Middle
East and Africa
|
|
|
|
|
France Telecom S.A.
|
|
|
|
Société Française de Radiotéléphone
(SFR SA)
|
|
|
|
TDC A/S
|
|
|
|
T-Systems International GmbH
|
Asia
Pacific
|
|
|
|
|
iiNet Limited
|
|
|
|
IP Systems Pty Ltd
|
|
|
|
KT Corporation (Korea Telecom)
|
|
|
|
SK Broadband Co., Ltd.
|
|
|
|
Telstra Corporation Limited
|
Revenue from customers located outside the United States and
Canada represented 52% of our total revenue in 2007, 53% of our
total revenue in 2008, 45% of our total revenue in 2009 and 48%
of our total revenue for the nine months ended
September 30, 2010. For the year ended December 31,
2009 and the nine months ended September 30, 2010, Verizon
accounted for 10% and 2.5%, respectively, of our total revenue.
Under the terms of our agreements with Verizon, Verizon may
terminate these agreements at any time without cause and without
penalty. Moreover, under the agreements, Verizon is not required
to purchase any minimum amount of our products or services.
Additionally, revenue from one of our distribution partners,
Ericsson, accounted for approximately 16%, 17%, 11% and 9% of
our total revenue for the years ended December 31, 2007,
2008 and 2009 and the nine months ended September 30, 2010,
respectively. These revenues are the results of sales directly
to Ericsson as well as to at least 15 different legal entities
controlled by Ericsson, pursuant to separate arrangements with
each of those entities. As discussed in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Results of Operations
Comparison of Years Ended December 31, 2008 and 2009,
we have observed a shift from indirect sales through
distribution partners to direct sales, particularly in the EMEA
region, and we expect this trend to continue, which we believe
will decrease the significance of the Ericsson relationship to
us. Under the terms of our agreements with Ericsson, Ericsson is
not required to distribute any minimum amount of our products or
services, nor are we obligated to sell any minimum amount of
products or services to Ericsson for resale. In addition, our
contracts with Ericsson do not prohibit Ericsson from offering
products or services that compete with our products and
services, including products they currently offer or may develop
in the future and incorporate into their own systems. For a
further discussion of our relationships with Verizon and
Ericsson, see Risk Factors The loss of, or a
significant reduction in orders from, one or more major
customers or through one or more major distribution partners
would reduce our revenue and harm our results.
Competition
The market for IP application software is extremely competitive,
rapidly evolving and subject to changing technology. We expect
competition to persist and intensify in the future. We believe
that the principal competitive factors in our industry include
product features and performance, interoperability,
96
time required for application deployment, scalability, customer
support offerings, customer relationships, partner
relationships, pricing and total deployment costs.
Currently, our primary direct competitors consist of established
network equipment companies, including Alcatel-Lucent, Avaya
Inc., Comverse Technology, Inc. (through its acquisition of
Netcentrex S.A.), Cisco, Ericsson, Huawei, Metaswitch Networks,
Nokia-Siemens Networks, Nortel Networks Corporation and Sonus
Networks, Inc. Some of the network equipment companies with
which we have non-exclusive distributor partnerships may also
provide, as a package, their own network equipment in
combination with IP application software that they have
developed.
In addition, potential customers may also elect to continue to
use existing legacy technologies, such as PBXs or Class 5
switches, to handle certain needs that our solutions address. We
do not control the timing of the migration from existing
technologies to
IP-based
networks, as described in Risk Factors Our
success depends in large part on service providers
continued deployment of, and investment in, their
IP-based
networks.
Many of our current and potential competitors have significantly
greater financial, technical, marketing and other resources than
we do and may be able to devote greater resources to the
development, promotion, sale and support of their products as
described in Risk Factors We face intense
competition in our markets, especially from larger, better-known
companies, and we may lack sufficient financial or other
resources to maintain or improve our competitive position.
Our competitors may also have more extensive customer bases and
broader customer relationships than we do, including
relationships with our potential customers. In addition, many of
these companies have longer operating histories and greater
brand recognition than we do.
Intellectual
Property
Our success depends upon our ability to protect our core
technology and intellectual property. To accomplish this, we
rely on a combination of intellectual property rights, including
patents, trade secrets, copyrights and trademarks, as well as
customary confidentiality and other contractual protections. We
have been issued six U.S. patents. We have also been issued
one European patent, two Canadian patents and two Australian
patents, all of which are counterparts to certain of the
U.S. patents. In addition, we have a total of 12 patent
applications pending in the United States, eight patent
applications pending in Europe and one patent application
pending in China. All foreign patent applications are
counterparts to certain of the U.S. patents or patent
applications. Our registered trademarks in the United States
include BroadSoft, BroadWorks, the BroadSoft logo and Innovation
Calling. BroadSoft and BroadWorks are also registered trademarks
in the European Community and a number of other countries
throughout the world. We also have a pending application in the
United States for BroadSoft Xchange.
In addition to the protections described above, we generally
control access to and use of our proprietary software and other
confidential information through the use of internal and
external controls, including contractual protections with
employees, consultants, customers and vendors, and our software
is protected by U.S. and international copyright laws. We
also incorporate a number of third-party software programs into
our products, including BroadWorks, pursuant to license
agreements. Our software is not substantially dependent on any
third-party software, with the exception of database technology
that is provided by Oracle, although our software does utilize
open source code. Notwithstanding the use of this open source
code, we do not believe that our usage requires public
disclosure of our own source code nor do we believe the use of
open source code is material to our business.
We may not receive competitive advantages from the rights
granted under our patent and other intellectual property rights,
as described in Risk Factors We may be unable
to adequately protect our intellectual property rights in
internally developed systems and software and efforts to protect
them may be costly. If our products, patents or patent
applications are found to conflict with any patents held by
third parties, we could be prevented from selling our products,
our patents may be declared invalid or our patent applications
may not result in issued patents. In foreign countries, we
97
may not receive effective patent, copyright and trademark
protection. We may be required to initiate litigation to enforce
any patents issued to us, or to determine the scope or validity
of a third partys patent or other proprietary rights. In
addition, in the future we may be subject to lawsuits by third
parties seeking to enforce their own intellectual property
rights, as described in Risk Factors
Infringement claims are common in our industry and third
parties, including competitors, have and could in the future
assert infringement claims against us, which could force us to
redesign our software and incur significant costs and
Risk Factors We are generally obligated
to indemnify our customers for certain expenses and liabilities
resulting from intellectual property infringement claims
regarding our software, which could force us to incur
substantial costs.
We license our software to customers pursuant to agreements that
impose restrictions on the customers ability to use the
software, including prohibitions on reverse engineering and
limitations on the use of copies. We also seek to avoid
disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to
execute nondisclosure and assignment of intellectual property
agreements and by restricting access to our source code. Our
employees and consultants may not comply with the terms of these
agreements and we may not be able to adequately enforce our
rights against these non-compliant parties.
Employees
As of September 30, 2010, we had 358 employees, 127 of
whom were primarily engaged in research and development, 104 of
whom were primarily engaged in sales and marketing, 86 of whom
were primarily engaged in providing implementation and
professional support services and 41 of whom were primarily
engaged in administration and finance. A majority of these
employees are located in the United States. None of our
employees is represented by a labor union or covered by a
collective bargaining agreement. We consider our relationship
with our employees to be good.
Facilities
Our principal offices occupy approximately 30,000 square
feet of leased office space in Gaithersburg, Maryland which we
lease pursuant to a sublease with a sublessor. Under certain
circumstances and assuming we are not in default of our
obligations under the sublease, we have the right to sublease an
additional 5,500 square feet from the sublessor. The
initial sublease expires on June 29, 2019. Should the
sublessor choose to extend the term of its lease through
November 17, 2022 and not sublet to one of its affiliates
or related entities, we may extend our sublease until
November 16, 2022 or choose to let the initial sublease
expire and find additional office space to purchase or lease. We
also maintain sales, development or technical assistance offices
in Cupertino, California; Campbell, California; Richardson,
Texas; Belfast, Northern Ireland, United Kingdom; Chennai,
India; Madrid, Spain; Montreal, Canada; Paris, France; Seoul,
South Korea; and Sydney, Australia. We believe that our
current facilities are suitable and adequate to meet our current
needs. We intend to add new facilities or expand existing
facilities as we add employees, and we believe that suitable
additional or substitute space will be available as needed to
accommodate any such expansion of our operations.
Legal
Proceedings
From time to time, we are subject to litigation and claims
arising in the ordinary course of business. On October 22,
2010, we were named as a defendant in a lawsuit filed by EON
Corp. IP Holdings, LLC. The lawsuit seeks unspecified damages
for alleged infringement of a patent. While we intend to defend
ourselves vigorously, we cannot be certain of any particular
outcome and an adverse outcome in this lawsuit could have a
material adverse effect on our business. We are not aware of any
pending or threatened legal proceeding against us that could
have a material adverse effect on our business, operating
results or financial condition. The software and communications
infrastructure industries are characterized by frequent claims
and litigation, including claims regarding patent and other
intellectual property rights as well as improper hiring
practices. As a result, we may be involved in various additional
legal proceedings from time to time.
98
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information with respect
to our executive officers and directors as of December 1,
2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael Tessler
|
|
|
49
|
|
|
President, Chief Executive Officer and Director
|
Scott D. Hoffpauir
|
|
|
46
|
|
|
Chief Technology Officer
|
James A. Tholen
|
|
|
51
|
|
|
Chief Financial Officer, Assistant Secretary and Assistant
Treasurer
|
Robert P. Goodman
|
|
|
50
|
|
|
Director and Chairman of the Board
|
John J. Gavin, Jr.
|
|
|
55
|
|
|
Director
|
Douglas L. Maine
|
|
|
62
|
|
|
Director
|
John D. Markley, Jr.
|
|
|
44
|
|
|
Director
|
Joseph R. Zell
|
|
|
51
|
|
|
Director
|
Executive
Officers
Michael Tessler, one of our co-founders, has
served as a director since our inception and as our President
and Chief Executive Officer since December 1998. Prior to
co-founding our company, Mr. Tessler was Vice President of
Engineering of Celcore, Inc., or Celcore, a wireless equipment
company, and the Celcore organization of DSC Communications
Corporation, which acquired Celcore in 1997 and which was then
acquired by Alcatel USA, Inc. Before joining Celcore,
Mr. Tessler held a number of senior management positions at
Nortel Networks and founded and led a services development
business unit that helped local exchange carriers build and
deploy advanced services on their digital networks. Our board of
directors has concluded that Mr. Tessler should serve on
the board based on his deep knowledge of our company gained from
his positions as one of our founders and Chief Executive
Officer, as well as his experience in the telecommunications
industry.
Scott D. Hoffpauir, one of our co-founders, has
served as our Chief Technology Officer since November 1998.
Prior to co-founding our company, Mr. Hoffpauir was
Director of GSM Development at Celcore. Before Celcore,
Mr. Hoffpauir was senior architect for Nortel Networks
Corporations GSM and Inter-Exchange Carrier switching
systems from 1987 to 1995.
James A. Tholen has served as our Chief Financial
Officer since July 2007. Between January 2006 and July 2007,
Mr. Tholen was engaged in consulting, advisory and
investing activities. From January 2003 to
January 2006, Mr. Tholen served as both Chief
Financial Officer and Chief Operating Officer at Network
Security Technologies, Inc., or NetSec, a managed and
professional security services company acquired by MCI, Inc.,
now part of Verizon. Prior to joining NetSec, he served as Chief
Strategy Officer and Chief Financial Officer for CareerBuilder,
Inc. and was a member of that companys board of directors.
Non-Employee
Directors
Robert P. Goodman has served as one of our
directors since April 1999 and has served as Chairman of our
board of directors since 2000. He is the founding partner of
Bessemer Venture Partners investment office in Larchmont,
New York. Mr. Goodman is also a Managing Member of Deer
Management Co. LLC, the management company for Bessemer Venture
Partners investment funds, including Bessemer Venture
Partners IV L.P. and Bessec Venture Partners IV L.P.
Prior to joining Bessemer, Mr. Goodman founded and served
as the Chief Executive Officer of two telecommunications
companies, Celcore and Boatphone, a group of cellular operating
companies. Mr. Goodman is currently a member of the board
of directors of several private companies, including Consortium
2 S.a.r.l. (GTS Central Europe), Millennial Media, Inc.,
Perimeter Internetworking Corp., Select Minds, Inc., Synscort
Incorporated and Teamviewer Holdings, Ltd. Our board of
directors has
99
concluded that Mr. Goodman should serve on the board and on
the compensation and nominating and corporate governance
committees based on his experience in working with
entrepreneurial companies, his particular familiarity with
technology companies and, as one of our early stage investors,
his significant knowledge of our company.
John J. Gavin, Jr. has served as one of our
directors since March 2010. Since June 2008, Mr. Gavin has
provided advisory services in accordance with his Board
responsibilities to the boards on which he served during this
period as indicated below, and has also engaged in personal
investment activities. From January 2007 to June 2008,
Mr. Gavin served as Chief Financial Officer of BladeLogic,
Inc., or BladeLogic, a provider of data center automation
software, which was acquired by BMC Software, Inc. From April
2004 through January 2007, Mr. Gavin served as the Chief
Financial Officer for NaviSite, Inc., a provider of information
technology hosting, outsourcing and professional services.
Mr. Gavin has served on the board of directors of
Vistaprint, Inc. since 2006 and Qlik Technologies since February
2010. Mr. Gavin is also currently a director of Consona
Corporation, a private company. Our board of directors has
concluded that Mr. Gavin should serve on the board and on
the audit and compensation committees based on his financial
management experience.
Douglas L. Maine has served as one of our
directors since May 2007. Mr. Maine served as General
Manager of the Consumer Products Industry Division for
International Business Machines Corporation, or IBM, from 2003
until his retirement in May 2005 and served as Chief Financial
Officer of IBM from 1998 to 1999. Prior to joining IBM,
Mr. Maine spent 20 years with MCI, Inc. (now part of
Verizon), where he was Chief Financial Officer from 1992 to
1998. Mr. Maine serves on the boards of directors of two
public companies, Rockwood Holdings, Inc. since 2005 and Alliant
Techsystems Inc. since 2006. Additionally, he is a Senior
Advisor to Brown Brothers Harriman and serves on the boards of
directors of three of BBH Capital Partners portfolio
companies. Our board of directors has concluded that
Mr. Maine should serve on the board and on the audit and
nominating and corporate governance committees based on his
corporate management experience and his qualification as an
audit committee financial expert under SEC guidelines.
John D. Markley, Jr. has served as one of our
directors since January 2002. Since 1996, Mr. Markley has
been affiliated with Columbia Capital Corporation, or Columbia
Capital, a communications, media and technology investment firm,
where he has served in a number of capacities including partner,
venture partner and portfolio company executive. Prior to
Columbia Capital, Mr. Markley served at the Federal
Communications Commission. Mr. Markley has been a director
of Charter Communications, Inc. since 2009. Mr. Markley
also serves on the board of directors of Millennial Media, Inc.
and Telecom Transport Management, Inc. Our board of directors
has concluded that Mr. Markley should serve on the board
and on the compensation and nominating and corporate governance
committees based on his experience in working with
entrepreneurial companies, his particular familiarity with
technology companies and his significant knowledge of our
company.
Joseph R. Zell has served as one of our directors
since August 2002. Mr. Zell has been a General Partner of
Grotech Capital Group, or Grotech, a venture capital firm, since
January 2002. Mr. Zell currently serves on the boards of
several private companies, including Aztek Networks, Inc.,
Collective Intellect, Inc., Hatteras Networks, Inc., LogRhythm
Inc. and Rebit, Inc. From 2000 to 2001, Mr. Zell served as
President and Chief Executive Officer of Convergent
Communications, Inc., or Convergent. In April 2001, Convergent
filed for bankruptcy. Our board of directors has concluded that
Mr. Zell should serve on the board and the audit committee
based on his experience in working in, and serving as a director
of, technology companies, his experience in product development
for communications companies and his financial expertise.
Board
Composition
Our board of directors currently consists of six members. In
accordance with our amended and restated certificate of
incorporation, our board of directors is divided into three
classes with staggered three-year terms. At each annual meeting
of stockholders, the successors to directors whose terms
100
then expire will be elected to serve from the time of election
and qualification until the third annual meeting following
election. Our directors are divided among the three classes as
follows:
|
|
|
|
|
the Class I director is Mr. Markley and his term will
expire at our 2011 annual meeting of stockholders;
|
|
|
|
the Class II directors are Messrs. Goodman and Maine and
their terms will expire at our 2012 annual meeting of
stockholders; and
|
|
|
|
the Class III directors are Messrs. Gavin, Tessler and Zell
and their terms will expire at our 2013 annual meeting of
stockholders.
|
Our amended and restated bylaws provide that the authorized
number of directors may be changed only by resolution approved
by a majority of the board. Any additional directorships
resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors.
The division of our board of directors into three classes with
staggered three-year terms may delay or prevent a change of our
management or a change in control.
Director
Independence
In March 2010, our board of directors undertook a review of the
independence of the directors and considered whether any
director has a material relationship with us that could
compromise his ability to exercise independent judgment in
carrying out his responsibilities. As a result of this review,
our board of directors determined that Messrs. Gavin,
Goodman, Maine, Markley, and Zell, representing five of our six
current directors, are independent directors as
defined under NASDAQ rules and the independence requirements
contemplated by
Rule 10A-3
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act.
Board Leadership
Structure
Our board of directors has an independent chairman,
Mr. Goodman, who has authority, among other things, to call
and preside over board meetings, including meetings of the
independent directors, to set meeting agendas and to determine
materials to be distributed to the board. Accordingly, the board
chairman has substantial ability to shape the work of the board.
We believe that separation of the positions of board chairman
and chief executive officer reinforces the independence of the
board in its oversight of the business and affairs of the
company. In addition, we believe that having an independent
board chairman creates an environment that is more conducive to
objective evaluation and oversight of managements
performance, increasing management accountability and improving
the ability of the board to monitor whether managements
actions are in the best interests of the company and its
stockholders. As a result, we believe that having an independent
board chairman can enhance the effectiveness of the board as a
whole.
Role of the Board
in Risk Oversight
Our audit committee is primarily responsible for overseeing our
risk management processes on behalf of the full board of
directors. Going forward, we expect that the audit committee
will receive reports from management at least quarterly
regarding our assessment of risks. In addition, the audit
committee reports regularly to the full board of directors,
which also considers our risk profile. The audit committee and
the full board of directors focus on the most significant risks
we face and our general risk management strategies. While the
board oversees our risk management, company management is
responsible for
day-to-day
risk management processes. Our board expects company management
to consider risk and risk management in each business decision,
to proactively develop and monitor risk management strategies
and processes for
day-to-day
activities and to effectively implement risk management
strategies adopted by the audit committee and the board. We
believe this
101
division of responsibilities is the most effective approach for
addressing the risks we face and that our board leadership
structure supports this approach.
Committees of the
Board of Directors
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee, each of which has the composition and
responsibilities described below. From time to time, the board
may establish other committees to facilitate the management of
our business.
Audit
Committee
Our audit committee reviews our internal accounting procedures
and consults with and reviews the services provided by our
independent registered public accountants. Our audit committee
consists of three directors, Messrs. Maine, Gavin and Zell,
and our board of directors has determined that each of them is
independent within the meaning of the applicable SEC rules and
the listing standards of the NASDAQ Stock Market. Mr. Maine
is the chairman of the audit committee and our board of
directors has determined that Mr. Maine is an audit
committee financial expert as defined by SEC rules and
regulations. Our board of directors has determined that the
composition of our audit committee meets the criteria for
independence under, and the functioning of our audit committee
complies with, the applicable requirements of the Sarbanes-Oxley
Act, applicable requirements of the NASDAQ rules and SEC rules
and regulations. We intend to continue to evaluate the
requirements applicable to us and we intend to comply with the
future requirements to the extent that they become applicable to
our audit committee. The principal duties and responsibilities
of our audit committee include:
|
|
|
|
|
appointing and retaining an independent registered public
accounting firm to serve as independent auditor to audit our
consolidated financial statements, overseeing the independent
auditors work and determining the independent
auditors compensation;
|
|
|
|
approving in advance all audit services and non-audit services
to be provided to us by our independent auditor;
|
|
|
|
establishing procedures for the receipt, retention and treatment
of complaints received by us regarding accounting, internal
accounting controls, auditing or compliance matters, as well as
for the confidential, anonymous submission by our employees of
concerns regarding questionable accounting or auditing matters;
|
|
|
|
reviewing and discussing with management and our independent
auditor the results of the annual audit and the independent
auditors review of our quarterly consolidated financial
statements; and
|
|
|
|
conferring with management and our independent auditor about the
scope, adequacy and effectiveness of our internal accounting
controls, the objectivity of our financial reporting and our
accounting policies and practices.
|
Compensation
Committee
Our compensation committee reviews and determines the
compensation of all our executive officers. Our compensation
committee consists of three directors, Messrs. Goodman,
Gavin and Markley, each of whom is a non-employee member of our
board of directors as defined in
Rule 16b-3
under the Exchange Act and an outside director as that term is
defined in Section 162(m) of the Internal Revenue Code of
1986, or the Code. Mr. Goodman is the chairman of the
compensation committee. Our board of directors has determined
that the composition of our compensation committee satisfies the
applicable independence requirements under, and the functioning
of our compensation committee complies with the applicable
requirements of, the Sarbanes-Oxley Act, NASDAQ rules and SEC
rules and regulations. We intend to continue to evaluate and
intend to
102
comply with all future requirements applicable to our
compensation committee. The principal duties and
responsibilities of our compensation committee include:
|
|
|
|
|
establishing and approving performance goals and objectives
relevant to the compensation of our chief executive officer,
evaluating the performance of our chief executive officer in
light of those goals and objectives and setting the chief
executive officers compensation, including incentive-based
and equity-based compensation, based on that evaluation;
|
|
|
|
setting the compensation of our other executive officers;
|
|
|
|
exercising administrative authority under our stock plans and
employee benefit plans;
|
|
|
|
reviewing and making recommendations to the board with respect
to management succession planning;
|
|
|
|
reviewing and discussing with management the compensation
discussion and analysis that we are required to include in SEC
filings; and
|
|
|
|
preparing a compensation committee report on executive
compensation as required by the SEC to be included in our annual
proxy statements or annual reports on
Form 10-K
filed with the SEC.
|
Nominating and
Corporate Governance Committee
The nominating and corporate governance committee consists of
three directors, Messrs. Markley, Goodman and Maine.
Mr. Markley is the chairman of the nominating and corporate
governance committee. Our board of directors has determined that
the composition of our nominating and corporate governance
committee satisfies the applicable independence requirements
under, and the functioning of our nominating and corporate
governance committee complies with the applicable requirements
of, the NASDAQ rules and SEC rules and regulations. We will
continue to evaluate and will comply with all future
requirements applicable to our nominating and corporate
governance committee.
The nominating and corporate governance committees
responsibilities include:
|
|
|
|
|
identifying individuals qualified to become directors;
|
|
|
|
recommending to the board of directors the persons to be
nominated for election as directors and to each of the
boards committees;
|
|
|
|
assessing individual director performance, participation and
qualifications;
|
|
|
|
developing and recommending to the board corporate governance
principles;
|
|
|
|
monitoring the effectiveness of the board and the quality of the
relationship between management and the board;
|
|
|
|
making recommendations to our board of directors regarding
director compensation; and
|
|
|
|
overseeing an annual evaluation of the board.
|
The nominating and corporate governance committee believes that
candidates for director should possess, among other things,
integrity, independence, diversity of experience, leadership and
the ability to exercise sound judgment. In its review of
candidates, the nominating and corporate governance committee
also considers such factors as possessing relevant expertise
upon which to be able to offer advice and guidance to
management, having sufficient time to devote to the affairs of
the company, demonstrated excellence in his or her field and
having the commitment to rigorously represent the long-term
interests of the companys stockholders as amongst the most
important criteria they consider. However, the nominating and
corporate governance committee retains the right to modify these
qualifications from time to time. Candidates for director
nominees are reviewed in the context of the current composition
of the board, the operating requirements of the company and the
103
long-term interests of stockholders. In conducting this
assessment, the nominating and corporate governance committee
typically considers diversity, age, skills and such other
factors as it deems appropriate given the current needs of the
board and the company, to maintain a balance of knowledge,
experience and capability. In the case of incumbent directors
whose terms of office are scheduled to expire, the nominating
and corporate governance committee reviews these directors
overall service to the company during their terms, including the
number of meetings attended, level of participation, quality of
performance and any other relationships and transactions that
might impair the directors independence.
Code of Business
Conduct and Ethics for Employees, Executive Officers and
Directors
We have adopted a Code of Business Conduct and Ethics, or the
Code of Conduct, applicable to all of our employees, executive
officers and directors. The Code of Conduct is available on our
website at www.broadsoft.com. The nominating and corporate
governance committee of our board of directors is responsible
for overseeing the Code of Conduct and must approve any waivers
of the Code of Conduct for employees, executive officers and
directors. We expect that any amendments to the Code of Conduct,
or any waivers of its requirements, will be disclosed on our
website.
Compensation
Committee Interlocks and Insider Participation
Prior to March 2010, Mr. Tessler, our President and Chief
Executive Officer, served as a member of our compensation
committee and participated in deliberations of our compensation
committee concerning the compensation of executive officers
other than himself. None of our directors who currently serve as
members of our compensation committee is, or has at any time
during the past year been, one of our officers or employees.
None of our executive officers currently serves, or in the past
year has served, as a member of the board of directors or
compensation committee of any other entity that has one or more
executive officers serving on our board of directors or
compensation committee.
Risk Assessment
and Compensation Practices
Our management assessed and discussed with our compensation
committee our compensation policies and practices for our
employees as they relate to our risk management and, based upon
this assessment, we believe that any risks arising from such
policies and practices are not reasonably likely to have a
material adverse effect on us in the future.
Our employees base salaries are fixed in amount and thus
we do not believe that they encourage excessive risk-taking.
While performance-based cash bonuses focus on achievement of
short-term or annual goals, which may encourage the taking of
short-term risks at the expense of long-term results, we believe
that our internal controls help mitigate this risk and our
performance- based cash bonuses are limited, representing a
relatively smaller portion of the total compensation
opportunities available to most employees. We also believe that
our performance-based cash bonuses appropriately balance risk
and the desire to focus our employees on specific short-term
goals important to our success, and do not encourage unnecessary
or excessive risk-taking.
A significant proportion of the compensation provided to our
named executive officers and a portion of the compensation
provided to our other employees is in the form of long-term
equity-based incentives that are important to help further align
our employees interests with those of our stockholders. We
do not believe that these equity-based incentives encourage
unnecessary or excessive risk taking because their ultimate
value is tied to our stock price.
Director
Compensation
During 2009, we did not pay any cash compensation to any of our
non-employee directors. In prior years, we paid our non-employee
directors who were not affiliated with our significant
stockholders annual cash retainers as well as cash fees related
to board meeting attendance. We
104
reimburse our directors for reasonable travel, lodging and other
expenses incurred in connection with attending meetings of the
board and its committees.
Directors are eligible to receive grants under our equity
incentive plans at the discretion of our board of directors
following recommendation by the nominating and corporate
governance committee of the board of directors. During 2009, we
made the following grants to, and took the following actions
affecting, our non-employee directors under our equity incentive
plans:
|
|
|
|
|
On June 25, 2009, our board of directors approved the
issuance of options, pursuant to an exchange offer, whereby
Messrs. Maine, Andrew Miller (a former director) and Philip
Livingston (a former director) exchanged stock options
previously held by such directors with exercise prices in excess
of $2.40 per share for new stock options with an exercise price
of $2.40 per share, which our board of directors determined to
be the fair market value of our common stock as of that date.
The new stock options have a vesting schedule that is equivalent
to the vesting schedule under the previously-held stock options
that were exchanged. In connection with this exchange offer, we
granted stock options with an exercise price of $2.40 per share
to these non-employee directors as follows:
|
|
|
|
|
|
Mr. Maine was granted a stock option to purchase
25,000 shares of our common stock. This option was vested
as to 50% of the shares on the date of grant, with the balance
vesting in eight equal quarterly increments beginning on
August 18, 2009.
|
|
|
|
Mr. Miller was granted a stock option to purchase
29,166 shares of our common stock. This option was vested
as to 75% of the shares on the date of grant, with the balance
vesting in four equal quarterly increments beginning on
August 9, 2009.
|
|
|
|
Mr. Livingston was granted a stock option to purchase
24,929 shares of our common stock. This option was fully
vested on the date of grant.
|
|
|
|
|
|
On November 5, 2009, in lieu of paying our non-employee
directors cash compensation for 2009, our board of directors
approved the grant of restricted stock units, or RSUs, to each
of Messrs. Livingston, Maine and Miller. Each of these
directors was awarded 3,333 RSUs.
|
On January 28, 2010, our board of directors approved the
grant of 3,333 RSUs to Mr. Markley. The RSUs vested upon
our initial public offering, or IPO. On April 20, 2010, our
board of directors approved the grant of 1,666 RSUs to
Mr. Gavin that vested in full upon our IPO.
On February 5, 2010, Mr. Livingston resigned from our
board of directors. As a result of his resignation, the RSUs
issued to Mr. Livingston in November 2009 were forfeited
according to their terms. In consideration of the forfeiture of
these RSUs and in recognition of Mr. Livingstons
years of service to our board of directors, our board elected to
pay $20,000 to Mr. Livingston at the time of his
resignation.
On May 24, 2010, our board of directors approved the grant
of an option to purchase 25,000 shares of common stock to
Mr. Gavin, with such grant contingent upon the IPO. The
option was issued on the first date that our common stock traded
following the pricing of the IPO. The exercise price of the
option was $8.30, which was the closing price of our common
stock on the date of grant. The option vests in 16 equal
quarterly installments following the date of grant.
We adopted a director compensation policy in April 2010 in
connection with our anticipated initial public offering and the
increased responsibilities of our directors as directors of a
public company. Under this policy, which went into effect upon
the completion of the IPO, each non-employee director is
entitled to receive the following compensation:
|
|
|
|
|
an annual grant of RSUs covering a number of shares of common
stock having a value, as of the date of grant, equal to $30,000,
which will vest in full on the first anniversary of the grant
date. The first such annual RSU grant was made on a pro-rata
basis (to reflect the remainder
|
105
|
|
|
|
|
of 2010 following the completion of the IPO) on July 20,
2010. Such grants, each of which was in the amount of 1,911
RSUs, will vest in full on December 31, 2010;
|
|
|
|
|
|
an annual cash retainer of $30,000, paid in quarterly
installments at the end of each quarter; provided that each
non-employee director will have the ability to elect to receive
100%, 50% or 0% of his or her annual cash retainer in the form
of additional RSUs;
|
|
|
|
an annual cash retainer of $15,000 for the director who serves
as our audit committee chairman, and $10,000 for the other
directors who serve on our audit committee, in each case, paid
in quarterly installments at the end of each quarter;
|
|
|
|
an annual cash retainer of $10,000 for the director who serves
as our compensation committee chairman, and $7,500 for the other
directors who serve on our compensation committee, in each case,
paid in quarterly installments at the end of each quarter;
|
|
|
|
an annual cash retainer of $7,500 for the director who serves as
our nominating and corporate governance committee chairman, and
$5,000 for the other directors who serve on our nominating and
corporate governance committee, in each case, paid in quarterly
installments at the end of each quarter; and
|
|
|
|
reimbursement of reasonable
out-of-pocket
expenses incurred in connection with attendance at our board or
committee meetings.
|
2009 Director
Compensation Table
The following table sets forth a summary of the compensation
earned during the year ended December 31, 2009 by our
non-employee directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Stock Awards (1)
|
|
Option Awards (1)
|
|
Total (2)
|
|
Robert P. Goodman
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
Philip B. Livingston (3)
|
|
|
|
(4)
|
|
|
12,474
|
(5)
|
|
|
12,474
|
|
Douglas L. Maine
|
|
|
|
(4)
|
|
|
29,400
|
(5)
|
|
|
29,400
|
|
John D. Markley, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew M. Miller
|
|
|
|
(4)
|
|
|
35,454
|
(5)
|
|
|
35,454
|
|
Joseph R. Zell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2009, the aggregate number of shares
subject to outstanding equity awards held by our non-employee
directors was: |
|
|
|
|
|
|
|
|
|
Name
|
|
RSUs
|
|
Stock Options
|
|
Robert P. Goodman
|
|
|
|
|
|
|
|
|
Philip B. Livingston
|
|
|
3,333
|
|
|
|
24,929
|
|
Douglas L. Maine
|
|
|
3,333
|
|
|
|
25,000
|
|
John D. Markley, Jr.
|
|
|
|
|
|
|
|
|
Andrew M. Miller
|
|
|
3,333
|
|
|
|
29,166
|
|
Joseph R. Zell
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
The dollar values in this column for each director represent the
sum of all compensation referenced in the preceding columns. |
|
(3) |
|
Mr. Livingston resigned from our board of directors
effective February 5, 2010. As a result of his resignation,
the RSUs issued to Mr. Livingston in 2009 (as described in
more detail in footnote 4 below), were forfeited according to
their terms. In consideration of the forfeiture of these RSUs |
106
|
|
|
|
|
and in recognition of Mr. Livingstons years of
service to our board of directors, our board elected to pay
$20,000 to Mr. Livingston at the time of his resignation. |
|
(4) |
|
Represents the fair market value of the RSUs issued to the
director on the date of grant. The award was subject to
performance-based vesting, as described above. Because the award
was subject to a performance condition, the amount in the column
reflects the value of the award based on the probable outcome of
the performance condition of the award at the time of grant.
Because the performance condition of the award was a liquidity
event, which was outside of our control, the outcome of the
performance condition, and therefore the vesting of these RSUs,
was not considered probable until the event
occurred. As a result, the grant date fair value of the RSU, for
purposes of this table, is $0. Assuming that the performance
conditions to the awards are met, based on a fair value of the
common stock of $3.90 per share as of the grant date, the value
of the awards for each such non-employee director as of the
grant date would be $12,999. For a discussion of the valuation
of the common stock as of the grant date of these RSUs, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Determination of
the fair value of stock-based compensation grants. |
|
(5) |
|
Represents the incremental fair market value, measured as of the
date of grant, of stock options issued to the director pursuant
to the stock option exchange offer described above. These
options were valued using a binomial lattice pricing model. For
a discussion of the assumptions used in valuing these awards,
see Note 2 to the consolidated financial statements
elsewhere in this prospectus. |
107
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Introduction
This Compensation Discussion and Analysis provides information
regarding our 2009 executive compensation program for our Chief
Executive Officer, our Chief Financial Officer and our two other
executive officers. We refer to these individuals as our named
executive officers, or NEOs.
The following discussion and analysis of compensation
arrangements of our NEOs should be read together with the
compensation tables and related disclosures set forth below.
This discussion contains forward-looking statements that are
based on our current plans, consideration, expectations and
determinations regarding future compensation programs. Actual
compensation programs that we adopt may differ materially from
currently planned programs as summarized in this discussion.
Our NEOs for 2009 were as follows:
|
|
|
|
|
Michael Tessler, President and Chief Executive Officer
|
|
|
|
James Tholen, Chief Financial Officer
|
|
|
|
Scott Hoffpauir, Chief Technology Officer
|
|
|
|
Robert ONeil, former Vice President, Worldwide Sales
|
Mr. ONeils employment by BroadSoft ended on
December 31, 2009.
Our Compensation
Objectives
We have designed our executive compensation program with the
following primary objectives:
|
|
|
|
|
to retain those executives who continue to perform at or above
the levels that we expect;
|
|
|
|
to attract, as needed, executives with the skills necessary for
us to achieve our corporate objectives;
|
|
|
|
to tie annual cash incentives to the achievement of measurable
corporate performance objectives and individual contribution to
our corporate performance;
|
|
|
|
to manage risks of our business;
|
|
|
|
to control our business costs;
|
|
|
|
to allocate our resources effectively in the development of
market-leading technology and products; and
|
|
|
|
to reinforce a sense of ownership and overall entrepreneurial
spirit and to align our executives incentives with
stockholder value creation.
|
In the future our compensation committee expects to refine and
modify our compensation programs to further reflect the
competitive market for executive talent and our changing
business needs as a public company.
Role of Our
Compensation Committee
Our board of directors has delegated responsibility for
developing our compensation philosophy and for designing,
administering and interpreting our executive compensation
programs to our compensation committee. Our compensation
committee is appointed by our board of directors. Our
compensation committee currently consists entirely of directors
who are outside directors for purposes of Section 162(m) of
the Internal Revenue Code and non-employee directors for
purposes of
108
Rule 16b-3
under the Exchange Act. In 2009, our compensation committee
determined the compensation for all of our NEOs.
Our compensation committee performs, at least annually, a
strategic review of our NEOs compensation arrangements.
The goals of these reviews are to determine whether current
compensation arrangements provide adequate incentives and
motivation to our NEOs and whether they adequately compensate
our NEOs relative to comparable officers in other companies with
which we compete for executives. These companies may or may not
be public companies or even, in all cases, technology companies.
Our compensation committees most recent review of
executive compensation occurred in February 2010. Although our
compensation committee has the authority to engage an
independent compensation consultant to advise it in these
reviews, until recently it had not done so. However, in
connection with the February 2010 review, our compensation
committee engaged DolmatConnell & Partners, or
DolmatConnell, an independent compensation consultant, to advise
it with respect to 2009 bonus determinations and 2010
compensation programs. Our compensation committee expects to
engage an independent compensation consultant to advise it on
executive compensation matters in future years as well.
Role of the Chief
Executive Officer
Prior to March 2, 2010, Mr. Tessler, our chief
executive officer, was a member of our compensation committee,
although he has since been replaced on the committee by John J.
Gavin, Jr., an independent director. Because Mr. Gavin
joined the compensation committee in March 2010, he did not
participate in any of the decisions regarding 2009 executive
compensation described herein.
With respect to compensation decisions relating to his
compensation as our chief executive officer, Mr. Tessler
has abstained from involvement in the discussions and, while he
was a member of our compensation committee, voting on these
decisions. With respect to compensation decisions regarding all
other executive officers, Mr. Tessler has made
recommendations to our compensation committee, participated in
the committees discussions and, while a member of the
committee, voted on these decisions. Our compensation committee
expects that it will typically continue to consider
recommendations from the chief executive officer in evaluating
the performance of, and making compensation decisions for,
executive officers other than the chief executive officer.
Compensation
Components
In 2009, our executive compensation program consisted of five
principal components:
|
|
|
|
|
base salary;
|
|
|
|
an annual cash bonus program;
|
|
|
|
sales commissions (for our former vice president, worldwide
sales only);
|
|
|
|
equity incentive compensation; and
|
|
|
|
benefits.
|
Mix of
Compensation
Our compensation committee has historically sought to set
NEOs salaries, target bonuses (and in the case of our
former vice president, worldwide sales, sales commissions) and
aggregate share and option holdings at a level that are
competitive with those of executives with similar roles at
comparable private information technology companies. Our
compensation committee historically has not used benchmarking in
setting these compensation levels, but instead has based its
determination of market levels on various data sources,
including compensation databases, SEC filings of smaller public
companies and the general market experience of the members of
the committee. We believe that, given the industry in which we
operate and the corporate culture that we have created, base
109
compensation, bonuses, sales commissions and equity incentives
at these levels are generally sufficient to retain our existing
executive officers and to hire new executive officers when and
as required. In seeking to set competitive base and incentive
compensation, our compensation committee also acknowledges that,
in certain circumstances, we may be required to pay executives
at somewhat higher rates, commensurate with the
individuals experience, and to recruit and retain these
executives, who have competing employment opportunities.
We believe that, as is common in the technology sector, stock
options and other equity awards are a key compensation-related
motivator in attracting and retaining executive officers in
addition to base salary, cash bonus and sales commissions. Our
compensation committee has not adopted any formal or informal
policies or guidelines for allocating compensation between
long-term and currently paid compensation, between cash and
non-cash compensation, or among different forms of cash
compensation. However, our compensation committees general
philosophy is to make a greater percentage of an employees
compensation performance-based (either equity-based, cash bonus
or sales commissions) as he or she becomes more senior. As a
result, we seek to keep base cash compensation to executive
officers to a competitive level while providing the executives
with the opportunity to be significantly rewarded through cash
incentives and through equity-based compensation that will
increase in value if the company performs well over an extended
period of time and the executive remains with the company.
Base
Salary
Base salaries are intended to provide our NEOs with a degree of
financial certainty and stability that does not depend on our
performance. Our compensation committee considers several
factors in determining base salaries of our NEOs, including each
NEOs position, functional role, responsibilities and
experience, the relative ease or difficulty of replacing such
NEO with a well-qualified person and overall job performance. In
the future, our compensation committee intends to review the
base salaries of our NEOs on an annual basis and make
adjustments based on individual performance, changes in job
duties and responsibility, our overall budget for base salary
increases and competitive conditions.
For 2009, in light of the challenging economic climate and to
preserve cash resources, our compensation committee determined
that the base salaries in effect for our NEOs were sufficient to
achieve our compensation objectives and determined not to
increase base salaries for our NEOs. However, for 2010, in
consultation with DolmatConnell, our compensation committee
determined to increase base salaries for our NEOs as follows:
|
|
|
|
|
|
|
|
|
Name
|
|
2009 Salary
|
|
|
2010 Salary
|
|
|
Mr. Tessler
|
|
$
|
275,000
|
|
|
$
|
300,000
|
|
Mr. Tholen
|
|
$
|
225,000
|
|
|
$
|
265,000
|
|
Mr. Hoffpauir
|
|
$
|
200,000
|
|
|
$
|
240,000
|
|
Cash Bonus
Programs
We believe it is important to provide our NEOs with the
opportunity to earn annual cash incentive payments to reward the
achievement of various pre-determined corporate objectives and
to motivate the executives to contribute to our achievement of
those objectives. Our cash bonus program is administered by our
compensation committee to reward all eligible employees other
than our sales personnel, who generally receive incentive
compensation in the form of sales commissions. For 2009, we
established annual cash bonus plans for our NEOs and we
anticipate that we will establish similar cash incentive plans
in the future.
110
Annual Bonus
Plans
For each year, our compensation committee determines a target
annual bonus for each of our NEOs, depending upon the
officers role within the company and his ability to
influence our financial performance. For 2009, target bonuses,
as a percentage of annual base salary, for each of our NEOs,
were as follows:
|
|
|
|
|
Mr. Tessler: $200,000 (73% of base salary)
|
|
|
|
Mr. Tholen: $100,000 (44% of base salary)
|
|
|
|
Mr. Hoffpauir: $90,000 (45% of base salary)
|
|
|
|
Mr. ONeil: $100,000 (40% of base salary)
|
In developing the annual bonus program for our NEOs, our
compensation committee establishes annual corporate performance
objectives. These corporate objectives are generally based on
the annual corporate operating plan approved by the full board
of directors. In 2009, these corporate performance objectives
related to total revenue for the year ended December 31,
2009 and cash on hand as of December 31, 2009. Our
compensation committee then establishes a bonus program for the
NEOs whereby the NEOs bonuses are based on our level of
achievement of these corporate objectives.
For 2009, to provide itself with the ability to reward
outstanding individual performance, our compensation committee
also determined to base a portion of each NEOs target
bonus on individual contribution to our corporate performance.
For 2009, our compensation committee determined that bonuses for
the NEOs should be 70% based on the achievement of the corporate
objectives (with one-half of this amount attributed to each of
the two corporate performance objectives described above), and
30% based on a discretionary assessment of individual
performance.
Because of Mr. ONeils position as vice
president, worldwide sales, our compensation committee believed
that it was appropriate to establish an incentive structure for
him that placed greater emphasis on sales achievements during
the year, while still aligning his incentives with those of our
other NEOs. Accordingly, our compensation committee determined
to include Mr. ONeil in the bonus program described
above, while also providing him with the opportunity to earn
monthly sales commissions based on a percentage of our worldwide
sales revenue during the month, with graduated commission rates
at higher levels of sales. With respect to a particular sale,
one half of the commission was earned when the revenue was
recognized by BroadSoft and the remainder was earned when
payment was actually received by the company.
Corporate
Performance Objectives
When evaluating the achievement of the corporate goals after the
end of a particular plan year, our compensation committee
determines the percentage of achievement with respect to each
corporate goal, which percentage is then multiplied by the
percentage weighting originally assigned to such goal. The sum
of the resulting percentages represents the total achievement of
the corporate goals and is used to calculate that portion of the
bonus of the NEO that is based on the achievement of the
corporate goals, which as noted above was 70% for 2009. In its
discretion, our compensation committee may also consider
additional corporate goals that have been set by the board of
directors during the course of the plan year and may adjust the
corporate goals achievement percentage based on the achievement
of such additional corporate goals, although it did not do so
for 2009.
In 2009, the corporate objectives were total revenue for the
year ended December 31, 2009 and cash on hand as of
December 31, 2009. In choosing these objectives, our
compensation committee determined that it wished to incentivize
rapid sales growth, which, at this stage of the companys
development, the committee believes is critical to the long-term
generation of stockholder value. However, our compensation
committee also took note of the challenging economic climate and
the difficulty that emerging private companies were likely to
have in raising capital during 2009 and
111
determined that it also wished to incentivize the objective of
preserving and growing our cash on hand. In view of the relative
importance of both revenue growth and capital preservation, our
compensation committee determined to give equal weight to each
of these corporate objectives. As a result, both of the revenue
objective and the cash on hand objective contributed 35% of the
executives target bonuses.
For each of the corporate objectives, our compensation committee
established a threshold level, which would entitle the NEOs to
receive half of their target bonus amount attributable to the
objective, and a target level, which would entitle the NEOs to
receive their full target bonus amount attributable to the
objective. The bonus amounts are pro-rated for achievement
levels between the threshold and the target amounts. In
addition, the executives were also eligible to receive an
additional bonus equal to their ratable portion (based on their
respective target bonuses) of a percentage of our revenue, if
any, that exceeded the target level of the revenue objective.
This additional revenue-based bonus potential was not capped.
The threshold and target amounts of the 2009 corporate
performance objectives, along with our actual results for both
objectives, are set forth below:
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
|
|
Corporate Performance
Objective
|
|
Amount
|
|
Target Amount
|
|
Actual Result
|
|
Total revenue (GAAP)
|
|
$68.0 million
|
|
$76.0 million
|
|
$68.9 million
|
Cash on hand at year-end
|
|
$13.0 million
|
|
$16.0 million
|
|
$22.9 million
|
Based on our actual corporate financial performance for 2009,
our compensation committee determined that our NEOs were
entitled to 56% of the bonus attributable to the total revenue
objective and 100% of the bonus attributable to the cash on hand
objective. The actual cash payments made to our NEOs under these
programs as a result of these corporate achievements are
disclosed in the Non-equity incentive plan
compensation column of the 2009 Summary Compensation Table.
Individual
Performance
As noted above, for 2009, 30% of each of our NEOs target
annual bonuses were based on the officers individual
contributions to our corporate achievement during the year. The
degree to which this portion of the bonus is awarded, if at all,
is based on a subjective determination regarding the
individuals personal performance during the year, as well
as our overall corporate performance. When establishing the 2009
bonus program, our compensation committee determined that, upon
completion of the year and in consultation with our chief
executive officer, it would determine an achievement percentage
(ranging between 80% and 120%) for each NEO. The portion of the
NEOs target bonus attributable to his individual
performance would be awarded at the achievement percentage. For
example, an individual who received an achievement percentage of
80% would receive 80% of the portion of his target annual bonus
attributable to individual performance (which would equate to
24% of his total target bonus). An individual who received an
achievement percentage of 100% would receive 100% of the portion
of his target annual bonus attributable to individual
performance (which would equate to 30% of his total target
bonus). An individual who received an achievement percentage of
120% would receive 120% of the portion of his target annual
bonus attributable to individual performance (which would equate
to 36% of his total target bonus).
Based on our 2009 financial performance, and in particular our
significantly exceeding our December 31, 2009 target cash
balance, our compensation committee chose not to perform an
individual-by-individual
analysis of each of our NEOs performance during 2009 for
the purpose of assessing his contribution to our overall
corporate performance. Rather, our compensation committee
considered the assessment, provided by our chief executive
officer, that each of our NEOs performed his job
responsibilities at a high level during 2009, while also noting
Mr. ONeils responsibility, as our former vice
president, worldwide sales, for our total revenue, which was
above the threshold, but below the target, for the year. Based
on this assessment and our 2009 financial performance, our
compensation committee determined that each of the NEOs, other
than Mr. ONeil, would receive 100% of his target
bonus amount attributable to individual performance. In view of
our 2009 revenue
112
performance, our compensation committee determined that
Mr. ONeil would receive 85% of his target bonus
amount attributable to individual performance.
Special
Discretionary Cash Bonuses
For 2009, in consultation with DolmatConnell, our compensation
committee also exercised its discretion to pay special
discretionary bonuses to our NEOs to reward performance that the
committee believed contributed to our 2009 financial
performance, particularly our 2009 year-end cash balance.
In this regard, the committee acknowledged that the portion of
the NEOs 2009 cash bonus plans based on corporate
objectives did not reward achievement of a year-end cash balance
above the target level (unlike the portion based on revenue,
which rewarded achievement above the 2009 target level). In
recognition of the significant degree by which the company
exceeded the target 2009 year-end cash balance, the
committee chose to award a special discretionary bonus to
Messrs. Tessler, Tholen and Hoffpauir, in an amount equal
to approximately 66% of their respective target bonuses. The net
effect of this special discretionary bonus was that these NEOs
received a total cash bonus for 2009 equal to 150% of their
respective target bonuses for the year. In electing not to
provide a similar bonus to Mr. ONeil, our
compensation committee considered that
Mr. ONeils employment by the company ended on
December 31, 2009.
Negative
Discretion
In addition to the ability to award special discretionary
bonuses, our compensation committee also may, in certain
circumstances, exercise discretion to reduce a bonus that an
officer is otherwise entitled to under the bonus plan, although
the committee did not do so for 2009.
Equity
Incentive Compensation
For all NEOs, we utilize stock options and other equity-based
awards to reward long-term performance and incentivize
retention, thereby allowing the NEOs to share in our corporate
performance. Authority to make equity grants to NEOs rests with
our compensation committee, although, as noted above, our
compensation committee intends to continue to consider the
recommendations of our chief executive officer for grants to all
other executive officers following the completion of this
offering.
Historically, equity-based compensation has been our primary
long-term incentive compensation component. We believe that
equity-based compensation has and will continue to be a
significant part of our NEOs total compensation packages.
We believe that both time-based and, when appropriate,
performance-based, vesting, along with shared financial success
motivates our NEOs to grow revenue and earnings, enhance
stockholder value and align the interests of our stockholders
and executives over the long-term. The vesting feature of our
equity-based awards contributes to NEO retention since this
feature provides an incentive to our NEOs to remain with the
company during the vesting period. We have not established any
formal stock ownership guidelines, nor do we have any program,
plan or obligation that requires us to grant equity compensation
on specified dates, although our compensation committee may
elect to do so following the completion of this offering. To
date, we have used stock options, restricted stock and RSUs in
our awards to our NEOs and we expect that our compensation
committee may also consider other alternative forms of
equity-based awards in the future.
We customarily make option grants in connection with a new hire.
For the last several years, our compensation committee has also
reviewed the equity holdings of our NEOs on an annual basis.
This review takes into account a number of factors, including
job performance and retention goals. In that regard, our
compensation committee believes that, at any given time, a
meaningful amount of our NEOs equity should be unvested.
Upon completion of this review, where our compensation committee
has determined it to be appropriate, we have made retention
equity grants to our NEOs. All options are granted with an
exercise price equal to the fair market value of our common
stock on the date of grant. Prior to our initial public
offering, the fair market value of our common stock, in
connection with option grants to our NEOs, was based upon our
compensation committees
113
determination of the fair market value of our common stock on
the date of grant. Since the completion of our initial offering,
the fair market value of our common stock has been based on the
public trading price of our common stock on the date of grant.
Although we have not previously adopted any policy regarding the
use of restricted stock as opposed to stock options, our 1999
Stock Incentive Plan allowed, and 2009 Plan allows, us to make
grants of restricted stock. In connection with our July 2007
hiring of Mr. Tholen as our Chief Financial Officer, our
compensation committee approved a grant of 55,555 shares of
restricted common stock to Mr. Tholen (in addition to a
stock option grant to purchase 111,111 shares of common
stock). The shares of restricted stock are subject to a vesting
schedule under which we may redeem any unvested shares following
the termination of Mr. Tholens employment at no cost.
We may consider additional grants of restricted stock in the
future to NEOs, although at this time we have no current plans
to make any such grants.
2009 Restricted
Stock Unit Grants and Stock Option Exchange Offer
During 2009, our compensation committee determined not to raise
salaries or grant annual stock options to our NEOs but undertook
two related actions. First, in March 2009, in lieu of salary
increases, our compensation committee approved a new form of
equity grant to certain of our NEOs and other non-executive
officers of the company. While historically, our equity awards
have generally been made in the form of stock options, our
compensation committee determined to make these grants in the
form of RSUs, which we refer to as the 2009 RSUs. These RSUs,
which have a term of ten years and are settled in shares of our
common stock, vest only upon the earlier of the following
events, subject in either case to the recipients continued
service through the date of the event:
|
|
|
|
|
an initial public offering; or
|
|
|
|
a change in control of the company, assuming that the
consideration received in the change in control transaction is
cash or freely-tradable registered shares.
|
Accordingly, these RSUs vested upon the pricing of our initial
public offering. In accordance with the terms of these awards,
each NEO elected to elect to have a portion of the shares that
would otherwise be issued upon vesting of the awards withheld by
the company to satisfy the recipients statutory minimum
federal, state and local income and employment tax obligations
incurred in connection with the vesting of the awards.
Our compensation committee believed that the use of this form of
award, as opposed to stock options, would be viewed as
advantageous by the recipients, because the awards have value
regardless of the change in the value of our common stock.
Furthermore, our compensation committee believed that the use of
these particular RSUs, as opposed to other forms of full value
awards such as restricted stock, would be viewed as advantageous
from a tax perspective by the recipients, because they would
only create taxable income to the recipient upon the occurrence
of a liquidity event. From the perspective of the company and
its stockholders, our compensation committee believed that using
these forms of awards would also help to reinforce a desire to
drive the company towards a liquidity event for our
stockholders, many of whom have held our shares for a lengthy
period. These grants were made to all of our then-serving NEOs
with the exception of Mr. ONeil, since
Mr. ONeil had recently joined the company and was not
eligible for a salary increase in 2009.
Second, our compensation committee took note of the challenging
economic conditions and continued economic uncertainty and the
associated decline of the fair market value of our common stock.
Our compensation committee noted that many of our employees,
including our NEOs, held stock options with exercise prices that
were, as a result of these factors, out of the money, in some
cases significantly so, and therefore were not providing
adequate incentive and retention value. As a result, in March
2009, our compensation committee approved a program, which was
completed in June 2009, to allow all employees (including NEOs)
to voluntarily exchange outstanding stock options having a per
share exercise price in excess of $2.40 for new stock options
having a per share
114
exercise price of $2.40, which our compensation committee
determined to be the fair market value of a share of our common
stock on the date that the new stock options were granted.
These new options had a 10 year term. The vesting schedule
of the new options issued to our NEOs is as follows:
|
|
|
|
|
the portion of any new option issued to our NEOs in exchange for
options vested prior to March 1, 2009 was fully vested on
issuance; and
|
|
|
|
the portion of any new option issued to our NEOs in exchange for
options that had not yet vested prior to March 1, 2009 will
vest in accordance with the original vesting schedule of the
exchanged options. These portions of the new options, therefore,
fully vest on the original final vesting dates of the exchanged
options.
|
Each of our NEOs, with the exception of Mr. ONeil
(whose stock option already had an exercise price of $2.40 per
share), participated in the offer and exchanged all of his
options that were eligible to be exchanged in the offer. We
believe that, as a result of this program, we have provided a
significant incentive to participants, including our NEOs, to
continue to provide services to us and contribute to the ongoing
value creation for our stockholders.
Further information about the stock options and RSUs that were
granted to each of the NEOs during 2009 is reflected in the 2009
Grants of Plan-Based Awards table below. Additional information
concerning all options, restricted stock and RSUs held by the
NEOs as of December 31, 2009 is included in the Outstanding
Equity Awards at December 31, 2009 table below. Additional
information concerning the vesting of restricted stock held by
Mr. Tholen during 2009 is set forth in the Stock Option
Exercises and Stock Vested in 2009 table below.
2010 RSU
Grants
In connection with our compensation committees
determination of 2009 cash bonuses, in February 2010, the
committee also elected to reward the performance of
Messrs. Tessler, Tholen and Hoffpauir through the grant of
an aggregate of 99,998 RSUs, which we refer to as the 2010 RSUs,
as outlined below:
|
|
|
|
|
Mr. Tessler: 41,666 RSUs
|
|
|
|
Mr. Tholen: 29,166 RSUs
|
|
|
|
Mr. Hoffpauir: 29,166 RSUs
|
The committee determined to make these awards to
Messrs. Tessler, Tholen and Hoffpauir in recognition of
their contributions to our 2009 performance, particularly their
efforts in leading the company through the 2009 worldwide
recession and contributing to our significant overachievement
with respect to its 2009 year-end cash balance. These RSUs
have a term of 10 years and are settled in shares of our common
stock. These RSUs will vest in two equal annual installments
following the date of grant assuming the occurrence of an
initial public offering (which has subsequently occurred) or a
change in control of the company where the consideration
received in the change in control transaction is cash or
freely-tradable registered shares. Additionally, the vesting
schedule will accelerate in full if the NEO is terminated
without cause or resigns for good reason within one month prior
to, or one year after, a change of control of the company.
Except for the foregoing, the vesting of the award is subject to
the NEOs continuous service through the vesting date.
2010 IPO RSU
Grants
In addition, in February 2010, the committee also elected to
incentivize Messrs. Tessler, Tholen and Hoffpauir through
the grant of an aggregate of 24,999 RSUs, which we refer to as
the 2010 IPO RSUs, as outlined below:
|
|
|
|
|
Mr. Tessler: 8,333 RSUs
|
115
|
|
|
|
|
Mr. Tholen: 8,333 RSUs
|
|
|
|
Mr. Hoffpauir: 8,333 RSUs
|
The committee determined to make these awards to
Messrs. Tessler, Tholen and Hoffpauir to incentivize them
to lead BroadSoft through its initial public offering and beyond
the offering as a public company. These RSUs have a term of 10
years and are settled in shares of our common stock. These RSUs
vest over four years following the date of grant assuming the
occurrence of an initial public offering (which has subsequently
occurred). Additionally, the vesting schedule will accelerate in
full if, following an IPO, the NEO is terminated without cause
or resigns for good reason within one month prior to, or one
year after, a change in control of the company. Except for the
foregoing, the vesting of the award is subject to the NEOs
continuous service through the vesting date.
IPO-Timed
RSUs
In May 2010, in connection with its approval of annual equity
awards to our employees and executive officers, our compensation
committee approved the grant to Messrs. Tessler, Tholen and
Hoffpauir of an aggregate of 39,165 RSUs. We issued these RSUs,
which we refer to as the
IPO-Timed
RSUs, on June 15, 2010, immediately prior to the
effectiveness of the registration statement for our initial
public offering. The number of RSUs granted to each of the NEOs
is as outlined below:
|
|
|
|
|
Mr. Tessler: 15,833 RSUs
|
|
|
|
Mr. Tholen: 11,666 RSUs
|
|
|
|
Mr. Hoffpauir: 11,666 RSUs
|
These RSUs have a term of 10 years and will be settled in
shares of our common stock. The awards will vest over the four
year period following the date of grant, with 25% of the award
vesting on the first anniversary of the grant and the remainder
vesting in 12 equal quarterly installments. Additionally, the
vesting schedule will accelerate in full if the NEO is
terminated without cause or resigns for good reason within one
year after a change of control of the company. Except for the
foregoing, the vesting of the award will be subject to the
NEOs continuous service through the vesting date.
Other
Compensatory Benefits
We believe it is appropriate and necessary for recruitment and
retention to provide our NEOs with other forms of compensatory
benefits, including the following:
Severance and
Change of Control Benefits
Neither our 1999 Stock Incentive Plan nor our 2009 Plan include,
as a default provision, any acceleration to the equity vesting
schedule upon termination of the holder, but they do provide our
board of directors or our compensation committee with the
discretion to provide for acceleration of the equity vesting
schedule in individual cases. Our board of directors or
compensation committee has on occasion approved acceleration of
all or a portion of the equity vesting schedule for certain
employees in connection with their departure from the company.
For our NEOs, all stock options and restricted stock awards
granted under the 1999 Stock Incentive Plan include a provision
accelerating the vesting schedule in full if a change in control
occurs and the NEO is terminated without cause within one year
of the consummation of the change in control. Under our 2009
Plan, the stock options granted to our NEOs include a provision
accelerating the option vesting schedule in full if a change in
control occurs and the NEO is terminated without cause or
resigns from employment for good reason within one year after
the consummation of the change in control. Additionally, the
2009 RSUs, 2010 RSUs and 2010 IPO RSUs include provisions
accelerating the vesting schedule in full upon certain events,
as described above under Equity Incentive
Compensation 2009 Restricted Stock Unit Grants and
116
Stock Option Exchange Offer, Equity Incentive
Compensation 2010 RSU Grants and Equity
Incentive Compensation 2010 IPO RSU Grants.
Our compensation committee has approved the execution of
agreements with each of our NEOs that contain severance
provisions providing for continued payment of salary and
provision of certain benefits for a specified period of time, in
the event that the NEO were to be terminated without cause or
resigned for good reason within one month prior to, or one year
after, a change in control of the company. These severance
agreements are generally identical, although the length of time
for which salary and benefits shall be continued varies by
officer. These agreements are described below under
Potential Payments and Acceleration of Equity Upon
Separation in Connection with a Change in Control
Severance Agreements.
Our compensation committee determined to provide these
arrangements to mitigate some of the risk that exists for
executives working in a small, dynamic startup company such as
ours, an environment where there is a reasonable likelihood that
we may be acquired. These arrangements are intended to retain
qualified executives that have alternatives that may appear to
them to be less risky absent these arrangements and mitigate a
potential disincentive to consideration and execution of such an
acquisition, particularly where the services of these NEOs may
not be required by the acquirer following the acquisition. For
quantification of these severance and change of control
benefits, please see Potential Payments and Acceleration
of Equity Upon Separation in Connection with a Change in
Control below.
Other
Benefits
Our NEOs are eligible to participate in all of our employee
benefit plans, such as medical, dental, vision, group life,
disability, accidental death and dismemberment insurance,
business travel accident insurance, business travel medical
insurance, an employee assistance program and our 401(k) plan,
in each case on substantially the same basis as other employees
in the geographical location where they are based. We do not
provide any retirement benefits separate from our 401(k) plan.
Our employees in international offices generally have somewhat
different employee benefit plans than those we offer
domestically, typically based on the competitive and regulatory
requirements of their respective countries of domicile.
Perquisites
Generally, we do not provide any perquisites or other personal
benefits to our NEOs.
Accounting and
Tax Considerations
While our compensation committee generally considers the
financial accounting and tax implications of its executive
compensation decisions, historically neither element has been a
material consideration in the compensation awarded to our NEOs.
In accordance with guidance applicable to stock-based
compensation, we measure stock-based compensation expense based
on the fair value of the award on the date of grant and we
recognize this expense over the vesting period of the award. For
our historical option awards, this has resulted in a non-cash
compensation charge being incurred over the vesting periods of
the options. Applicable accounting rules also require us to
record cash compensation as an expense at the time the
obligation is accrued.
In the case of the 2009 RSUs, because these awards were subject
to a performance condition, which is a liquidity event outside
of our control, the outcome of the performance condition, and
therefore the vesting of the RSUs, was not considered
probable until the event occurred. As a result, no
portion of the grant date fair value of these awards was being
recognized. Upon the pricing of our initial public offering, the
performance condition was satisfied and the RSUs vested,
resulting in a non-
117
cash stock-based compensation expense of approximately
$0.3 million, which we recognized in the second fiscal
quarter of 2010.
In the case of the 2010 RSUs and the 2010 IPO RSUs, these awards
are subject to both a performance condition and a service-based
condition. Because the performance condition is a liquidity
event, which is outside of our control, the outcome of the
performance condition, and therefore the vesting of these RSUs,
was not considered probable until the event
occurred. As a result, no portion of the grant date fair value
of these awards was being recognized. Upon the closing of our
initial public offering, the performance condition was satisfied
and the vesting of these RSUs was considered
probable. These RSUs then began to vest over the
remaining service period of the awards, subject to the
recipients continued service through such vesting dates.
This will result in a non-cash stock-based compensation expense,
which we expect will be approximately $0.8 million, that we
are recognizing beginning upon the completion of our initial
public offering through the applicable service periods of the
2010 RSUs and the 2010 IPO RSUs.
In the case of the IPO-Timed RSUs, these grants are subject to
time-based vesting of four years. In connection with these
grants, we expect to record an aggregate expense of
approximately $0.4 million over the four year vesting
period of the awards, based on the initial public offering price
of $9.00 per share.
As a result of the stock option exchange offer conducted in
2009, the remaining unrecognized compensation expense for the
exchanged options will be expensed over the original vesting
period of the exchanged options. In accordance with applicable
accounting guidance, we determined the incremental value of the
replacement options, as compared to the surrendered options, at
the time of grant and we are also recognizing this incremental
value over the vesting schedule of the replacement options.
Unless and until we achieve sustained profitability, the
availability to us of a tax deduction for compensation expense
will not be material to our compensation decisions. We structure
cash bonus compensation and sales commissions so that they are
taxable to our employees, including our NEOs, at the time they
are paid. We currently intend that all cash compensation paid
will be tax deductible by us. However, with respect to stock
option awards, while any gain recognized by employees and other
service providers from nonqualified options should be
deductible, to the extent that an option constitutes an
incentive stock option, gain recognized by the optionee will not
be deductible by us if there is no disqualifying disposition by
the optionee. With respect to equity and cash compensation, we
generally seek to structure such awards so that they do not
constitute deferred compensation under
Section 409A of the Internal Revenue Code, thereby avoiding
penalties and taxes on such compensation applicable to deferred
compensation.
Section 162(m) of the Code generally disallows a tax
deduction for compensation in excess of $1.0 million paid
to our Chief Executive Officer and three other highest paid
officers (excluding the Chief Financial Officer) in office at
fiscal year-end. Qualifying performance-based compensation is
not subject to the deduction limitation if specified
requirements are met. We periodically review the potential
consequences of Section 162(m) and we generally intend to
structure the performance-based portion of our executive
compensation, where feasible, to comply with exemptions in
Section 162(m) so that the compensation remains tax
deductible to us. However, our compensation committee may, in
its judgment, authorize compensation payments that do not comply
with the exemptions in Section 162(m) when it believes that
such payments are appropriate to attract and retain executive
talent.
118
2009 Summary
Compensation Table
The following table sets forth all of the compensation awarded
to, earned by or paid to our NEOs during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
Salary
|
|
Bonus
|
|
Stock
|
|
Option
|
|
Compensation
|
|
Total
|
Name and Principal
Position
|
|
(1)
|
|
(2)
|
|
Awards
|
|
Awards
|
|
(3)
|
|
(4)
|
|
Michael Tessler,
|
|
$
|
276,058
|
|
|
|
$191,120
|
|
|
$
|
|
(7)
|
|
$
|
384,296
|
(8)
|
|
$
|
108,880
|
|
|
$
|
960,354
|
|
President and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Tholen,
|
|
|
225,865
|
|
|
|
95,560
|
|
|
|
|
(7)
|
|
|
151,179
|
(8)
|
|
|
54,440
|
|
|
|
527,044
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Hoffpauir,
|
|
|
200,769
|
|
|
|
86,004
|
|
|
|
|
(7)
|
|
|
181,061
|
(8)
|
|
|
48,996
|
|
|
|
516,830
|
|
Chief Technology Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert ONeil,
|
|
|
347,908
|
(6)
|
|
|
25,560
|
|
|
|
|
|
|
|
259,455
|
(9)
|
|
|
54,440
|
|
|
|
687,363
|
|
Former Vice President,
Worldwide Sales (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts in this column reflect base salary for each of the NEOs
plus, in the case of Mr. ONeil, sales commissions
earned with respect to 2009. Amounts in this column also include
any salary contributed by the NEO to our 401(k) plan. |
|
(2) |
|
Amounts in this column represent for Messrs. Tessler,
Tholen and Hoffpauir: (a) the discretionary portion of the
individuals 2009 cash bonus attributable to individual
performance and (b) the special discretionary cash bonuses
awarded for 2009 as described in Compensation Discussion
and Analysis Compensation Components
Cash Bonus Programs Special Discretionary
Bonuses. In the case of Mr. ONeil, the amount
represents the discretionary portion of his 2009 cash bonus
attributable to individual performance. |
|
(3) |
|
Amounts in this column represent the cash payment made to the
NEO in respect of our achievement of corporate performance
objectives, and consist of: (a) 56% of the portion of the
NEOs target bonus attributable to the 2009 total revenue
corporate performance objective and (b) 100% of the portion
of the NEOs target bonus attributable to the year end cash
on hand objective. For additional information regarding the
calculation of these amounts, see Compensation Discussion
and Analysis Compensation Components
Cash Bonus Programs Annual Bonus Plans
Corporate Performance Objectives. |
|
(4) |
|
The dollar values in this column for each NEO represent the sum
of all compensation referenced in the preceding columns. |
|
(5) |
|
Mr. ONeils employment by the company ended on
December 31, 2009. Under the terms of a separation
agreement we entered into with Mr. ONeil in January
2010, we agreed to make severance payments to
Mr. ONeil equal to six months of his then-current
base salary and to provide him with continued health insurance
benefits for a period of six months. |
|
(6) |
|
Consists of base salary of $250,962 and aggregate sales
commissions of $96,946. |
|
(7) |
|
Represents the fair value of RSUs issued to the NEO on the date
of grant. These awards were subject to performance-based
vesting, as described in detail in 2009
Restricted Stock Unit Grants and Stock Option Exchange
Offer below. Because these awards were subject to a
performance condition, the amounts in the column reflect the
value of the awards based on the probable outcome of the
performance condition of the awards on the date of grant.
Because the performance condition of the awards was a liquidity
event, which was outside of our control, the outcome of the
performance condition, and therefore the vesting of the RSUs,
was not considered probable until the event occurs.
As a result, the grant date fair value of the RSUs, for purposes
of this table, is $0. Assuming that the performance conditions
to the awards were met, based on a fair |
119
|
|
|
|
|
value of the common stock of $2.40 per share as of the grant
date, the value of the awards as of the grant date would be
$91,999 for Mr. Tessler, $127,999 for Mr. Tholen and
$36,000 for Mr. Hoffpauir. For a discussion of the
valuation of the common stock as of the grant date of the RSUs,
see Managements Discussion and Analysis of Financial
Condition and Results of Operations Stock-Based
Compensation. |
|
(8) |
|
Represents the incremental fair market value, measured as of the
date of grant, of stock options issued to the NEO pursuant to
the stock option exchange offer described in greater detail in
2009 Restricted Stock Unit Grants and Stock
Option Exchange Offer below. These options were valued
using a binomial lattice pricing model. For a discussion of the
assumptions used in valuing these awards, see Note 2 to the
consolidated financial statements elsewhere in this prospectus. |
|
(9) |
|
Represents the grant date fair value of a stock option issued to
Mr. ONeil. The option was valued using a binomial
lattice pricing model. For a discussion of the assumptions used
in valuing the award, see Note 2 to the consolidated
financial statements elsewhere in this prospectus. |
2009 Grants of
Plan-Based Awards
The following table provides information with regard to
potential cash bonuses paid or payable in 2009 under our
performance-based bonus plans for each of the NEOs. The table
also includes information with regard to each stock option and
RSU granted to each NEO during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Fair
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
Number of
|
|
|
Price of
|
|
|
Value of
|
|
|
|
|
|
|
Committee
|
|
|
Estimated Potential Payouts Under
|
|
Payouts Under Equity
|
|
|
Securities
|
|
|
Stock
|
|
|
Stock and
|
|
|
|
Grant
|
|
|
Approval
|
|
|
Non-Equity Incentive Plan Awards (1)
|
|
Incentive Plan Awards
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
Name
|
|
Date
|
|
|
Date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
Target
|
|
|
Options
|
|
|
Awards
|
|
|
Awards
|
|
|
Michael Tessler
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
$35,000
|
(3)
|
|
|
$70,000
|
(3)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
35,000
|
(4)
|
|
|
70,000
|
(4)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/29/2009
|
(2)
|
|
|
3/17/2009
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,333
|
(5)
|
|
|
|
|
|
|
|
|
|
|
$0
|
(5)
|
|
|
|
6/10/2009
|
|
|
|
6/10/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,081
|
(6)
|
|
|
$2.40
|
|
|
|
384,296
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Tholen
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
17,500
|
(3)
|
|
|
35,000
|
(3)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
17,500
|
(4)
|
|
|
35,000
|
(4)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/29/2009
|
(2)
|
|
|
3/17/2009
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,333
|
(5)
|
|
|
|
|
|
|
|
|
|
|
0
|
(5)
|
|
|
|
6/10/2009
|
|
|
|
6/10/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,777
|
(6)
|
|
|
2.40
|
|
|
|
151,179
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Hoffpauir
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
15,750
|
(3)
|
|
|
31,500
|
(3)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
15,750
|
(4)
|
|
|
31,500
|
(4)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/29/2009
|
(2)
|
|
|
3/17/2009
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
0
|
(5)
|
|
|
|
6/10/2009
|
|
|
|
6/10/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,331
|
(6)
|
|
|
2.40
|
|
|
|
181,061
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert ONeil
|
|
|
1/30/2009
|
|
|
|
1/30/2009
|
|
|
|
17,500
|
(3)
|
|
|
35,000
|
(3)
|
|
|
(3)
|
|
|
|
|
|
|
|
212,500
|
(7)
|
|
|
2.40
|
|
|
|
259,455
|
|
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
17,500
|
(4)
|
|
|
35,000
|
(4)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/17/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Our annual cash bonus program is
administered by our compensation committee to reward our NEOs.
Under this program, our compensation committee determines a
target annual bonus for each of the NEOs, depending upon the
officers role within the company and his ability to
influence our financial performance. In developing the bonus
program for each year, our compensation committee establishes
annual corporate performance objectives and allocates the target
bonus for each NEO across these objectives. In 2009, our
compensation committee allocated 70% of each individuals
target annual bonus to these corporate objectives and our
compensation committee allocated the remaining 30% of each
individuals target bonus to a discretionary assessment of
individual performance. The potential payments to the NEOs under
the annual cash bonus program based on our corporate performance
objectives are set forth in this table. The potential payments
to the NEOs under the annual cash bonus program based on
individual performance are not included in this table, because
of the discretionary nature of this component of the annual
bonuses. For more information regarding these bonuses, see
Compensation Discussion and Analysis
Compensation Components Mix of
Compensation Cash Bonus Programs.
|
|
(2)
|
|
This award was approved by our
compensation committee on March 17, 2009, to be granted
upon the board of directors adoption of the 2009 Plan,
which occurred on April 29, 2009.
|
|
(3)
|
|
The amount shown in the
Threshold column represents the amount that would
have been paid to the executive officer for 2009 if we had
achieved the threshold 2009 total revenue objective required for
the payment of a bonus attributable to that objective under the
bonus program for executive officers. The amount shown in the
Target column represents the bonus amount
attributable to that objective that would have been paid to the
executive officer for 2009 if we had achieved the target 2009
total revenue objective under the bonus program. Under the
program, the payout for achievement of 2009 total revenue
between the threshold and target amounts would be prorated. The
individuals were also eligible to receive an additional bonus
equal to their ratable portion (based on their respective target
bonuses) of a percentage of our revenue, if any, that exceeded
the target level of the revenue objective. This additional
revenue-based bonus potential was not capped. The
|
120
|
|
|
|
|
actual payout amount attributable
to 2009 total revenue objective is included in the
Non-Equity Incentive Plan Compensation column of the
2009 Summary Compensation Table.
|
|
(4)
|
|
The amount shown in the
Threshold column represents the amount that would
have been paid to the executive officer for 2009 if we had
achieved the threshold 2009 year-end cash on hand objective
required for the payment of a bonus attributable to that
objective under the bonus program for executive officers. The
amount shown in the Target column represents the
bonus amount attributable to that objective that would have been
paid to the executive officer for 2009 if we had achieved the
target 2009 year-end cash on hand objective under the bonus
program. Under the program, the payout for achievement of
2009 year-end cash on hand between the threshold and target
amounts would be prorated. Under the program, there was no
payout for achievement of 2009 year-end cash on hand above
the target amount. The actual payout amount attributable to
2009 year-end cash on hand objective is included in the
Non-Equity Incentive Plan Compensation column of the
2009 Summary Compensation Table above.
|
|
(5)
|
|
Represents the RSUs granted to the
NEOs in 2009. These awards were subject to performance-based
vesting, as described in detail in 2009
Restricted Stock Unit Grants and Stock Option Exchange
Offer below. Because these awards were subject to a
performance condition, the amounts in the Grant Date Fair
Value of Stock and Option Awards column reflect the value
of the awards based on the probable outcome of the performance
condition of the awards on the date of grant. Because the
performance condition of the awards was a liquidity event, which
was outside of our control, the outcome of the performance
condition, and therefore the vesting of the RSUs, was not
considered probable until the event occurs. As a
result, the grant date fair value of the RSUs, for purposes of
this table, is $0. Assuming that the performance conditions to
the awards were met, based on a fair value of the common stock
of $2.40 per share as of the grant date, the value of the awards
as of the grant date would be $91,999 for Mr. Tessler,
$127,999 for Mr. Tholen and $36,000 for Mr. Hoffpauir.
For a discussion of the valuation of the common stock as of the
grant date of the RSUs, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Stock-Based Compensation.
|
|
(6)
|
|
Represents the aggregate number of
shares underlying options issued pursuant to the stock option
exchange offer conducted during 2009 and described in greater
detail in 2009 Restricted Stock Unit Grants
and Stock Option Exchange Offer below. The portion
of any new option issued in exchange for options that were
vested prior to March 1, 2009 was fully vested on issuance.
The portion of any new option issued in exchange for options
that had not yet vested prior to March 1, 2009 vests in
accordance with the original vesting schedule of the exchanged
options. For additional information regarding the vesting
schedule for the options, see Outstanding
Equity Awards at December 31, 2009 below.
|
|
(7)
|
|
This award vested as to 25% of the
shares on September 2, 2009, with the remainder vesting in
12 equal quarterly installments thereafter.
Mr. ONeils employment by the company ended on
December 31, 2009. At such time, the unvested portion of
this option immediately expired.
|
|
(8)
|
|
Represents the incremental fair
market value of stock options issued pursuant to the stock
option exchange offer described in greater detail in
2009 Restricted Stock Unit Grants and
Stock Option Exchange Offer below. These options
were valued using a binomial lattice pricing model. For a
discussion of the assumptions used in valuing these awards, see
Note 2 to the consolidated financial statements elsewhere
in this prospectus.
|
2009 Restricted
Stock Unit Grants and Stock Option Exchange Offer
During 2009, our compensation committee undertook two related
actions. First, in March 2009, in lieu of salary increases, our
compensation committee issued RSUs to certain of our NEOs. These
RSUs, which have a term of ten years and are settled in shares
of our common stock, were to vest only upon the earlier of an
initial public offering or a change in control of the company,
assuming that the consideration received in the change in
control transaction is cash or freely-tradable registered
shares, subject in either case to the NEOs continued
service through the date of the event. Accordingly, these RSUs
vested upon the pricing of our initial public offering.
In accordance with SEC regulations, the values included in the
Stock Awards column of the 2009 Summary Compensation
Table above represent the fair value of these awards based on
the probable outcome of the performance conditions of the awards
on the date of grant. Because the performance condition of the
awards was a liquidity event, which was outside of our control,
the outcome of the performance condition, and therefore the
vesting of the RSUs, was not considered probable
until the event occurred. As a result, the grant date fair value
of the RSUs, for purposes of the foregoing tables, is $0.
Assuming that the performance conditions to the awards were met,
based on a fair value of the common stock of $2.40 per share as
of the grant date, the value of the awards as of the grant date
would be: $91,999 for Mr. Tessler; $127,999 for
Mr. Tholen; and $36,000 for Mr. Hoffpauir. The value
of the awards as of December 31, 2009 (assuming that the
performance conditions to the awards were met), is set forth in
the Equity Incentive Plan Awards: Market or Payout Value
of Unearned Shares That Have Not Vested column of the
Outstanding Equity Awards at December 31, 2009 table below.
Second, as described in detail in Compensation Discussion
and Analysis above, our compensation committee approved a
program, which was completed in June 2009, to allow all
employees, including our NEOs, to voluntarily exchange
outstanding stock options having a per share exercise price in
excess of $2.40 for new stock options having a per share
exercise price of $2.40, which our compensation committee
determined to be the fair market value of a share of our common
stock on the date that the new stock options were granted. The
new options issued to the NEOs
121
expire 10 years from the date of grant. The portion of any
new option issued to our NEOs in exchange for options that were
vested prior to March 1, 2009 was fully vested on issuance.
The portion of any new option issued to our NEOs in exchange for
options that had not yet vested prior to March 1, 2009
vests in accordance with the original vesting schedule of the
exchanged options. Each of our NEOs who held options with
exercise prices above $2.40 per share participated in the offer
and exchanged all of his options that were eligible to be
exchanged in the offer. In accordance with SEC regulations, the
values included in the Option Awards column of the
2009 Summary Compensation Table and the Grant Date Fair
Value of Option Awards column of the 2009 Grants of
Plan-Based Awards table above represent the incremental fair
market value of stock options issued pursuant to the stock
option exchange offer. These options were valued using a
binomial lattice pricing model. For a discussion of the
assumptions used in valuing these awards, see Note 2 to the
consolidated financial statements elsewhere in this prospectus.
Outstanding
Equity Awards at December 31, 2009
The following table provides information regarding outstanding
equity awards held by each of our NEOs as of December 31,
2009. All of the stock options in this table are exercisable at
any time but, if exercised, are subject to a lapsing right of
repurchase until the options are fully vested. This repurchase
right permits us to repurchase any unvested shares from the
applicable NEO at the lower of the exercise price paid by such
NEO for the repurchased shares or the market value of such
shares on the date of repurchase.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
Equity Incentive
|
|
Equity Incentive
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Value of
|
|
Plan Awards:
|
|
Plan Awards:
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number of
|
|
Shares
|
|
Number of
|
|
Market or Payout
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Shares
|
|
of Stock
|
|
Unearned
|
|
Value of
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
of Stock That
|
|
That
|
|
Shares That
|
|
Unearned Shares
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
That Have Not
|
Name
|
|
(Exercisable)
|
|
(Unexercisable)
|
|
Price
|
|
Date
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Michael Tessler
|
|
|
87,500
|
|
|
|
|
|
|
$
|
0.78
|
|
|
|
5/30/2012
|
|
|
|
|
|
|
|
$
|
|
|
|
38,333
|
(7)
|
|
$
|
190,898
|
(8)
|
|
|
|
45,833
|
|
|
|
|
|
|
|
0.78
|
|
|
|
12/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,081
|
(1)
|
|
|
|
|
|
|
2.40
|
|
|
|
6/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Tholen
|
|
|
127,777
|
(2)
|
|
|
|
|
|
|
2.40
|
|
|
|
6/10/2019
|
|
|
|
24,304
|
(5)
|
|
|
121,034
|
(6)
|
|
|
53,333
|
(7)
|
|
|
265,598
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Hoffpauir
|
|
|
29,166
|
|
|
|
|
|
|
|
0.78
|
|
|
|
5/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(7)
|
|
|
74,700
|
(8)
|
|
|
|
41,666
|
|
|
|
|
|
|
|
0.78
|
|
|
|
12/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,331
|
(3)
|
|
|
|
|
|
|
2.40
|
|
|
|
6/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert ONeil
|
|
|
66,406
|
(4)
|
|
|
|
|
|
|
2.40
|
|
|
|
3/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Of the 352,081 shares
underlying these options, 213,539 shares were vested as of
December 31, 2009. The remaining 138,542 shares vest
at various rates through April 29, 2012.
|
|
(2)
|
|
Of the 127,777 shares
underlying these options, 68,750 shares were vested as of
December 31, 2009. The remaining 59,027 shares vest at
various rates through April 29, 2012.
|
|
(3)
|
|
Of the 173,331 shares
underlying these options, 105,623 shares were vested as of
December 31,
2009. The remaining 67,708 shares vest at various rates
through April 29, 2012.
|
|
(4)
|
|
Represents the vested portion of
Mr. ONeils option as of December 31, 2009.
Mr. ONeils employment by the company ended on
December 31, 2009, at which time the unvested portion of
this option immediately expired.
|
|
(5)
|
|
Represent shares of restricted
stock issued to Mr. Tholen in August 2007 that remained
unvested as of December 31, 2009. These unvested shares
vest in seven equal quarterly installments between
January 11, 2010 and July 11, 2011.
|
|
(6)
|
|
Represents the market value of the
unvested shares as of December 31, 2009, based on the
estimated fair market value of our common stock of $4.98 per
share, as of December 31, 2009.
|
|
(7)
|
|
Represents the RSUs granted in
2009. These RSUs, which are settled in shares of our common
stock, vest only upon the occurrence of certain specified
liquidity events, as described in greater detail in
2009 Restricted Stock Unit Grants and Stock
Option Exchange Offer above.
|
|
(8)
|
|
Represents the market value of the
shares underlying the RSUs as of December 31, 2009, based
on the estimated fair market value of our common stock of $4.98
per share on such date.
|
122
Stock Option
Exercises and Stock Vested in 2009
The following table shows information regarding vesting of stock
awards held by our NEOs during 2009. None of our NEOs exercised
stock options during 2009.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized on
|
Name
|
|
Acquired on Vesting
|
|
Vesting
|
|
Michael Tessler
|
|
|
|
|
|
|
$
|
|
James Tholen
|
|
|
13,889
|
|
|
|
38,542
|
(1)
|
Scott Hoffpauir
|
|
|
|
|
|
|
|
|
Robert ONeil
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value realized upon vesting was calculated by multiplying,
as of each vesting date, the number of shares that vested on
such date by the FMV of our common stock, based on our most
recent estimate of the FMV as of the vesting date. |
Pension
Benefits
Our NEOs did not participate in, or otherwise receive any
benefits under, any pension or retirement plan sponsored by us
during 2009.
Nonqualified
Deferred Compensation
Our NEOs did not earn any nonqualified deferred compensation
benefits from us during 2009.
Potential
Payments and Acceleration of Equity upon Separation in
Connection with a Change in Control
Severance
Agreements
We have agreements with each of our NEOs that contain severance
provisions providing for continued payment of salary and
provision of certain benefits for a specified period of time, in
the event that the named officer were to be terminated without
cause or resigned for good reason within one month prior to, or
one year after, a change in control of the company.
For purposes of these agreements, the term change in
control means:
|
|
|
|
|
the acquisition by any person of greater then 50% of the
combined voting power of the company, subject to certain
exceptions;
|
|
|
|
the consummation of a merger, consolidation or similar
transaction involving the company that results in the
stockholders of the company immediately prior to such
transaction owning less than 50% of the combined outstanding
voting power of the surviving entity; or
|
|
|
|
the sale, lease, exclusive license or other disposition of all
or substantially all of the companys consolidated assets
unless the disposition is to an entity, more than 50% of the
combined voting power of which is held by company stockholders
in the same proportions as their ownership of company voting
securities immediately prior to the transaction.
|
For purposes of these agreements, the term cause
means:
|
|
|
|
|
the NEOs commission of a felony;
|
|
|
|
any act or omission of the NEO constituting dishonesty, fraud,
immoral or disreputable conduct that causes material harm to the
company;
|
|
|
|
the NEOs violation of company policy that causes material
harm to the company;
|
|
|
|
the NEOs material breach of any written agreement between
the NEO and the company that, if curable, remains uncured after
notice; or
|
|
|
|
the NEOs breach of fiduciary duty.
|
123
For purposes of these agreements, the term good
reason means any of the following, without the NEOs
consent:
|
|
|
|
|
a material diminution of the NEOs responsibilities or
duties (provided that the acquisition of the company and
subsequent conversion of the company to a division or unit of
the acquiring company will not by itself be deemed to be a
diminution of the NEOs responsibilities or duties);
|
|
|
|
a reduction in the level of the NEOs base salary;
|
|
|
|
a relocation of the office at which the NEO is principally based
to a location outside the Washington, D.C. metropolitan
area;
|
|
|
|
a failure of a successor in a change in control to assume the
agreement; or
|
|
|
|
our material breach of any written agreement between the NEO and
us.
|
Notwithstanding the foregoing, any actions we take to
accommodate a disability of the NEO or pursuant to the Family
and Medical Leave Act shall not be good reason for
purposes of the agreement. Additionally, before the NEO may
terminate employment for good reason, the NEO must
notify us in writing within 30 days after the initial
occurrence of the event, condition or conduct giving rise to the
good reason, we must fail to remedy or cure the
alleged good reason within the 30-day period after
receipt of such notice (if capable of being cured within the
30-day
period) and, if we do not cure the good reason (or
it is incapable of being cured within such
30-day
period), then the NEO must terminate employment by no later than
30 days after the expiration of the last day of the cure
period (or, if the event condition or conduct is not capable of
being cured within such
30-day
period, within 30 days after initial notice to us of the
violation).
To receive any of the severance benefits under these agreements,
the NEO would be required to execute, and not revoke, a release
of claims against BroadSoft, its parents, subsidiaries,
directors, executive officers and other related parties and
comply with the provisions of the release, including
confidentiality and non-disparagement provisions.
These agreements are generally identical, although the length of
time for which salary and benefits shall be continued varies by
NEO. Our compensation committee may in its discretion revise,
amend or add to the benefits if it deems advisable.
Equity
Awards
In addition to the severance agreements described above, each of
our NEOs also holds unvested equity awards that, pursuant to the
terms of the awards, would vest upon the occurrence of certain
events. In particular, under the terms of all unvested stock
options held by, and IPO-Timed RSUs granted to,
Messrs. Tessler, Tholen and Hoffpauir, if the NEO is
terminated without cause or resigns for good reason within one
year after a change in control of the company, the vesting of
all remaining unvested shares underlying these options and RSUs
will be accelerated. Additionally, under the terms of the 2010
RSUs, if an NEO is terminated without cause or resigns for good
reason within one month prior to, or one year after, a change in
control of the company, the vesting of all remaining unvested
2010 RSUs granted to that NEO will be accelerated. Also, under
the terms of the 2010 IPO RSUs, if an IPO has occurred, and
thereafter an NEO is terminated without cause or resigns for
good reason within one month prior to, or one year after, a
change in control of the company, the vesting of all remaining
unvested 2010 IPO RSUs granted to that NEO will be accelerated.
For purposes of these awards, the meanings of the terms
change in control, cause and good
reason are substantially the same as those under the
change in control severance agreements described above.
Under the terms of the stock restriction agreement governing
Mr. Tholens restricted stock, if we terminate
Mr. Tholens employment without cause within one year
after a change in control, all remaining unvested shares of
restricted stock held by Mr. Tholen under the agreement
will immediately vest.
124
For purposes of Mr. Tholens stock restriction
agreement, the term change in control means:
|
|
|
|
|
the sale of all or substantially all of the assets or the sale
of more than 50% of the outstanding capital stock of the company
in a non-public sale;
|
|
|
|
the dissolution or liquidation of the company; or
|
|
|
|
the consummation of a merger, share exchange, consolidation or
other reorganization or business combination of the company if,
immediately after the transaction, either:
|
|
|
|
|
|
persons who were directors of the company immediately prior to
the transaction do not constitute at least a majority of the
directors of the surviving entity; or
|
|
|
|
persons who hold a majority of the voting capital stock of the
surviving entity are not persons who held a majority of the
voting capital stock of the company immediately prior to the
transaction.
|
For purposes of Mr. Tholens stock restriction
agreement, the term cause means:
|
|
|
|
|
Mr. Tholens insubordination or willful failure to
comply with the reasonable material directions of an officer of
the company;
|
|
|
|
Mr. Tholens continued willful neglect or refusal to
perform his duties or responsibilities (unless such duties or
responsibilities are significantly and adversely changed and the
individual has objected to such changes in a writing presented
to an officer of the company); or
|
|
|
|
Mr. Tholens fraud, embezzlement, theft or other
criminal act under United States law.
|
Under the terms of the stock option held by Mr. ONeil
as of December 31, 2009, if we were to terminate
Mr. ONeils employment without cause within one
year after a change in control, all remaining unvested shares
underlying his option would have immediately vested. However,
because Mr. ONeils employment by the company
ended on December 31, 2009, the remaining unvested portion
of this option immediately expired as of December 31, 2009.
For purposes of this option, the terms change in
control and cause had the same meanings as
under Mr. Tholens restricted stock award.
The following table presents the potential payments to and
benefits to be received upon employment termination by each of
our NEOs if his employment was terminated in connection with a
change in control of the company under circumstances described
above, assuming that the triggering event occurred as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Acceleration
|
|
Additional Acceleration of
|
|
|
|
|
Benefits upon Termination Without Cause or
|
|
of Equity
|
|
Equity Awards if Terminated
|
|
|
|
|
Resignation For Good Reason (1)
|
|
Awards on
|
|
Without Cause Within One
|
|
|
|
|
Within One Month Prior to, or One Year
|
|
Within One Year After a
|
|
Change in
|
|
Year After a Change in
|
|
|
|
|
After a Change in Control
|
|
Change in Control
|
|
Control (2)
|
|
Control($) (3)
|
|
|
|
|
|
|
|
|
Acceleration of
|
|
Acceleration
|
|
Acceleration
|
|
Acceleration
|
|
Acceleration of
|
|
Acceleration
|
|
Total
|
|
|
Cash
|
|
Medical
|
|
2010 RSUs and
|
|
of Stock
|
|
of IPO-Timed
|
|
of 2009
|
|
Restricted
|
|
of Stock
|
|
Possible
|
|
|
Severance
|
|
Continuation
|
|
2010 IPO RSUs
|
|
Options
|
|
RSUs
|
|
RSUs
|
|
Stock
|
|
Options
|
|
Benefits
|
Name
|
|
($)
|
|
($) (4)
|
|
($) (5)
|
|
($) (6)
|
|
($) (7)
|
|
($) (8)
|
|
($)
|
|
($)
|
|
($) (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Tessler
|
|
|
$275,000
|
|
|
|
$12,077
|
|
|
|
$248,995
|
|
|
|
$357,438
|
|
|
|
$78,848
|
|
|
|
$190,898
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$1,163,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Tholen
|
|
|
168,750
|
|
|
|
9,058
|
|
|
|
186,745
|
|
|
|
152,290
|
|
|
|
58,097
|
|
|
|
265,598
|
|
|
|
121,034
|
(11)
|
|
|
|
|
|
|
961,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Hoffpauir
|
|
|
150,000
|
|
|
|
9,058
|
|
|
|
186,745
|
|
|
|
174,687
|
|
|
|
58,097
|
|
|
|
74,700
|
|
|
|
|
|
|
|
|
|
|
|
653,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert ONeil (10)
|
|
|
125,000
|
|
|
|
6,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376,923
|
(12)
|
|
|
507,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The benefits reflected in these
columns are benefits that would be payable under the terms of
the change in control severance agreements described in
Severance Agreements above and, in the
case of Messrs. Tessler, Tholen and Hoffpauir, the terms of
the 2010 RSUs and, subject to the prior completion of an IPO,
the 2010 IPO RSUs and the unvested stock options held by such
individuals as described in Equity
Awards above.
|
|
(2)
|
|
The benefits reflected in this
column are benefits that would be payable under the terms of the
2009 RSUs upon a change in control transaction as described in
2009 Restricted Stock Unit Grants and Stock
Option Exchange Offer.
|
|
(3)
|
|
The benefits reflected in these
columns are benefits that would be payable under the stock
option held by Mr. ONeil and Mr. Tholens
stock restriction agreement.
|
125
|
|
|
(4)
|
|
The value of these continued
benefits are calculated using the assumptions that we use for
financial reporting purposes in accordance with GAAP.
|
|
(5)
|
|
Represents the aggregate fair
market value of the shares underlying the 2010 RSUs and, subject
to the prior completion of an IPO, the 2010 IPO RSUs that would
accelerate if the NEO were to be terminated without cause or
resign for good reason within one month prior to, or one year
after, the occurrence of a change in control, valued as of
December 31, 2009 (based on the estimated value of our
common stock of $4.98 per share as of December 31, 2009).
These awards were issued subsequent to December 31, 2009.
|
|
(6)
|
|
The value of stock options
represents the value, calculated as of December 31, 2009,
of all unvested
in-the-money
options held by Messrs. Tessler, Tholen and Hoffpauir that
would accelerate if the NEO were to be terminated without cause
or to resign for good reason, in either case, within one year
after a change in control of BroadSoft. For purposes of this
valuation, the value represents the difference between the
aggregate fair market value of the shares of our common stock
underlying the unvested options as of December 31, 2009
(based on the estimated value of our common stock of $4.98 per
share as of December 31, 2009), and the aggregate exercise
price of the unvested portion of the options.
|
|
(7)
|
|
Represents the aggregate fair
market value of the shares underlying the IPO-Timed RSUs that
would accelerate if the NEO were to be terminated without cause
or to resign for good reason, in either case, within one year
after a change in control of BroadSoft, valued as of
December 31, 2009 (based on the estimated value of our
common stock of $4.98 per share as of December 31, 2009).
These awards were issued on June 15, 2010.
|
|
(8)
|
|
Represents the aggregate fair
market value of the shares underlying the 2009 RSUs that would
accelerate upon the occurrence of a change in control as of
December 31, 2009 (based on the estimated value of our
common stock of $4.98 per share as of December 31, 2009).
|
|
(9)
|
|
The dollar values in this column
for each NEO represent the sum of all compensation referenced in
the preceding columns.
|
|
(10)
|
|
Mr. ONeils
employment by the company ended on December 31, 2009. Such
termination did not trigger any of the benefits set forth in the
table. However, we entered into a separation agreement with
Mr. ONeil that provided for certain benefits in
connection with the termination of his employment. See
Separation of Robert ONeil below.
|
|
(11)
|
|
Represents the aggregate fair
market value of the unvested shares of restricted stock held by
Mr. Tholen, as of December 31, 2009, that would
accelerate if he were to be terminated without cause within one
year after a change in control of the company (based on the
estimated value of our common stock of $4.98 per share as of
December 31, 2009).
|
|
(12)
|
|
The value of stock options
represents the value of the unvested portion, as of
December 31, 2009, of Mr. ONeils stock
option (before giving effect to Mr. ONeils
forfeiture of such unvested options as a result of the cessation
of his employment on December 31, 2009) that would
accelerate if he were to be terminated without cause within one
year after a change in control of the company. For purposes of
this valuation, the value represents the difference between the
aggregate fair market value of the shares of our common stock
underlying the unvested portion of the option as of
December 31, 2009 (based on the estimated value of our
common stock of $4.98 per share as of December 31, 2009),
and the aggregate exercise price of the unvested portion of the
option.
|
Separation of
Robert ONeil
Mr. ONeils employment by BroadSoft ended on
December 31, 2009. In connection with his departure, we
entered into a separation agreement with Mr. ONeil.
Pursuant to his separation agreement, Mr. ONeil
received six months of continued base salary at the rate in
effect as of December 31, 2009, and as described above, an
annual bonus for 2009. We also agreed to provide
Mr. ONeil with continued health insurance benefits
through June 30, 2010.
Employee Benefit
Plans
The principal features of our equity incentive plans and our
401(k) plan are summarized below. These summaries are qualified
in their entirety by reference to the actual text of the plans,
which, other than the 401(k) plan, are filed as exhibits to the
registration statement of which this prospectus is a part.
Amended and
Restated 2009 Equity Incentive Plan
Our board of directors adopted our 2009 Equity Incentive Plan on
April 29, 2009, and our stockholders subsequently approved
the 2009 Equity Incentive Plan on April 30, 2009. Our board
of directors approved an Amended and Restated 2009 Equity
Incentive Plan, or 2009 Plan, on May 24, 2010, and the
Amended and Restated 2009 Equity Incentive Plan was approved by
our stockholders on May 27, 2010. The amended and restated
2009 Plan became effective immediately upon the signing of the
underwriting agreement for our initial public offering, or the
IPO date. The 2009 Plan will terminate on April 28, 2019,
unless sooner terminated by our board of directors.
126
Types of Awards. The 2009 Plan provides for
the grant of incentive stock options (within the meaning of
Section 422 of the Code), nonstatutory stock options,
restricted stock awards, restricted stock unit awards, stock
appreciation rights, performance stock awards and other forms of
equity compensation, which are referred to collectively as
equity awards. The 2009 Plan also provides for the grant of
performance cash awards. Awards may be granted to employees,
consultants and directors of the company and certain of our
affiliates. Only employees of ours and of certain of our
affiliates are eligible to receive incentive stock options.
Share Reserve. The aggregate number of shares
of our common stock that may be issued pursuant to equity awards
under the 2009 Plan was initially 392,383 shares. This
number was subject to increase by up to an additional
3,051,675 shares, in the event that options that were
outstanding under the 1999 Plan as of April 29, 2009 expire
or otherwise terminate without having been exercised (in such
case, the shares not acquired will revert to and become
available for issuance under the 2009 Plan). An additional
333,333 new shares were added to the 2009 Plan in connection
with the amendment and restatement of the 2009 Plan, effective
on the IPO date. As of September 30, 2010, under the 2009
Plan, a total of 239,395 shares were available for future
issuance, options to purchase 1,984,892 shares of common
stock at a weighted average exercise price of $2.23 per share
were outstanding and an additional 294,771 shares were
issuable upon the vesting of outstanding RSUs, and an additional
741,107 shares were still available to revert from the 1999
Plan and become available for issuance under the 2009 Plan. In
addition, the aggregate number of shares available for issuance
under the 2009 Plan will increase on January 1st of
each year, for a period of nine years, beginning on
January 1, 2011 and continuing through January 1,
2019, in an amount equal to the lesser of (a) 4.5% of the
total number of shares of our common stock outstanding on
December 31st of the immediately preceding calendar
year, (b) 1,250,000 shares or (c) a number of
shares determined by our board of directors. The maximum number
of shares that may be issued pursuant to the exercise of
incentive stock options under the 2009 Plan is
15,000,000 shares.
Reversion of Shares. If an equity award
granted under the 2009 Plan expires or otherwise terminates
without being exercised in full, or is settled in cash, the
shares of our common stock not acquired pursuant to the equity
award will again become available for issuance under the 2009
Plan. In addition, the following types of shares will become
available for the grant of new equity awards under the 2009
Plan: (a) shares that are forfeited to or repurchased by us
prior to becoming fully vested; (b) shares withheld to
satisfy income and employment withholding taxes; and
(c) shares tendered to us to pay the exercise price of an
option. Shares issued under the 2009 Plan may be previously
unissued shares or reacquired shares bought by us on the open
market.
Section 162(m) Limits. At such
time as we may be subject to the applicable provisions of
Section 162(m) of the Code, no participant may be granted
equity awards covering more than 2,750,000 shares of our
common stock under our 2009 Plan during any calendar year
pursuant to an appreciation-only equity award. An
appreciation-only equity award is an equity award whose value is
determined by reference to an increase over an exercise or
strike price of at least 100% of the fair market value of our
common stock at the time of grant. A stock option with an
exercise price equal to the value of the stock at the time of
grant is an example of an appreciation-only award. Additionally,
no person may be granted a performance stock award covering more
than 2,750,000 shares or a performance cash award having a
maximum value in excess of $1,000,000 in any calendar year.
These limitations are designed to help assure that any
deductions to which we would otherwise be entitled with respect
to such awards will not be subject to the $1,000,000 limitation
on the income tax deductibility of compensation paid to any
covered executive officer imposed by Section 162(m) of the
Code.
Administration. Our board of directors has
delegated its authority to administer the 2009 Plan, except with
respect to equity awards to be made to our directors, to our
compensation committee. Subject to the terms of the 2009 Plan,
our board of directors or an authorized committee, referred to
as the plan administrator, will determine recipients, dates of
grant, the numbers and types of equity awards to be granted and
the terms and conditions of the equity awards, including the
period of exercisability and vesting. Subject to the limitations
set forth below, the plan administrator will also
127
determine the exercise price of options granted, the
consideration to be paid for restricted stock awards (if any)
and the strike price of stock appreciation rights.
The plan administrator has the authority to:
|
|
|
|
|
reduce the exercise price of any outstanding option or the
strike price of any outstanding stock appreciation right;
|
|
|
|
cancel any outstanding option or stock appreciation right and
grant in exchange for one or more of the following:
|
|
|
|
|
|
a new stock option or stock appreciation right covering the same
or a different number of shares of common stock;
|
|
|
|
a new equity award;
|
|
|
|
cash; and/or
|
|
|
|
other valuable consideration; or
|
|
|
|
|
|
engage in any other action that is treated as a repricing under
generally accepted accounting principles.
|
Stock Options. Incentive and nonstatutory
stock options are granted pursuant to incentive and nonstatutory
stock option agreements. The plan administrator determines the
exercise price for a stock option, within the terms and
conditions of the 2009 Plan and applicable law, provided that
the exercise price of a stock option cannot be less than 100% of
the fair market value of our common stock at the time of grant.
Options granted under the 2009 Plan vest at the rate specified
by the plan administrator.
Generally, the plan administrator determines the term of stock
options granted under the 2009 Plan, up to a maximum of 10
years. Unless the terms of an optionees stock option
agreement provides otherwise, if an optionees relationship
with us, or any of our affiliates, ceases for any reason other
than disability or death, the optionee may exercise the vested
portion of any option for a period of three months following
termination of service. If an optionees service
relationship with us, or any of our affiliates, ceases due to
disability or death (or an optionee dies within a certain period
following cessation of service), the optionee or a beneficiary
generally may exercise the vested portion of any option for a
period of 12 months in the event of disability, and
18 months in the event of death. The option term may be
further extended in the event that exercise of the option
following termination of service is prohibited by applicable
securities laws, or the sale of any common stock received upon
exercise of the option would violate our insider trading policy.
In no event, however, may an option be exercised beyond the
expiration of its term.
The plan administrator will determine the acceptable
consideration for the purchase of common stock issued upon the
exercise of a stock option, which may include cash or check, a
broker-assisted cashless exercise, the tender of common stock
previously owned by the optionee, a net exercise of the option
if it is a nonstatutory stock option, or any other legal
consideration approved by the plan administrator.
Incentive stock options may only be granted to our employees and
employees of certain of our affiliates. The aggregate fair
market value, determined at the time of grant, of shares of our
common stock with respect to incentive stock options that are
exercisable for the first time by an optionee during any
calendar year under all of our stock plans may not exceed
$100,000. No incentive stock option may be granted to any person
who, at the time of the grant, owns or is deemed to own stock
possessing more than 10% of our total combined voting power or
that of any of our affiliates unless (a) the option
exercise price is at least 110% of the fair market value of the
stock subject to the option at the time of grant and
(b) the term of the incentive stock option does not exceed
five years from the date of grant.
Unless the plan administrator determines otherwise, options
generally are not transferable except by will, the laws of
descent and distribution, or pursuant to a domestic relations
order. An
128
optionee may designate a beneficiary, however, who may exercise
the option following the optionees death.
Restricted Stock Awards. A restricted stock
award is the grant of shares of our common stock to a
participant that may, but need not, be subject to forfeiture or
to a share repurchase option in our favor in accordance with a
vesting scheduled determined by the plan administrator. For
example, some or all of the shares of common stock granted
pursuant to a restricted stock award may be repurchased by us if
a participants service with us or with any of our
affiliates terminates before a specified date (that is, before
the restricted stock award is fully vested). Restricted stock
awards are granted pursuant to restricted stock award
agreements. Restricted stock awards may be granted in
consideration for cash, past or future services rendered to us
or an affiliate or any other form of legal consideration.
Restricted Stock Unit Awards. A restricted
stock unit award is a promise by us to issue shares of our
common stock, or to pay cash equal to the value of shares of our
common stock, equivalent to the number of units covered by the
award at the time of vesting of the units or thereafter.
Restricted stock unit awards are granted pursuant to restricted
stock unit award agreements. Restricted stock unit awards may be
granted in consideration for any form of legal consideration. A
restricted stock unit award entitles the recipient to receive
cash, stock, a combination of cash and stock as deemed
appropriate by the plan administrator or any other form of
consideration set forth in the restricted stock unit award
agreement at a specified date (typically, upon vesting of the
restricted stock units). Additionally, dividend equivalents may
be credited in respect of shares covered by a restricted stock
unit award. Except as otherwise provided in the applicable award
agreement, restricted stock units that have not vested will be
forfeited upon the termination of the participants service
for any reason.
Stock Appreciation Rights. A stock
appreciation right entitles the participant to a payment equal
in value to the appreciation in the value of the underlying
shares of our common stock for a predetermined number of shares
over a specified period. Stock appreciation rights are granted
pursuant to stock appreciation right agreements. The plan
administrator determines the strike price for a stock
appreciation right, which may not be less than 100% of the fair
market value of our common stock at the time of grant. Upon the
exercise of a stock appreciation right, we will pay the
participant an amount equal to the product of (a) the
excess of the per share fair market value of our common stock on
the date of exercise over the strike price, multiplied by
(b) the number of shares of common stock with respect to
which the stock appreciation right is exercised. A stock
appreciation right granted under the 2009 Plan vests at the rate
specified in the stock appreciation rights agreement as
determined by the plan administrator.
The plan administrator determines the term of stock appreciation
rights granted under the 2009 Plan, up to a maximum of
10 years. Unless the terms of a participants stock
appreciation right agreement provides otherwise, if a
participants relationship with us, or any of our
affiliates, ceases for any reason other than disability or
death, the participant may exercise the vested portion of any
stock appreciation right for a period of three months following
termination of service. If a participants service
relationship with us, or any of our affiliates, ceases due to
disability or death (or the participant dies within a certain
period following cessation of service), the participant or a
beneficiary generally may exercise the vested portion of any
stock appreciation right for a period of 12 months in the
event of disability, and 18 months in the event of death.
The term of the stock appreciation right may be further extended
in the event that exercise of the stock appreciation right
following termination of service is prohibited by applicable
securities laws, or the sale of any common stock received upon
exercise of the stock appreciation right would violate our
insider trading policy. In no event, however, may a stock
appreciation right be exercised beyond the expiration of its
term.
Performance Awards. The 2009 Plan permits the
grant of performance-based stock and cash awards that may
qualify as performance-based compensation that is not subject to
the $1,000,000 limitation on the income tax deductibility of
compensation paid per covered executive officer imposed by
Section 162(m) of the Code. To assure that the compensation
attributable to performance-based
129
awards will so qualify, our compensation committee can structure
such awards so that the stock or cash will be issued or paid
pursuant to such award only following the achievement of certain
pre-established
performance goals during a performance period designated by our
compensation committee.
Our compensation committee may establish performance goals by
selecting from one or more of the following performance
criteria: (1) earnings (including earnings per share and
net earnings); (2) earnings before interest and taxes;
(3) earnings before interest, taxes and depreciation;
(4) earnings before interest, taxes, depreciation and
amortization; (5) total stockholder return; (6) return
on equity or average stockholders equity; (7) return
on assets, investment, or capital employed; (8) stock
price; (9) margin (including gross margin);
(10) income (before or after taxes); (11) operating
income; (12) operating income after taxes;
(13) pre-tax profit; (14) operating cash flow;
(15) sales or revenue (including deferred revenue) targets;
(16) increases in revenue or product revenue (including
deferred revenue and deferred product revenue);
(17) expenses and cost reduction goals;
(18) improvement in or attainment of working capital
levels; (19) economic value added (or an equivalent
metric); (20) market share; (21) cash and cash
equivalents; (22) cash flow; (23) cash flow per share;
(24) share price performance; (25) debt reduction;
(26) implementation or completion of projects or processes;
(27) customer satisfaction; (28) stockholders
equity; (29) capital expenditures; (30) debt levels;
(31) operating profit or net operating profit;
(32) workforce diversity; (33) growth of net income or
operating income; (34) billings; and (35) to the
extent that an award is not intended to comply with
Section 162(m) of the Code, other measures of performance
selected by our board of directors or our compensation committee.
Our compensation committee may establish performance goals on a
company-wide basis, with respect to one or more business units,
divisions, affiliates, or business segments, and in either
absolute terms or relative to the performance of one or more
comparable companies or the performance of one or more relevant
indices. Unless specified otherwise (a) in the award
agreement at the time the award is granted or (b) in such
other document setting forth the performance goals at the time
the goals are established, our compensation committee will
appropriately make adjustments in the method of calculating the
attainment of the performance goals as follows: (1) to
exclude restructuring
and/or other
nonrecurring charges; (2) to exclude exchange rate effects,
as applicable, for
non-U.S. dollar
denominated goals; (3) to exclude the effects of changes to
generally accepted accounting principles; (4) to exclude
the effects of any statutory adjustments to corporate tax rates;
and (5) to exclude the effects of any extraordinary
items as determined under generally accepted accounting
principles.
Other Equity Awards. The plan administrator
may grant other awards based in whole or in part by reference to
our common stock. The plan administrator will set the number of
shares under the award, the purchase price, if any, the timing
of exercise and vesting and any repurchase rights associated
with such awards.
Changes to Capital Structure. In the event
that there is a specified type of change in our capital
structure, such as a stock split, appropriate adjustment will be
made to (a) the class and number of shares reserved under
the 2009 Plan, (b) the class and maximum number of shares
of our common stock that may be issued upon the exercise of
incentive stock options, (c) the class and maximum number
of shares of our common stock subject to equity awards that can
be granted in any calendar year (as established under the 2009
Plan pursuant to Section 162(m) of the Code) and
(d) the class, number of securities and exercise or strike
price, if applicable, of all outstanding equity awards.
Corporate transactions. In the event of a
certain significant corporate transaction, the plan
administrator may take any one or more of the following actions
as to outstanding equity awards, or as to a portion of any
outstanding equity award under the 2009 Plan:
|
|
|
|
|
arrange for the assumption, continuation or substitution of an
equity award by the surviving or acquiring entity (or its parent
company) and assign any reacquisition or repurchase rights held
|
130
|
|
|
|
|
by us in respect of common stock issued pursuant to equity
awards to the surviving or acquiring entity (or its parent
company);
|
|
|
|
|
|
accelerate the vesting and exercisability of an equity award and
determine that any reacquisition or repurchase rights held by us
in respect of common stock issued pursuant to such equity award
will lapse as of or prior to the effective date of the corporate
transaction, and such equity award will terminate if not
exercised, if applicable, on or prior to the effective date of
the corporate transaction;
|
|
|
|
terminate outstanding equity awards (including vested awards
that are not exercised) without the payment of consideration as
of the effective date of the corporate transaction; or
|
|
|
|
make a payment equal to the excess, if any, of (a) the
value of the property that the holder of an equity award would
have received upon exercise of the equity award, over
(b) the exercise price otherwise payable in connection with
the exercise of the equity award.
|
Changes in control. Our board of directors
has the discretion to provide that an equity award under the
2009 Plan will immediately vest as to all or a portion of the
shares subject to the equity award (a) immediately upon the
occurrence of certain specified change in control transactions,
whether or not such equity award is assumed, continued or
substituted by a surviving or acquiring entity in the
transaction, or (b) in the event a participants
service with us or a successor entity is terminated, actually or
constructively, within a designated period following the
occurrence of certain specified change in control transactions.
In general, equity awards granted under the 2009 Plan will not
vest on such an accelerated basis unless specifically provided
by the participants applicable award agreement.
1999 Stock
Incentive Plan
Our board of directors and stockholders adopted the 1999 Plan on
July 1, 1999. Since adoption, our board of directors and
stockholders have approved a series of increases in the number
of shares of common stock reserved for issuance under the 1999
Plan. Effective as of June 30, 2009, we were no longer able
to grant new options under the 1999 Plan.
The 1999 Plan provided for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights,
restricted and unrestricted stock awards, performance awards,
and other stock-based awards, which we collectively refer to as
awards, phantom stock or any combination of the foregoing. Our
and our affiliates employees, officers, directors and
consultants, were eligible to receive awards, except that
incentive options could be granted only to employees.
As of September 30, 2010, there were an aggregate of
727,141 shares of common stock reserved for issuance under
the 1999 Plan, which consisted of shares underlying outstanding
options with a weighted average exercise price of $1.91 per
share. An additional 78 shares issued pursuant to early
exercise of stock options and 13,888 shares of common stock
underlying unvested restricted stock are subject to repurchase.
If a stock option granted under the 1999 Plan expires or
otherwise terminates without being exercised in full, or if a
stock award subject to vesting is repurchased by the company,
the shares not acquired pursuant to the stock option or the
unvested shares repurchased shall become available for issuance
under the 2009 Plan.
Administration. The compensation committee
currently administers the 1999 Plan under the delegation of
authority from the board of directors (with the exception of
grants under the 1999 Plan made to directors, which are
administered by the entire board). Subject to the terms of the
1999 Plan, the plan administrator:
|
|
|
|
|
determines the eligible persons to whom, and the time or times
at which awards shall be granted;
|
131
|
|
|
|
|
determines the types of awards to be granted;
|
|
|
|
determines the number of shares to be covered by or used for
reference purposes for each award;
|
|
|
|
imposes such terms, limitations, restrictions and conditions
upon any such award as it deems appropriate;
|
|
|
|
modifies, amends, extends or renews outstanding awards, or
accepts the surrender of outstanding awards and substitutes new
awards;
|
|
|
|
accelerates or otherwise changes the time in which an award may
be exercised or becomes payable and waives or accelerates the
lapse, in whole or in part, of any restriction or condition with
respect to such award, including, but not limited to, any
restriction or condition with respect to the to the vesting or
exercisability of an award following termination of any
grantees employment or other relationship with us; and
|
|
|
|
establishes objectives and conditions, if any, for earning
awards and determining whether awards will be paid after the end
of a performance period.
|
Changes to capital structure. In the event
there is a change in our capital structure, such as a stock
split, reorganization, recapitalization, stock dividend,
combination of shares, or the like, appropriate adjustments will
be made to the number of shares and exercise price or strike
price, if applicable, of all outstanding awards.
401(k)
Plan
We maintain a tax-qualified retirement plan that provides
eligible U.S. employees with an opportunity to save for
retirement on a tax advantaged basis. Eligible employees are
able to participate in the 401(k) plan as of the first day of
employment and participants are able to defer up to 75% of their
eligible compensation subject to applicable annual Code limits.
The 401(k) plan permits us to make profit sharing contributions
to eligible participants, although such contributions are not
required. We have not historically made any matching
contributions and do not currently contemplate making such
matching contributions. Pre-tax contributions are allocated to
each participants individual account and are then invested
in selected investment alternatives according to the
participants directions. Contributions that we make, if
any, are subject to a vesting schedule; employees are
immediately and fully vested in their contributions. The 401(k)
plan is intended to qualify under Sections 401(a) and
501(a) of the Code. As a tax-qualified retirement plan,
contributions to the 401(k) plan and earnings on those
contributions are not taxable to the employees until distributed
from the 401(k) plan and all contributions are deductible by us
when made.
Limitations on
Liability and Indemnification Matters
Our amended and restated certificate of incorporation contains
provisions that limit the liability of our current and former
directors for monetary damages to the fullest extent permitted
by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages
for any breach of fiduciary duties as directors, except
liability for:
|
|
|
|
|
any breach of the directors duty of loyalty to the
corporation or its stockholders;
|
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
|
unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
|
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
132
Such limitation of liability does not apply to liabilities
arising under federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our amended and restated certificate of incorporation and our
amended and restated bylaws provide that we are required to
indemnify our directors to the fullest extent permitted by
Delaware law. Our amended and restated bylaws also provide that,
upon satisfaction of certain conditions, we shall advance
expenses incurred by a director in advance of the final
disposition of any action or proceeding, and permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
that capacity regardless of whether we would otherwise be
permitted to indemnify him or her under the provisions of
Delaware law. Our amended and restated bylaws also provide our
board of directors with discretion to indemnify our officers and
employees when determined appropriate by the board. We have
entered and expect to continue to enter into agreements to
indemnify our directors, executive officers and other employees
as determined by the board of directors. With certain
exceptions, these agreements provide for indemnification for
related expenses including, among other things, attorneys
fees, judgments, fines and settlement amounts incurred by any of
these individuals in any action or proceeding. We believe that
these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors
and officers. We also maintain customary directors and
officers liability insurance.
The limitation of liability and indemnification provisions in
our amended and restated certificate of incorporation and
amended and restated bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their
fiduciary duty. They may also reduce the likelihood of
derivative litigation against our directors and officers, even
though an action, if successful, might benefit us and other
stockholders. Further, a stockholders investment may be
adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is
sought and we are not aware of any threatened litigation that
may result in claims for indemnification.
Rule 10b5-1
Sales Plans
Our directors and executive officers may adopt written plans,
known as
Rule 10b5-1
plans, in which they will contract with a broker to buy or sell
shares of our common stock on a periodic basis. Under a
Rule 10b5-1
plan, a broker executes trades pursuant to parameters
established by the director or officer when entering into the
plan, without further direction from them. The director or
officer may amend a
Rule 10b5-1
plan in some circumstances and may terminate a plan at any time.
Our directors and executive officers also may buy or sell
additional shares outside of a
Rule 10b5-1
plan when they are not in possession of material nonpublic
information subject to compliance with the terms of our insider
trading policy.
133
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of transactions since January 1,
2007 to which we have been a participant in which the amount
involved exceeded or will exceed $120,000, and in which any of
our directors, executive officers or holders of more than five
percent of our capital stock (or any members of their immediate
family) had or will have a direct or indirect material interest,
other than compensation arrangements which are described under
Management Executive Compensation
and Management Director Compensation.
Share amounts have been retroactively adjusted to give effect to
a 6-for-1 reverse stock split effected on June 14, 2010.
Sales of
Preferred Stock
Certain venture capital funds have purchased shares of our
Series B-1
redeemable convertible preferred stock by exercising warrants we
have previously granted. The table below sets forth the number
of shares of
Series B-1
redeemable convertible preferred stock purchased by our
directors, executive officers and 5% stockholders and their
affiliates:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
of Series B-1
|
|
|
|
|
Redeemable
|
|
|
|
|
Convertible
|
|
Aggregate
|
Purchaser
|
|
Preferred Stock
|
|
Purchase Price
|
|
Funds affiliated with Bessemer Venture Partners (1)
|
|
|
4,483
|
|
|
$
|
122,276
|
|
Funds affiliated with Charles River Ventures (2)
|
|
|
5,500
|
|
|
|
149,998
|
|
|
|
|
(1)
|
|
Consists of 2,690 shares held
by Bessemer Venture Partners IV, L.P. and 1,793 shares held
by Bessec Ventures IV, L.P.
|
|
(2)
|
|
Consists of 5,095 shares held
by Charles River Partnership IX, a Limited Partnership,
156 shares held by Charles River Partners IX-A, a Limited
Partnership, 140 shares held by Charles River IX-B LLC and
109 shares held by Charles River IX-C LLC.
|
Registration
Rights Agreement
We and some of our stockholders, including certain of our
executive officers, have entered into a registration rights
agreement. This agreement allows these stockholders to require
us to register the resale of their shares, under certain
circumstances, following this offering. For a more detailed
description of these registration rights, see Description
of Capital Stock Registration Rights.
Indemnification
Agreements
Our amended and restated certificate of incorporation contain
provisions limiting the liability of directors, and our amended
and restated bylaws provide that we will indemnify each of our
directors to the fullest extent permitted under Delaware law.
Our amended and restated certificate of incorporation and
amended and restated bylaws also provide our board of directors
with discretion to indemnify our officers and employees when
determined appropriate by the board. In addition, we have
entered into an indemnification agreement with each of our
directors and our executive officers. For more information
regarding these agreements, see Executive
Compensation Limitations on Liability and
Indemnification Matters.
Change in Control
Arrangements
We have entered into severance agreements with each of our
executive officers. For more information regarding these
agreements, see Executive Compensation
Potential Payments and Acceleration of Equity upon Separation in
Connection with a Change in Control Severance
Agreements.
134
Stockholders
Agreement
Prior to the completion of our initial public offering, we were
party to an amended and restated stockholders agreement,
or the stockholders agreement, that we entered into with
certain holders of our common stock and the holders of our
redeemable preferred stock and redeemable convertible preferred
stock. The stockholders agreement provided for, among
other things, certain rights and restrictions with respect to
transfers of stock by certain stockholders, certain rights to
participate in our future equity issuances, certain special
approvals for certain actions taken by the company and certain
other covenants and agreements.
Pursuant to the stockholders agreement, these holders
agreed to vote all shares of their capital stock of the company
to cause and maintain the election to the board of directors of
the company of:
|
|
|
|
|
one director nominated by the holders of a majority of the
shares of Series A redeemable preferred stock and shares of
Series B-1
redeemable convertible preferred stock then outstanding, voting
as a single class (with each share of Series A redeemable
preferred stock having one vote and each share of
Series B-1
redeemable convertible preferred stock having that number of
votes as is equal to the number of shares of common stock into
which it is then convertible);
|
|
|
|
three directors nominated by the holders of a majority of the
shares of Series C-1 redeemable convertible preferred stock then
outstanding, voting together as a single class (one of whom will
be designated by Grotech Partners VI, L.P. so long as it holds
at least 1,133,333 shares of
Series C-1
redeemable convertible preferred stock (as adjusted for stock
splits, stock dividends, combinations and the like));
|
|
|
|
the then-incumbent chief executive officer; and
|
|
|
|
three directors, each of whom must be an independent director
and who shall be (i) designated by the then-incumbent chief
executive officer and (ii) approved by the holders of a
majority of (A) outstanding shares of common stock held by
parties to this stockholders agreement and
(B) outstanding shares of Series A redeemable
preferred stock,
Series B-1
redeemable convertible preferred stock,
Series C-1
redeemable convertible preferred stock and Series D
redeemable convertible preferred stock held by parties to this
stockholders agreement, voting as a single class (with
each share of Series A redeemable preferred stock having
one vote and each share of
Series B-1
redeemable convertible preferred stock,
Series C-1
redeemable convertible preferred stock and Series D
redeemable convertible preferred stock having the number of
votes as is equal to the number of shares of common stock into
which each is then convertible).
|
The provisions of the stockholders agreement terminated
upon the completion of our initial public offering and there are
no further contractual obligations regarding the election of our
directors. Our directors hold office until their successors have
been elected and qualified or appointed, or the earlier of their
death, resignation or removal.
Samuel
Hoffpauir
Samuel Hoffpauir, who is the brother of Scott Hoffpauir, our
Chief Technology Officer, is an employee of BroadSoft and holds
the title of Director, Service Development, in our research and
development department. During 2007, 2008 and 2009, Samuel
Hoffpauir earned aggregate cash compensation of $158,625,
$167,115 and $165,558, respectively. In 2007, 2008 and 2009, he
also received stock options to purchase 3,666 shares at an
exercise price of $9.36 per share, 2,916 shares at an
exercise price of $8.58 per share and 4,166 shares at an
exercise price of $2.40 per share, respectively. In 2009, he
participated in the option exchange offer, which was made
available to all eligible directors, employees and certain
consultants, to voluntarily exchange all of his outstanding
stock options having a per share exercise price in excess of
$2.40 for new stock options having a per share exercise price of
$2.40, the fair market value on the date of grant. He exchanged
all of his eligible stock options in the offer, which were
exercisable for an aggregate of 12,415 shares of
135
common stock, for stock options exercisable for the same number
of shares. The incremental fair market value, measured as of the
date of grant, of the new stock options he received was $12,899.
Polycom
One of our former directors, Andrew M. Miller, served as
Executive Vice President, Global Field Operations for Polycom
from July 2009 to May 2010, and has served as Polycoms
Chief executive officer since May 2010. While we have not been a
participant in any transaction or series of related transactions
involving Polycom in which the dollar value exceeded $120,000,
we work closely with Polycom. We collaborate on joint sales
efforts to service providers as well as marketing campaigns to
drive awareness of hosted solutions in the market. We have
similar relationships with several other telecommunications
equipment vendors in the ordinary course of our business.
Mr. Miller resigned from our board of directors effective
October 27, 2010.
Charter
Communications, Inc.
In April 2010, we entered into a license agreement with Charter
Communications Operating, LLC, or Charter, pursuant to which
Charter agreed to order BroadWorks licenses from us. We refer to
this agreement as the Charter Contract. While Charter has the
right to terminate portions of the Charter Contract for
convenience, we expect to receive approximately up to
$3.3 million in software license fees and professional
service fees pursuant to the Charter Contract through the end of
December 31, 2011. One of our directors, John D.
Markley, Jr., has served as a director of Charter
Communications, Inc., the parent company of Charter, since 2009.
Other than by virtue of his board position at Charter
Communications, Inc., Mr. Markley has no interest in the
Charter Contract and does not expect to benefit materially from
the Charter Contract.
Policy on Future
Related Party Transactions
All future transactions between us and our officers, directors,
principal stockholders and their affiliates will be approved by
the nominating and corporate governance committee, or a similar
committee consisting of entirely independent directors,
according to the terms of our Code of Conduct.
136
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
November 30, 2010, as adjusted to reflect the sale of
common stock offered by us and the selling stockholders in this
offering, for:
|
|
|
|
|
each of our named executive officers;
|
|
|
|
each of our directors;
|
|
|
|
all of our directors and executive officers as a group;
|
|
|
|
each person, or group of affiliated persons, known by us to
beneficially own more than 5% of our common stock; and
|
|
|
|
each of the selling stockholders.
|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes any shares over which a person
exercises sole or shared voting or investment power. Shares of
common stock issuable under options or warrants that are
exercisable and shares underlying RSUs that will vest within
60 days after November 30, 2010 are deemed
beneficially owned and such shares are used in computing the
percentage ownership of the person holding the options or
warrants but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. The
information contained in the following table is not necessarily
indicative of beneficial ownership for any other purpose and the
inclusion of any shares in the table does not constitute an
admission of beneficial ownership of those shares.
Unless otherwise indicated below, to our knowledge, all persons
named in the table have sole voting and dispositive power with
respect to their shares of common stock, except to the extent
authority is shared by spouses under community property laws.
Percentage of shares outstanding is based on
24,742,760 shares of common stock outstanding as of
November 30, 2010 and 25,378,837 shares of common
stock outstanding immediately following the completion of this
offering. The number of shares of common stock deemed
outstanding after this offering includes the 500,000 shares
of common stock being offered for sale by us in this offering,
76,195 shares of common stock issued upon the net exercise
of a warrant by a selling stockholder after November 30,
2010, and an aggregate of 59,882 shares of common stock to
be issued upon the exercise of options being exercised by
certain selling stockholders in connection with this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be Sold if
|
|
|
Owned After this
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Shares Beneficially
|
|
|
Underwriters
|
|
|
Offering if
|
|
|
|
Owned Prior to
|
|
|
Number
|
|
|
Owned After
|
|
|
Option
|
|
|
Underwriters Option
|
|
|
|
this Offering (1)
|
|
|
of Shares
|
|
|
this Offering
|
|
|
is Exercised
|
|
|
is Exercised in Full
|
|
Name and Address of Beneficial Owner (2)
|
|
Shares
|
|
|
Percentage
|
|
|
Offered
|
|
|
Shares
|
|
|
Percentage
|
|
|
in Full
|
|
|
Shares
|
|
|
Percentage
|
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Tessler (3)
|
|
|
915,385
|
|
|
|
3.7
|
%
|
|
|
135,000
|
|
|
|
780,385
|
|
|
|
3.1
|
%
|
|
|
0
|
|
|
|
780,385
|
|
|
|
3.1
|
%
|
James A. Tholen (4)
|
|
|
219,492
|
|
|
|
*
|
|
|
|
33,250
|
|
|
|
186,242
|
|
|
|
*
|
|
|
|
0
|
|
|
|
186,242
|
|
|
|
*
|
|
Scott D. Hoffpauir (5)
|
|
|
594,857
|
|
|
|
2.4
|
%
|
|
|
89,228
|
|
|
|
505,629
|
|
|
|
2.0
|
%
|
|
|
0
|
|
|
|
505,629
|
|
|
|
2.0
|
%
|
Robert ONeil
|
|
|
66,406
|
|
|
|
*
|
|
|
|
30,000
|
|
|
|
36,406
|
|
|
|
*
|
|
|
|
0
|
|
|
|
36,406
|
|
|
|
*
|
|
Robert P. Goodman (6)
|
|
|
699,182
|
|
|
|
2.8
|
%
|
|
|
174,317
|
|
|
|
524,865
|
|
|
|
2.1
|
%
|
|
|
0
|
|
|
|
524,865
|
|
|
|
2.1
|
%
|
John J. Gavin, Jr. (7)
|
|
|
6,701
|
|
|
|
*
|
|
|
|
|
|
|
|
6,701
|
|
|
|
*
|
|
|
|
0
|
|
|
|
6,701
|
|
|
|
*
|
|
Douglas L. Maine (8)
|
|
|
55,244
|
|
|
|
*
|
|
|
|
|
|
|
|
55,244
|
|
|
|
*
|
|
|
|
0
|
|
|
|
55,244
|
|
|
|
*
|
|
John D. Markley, Jr. (9)
|
|
|
10,244
|
|
|
|
*
|
|
|
|
|
|
|
|
10,244
|
|
|
|
*
|
|
|
|
0
|
|
|
|
10,244
|
|
|
|
*
|
|
Joseph R. Zell (10)
|
|
|
2,404,604
|
|
|
|
9.7
|
%
|
|
|
765,887
|
|
|
|
1,638,717
|
|
|
|
6.5
|
%
|
|
|
223,997
|
|
|
|
1,414,720
|
|
|
|
5.6
|
%
|
All directors and executive officers as a group (8 persons)
(11)
|
|
|
4,905,709
|
|
|
|
19.8
|
%
|
|
|
1,197,682
|
|
|
|
3,708,381
|
|
|
|
14.6
|
%
|
|
|
223,997
|
|
|
|
3,484,384
|
|
|
|
13.7
|
%
|
Principal Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with Bessemer Venture Partners IV, L.P. (12)
|
|
|
3,759,721
|
|
|
|
15.2
|
%
|
|
|
939,931
|
|
|
|
2,819,790
|
|
|
|
11.1
|
%
|
|
|
0
|
|
|
|
2,819,790
|
|
|
|
11.1
|
%
|
Grotech Partners VI, L.P. (13)
|
|
|
2,402,693
|
|
|
|
9.7
|
%
|
|
|
765,887
|
|
|
|
1,636,806
|
|
|
|
6.4
|
%
|
|
|
223,997
|
|
|
|
1,412,809
|
|
|
|
5.6
|
%
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be Sold if
|
|
|
Owned After this
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Shares Beneficially
|
|
|
Underwriters
|
|
|
Offering if
|
|
|
|
Owned Prior to
|
|
|
Number
|
|
|
Owned After
|
|
|
Option
|
|
|
Underwriters Option
|
|
|
|
this Offering (1)
|
|
|
of Shares
|
|
|
this Offering
|
|
|
is Exercised
|
|
|
is Exercised in Full
|
|
Name and Address of Beneficial Owner (2)
|
|
Shares
|
|
|
Percentage
|
|
|
Offered
|
|
|
Shares
|
|
|
Percentage
|
|
|
in Full
|
|
|
Shares
|
|
|
Percentage
|
|
|
Entities affiliated with Charles River Ventures (14)
|
|
|
1,860,503
|
|
|
|
7.5
|
%
|
|
|
593,058
|
|
|
|
1,267,446
|
|
|
|
5.0
|
%
|
|
|
151,145
|
|
|
|
1,116,301
|
|
|
|
4.4
|
%
|
Columbia Broadsoft Investors, LLC (15)
|
|
|
1,303,146
|
|
|
|
5.3
|
%
|
|
|
415,393
|
|
|
|
887,753
|
|
|
|
3.5
|
%
|
|
|
121,489
|
|
|
|
766,264
|
|
|
|
3.0
|
%
|
Entities affiliated with Meritech Capital (16)
|
|
|
1,316,695
|
|
|
|
5.3
|
%
|
|
|
419,712
|
|
|
|
896,983
|
|
|
|
3.5
|
%
|
|
|
122,752
|
|
|
|
774,231
|
|
|
|
3.1
|
%
|
Other Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with RRE Ventures (17)
|
|
|
1,081,212
|
|
|
|
4.4
|
%
|
|
|
344,649
|
|
|
|
736,563
|
|
|
|
2.9
|
%
|
|
|
100,799
|
|
|
|
635,764
|
|
|
|
2.5
|
%
|
Industry Ventures Fund V, L.P. (18)
|
|
|
1,000,775
|
|
|
|
4.0
|
%
|
|
|
300,233
|
|
|
|
700,542
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
700,542
|
|
|
|
2.8
|
%
|
Comcast Interactive Capital, LP (19)
|
|
|
529,696
|
|
|
|
2.1
|
%
|
|
|
168,847
|
|
|
|
360,849
|
|
|
|
1.4
|
%
|
|
|
43,040
|
|
|
|
317,809
|
|
|
|
1.3
|
%
|
Kenneth Rokoff (20)
|
|
|
133,954
|
|
|
|
*
|
|
|
|
18,339
|
|
|
|
115,615
|
|
|
|
*
|
|
|
|
|
|
|
|
115,615
|
|
|
|
*
|
|
Entities affiliated with Accel (21)
|
|
|
121,563
|
|
|
|
*
|
|
|
|
38,750
|
|
|
|
82,813
|
|
|
|
*
|
|
|
|
11,333
|
|
|
|
71,480
|
|
|
|
*
|
|
Scott Wharton (22)
|
|
|
120,562
|
|
|
|
*
|
|
|
|
70,000
|
|
|
|
50,562
|
|
|
|
*
|
|
|
|
|
|
|
|
50,562
|
|
|
|
*
|
|
Robert Weidenfeller (23)
|
|
|
113,282
|
|
|
|
*
|
|
|
|
15,500
|
|
|
|
97,782
|
|
|
|
*
|
|
|
|
|
|
|
|
97,782
|
|
|
|
*
|
|
Gregory Callanan (24)
|
|
|
83,356
|
|
|
|
*
|
|
|
|
11,452
|
|
|
|
71,904
|
|
|
|
*
|
|
|
|
|
|
|
|
71,904
|
|
|
|
*
|
|
Rincon Venture Partners, L.P. (25)
|
|
|
78,322
|
|
|
|
*
|
|
|
|
24,966
|
|
|
|
53,356
|
|
|
|
*
|
|
|
|
7,302
|
|
|
|
46,054
|
|
|
|
*
|
|
ORIX Finance Equity Investors, L.P. (26)
|
|
|
76,195
|
|
|
|
*
|
|
|
|
24,288
|
|
|
|
51,907
|
|
|
|
*
|
|
|
|
7,103
|
|
|
|
44,804
|
|
|
|
*
|
|
Geoffrey Hicks (27)
|
|
|
77,017
|
|
|
|
*
|
|
|
|
9,998
|
|
|
|
67,019
|
|
|
|
*
|
|
|
|
|
|
|
|
67,019
|
|
|
|
*
|
|
Craig Decker (28)
|
|
|
78,931
|
|
|
|
*
|
|
|
|
7,000
|
|
|
|
71,931
|
|
|
|
*
|
|
|
|
|
|
|
|
71,931
|
|
|
|
*
|
|
David Bukovsky (29)
|
|
|
71,186
|
|
|
|
*
|
|
|
|
9,525
|
|
|
|
61,661
|
|
|
|
*
|
|
|
|
|
|
|
|
61,661
|
|
|
|
*
|
|
Paul Davis (30)
|
|
|
61,875
|
|
|
|
*
|
|
|
|
41,875
|
|
|
|
20,000
|
|
|
|
*
|
|
|
|
|
|
|
|
20,000
|
|
|
|
*
|
|
Jonathan Reid (31)
|
|
|
70,886
|
|
|
|
*
|
|
|
|
8,592
|
|
|
|
62,294
|
|
|
|
*
|
|
|
|
|
|
|
|
62,294
|
|
|
|
*
|
|
Dennis Dourgarian (32)
|
|
|
40,331
|
|
|
|
*
|
|
|
|
4,336
|
|
|
|
35,995
|
|
|
|
*
|
|
|
|
|
|
|
|
35,995
|
|
|
|
*
|
|
All other selling stockholders as a group (33)
|
|
|
232,468
|
|
|
|
*
|
|
|
|
106,228
|
|
|
|
126,240
|
|
|
|
*
|
|
|
|
6,040
|
|
|
|
120,200
|
|
|
|
*
|
|
|
|
|
*
|
|
Denotes less than 1%
|
|
(1)
|
|
Shares shown in the table above
include shares held in the beneficial owners name or
jointly with others, or in the name of a bank, nominee or
trustee for the beneficial owners account.
|
|
(2)
|
|
Unless otherwise indicated, the
address of each beneficial owner listed in the table below is
c/o BroadSoft,
Inc., 9737 Washingtonian Boulevard, Suite 350 Parkway,
Gaithersburg, MD 20878.
|
|
|
|
(3)
|
|
Includes 420,310 shares
underlying immediately exercisable options that are vested
within 60 days of November 30, 2010 and
65,104 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Any shares issued upon the exercise of unvested options
are subject to a repurchase right in favor of the company if
Mr. Tessler does not satisfy the options vesting
requirements. In any event, shares acquired upon an early
exercise may not be disposed of until the vesting period has
been satisfied. Also includes 36,666 shares held by The
Michael Tessler 1999 Irrevocable Trust U/T/A December 29,
1999 for the benefit of the spouse and minor children of
Mr. Tessler. Mr. Tesslers
brother-in-law,
Howard D. Schwartz, is the trustee of The Michael Tessler 1999
Irrevocable Trust U/T/A December 29, 1999. Mr. Tessler
disclaims beneficial ownership of any shares held by The Michael
Tessler 1999 Irrevocable Trust U/T/A December 29, 1999.
|
|
|
|
(4)
|
|
Includes 6,944 shares of
restricted stock that are not vested within 60 days of
November 30, 2010, 108,680 shares underlying
immediately exercisable options that are vested within
60 days of November 30, 2010 and 19,097 shares
that may be acquired pursuant to early exercise features of
options that vest in accordance with their terms. The unvested
shares of restricted stock are subject to forfeiture, and any
shares issued upon the exercise of unvested options are subject
to a repurchase right in favor of the company if Mr. Tholen
does not satisfy the applicable vesting requirements. In any
event, unvested restricted shares and shares acquired upon an
early exercise may not be disposed of until the vesting period
has been satisfied.
|
|
|
|
(5)
|
|
Includes 211,611 shares
underlying immediately exercisable options that are vested
within 60 days of November 30, 2010 and
32,552 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Any shares issued upon the exercise of unvested options
are subject to a repurchase right in favor of the company if
Mr. Hoffpauir does not satisfy the options vesting
requirements. In any event, shares acquired upon an early
exercise may not be disposed of until the vesting period has
been satisfied. Also includes 16,666 shares held by The
Scott D. Hoffpauir 2000 Family Irrevocable Trust U/T/A dated
04/04/00 for the benefit of the minor children of
Mr. Hoffpauir. Mr. Hoffpauirs brother, Samuel
Hoffpauir, is the trustee of The Scott D. Hoffpauir 2000 Family
Irrevocable Trust U/T/A dated
04/04/00.
Mr. Hoffpauir disclaims beneficial ownership of any shares
held by The Scott D. Hoffpauir 2000 Family Irrevocable Trust
U/T/A dated 04/04/00.
|
|
|
|
(6)
|
|
Consists of: 444,833 shares of
common stock held by Plum Bush, Inc., an entity for which
Mr. Goodman serves as President, over which he has sole
voting and dispositive power; 197,684 shares of common
stock held by Cove Ventures, LLC, or Cove, an entity for which
Mr. Goodman serves as Managing Member, over which he has
sole voting and dispositive power; 53,338 shares of common
stock held by NB Group, LLC, or NBG, an entity for which
Mr. Goodman serves as a Managing Member, over which he
|
138
|
|
|
|
|
has shared voting and dispositive
power with Jane Sarah Lipman; 1,416 shares held by Deer
Management Co. LLC, or Deer Management; and 1,911 shares
issuable upon the vesting of RSUs that will vest on
December 31, 2010. The managing members of Deer Management
are Mr. Goodman, J. Edmund Colloton, Rob S. Chandra, Robert
M. Stavis, Jeremy Levine and David J. Cowan and they share
voting and dispositive power over the shares held by Deer
Management. Mr. Goodman disclaims beneficial ownership of
the shares held by Cove, NBG and Deer Management except to the
extent of his pecuniary interest in such shares.
|
|
|
|
(7)
|
|
Consists of: 1,911 shares
issuable upon the vesting of RSUs that will vest on
December 31, 2010; and 3,124 shares issuable within
60 days of November 30, 2010 upon the exercise of an
option originally issued to Mr. Gavin that Mr. Gavin
has gifted to his adult children and with respect to which
Mr. Gavin disclaims beneficial ownership.
|
|
|
|
(8)
|
|
Includes 21,875 shares
underlying immediately exercisable options that are vested
within 60 days of November 30, 2010, 3,125 shares
that may be acquired pursuant to early exercise features of
options that vest in accordance with their terms and
1,911 shares issuable upon the vesting of RSUs that will
vest on December 31, 2010. Any shares issued upon the
exercise of unvested options are subject to a repurchase right
in favor of the company if Mr. Maine does not satisfy the
options vesting requirements. In any event, shares
acquired upon an early exercise may not be disposed of until the
vesting period has been satisfied.
|
|
|
|
(9)
|
|
Includes 1,911 shares issuable
upon the vesting of RSUs that will vest on December 31,
2010.
|
|
|
|
(10)
|
|
Consists of: 2,402,693 shares
of common stock held by Grotech Partners VI, L.P., or Grotech
Partners, and 1,911 shares issuable upon the vesting of RSUs
that will vest on December 31, 2010. The general partner of
Grotech Partners is Grotech Capital Group VI, LLC, an entity for
which Mr. Zell serves as a General Partner. Mr. Zell
shares voting and dispositive power over the shares held by
Grotech Partners with Frank A. Adams.
|
|
|
|
(11)
|
|
Includes 765,600 shares
underlying immediately exercisable options that are vested
within 60 days of November 30, 2010,
119,878 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms, 6,944 shares of restricted stock that are not vested
within 60 days of November 30, 2010 and an aggregate
of 9,555 shares issuable upon the vesting of RSUs that will
vest on December 31, 2010. See footnotes 3 through 10.
|
|
|
|
(12)
|
|
Consists of: 2,215,945 shares
of common stock held by Bessemer Venture Partners IV, L.P., or
Bessemer; 1,477,309 shares of common stock held by Bessec
Ventures IV, L.P., or Bessec; 65,051 shares of common stock
held by Deer IV & Co. LLC, or Deer IV; and
1,416 shares of common stock held by Deer Management.
Deer IV is the general partner of both Bessemer and Bessec,
and Deer Management is the management company of both Bessemer
and Bessec. Robert H. Buescher, William T. Burgin, David J.
Cowan, Christopher F.O. Gabrieli and G. Felda Hardymon are the
managing members of Deer IV and share voting and
dispositive power over the shares held by Deer IV, Bessemer and
Bessec. The managing members of Deer Management (described in
footnote 6) share voting and dispositive power over the
shares held by Deer Management. Robert P. Goodman, one of our
directors, has no voting or dispositive power with respect to
shares held by Bessemer, Bessec or Deer IV and disclaims
beneficial ownership of these shares. Mr. Goodman disclaims
beneficial ownership of the shares held by Deer Management
except to the extent of his pecuniary interest in such shares.
The address for these entities is 1865 Palmer Avenue, Suite 104,
Larchmont, New York 10538.
|
|
|
|
(13)
|
|
Consists of 2,402,693 shares
of common stock held by Grotech Partners VI, L.P., or Grotech
Partners. The general partner of Grotech Partners is Grotech
Capital Group VI, LLC, an entity for which Mr. Zell serves
as a general partner. Mr. Zell shares voting and
dispositive power over the shares held by Grotech Partners with
Frank A. Adams. The address for Grotech Partners is c/o Grotech
Capital Group, 8000 Towers Crescent Drive, Suite 850, Vienna,
Virginia 22182.
|
|
|
|
(14)
|
|
Consists of: 1,723,547 shares
of common stock held by Charles River Partnership IX, a Limited
Partnership, or CRP-IX; 52,800 shares of common stock held
by Charles River Partnership IX-A, a Limited Partnership, or CRP
IX-A; 47,214 shares of common stock held by Charles River
IX-B LLC, or CRP IX-B; and 36,942 shares of common stock
held by Charles River IX-C LLC, or CRP IX-C. The general partner
of each of CRP-IX and CRP IX-A is Charles River IX GP, Limited
Partnership, or CR IX GP LP. Each of Izhar Armony, Richard M.
Burnes, Jr., Ted R. Dintersmith and Michael J. Zak is a general
partner of CR IX GP LP and shares voting and dispositive power
over the shares held by CRP-IX and CRP IX-A. The manager of each
of CRP IX-B and CRP IX-C is Charles River Friends, Inc., or CRF
Inc. The Board of Directors of Charles River Friends, Inc.
consists of Izhar Armony, Richard M. Burnes, Jr., Ted R.
Dintersmith and Michael J. Zak and each of the directors shares
voting and dispositive power over the shares held by CRP IX-B
and CRP IX-C. The address for all of these entities is 1000
Winter Street, Suite 3300, Waltham, Massachusetts 02451.
|
|
|
|
(15)
|
|
Columbia Broadsoft Investors, LLC,
or Columbia Broadsoft, is a special purpose entity formed for
the sole purpose of investing in the company. The members of
Columbia Broadsoft are Columbia Capital Equity Partners II
(QP), L.P., Columbia Capital Equity Partners II (Cayman),
L.P., Columbia Capital Equity Partners II, L.P., Columbia
Capital Investors, L.L.C. and Columbia Capital Employee
Investors, L.L.C., which we refer to collectively as the
Columbia Fund Partnerships, and three individuals. The
general partner or managing member, as applicable, of each of
the Fund Partnerships is Columbia Capital Equity Partners,
L.L.C. The manager of Columbia Broadsoft and Columbia Capital
Equity Partners, L.L.C. is Columbia Capital, L.L.C. The managing
members of Columbia Capital, L.L.C. are James B. Fleming, Jr.,
R. Philip Herget, III and Harry F. Hopper III and they
share voting and dispositive power over the shares held by
Columbia Broadsoft. The address for Columbia Broadsoft is c/o
Columbia Capital, L.L.C. 201 N. Union Street, Suite 300,
Alexandria, Virginia 22314.
|
|
(16)
|
|
Consists of 1,293,129 shares
held by Meritech Capital Partners III L.P. and
23,566 shares held by Meritech Capital Affiliates III
L.P. Meritech Management Associates III L.L.C., a managing
member of Meritech Capital Associates III L.L.C., the
general partner of Meritech Capital Partners III L.P. and
Meritech Capital Affiliates III L.P., has sole voting and
dispositive power with respect to the shares held by Meritech
Capital Partners III L.P. and Meritech Capital
Affiliates III L.P. The managing members of Meritech
Management Associates II L.L.C. are Paul Madera, Michael
Gordon, Robert Ward and George Bischof who disclaim beneficial
ownership of these shares except to the extent of their
pecuniary interest therein. The address for these entities is
245 Lytton Avenue, Suite 350, Palo Alto, California 94301.
|
139
|
|
|
(17)
|
|
Consists of: 855,131 shares of
common stock held by RRE Ventures III-A, L.P., or RRE Ventures
III-A; 142,504 shares of common stock held by RRE Ventures
Fund III, L.P., or RRE Ventures Fund; and
83,577 shares of common stock held by RRE Ventures III,
L.P., or RRE Ventures. The general partner of each of RRE
Ventures III-A, RRE Ventures Fund and RRE Ventures is RRE
Ventures GP III, LLC. The general partners of RRE Ventures GP
III, LLC are James D. Robinson III, James D. Robinson IV, Stuart
J. Ellman and Andrew L. Zalasin, and they share voting and
dispositive power over the shares of common stock held by RRE
Ventures III-A, RRE Ventures Fund and RRE Ventures. The address
for these entities is 130 East 59th Street, 17th Floor, New
York, New York 10022.
|
|
|
|
(18)
|
|
Consists of 1,000,775 shares
of common stock held by Industry Ventures Fund V, L.P., or
Industry Ventures. The general partner of Industry Ventures is
Industry Ventures Management V, L.L.C., or Industry
Management. The members of Industry Management are Hans
Swildens, Justin Burden, Mike Gridley, Ken Wallace and Will
Quist, and they share voting and dispositive power over the
shares of common stock held by Industry Ventures. The address
for Industry Ventures is 750 Battery Street, 7th Floor,
San Francisco, CA 94111.
|
|
|
|
(19)
|
|
Consists of 529,696 shares of
common stock held by Comcast Interactive Capital, LP, or Comcast
Interactive. The general partner of Comcast Interactive is
Comcast CICG, GP, LLC, or Comcast GP. The manager of Comcast GP
is Comcast Capital Corporation. Comcast Corporation is the sole
stockholder of Comcast Capital Corporation. The address for
these entities is 1201 N. Market Street,
Suite 1000, Wilmington, Delaware 19801.
|
|
|
|
(20)
|
|
Includes 104,701 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
8,630 shares underlying options that may be acquired
pursuant to early exercise features of the options and that vest
in accordance with the terms of the options. Mr. Rokoff is
an employee of the company.
|
|
|
|
(21)
|
|
Consists of: 91,538 shares of
common stock held by Accel VII L.P., or Accel VII;
19,085 shares of common stock held by Accel Internet
Fund III L.P., or AIF III; and 10,940 shares of common
stock held by Accel Investors 99 L.P., or AI99. Accel VII
Associates LLC is the general partner of Accel VII and AIF III.
James W. Breyer, Arthur C. Patterson, Theresia Gouw Ranzetta and
James R. Swartz are the managing members of Accel VII Associates
LLC and share voting and dispositive power over the shares held
by Accell VII and AIF III. James W. Breyer, Arthur C. Patterson,
Theresia Gouw Ranzetta and James R. Swartz are the managing
members of AI99, and they share voting and dispositive power
over the shares held by AI99. The address for these entities is
428 University Avenue, Palo Alto, CA 94301.
|
|
|
|
(22)
|
|
Mr. Wharton is a former
employee of the company.
|
|
|
|
(23)
|
|
Includes 59,626 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
7,622 shares that may be acquired pursuant to early
exercise features of options and that vest in accordance with
their terms. Mr. Weidenfeller is an employee of the company.
|
|
|
|
(24)
|
|
Includes 40,788 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
4,836 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Callanan is an employee of the company.
|
|
|
|
(25)
|
|
The general partner of Rincon
Venture Partners is Rincon Venture Partners, LLC, an entity for
which James Andelman and Brian Kelly serve as general partners.
Mr. Andelman and Mr. Kelly share voting and
dispositive power over the shares held by Rincon Venture
Partners. The address for Rincon Venture Partners is 803 Chapala
Street, Santa Barbara, CA 93101.
|
|
|
|
(26)
|
|
The address for ORIX Finance Equity
Investors, L.P. is 1717 Main Street, Suite 1100, Dallas, TX
75201.
|
|
|
|
(27)
|
|
Includes 64,978 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
7,519 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Hicks is an employee of the company.
|
|
|
|
(28)
|
|
Includes 67,359 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
7,639 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Decker is an employee of the company.
|
|
|
|
(29)
|
|
Includes 61,023 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
5,643 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Bukovsky is an employee of the company.
|
|
|
|
(30)
|
|
Mr. Davis is a former employee
of the company.
|
|
|
|
(31)
|
|
Includes 58,288 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
8,377 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Reid is an employee of the company.
|
|
|
|
(32)
|
|
Consists of 30,439 shares of
common stock underlying immediately exercisable options that are
vested within 60 days of November 30, 2010 and
9,892 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms. Mr. Dourgarian is an employee of the company.
|
|
|
|
(33)
|
|
Includes all other selling
stockholders, who in the aggregate beneficially own less than 1%
of our common stock. Among these selling stockholders are
certain current and former employees of the company. Includes an
aggregate of 51,994 shares of common stock underlying
immediately exercisable options that are vested within
60 days of November 30, 2010 and an aggregate of
31,338 shares that may be acquired pursuant to early
exercise features of options that vest in accordance with their
terms.
|
140
DESCRIPTION OF
CAPITAL STOCK
The description below of our capital stock and provisions of
our amended and restated certificate of incorporation and
amended and restated bylaws are summaries and are qualified by
reference to the amended and restated certificate of
incorporation and the amended and restated bylaws, and by the
applicable provisions of Delaware law.
General
Our amended and restated certificate of incorporation authorizes
us to issue up to 100,000,000 shares of common stock, $0.01
par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share.
As of September 30, 2010, there were outstanding:
|
|
|
|
|
24,711,018 shares of common stock, including an aggregate
of 15,066 shares issued pursuant to early exercise of stock
options and restricted stock grants that are subject to
repurchase;
|
|
|
|
294,771 shares of common stock issuable upon vesting of
RSUs that will vest at various dates in the future; and
|
|
|
|
1,984,892 shares of common stock issuable upon exercise of
outstanding options.
|
Our shares of common stock are not redeemable and do not have
preemptive rights.
As of September 30, 2010, there was a warrant outstanding
for the purchase of an aggregate of 116,551 shares of
common stock with an exercise price of $8.58 per share. This
warrant was net exercised for 76,195 shares of common stock
effective December 8, 2010 and is no longer outstanding.
Common
Stock
Voting
Rights
Each holder of our common stock is entitled to one vote for each
share on all matters submitted to a vote of the stockholders,
including the election of directors. Under our amended and
restated certificate of incorporation and amended and restated
bylaws, our stockholders do not have cumulative voting rights.
Because of this, the holders of a majority of the shares of
common stock entitled to vote in any election of directors can
elect all of the directors standing for election, if they should
so choose.
Dividends
Subject to preferences that may be applicable to any
then-outstanding preferred stock, holders of common stock are
entitled to receive ratably those dividends, if any, as may be
declared from time to time by the board of directors out of
legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share ratably in the
net assets legally available for distribution to stockholders
after the payment of all of our debts and other liabilities and
the satisfaction of any liquidation preference granted to the
holders of any then-outstanding shares of preferred stock.
Rights and
Preferences
Holders of common stock have no preemptive, conversion or
subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. The rights,
preferences and privileges of the holders of common stock are
subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may
designate in the future.
141
Preferred
Stock
Our board of directors has the authority, without further action
by our stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series, to establish from time to
time the number of shares to be included in each such series, to
fix the rights, preferences and privileges of the shares of each
wholly unissued series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of
shares of any such series, but not below the number of shares of
such series then outstanding. Our board of directors may
authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power
or other rights of the holders of our common stock. The issuance
of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or
preventing a change in control of us and may adversely affect
the market price of our common stock and the voting and other
rights of the holders of our common stock.
We have no present plans to issue any shares of preferred stock.
Options, RSUs and
Restricted Stock
As of September 30, 2010, under our 1999 Plan and 2009
Plan, options to purchase an aggregate of 1,984,892 shares
of common stock (excluding 1,178 shares issued pursuant to
early exercise of options) were outstanding, 294,771 shares
were issuable upon the vesting of outstanding RSUs,
13,888 shares of unvested restricted stock were outstanding
and 239,395 additional shares of common stock were available for
future grant. For additional information regarding the terms of
these plans, see Management Employee Benefit
Plans.
Registration
Rights
We and certain of our stockholders, who held shares of our
convertible preferred stock prior to our initial public
offering, and certain of our executive officers have entered
into a fourth amended and restated registration rights
agreement, or the registration rights agreement. This agreement
provides those holders with customary demand and piggyback
registration rights with respect to the shares of common stock
currently held by them and issuable to them upon conversion of
our convertible preferred stock in connection with our initial
public offering.
Demand
Registration Rights
At any time after six months following the completion of our
initial public offering, the holders of shares of our common
stock that were issued upon conversion of our convertible
preferred stock in connection with our initial public offering
may require us, on not more than three occasions and subject to
other specified conditions and limitations, to file a
registration statement under the Securities Act with respect to
their shares of common stock if at least 166,667 shares of
common stock are offered or the aggregate offering price of such
shares will be not less than $3.0 million. In such event,
we will be required to use our best efforts to effect the
registration as soon as possible.
Piggyback
Registration Rights
At any time if we propose to register any of our securities
under the Securities Act either for our own account or for the
account of other stockholders, the holders of shares of common
stock that were issued upon conversion of our convertible
preferred stock in connection with our initial public offering
and the founders of the company will each be entitled to notice
of the registration and will be entitled to include their shares
of common stock in the registration statement. These piggyback
registration rights are subject to specified conditions and
limitations, including the right of the underwriters to limit
the number of shares included in any such registration under
certain circumstances.
142
Registration
on
Form S-3
At any time after we become eligible to file a registration
statement on
Form S-3,
the holders of shares of our common stock that are issued upon
conversion of our convertible preferred stock in connection with
our initial public offering will be entitled, upon their written
request, to have such shares registered by us on a
Form S-3
registration statement at our expense, provided that such
requested registration has an anticipated aggregate offering
size to the public of at least $0.5 million and we have not
already effected a registration on
Form S-3
within the preceding six-month period and subject to other
specified conditions and limitations.
Expenses of
Registration
We will pay all expenses relating to any demand or piggyback
registration, other than underwriting discounts and commissions,
subject to specified conditions and limitations.
Lock-Up
Obligations
The registration rights agreement provides that, upon the prior
approval of our board of directors and the prior written consent
of the holders of a majority of our then-outstanding registrable
securities (as defined under the agreement), if we and the
managing underwriter for a proposed second registered public
offering of our common stock so request, the stockholders who
are party to the registration rights agreement are obligated to
enter into
lock-up
agreements pursuant to which they will not, for a period of no
more than 90 days following the effective date of the
registration statement for the second public offering (or such
longer period as we and the managing underwriter shall request
in order to facilitate compliance with NASD Rule 2711),
offer, sell or otherwise dispose of the registrable securities
or other equity securities of the company, except for securities
sold by such stockholder pursuant to the registration statement.
This offering has triggered this requirement and, as a result,
the stockholders who are party to the registration rights
agreement are required to enter into a lockup agreement in
connection with this offering.
Termination of
Registration Rights
The registration rights granted under the registration rights
agreement will terminate with respect to shares held by a holder
when those shares are sold pursuant to a registered public
offering or pursuant to an exemption from the registration
requirements of the Securities Act under which the transferee
does not receive restricted securities.
Anti-Takeover
Provisions
Section 203
of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from
engaging in any business combination with any interested
stockholder for a period of three years after the date that such
stockholder became an interested stockholder, with the following
exceptions:
|
|
|
|
|
before such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
|
|
|
|
upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the
interested stockholder) those shares owned (i) by persons
who are directors and also officers and (ii) employee stock
plans in which employee participants do not have the right to
|
143
|
|
|
|
|
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
|
|
|
|
|
|
on or after such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
|
In general, Section 203 defines a business
combination to include the following:
|
|
|
|
|
any merger or consolidation involving the corporation and the
interested stockholder;
|
|
|
|
any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
|
|
|
|
subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
|
|
|
|
any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested
stockholder; or
|
|
|
|
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
by or through the corporation.
|
In general, Section 203 defines an interested
stockholder as an entity or person who, together with the
persons affiliates and associates, beneficially owns, or
within three years prior to the time of determination of
interested stockholder status did own, 15% or more of the
outstanding voting stock of the corporation.
Certificate of
Incorporation and Bylaws
Our amended and restated certificate of incorporation, or our
restated certificate, provides for our board of directors to be
divided into three classes with staggered three-year terms. Only
one class of directors is elected at each annual meeting of our
stockholders, with the other classes continuing for the
remainder of their respective three-year terms. Because our
stockholders do not have cumulative voting rights, stockholders
holding a majority of the shares of common stock outstanding
will be able to elect all of our directors. Our restated
certificate and our amended and restated bylaws, or our restated
bylaws, also provide that directors may be removed by the
stockholders only for cause upon the vote of
662/3%
or more of our outstanding common stock. Furthermore, the
authorized number of directors may be changed only by resolution
of the board of directors, and vacancies and newly created
directorships on the board of directors may, except as otherwise
required by law or determined by the board, only be filled by a
majority vote of the directors then serving on the board, even
though less than a quorum.
Our restated certificate and restated bylaws also provide that
all stockholder actions must be effected at a duly called
meeting of stockholders and eliminate the right of stockholders
to act by written consent without a meeting. Our restated bylaws
also provide that only our board of directors, chairman of the
board, chief executive officer or the board of directors
pursuant to a resolution adopted by a majority of the total
number of authorized directors may call a special meeting of
stockholders.
Our restated bylaws also provide that stockholders seeking to
present proposals before a meeting of stockholders to nominate
candidates for election as directors at a meeting of
stockholders must provide timely advance notice in writing, and
specify requirements as to the form and content of a
stockholders notice.
Our restated certificate and restated bylaws provide that the
stockholders cannot amend many of the provisions described above
except by a vote of
662/3%
or more of our outstanding common stock.
144
The combination of these provisions may make it more difficult
for our existing stockholders to replace our board of directors
as well as for another party to obtain control of us by
replacing our board of directors. Since our board of directors
has the power to retain and discharge our officers, these
provisions could also make it more difficult for existing
stockholders or another party to effect a change in management.
In addition, the authorization of undesignated preferred stock
makes it possible for our board of directors to issue preferred
stock with voting or other rights or preferences that could
impede the success of any attempt to change our control.
These provisions are intended to enhance the likelihood of
continued stability in the composition of our board of directors
and its policies and to discourage coercive takeover practices
and inadequate takeover bids. These provisions are also designed
to reduce our vulnerability to hostile takeovers and to
discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging
others from making tender offers for our shares and may have the
effect of delaying changes in our control or management. As a
consequence, these provisions may also inhibit fluctuations in
the market price of our stock that could result from actual or
rumored takeover attempts. We believe that the benefits of these
provisions, including increased protection of our potential
ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure our company,
outweigh the disadvantages of discouraging takeover proposals,
because negotiation of takeover proposals could result in an
improvement of their terms.
NASDAQ Global
Market Listing
Our common stock is listed on the NASDAQ Global Market under the
trading symbol BSFT.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company. The transfer
agents address is 6201 15th Avenue,
Brooklyn, NY 11219.
145
SHARES ELIGIBLE
FOR FUTURE SALE
Based on the number of shares outstanding on September 30,
2010, upon completion of this offering, 25,347,095 shares
of common stock will be outstanding, assuming no exercise of
outstanding options other than those options exercised by
certain selling stockholders for the purpose of selling shares
in this offering. Of these shares, 12,773,508 shares of
common stock will be freely tradable without restriction, in the
public market following the completion of this offering. The
remaining 12,573,587 shares of common stock held by
existing stockholders are restricted securities, as
that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if
registered or if their resale qualifies for exemption from
registration described below under Rule 144 or 701
promulgated under the Securities Act.
As a result of contractual restrictions described below, the
provisions of our registration rights agreement, our insider
trading window policy and Rules 144 and 701, the shares
sold in this offering and the restricted securities will be
available for sale in the public market as follows:
|
|
|
|
|
|
|
|
|
Number of
|
|
Percent of
|
|
|
|
|
Shares
|
|
Outstanding
|
|
|
Date
|
|
Eligible for Sale
|
|
Stock
|
|
Comment
|
|
At the date of this prospectus
|
|
12,773,508
|
|
50%
|
|
Shares freely tradable prior to this offering (the vast majority
of which were issued in our IPO), plus 5,300,000 shares expected
to be sold in this offering.
|
December 21, 2010
|
|
628,097
|
|
3%
|
|
Shares subject to lock-up agreements relating to our initial
public offering that are not subject to lock-up agreements
relating to this offering and are not subject to the closed
trading window under our insider trading policy.
|
Third business day after we publicly announce financial results
for the fourth quarter of 2010 (expected to be in early March
2011)
|
|
474,274
|
|
2%
|
|
Shares held by employees who are not subject to lock-up
agreements relating to this offering, but are subject to the
closed trading window under our insider trading policy.
|
At 90 days after the date of this prospectus and various
times thereafter (1)
|
|
11,471,216 (2)
|
|
45%
|
|
Shares eligible for sale under Rules 144 and 701 upon expiration
of lock-up agreements or obligations relating to this offering.
|
|
|
|
(1) |
|
The 90-day
restricted period under the
lock-up
agreements may be extended under specified circumstances. See
Lock-Up
Agreements. |
|
|
|
(2) |
|
Includes an aggregate of 426,722 shares of common stock
held by parties to our registration rights agreement that are
contractually obligated to enter into
90-day
lock-up
agreements in connection with this offering but have not yet
done so as of the date of this prospectus. |
Rule 144
In general, persons who have beneficially owned restricted
shares of our common stock for at least six months, and any
affiliate of the company who owns either restricted or
unrestricted shares of
146
our common stock, are entitled to sell their securities without
registration with the SEC under an exemption from registration
provided by Rule 144 under the Securities Act.
Non-Affiliates
Any person who is not deemed to have been one of our affiliates
at the time of, or at any time during the three months
preceding, a sale may sell an unlimited number of restricted
securities under Rule 144 if:
|
|
|
|
|
the restricted securities have been held for at least six months
(including the holding period of any prior owner other than one
of our affiliates);
|
|
|
|
we have been subject to the Exchange Act periodic reporting
requirements for at least 90 days before the sale; and
|
|
|
|
we are current in our Exchange Act reporting at the time of sale.
|
Affiliates
Persons seeking to sell restricted securities who are our
affiliates at the time of, or any time during the three months
preceding, a sale, would be subject to the restrictions
described above. They are also subject to additional
restrictions, by which such person would be required to comply
with the manner of sale and notice provisions of Rule 144
and would be entitled to sell within any three-month period only
that number of securities that does not exceed the greater of
either of the following:
|
|
|
|
|
1% of the number of shares of our common stock then outstanding,
which will equal approximately 254,000 shares immediately
after the completion of this offering based on the number of
common shares outstanding as of November 30,
2010; or
|
|
|
|
|
|
the average weekly trading volume of our common stock on the
NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to the sale.
|
Additionally, persons who are our affiliates at the time of, or
any time during the three months preceding, a sale may sell
unrestricted securities under the requirements of Rule 144
described above, without regard to the six month holding period
of Rule 144, which does not apply to sales of unrestricted
securities.
Unlimited
Resales by Non-Affiliates
Any person who is not deemed to have been an affiliate of ours
at the time of, or at any time during the three months
preceding, a sale and has held the restricted securities for at
least one year, including the holding period of any prior owner
other than one of our affiliates, will be entitled to sell an
unlimited number of restricted securities without regard to the
length of time we have been subject to Exchange Act periodic
reporting or whether we are current in our Exchange Act
reporting.
Rule 701
Rule 701 under the Securities Act, as in effect on the date
of this prospectus, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions
of Rule 144, including the holding period requirement. Most
of our employees, executive officers or directors who purchased
shares under a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701,
subject to the provisions of the
lock-up
agreements as described below and in the section of this
prospectus titled Underwriting and will become
eligible for sale upon the expiration of the restrictions set
forth in those agreements.
147
Form S-8
Registration Statement
We have filed with the SEC a registration statement on
Form S-8
under the Securities Act to register the shares of our common
stock that are issuable pursuant to our 1999 Plan and 2009 Plan.
This registration statement was effective immediately upon
filing. Shares covered by this registration statement are
eligible for sale in the public markets, subject to vesting
restrictions, any applicable
lock-up
agreements described below and Rule 144 limitations
applicable to affiliates.
Lock-Up
Agreements
In connection with this offering, we and all of our officers,
directors, selling stockholders and substantially all of our
holders of registrable securities have agreed that, without the
prior written consent of Goldman, Sachs & Co. on
behalf of the underwriters, we and they will not, during the
period ending 90 days (subject to potential extension under
specified circumstances) after the date of this prospectus:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of directly or indirectly any
shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock; or
|
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of our common stock, whether any such transaction
is to be settled by delivery of our common stock or such other
securities, in cash or otherwise.
|
Registration
Rights
Upon the completion of this offering, the holders of
11,122,107 shares of our common stock, or their
transferees, as well as additional shares that may be acquired
by certain holders after the completion of this offering, will
be entitled to certain rights with respect to the registration
of their shares under the Securities Act. Registration of these
shares under the Securities Act would result in the shares
becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the
registration. See Description of Capital Stock
Registration Rights for additional information.
148
MATERIAL UNITED
STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS OF COMMON STOCK
The following is a summary of the material U.S. federal
income tax consequences applicable to
non-U.S. holders
(as defined below) with respect to the acquisition, ownership
and disposition of shares of our common stock. This summary is
based on current provisions of the Internal Revenue Code of
1986, as amended, final, temporary or proposed Treasury
regulations promulgated thereunder, administrative rulings and
judicial opinions, all of which are subject to change, possibly
with retroactive effect. We have not sought any ruling from the
U.S. Internal Revenue Service, or the IRS, with respect to
the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree
with such statements and conclusions.
This summary is limited to
non-U.S. holders
who purchase our common stock issued pursuant to this offering
and who hold shares of our common stock as capital assets.
This discussion does not address all aspects of
U.S. federal income or estate taxation that may be
important to a particular
non-U.S. holder
in light of that
non-U.S. holders
individual circumstances, nor does it address any aspects of tax
considerations arising under the laws of any
non-U.S.,
state or local jurisdiction. This discussion also does not
address tax considerations applicable to a
non-U.S. holder
subject to special treatment under the U.S. federal income
tax laws, including without limitation:
|
|
|
|
|
banks, insurance companies or other financial institutions;
|
|
|
|
partnerships or other pass-through entities;
|
|
|
|
tax-exempt organizations;
|
|
|
|
tax-qualified retirement plans;
|
|
|
|
dealers in securities or currencies;
|
|
|
|
traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
|
|
|
|
U.S. expatriates and certain former citizens or long-term
residents of the United States;
|
|
|
|
controlled foreign corporations;
|
|
|
|
passive foreign investment companies;
|
|
|
|
persons that own, or have owned, actually or constructively,
more than 5% of our common stock; and
|
|
|
|
persons that will hold common stock as a position in a hedging
transaction, straddle or conversion
transaction for tax purposes.
|
Accordingly, we urge prospective investors to consult with their
own tax advisors regarding the U.S. federal, state, local
and
non-U.S. income
and other tax considerations of acquiring, holding and disposing
of shares of our common stock.
If a partnership (or other pass-through entity for
U.S. federal income tax purposes) is a beneficial owner of
our common stock, the tax treatment of a partner in the
partnership (or member in such other entity) will generally
depend upon the status of the partner and the activities of the
partnership. Any partner in a partnership holding shares of our
common stock should consult its own tax advisors.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP OR DISPOSITION
OF OUR COMMON STOCK ARISING UNDER THE LAWS OF
149
ANY STATE, LOCAL,
NON-U.S. OR
OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Definition of
Non-U.S.
Holder
In general, a
non-U.S. holder
is any beneficial owner of our common stock that is not a
U.S. person. A U.S. person is any of the
following:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation (or any entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States or any political
subdivision thereof;
|
|
|
|
an estate, the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source;
|
|
|
|
a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (b) it
has a valid election in effect under applicable Treasury
regulations to be treated as a U.S. person; or
|
|
|
|
an entity that is disregarded as separate from its owner if all
of its interests are owned by a single person described above.
|
Distributions on
Our Common Stock
As described in the section titled Dividend Policy,
we currently do not anticipate paying dividends on our common
stock in the foreseeable future. If, however, we make cash or
other property distributions on our common stock, such
distributions will constitute dividends for U.S. federal
income tax purposes to the extent paid from our current earnings
and profits for that taxable year or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. Amounts not treated as dividends for
U.S. federal income tax purposes will constitute a return
of capital and will first be applied against and reduce a
holders adjusted tax basis in the common stock, but not
below zero. Any excess will be treated as gain realized on the
sale or other disposition of the common stock and will be
treated as described under the section titled
Gain on Sale or Other Disposition of Our
Common Stock below.
Dividends paid to a
non-U.S. holder
of our common stock generally will be subject to
U.S. federal withholding tax at a rate of 30% of the gross
amount of the dividends, or a lower rate specified by an
applicable income tax treaty, unless the dividends are
effectively connected with a trade or business carried on by the
non-U.S. holder
within the United States (and, if required by the applicable
income tax treaty, are attributable to a U.S. permanent
establishment maintained by the
non-U.S. holder).
To receive the benefit of a reduced treaty rate, a
non-U.S. holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying, under penalties of
perjury, such holders qualification for the reduced rate.
This certification must be provided to us or our paying agent
prior to the payment of dividends and must be updated
periodically.
Non-U.S. holders
that do not timely provide us or our paying agent with the
required certification, but that qualify for a reduced treaty
rate, may obtain a refund of any excess amounts withheld by
timely filing an appropriate claim for refund with the IRS.
If a
non-U.S. holder
holds our common stock in connection with the conduct of a trade
or business in the United States, and dividends paid on the
common stock are effectively connected with such holders
U.S. trade or business (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment
maintained by the
non-U.S. holder
in the United States), the
non-U.S. holder
will be exempt from U.S. federal withholding tax. To claim
the exemption, the
150
non-U.S. holder
must furnish to us or our paying agent the required forms,
including a properly executed IRS
Form W-8ECI
(or applicable successor form).
Any dividends paid on our common stock that are effectively
connected with a
non-U.S. holders
U.S. trade or business (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment
maintained by the
non-U.S. holder
in the United States) generally will be subject to
U.S. federal income tax on a net income basis at the
regular graduated U.S. federal income tax rates in the same
manner as if such holder were a resident of the United States. A
non-U.S. holder
that is a
non-U.S. corporation
(or
non-U.S. entity
treated as a corporation for U.S. federal income tax
purposes) also may be subject to an additional branch profits
tax equal to 30% (or such lower rate specified by an applicable
income tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
should consult any applicable income tax treaties that may
provide for different rules.
A
non-U.S. holder
who provides us with an IRS
Form W-8BEN
or
Form W-8ECI
must update the form or submit a new form, as applicable, if
there is a change in circumstances that makes any information on
such form incorrect. A
non-U.S. holder
that claims the benefit of an applicable income tax treaty
generally will be required to satisfy applicable certification
and other requirements prior to the distribution date.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
Gain on Sale or
Other Disposition of Our Common Stock
Subject to the discussion below regarding backup withholding, a
non-U.S. holder
generally will not be subject to U.S. federal income tax on
any gain realized upon the sale or other disposition of our
common stock unless:
|
|
|
|
|
the gain is effectively connected with a trade or business
carried on by the
non-U.S. holder
in the United States and, if required by an applicable income
tax treaty, the gain is attributable to a permanent
establishment of the
non-U.S. holder
maintained in the United States;
|
|
|
|
the
non-U.S. holder
is an individual present in the United States for 183 days
or more in the taxable year of disposition and certain other
requirements are met; or
|
|
|
|
we are or have been a U.S. real property holding
corporation, or a USRPHC, for U.S. federal income tax
purposes at any time within the shorter of the five-year period
preceding the disposition and the
non-U.S. holders
holding period for the common stock, and, with respect to a
non-U.S. holder
who has not actually or constructively held (at any time during
the shorter of the five-year period preceding the date of the
disposition or the holders holding period) 5% or more of
our common stock, the common stock has ceased to be traded on an
established securities market prior to the beginning of the
calendar year in which the sale or other disposition occurs. The
determination of whether we are a USRPHC depends on the fair
market value of our U.S. real property interests relative
to the fair market value of our other trade or business assets
and our foreign real property interests.
|
We believe we currently are not, and we do not anticipate
becoming, a USRPHC for U.S. federal income tax purposes.
Gain described in the first bullet point above will be subject
to U.S. federal income tax on a net income basis at regular
graduated U.S. federal income tax rates generally in the
same manner as if such holder were a resident of the United
States. A
non-U.S. holder
that is a
non-U.S. corporation
(or
non-U.S. entity
treated as a corporation for U.S. federal income tax
purposes) also may be subject to an additional branch profits
tax equal to 30% (or such lower rate specified by an applicable
income tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
should consult any applicable income tax treaties that may
provide for different rules.
151
Gain described in the second bullet point above will be subject
to U.S. federal income tax at a flat 30% rate (or such
lower rate specified by an applicable income tax treaty) but may
be offset by U.S. source capital losses (even though the
individual is not considered a resident of the United States),
provided that the
non-U.S. holder
has timely filed U.S. federal income tax returns with
respect to such losses.
Backup
Withholding and Information Reporting
Generally, we must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to, and the tax withheld with
respect to, each
non-U.S. holder.
This information also may be made available under a specific
treaty or agreement with the tax authorities in the country in
which the
non-U.S. holder
resides or is established. Backup withholding, currently at a
28% rate but scheduled to increase to 31% after 2010 absent
legislative action, generally will not apply to distributions to
a
non-U.S. holder
of the common stock provided the
non-U.S. holder
furnishes to us or our paying agent the required certification
as to its
non-U.S. status,
such as by providing a valid IRS
Form W-8BEN
or IRS
Form W-8ECI,
or certain other requirements are met. Notwithstanding the
foregoing, backup withholding may apply if either we or our
paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person that is not an exempt recipient.
Proceeds from the disposition of common stock by a
non-U.S. holder
effected by or through a U.S. office of a broker will be
subject to information reporting and backup withholding, unless
the
non-U.S. holder
certifies to the payor under penalties of perjury as to, among
other things, its address and status as a
non-U.S. holder
or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the transaction is
effected outside the United States by or through a
non-U.S. office
of a broker. However, if the broker is, for U.S. federal
income tax purposes, a U.S. person, a controlled foreign
corporation, a foreign person who derives 50% or more of its
gross income for specified periods from the conduct of a
U.S. trade or business, a specified U.S. branch of a
foreign bank or insurance company or a foreign partnership with
certain connections to the United States, information reporting
but not backup withholding will apply unless (i) the broker
has documentary evidence in its files that the holder is a
non-U.S. holder
and other conditions are met or (ii) the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
non-U.S. holders
U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
Additional
Withholding Taxes
For taxable years beginning after December 31, 2012, a
U.S. withholding tax at a 30% rate will be imposed on
dividends and proceeds of sale in respect of our common stock
received by certain
non-U.S. holders
if certain disclosure requirements related to U.S. accounts
or ownership are not satisfied. If payment of withholding taxes
is required,
non-U.S. holders
that are otherwise eligible for an exemption from, or reduction
of, U.S. withholding taxes with respect to such dividends
and proceeds will be required to seek a refund from the IRS to
obtain the benefit of such exemption or reduction. We will not
pay any additional amounts in respect of any amounts withheld.
152
UNDERWRITING
The company, the selling stockholders and the underwriters named
below have entered into an underwriting agreement with respect
to the shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman,
Sachs & Co. is the representative of the underwriters.
|
|
|
|
|
|
|
Number of
|
Underwriters
|
|
Shares
|
|
Goldman, Sachs & Co.
|
|
|
|
|
Jefferies & Company, Inc.
|
|
|
|
|
Cowen and Company, LLC
|
|
|
|
|
Needham & Company, LLC
|
|
|
|
|
Pacific Crest Securities LLC
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,300,000
|
|
|
|
|
|
|
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an additional 795,000 shares from the selling
stockholders. They may exercise that option for 30 days. If
any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by the
company and the selling stockholders. Such amounts are shown
assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
Paid by the
Company
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full Exercise
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
Paid by the
Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full Exercise
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
Shares sold by the underwriters to the public will initially be
offered at the public offering price set forth on the cover of
this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the public
offering price. If all the shares are not sold at the public
offering price, the representative may change the offering price
and the other selling terms. The offering of the shares by the
underwriters is subject to receipt and acceptance and subject to
the underwriters right to reject any order in whole or in
part.
The company and its officers, directors, selling stockholders
and holders of substantially all of the companys
registrable securities, have agreed with the underwriters,
subject to certain exceptions, not to dispose of, pledge, or
hedge any of their common stock or securities convertible into
or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date
90 days after the date of this prospectus, except with the
prior written
153
consent of the representative, provided, however, that a limited
number of holders of options to purchase shares of our common
stock are permitted, without separate consent, to sell prior to
the expiration of 90 days, the minimum number of shares of
common stock as may be necessary in order to satisfy the
optionees statutory minimum federal, state and local
income and employment tax obligations incurred in connection
with the exercise of stock options outstanding which would
otherwise expire under their terms solely as a result of the
occurrence of the expiration date of such options. This
agreement does not apply to any existing employee benefit plans.
See Shares Available for Future Sale for a
discussion of certain transfer restrictions.
The 90-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
90-day
restricted period the company issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
90-day
restricted period, the company announces that it will release
earnings results during the
15-day
period following the last day of the
90-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Our common stock is listed on the NASDAQ Global Market under the
trading symbol BSFT.
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Shorts
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from us and the selling stockholders in the
offering. The underwriters may close out any covered short
position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. Naked
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of
the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representative has repurchased shares sold by or for the account
of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of the companys
stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the
common stock. As a result, the price of the common stock may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected on
NASDAQ, in the
over-the-counter
market or otherwise.
European Economic
Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an
154
offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representative for
any such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the shares in
circumstances in which Section 21(1) of the FSMA does not
apply to the Issuer or the Guarantor; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the
155
offer or sale, or invitation for subscription or purchase, of
the shares may not be circulated or distributed, nor may the
shares be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than (i) to an
institutional investor under Section 274 of the Securities
and Futures Act, Chapter 289 of Singapore (the
SFA), (ii) to a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
The company and the selling stockholders estimate that their
share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately
$675,000.
The company and the selling stockholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for the issuer, for which they received or will
receive customary fees and expenses.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers, and such investment and
securities activities may involve securities and/or instruments
of the issuer. The underwriters and their respective affiliates
may also make investment recommendations and/or publish or
express independent research views in respect of such securities
or instruments and may at any time hold, or recommend to clients
that they acquire, long and/or short positions in such
securities and instruments.
156
LEGAL
MATTERS
The validity of the shares of common stock offered hereby will
be passed upon for us by Cooley LLP, Reston, Virginia. As of the
date of this prospectus, GC&H Investments, LLC, an entity
comprised of partners and associates of Cooley LLP, beneficially
owns 19,071 shares of common stock. Pillsbury Winthrop Shaw
Pittman LLP is acting as counsel to the underwriters in
connection with certain legal matters relating to the shares of
common stock being offered by this prospectus.
EXPERTS
The financial statements as of December 31, 2008 and 2009
and for each of the three years in the period ended
December 31, 2009 of BroadSoft, Inc. included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of Sylantro Systems Corporation for the
period from January 1, 2008 through December 23, 2008
included in this prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of the M6 Division of GENBAND Inc. for
the period from January 1, 2008 through August 26,
2008 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Casabi, Inc. as of December 31,
2008 and 2009 and for each of the two years in the period ended
December 31, 2009 included in this prospectus have been so
included in reliance on the report of Burr Pilger Mayer, Inc.,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of our
common stock offered under this prospectus. This prospectus does
not contain all of the information set forth in the registration
statement and the exhibits. For further information about us and
our common stock, you should refer to the registration statement
and the exhibits and schedules filed with the registration
statement. With respect to the statements contained in this
prospectus regarding the contents of any agreement or any other
document, in each instance, the statement is qualified in all
respects by the complete text of the agreement or document, a
copy of which has been filed as an exhibit to the registration
statement.
We are required to file annual, quarterly and current reports,
proxy statements and other information with the SEC pursuant to
the Exchange Act. You may read and copy this information at the
SEC at its public reference facilities located at
100 F Street N.E., Room 1580,
Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the public reference rooms by
calling the SEC at
1-800-SEC-0300.
The SEC also maintains an Internet website that contains
periodic reports, proxy statements and other information about
issuers, like us, that file electronically with the SEC. The
address of that site is www.sec.gov.
We also maintain a website on the Internet at www.broadsoft.com.
The reference to our web address does not constitute
incorporation by reference of the information contained at or
accessible through such site.
157
BROADSOFT,
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
BroadSoft, Inc.
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-19
|
|
Consolidated Financial Statements and Financial Statement
Schedule:
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
F-21
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
|
|
|
F-60
|
|
|
|
|
|
|
Sylantro Systems Corporation
|
|
|
|
|
|
|
|
F-61
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-62
|
|
|
|
|
F-63
|
|
|
|
|
F-64
|
|
|
|
|
F-65
|
|
|
|
|
|
|
M6 Division
|
|
|
|
|
|
|
|
F-78
|
|
Financial Statements:
|
|
|
|
|
|
|
|
F-79
|
|
|
|
|
F-80
|
|
|
|
|
F-81
|
|
|
|
|
F-82
|
|
|
|
|
|
|
Casabi, Inc.
|
|
|
|
|
|
|
|
F-88
|
|
|
|
|
F-89
|
|
|
|
|
F-90
|
|
|
|
|
F-91
|
|
|
|
|
F-92
|
|
|
|
|
F-93
|
|
|
|
|
|
|
Unaudited Condensed Pro Forma Combined Financial
Statements
|
|
|
|
|
|
|
|
F-109
|
|
|
|
|
F-110
|
|
|
|
|
F-111
|
|
|
|
|
F-112
|
|
|
|
|
F-113
|
|
F-1
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,488
|
|
|
$
|
22,869
|
|
Accounts receivable, net of allowance for doubtful accounts of
$20 and $169 at September 30, 2010 and December 31,
2009, respectively
|
|
|
30,611
|
|
|
|
25,471
|
|
Other current assets
|
|
|
5,152
|
|
|
|
4,829
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
85,251
|
|
|
|
53,169
|
|
|
|
|
|
|
|
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
3,104
|
|
|
|
1,563
|
|
Restricted cash
|
|
|
1,057
|
|
|
|
599
|
|
Intangible assets, net
|
|
|
2,592
|
|
|
|
3,163
|
|
Goodwill
|
|
|
5,537
|
|
|
|
4,728
|
|
Other long-term assets
|
|
|
2,039
|
|
|
|
3,441
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
14,329
|
|
|
|
13,494
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
99,580
|
|
|
$
|
66,663
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable preferred stock, redeemable
convertible preferred stock and stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and bank loans, current portion
|
|
$
|
1,179
|
|
|
$
|
4,536
|
|
Accounts payable and accrued expenses
|
|
|
11,009
|
|
|
|
11,903
|
|
Deferred revenue, current portion
|
|
|
52,255
|
|
|
|
33,806
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
64,443
|
|
|
|
50,245
|
|
Notes payable and bank loans
|
|
|
1,194
|
|
|
|
14,035
|
|
Deferred revenue
|
|
|
2,043
|
|
|
|
6,241
|
|
Other long-term liabilities
|
|
|
1,619
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
69,299
|
|
|
|
71,277
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Redeemable preferred stock and redeemable convertible
preferred stock:
|
|
|
|
|
|
|
|
|
Series A redeemable preferred stock, par value $0.01 per
share; no and 9,000,000 shares authorized, issued and
outstanding at September 30, 2010 and December 31,
2009, respectively
|
|
|
|
|
|
|
4,320
|
|
Redeemable convertible preferred stock, par value $0.01 per
share, issuable in series: no and 71,364,939 shares
authorized at September 30, 2010 and December 31,
2009, respectively; no and 11,831,531 shares issued and
outstanding at September 30, 2010 and December 31,
2009, respectively
|
|
|
|
|
|
|
68,866
|
|
|
|
|
|
|
|
|
|
|
Total redeemable preferred and redeemable convertible preferred
stock
|
|
|
|
|
|
|
73,186
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
BroadSoft, Inc. stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share; 5,000,000 and
no shares authorized at September 30, 2010 and
December 31, 2009, respectively; no shares issued and
outstanding at September 30, 2010 and December 31, 2009
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 100,000,000 and
139,100,000 shares authorized at September 30, 2010
and December 31, 2009, respectively; 24,695,952 and
6,320,110 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively
|
|
|
247
|
|
|
|
63
|
|
Additional paid-in capital
|
|
|
131,419
|
|
|
|
20,340
|
|
Accumulated other comprehensive loss
|
|
|
(1,712
|
)
|
|
|
(1,725
|
)
|
Accumulated deficit
|
|
|
(99,673
|
)
|
|
|
(96,474
|
)
|
|
|
|
|
|
|
|
|
|
Total BroadSoft, Inc. stockholders equity (deficit)
|
|
|
30,281
|
|
|
|
(77,796
|
)
|
Noncontrolling interest
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
30,281
|
|
|
|
(77,800
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
99,580
|
|
|
$
|
66,663
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
F-2
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
12,877
|
|
|
$
|
10,170
|
|
|
$
|
32,215
|
|
|
$
|
27,237
|
|
Maintenance and professional services
|
|
|
9,396
|
|
|
|
8,024
|
|
|
|
27,633
|
|
|
|
22,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
22,273
|
|
|
|
18,194
|
|
|
|
59,848
|
|
|
|
49,586
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
1,374
|
|
|
|
1,025
|
|
|
|
3,616
|
|
|
|
3,279
|
|
Maintenance and professional services
|
|
|
3,329
|
|
|
|
3,016
|
|
|
|
10,556
|
|
|
|
9,558
|
|
Amortization of intangibles
|
|
|
186
|
|
|
|
210
|
|
|
|
571
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
4,889
|
|
|
|
4,251
|
|
|
|
14,743
|
|
|
|
13,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17,384
|
|
|
|
13,943
|
|
|
|
45,105
|
|
|
|
36,120
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
7,789
|
|
|
|
7,034
|
|
|
|
22,601
|
|
|
|
21,628
|
|
Research and development
|
|
|
4,787
|
|
|
|
3,864
|
|
|
|
14,230
|
|
|
|
12,147
|
|
General and administrative
|
|
|
3,349
|
|
|
|
2,683
|
|
|
|
10,236
|
|
|
|
8,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,925
|
|
|
|
13,581
|
|
|
|
47,067
|
|
|
|
42,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,459
|
|
|
|
362
|
|
|
|
(1,962
|
)
|
|
|
(6,216
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(18
|
)
|
|
|
(7
|
)
|
|
|
(30
|
)
|
|
|
(36
|
)
|
Interest expense
|
|
|
31
|
|
|
|
349
|
|
|
|
730
|
|
|
|
1,053
|
|
Other (income) expense
|
|
|
|
|
|
|
(3
|
)
|
|
|
174
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
13
|
|
|
|
339
|
|
|
|
874
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,446
|
|
|
|
23
|
|
|
|
(2,836
|
)
|
|
|
(7,226
|
)
|
Provision for income taxes
|
|
|
237
|
|
|
|
373
|
|
|
|
363
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,209
|
|
|
|
(350
|
)
|
|
|
(3,199
|
)
|
|
|
(8,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to BroadSoft, Inc.
|
|
$
|
1,209
|
|
|
$
|
(349
|
)
|
|
$
|
(3,199
|
)
|
|
$
|
(8,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share available to BroadSoft,
Inc. common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.31
|
)
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.31
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,688
|
|
|
|
6,285
|
|
|
|
13,369
|
|
|
|
6,279
|
|
Diluted
|
|
|
26,646
|
|
|
|
6,285
|
|
|
|
13,369
|
|
|
|
6,279
|
|
Stock-based compensation expense included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
63
|
|
|
$
|
86
|
|
|
$
|
155
|
|
|
$
|
283
|
|
Sales and marketing
|
|
|
239
|
|
|
|
265
|
|
|
|
604
|
|
|
|
926
|
|
Research and development
|
|
|
196
|
|
|
|
150
|
|
|
|
463
|
|
|
|
665
|
|
General and administrative
|
|
|
324
|
|
|
|
247
|
|
|
|
984
|
|
|
|
1,324
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
F-3
BroadSoft,
Inc.
Stockholders
Equity (Deficit) and Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BroadSoft, Inc. Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Par Value $0.01
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Per Share
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
Equity (Deficit)
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
(77,800
|
)
|
|
|
|
|
|
|
6,320
|
|
|
$
|
63
|
|
|
$
|
20,340
|
|
|
$
|
(1,725
|
)
|
|
$
|
(96,474
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock from IPO, net of discounts and issuance
costs
|
|
|
39,951
|
|
|
|
|
|
|
|
5,048
|
|
|
|
50
|
|
|
|
39,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock converted to common at IPO
|
|
|
68,866
|
|
|
|
|
|
|
|
12,962
|
|
|
|
130
|
|
|
|
68,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of warrant liability upon IPO
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercise
|
|
|
100
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for exercise of stock options and lapse
of RSUs, net of effect of early exercises and withholding tax
|
|
|
(122
|
)
|
|
|
|
|
|
|
330
|
|
|
|
4
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of shares to noncontrolling interest
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
2,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,199
|
)
|
|
$
|
(3,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(3,186
|
)
|
|
$
|
(3,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2010
|
|
$
|
30,281
|
|
|
|
|
|
|
|
24,696
|
|
|
$
|
247
|
|
|
$
|
131,419
|
|
|
$
|
(1,712
|
)
|
|
$
|
(99,673
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
(72,724
|
)
|
|
|
|
|
|
|
6,259
|
|
|
$
|
63
|
|
|
$
|
16,596
|
|
|
$
|
(758
|
)
|
|
$
|
(88,625
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and net effect of early exercises
|
|
|
48
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8,226
|
)
|
|
$
|
(8,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,223
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(647
|
)
|
|
|
(647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(8,873
|
)
|
|
$
|
(8,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2009
|
|
$
|
(78,351
|
)
|
|
|
|
|
|
|
6,286
|
|
|
$
|
63
|
|
|
$
|
19,842
|
|
|
$
|
(1,405
|
)
|
|
$
|
(96,848
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
F-4
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,199
|
)
|
|
$
|
(8,226
|
)
|
Adjustment to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,766
|
|
|
|
1,686
|
|
Amortization of software licenses
|
|
|
1,365
|
|
|
|
1,365
|
|
Stock-based compensation expense
|
|
|
2,206
|
|
|
|
3,198
|
|
Other
|
|
|
(132
|
)
|
|
|
24
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,156
|
)
|
|
|
3,384
|
|
Other assets
|
|
|
(423
|
)
|
|
|
(892
|
)
|
Accounts payable and other liabilities
|
|
|
(286
|
)
|
|
|
(963
|
)
|
Deferred revenue
|
|
|
14,251
|
|
|
|
9,911
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
10,392
|
|
|
|
9,487
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,856
|
)
|
|
|
(485
|
)
|
Purchase of intangible assets resulting from contingent
consideration
|
|
|
(809
|
)
|
|
|
(521
|
)
|
Change in restricted cash
|
|
|
(458
|
)
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,123
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
385
|
|
|
|
45
|
|
Proceeds from issuance of common stock in connection with
Companys IPO, net of issuance costs
|
|
|
39,949
|
|
|
|
|
|
Proceeds from the exercise of common stock warrants
|
|
|
100
|
|
|
|
|
|
Redemption of Series A redeemable preferred stock
|
|
|
(4,320
|
)
|
|
|
|
|
Taxes paid on vesting of RSUs
|
|
|
(506
|
)
|
|
|
|
|
Notes payable and bank loans payments
|
|
|
(16,294
|
)
|
|
|
(2,147
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
19,314
|
|
|
|
(2,102
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
36
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
26,619
|
|
|
|
6,548
|
|
Cash and cash equivalents, beginning of period
|
|
|
22,869
|
|
|
|
14,353
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
49,488
|
|
|
$
|
20,901
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
F-5
BroadSoft,
Inc.
BroadSoft, Inc. (BroadSoft or the
Company), a Delaware corporation, was formed in
1998. The Company is a global provider of software that enables
fixed-line, mobile and cable service providers to deliver voice
and multimedia services over their Internet protocol-based, or
IP-based,
networks. The Companys software enables its service
provider customers to provide enterprises and consumers with a
range of cloud-based, or hosted, IP multimedia communications,
such as hosted IP private branch exchanges, or PBXs, video
calling, unified communications, or UC, collaboration and
converged mobile and fixed-line services. The Companys
software, BroadWorks, performs a critical network function by
serving as the software element that delivers and coordinates
voice, video and messaging communications through a service
providers
IP-based
network.
|
|
2.
|
Financial
Statement Presentation
|
Principles of
Consolidation
The accompanying unaudited condensed consolidated financial
statements include the accounts and results of operations of the
Company, its wholly owned subsidiaries and, until
February 1, 2010, a variable interest entity for which the
Company has determined it was the primary beneficiary. The
Company disposed of its interest in this entity on
February 1, 2010. All intercompany balances and
transactions have been eliminated in consolidation.
Interim
Financial Presentation
The accompanying unaudited condensed consolidated financial
statements and footnotes have been prepared in accordance with
generally accepted accounting principles in the United States of
America (U.S. GAAP) as contained in the
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (the Codification
or ASC) for interim financial information and
Article 10 of
Regulation S-X
issued by the United States Securities and Exchange Commission
(the SEC). Accordingly, they do not include all the
information and footnotes required by U.S. GAAP for annual
fiscal reporting periods. In the opinion of management, the
interim financial information includes all adjustments of a
normal recurring nature necessary for a fair presentation of the
results of operations, financial position, changes in
stockholders equity (deficit) and cash flows. The results
of operations for the three and nine months ended
September 30, 2010 are not necessarily indicative of
results that may be expected for the year ending
December 31, 2010 or any other period. The accompanying
condensed consolidated financial statements are unaudited and
should be read in conjunction with the audited consolidated
financial statements and notes thereto included in this
prospectus.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
amounts could differ from these estimates.
Recent
Accounting Pronouncements
Effective January 1, 2010, the Company adopted new
accounting guidance for revenue arrangements with multiple
deliverables that are outside of the scope of previous
authoritative software revenue recognition guidance. The new
accounting guidance provides that, when vendor-
F-6
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
specific objective evidence or third-party evidence of selling
price is not available, a best estimate of the selling price is
required to separate deliverables and allocate arrangement
consideration based on the relative selling prices of the
separate deliverables (the relative selling price
method). The relative selling price method allocates any
discount in the arrangement proportionately to each deliverable
on the basis of each deliverables selling price. The
Company concluded the new accounting guidance did not have a
material impact on the Companys results of operations,
cash flows or financial position during the three and nine
months ended September 30, 2010, as the guidance applied
only to the sale of certain products offered by the Company,
which sales were not significant.
Effective January 1, 2010, the Company adopted new
accounting guidance for revenue recognition for arrangements
that include software elements. Under the new guidance, tangible
products containing software components and non-software
components that function together to deliver the tangible
products essential functionality are excluded from the
scope of software revenue recognition guidance and will be
subject to other relevant revenue recognition guidance. The
Company concluded the new accounting guidance did not have a
material impact on the Companys results of operations,
cash flows or financial position during the three and nine
months ended September 30, 2010, as the guidance applied
only to the sale of certain products offered by the Company,
which sales were not significant.
Effective January 1, 2010, the Company adopted new
accounting guidance amending the disclosure requirements related
to recurring and nonrecurring fair value measurements. The
guidance requires new disclosures on the transfers of assets and
liabilities between Level 1 inputs (quoted prices in active
market for identical assets or liabilities) and Level 2
inputs (significant other observable inputs) of the fair value
measurement hierarchy, including the reasons and the timing of
the transfers. Additionally, for all interim and year-end
reporting periods beginning December 31, 2010, the guidance
requires separate disclosure of purchases, sales, issuance and
settlements of assets and liabilities measured using
Level 3 fair value measurements (significant unobservable
inputs). There were no transfers of assets or liabilities
between Levels 1 and 2 of the fair value measurement
hierarchy during the three and nine months ended
September 30, 2010. In conjunction with the IPO, the
Series C-1
preferred stock warrants converted to common stock warrants. As
a result, the Company reclassified the
Series C-1
preferred stock warrants from Level 3 liabilities to
additional paid in capital (APIC). The Company will
include these additional disclosures, as applicable, in its
interim and year-end financial statements in future periods.
F-7
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
|
|
3.
|
Fair Value
Disclosures
|
The following table summarizes the carrying and fair value of
the Companys financial assets and liabilities as of
September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds and certificates of deposit
|
|
$
|
36,143
|
|
|
$
|
36,143
|
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,143
|
|
|
$
|
36,143
|
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C-1
preferred stock warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts of the Companys other financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, approximate
their respective fair values due to their short-term nature.
The Company uses a three-tier fair value measurement hierarchy
to classify and disclose all assets and liabilities measured at
fair value on a recurring basis, as well as assets and
liabilities measured at fair value on a non-recurring basis, in
periods subsequent to their initial measurement. The three tiers
are defined as follows:
|
|
|
|
|
Level 1. Observable inputs based on
unadjusted quoted prices in active markets for identical
instruments;
|
|
|
|
Level 2. Inputs, other than quoted
prices in active markets, that are observable either directly or
indirectly; and
|
|
|
|
Level 3. Unobservable inputs for which
there is little or no market data, which require the reporting
entity to develop its own assumptions.
|
Assets and
Liabilities Measured at Fair Value on a Recurring
Basis
The Company evaluates its financial assets and liabilities
subject to fair value measurements on a recurring basis to
determine the appropriate level of classification for each
reporting period. This determination requires significant
judgments to be made. The following table summarizes the
Companys conclusions reached as of September 30, 2010
and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
35,086
|
|
|
$
|
35,086
|
|
|
$
|
|
|
|
$
|
|
|
Certificates of deposit(2)
|
|
|
1,057
|
|
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,143
|
|
|
$
|
36,143
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
7,568
|
|
|
$
|
7,568
|
|
|
$
|
|
|
|
$
|
|
|
Certificates of deposit (2)
|
|
|
599
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C-1
preferred stock warrants (3)
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Money market funds are classified as cash equivalents in the
Companys condensed consolidated balance sheet. As
short-term, highly liquid investments readily convertible to
known amounts of cash, with remaining maturities of three months
or less at the time of purchase, the Companys cash
equivalent money market accounts have carrying values that
approximate fair value and observable inputs based on unadjusted
quoted prices in active markets for identical instruments.
Therefore, they are categorized within Level 1 of the fair
value measurement hierarchy. |
|
(2) |
|
Certificates of deposit are classified as restricted cash in the
Companys condensed consolidated balance sheet. As these
investments are highly liquid and readily convertible to known
amounts of cash, they are determined to have carrying values
that approximate fair value and observable inputs based on
unadjusted quoted prices in active markets for identical
instruments. Therefore, they are categorized within Level 1
of the fair value measurement hierarchy. |
|
(3) |
|
Warrants to purchase
Series C-1
redeemable convertible preferred stock are recorded as
liabilities within other long-term liabilities in the
Companys condensed consolidated balance sheet. Fair value
is determined using the Black-Scholes valuation model using the
contractual life of the warrant and reasonable assumptions for
stock price volatility, expected dividend yield and risk-free
interest rates over the remaining contractual life of the
warrants. The fair value of the warrants is re-measured each
reporting period and changes in fair value are recognized in
other income or expense in the Companys condensed
consolidated statement of operations. These warrants were
converted to common stock warrants in connection with the IPO
and were reclassified to APIC. As such, the Company no longer
has Level 3 assets or liabilities. |
Assets Measured
at Fair Value on a Recurring Basis Using Significant
Unobservable Inputs
The following table presents the changes in the Companys
Level 3 instruments measured at fair value on a recurring
basis during the nine months ended September 30, 2010 (in
thousands):
|
|
|
|
|
|
|
Series C-1 Preferred
|
|
|
|
Warrants
|
|
|
Balance at December 31, 2009
|
|
$
|
(153
|
)
|
Total unrealized losses included in earnings
|
|
|
(109
|
)
|
Transfers out
|
|
|
262
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
|
|
|
|
|
|
|
Assets Measured
at Fair Value on a Nonrecurring Basis
The Company measures certain assets, including property and
equipment, goodwill and intangible assets, at fair value on a
nonrecurring basis. These assets are recognized at fair value
when they are deemed to be
other-than-temporarily
impaired. During the nine months ended
F-9
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
September 30, 2010 and 2009, there were no fair value
measurements of assets or liabilities measured at fair value on
a nonrecurring basis subsequent to their initial recognition.
The following table provides a summary of the changes in the
carrying amounts of goodwill (in thousands):
|
|
|
|
|
Balance as of December 31, 2009, gross
|
|
$
|
4,728
|
|
Accumulated impairment loss
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009, net
|
|
|
4,728
|
|
Purchase accounting adjustments
|
|
|
809
|
|
|
|
|
|
|
Balance as of September 30, 2010, net
|
|
|
5,537
|
|
Accumulated impairment loss
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2010, gross
|
|
$
|
5,537
|
|
|
|
|
|
|
The purchase accounting adjustments during 2010, were from
contingent payments to GENBAND Inc. (GENBAND) in
connection with the Companys acquisition of the M6
application server business from GENBAND. Pursuant to the terms
of the acquisition agreement, the Company is required to make a
payment to GENBAND equal to 15% of annual qualifying sales
related to M6 for three years from the acquisition date of
August 27, 2008.
Deferred revenue represents amounts billed to or collected from
customers for which the related revenue has not been recognized
because one or more of the revenue recognition criteria have not
been met.
Deferred revenue consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Licenses
|
|
$
|
28,217
|
|
|
$
|
19,562
|
|
Maintenance and professional services
|
|
|
26,081
|
|
|
|
20,485
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,298
|
|
|
$
|
40,047
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
52,255
|
|
|
$
|
33,806
|
|
Non-current portion
|
|
|
2,043
|
|
|
|
6,241
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,298
|
|
|
$
|
40,047
|
|
|
|
|
|
|
|
|
|
|
Installment
Bank Loans
On September 26, 2008, the Company entered into a
$15.0 million Loan and Security Agreement with ORIX Venture
Finance LLC (the ORIX Loan), which the Company
voluntarily repaid in full during the quarter ended
June 30, 2010. The ORIX Loan required 42 equal monthly
principal payments of approximately $0.4 million beginning
in April 2010 and was scheduled to mature in September 2013. The
interest rate was equal to the sum of 3.0% plus the greater of
(a) prime rate or (b) LIBOR rate plus 2.5%, provided
that the interest rate in effect in each month could not be less
than 7% per annum. The principal balance outstanding under this
agreement at December 31, 2009 was $15.0 million.
F-10
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
The Company paid $0.2 million of loan origination fees
related to its ORIX Loan, which was capitalized within other
current and long-term assets in the condensed consolidated
balance sheet. Amortization expense related to the loan
origination fees was immaterial for the periods reported and is
included as interest expense in the consolidated statements of
operations. The Company paid in full the balance of the ORIX
Loan in June 2010 and, as such, recorded into interest expense
the remaining unamortized loan origination fees of approximately
$0.1 million during the quarter ended June 30, 2010.
In connection with obtaining the ORIX Loan, the Company issued a
warrant to purchase up to 116,551 shares of common stock at
$8.58 per share that expires on May 16, 2012. In accordance
with the guidance to account for debt issued with a warrant, the
Company allocated the total proceeds between the ORIX Loan and
the warrant based on the relative fair value of the two
instruments. Out of the total proceeds of $15.0 million,
the Company allocated $14.9 million to the ORIX Loan and
$0.1 million to the warrant based on their relative fair
values. The fair value of the common stock warrant was recorded
to APIC. Fair value was determined using a Black-Scholes
valuation model using the contractual life of the warrant and
reasonable assumptions for stock price volatility, expected
dividend yield and risk-free interest rates. The Company used a
risk-free interest rate of 3.4%, stock price volatility of 75%
and term of seven years, which resulted in an estimated fair
value of the common stock warrant of approximately $1.20 per
share. The discount on the ORIX Loan was being amortized over
the term of the agreement using the effective interest method
and the amortization charge was recorded as interest expense in
the consolidated statements of operations. In connection with
the repayment of the ORIX Loan, the Company recorded into
interest expense the remaining unamortized balance of
$0.1 million during the quarter ended June 30, 2010.
In December 2008, in connection with the acquisition of Sylantro
Systems Corporation, the Company assumed a loan totaling
$1.3 million at an interest rate of 9%. The balance
outstanding under this agreement at December 31, 2009 was
$0.1 million, which was paid in full in February 2010.
Financing
Arrangements
In May 2008, the Company amended a software license and
maintenance agreement. The amended agreement provides the
Company the right to distribute third party software on a user
basis up to 35,000,000 licenses over a four-year period for an
additional one-time fee of approximately $6.4 million. The
agreement was financed with an installment bank loan with an
effective interest rate of 4.0%. The loan provides for a payment
of $0.4 million at loan inception and scheduled principal
repayments of $0.4 million each quarter commencing
July 1, 2008, with the final payment payable on
April 1, 2012. At September 30, 2010 and
December 31, 2009, the liability for the installment bank
loan amounted to approximately $2.4 million and
$3.5 million, respectively.
|
|
7.
|
Stock-based
Compensation
|
Equity
Incentive Plans
In 1999, the Company adopted the 1999 Stock Incentive Plan (the
1999 Plan). The 1999 Plan provides for the grant of
incentive stock options, nonqualified stock options, restricted
stock awards and stock appreciation rights. The 1999 Plan
terminated in June 2009 whereby no new options or awards are
permitted to be granted, leaving 55,555 authorized shares
expired under the 1999 Plan. In April 2009, the Company adopted
the 2009 Equity Incentive Plan, which was subsequently amended
and restated (the 2009 Plan). The 2009 Plan provides
for the grant of incentive stock options, nonqualified stock
options, restricted stock awards, restricted stock units
(RSUs) and stock appreciation rights. In June 2010,
in connection with the Companys IPO, the 2009 Plan was
amended
F-11
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
and restated to provide for, among other things, annual
increases in the share reserve. At the same time, an additional
333,333 shares of common stock were added to the share
reserve. At September 30, 2010, the Company had
239,395 shares of common stock available for issuance under
the 2009 Plan.
Stock compensation expense recognized by the Company is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock options
|
|
$
|
415
|
|
|
$
|
718
|
|
|
$
|
1,040
|
|
|
$
|
3,122
|
|
Restricted stock awards
|
|
|
23
|
|
|
|
30
|
|
|
|
83
|
|
|
|
76
|
|
Restricted stock units
|
|
|
384
|
|
|
|
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized compensation expense
|
|
$
|
822
|
|
|
$
|
748
|
|
|
$
|
2,206
|
|
|
$
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
The following table presents a summary related to stock options
for the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Balance, December 31, 2009
|
|
|
2,841,096
|
|
|
$
|
2.26
|
|
Granted
|
|
|
312,583
|
|
|
|
8.90
|
|
Exercised
|
|
|
(192,767
|
)
|
|
|
2.00
|
|
Forfeited
|
|
|
(47,488
|
)
|
|
|
4.43
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
2,913,424
|
|
|
$
|
2.96
|
|
|
|
|
|
|
|
|
|
|
Vested at September 30, 2010
|
|
|
1,984,892
|
|
|
$
|
2.23
|
|
The Company granted 312,583 and 2,371,919 stock options during
the nine months ended September 30, 2010 and
September 30, 2009, respectively. For the nine months ended
September 30, 2010 and September 30, 2009, the
intrinsic value of stock options exercised was $0.8 million
and nominal, respectively, and cash received from stock options
exercised was $0.4 million and nominal, respectively. At
September 30, 2010, unrecognized compensation expense
related to unvested options was $1.3 million, which is
scheduled to be recognized over a weighted average period of
1.10 years.
F-12
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
Restricted
Stock Units
The following table presents a summary of activity for RSUs
during the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Restricted Stock
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Balance, December 31, 2009
|
|
|
173,326
|
|
|
$
|
2.46
|
|
Granted
|
|
|
308,190
|
|
|
|
7.79
|
|
Vested
|
|
|
(181,546
|
)
|
|
|
8.77
|
|
Forfeited
|
|
|
(5,199
|
)
|
|
|
5.73
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
294,771
|
|
|
$
|
4.10
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2010, the
Company granted 99,998 RSUs to certain officers. These RSUs are
settled in shares of common stock and will vest in two equal
annual installments following the date of grant. The Company
also granted an aggregate of 191,227 RSUs to certain employees
and officers, which vest over four years following the date of
grant. Also in the period, the Company granted an aggregate of
4,999 RSUs to certain directors, which vested immediately with
the closing of the IPO. In addition, the Company granted 11,466
RSUs to certain directors that fully vest on December 31,
2010 and 500 RSUs to a consultant that vested immediately with
the closing of the IPO. At September 30, 2010, unrecognized
compensation expense related to unvested RSUs was
$1.2 million, which is scheduled to be recognized over a
weighted average period of 1.38 years.
During the nine months ended September 30, 2009, the
Company granted 167,493 RSUs to certain employees and officers.
These RSUs, which had a term of 10 years and were settled
in shares of common stock, vested in connection with the
Companys IPO. Included in the 2010 RSU stock compensation
expense, the Company incurred expense of $0.4 million
related to the vesting of RSUs, covering an aggregate of
172,492 shares that were subject to a performance-based
vesting condition and that vested in full upon the completion of
the IPO.
Tax
Benefits
Upon adoption of the FASBs guidance on stock-based
compensation, the Company elected the alternative transition
method (short cut method) provided for calculating the tax
effects of stock-based compensation. The alternative transition
method includes simplified methods to establish the beginning
balance of the APIC pool related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact
on the APIC pool and consolidated statements of cash flows
related to the tax effect of employee stock-based compensation
awards that are outstanding upon adoption. As of
September 30, 2010, the Companys APIC pool balance
was zero.
The Company applies a
with-and-without
approach in determining its intra-period allocation of tax
expense or benefit attributable to stock-based compensation
deductions. Tax deductions in excess of previously recorded
benefits (windfalls) included in net operating loss
carryforwards but not reflected in deferred tax assets was
$1.6 million and $0.4 million at September 30,
2010 and December 31, 2009, respectively.
|
|
8.
|
Commitments and
Contingencies
|
In the normal course of business, the Company enters into
contracts and agreements that may contain representations and
warranties and provide for general indemnifications. The
Companys
F-13
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
exposure under these agreements is unknown because it involves
claims that may be made in the future, but have not yet been
made. The Company has not paid any claims or been required to
defend any action related to indemnification obligations to
date. The Company is currently disputing an indemnity claim
asserted by one of its customers. This customer seeks
$3.6 million for reimbursement of a portion of the legal
expenses incurred in defending a patent infringement lawsuit
filed against it by another of the Companys customers.
While the Company believes this indemnity claim is without merit
and management plans to continue to vigorously dispute this
claim, the customer seeking indemnity has substantially greater
resources than the Company. At this point, the Company is unable
to determine the likelihood of any outcome in this matter, nor
is it able to estimate the amount or range of loss or the impact
on the Company or its financial condition in the event of an
unfavorable outcome.
In accordance with its bylaws and certain agreements, the
Company has indemnification obligations to its officers and
directors for certain events or occurrences, subject to certain
limits, while they are serving at the Companys request in
such capacity. There have been no claims to date under these
indemnification obligations.
In addition, the Company is involved in litigation incidental to
the conduct of its business. The Company is not a party to any
lawsuit or proceeding that, in the opinion of management, is
reasonably possible to have a material adverse effect on its
financial position, results of operations or cash flows.
The Companys provision for income taxes is determined
using an estimate of its annual effective tax rate for each of
its legal entities in accordance with the accounting guidance
for taxes. Where the Company has entities with losses and does
not expect to release the tax benefits in the foreseeable
future, those entities are excluded from the effective tax
calculation. Non-recurring and discrete items that impact tax
expense are recorded in the period incurred.
In determining the Companys provision for income taxes,
net deferred tax assets, liabilities, valuation allowances and
uncertain tax positions, management is required to make
judgments and estimates related to projections of domestic and
foreign profitability, the timing and extent of the utilization
of loss carryforwards, applicable tax rates, transfer pricing
methods, expected tax authority positions on audit and prudent
and feasible tax planning strategies. Judgments and estimates
related to the Companys projections and assumptions are
inherently uncertain and therefore, actual results could differ
materially from projections.
For the three months ended September 30, 2010 and 2009, the
Company recorded a tax provision of $0.2 million and
$0.4 million, respectively; and for the nine months ended
September 30, 2010 and 2009, the Company recorded a tax
provision of $0.4 million and $1.0 million,
respectively. The tax provisions for the three and nine months
ended September 30, 2010 and 2009 primarily pertained to
taxable income generated by the Companys foreign
operations. There is no tax benefit recognized on the net
operating losses incurred in the U.S. and certain foreign
jurisdictions due to the lack of positive evidence supporting
the Companys ability to utilize these losses in the future.
|
|
10.
|
Stockholders
Equity (Deficit)
|
Reverse Stock
Split and Initial Public Offering
On May 24, 2010, the Companys board of directors
approved an amendment to the Companys restated certificate
of incorporation to effect a
6-for-1
reverse stock split of its common stock and all series of its
redeemable convertible preferred stock. The par value and the
authorized shares of the
F-14
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
common stock and redeemable convertible preferred stock were not
adjusted as a result of the reverse stock split. All issued and
outstanding common stock, redeemable convertible preferred
stock, warrants for common stock, warrants for preferred stock
and per share amounts contained in the financial statements have
been retroactively adjusted to reflect this reverse stock split
for all periods presented. The reverse stock split was effected
on June 14, 2010.
In June 2010, the Company completed the IPO in which it issued
and sold 5,048,131 shares of common stock at a public
offering price of $9.00 per share. The Company raised a total of
$45.5 million in gross proceeds from the IPO, or
$40.0 million in net proceeds after deducting underwriting
discounts and commissions of $3.2 million and other
estimated offering costs of $2.3 million. Upon the closing
of the IPO, all shares of the Companys then-outstanding
redeemable convertible preferred stock automatically converted
into an aggregate of 12,962,405 shares of common stock. In
connection with the closing, the Company used $4.3 million
of the net proceeds from the IPO to redeem and subsequently
cancel all outstanding shares of the Companys
Series A redeemable preferred stock.
In connection with the closing of the IPO, in June 2010, the
Company amended and restated its certificate of incorporation
and reduced its authorized number of shares of common stock to
100,000,000 and reduced the authorized number of shares of
preferred stock to 5,000,000.
Preferred
Stock
Pursuant to the Companys amended and restated certificate
of incorporation filed on June 21, 2010 in connection with
the closing of the IPO, the Company is authorized to issue
5,000,000 shares of preferred stock. The board of directors
has the authority, without action by its stockholders, to
designate and issue shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and
restrictions thereof. These rights, preferences and privileges
could include dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund terms
and the number of shares constituting any series or the
designation of such series, any or all of which may be greater
than the rights of common stock. The issuance of the
Companys preferred stock could adversely affect the voting
power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, preventing or
deterring a change in control. To date, the board of directors
has not designated any rights, preference or powers of any
preferred stock and no shares of preferred stock have been
issued.
Warrants
Preferred Stock
Warrants
During 2004 and 2005, the Company issued warrants to purchase up
to an aggregate of 45,955 shares of
Series C-1
redeemable convertible preferred stock at $3.97 per share in
connection with financing arrangements. Upon the closing of the
IPO, these warrants automatically converted into warrants to
purchase an equivalent number of shares of common stock. All of
these warrants were exercised for the underlying share amounts
during the quarter ended June 30, 2010.
Common Stock
Warrants
In addition to the warrants described above, in September 2008,
the Company issued a warrant to purchase up to
116,551 shares of common stock at $8.58 per share in
connection with the ORIX Loan, which warrant expires on
June 16, 2012. As of September 30, 2010, this warrant
remained outstanding.
F-15
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
|
|
11.
|
Income (loss) per
share data
|
Basic income (loss) per common share is computed based on the
weighted average number of outstanding shares of common stock.
Diluted income (loss) per common share adjusts the basic
weighted average common shares outstanding for the potential
dilution that could occur if stock options, restricted stock,
warrants and convertible securities were exercised or converted
into common stock.
Diluted loss per common share is the same as basic loss per
common share for the nine months ended September 30, 2010
and 2009 and the three months ended September 30, 2009
because the effects of potentially dilutive items were
anti-dilutive given the Companys losses.
The following table presents a reconciliation of the numerator
and denominator of the basic and diluted earnings per share
computation for the three and nine months ended
September 30, 2010 and 2009. In the table below, net income
(loss) represents the numerator and weighted average common
shares outstanding represents the denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands except per share data)
|
|
|
Net income (loss) attributable to BroadSoft, Inc.
|
|
$
|
1,209
|
|
|
$
|
(349
|
)
|
|
$
|
(3,199
|
)
|
|
$
|
(8,223
|
)
|
Weighted average basic common shares outstanding
|
|
|
24,688
|
|
|
|
6,285
|
|
|
|
13,369
|
|
|
|
6,279
|
|
Dilutive effect of stock-based awards
|
|
|
1,958
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
26,646
|
|
|
|
6,285
|
|
|
|
13,369
|
|
|
|
6,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.31
|
)
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.31
|
)
|
NA Not applicable because the effect is
anti-dilutive given the Companys losses
For the three months ended September 30, 2010, certain
stock options and warrants to purchase common stock were not
included in the computation of diluted earnings per share as
their effect is anti-dilutive because their exercise prices
exceeded the average market price of our common stock during the
quarter. For the three months ended September 2009 and the nine
months ended September 30, 2010 and 2009, share equivalents
were not included in the computation of diluted earnings per
share as the effect is anti-dilutive given the Companys
losses for these periods. The
F-16
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
weighted average effect of potentially dilutive securities that
have been excluded from the calculation of diluted net income
(loss) per common share because the effect is anti-dilutive is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Redeemable convertible preferred stock: *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B-1
|
|
|
|
|
|
|
589
|
|
|
|
369
|
|
|
|
589
|
|
Series C-1
|
|
|
|
|
|
|
9,771
|
|
|
|
6,121
|
|
|
|
9,771
|
|
Series D
|
|
|
|
|
|
|
805
|
|
|
|
504
|
|
|
|
805
|
|
Series E
|
|
|
|
|
|
|
417
|
|
|
|
261
|
|
|
|
417
|
|
Series E-1
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
Warrants on
Series C-1
preferred stock **
|
|
|
|
|
|
|
46
|
|
|
|
29
|
|
|
|
46
|
|
Warrants on common stock
|
|
|
117
|
|
|
|
117
|
|
|
|
117
|
|
|
|
117
|
|
Restricted stock units and awards
|
|
|
|
|
|
|
101
|
|
|
|
156
|
|
|
|
84
|
|
Early exercise shares
|
|
|
2
|
|
|
|
23
|
|
|
|
2
|
|
|
|
23
|
|
Stock options
|
|
|
330
|
|
|
|
2,253
|
|
|
|
1,972
|
|
|
|
2,786
|
|
|
|
|
* |
|
All of the redeemable convertible preferred stock automatically
converted to common stock upon the closing of the IPO. For the
nine months ended September 30, 2010, amounts presented in
the table are for the weighted average shares of common stock
underlying outstanding shares of redeemable convertible
preferred stock. |
|
** |
|
All of the
Series C-1
preferred stock warrants were automatically converted to common
stock warrants upon the closing of the IPO. All of these
warrants were exercised during the quarter ended June 30,
2010. For the nine months ended September 30, 2010, amounts
presented in the table are the weighted average shares of common
stock underlying these warrants. |
|
|
12.
|
Other (Income)
Expense
|
Other (income) expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest income
|
|
$
|
(18
|
)
|
|
$
|
(7
|
)
|
|
$
|
(30
|
)
|
|
$
|
(36
|
)
|
Interest expense
|
|
|
31
|
|
|
|
349
|
|
|
|
730
|
|
|
|
1,053
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
Change in fair value of preferred stock warrants
|
|
|
|
|
|
|
(3
|
)
|
|
|
109
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
13
|
|
|
$
|
339
|
|
|
$
|
874
|
|
|
$
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Segment and
Geographic Information
|
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, in
deciding how to allocate resources and in assessing performance.
The Companys chief operating decision
F-17
BroadSoft,
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
maker is its chief executive officer (the CEO). The
CEO reviews financial information presented on a consolidated
basis, along with information about revenue by geographic region
for purposes of allocating resources and evaluating financial
performance. Discrete information on a geographic basis, except
for revenue, is not provided below the consolidated level to the
CEO. The Company has concluded that it operates in one segment
and has provided the required enterprise-wide disclosures.
Revenue by geographic area is based on the location of the
end-user carrier. The following table presents revenue and
long-lived assets, net, by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
10,401
|
|
|
$
|
9,048
|
|
|
$
|
29,144
|
|
|
$
|
27,006
|
|
EMEA
|
|
|
7,252
|
|
|
|
4,708
|
|
|
|
15,960
|
|
|
|
12,054
|
|
APAC
|
|
|
3,241
|
|
|
|
3,186
|
|
|
|
9,799
|
|
|
|
7,549
|
|
Other
|
|
|
1,379
|
|
|
|
1,252
|
|
|
|
4,945
|
|
|
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,273
|
|
|
$
|
18,194
|
|
|
$
|
59,848
|
|
|
$
|
49,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-Lived Assets, net
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,463
|
|
|
$
|
4,861
|
|
EMEA
|
|
|
193
|
|
|
|
41
|
|
APAC
|
|
|
137
|
|
|
|
217
|
|
Other
|
|
|
407
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,200
|
|
|
$
|
5,603
|
|
|
|
|
|
|
|
|
|
|
On October 27, 2010, the Company completed its acquisition
of substantially all of the assets of Casabi, Inc.
(Casabi), which assets were used by Casabi to
provide its cloud-based personalized content and messaging
applications. The Company acquired substantially all of the
assets of Casabi for approximately $2 million and funded
the acquisition with cash on hand. Because the acquisition just
recently closed, the Company has not yet completed the initial
purchase price allocation.
F-18
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BroadSoft, Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of BroadSoft, Inc. and its subsidiaries
(the Company) at December 31, 2008 and 2009,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2009 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements 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, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial
statements, during 2009 in accordance with new accounting
guidance, the Company changed the manner in which it accounts
for noncontrolling interests in subsidiaries.
/s/ PricewaterhouseCoopers LLP
McLean, VA
March 15, 2010, except for the effect of the reverse stock
split described in Note 15, as to which the date is
June 14, 2010
F-19
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,353
|
|
|
$
|
22,869
|
|
Accounts receivable, net of allowance for doubtful accounts of
$111 and $169 for the years ended December 31, 2008 and
2009, respectively
|
|
|
21,413
|
|
|
|
25,471
|
|
Other current assets
|
|
|
3,993
|
|
|
|
4,829
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
39,759
|
|
|
|
53,169
|
|
|
|
|
|
|
|
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,343
|
|
|
|
1,563
|
|
Restricted cash
|
|
|
1,307
|
|
|
|
599
|
|
Intangible assets, net
|
|
|
3,563
|
|
|
|
3,163
|
|
Goodwill
|
|
|
3,969
|
|
|
|
4,728
|
|
Other long-term assets
|
|
|
4,867
|
|
|
|
3,441
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
16,049
|
|
|
|
13,494
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
55,808
|
|
|
$
|
66,663
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable preferred stock and redeemable
convertible preferred stock and stockholders deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and bank loans, current portion
|
|
$
|
2,459
|
|
|
$
|
4,536
|
|
Accounts payable and accrued expenses
|
|
|
13,103
|
|
|
|
11,903
|
|
Deferred revenue, current portion
|
|
|
18,279
|
|
|
|
33,806
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,841
|
|
|
|
50,245
|
|
Notes payable and bank loans
|
|
|
18,838
|
|
|
|
14,035
|
|
Deferred revenue
|
|
|
2,900
|
|
|
|
6,241
|
|
Other long-term liabilities
|
|
|
1,267
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
56,846
|
|
|
|
71,277
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Redeemable preferred stock and redeemable convertible
preferred stock:
|
|
|
|
|
|
|
|
|
Series A redeemable preferred stock, par value $0.01 per
share; 9,000,000 shares authorized, issued and outstanding
at December 31, 2008 and 2009
|
|
|
4,320
|
|
|
|
4,320
|
|
Series B-1
redeemable convertible preferred stock, par value $0.01 per
share; 3,533,200 shares authorized and 588,852 shares
issued and outstanding at December 31, 2008 and 2009
|
|
|
16,060
|
|
|
|
16,060
|
|
Series C-1
redeemable convertible preferred stock, par value $0.01 per
share; 58,904,320 shares authorized and
9,771,410 shares issued and outstanding at
December 31, 2008 and 2009
|
|
|
38,806
|
|
|
|
38,806
|
|
Series D redeemable convertible preferred stock, par value
$0.01 per share; 4,827,419 shares authorized and
804,569 shares issued and outstanding at December 31,
2008 and 2009
|
|
|
10,000
|
|
|
|
10,000
|
|
Series E redeemable convertible preferred stock, par value
$0.01 per share; 2,500,000 shares authorized and
416,656 shares issued and outstanding at December 31,
2008 and 2009
|
|
|
2,500
|
|
|
|
2,500
|
|
Series E-1
redeemable convertible preferred stock, par value $0.01 per
share; no shares authorized, issued or outstanding at
December 31, 2008; 1,600,000 shares authorized and
249,994 shares issued and outstanding at December 31,
2009
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Total redeemable preferred stock and redeemable convertible
preferred stock
|
|
|
71,686
|
|
|
|
73,186
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
BroadSoft, Inc. stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 137,500,000 and
139,100,000 shares authorized at December 31, 2008 and
2009, respectively; 6,258,661 and 6,320,110 shares issued
and outstanding at December 31, 2008 and 2009, respectively
|
|
|
63
|
|
|
|
63
|
|
Additional paid-in capital
|
|
|
16,596
|
|
|
|
20,340
|
|
Accumulated other comprehensive loss
|
|
|
(758
|
)
|
|
|
(1,725
|
)
|
Accumulated deficit
|
|
|
(88,625
|
)
|
|
|
(96,474
|
)
|
|
|
|
|
|
|
|
|
|
Total BroadSoft, Inc. stockholders (deficit) equity
|
|
|
(72,724
|
)
|
|
|
(77,796
|
)
|
Noncontrolling interest
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(72,724
|
)
|
|
|
(77,800
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable preferred stock and redeemable
convertible preferred stock and stockholders deficit
|
|
$
|
55,808
|
|
|
$
|
66,663
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
46,328
|
|
|
$
|
40,121
|
|
|
$
|
37,942
|
|
Maintenance and professional services
|
|
|
15,272
|
|
|
|
21,708
|
|
|
|
30,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
61,600
|
|
|
|
61,829
|
|
|
|
68,887
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
4,899
|
|
|
|
4,404
|
|
|
|
4,432
|
|
Maintenance and professional services
|
|
|
7,270
|
|
|
|
8,649
|
|
|
|
12,142
|
|
Amortization of intangibles
|
|
|
400
|
|
|
|
414
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
12,569
|
|
|
|
13,467
|
|
|
|
17,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49,031
|
|
|
|
48,362
|
|
|
|
51,513
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
26,431
|
|
|
|
30,774
|
|
|
|
28,534
|
|
Research and development
|
|
|
12,763
|
|
|
|
15,876
|
|
|
|
16,625
|
|
General and administrative
|
|
|
10,295
|
|
|
|
12,074
|
|
|
|
11,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
49,489
|
|
|
|
58,724
|
|
|
|
56,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(458
|
)
|
|
|
(10,362
|
)
|
|
|
(5,051
|
)
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(265
|
)
|
|
|
(173
|
)
|
|
|
(39
|
)
|
Interest expense
|
|
|
324
|
|
|
|
521
|
|
|
|
1,398
|
|
Other
|
|
|
220
|
|
|
|
(426
|
)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expense
|
|
|
279
|
|
|
|
(78
|
)
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(737
|
)
|
|
|
(10,284
|
)
|
|
|
(6,520
|
)
|
Provision for income taxes
|
|
|
1,021
|
|
|
|
952
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,758
|
)
|
|
|
(11,236
|
)
|
|
|
(7,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
(75
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(1,683
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share available to BroadSoft, Inc. common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(1.25
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,067
|
|
|
|
6,208
|
|
|
|
6,285
|
|
Stock-based compensation expense included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
163
|
|
|
$
|
182
|
|
|
$
|
325
|
|
Sales and marketing
|
|
|
628
|
|
|
|
856
|
|
|
|
1,088
|
|
Research and development
|
|
|
255
|
|
|
|
456
|
|
|
|
741
|
|
General and administrative
|
|
|
622
|
|
|
|
1,422
|
|
|
|
1,475
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BroadSoft, Inc. Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Par Value $0.01
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Per Share
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
Deficit
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
|
(In thousands, except per share data)
|
|
|
Balance at December 31, 2006
|
|
$
|
(64,212
|
)
|
|
|
|
|
|
|
5,987
|
|
|
$
|
60
|
|
|
$
|
11,805
|
|
|
$
|
(371
|
)
|
|
$
|
(75,706
|
)
|
|
$
|
|
|
Exercise of stock options and net effect of early exercises
|
|
|
344
|
|
|
|
|
|
|
|
159
|
|
|
|
2
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of preferred stock warrants
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred stock issuance costs
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from noncontrolling interest
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,758
|
)
|
|
$
|
(1,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,683
|
)
|
|
|
(75
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(141
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(1,899
|
)
|
|
$
|
(1,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
(64,082
|
)
|
|
|
|
|
|
|
6,146
|
|
|
|
62
|
|
|
|
13,757
|
|
|
|
(512
|
)
|
|
|
(77,389
|
)
|
|
|
|
|
Exercise of stock options and net effect of early exercises
|
|
|
188
|
|
|
|
|
|
|
|
113
|
|
|
|
1
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
2,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued in connection with debt
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(11,236
|
)
|
|
$
|
(11,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,236
|
)
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(246
|
)
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(11,482
|
)
|
|
$
|
(11,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(72,724
|
)
|
|
|
|
|
|
|
6,259
|
|
|
|
63
|
|
|
|
16,596
|
|
|
|
(758
|
)
|
|
|
(88,625
|
)
|
|
|
|
|
Exercise of stock options and net effect of early exercises
|
|
|
160
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7,853
|
)
|
|
$
|
(7,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,849
|
)
|
|
|
(4
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(967
|
)
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(8,820
|
)
|
|
$
|
(8,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
(77,800
|
)
|
|
|
|
|
|
|
6,320
|
|
|
$
|
63
|
|
|
$
|
20,340
|
|
|
$
|
(1,725
|
)
|
|
$
|
(96,474
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-22
BroadSoft,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,758
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,853
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,464
|
|
|
|
1,667
|
|
|
|
2,209
|
|
Amortization of software licenses
|
|
|
2,070
|
|
|
|
2,222
|
|
|
|
1,820
|
|
Stock-based compensation expense
|
|
|
1,668
|
|
|
|
2,916
|
|
|
|
3,629
|
|
(Recovery of) provision for doubtful accounts
|
|
|
(46
|
)
|
|
|
(3
|
)
|
|
|
59
|
|
Deferred income taxes
|
|
|
(120
|
)
|
|
|
(72
|
)
|
|
|
24
|
|
Impairment of property and equipment
|
|
|
|
|
|
|
|
|
|
|
115
|
|
Accrued tax withholding from sale of subsidiary
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Change in fair value of preferred stock warrants and accretion
of debt discount
|
|
|
220
|
|
|
|
(419
|
)
|
|
|
137
|
|
Changes in operating assets and liabilities (net of
acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,191
|
)
|
|
|
(1,607
|
)
|
|
|
(4,147
|
)
|
Other current and long-term assets
|
|
|
(535
|
)
|
|
|
(262
|
)
|
|
|
(1,004
|
)
|
Accounts payable, accrued expenses and other long-term
liabilities
|
|
|
3,067
|
|
|
|
(679
|
)
|
|
|
(3,532
|
)
|
Current and long-term deferred revenue
|
|
|
(7,518
|
)
|
|
|
2,462
|
|
|
|
18,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(3,679
|
)
|
|
|
(5,011
|
)
|
|
|
10,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,408
|
)
|
|
|
(1,312
|
)
|
|
|
(769
|
)
|
Purchases of intangible assets
|
|
|
|
|
|
|
(6,371
|
)
|
|
|
|
|
Payments for acquisitions, net of cash acquired
|
|
|
|
|
|
|
(494
|
)
|
|
|
806
|
|
Proceeds from sale of subsidiary, net of cash surrendered
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Change in restricted cash
|
|
|
(4
|
)
|
|
|
(599
|
)
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,412
|
)
|
|
|
(8,776
|
)
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercises of stock options
|
|
|
266
|
|
|
|
135
|
|
|
|
69
|
|
Capital contributions from noncontrolling interest
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Proceeds from exercises of preferred stock warrants
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Notes payable and bank loans - payments
|
|
|
(1,407
|
)
|
|
|
(5,862
|
)
|
|
|
(2,753
|
)
|
Notes payable and bank loans - advances
|
|
|
|
|
|
|
23,324
|
|
|
|
|
|
Proceeds from issuance of preferred stock, net of issuance costs
|
|
|
9,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
9,148
|
|
|
|
17,597
|
|
|
|
(2,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
106
|
|
|
|
(174
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
4,163
|
|
|
|
3,636
|
|
|
|
8,516
|
|
Cash and cash equivalents, beginning of period
|
|
|
6,554
|
|
|
|
10,717
|
|
|
|
14,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,717
|
|
|
$
|
14,353
|
|
|
$
|
22,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
324
|
|
|
$
|
517
|
|
|
$
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
757
|
|
|
$
|
1,154
|
|
|
$
|
1,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E redeemable convertible preferred stock issued for
acquisition
|
|
$
|
|
|
|
$
|
2,100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E-1
redeemable convertible preferred stock issued for acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of preferred stock warrants
|
|
$
|
(29
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued in connection with debt
|
|
$
|
|
|
|
$
|
136
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
BroadSoft,
Inc.
BroadSoft, Inc. (BroadSoft or the
Company), a Delaware corporation, was formed in
1998. The Company is a global provider of software that enables
fixed-line, mobile and cable service providers to deliver voice
and multimedia services over their Internet protocol-, or IP-,
based networks. The Companys software enables its service
provider customers to provide enterprises and consumers with a
range of cloud-based, or hosted, IP multimedia communications,
such as hosted IP private branch exchanges, or PBXs, video
calling, unified communications, or UC, collaboration and
converged mobile and fixed-line services. The Companys
software, BroadWorks, performs a critical network function by
serving as the software element that delivers and coordinates
voice, video and messaging communications through a service
providers
IP-based
network.
Accumulated
Deficit
Since its inception, the Company has incurred substantial
losses. At December 31, 2009, the accumulated deficit was
$96.5 million. Failure to generate sufficient revenue and
income could have a material adverse effect on the
Companys ability to achieve its intended business
objectives. The Company has financed its operations primarily
through the issuance of redeemable preferred stock and
redeemable convertible preferred stock that, at the option of
the holder, may require redemption payments of
$17.6 million, $17.6 million and $38.0 million on
December 21, 2010, 2011 and 2012, respectively, to the
extent cash is available. The Company has also obtained bank
loans that require the Company to make monthly installment
payments. (See Note 8 Borrowings.)
|
|
2.
|
Summary of
Significant Accounting Policies
|
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts and results of operations of the Company, its wholly
owned subsidiaries and a variable interest entity for which the
Company has determined it is the primary beneficiary. All
intercompany balances and transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
amounts could differ from these estimates.
Cash
Equivalents and Restricted Cash
The Company considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents are held in money market accounts.
Restricted cash consists primarily of certificates of deposit
that are securing letters of credit related to operating leases
for office space.
Fair Value
Measurements
The carrying amounts of the Companys financial instruments
including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, approximate their
respective fair values due to their short term nature. (See
Note 8 Borrowings for additional information on fair
value of debt.)
The Company uses a three-tier fair value hierarchy to classify
and disclose all assets and liabilities measured at fair value
on a recurring basis, as well as assets and liabilities measured
at fair
F-24
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
value on a non-recurring basis, in periods subsequent to their
initial measurement. The three tiers are defined as follows:
|
|
|
|
|
Level 1. Observable inputs based on
unadjusted quoted prices in active markets for identical
instruments;
|
|
|
|
Level 2. Inputs, other than quoted
prices in active markets, that are observable either directly or
indirectly; and
|
|
|
|
Level 3. Unobservable inputs for which
there is little or no market data, which require the reporting
entity to develop its own assumptions.
|
Assets and
Liabilities Measured at Fair Value on a Recurring
Basis
The Company evaluates its financial assets and liabilities
subject to fair value measurements on a recurring basis to
determine the appropriate level to classify them for each
reporting period. This determination requires significant
judgments to be made. The following table summarizes the
Companys conclusions reached as of December 31, 2008
and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
7,532
|
|
|
$
|
7,532
|
|
|
$
|
|
|
|
$
|
|
|
Certificates of deposit (2)
|
|
|
1,307
|
|
|
|
1,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,839
|
|
|
$
|
8,839
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C-1
preferred stock warrants (3)
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
7,568
|
|
|
$
|
7,568
|
|
|
$
|
|
|
|
$
|
|
|
Certificates of deposit (2)
|
|
|
599
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,167
|
|
|
$
|
8,167
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C-1
preferred stock warrants (3)
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
153
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Money market funds are classified as cash equivalents in the
Companys consolidated balance sheet. As short-term, highly
liquid investments readily convertible to known amounts of cash,
with remaining maturities of three months or less at the time of
purchase, the Companys cash equivalent money market
accounts have carrying values that approximate fair value.
Therefore, they are categorized within Level 1 of the fair
value hierarchy. |
|
(2) |
|
Certificates of deposit are classified as restricted cash in the
Companys consolidated balance sheet. As these investments
are highly liquid and readily convertible to known amounts of
cash, |
F-25
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
they are determined to have carrying values that approximate
fair value. Therefore, they are categorized within Level 1
of the fair value hierarchy. |
|
(3) |
|
Warrants to purchase
Series C-1
redeemable convertible preferred stock are recorded as
liabilities within other long-term liabilities in the
Companys consolidated balance sheet. Fair value is
determined utilizing the Black-Scholes valuation model and
reasonable assumptions for stock price volatility, expected
dividend yield and risk-free interest rate over the remaining
contractual life of the warrants. The fair value of the warrants
is re-measured each reporting period and changes in fair value
are recognized in other income or expense in the Companys
consolidated statements of operations. |
Assets Measured
at Fair Value on a Recurring Basis Using Significant
Unobservable Inputs
The following table presents the changes in the Companys
Level 3 instruments measured at fair value on a recurring
basis during the year ended December 31, 2008 and 2009 (in
thousands):
|
|
|
|
|
|
|
Series C-1
|
|
|
|
Preferred Warrants
|
|
|
Balance at December 31, 2007
|
|
$
|
(469
|
)
|
Total realized gains included in earnings
|
|
|
426
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(43
|
)
|
Total realized losses included in earnings
|
|
|
(110
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
(153
|
)
|
|
|
|
|
|
Assets Measured
at Fair Value on a Nonrecurring Basis
The Company measures certain assets, including property and
equipment, goodwill and intangible assets, at fair value on a
nonrecurring basis. These assets are recognized at fair value
when they are deemed to be
other-than-temporarily
impaired. During the year ended December 31, 2009, there
were no fair value measurements of assets or liabilities
measured at fair value on a nonrecurring basis subsequent to
their initial recognition.
Concentration
of Credit Risk
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. All of the Companys
cash and cash equivalents are held at financial institutions
that management believes to be of high credit quality. The
Companys cash and cash equivalent accounts may exceed
federally insured limits at times. The Company has not
experienced any losses on cash and cash equivalents to date. To
manage accounts receivable risk, the Company evaluates the
creditworthiness of its customers and maintains an allowance for
doubtful accounts.
F-26
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following customers represented 10% or more of revenue or
accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
Accounts Receivable
|
|
|
Revenue
|
|
|
|
Company A
|
|
|
16
|
%
|
|
|
17
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
Company B
|
|
|
|
*
|
|
|
|
*
|
|
|
10
|
%
|
|
|
|
*
|
|
|
|
*
|
Company C
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
* |
|
Represents less than 10% |
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are derived from sales to customers located
in the United States and foreign countries. Each customer is
evaluated for creditworthiness through a credit review process
at the time of each order. Accounts receivable are stated at
realizable value, net of an allowance for doubtful accounts that
is maintained for estimated losses that would result from the
inability of some customers to make payments as they become due.
The allowance is based on an analysis of past due amounts and
ongoing credit evaluations. Collection experience has been
consistent with the Companys estimates.
Property and
Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Replacements and major
improvements are capitalized; maintenance and repairs are
charged to expense as incurred.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the related assets per the table
below:
|
|
|
|
|
Equipment
|
|
|
3 years
|
|
Software
|
|
|
1.5 years
|
|
Furniture and fixtures
|
|
|
5 years
|
|
Leasehold improvements are amortized over the shorter of the
term of the lease or estimated useful life of the assets.
Business
Combinations
In a business combination, the Company allocates the purchase
price to the acquired business identifiable assets and
liabilities at their acquisition date fair values. The excess of
the purchase price over the amount allocated to the identifiable
assets and liabilities, if any, is recorded as goodwill. The
excess, if any, of the fair value of the identifiable assets
acquired and liabilities assumed over the consideration
transferred is recognized as a gain within other income in the
consolidated statement of operations as of the acquisition date.
To date, the assets acquired and liabilities assumed in the
Companys business combinations have primarily consisted of
acquired working capital and definite-lived intangible assets.
The carrying value of acquired working capital is assumed to be
equal to its fair value, given the short-term nature of these
assets and liabilities. The Company estimates the fair value of
definite-lived intangible assets acquired using a discounted
cash flow approach, which includes an analysis of the future
cash flows
F-27
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
expected to be generated by such assets and the risk associated
with achieving such cash flows. The key assumptions used in the
discounted cash flow model include the discount rate that is
applied to the discretely forecasted future cash flows in order
to calculate the present value of those cash flows and the
estimate of future cash flows attributable to the acquired
intangible, which include revenue, operating expenses and taxes.
Goodwill
Goodwill represents the excess of: (a) the aggregate
of the fair value of consideration transferred in a business
combination, over (b) the fair value of assets acquired,
net of liabilities assumed. Goodwill is not amortized, but is
subject to annual impairment tests as described below.
The Company tests goodwill for impairment annually on
December 31, or more frequently if events or changes in
business circumstances indicate the asset might be impaired.
Goodwill is tested for impairment at the reporting unit level
using a two-step approach. The first step is to compare the fair
value of the reporting unit to the carrying value of the net
assets assigned to the reporting unit. If the fair value of the
reporting unit is greater than the carrying value of the net
assets assigned to the reporting unit, the assigned goodwill is
not considered impaired. If the fair value is less than the
reporting units carrying value, step two is required to
measure the amount of the impairment, if any. In the second
step, the fair value of goodwill is determined by deducting the
fair value of the reporting units identifiable assets and
liabilities from the fair value of the reporting unit as a
whole, as if the reporting unit had just been acquired and the
purchase price were being initially allocated. If the carrying
value of goodwill exceeds the implied fair value, an impairment
charge would be recorded to operating expenses in the
consolidated statement of operations in the period the
determination is made.
The Company has determined that it has one reporting unit,
BroadSoft, Inc., which is the consolidated entity. To determine
the fair value of the Companys reporting unit as a whole,
the Company uses a discounted cash flow analysis, which requires
significant assumptions and estimates about future operations.
Significant judgments inherent in this analysis include the
determination of an appropriate discount rate, estimated
terminal value and the amount and timing of expected future cash
flows.
Based on the results of the Companys annual goodwill
impairment testing in 2008 and 2009, the fair value of the
Company exceeded its book value by a substantial margin;
therefore, the second step of the impairment test was not
required to be performed and no goodwill impairment was
recognized. (See Note 5 Goodwill and Intangibles.)
Identifiable
Intangible Assets
The Company acquired intangible assets in connection with
certain of its business acquisitions. These assets were recorded
at their estimated fair values at the acquisition date and are
amortized over their respective estimated useful lives using a
method of amortization that reflects the pattern in which the
economic benefits of the intangible assets are used. Estimated
useful lives are determined based on the Companys
historical use of similar assets and the expectation of future
realization of revenue attributable to the intangible assets. In
those cases where the Company determines that the useful life of
an intangible asset should be shortened, the Company amortizes
the net book value in excess of the estimated salvage value over
its revised remaining useful life. The Company did not revise
the useful life estimates attributed to any of the
Companys intangible assets in 2007, 2008 or 2009. (See
Note 5 Goodwill and Intangibles.)
F-28
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The estimated useful lives used in computing amortization are as
follows:
|
|
|
|
|
|
Customer relationships
|
|
|
5-7 ye
|
ars
|
|
Developed technology
|
|
|
4-5 ye
|
ars
|
|
Non-compete agreement
|
|
|
1 ye
|
ar
|
|
Trade names
|
|
|
4 ye
|
ars
|
|
Impairment of
Long-Lived Assets
The Company reviews long-lived assets, including property and
equipment and intangible assets, for impairment whenever events
or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of the assets to future undiscounted net cash flows expected to
be generated by the assets. Assets to be disposed of are
recorded at the lower of the carrying amount or fair value less
costs to sell. Recoverability measurement and estimating of
undiscounted cash flows for assets to be held and used is done
at the lowest possible levels for which there are identifiable
assets. If such assets are considered impaired, the amount of
impairment recognized would be equal to the amount by which the
carrying amount of the assets exceeds the fair value of the
assets, which the Company would compute using a discounted cash
flow approach. The Company did not record an impairment charge
as a result of the Companys 2008 recoverability
measurement of long-lived assets. During the fourth quarter of
2009, the Company recognized an impairment charge of
$0.1 million on the property and equipment held by a
foreign subsidiary. (See Note 4 Sale of Subsidiary.)
Deferred
Financing Costs
The Company amortizes deferred financing costs using the
effective-interest method and records such amortization as
interest expense.
Preferred
Stock Warrants
The liability for Series C-1 redeemable convertible preferred
stock warrants is adjusted for changes in fair value until the
earlier of (a) the exercise of the warrants,
(b) expiration of the warrants or (c) the completion
of a liquidation event, including the completion of a qualifying
initial public offering, at which time preferred stock warrants
will be converted into warrants to purchase common stock and the
liability will be reclassified to additional paid-in capital.
The per share fair values of the preferred stock warrants for
the years ended December 31, 2008 and 2009 ranged from
$0.48 to $1.20 and $2.64 to $3.66, respectively. The following
table summarizes the assumptions used to estimate the fair
values:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
Range of assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
0.51%-2.48%
|
|
0.47%-2.69%
|
Expected dividend yield
|
|
0.0%
|
|
0.0%
|
Expected volatility
|
|
59%-63%
|
|
57%-72%
|
Expected term (years)
|
|
2.2-6.4
|
|
1.2-5.5
|
F-29
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Revenue
Recognition
The Company derives substantially all of its revenue from the
sale of software licenses, maintenance for those licenses and
professional services. In accordance with current guidance for
software revenue recognition, the Company recognizes revenue
when persuasive evidence of an arrangement exists, delivery has
occurred and acceptance is received, if applicable, the fee is
fixed or determinable, collectability is probable and, if
applicable, when vendor-specific objective evidence of fair
value exists to allocate the arrangement fee to the undelivered
elements of a multiple element arrangement. In making these
judgments, the Company evaluates these criteria as follows:
|
|
|
|
|
Persuasive evidence of an arrangement. A
non-cancelable agreement signed by the Company and by the
customer, in conjunction with a purchase order or executed sales
quote from the customer, is deemed to represent persuasive
evidence of an arrangement.
|
|
|
|
Delivery has occurred. Delivery is deemed to
have occurred when the customer is given electronic access to
the licensed software and a license key for the software has
been delivered or made available. If an arrangement contains a
requirement to deliver additional elements essential to the
functionality of the delivered element, revenue associated with
the arrangement is recognized when delivery of the final element
has occurred.
|
|
|
|
Fees are fixed or determinable. The Company
considers the fee to be fixed or determinable unless the fee is
subject to refund or adjustment or is not payable within normal
payment terms. If the fee is subject to refund or adjustment,
revenue is recognized when the refund or adjustment right
lapses. If payment terms exceed the Companys normal terms,
revenue is recognized as the amounts become due and payable or
upon the receipt of cash if collection is not probable.
|
|
|
|
Collection is probable. Each customer is
evaluated for creditworthiness through a credit review process
at the inception of an arrangement. Collection is deemed
probable if, based upon the Companys evaluation, the
Company expects that the customer will be able to pay amounts
under the arrangement as payments become due. If it is
determined that collection is not probable, revenue is deferred
and recognized upon cash collection.
|
For arrangements that include multiple elements, the Company
generally allocates revenue to the various elements using the
residual method. Under the residual method, revenue is allocated
to the undelivered elements using vendor-specific objective
evidence of fair value and is deferred until those elements are
delivered. The remaining arrangement consideration is allocated
to the delivered elements and recognized as revenue when all
other revenue recognition criteria are met. If vendor-specific
objective evidence of fair value does not exist for all
undelivered elements, revenue for the delivered and undelivered
elements is deferred until delivery of the undelivered elements
has occurred or vendor-specific objective evidence can be
established. If the only undelivered element is post-contract
customer support, revenue is recognized ratably over the support
period.
The fair value for maintenance is based on the maintenance
contract renewal price charged in the first optional renewal
period under the arrangement. The fair value for professional
services is based on rates that the Company charges for
professional services when sold separately.
The Companys software licenses, maintenance contracts and
professional services are sold directly through its own sales
force and indirectly through distribution partners. Revenue
under arrangements with distribution partners is recognized when
all the revenue recognition criteria are met, including evidence
of the distribution partners customer. The Company does
not offer contractual rights of return or product exchange, or
price protection to its distribution partners.
F-30
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The warranty period for the Companys licensed software is
generally 90 days. Software licenses sold directly by the
Company are primarily sold in combination with an annual
maintenance contract that enables the customer to continue
receiving software maintenance and support after the warranty
period has expired. Maintenance is renewable at the option of
the customer. When customers prepay for the annual maintenance
contract, the related revenue is deferred and recognized ratably
over the term of the contract. Rates for maintenance, including
subsequent renewal rates, are established based upon a specific
percentage of net license fees as set forth in the arrangement.
Maintenance includes the right to unspecified product upgrades
on an
if-and-when
available basis.
Revenue from professional services includes implementation,
training and consulting and is recognized as services are
performed. Professional services are not considered essential to
the functionality of the licensed software.
The Company delivers its licensed software primarily by
utilizing electronic media. Revenue includes amounts billed for
shipping and handling and such amounts represent less than 1% of
revenue. Cost of license revenue includes shipping and handling
costs.
Software
Development Costs
Software development costs incurred prior to the establishment
of technological feasibility are expensed as incurred as
research and development expense. Software development costs
incurred subsequent to the establishment of technological
feasibility, if any, are capitalized until the software is
available for general release to customers. Historically, the
Company has determined that technological feasibility has been
established at approximately the same time as the general
release of such software to customers. Therefore, to date, the
Company has not capitalized any software development costs.
Deferred
Revenue
Deferred revenue represents amounts billed to or collected from
customers for which the related revenue has not been recognized
because one or more of the revenue recognition criteria have not
been met. Since the Company does not have vendor-specific
objective evidence for certain licensed software sold but not
yet delivered under some of its sales arrangements, revenue
associated with the delivered and undelivered elements is
deferred until the final element is delivered. Deferred revenue
for maintenance and professional services includes advance
payments received from customers under maintenance contracts
typically billed on an annual basis in advance. The current
portion of deferred revenue is expected to be recognized as
revenue within 12 months from the balance sheet date.
Deferred revenue consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Licenses
|
|
$
|
7,634
|
|
|
$
|
19,562
|
|
Maintenance and professional services
|
|
|
13,545
|
|
|
|
20,485
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,179
|
|
|
$
|
40,047
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
18,279
|
|
|
$
|
33,806
|
|
Non-current portion
|
|
|
2,900
|
|
|
|
6,241
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,179
|
|
|
$
|
40,047
|
|
|
|
|
|
|
|
|
|
|
F-31
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Cost of
Revenue
Cost of revenue includes (a) royalties paid to
third-parties whose technology or products are sold as part of
BroadWorks, (b) direct costs to manufacture and distribute
product and direct costs to provide product support and
professional support services and (c) intangible asset
amortization expense related to acquired technology.
The 2007 and 2008 consolidated financial statements have been
revised to reflect the classification of certain costs from cost
of license revenue to cost of maintenance and professional
services revenue of $0.7 million and $1.4 million,
respectively. The Company does not consider these revisions
material to the prior period financial statements.
Noncontrolling
Interests
Effective January 1, 2009, the Company adopted the new
accounting guidance for noncontrolling interests, which changed
the accounting for and the reporting of minority interests, now
referred to as noncontrolling interests, in the Companys
consolidated financial statements. This resulted in the
reclassification of minority interest amounts, previously
classified as a separate component of equity, to
Noncontrolling Interest, a component within
permanent equity, in the accompanying consolidated balance
sheets and statements of changes in stockholders deficit.
Additionally, net loss and comprehensive loss attributable to
noncontrolling interests are reflected separately from
consolidated net loss and comprehensive loss in the accompanying
consolidated statements of operations and statements of changes
in stockholders deficit. Losses continue to be attributed
to the noncontrolling interest, even when the noncontrolling
interests basis has been reduced to zero. Previously,
losses that otherwise would have been attributed to the
noncontrolling interest were allocated to the controlling
interest after the associated noncontrolling interests
basis was reduced to zero. The Company had no material losses
that it did not allocate to the noncontrolling interest prior to
the adoption of the new noncontrolling interests accounting
guidance. The Company applied the new accounting guidance
prospectively, except for the presentation and disclosure
requirements, which are being applied retrospectively to all
periods presented.
The noncontrolling interest reflected in the consolidated
financial statements relates to the Companys variable
interest in Netria, Inc., a
50-50 joint
venture that was formed in 2006 to develop certain intellectual
property related to a voice over internet protocol
(VoIP) client management system. The joint venture
incurred immaterial losses for the years ended December 31, 2008
and 2009 and a net loss of $0.2 million for the year ended
December 31, 2007. Upon adoption of this statement,
$0.1 million previously recorded as Minority interest
share of loss for the year ended December 31, 2007
has been reclassified to Net loss attributable to
noncontrolling interest and excluded from the caption
Net loss in the consolidated statements of
operations. Upon adoption, any losses that were previously
attributable to BroadSoft, because those losses exceeded the
noncontrolling interests investment, remain attributable
to BroadSoft and not attributable to the noncontrolling
interest. The computation of net loss per basic and diluted
common share for all prior periods is not impacted. In February
2010, the Company sold its interest in the joint venture to the
party owning the noncontrolling interest for a nominal amount.
Income
Taxes
The Company uses the liability method of accounting for income
taxes as set forth in the authoritative guidance for accounting
for income taxes. This method requires an asset and liability
approach for the recognition of deferred tax assets and
liabilities for the expected future tax consequences
attributable to temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and their respective tax bases, and for operating loss
and tax
F-32
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
credit carryforwards. Deferred tax assets and liabilities are
measured by applying enacted statutory tax rates applicable to
the future years in which deferred amounts are expected to be
settled or realized.
On January 1, 2007, the Company adopted the guidance on
accounting for uncertainty in income taxes, which clarifies the
accounting for uncertainty in income taxes recognized in an
entitys financial statements and prescribes a recognition
threshold and measurement attribute for financial statement
disclosure of tax positions taken or expected to be taken on a
tax return. The guidance provides a two-step approach to
recognize and measure tax benefits when the realization of the
benefits is uncertain. The first step is to determine whether
the benefit is to be recognized; the second step is to determine
the amount to be recognized. Income tax benefits should be
recognized when, based on the technical merits of a tax
position, the entity believes that if a dispute arose with the
taxing authority and were taken to a court of last resort, it is
more likely than not (i.e., a probability of greater than
50 percent) that the tax position would be sustained as
filed. If a position is determined to be more likely than not of
being sustained, the reporting enterprise should recognize the
largest amount of tax benefit that is greater than
50 percent likely of being realized upon ultimate
settlement with the taxing authority. The Companys
practice is to recognize interest and penalties related to
income tax matters in income tax expense.
Stock-Based
Compensation
The Company applies the fair value method for determining the
cost of stock-based compensation for employees, directors and
consultants. Under this method, the total cost of the grant is
measured based on the estimated fair value of the stock award at
the date of the grant, using a binomial options pricing model,
or binomial lattice model. The total cost related to the portion
of awards granted that is ultimately expected to vest is
recognized as stock-based compensation expense over the
requisite service period, or the vesting period of the grant.
Estimated Fair
Value of Share-Based Payments
The binomial lattice model considers certain characteristics of
fair value option pricing that are not considered under the
Black-Scholes model. Stock-based awards are combined into one
grouping for purposes of valuation assumptions. The Company
estimated the per share weighted average fair value for stock
options granted during the years ended December 31, 2007,
2008 and 2009 to be $4.74, $3.18 and $1.32, respectively. Fair
value of the stock options was estimated at the grant date,
using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
Risk-free interest rate
|
|
|
4.2
|
%
|
|
|
1.9
|
%
|
|
|
1.7
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
47
|
%
|
|
|
38
|
%
|
|
|
61
|
%
|
The Company has assumed no dividend yield because dividends are
not expected to be paid in the near future, which is consistent
with the Companys history of not paying dividends. The
risk-free interest rate assumption is based upon observed
interest rates for constant maturity U.S. Treasury
securities appropriate for the term of the Companys
employee stock options. The expected life of an option is
derived from the binomial lattice model, and is based on several
factors, including the contract life, exercise factor,
post-vesting termination rate and volatility. The expected
exercise factor, which is the ratio of the fair value of common
stock on the expected exercise date to the exercise price, and
expected post-vesting termination rate, which is the expected
rate at which employees are
F-33
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
likely to terminate after vesting occurs, are based on an
analysis of actual historical behavior by option holders.
Expected volatility is based on the historical volatility of
comparable public companies. The weighted-average expected term
output from the 2007, 2008 and 2009 binomial lattice models were
5.0, 3.7 and 6.0 years, respectively.
The Companys estimate of pre-vesting forfeitures, or
forfeiture rate, is based on an analysis of historical behavior
by option holders. The estimated forfeiture rate is applied to
the total estimated fair value of the awards, as derived from
the binomial lattice model, to compute the stock-based
compensation expense, net of pre-vesting forfeitures, to be
recognized in the consolidated statements of operations.
As a nonpublic company, there is not a ready market for the
Companys common stock. As such, the Company relies on
other factors upon which to base reasonable and supportable
estimates of the fair value of its common stock and the expected
volatility of its share prices. The Company periodically
estimates the fair value of its common stock by considering
valuations calculated using market multiples, comparable market
transactions, discounted cash flows, and when available, the
pricing of recent transactions involving the Companys
equity securities.
Estimated Fair
Value of Common Stock
The Company estimated the fair value of its common stock to be
in the range of $2.40 - $8.58 per share in 2008 and in the
range of $2.40 - $4.98 per share in 2009.
Net Loss Per
Common Share
Basic loss per common share is computed based on the weighted
average number of outstanding shares of common stock. Diluted
loss per common share adjusts the basic weighted average common
shares outstanding for the potential dilution that could occur
if stock options, restricted stock, warrants and convertible
securities were exercised or converted into common stock.
Diluted loss per common share is the same as basic loss per
common share for all periods presented because the effects of
potentially dilutive items were anti-dilutive given the
Companys losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands except per share data)
|
|
|
Basic loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(1,683
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,849
|
)
|
Weighted average basic common shares outstanding
|
|
|
6,067
|
|
|
|
6,208
|
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.28
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(1,683
|
)
|
|
$
|
(11,236
|
)
|
|
$
|
(7,849
|
)
|
Weighted average diluted common shares outstanding
|
|
|
6,067
|
|
|
|
6,208
|
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share:
|
|
$
|
(0.28
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The weighted average effect of potentially dilutive securities
that have been excluded from the calculation of diluted net loss
per common share because the effect is anti-dilutive is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
|
(In thousands)
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B-1
|
|
|
1,402
|
|
|
|
1,413
|
|
|
|
1,413
|
|
Series C-1
|
|
|
9,771
|
|
|
|
9,771
|
|
|
|
9,771
|
|
Series D
|
|
|
414
|
|
|
|
805
|
|
|
|
805
|
|
Series E
|
|
|
|
|
|
|
10
|
|
|
|
417
|
|
Series E-1
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Warrants on
Series B-1
preferred stock
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Warrants on
Series C-1
preferred stock
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
Warrants on common stock
|
|
|
50
|
|
|
|
65
|
|
|
|
117
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
113
|
|
Restricted stock award
|
|
|
19
|
|
|
|
48
|
|
|
|
30
|
|
Early exercise shares
|
|
|
53
|
|
|
|
28
|
|
|
|
21
|
|
Stock options
|
|
|
2,253
|
|
|
|
2,696
|
|
|
|
2,841
|
|
Foreign
Currency
The functional currency of operations located outside the United
States is the respective local currency. The financial
statements of each operation are translated into
U.S. dollars using period-end exchange rates for assets and
liabilities and average exchange rates during the period for
revenue and expenses. Translation effects are included in
accumulated other comprehensive loss.
Reclassifications
Certain prior year amounts have been reclassified to conform to
current presentation.
Recent
Accounting Pronouncements
On January 1, 2009, the Company adopted the authoritative
guidance issued by the Financial Accounting Standards Board
(FASB) on business combinations. The guidance
addresses the manner in which the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business. This guidance
also provides standards for recognizing and measuring the
goodwill acquired in the business combination and for disclosure
of information to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. The guidance applies prospectively to business
combinations with an acquisition date on or after the date the
guidance became effective. The Companys acquisition of
Packet Island, Inc. on October 19, 2009 was accounted for
under this guidance. (See Note 3 Acquisitions.)
In April 2009, the FASB issued guidance relating to accounting
for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This pronouncement
amends the guidance on business combinations to clarify the
initial and subsequent recognition, subsequent accounting, and
disclosure of assets and liabilities arising from contingencies
in a business combination. This pronouncement requires that
assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value, as determined in accordance
F-35
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
with guidance for fair value measurements, if the
acquisition-date fair value can be reasonably estimated. If the
acquisition-date fair value of an asset or liability cannot be
reasonably estimated, the asset or liability would be measured
at the amount that would be recognized in accordance with the
accounting guidance for contingencies. This pronouncement became
effective as of January 1, 2009, and the provisions of the
pronouncement are applied prospectively to business combinations
with an acquisition date on or after the date the guidance
became effective. The adoption of this pronouncement did not
have a material impact on the Companys financial position
or results of operations.
Concurrent with the issuance of the new business combinations
guidance, the FASB issued guidance on noncontrolling interests.
See discussion within the Noncontrolling Interests
section of this note for the impact of the Companys
adoption of this guidance as of January 1, 2009.
On January 1, 2009, the Company adopted the authoritative
guidance issued by the FASB which revises the factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. This guidance is intended to improve the
consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset under other U.S. generally accepted
accounting principles. This guidance applies prospectively to
intangible assets that are acquired on or after January 1,
2009. The adoption of this guidance did not have a material
impact on the Companys consolidated financial statements.
On January 1, 2009, the Company adopted authoritative
guidance issued by the FASB on fair value measurements of
nonfinancial assets and liabilities, other than non-financial
assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least
annually), which already were subject to the FASB guidance. The
adoption of this guidance did not have a material impact on the
Companys consolidated financial statements.
In April 2009, the FASB issued additional guidance on fair value
measurements and disclosures. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
under current market conditions. The new guidance requires an
evaluation of whether there has been a significant decrease in
the volume and level of activity for the asset or liability in
relation to normal market activity for the asset or liability.
If there has been a significant decrease in activity,
transactions or quoted prices may not be indicative of fair
value and a significant adjustment may need to be made to those
prices to estimate fair value. Additionally, an entity must
consider whether the observed transaction was orderly (that is,
not distressed or forced). If the transaction was orderly, the
obtained price can be considered a relevant, observable input
for determining fair value. If the transaction is not orderly,
other valuation techniques must be used when estimating fair
value. This guidance, which the Company applied prospectively as
of June 30, 2009, did not impact results of operations,
cash flows or financial position for the year ended
December 31, 2009.
Recent
Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside
the scope of current authoritative software revenue recognition
guidance. Under the new guidance, when vendor-specific objective
evidence or third-party evidence of selling price is not
available, a best estimate of the selling price is required to
separate deliverables and allocate arrangement consideration
based on the relative selling prices of the separate
deliverables (the relative selling price method).
The relative selling price method allocates any discount in the
arrangement proportionately to each deliverable on the basis of
each deliverables selling price. The guidance also
significantly expands related disclosure requirements. This
standard is effective for the
F-36
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Company beginning January 1, 2010. The Company is
continuing to evaluate the impact that the adoption of this
guidance will have on the consolidated financial statements.
In October 2009, the FASB issued authoritative guidance on
revenue recognition for arrangements that include software
elements. Under the guidance, tangible products containing
software components and non-software components that function
together to deliver the tangible products essential
functionality are excluded from the scope of software revenue
recognition guidance and will be subject to other relevant
revenue recognition guidance. This guidance is effective for the
Company beginning January 1, 2010. The Company does not
believe the adoption of this guidance will have a material
impact on the consolidated financial statements.
In January 2010, the FASB issued guidance amending the
disclosure requirements related to recurring and nonrecurring
fair value measurements. The guidance requires new disclosures
on the transfers of assets and liabilities between Level 1
inputs (quoted prices in active market for identical assets or
liabilities) and Level 2 inputs (significant other
observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers.
Additionally, the guidance requires separate disclosure of
purchases, sales, issuance, and settlements of assets and
liabilities measured using significant unobservable inputs
(Level 3 fair value measurements). This standard is
effective for the Company for all interim and year-end financial
statements issued after January 1, 2010, except for the
disclosure on the activities for Level 3 fair value
measurements, which is effective for the Company for all interim
and year-end financial statements issued after January 1,
2011. Other than requiring additional disclosures, adoption of
this guidance will not have a material impact on the
Companys consolidated financial statements.
Packet Island,
Inc.
On October 19, 2009, the Company acquired Packet Island,
Inc. (Packet Island), which provides Software as a
Service based, or SaaS-based, quality of service
(QoS) assessment and monitoring tools for VoIP and
video networks and services. The acquisition enables the Company
to address the market need of ensuring QoS, and quality of
experience, for real-time communications. The Companys
expanded solutions portfolio acquired through this acquisition
will enable service providers to offer significantly enhanced
QoS assessment and monitoring capabilities of their
communication services.
The purchase price for Packet Island was $1.5 million,
which consisted of 249,994 shares of
Series E-1
redeemable convertible preferred stock. The Company incurred
$0.2 million of transaction costs for financial advisory
and legal services related to the acquisition that are included
in general and administrative expenses in the Companys
consolidated statements of operations for the year ended
December 31, 2009.
The consolidated financial statements include the results of
Packet Island from the date of acquisition. The purchase price
has been allocated to the assets acquired and the liabilities
assumed based on estimated fair values as of the acquisition
date. The Company finalized the purchase price allocation for
this acquisition in 2009.
F-37
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
805
|
|
Accounts receivable
|
|
|
29
|
|
Fixed assets and other current assets
|
|
|
35
|
|
Accounts payable and accrued expenses
|
|
|
(64
|
)
|
Customer relationships
|
|
|
100
|
|
Developed technology
|
|
|
300
|
|
Goodwill
|
|
|
250
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,455
|
|
|
|
|
|
|
Developed technology represents purchased technology that
reached technological feasibility and for which Packet Island
had substantially completed development as of the date of
acquisition. Fair value was determined using estimated future
discounted cash flows related to the projected income stream of
the developed technology for a discrete projection period. Key
assumptions included a discount factor of 21% and estimates of
revenue growth, cost of revenue, operating expenses and taxes.
The customer relationships and developed technology are being
amortized on a straight-line basis over a period of five years
and six years, respectively, which in general reflects the cash
flows generated from such assets. Goodwill associated with this
acquisition is not deductible for tax purposes. Goodwill results
from expected synergies from the transaction, including
complementary products that will enhance the Companys
overall product portfolio.
Sylantro
Systems Corporation
On December 23, 2008, the Company acquired Sylantro Systems
Corporation (Sylantro), a provider of VoIP
applications software. Sylantros solutions complement the
Companys solutions and through the acquisition, the
Company acquired key customers. Sylantro had been a competitor
and because of the strategic importance of this acquisition, the
purchase price exceeded the fair value of Sylantros net
tangible and intangible assets acquired. As a result, the
Company recorded $3.4 million of goodwill in connection
with this transaction, which is not deductible for income tax
purposes. The consolidated financial statements include the
results of Sylantro from the date of acquisition.
The aggregate purchase price for this acquisition includes
(a) issuance of 416,656 shares of Series E
redeemable convertible preferred stock valued at
$2.1 million and (b) $0.6 million in direct
F-38
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
acquisition costs. The following summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
635
|
|
Accounts receivable
|
|
|
2,698
|
|
Prepaid expenses and other assets
|
|
|
779
|
|
Property and equipment
|
|
|
248
|
|
Accounts payable and accrued expenses
|
|
|
(2,636
|
)
|
Accrued severance and contractual liabilities
|
|
|
(1,510
|
)
|
Deferred revenue
|
|
|
(2,337
|
)
|
Bank debt
|
|
|
(1,227
|
)
|
Customer relationships
|
|
|
2,200
|
|
Developed technology
|
|
|
300
|
|
Trade name
|
|
|
100
|
|
Goodwill
|
|
|
3,430
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
2,680
|
|
|
|
|
|
|
The accrued severance and contractual liabilities of
$1.5 million include (a) $0.9 million of deferred
payments to certain former shareholders of Sylantro based on an
agreement entered into by the former shareholders and the
Company prior to the acquisition date and
(b) $0.6 million of severance amounts payable to
certain former Sylantro employees. The Company paid
$0.6 million during the year ended December 31, 2009
and will pay approximately $0.4 million and
$0.5 million, during the years ending December 31,
2010 and 2011, respectively.
The Company determined the value of the identifiable intangible
assets using a discounted cash flow approach, which includes an
analysis of estimated cash flows and risks associated with
achieving such cash flows. Key assumptions included a discount
factor of 20% and estimates of revenue growth, maintenance
renewal, cost of revenue, operating expenses and taxes.
Customer relationships and developed technology are amortized
based on the expected realization of revenues, resulting in an
accelerated basis over a period of seven years and four years,
respectively. The trade name has a four-year life and is
amortized using the straight-line method.
M6 (an
application server business of GENBAND Inc.)
On August 26, 2008, the Company acquired certain assets and
liabilities of the application server product line
(M6) and related customer base of GENBAND Inc., an
IP infrastructure and application solutions provider. The
results of M6s operations since the acquisition date have
been incorporated in the financial statements. The aggregate
purchase price for this acquisition includes a cash payment of
$0.3 million and an additional $0.7 million in direct
acquisition costs. The agreement also includes earn-out payments
wherein the Company is obligated to pay 15% of annual qualifying
sales for a period of three years from the date of acquisition.
F-39
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in
thousands):
|
|
|
|
|
Accounts receivable
|
|
$
|
1,616
|
|
Other current assets
|
|
|
119
|
|
Property and equipment
|
|
|
27
|
|
Accounts payable and accrued expenses
|
|
|
(359
|
)
|
Deferred revenue
|
|
|
(1,694
|
)
|
Customer relationships
|
|
|
817
|
|
Developed technology
|
|
|
182
|
|
Non-compete agreement
|
|
|
111
|
|
Goodwill
|
|
|
179
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
998
|
|
|
|
|
|
|
The Company determined the value of the identifiable intangible
assets using a discounted cash flow approach, which includes an
analysis of the cash flows and risks associated with achieving
such cash flows. Key assumptions included a discount factor of
25% and estimates of revenue growth, maintenance renewal, cost
of revenue, operating expenses and taxes. The purchase price in
excess of the net assets acquired, amounting to
$0.2 million, was allocated to goodwill, which is not
deductible for income tax purposes.
Customer relationships and developed technology are amortized
based on the expected realization of revenues, resulting in an
accelerated basis over a period of five years. Non-compete
agreements have a one year life and are amortized using the
straight-line method.
Pro Forma
Financial Information for acquisitions of Packet Island,
Sylantro and M6
The businesses acquired in 2008 contributed revenues of
$1.9 million and losses of $1.3 million for the period
from their acquisition dates to December 31, 2008. The
business acquired in 2009 contributed immaterial revenues and
losses of $0.2 million for the period from the acquisition
date to December 31, 2009.
The following provides pro forma information as if the 2008
acquisitions and 2009 acquisition had been consummated as of the
beginning of the annual reporting periods ending 2007, 2008 and
2009. The pro forma results are not necessarily indicative of
what actually would have occurred had the acquisitions been in
effect for the periods presented (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
70,761
|
|
|
$
|
77,337
|
|
|
$
|
69,041
|
|
Net loss
|
|
|
(12,532
|
)
|
|
|
(22,764
|
)
|
|
|
(8,528
|
)
|
Net loss per common share, basic and diluted
|
|
$
|
(2.07
|
)
|
|
$
|
(3.67
|
)
|
|
$
|
(1.36
|
)
|
The pro forma adjustments for 2007 do not include the impact of
the M6 acquisition. Because M6 was a component of GENBAND
Inc.s business for which historical discrete financial
data is not readily available, the Company has determined that
it is impracticable to disclose the supplemental pro forma
information related to M6 for the year ended December 31,
2007.
The pro forma impact on reported net loss per share was
primarily attributable to amortization of acquired intangible
assets, adjustments to interest expense and related tax effects.
F-40
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
On October 16, 2009, the Company sold the equity interest
of Sylantro Software India Private Limited, a subsidiary of
BroadSoft Sylantro, Inc. (a wholly-owned subsidiary), that
formerly provided development services to the Company. The sale
was for consideration of $0.7 million ($0.1 million of
which was withheld for taxes), of which $0.4 million was
receivable as of December 31, 2009 that the Company expects
to collect. The Company recorded an immaterial gain on the sale
in its consolidated statement of operations for the year ended
December 31, 2009.
|
|
5.
|
Goodwill and
Intangibles
|
The Company has concluded it has a single reporting unit,
BroadSoft, Inc., which is the consolidated entity. Accordingly,
on an annual basis management performs the impairment assessment
required under FASB guidelines at the consolidated enterprise
level. The Company performed an impairment test of the
Companys goodwill and determined that no impairment of
goodwill existed at December 31, 2008 and 2009.
The following table provides a summary of the changes in the
carrying amounts of goodwill (in thousands):
|
|
|
|
|
|
Balance as of December 31, 2007, gross
|
|
$
|
360
|
|
Accumulated impairment loss
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007, net
|
|
|
360
|
|
Increase in goodwill related to acquisitions
|
|
|
3,609
|
|
|
|
|
|
|
Balance as of December 31, 2008, net
|
|
|
3,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008, gross
|
|
|
3,969
|
|
Accumulated impairment loss
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008, net
|
|
|
3,969
|
|
Increase in goodwill related to acquisitions
|
|
|
905
|
|
Purchase accounting adjustments
|
|
|
(146
|
)
|
|
|
|
|
|
Balance as of December 31, 2009, net
|
|
|
4,728
|
|
Accumulated impairment loss
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009, gross
|
|
$
|
4,728
|
|
|
|
|
|
|
F-41
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The Companys acquired intangible assets are subject to
amortization. The following is a summary of intangible assets
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
As of December 31, 2009
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships
|
|
$
|
3,017
|
|
|
$
|
83
|
|
|
$
|
2,934
|
|
|
$
|
3,117
|
|
|
$
|
630
|
|
|
$
|
2,487
|
|
Developed technology
|
|
|
482
|
|
|
|
27
|
|
|
|
455
|
|
|
|
782
|
|
|
|
181
|
|
|
|
601
|
|
Non-compete agreement
|
|
|
111
|
|
|
|
37
|
|
|
|
74
|
|
|
|
111
|
|
|
|
111
|
|
|
|
|
|
Trade name
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
|
|
100
|
|
|
|
25
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,710
|
|
|
$
|
147
|
|
|
$
|
3,563
|
|
|
$
|
4,110
|
|
|
$
|
947
|
|
|
$
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets was approximately
$0.4 million, $0.4 million and $0.8 million in
2007, 2008 and 2009, respectively. As of December 31, 2009,
amortization expense on intangible assets is expected to be as
follows (in thousands):
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
745
|
|
|
|
|
|
2011
|
|
|
675
|
|
|
|
|
|
2012
|
|
|
548
|
|
|
|
|
|
2013
|
|
|
427
|
|
|
|
|
|
2014 and thereafter
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense
|
|
$
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property and
Equipment and Other Balance Sheet Items
|
Property and
Equipment
Property and equipment, at cost, consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Equipment
|
|
$
|
3,129
|
|
|
$
|
3,236
|
|
Software
|
|
|
1,039
|
|
|
|
1,078
|
|
Furniture and fixtures
|
|
|
265
|
|
|
|
339
|
|
Leasehold improvements
|
|
|
1,910
|
|
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,343
|
|
|
|
6,763
|
|
Less accumulated depreciation and amortization
|
|
|
(4,000
|
)
|
|
|
(5,200
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
2,343
|
|
|
$
|
1,563
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property and
equipment for the years ended December 31, 2007, 2008 and
2009 was approximately $1.1 million, $1.3 million and
$1.4 million, respectively, which was recognized in
operating expenses in the consolidated statements of operations.
No depreciation and amortization expense related to property and
equipment is included in cost of revenues in the consolidated
statements of operations.
F-42
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Property and equipment was not transferred as part of the sale
of Sylantro Software India Private Limited (See Note 4
Sale of Subsidiary), therefore the Company assessed these
assets for impairment during the fourth quarter of 2009. As a
result of the impairment assessment, an impairment charge of
$0.1 million was recorded within research and development
expense in the consolidated statement of operations.
Certain
Balance Sheet Items
The following table presents components of certain balance sheet
items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
1,970
|
|
|
$
|
1,967
|
|
Prepaid and other current assets
|
|
|
2,023
|
|
|
|
2,862
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,993
|
|
|
$
|
4,829
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
4,399
|
|
|
$
|
2,579
|
|
Accounts receivable
|
|
|
315
|
|
|
|
693
|
|
Other
|
|
|
153
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,867
|
|
|
$
|
3,441
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
7,630
|
|
|
$
|
5,905
|
|
Accrued compensation
|
|
|
3,630
|
|
|
|
4,704
|
|
Accrued royalties
|
|
|
804
|
|
|
|
803
|
|
Other
|
|
|
1,039
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,103
|
|
|
$
|
11,903
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Preferred stock warrants at fair value
|
|
$
|
43
|
|
|
$
|
153
|
|
Deferred payments
|
|
|
950
|
|
|
|
500
|
|
Deferred rent and other
|
|
|
274
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,267
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
Software
Licenses
In 2006, the Company executed a software license and maintenance
agreement that provided the Company the ability to distribute an
unlimited number of licenses of certain third-party software
over a two-year period. The original cost of that arrangement
was $4.1 million and was amortized to cost of revenue over
the two-year period. In 2008, the two parties amended the
agreement to provide the Company the right to distribute the
third party software on a user basis up to 35,000,000 licenses
over a four-year period, for an additional cost of
$6.4 million. The arrangement requires the Company to pay a
per-user license fee for licenses distributed in excess of
35,000,000. The additional cost is being amortized to cost of
revenue over the 3.5 year period beginning at the
expiration of the previous agreement, based on the greater of
actual usage or the straight line method.
Amortization expense related to these agreements was
approximately $2.1 million, $2.2 million and
$1.8 million for the years ended December 31, 2007,
2008 and 2009, respectively.
F-43
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table presents the components of the loss before
income taxes and the provision for income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(2,998
|
)
|
|
$
|
(12,335
|
)
|
|
$
|
(8,118
|
)
|
Foreign
|
|
|
2,261
|
|
|
|
2,051
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(737
|
)
|
|
$
|
(10,284
|
)
|
|
$
|
(6,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state
|
|
$
|
35
|
|
|
$
|
64
|
|
|
$
|
40
|
|
Foreign
|
|
|
1,123
|
|
|
|
1,042
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,158
|
|
|
|
1,106
|
|
|
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Foreign
|
|
|
(137
|
)
|
|
|
(154
|
)
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(137
|
)
|
|
|
(154
|
)
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,021
|
|
|
$
|
952
|
|
|
$
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the components of net deferred tax
assets (liabilities) and the related valuation allowance (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
30,101
|
|
|
$
|
29,285
|
|
Deferred revenue
|
|
|
1,145
|
|
|
|
2,788
|
|
Depreciation
|
|
|
249
|
|
|
|
479
|
|
Research and experimentation tax credit
|
|
|
1,520
|
|
|
|
1,784
|
|
Accrued expenses
|
|
|
305
|
|
|
|
824
|
|
Stock compensation
|
|
|
1,598
|
|
|
|
2,591
|
|
Other
|
|
|
179
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
35,097
|
|
|
|
38,125
|
|
Valuation allowance
|
|
|
(33,836
|
)
|
|
|
(37,133
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
1,261
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
|
(1,029
|
)
|
|
|
(915
|
)
|
Other
|
|
|
(155
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,184
|
)
|
|
|
(982
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
77
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company had United States net
operating loss carryforwards of approximately $79.0 million
and research and experimentation tax credit carryforwards of
$1.8 million, which are scheduled to begin to expire in
2019. Utilization of net operating loss and tax credit
carryforwards may be subject to annual limitations due to the
ownership change limitations provided
F-44
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
by the Internal Revenue Code. The Company has not accrued a
provision for income taxes on undistributed earnings of
$0.3 million of certain foreign subsidiaries, since such
earnings are considered to be reinvested indefinitely. If the
earnings were distributed, the Company would be subject to
federal income and foreign withholding taxes. Determination of
an unrecognized deferred income tax liability with respect to
such earnings is not practicable.
A deferred tax asset should be reduced by a valuation allowance
if, based on the weight of all available evidence, it is more
likely than not (a likelihood of more than 50%) that some
portion or the entire deferred tax asset will not be realized.
The valuation allowance should be sufficient to reduce the
deferred tax asset to the amount that is more likely than not to
be realized. The determination of whether a deferred tax asset
is realizable is based on weighting all available evidence,
including both positive and negative evidence. The realization
of deferred tax assets, including carryforwards and deductible
temporary differences, depends upon the existence of sufficient
taxable income of the same character during the carryback or
carryforward period. The accounting guidance requires the
consideration of all sources of taxable income available to
realize the deferred tax asset, including the future reversal of
existing temporary differences, future taxable income exclusive
of reversing temporary differences and carryforwards, taxable
income in carryback years and tax-planning strategies.
The Companys U.S. and certain foreign jurisdictions
are in a cumulative loss position. For purposes of assessing the
realization of the deferred tax assets in those jurisdictions,
this cumulative taxable loss position is considered significant
negative evidence and has caused us to conclude that the Company
will not be able to realize the deferred tax assets in the
foreseeable future. Although the Company is projecting future
taxable income, a projection of future taxable income is
inherently subjective and not considered sufficient to overcome
the negative evidence of cumulative losses. In addition, the
Company has also considered the future reversal of other
existing temporary differences in assessing the need for a
valuation allowance on the remaining deferred tax assets.
Therefore, a valuation allowance was provided in the United
States and certain foreign jurisdictions in the amount of
$33.8 million and $37.1 million at December 31,
2008 and 2009, respectively. These valuation allowances would be
reversed and recognized as a benefit in provision for income
taxes in the consolidated statements of operations at such time
that realization is believed to be more likely than not. The net
change in the valuation allowance from December 31, 2008 to
December 31, 2009 was an increase of $3.3 million,
which was primarily due to an increase in the United States net
deferred tax assets during 2009 as well as $0.4 million of
acquired net deferred tax assets that were recorded through
purchase accounting.
The following table presents the provisions for income taxes
compared with income taxes based on the federal statutory tax
rate of 34% (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Tax benefit based on federal statutory rate
|
|
$
|
(226
|
)
|
|
$
|
(3,495
|
)
|
|
$
|
(2,218
|
)
|
State taxes (benefit)
|
|
|
6
|
|
|
|
(296
|
)
|
|
|
(230
|
)
|
Impact of foreign operations
|
|
|
814
|
|
|
|
373
|
|
|
|
516
|
|
Permanent items
|
|
|
375
|
|
|
|
456
|
|
|
|
335
|
|
Stock-based compensation
|
|
|
(35
|
)
|
|
|
325
|
|
|
|
566
|
|
Joint venture
|
|
|
63
|
|
|
|
5
|
|
|
|
3
|
|
Change in income tax valuation allowance
|
|
|
(228
|
)
|
|
|
4,178
|
|
|
|
2,896
|
|
Other
|
|
|
252
|
|
|
|
(594
|
)
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,021
|
|
|
$
|
952
|
|
|
$
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Accounting for
Uncertainty in Income Taxes
Effective January 1, 2007, the Company adopted guidance for
uncertainty in income taxes that requires the application of a
more likely than not threshold to the recognition and
de-recognition
of uncertain tax positions. If the recognition threshold is met,
this guidance permits the Company to recognize a tax benefit
measured at the largest amount of the tax benefit that, in the
Companys judgment, is more likely than not to be realized
upon settlement.
During the year ended December 31, 2009, there was no
material adjustment in the liability for unrecognized income tax
benefits and no new tax positions for which the tax benefit was
not recognized. The Companys unrecognized tax benefits
totaled $0.4 million at December 31, 2008 and 2009,
respectively. The Company does not expect changes in
unrecognized tax benefits within the next 12 months. If
recognized, the unrecognized tax benefits would not have a
material impact on the provision for income taxes or the
effective tax rate since it would be offset by a corresponding
adjustment to the valuation allowance.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Unrecognized tax benefits balance at January 1,
|
|
$
|
441
|
|
|
$
|
441
|
|
|
$
|
441
|
|
Gross increase (decrease) for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31,
|
|
$
|
441
|
|
|
$
|
441
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records interest and penalties as a component of its
income tax provision. During the years ended December 31,
2007, 2008 and 2009, the Company recorded interest and penalties
of approximately $0.1 million for each of the three years.
The Company has not accrued interest with respect to uncertain
tax positions in the current year because unfavorable resolution
of those positions would not result in cash tax due for those
prior years.
The Company files income tax returns in the United States and in
various foreign jurisdictions. The Company is no longer subject
to U.S. Federal income tax examinations for years prior to 2006,
with the exception that operating loss or tax credit
carryforwards generated prior to 2006 may be subject to tax
audit adjustment. The Company is no longer subject to state and
local or foreign income tax examinations by tax authorities for
years prior to 2004.
Installment
Bank Loans
In November 2006, the Company entered into a software license
and maintenance agreement that provides the Company with an
unlimited number of licenses for certain third-party software
over a two-year period. The agreement required a one-time
license and maintenance fee of $4.1 million that was
financed with an installment bank loan with an effective
interest rate of 8.1%. During 2008, the loan balance was paid in
full by the Company.
In May 2008, the Company amended the above mentioned software
license and maintenance agreement. The amended agreement
provides the Company the right to distribute the third party
software on a user basis up to 35,000,000 licenses over a
four-year period for an additional one-time fee of approximately
$6.4 million. (See Note 6 Property and Equipment
and Other Balance Sheet Items.) The agreement was financed
with an installment bank loan with an effective interest rate of
4.0%. The loan provides for a payment of $0.4 million at
loan inception and scheduled principal repayments of
$0.4 million each quarter commencing July 1, 2008,
with the final payment payable on
F-46
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
April 1, 2012. At December 31, 2008 and 2009, the
liability for the installment bank loan amounted to
approximately $5.3 million and $3.5 million,
respectively.
Financing
Facilities
On September 26, 2008 the Company entered into a
$15.0 million Loan and Security Agreement with ORIX Venture
Finance LLC (ORIX Loan). The loan provides 42 equal
principal repayments of approximately $0.4 million starting
April 2010 through September 2013. Under the original terms of
the ORIX Loan, borrowings under this agreement bore interest at
an interest rate of prime plus 3%, provided that the interest
rate in effect in each month could not be less than 7% per
annum. On December 23, 2008, the Company amended the
interest rate terms of the ORIX Loan such that the interest rate
is equal to the sum of 3% plus the greater of (a) prime
rate or (b) LIBOR rate plus 2.5%, provided that the
interest rate in effect in each month shall not be less than 7%
per annum. The effective interest rate for the year ended
December 31, 2009 was 7%. The agreement requires that a
cash balance of $7.5 million be maintained at all times in
a deposit account and that failure to maintain the required cash
balance shall not constitute a breach of agreement, if certain
minimum consolidated EBITDA levels are met. The balance
outstanding under this agreement at December 31, 2008 and
2009 was $15.0 million.
The Company paid $0.2 million of loan origination fees
related to its ORIX Loan, which are capitalized within other
current and long-term assets in the consolidated balance sheets.
Amortization expense related to the loan origination fees was
immaterial for the years reported and is included as interest
expense in the consolidated statements of operations. As of
December 31, 2009, the balance of unamortized loan
origination fees was $0.1 million.
In connection with obtaining the ORIX Loan, the Company issued a
warrant to purchase up to 116,551 shares of common stock at
$8.58 per share that expires on the earlier of
September 26, 2015, or the second anniversary of the
effective date of a qualifying initial public offering. In
accordance with the guidance to account for debt issued with a
warrant, the Company allocated the total proceeds between the
loan and the warrant based on the relative fair value of the two
instruments. Out of the total proceeds of $15.0 million,
the Company allocated $14.9 million to the loan and
$0.1 million to the warrant based on their relative fair
values. The fair value of the common stock warrant was recorded
to additional paid-in capital. Fair value was determined using a
Black-Scholes valuation model using the contractual life of the
warrant and reasonable assumptions for stock price volatility,
expected dividend yield and risk-free interest rates. The
Company used a risk-free interest rate of 3.4%, stock price
volatility of 75% and term of 7 years, which resulted in an
estimated fair value of the common stock warrant of
approximately $1.20 per share. The discount on the ORIX Loan is
being amortized over the term of the agreement using the
effective interest method and the amortization charge is
recorded as interest expense in the consolidated statements of
operations.
In December 2008, in connection with the acquisition of
Sylantro, the Company assumed a loan totaling $1.3 million
at an interest rate of 9%. Based on the terms of the loan, the
Company paid $0.3 million and $0.9 million of the
outstanding balance on the loan during 2008 and 2009,
respectively. The balance outstanding under this agreement at
December 31, 2009 was $0.1 million.
In 2008, the Company entered into an equipment financing
agreement with ePlus Group, inc. The terms of the financing
agreement provide for a loan of $0.3 million repayable in
24 equal installments starting January 2009 through December
2010. The agreement has an effective interest rate of 9.8%. At
December 31, 2008 and 2009, the balance outstanding under
this agreement was $0.3 million and $0.1 million,
respectively.
F-47
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Fair value for the Companys borrowings is estimated using
a discounted cash flow analysis. The Company believes its
creditworthiness and the financial market in which it operates
has not materially changed since entering into the arrangements,
therefore the carrying value of the borrowings approximates
their fair values at December 31, 2008 and 2009.
The aggregate maturities of borrowings as of December 31,
2009 are as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
4,536
|
|
2011
|
|
|
5,838
|
|
2012
|
|
|
5,085
|
|
2013
|
|
|
3,214
|
|
|
|
|
|
|
Total
|
|
$
|
18,673
|
|
|
|
|
|
|
Redeemable
Preferred Stock and Redeemable Convertible Preferred Stock and
Warrants
Summary of
Activity
The following table presents a summary of activity for preferred
stock issued and outstanding for the years December 31,
2008 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
Series B-1
|
|
|
Series C-1
|
|
|
Series D
|
|
|
Series E
|
|
|
Series E-1
|
|
|
|
|
|
|
Series A
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Amount
|
|
|
Balance, December 31, 2007
|
|
|
9,000
|
|
|
$
|
4,320
|
|
|
|
589
|
|
|
$
|
16,060
|
|
|
|
9,771
|
|
|
$
|
38,806
|
|
|
|
805
|
|
|
$
|
10,000
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
69,186
|
|
Issuance and accretion of Series E shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
9,000
|
|
|
|
4,320
|
|
|
|
589
|
|
|
|
16,060
|
|
|
|
9,771
|
|
|
|
38,806
|
|
|
|
805
|
|
|
|
10,000
|
|
|
|
417
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
71,686
|
|
Issuance and accretion of
Series E-1 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
9,000
|
|
|
$
|
4,320
|
|
|
|
589
|
|
|
$
|
16,060
|
|
|
|
9,771
|
|
|
$
|
38,806
|
|
|
|
805
|
|
|
$
|
10,000
|
|
|
|
417
|
|
|
$
|
2,500
|
|
|
|
250
|
|
|
$
|
1,500
|
|
|
$
|
73,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
Redeemable Preferred Stock
In April 1999, the Company issued 9,000,000 shares of its
Series A redeemable preferred stock
(Series A) at $0.48 per share.
Series B-1
Redeemable Convertible Preferred Stock and Warrants
In December 2003, the Company issued 577,852 shares of
Series B-1
redeemable convertible preferred stock
(Series B-1)
in exchange for an equal number of shares of Series B
redeemable convertible preferred stock.
The Company issued warrants with a fair value of
$0.2 million to purchase up to 11,000 shares of
Series B-1
preferred stock at $27.27 per share. The warrants were scheduled
to expire on the earlier of (a) June 5, 2007,
(b) three years from the effective date of a qualified
initial public offering, or (c) the effective date of a
qualifying change in control in the Company. In June 2007, the
warrants were exercised at the exercise price of $27.27 per
share, and 11,000 shares of
Series B-1
preferred stock were issued for proceeds of approximately
$0.3 million.
F-48
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Series C-1
Redeemable Convertible Preferred Stock and Warrants
In December 2003, the Company issued 8,243,441 shares of
Series C-1
redeemable convertible preferred stock
(Series C-1)
in exchange for an equal number of shares of Series C
redeemable convertible preferred stock. In December 2003 and
January 2004, the Company sold an additional
1,527,969 shares of
Series C-1
preferred stock for $3.97 per share, receiving aggregate
proceeds of $6.1 million.
During 2004 and 2005, the Company issued warrants to purchase up
to 45,955 shares of Series C-1 preferred stock at $3.97 per
share in connection with financing arrangements. The warrant to
purchase up to 15,738 shares of
Series C-1
preferred stock expires the earlier of March 2011 or the
effective date of a qualifying change in control. The warrants
to purchase up to 30,217 shares of
Series C-1
preferred stock expire the earlier of June 2015 or the effective
date of a qualifying change in control. (See Note 2
Summary of Significant Accounting Policies Fair
Value Measurements and Preferred Stock Warrants.)
Series D
Redeemable Convertible Preferred Stock
In June 2007, the Company authorized 4,827,419 and issued
804,569 shares of Series D redeemable convertible
preferred stock (Series D) and received
proceeds of approximately $10.0 million, or $12.43 per
share.
Series E
Redeemable Convertible Preferred Stock
In December 2008, the Company authorized 2,500,000 and issued
416,656 shares of Series E redeemable convertible
preferred stock (Series E) in connection with
the acquisition of Sylantro Systems Corporation. (See
Note 3 Acquisitions.)
Series E-1
Redeemable Convertible Preferred Stock
In October 2009, the Company authorized 1,600,000 and issued
249,994 shares of
Series E-1
redeemable convertible preferred stock
(Series E-1)
in connection with the acquisition of Packet Island, Inc. (See
Note 3 Acquisitions.)
Liquidation
Preferences
The holders of
Series C-1,
Series D, Series E and
Series E-1
preferred stock shall first receive proportionally, prior and in
preference to the holders of the Series A and
Series B-1
preferred stock and the holders of the common stock, an amount
equal to $6.00 per share for
Series E-1
and Series E, $12.43 per share for Series D and an
amount equal to $3.97 per share for
Series C-1,
as adjusted for stock splits, stock combinations, stock
dividends and recapitalizations, plus any declared but unpaid
dividends on the shares held.
After all payments have been made to the holders of
Series C-1,
Series D, Series E and
Series E-1
preferred stock, the holders of
Series B-1
and Series A preferred stock shall receive proportionally,
prior and in preference to any distribution to the holders of
the common stock, an amount equal to $27.27 per share for
Series B-1
and $0.48 per share for Series A preferred stock, as
adjusted for stock splits, stock combinations, stock dividends
and recapitalizations, then held by them, plus any declared but
unpaid dividends on the shares held.
After all preferential payments have been made to the holders of
Series A,
Series B-1,
Series C-1,
Series D, Series E and
Series E-1
preferred stock, any remaining assets of the Company available
for distribution shall be distributed ratably to the holders of
common stock.
F-49
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
A merger, consolidation, sale of the Company, sale of
substantially all of the Companys assets, or sale,
transfer or exclusive license of all or substantially all of the
Companys intellectual property, with, into or to any other
corporation in which the Companys stockholders immediately
prior to the transaction do not own more than 50% of the
outstanding voting power of the acquirer in substantially the
same ownership proportions shall be treated as a liquidation,
dissolution or winding up of the Company, unless otherwise
elected by holders of (a) a majority of the then
outstanding shares of
Series C-1,
Series E and
Series E-1
preferred stock, voting as a single class on an as converted
basis, (b) a majority of the then outstanding shares of
Series D preferred stock, voting as a single class on an as
converted basis and (c) a majority of the then outstanding
shares of Series A and
Series B-1
preferred stock voting as a single class.
Voting
Rights
Except as otherwise provided in the Companys amended and
restated certificate of incorporation or as required by law, the
holders of shares of Series A preferred stock shall not be
entitled to vote, but shall be entitled to notice of any
stockholders meetings in accordance with the bylaws of the
Company as if such holders were holders of common stock.
Except as otherwise provided in the Companys amended and
restated certificate of incorporation or as required by law, the
holders of
Series B-1,
Series C-1,
Series D, Series E and
Series E-1
preferred stock shall vote together with the holders of common
stock as a single class on all matters submitted for a vote of
the stockholders. The holder of each share of
Series B-1,
Series C-1,
Series D, Series E and
Series E-1
preferred stock shall have that number of votes per share as is
equal to the number of shares of common stock into which these
shares are convertible at the time of the vote.
Conversion
The
Series B-1,
Series C-1,
Series D, Series E and
Series E-1
redeemable convertible preferred stock may, at the option of the
holder, be converted at any time or from time-to-time into
fully-paid and non-assessable shares of common stock. Based on
the conversion price as in effect on December 31, 2009, the
holders of each share of
Series B-1
preferred stock shall receive 2.4 shares of common stock
upon conversion. Based on the applicable conversion prices as in
effect on December 31, 2009, the holders of each share of
Series C-1,
Series D, Series E and
Series E-1
shall receive one share of common stock upon conversion.
Each outstanding share of
Series B-1
preferred stock shall be automatically converted into the
appropriate number of shares of common stock upon the vote or
written consent of the holders of at least
2/3
of the outstanding shares of
Series B-1
preferred stock, voting as a separate series. Each outstanding
share of Series D preferred stock shall be converted
automatically into one share of common stock upon the vote
or written consent of the holders of at least a majority of the
outstanding shares of Series D preferred stock, voting as a
separate series. Each outstanding share of
Series C-1,
Series E and
Series E-1
preferred stock shall be converted automatically into
one share of common stock upon the vote or written consent
of the holders of at least
2/3
of the outstanding shares of
Series C-1,
Series E and
Series E-1
preferred stock, voting as a single class on an as-converted
basis.
All outstanding shares of
Series B-1
and
Series C-1
preferred stock shall be converted automatically into shares of
common stock, immediately upon the closing of an initial public
offering of stock in which aggregate gross proceeds from the
offering exceed $30.0 million with a per share public
offering price of not less than $11.34 per share, as adjusted
for stock splits, combinations, stock dividends,
reclassifications and similar events. All outstanding shares of
Series D, Series E and
F-50
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
Series E-1
preferred stock shall be converted automatically into shares of
common stock, immediately upon the closing of an initial public
offering of stock in which aggregate gross proceeds from the
offering exceed $30.0 million. If the offering price per
share is less than the Series D conversion price then in
effect, the conversion price of the Series D preferred
stock will be automatically adjusted concurrent with the closing
of the offering. If the Company issues or sells shares of its
common stock without consideration or at a price per share that
is less than the conversion price applicable to Series B-1,
Series C-1, Series D, Series E or
Series E-1, an anti-dilution provision will go into effect,
thereby increasing the conversion ratio for the affected Series.
Redemption
In December 2008, the optional redemption dates of the
Companys redeemable preferred stock and redeemable
convertible preferred stock were further modified to extend the
dates the preferred stockholders may require redemption of their
preferred stock to December 21, 2010, 2011 and 2012.
On December 21, 2010, unless the holders of a majority of
the outstanding
Series C-1,
Series D, Series E and
Series E-1
preferred stock, voting as a single class on an as-converted
basis, elect otherwise, the outstanding shares of
Series C-1,
Series D, Series E and
Series E-1
preferred stock shall, on demand of the holders of a majority of
the outstanding Series
C-1,
Series D, Series E and Series
E-1
preferred stock, voting as a single class on an
as-converted
basis, be redeemed in 1/3 increments on December 21, 2010,
2011 and 2012, at a redemption price of $3.97, $12.43, $6.00 and
$6.00 per share, respectively.
Once all shares of
Series C-1,
Series D, Series E and
Series E-1
have been redeemed in full or converted into common stock,
unless the holders of a majority of the outstanding
Series B-1
preferred stock, voting as a single class, elect otherwise, all
outstanding shares of
Series B-1
shall, on demand of the holders of a majority of the outstanding
Series B-1 preferred stock, voting as a single class, be
redeemed, at a redemption price of $27.27 per share.
Additionally, once all shares of
Series C-1,
Series D, Series E and
Series E-1
have been redeemed in full or converted into common stock,
unless the holders of a majority of the outstanding
Series A preferred stock, voting as a single class, elect
otherwise, all outstanding shares of Series A shall, on
demand of the holders of a majority of the outstanding
Series A preferred stock, voting as a single class, be
redeemed, at a redemption price of $0.48 per share.
The optional redemption dates and payments of the Companys
redeemable preferred stock and redeemable convertible preferred
stock are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Total
|
|
|
Series A redeemable preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,320
|
|
|
$
|
4,320
|
|
Series B-1
redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
16,060
|
|
|
|
16,060
|
|
Series C-1
redeemable convertible preferred stock
|
|
|
12,935
|
|
|
|
12,935
|
|
|
|
12,936
|
|
|
|
38,806
|
|
Series D redeemable convertible preferred stock
|
|
|
3,333
|
|
|
|
3,333
|
|
|
|
3,334
|
|
|
|
10,000
|
|
Series E redeemable convertible preferred stock
|
|
|
833
|
|
|
|
833
|
|
|
|
834
|
|
|
|
2,500
|
|
Series E-1
redeemable convertible preferred stock
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,601
|
|
|
$
|
17,601
|
|
|
$
|
37,984
|
|
|
$
|
73,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon a change of control of the Company through merger,
consolidation or acquisition of the Company or other event
treated as a liquidation, dissolution or winding up of the
Company pursuant to the preferred stock liquidation preference
provisions, (a) provided that they have not otherwise been
F-51
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
paid their respective liquidation preference amounts, all
outstanding shares of
Series C-1,
Series D, Series E and
Series E-1
preferred stock shall be redeemed, at a redemption price of
$3.97, $12.43, $6.00 and $6.00 per share, respectively, unless
otherwise requested by the holders of a majority of the
outstanding
Series C-1,
Series D, Series E and
Series E-1
preferred stock, voting as a single class on an as-converted
basis; and (b) after full redemption or conversion into
common stock or payment of their respective liquidation
preference amounts with respect to all shares of
Series C-1,
Series D, Series E and
Series E-1
preferred stock, (i) provided that they have not otherwise
been paid their respective liquidation preference amounts, all
outstanding shares of
Series B-1
preferred stock shall be redeemed, at a redemption price of
$27.27 per share, unless otherwise requested by the holders of a
majority of the outstanding
Series B-1,
voting as a single class; and (ii) provided that they have
not otherwise been paid their respective liquidation preference
amounts, all outstanding shares of Series A preferred stock
shall be redeemed, at a redemption price of $0.48 per share,
unless otherwise requested by the holders of a majority of the
outstanding Series A, voting as a single class.
Upon the closing of a qualified public offering, defined as a
public offering of stock in which aggregate gross proceeds from
the offering exceed $30.0 million with a per share public
offering price of not less than $11.34 per share, as adjusted
for stock splits, combinations, stock dividends,
reclassifications and similar events, or any other public
offering in connection with which all shares of
Series B-1,
Series C-1,
Series D, Series E and
Series E-1
preferred stock have been converted into shares of common stock,
all outstanding shares of Series A preferred stock shall be
redeemed on the closing date of the offering, at a redemption
price of $0.48 per share.
Dividends
If any dividends are declared on common stock, the holders of
preferred stock shall receive their pro rata share of such
dividends calculated on an as-if converted to common stock
basis. No dividends were declared on common stock for the years
ended December 31, 2007, 2008, or 2009.
Common
Stock
Common Stock
Warrants
At December 31, 2007, there were warrants outstanding to
purchase 50,000 shares of common stock. These warrants
expired in September 2008.
In September 2008, the Company issued a warrant to purchase up
to 116,551 shares of common stock at $8.58 per share in
connection with the ORIX Loan. The warrant was outstanding at
December 31, 2009. The warrant expires on the earlier of
September 26, 2015 or the second anniversary of the
effective date of a qualifying initial public offering. (See
Note 8 Borrowings.)
Early Exercise of
Stock Options
At the discretion of the compensation committee of the
Companys board of directors (the Compensation
Committee), stock options granted under the Companys
stock option plans may provide option holders the right to elect
to exercise unvested stock options in exchange for restricted
common stock. Unvested shares are subject to repurchase by the
Company at the original issuance price or fair market value,
whichever is lower, in the event the option holders
employment is terminated either voluntarily or involuntarily
prior to the vesting date. For early exercised stock options,
the repurchase right lapses as the restricted shares vest. The
repurchase terms are considered to be a forfeiture provision and
do not result in variable accounting. As soon as the restricted
shares vest, the liability amounts are transferred to common
stock and additional paid-in capital. As of December 31,
2008, there were 24,079 unvested shares of common stock
outstanding resulting from
F-52
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
the early exercise of stock options, with exercise proceeds of
approximately $0.1 million recorded as liabilities at
December 31, 2008. As of December 31, 2009, there were
2,223 unvested shares of common stock outstanding resulting from
the early exercise of stock options, with nominal related
exercise proceeds recorded as liabilities at December 31,
2009.
Common Stock
Reserved for Future Issuance
The following table presents a summary of the number of shares
of common stock reserved for future issuance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Conversion of redeemable convertible preferred stock into common
stock:
|
|
|
|
|
|
|
|
|
Each share of
Series B-1
into 2.4 shares of common stock
|
|
|
1,413
|
|
|
|
1,413
|
|
Each share of
Series C-1
into 1 share of common stock
|
|
|
9,771
|
|
|
|
9,771
|
|
Each share of Series D into 1 share of common stock
|
|
|
805
|
|
|
|
805
|
|
Each share of Series E into 1 share of common stock
|
|
|
417
|
|
|
|
417
|
|
Each share of
Series E-1
into 1 share of common stock
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,406
|
|
|
|
12,656
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
Stock options:
|
|
|
|
|
|
|
|
|
Stock options outstanding
|
|
|
2,696
|
|
|
|
2,841
|
|
Shares available for future grant
|
|
|
484
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,180
|
|
|
|
3,258
|
|
|
|
|
|
|
|
|
|
|
Common and preferred stock warrants
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock reserved for future issuance
|
|
|
15,749
|
|
|
|
16,250
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Equity Incentive
Plans
|
In 1999, the Company adopted the 1999 Stock Incentive Plan
(1999 Plan). The 1999 Plan provides for the grant of
incentive stock options, nonqualified stock options, restricted
stock awards and stock appreciation rights. The term of
stock-based grants is up to 10 years, except that certain
stock-based grants made after 2005 have a term of five years. At
the discretion of the Compensation Committee, the 1999 Plan
allows for early exercise of stock options prior to vesting,
subject to repurchase by the Company in the event of early
termination. The 1999 Plan terminated in June 2009 whereby no
new options or awards may be granted, leaving 55,555 authorized
shares expired under the 1999 Plan.
In April 2009, the Company adopted the 2009 Equity Incentive
Plan (2009 Plan). The 2009 Plan provides for the
grant of incentive stock options, nonqualified stock options,
restricted stock awards, restricted stock unit awards and stock
appreciation rights. At the discretion of the Compensation
Committee, the 2009 Plan allows for early exercise of stock
options prior to vesting, subject to repurchase by the Company
in the event of early termination.
The number of shares of common stock that could be issued
pursuant to equity awards under the 2009 Plan was initially
392,383 shares (which includes 59,049 shares that were
transferred from the authorized share pool of the 1999 Plan). In
addition, the 2009 Plan allows for any shares that are
F-53
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
forfeited, expire or otherwise terminate under the
Companys 1999 Plan to revert and become available for
issuance under the 2009 Plan.
The Company had 417,324 shares available for issuance under
the 2009 Plan at December 31, 2009.
Stock
Options
The following table presents a summary related to stock options
for the following periods:
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
|
Weighted Average
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Balance, December 31, 2006
|
|
|
1,918,997
|
|
|
$
|
3.57
|
|
Granted
|
|
|
587,799
|
|
|
|
10.65
|
|
Exercised
|
|
|
(130,463
|
)
|
|
|
2.04
|
|
Forfeited or repurchased
|
|
|
(123,665
|
)
|
|
|
6.58
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
2,252,668
|
|
|
|
5.34
|
|
Granted
|
|
|
953,909
|
|
|
|
8.58
|
|
Exercised
|
|
|
(83,042
|
)
|
|
|
1.63
|
|
Forfeited
|
|
|
(427,526
|
)
|
|
|
10.05
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
2,696,009
|
|
|
|
5.85
|
|
Granted
|
|
|
2,371,919
|
|
|
|
2.41
|
|
Exercised
|
|
|
(25,690
|
)
|
|
|
2.69
|
|
Forfeited
|
|
|
(2,201,142
|
)
|
|
|
6.81
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
2,841,096
|
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2008 and 2009, the
per share weighted average fair value of stock options granted
was $4.74, $3.18 and $1.32 the intrinsic value of stock options
exercised was $1.1 million, $0.6 million and $0, and
cash received from stock options exercised was
$0.3 million, $0.1 million and $0.1 million,
respectively.
At December 31, 2009, unrecognized compensation expense,
net of estimated forfeitures, relating to unvested stock options
was $1.1 million which is scheduled to be recognized as
compensation expense over a weighted average period of
1.0 year. To the extent the actual forfeiture rate is
different than what the Company has anticipated at
December 31, 2009, compensation expense will be different
from expectations.
The following table presents information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
Range of
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
Prices
|
|
Outstanding
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Vested
|
|
|
Price
|
|
|
Life (Years)
|
|
|
$0.78 $2.25
|
|
|
561,311
|
|
|
$
|
0.93
|
|
|
|
2.9
|
|
|
|
561,311
|
|
|
$
|
0.93
|
|
|
|
2.9
|
|
$2.40
|
|
|
2,107,755
|
|
|
|
2.40
|
|
|
|
8.8
|
|
|
|
976,461
|
|
|
|
2.40
|
|
|
|
8.6
|
|
$2.55 $9.36
|
|
|
172,030
|
|
|
|
4.94
|
|
|
|
3.6
|
|
|
|
156,053
|
|
|
|
4.59
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.78 $9.36
|
|
|
2,841,096
|
|
|
$
|
2.26
|
|
|
|
7.3
|
|
|
|
1,693,825
|
|
|
$
|
2.11
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The aggregate intrinsic value of stock options outstanding at
December 31, 2009 was $7.9 million. The aggregate
intrinsic value of vested stock options at December 31,
2009 was $4.9 million.
Restricted
Stock Awards
Pursuant to the 1999 and 2009 plans described above, officers,
directors, employees and consultants may be granted restricted
stock. Stock-based compensation expense for restricted stock
awards is recognized at fair value which is determined based on
the number of restricted stock awards granted and the estimated
fair value of the Companys common stock on the date of
grant, net of estimated forfeitures. The Companys only
grant of restricted stock award was in August 2007, for
55,555 shares at a grant date fair value of $12.42 per
share. At December 31, 2009, unrecognized compensation
expense, net of estimated forfeitures, relating to the
restricted stock award was nominal. The aggregate intrinsic
value of the unvested restricted stock award at
December 31, 2009, was $0.1 million. To the extent the
actual forfeiture rate is different than what the Company has
anticipated at December 31, 2009, compensation expense will
be different from expectations.
Restricted
Stock Unit Awards
Directors, employees and consultants may be granted restricted
stock units (RSUs). In April 2009 and November 2009,
the Company granted RSUs to certain officers and directors.
These RSUs, which have a term of 10 years and are settled in
shares of common stock, vest only upon the earlier of the
following liquidity events, subject in either case to the
recipients continued service through the date of the event:
|
|
|
|
|
an initial public offering of the Companys common stock
(IPO) (or, for RSUs granted to directors, on the
expiration date of the applicable
lock-up
period imposed in connection with the IPO); or
|
|
|
|
a change in control of the Company, assuming that the
consideration received in the change in control transaction is
cash or freely-tradable registered shares.
|
The unrecognized compensation expense of $0.4 million is
being deferred until the occurrence of a liquidity event.
The following table presents a summary of activity for the
number of restricted stock units outstanding:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
|
Stock Units
|
|
|
Date Fair Value
|
|
|
Balance, December 31, 2008
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
177,492
|
|
|
|
2.48
|
|
Forfeited
|
|
|
(4,166
|
)
|
|
|
2.40
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
173,326
|
|
|
$
|
2.46
|
|
|
|
|
|
|
|
|
|
|
Stock Option
Repricing
In April 2008, the Company, with approval of the Compensation
Committee and the board of directors, amended the terms of
outstanding stock options held by employees and a non-employee
director having an exercise price of $12.42 per share to reduce
the exercise price of such options to
F-55
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
$8.58 per share, which was the then-estimated fair market value
of the common stock. The Company repriced stock options
exercisable for an aggregate of 243,679 shares. The
incremental stock-based compensation expense related to the
repricing was $0.2 million and is being recognized over the
remaining service period of the repriced options.
Stock Option
Exchange
In June 2009, the Company, with approval of the Compensation
Committee and the board of directors, offered to eligible
directors, employees and certain consultants the opportunity to
exchange eligible stock options with exercise prices in excess
of $2.40 per share for replacement stock options on a
one-for-one
basis. The replacement options had a term of 10 years and
an exercise price of $2.40 per share, the fair market value on
the date of the grant. In general, the replacement stock options
had a vesting schedule as follows: (a) the portion of an
eligible stock option that had vested prior to March 1,
2009 would cease to be vested and would re-vest monthly over a
24 month period beginning on April 1, 2009 and
(b) the balance of such eligible stock option that had not
vested as of March 1, 2009 would continue to vest in
accordance with the original vesting schedule. Executive
officers and directors who participated in the exchange were not
subject to the 24 month re-vesting period of previously
vested stock options. Pursuant to the exchange, the Company
canceled 1,821,068 stock options and re-issued an equivalent
number of stock options. The incremental stock-based
compensation expense related to the exchange was approximately
$2.0 million and is being recognized over the remaining
service period of the replacement stock options.
Tax
Benefits
Upon adoption of the FASBs guidance on stock-based
compensation, the Company elected the alternative transition
method (short cut method) provided for calculating the tax
effects of stock-based compensation. The alternative transition
method includes simplified methods to establish the beginning
balance of the additional paid-in capital pool (APIC
pool) related to the tax effects of employee stock-based
compensation, and to determine the subsequent impact on the APIC
pool and consolidated statements of cash flows related to the
tax effect of employee stock-based compensation awards that are
outstanding upon adoption. As of December 31, 2009, the
Companys APIC pool balance was zero.
The Company applies a with-and-without approach in determining
its intra-period allocation of tax expense or benefit
attributable to stock-based compensation deductions. For 2009,
there was a reduction to the deferred tax asset related to tax
benefits of employee stock option grants of $0.2 million
related to forfeitures and exercises that resulted in a tax
deduction less than previously recorded benefits based on the
option value at the time of grant (shortfalls). Tax deductions
in excess of previously recorded benefits (windfalls) included
in net operating loss carryforwards but not reflected in
deferred tax assets for the year ended December 31, 2008
and 2009 is $0.4 million.
|
|
11.
|
Commitments and
Contingencies
|
Leases
The Company leases office space under non-cancelable operating
leases with various expiration dates through 2014. Rent expense
was approximately $1.2 million, $1.4 million and
$2.1 million for the years ended December 31, 2007,
2008 and 2009, respectively.
F-56
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table presents future minimum lease payments under
the non-cancelable operating and capital leases at
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Years Ending December 31,
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
1,032
|
|
|
$
|
72
|
|
2011
|
|
|
436
|
|
|
|
28
|
|
2012
|
|
|
368
|
|
|
|
|
|
2013
|
|
|
326
|
|
|
|
|
|
2014
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments
|
|
$
|
2,214
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Present value of future minimum lease payments
|
|
|
|
|
|
|
93
|
|
Less current portion
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion
|
|
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
Indemnifications
and Contingencies
In the normal course of business, the Company enters into
contracts and agreements that may contain representations and
warranties and provide for general indemnifications. The
Companys exposure under these agreements is unknown
because it involves claims that may be made in the future, but
have not yet been made. The Company has not paid any claims or
been required to defend any action related to indemnification
obligations to date. The Company is currently disputing an
indemnity claim asserted by one of its customers. This customer
seeks $3.6 million for reimbursement of a portion of the
legal expenses incurred in defending a patent infringement
lawsuit filed against it by another of the Companys
customers. While the Company believes this indemnity claim is
without merit and management has a plan to continue to
vigorously dispute this claim, the customer seeking indemnity
has substantially greater resources than the Company. At this
point, the Company is unable to determine the likelihood of any
outcome in this matter, nor is it able to estimate the amount or
range of loss or the impact on the Company or its financial
condition in the event of an unfavorable outcome.
In accordance with its bylaws and certain agreements, the
Company has indemnification obligations to its officers and
directors for certain events or occurrences, subject to certain
limits, while they are serving at the Companys request in
such capacity. There have been no claims to date under these
indemnification obligations.
In addition, the Company is involved in litigation incidental to
the conduct of its business. The Company is not a party to any
lawsuit or proceeding that, in the opinion of management, is
reasonably possible to have a material adverse effect on its
financial position, results of operations or cash flows.
F-57
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
12.
|
Other (Income)
Expense
|
Other (income) expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Interest income
|
|
$
|
(265
|
)
|
|
$
|
(173
|
)
|
|
$
|
(39
|
)
|
Interest expense
|
|
|
324
|
|
|
|
521
|
|
|
|
1,398
|
|
Change in fair value of preferred stock warrants
|
|
|
220
|
|
|
|
(426
|
)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
$
|
279
|
|
|
$
|
(78
|
)
|
|
$
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Segment and
Geographic Information
|
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, in
deciding how to allocate resources and in assessing performance.
The Companys chief operating decision maker is its Chief
Executive Officer (CEO). The CEO reviews financial
information presented on a consolidated basis, along with
information about revenue by geographic region for purposes of
allocating resources and evaluating financial performance.
Discrete information on a geographic basis, except for revenue,
is not provided below the consolidated level to the CEO. The
Company has concluded that it operates in one segment and has
provided the required enterprise-wide disclosures.
Revenue by geographic area is based on the location of the
end-user carrier. The following table presents revenue and
long-lived assets, net, by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
28,014
|
|
|
$
|
27,780
|
|
|
$
|
35,984
|
|
EMEA
|
|
|
19,611
|
|
|
|
21,078
|
|
|
|
17,969
|
|
APAC
|
|
|
7,919
|
|
|
|
7,797
|
|
|
|
10,538
|
|
Other
|
|
|
6,056
|
|
|
|
5,174
|
|
|
|
4,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,600
|
|
|
$
|
61,829
|
|
|
$
|
68,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Long-Lived Assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
15,101
|
|
|
$
|
12,752
|
|
EMEA
|
|
|
57
|
|
|
|
41
|
|
APAC
|
|
|
380
|
|
|
|
217
|
|
Other
|
|
|
511
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,049
|
|
|
$
|
13,494
|
|
|
|
|
|
|
|
|
|
|
F-58
BroadSoft,
Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
14.
|
401(k) Defined
Contribution Plan
|
The Company maintains a tax-qualified 401(k) retirement plan
that provides eligible U.S. employees with an opportunity to
save for retirement on a tax advantaged basis. The Company has
not made matching contributions to the plan. Company
contributions are allowed under the plan and may occur in the
future.
Equity
Grants
In January 2010, the Company granted an RSU covering
3,333 shares of common stock to a non-employee director.
This RSU is subject to a performance-based vesting condition.
In February 2010, the Company granted RSUs covering an aggregate
of 124,997 shares of common stock to certain executive
officers. These RSUs are subject to a combination of
performance-based and time-based vesting conditions.
Reverse Stock
Split and Other Modifications to Certificate of
Incorporation
On June 14, 2010, the Company amended its amended and
restated certificate of incorporation to effect a
6-for-1
reverse stock split of its common stock and all redeemable
convertible preferred stock. The par value and the authorized
shares of the common and redeemable convertible preferred stock
were not adjusted as a result of the reverse stock split. All
issued and outstanding common stock, redeemable convertible
preferred stock, warrants for common stock, warrants for
preferred stock, and per share amounts contained in the
financial statements have been retroactively adjusted to reflect
this reverse stock split for all periods presented.
The Company evaluated subsequent events through June 16,
2010.
F-59
SCHEDULE
II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
|
|
|
Acquired from
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
|
|
|
Business
|
|
|
End of
|
|
|
|
Period
|
|
|
Expense
|
|
|
Deductions
|
|
|
Combinations
|
|
|
Period
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
$
|
158
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
$
|
112
|
|
Year Ended December 31, 2008
|
|
$
|
112
|
|
|
|
14
|
|
|
|
(15
|
)
|
|
|
|
|
|
$
|
111
|
|
Year Ended December 31, 2009
|
|
$
|
111
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
$
|
26,845
|
|
|
|
|
|
|
|
(670
|
)
|
|
|
|
|
|
$
|
26,175
|
|
Year Ended December 31, 2008
|
|
$
|
26,175
|
|
|
|
4,179
|
|
|
|
|
|
|
|
3,482
|
|
|
$
|
33,836
|
|
Year Ended December 31, 2009
|
|
$
|
33,836
|
|
|
|
2,896
|
|
|
|
|
|
|
|
401
|
|
|
$
|
37,133
|
|
F-60
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Sylantro Systems
Corporation:
In our opinion, the accompanying consolidated statement of
operations, changes in stockholders deficit and
comprehensive loss, and cash flows present fairly, in all
material respects, the results of Sylantro Systems Corporation
and its subsidiaries (the Company) operations and
their cash flows for the period January 1, 2008 to
December 23, 2008 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of
America. 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company was acquired on December 23, 2008.
/s/ PricewaterhouseCoopers LLP
McLean, VA
January 29, 2010
F-61
Sylantro Systems
Corporation
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
|
(In thousands)
|
|
|
Revenue:
|
|
|
|
|
Licenses
|
|
$
|
3,649
|
|
Maintenance and services
|
|
|
6,205
|
|
|
|
|
|
|
Total revenue
|
|
|
9,854
|
|
Operating expenses:
|
|
|
|
|
Cost of licenses revenue
|
|
|
417
|
|
Cost of maintenance and services revenue
|
|
|
3,041
|
|
Sales and marketing
|
|
|
7,134
|
|
Research and development
|
|
|
5,002
|
|
General and administrative
|
|
|
3,521
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,115
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,261
|
)
|
Other expenses, net
|
|
|
175
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(9,436
|
)
|
Provision for income taxes
|
|
|
88
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,524
|
)
|
|
|
|
|
|
Stock-based compensation expense included above:
|
|
|
|
|
Sales and marketing
|
|
$
|
48
|
|
Research and development
|
|
|
37
|
|
General and administrative
|
|
|
109
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-62
Sylantro Systems
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock,
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Par Value $0.001
|
|
|
Par Value $0.001
|
|
|
Additional
|
|
|
Stockholder
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Per Share
|
|
|
Per Share
|
|
|
Paid-in
|
|
|
Notes
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Loss
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
(In thousands, except per share data)
|
|
|
Balance, December 31, 2007
|
|
|
28,180
|
|
|
$
|
28
|
|
|
|
6,705
|
|
|
$
|
7
|
|
|
$
|
50,646
|
|
|
$
|
(14
|
)
|
|
$
|
|
|
|
$
|
(111,263
|
)
|
|
$
|
(60,596
|
)
|
Issuance costs related to the
Series E-1
redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation related to stock option grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
Repayment of stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,524
|
)
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 23, 2008
|
|
|
28,180
|
|
|
$
|
28
|
|
|
|
6,659
|
|
|
$
|
7
|
|
|
$
|
50,805
|
|
|
$
|
|
|
|
$
|
(89
|
)
|
|
$
|
(120,787
|
)
|
|
$
|
(70,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-63
Sylantro Systems
Corporation
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(9,524
|
)
|
Adjustments to reconcile net loss to net cash used in
|
|
|
|
|
operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
|
400
|
|
Stock-based compensation expense
|
|
|
194
|
|
Recovery of doubtful accounts
|
|
|
(46
|
)
|
Loss on disposal of property and equipment
|
|
|
79
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
|
|
1,326
|
|
Prepaid expenses and other assets
|
|
|
190
|
|
Accounts payable and other liabilities
|
|
|
(999
|
)
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,380
|
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchases of property and equipment
|
|
|
(102
|
)
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(102
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Repayment of installment bank loan
|
|
|
(692
|
)
|
Repayment of capital lease obligations
|
|
|
(39
|
)
|
Proceeds from stockholder notes receivable
|
|
|
7
|
|
Proceeds from issuance of preferred stock, net of issuance costs
|
|
|
5,971
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5,247
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(89
|
)
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,324
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
3,959
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
635
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
Cash paid for interest
|
|
$
|
163
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
30
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
Financing of property and equipment under capital lease
obligations
|
|
$
|
145
|
|
|
|
|
|
|
Repurchase of common stock and cancellation of stockholder note
receivable
|
|
$
|
7
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-64
Sylantro Systems
Corporation
Sylantro Systems Corporation (Sylantro or the
Company), a Delaware corporation, was formed in
1998. Based in Campbell, California, the Company provides an
application-enabled softswitch that enables telecom carriers and
telecom application service providers the ability to provide
business communication services on an outsourced basis. The
Companys customers include multinational companies in the
telecom industry.
In 2003, the Company formed a wholly owned subsidiary, Sylantro
Software India Private Limited (Sylantro India).
Sylantro India provides development services to the Company. In
2004, the Company formed a wholly owned subsidiary, Sylantro
Systems Japan K.K. (Sylantro Japan). In 2006, the
Company formed the wholly owned subsidiaries, Sylantro Systems
Singapore Private Limited (Sylantro Singapore),
Sylantro Systems EMEA Limited (Sylantro UK) and
Sylantro Systems Software Consultancy Co. Ltd (Sylantro
Shanghai). Sylantro Singapore and Sylantro UK are sales
and marketing offices. The Company closed down the operations of
Sylantro Japan and Sylantro Shanghai in 2005 and 2008,
respectively.
On December 8, 2008, the Company entered into an Agreement
and Plan of Merger and Reorganization (the Merger
Agreement) by and among BroadSoft, Inc.
(BroadSoft), a provider of VoIP application
software, and BroadSoft Sylantro, Inc., a wholly-owned
subsidiary of BroadSoft. The merger closed on December 23,
2008.
Under the Merger Agreement, the aggregate purchase price
includes the issuance of approximately 2,500,000 shares of
BroadSoft Series E redeemable convertible preferred stock
valued at $2,100,000 to the stockholders of the
Companys
Series E-1
redeemable convertible preferred stock. Pursuant to the terms of
an escrow agreement entered into by the parties, approximately
724,600 shares of BroadSoft Series E redeemable
convertible preferred stock will be held in escrow for
12 months to satisfy potential indemnification obligations
of the Companys stockholders to BroadSoft.
In connection with the merger, (i) each share of the
Companys Series A convertible preferred stock,
Series B convertible preferred stock, Series C
convertible preferred stock, Series D redeemable
convertible preferred stock and Series E redeemable
convertible preferred stock outstanding was cancelled and
retired; (ii) each share of the Companys common stock
outstanding was cancelled and retired; (iii) the vesting
and exercisability of all outstanding Company options granted
under the Companys 1998 Stock Plan were accelerated in
full; (iv) all outstanding Company options were terminated
and cancelled without the payment of additional consideration to
holders of such options and (v) each share of the
Companys warrants was terminated and cancelled without the
payment of additional consideration to holders of such warrants.
|
|
2.
|
Summary of
Significant Accounting Policies
|
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts and results of operations of the Company and its wholly
owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the
F-65
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from these estimates.
Cash
Equivalents and Restricted Cash
The Company considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents are held in money market accounts.
Restricted cash consists primarily of certificates of deposit as
guarantees for the Companys corporate credit cards.
Fair Value of
Financial Instruments
Carrying amounts of certain of the Companys financial
instruments including cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses,
approximate fair value due to their short term nature.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements
(SFAS No. 157), on January 1,
2008. SFAS No. 157 applies to all assets and
liabilities that are being measured and reported on a fair value
basis. As provided by Financial Accounting Standards Board
(FASB) Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, the
Company has only adopted the provisions of
SFAS No. 157 with respect to its financial assets and
liabilities. As defined in SFAS No. 157, fair value is
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date.
SFAS No. 157 also establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to
measure fair value. SFAS No. 157 requires that assets
and liabilities carried at fair value be classified and
disclosed in one of the following three categories:
|
|
|
|
|
Level 1. Observable inputs, such as
quoted prices in active markets;
|
|
|
|
Level 2. Inputs, other than the quoted
prices in active markets, that are observable either directly or
indirectly; and
|
|
|
|
Level 3. Unobservable inputs in which
there is little or no market data, which require the reporting
entity to develop its own assumptions.
|
The Company evaluates assets and liabilities subject to fair
value measurements on a recurring basis to determine the
appropriate level to classify them for each reporting period.
This determination requires significant judgments to be made.
Concentration
of Credit Risk
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. All of the Companys
cash and cash equivalents are held at financial institutions
that management believes to be of high credit quality. The
Companys cash and cash equivalent accounts may exceed
federally issued limits at times. The Company has not
experienced any losses on cash and cash equivalents to date. To
manage accounts receivable risk, the Company evaluates the
creditworthiness of its customers and maintains an allowance for
potential credit losses.
F-66
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
The following customers represented 10% or more of revenue:
|
|
|
|
|
|
|
For the period
|
|
|
January 1, 2008 to
|
|
|
December 23,
2008
|
|
Company A
|
|
|
12
|
%
|
Company B
|
|
|
11
|
%
|
Company C
|
|
|
11
|
%
|
Accounts
Receivable and Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for
estimated losses which may result from the inability of some
customers to make required payments as they become due. The
allowance is based on an analysis of past due amounts and
ongoing credit evaluations. Collection experience has been
consistent with the Companys estimates. Accounts
receivable are derived from sales to customers located in the
United States and foreign countries. Each customer is evaluated
for creditworthiness through a credit review process at the
inception of an arrangement. The Company has an allowance for
doubtful accounts of $119,000 as of December 23, 2008.
Property and
Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Replacements and major
improvements are capitalized; maintenance and repairs are
charged to expense as incurred. Internally developed software
costs are capitalized in accordance with the American Institute
of Certified Public Accountants Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the related assets as follows:
|
|
|
|
|
|
Equipment and software
|
|
|
2 years
|
|
Furniture and fixtures
|
|
|
3 years
|
|
Leasehold improvements
|
|
|
Shorter of the term of the lease
or estimated useful life
|
The company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. During the
period January 1, 2008 to December 23, 2008, there was
no impairment of long-lived assets.
Preferred
Stock Warrants
The Financial Accounting Standards Board issued FASB Staff
Position
No. FAS 150-5,
Issuers Accounting Under FASB Statement No. 150
for Freestanding Warrants and Other Similar Instruments on
Shares That Are Redeemable (FSP
FAS 150-5)
and affirmed that such warrants are subject to the requirements
of SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
(SFAS No. 150) regardless of the
timing of the redemption feature or the redemption price. Under
SFAS No. 150, warrants to purchase redeemable
preferred stock are recorded as liabilities based on fair value.
Fair value is determined utilizing the Black-Scholes valuation
model using the contractual life of the warrant and reasonable
assumptions for stock price volatility, expected dividend yield,
and risk free interest rates. The fair value of warrants is
re-measured each reporting period, and changes in fair value are
recognized in other income or expense. The liability is adjusted
for changes in fair value until the earlier of (i) the
exercise of the
F-67
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
warrants, (ii) expiration of the warrants or (iii) the
completion of a liquidation event, including the completion of
an initial public offering, at which time preferred stock
warrants will be converted into warrants to purchase common
stock and the liability will be reclassified to additional
paid-in capital.
Revenue
Recognition
The Company derives its revenue by licensing its software
products and by providing
maintenance
and services for its customers. Revenue is recognized in
accordance with the American Institute of Certified Public
Accountants Statement of Position
97-2,
Software Revenue Recognition, and related
interpretations. The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, collectability is probable and, if
applicable, when vendor-specific objective evidence exists to
allocate the arrangement fee to the undelivered elements of a
multiple element arrangement. In making these judgments, the
Company evaluates these criteria as follows:
|
|
|
|
|
Persuasive evidence of an arrangement. A
non-cancellable agreement signed by the Company and by the
customer, in conjunction with an order from the customer, is
deemed to represent persuasive evidence of an arrangement.
|
|
|
|
Delivery has occurred. Delivery is deemed to
have occurred when the customer is given electronic access to
the licensed software and a license key for the software has
been delivered or made available.
|
|
|
|
Fees are fixed or determinable. The Company
considers the fee to be fixed or
determinable
unless the fee is subject to refund or adjustment or is not
payable within normal payment terms. If the fee is subject to
refund or adjustment, revenue is recognized when the refund or
adjustment right lapses. If payment terms exceed the
Companys normal terms, revenue is recognized as the
amounts become due and payable or upon the receipt of cash if
collection is not probable.
|
|
|
|
Collection is probable. Each customer is
evaluated for creditworthiness through a credit review process
at the inception of an arrangement. Collection is deemed
probable if, based upon the Companys evaluation, the
Company expects that the customer will be able to pay amounts
under the arrangement as payments become due. If it is
determined that collection is not probable, revenue is deferred
and recognized upon cash collection.
|
The Company recognizes revenue using the residual method of
accounting. Under the residual method, when contracts contain
multiple elements and vendor-specific objective evidence of fair
value exists for all undelivered elements, the Company defers
revenue for the fair value of the undelivered elements and
allocates the remaining portion of the fee to the delivered
elements. If vendor-specific objective evidence of fair value
does not exist for all undelivered elements, revenue for the
delivered and undelivered elements is deferred until delivery of
the undelivered elements has occurred or vendor-specific
objective evidence can be established. If the only undelivered
element is post-contract customer support, revenue is recognized
ratably over the support period. Judgments and estimates are
made in connection with the recognition of revenue, including
assessments of collectability and the fair value of undelivered
elements. The amount or timing of revenue recognition may differ
as a result of changes in these judgments or estimates.
The fair value for post-contract customer support is based on
the maintenance renewal price charged in the first optional
renewal period under the arrangement. The fair value for
services is based on rates that the Company charges for services
when sold separately.
F-68
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
The Companys products and services are distributed
directly through its own sales force and indirectly through
channel partners. Revenue under arrangements with channel
partners is recognized when all the revenue recognition criteria
are met, including identification of the channel partner
customer. The Company does not offer contractual rights of
return or product exchange, or price protection to its channel
partners.
The warranty period for the Companys licensed software
products is generally 90 days. Software licenses sold
directly by the Company and through channel partners are
primarily sold in combination with an annual maintenance
contract which enables the customer to receive software
maintenance and support simultaneously with the warranty period.
Maintenance is renewable at the option of the customer. When
customers prepay for the annual maintenance contract, the
related revenue is deferred and recognized ratably over the term
of the contract. Rates for maintenance, including subsequent
renewal rates, are established based upon a specific percentage
of the license fees as set forth in the arrangement. Maintenance
includes the right to unspecified product upgrades on an
if-and-when
available basis.
Revenue from services includes training, installation and
consulting and is recognized as services are performed.
Installation services are not considered essential to the
functionality of the licensed software.
The Company delivers its software licensing products primarily
by utilizing electronic media. Revenue includes amounts billed
for shipping and handling and such amounts represent less than
1% of revenue. Cost of licenses revenue includes shipping and
handling costs.
Cost of
Revenue
Cost of revenue includes (a) royalty and licensing costs of
third-party products and technology that the Company includes
with its products, and (b) direct costs to manufacture and
distribute product and direct costs to provide product support
and professional support services.
Software
Development Costs and Research and Development
Costs
Under SFAS No. 86, Accounting for the Costs of
Software to Be Sold, Leased, or Otherwise Marketed, software
development costs incurred subsequent to the establishment of
technological feasibility through general availability of the
product are capitalized until the product is available for
general release to customers. The Companys current process
for developing software is essentially completed concurrently
with the establishment of technological feasibility. As such, no
software development costs have been capitalized.
Research and development costs are expensed as incurred.
Research and development costs include product development,
product testing and the cost of establishing technological
feasibility.
Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires an asset and liability approach for the
recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and their respective tax bases, and
for operating loss and tax credit carryforwards. Temporary
differences are primarily the result of the differences between
the tax bases of assets and liabilities and their financial
reporting amounts. Deferred tax assets and liabilities are
measured by applying enacted statutory tax rates applicable to
the future years in which deferred amounts are expected to be
settled or realized. Valuation allowances have been established
to reduce deferred tax assets to the amount expected to
F-69
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
be realized. Valuation allowances would be reversed at such time
that realization is believed to be more likely than not. A full
valuation allowance has been provided for each jurisdiction in
which the Company had a net deferred tax asset.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
interpretation of FASB Statement No. 109
(FIN No. 48), which clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109. FIN No. 48 applies to
financial statements of non-public entities that are issued for
fiscal years beginning after December 15, 2008. The Company
is still assessing the impact of FIN No. 48 on its
consolidated financial statements but currently believes the
impact will not be material.
Stock-Based
Compensation
The Company applies the fair value method in accordance with
SFAS No. 123(R), Share-Based Payment
(SFAS No. 123R), for determining the
cost of stock-based compensation for employees and directors.
Under this method, the total cost of the grant is measured based
on the estimated fair value of the stock option at the date of
grant. The total cost is recognized as stock-based compensation
expense over the vesting period of the stock option grant.
SFAS No. 123R requires private companies that
previously computed their fair value disclosures using the
minimum value method to use the prospective method to adopt
SFAS No. 123R. Under the prospective method, all share
based payments granted or modified since adoption are accounted
for using the fair value method. No stock compensation expense
was recorded for options granted prior to the adoption date.
Stock-based compensation arrangements with non-employees are
accounted for in accordance with Emerging Issues Task Force
(EITF) Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, using a fair value approach. The total
estimated cost of compensation based on the fair value of the
underlying share arrangement is recognized over the expected
service period. The total cost is revalued each reporting
period, and the cost is adjusted over the remaining service
period.
Estimated Fair
Value of Share-Based Payments
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions and fair value per share:
|
|
|
|
|
|
|
For the period
|
|
|
January 1, 2008 to
|
|
|
December 23,
2008
|
|
Average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
3.3
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
85
|
%
|
Expected term (years)
|
|
|
6.1
|
|
Weighted average fair value of stock options granted
|
|
$
|
0.11
|
|
The determination of the fair value of stock-based compensation
grants is affected by estimates of the fair value of the
Companys stock price as well as assumptions regarding a
number of variables, including expected stock price volatility,
risk-free interest rate, and term. Stock-based compensation
granted to employees and executives are combined into one
grouping for purposes of valuation assumptions. As a nonpublic
company, there is not a ready market for the Companys
common stock. As such, the Company relies on other factors upon
which to base reasonable and
F-70
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
supportable estimates of the fair value of its common stock and
the expected volatility of its share prices. The Companys
board of directors periodically estimates the fair value of the
common stock by considering valuations calculated using market
multiples and discounted cash flows. The board of directors
estimated the fair value of the Companys common stock to
be $0.15 per share for the period January 1, 2008 to
June 18, 2008. Expected volatility is based on historical
volatilities of public companies operating in the Companys
industry.
Foreign
Currency
The functional currency of operations located outside the United
States is the respective local currency. The financial
statements of each operation are translated into
U.S. dollars using period-end exchange rates for assets and
liabilities and average rates of exchange during the period for
revenue and expenses. Translation effects are included in
accumulated other comprehensive loss.
Reclassifications
Certain prior year amounts have been reclassified to conform to
current presentation.
Recent
Accounting Pronouncements
In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP
FAS 157-2).
FSP
FAS 157-2
delays the effective date of SFAS No. 157 for all
non-financial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
until January 1, 2009. The adoption of
SFAS No. 157 is not expected to have a significant
impact on the Companys consolidated financial statements
when it is applied to non-financial assets and non-financial
liabilities that are not measured at fair value on a recurring
basis.
|
|
3.
|
Property and
Equipment
|
Depreciation and amortization expense related to property and
equipment, including capital leases, for the period
January 1, 2008 to December 23, 2008 was $342,000. At
December 23, 2008, total future minimum lease payments
required under capital lease obligations are $173,000 (see
Note 8).
F-71
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
The components of the loss before income taxes and the provision
for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
United States
|
|
$
|
(9,699
|
)
|
Foreign
|
|
|
263
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(9,436
|
)
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
Current:
|
|
|
|
|
Federal and state
|
|
$
|
1
|
|
Foreign
|
|
|
87
|
|
|
|
|
|
|
Total current
|
|
|
88
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
Federal and state
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
88
|
|
|
|
|
|
|
The Company has established a valuation allowance for deferred
income tax assets as their realization is uncertain. The
valuation allowance for deferred income tax assets increased
$2,345,000 from January 1, 2008 to December 23, 2008,
mainly due to an increase in net operating loss carryforwards.
As of December 23, 2008, the Company has available net
operating loss carryforwards for federal and state income tax
purposes of approximately $116,349,000 to reduce future income
subject to income taxes. The federal net operating losses will
expire, if not utilized, in years from 2018 to 2028.
As of December 23, 2008, the Company has research and
development credit carryforwards for federal and state income
tax purposes of approximately $7,585,000 available to reduce
future income taxes. The federal research credit carryforwards
expire from 2018 through 2024.
Upon the change of control of the Company (see Note 1), the
net operating loss carryforwards and tax credit carryforwards of
the Company will be limited in accordance with Internal Revenue
Code Sections 382 and 383. As a result of such limitation,
the Company estimates that approximately $107,786,000 of the
approximately $116,349,000 net operating loss carryforwards
will expire unused and that all of the approximately $7,585,000
research and development credit carryforwards will expire unused.
F-72
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
The provision for income taxes compared with income taxes based
on the federal statutory tax rate of 34% is as follows (in
thousands):
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
Tax (benefit) based on federal statutory rate
|
|
$
|
(3,209
|
)
|
State taxes (benefit)
|
|
|
(496
|
)
|
Foreign taxes (benefit)
|
|
|
(19
|
)
|
Other permanent items
|
|
|
(59
|
)
|
Change in tax valuation allowance
|
|
|
2,345
|
|
Change in deferred tax rates
|
|
|
1,526
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
88
|
|
|
|
|
|
|
Installment
Bank Loans
In August 2005, the Company entered into a Loan and Security
Agreement (the Agreement) with a financial
institution for borrowings under a line of credit up to
$5,000,000. Borrowings are secured by substantially all of the
Companys assets and bear interest at the prime rate. In
August 2007, the Company amended (the Amendment) the
Agreement to extend the maturity date through August 2009. There
were no borrowings outstanding as of December 23, 2008.
In connection with the Amendment, the Company obtained a growth
capital line for borrowings in the amount of $2,000,000, under a
term note through December 31, 2007. Borrowings under the
term note bear interest at 9.00% per annum, subject to
adjustment as defined in the Agreement. Monthly interest
payments are due through January 1, 2008, at which time
thirty equal monthly payments of $74,140, consisting of
principal and interest, are due. Certain financial covenants
must be maintained, as defined in the Agreement. The balance
outstanding of the term note as of December 23, 2008 was
$1,162,000.
As of December 23, 2008, the Company failed to comply with
a tangible net worth financial covenant, as set forth in the
Agreement. Upon the occurrence and during the continuance of
covenant violation, the financial institution, at its option,
may accelerate and declare all or any part of the outstanding
term note to be immediately due.
Additionally, in connection with the amendment, the Company
issued a warrant to purchase approximately 144,000 shares
of
Series E-1
at $1.217 per share (see Note 6). The fair value of the
warrant of $146,000 was determined using the Black-Scholes
option pricing model and is recorded as a discount to the note
balance to be amortized over the term of the note.
The aggregate maturities of borrowings as of December 23,
2008 are as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
817
|
|
2010
|
|
|
436
|
|
|
|
|
|
|
|
|
$
|
1,253
|
|
|
|
|
|
|
F-73
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
Convertible
and Redeemable Convertible Preferred Stock, Warrants and Common
Stock
Convertible and
Redeemable Convertible Preferred Stock
The board of directors has authorized the Company to issue a
total of approximately 28,337,000 shares of convertible
stock (Series A, B and C convertible preferred stock). At
December 23, 2008 the Company had approximately
28,180,000 share of convertible preferred stock issued and
outstanding. In addition, the board of directors has authorized
the Company to issue a total of approximately
46,570,000 shares of redeemable convertible preferred stock
(Series D, E and
E-1
redeemable convertible preferred stock). At December 23,
2008, the Company had 41,836,000 shares of redeemable
convertible preferred stock issued and outstanding.
The holders of convertible and redeemable convertible preferred
stock are entitled to receive when and if declared by the board,
non-cumulative dividends in preference to any common stock at a
fixed rate per share, and are also entitled to participate on an
as-converted-to common stock basis. No dividends have been
declared as of December 23, 2008.
In the event of any liquidation of the Company, the holders of
preferred stock are entitled to receive amounts plus any
declared but unpaid dividends based on the following order of
priority: (i) $3.043 per share for each share of
Series E-1,
(ii) $1.2172 per share for each share of Series E,
(iii) $1.9240 per share for each share of Series D and
(iv) $0.50, $1.75 and $6.19 per share for each share of
Series A, Series B and Series C, respectively.
At the option of the holder, and at any time, each share of
convertible and redeemable convertible preferred stock is
convertible into common shares. The conversion ratios at
December 23, 2008 are as follows: (i) 1:1 conversion
ratio for Series A, Series D, Series E and Series
E-1,
(ii) 1:1.23938 conversion ratio for Series B and
(iii) 1:1.43287 for Series C.
The holders of convertible and redeemable convertible preferred
stock have voting rights equal to the number of shares of common
stock into which such preferred stock are then convertible and
also hold certain protective provisions.
At any time after March 18, 2011, upon the written request
of the majority of the outstanding shares of
Series E-1
or Series E, the Company is required to redeem, from funds
legally available, an amount equal to $1.2172 per share. At any
time after March 18, 2011, upon the written request of the
holders of not less than 20% of the then outstanding shares of
Series D, the Company is required to redeem, from funds legally
available, an amount equal to $1.924 per share. For
Series D, Series E and
Series E-1,
the Company may redeem the shares in three annual installments.
Preferred Stock
Warrants
At December 23, 2008, the Company had warrants outstanding
to purchase approximately 157,000 shares of convertible
preferred stock and approximately 144,000 shares of
redeemable convertible preferred stock.
Common
Stock
The Company is authorized to issue 110,000,000 shares of
common stock with a par value of $0.001 per share. As of
December 23, 2008, the Company had approximately
6,659,000 shares issued and outstanding.
F-74
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
Common Stock
Reserved for Future Issuance
At December 23, 2008, the Company has reserved
approximately 76,081,000 shares of common stock for the
conversion of convertible and redeemable convertible preferred
stock and approximately 16,115,000 shares of common stock
for issuance upon the exercise of stock options and warrants.
In 1998, the Company adopted the 1998 Stock Plan (the
Plan). Under the Plan, as amended, the Company is
authorized to issue stock purchase rights, incentive stock
options and non-statutory stock options for up to
21,232,567 shares of common stock to directors, employees
and consultants. Stock-based grants generally vest over four
years, with 25% vesting after one year and the remaining 75%
vesting ratably over the next 36 months. The term of stock
option grants is generally 10 years.
Certain grantees have exercised stock purchase rights to
purchase shares of restricted common stock in exchange for
five-year full recourse promissory notes. The Companys
repurchase rights lapse at a rate, typically 25% per year, as
determined by the board of directors. During the period
January 1, 2008 to December 23, 2008, the remaining
outstanding promissory note was partially repaid, with the
balance of the promissory note exchanged for the repurchase of
48,000 shares of restricted common stock. No shares were
subject to repurchase under restricted stock purchase agreements
at December 23, 2008.
A summary of activity for the number of shares available for
grant under the 1998 Plan and the number of stock options
outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Number
|
|
|
Average
|
|
|
|
Available
|
|
|
of Options
|
|
|
Exercise
|
|
|
|
for Grant
|
|
|
Outstanding
|
|
|
Price
|
|
|
Balance, December 31, 2007
|
|
|
2,405,245
|
|
|
|
13,327,255
|
|
|
$
|
0.15
|
|
Granted
|
|
|
(1,348,600
|
)
|
|
|
1,348,600
|
|
|
|
0.15
|
|
Exercised
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
0.15
|
|
Forfeited
|
|
|
2,757,409
|
|
|
|
(2,757,409
|
)
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 23, 2008
|
|
|
3,814,054
|
|
|
|
11,916,446
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period January 1, 2008 to December 23, 2008,
the weighted average fair value of stock options granted was
$0.11, the intrinsic value of stock options exercised was $0,
and cash received from stock options exercised was $300. The
aggregate intrinsic value of stock options outstanding at
December 23, 2008 was $0.
Future stock-based compensation for unvested employee options
granted and outstanding as of December 23, 2008 is
$333,000, to be recognized over a remaining requisite service
period of 2.1 years.
F-75
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
Information about stock options outstanding at December 23,
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
Average
|
|
Remaining
|
Exercise
|
|
Number
|
|
Exercise
|
|
Contractual
|
|
Number
|
|
Exercise
|
|
Contractual
|
Price
|
|
Outstanding
|
|
Price
|
|
Life (Years)
|
|
Exercisable
|
|
Price
|
|
Life (Years)
|
|
$
|
0.15
|
|
|
|
11,916,446
|
|
|
$
|
0.15
|
|
|
|
7.6
|
|
|
|
11,113,405
|
|
|
$
|
0.15
|
|
|
|
7.4
|
|
|
|
8.
|
Commitments and
Contingencies
|
Leases
The Company leases office space under non-cancelable operating
leases with various expiration dates through 2011. Rent expense
was $1,357,000 for the period January 1, 2008 to
December 23, 2008. Under terms of the agreements, the
Company is responsible for certain insurance, property taxes and
maintenance expenses.
Future minimum lease payments under the non-cancelable operating
and capital leases at December 23, 2008 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Years Ending December 31:
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
499
|
|
|
$
|
77
|
|
2010
|
|
|
126
|
|
|
|
72
|
|
2011
|
|
|
54
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments
|
|
$
|
679
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Present value of future minimum lease payments
|
|
|
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
Indemnifications
In the normal course of business, the Company enters into
contracts and agreements that may contain representations and
warranties and provide for general indemnifications. The
Companys exposure under these agreements is unknown
because it involves claims that may be made in the future, but
have not yet been made. The Company has not paid any claims or
been required to defend any action related to indemnification
obligations. However, it is possible that the Company could
incur costs in the future as a result of indemnification
obligations.
In accordance with its bylaws and certain agreements, the
Company has indemnification obligations to its officers and
directors for certain events or occurrences, subject to certain
limits, while they are serving at the Companys request in
such capacity. There have been no indemnification claims.
Contingencies
Currently, and from time to time, the Company is involved in
litigation incidental to the conduct of its business. As of
December 23, 2008, the Company is not a party to any
lawsuit or proceeding that,
F-76
Sylantro Systems
Corporation
Notes to
Consolidated Financial
Statements (Continued)
in the opinion of management, is reasonably possible to have a
material adverse effect on its financial position, results of
operations or cash flow.
Other (income) expense, net, consists of the following (in
thousands):
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
Interest expense
|
|
$
|
235
|
|
Interest income
|
|
|
(92
|
)
|
Other, net
|
|
|
32
|
|
|
|
|
|
|
Other expenses, net
|
|
$
|
175
|
|
|
|
|
|
|
|
|
10.
|
401(k) Defined
Contribution Plan
|
The Company maintains a tax-qualified 401(k) retirement plan
that provides eligible U.S. employees with an opportunity
to save for retirement on a tax advantaged basis. The Company
has not made matching contributions to the plan for the period
January 1, 2008 to December 23, 2008.
|
|
11.
|
Related Party
Transaction
|
During the period January 1, 2008 to December 23,
2008, the Company paid $97,000 to a related party under a
consulting agreement. A stockholder of the Company is also a
stockholder of the related party.
|
|
12.
|
Segment and
Geographic Information
|
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes reporting
standards for operating segments. Operating segments are defined
as components of an enterprise about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker, in deciding how to allocate
resources and in assessing performance. The Companys chief
operating decision maker is its Chief Executive Officer
(CEO). The CEO reviews financial information
presented on a consolidated basis along with information about
revenue by geographic region for purposes of allocating
resources and evaluating financial performance. Discrete
information on a geographic basis, except for revenue, is not
provided below the consolidated level to the CEO. The Company
has concluded that it operates in one segment and has provided
the required enterprise-wide disclosures.
Revenue by geographic area is based on the location of the
end-user carrier. Revenue by geographic area is as follows (in
thousands):
|
|
|
|
|
|
|
For the period
|
|
|
|
January 1, 2008 to
|
|
|
|
December 23,
2008
|
|
|
Revenue by Country
|
|
|
|
|
United States
|
|
$
|
6,901
|
|
Switzerland
|
|
|
1,004
|
|
Other foreign countries
|
|
|
1,949
|
|
|
|
|
|
|
|
|
$
|
9,854
|
|
|
|
|
|
|
F-77
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BroadSoft, Inc.:
In our opinion, the accompanying statement of division
operations, changes in division equity (deficit), and division
cash flows present fairly, in all material respects, the results
of the M6 Division of GENBAND Inc. operations and their cash
flows for the period from January 1, 2008 to
August 26, 2008 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
divisions management. Our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of
America. 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
As discussed in Note 1 to the financial statements, the M6
Division was acquired on August 26, 2008.
/s/ PricewaterhouseCoopers LLP
Dallas, TX
February 21, 2010
F-78
M6
Division
Statement of
Division Operations
|
|
|
|
|
|
|
For the Period
|
|
|
|
January 1
|
|
|
|
to
|
|
|
|
August 26,
|
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
Products
|
|
$
|
2,441,685
|
|
Services
|
|
|
3,040,311
|
|
|
|
|
|
|
Total revenue
|
|
|
5,481,996
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
Cost of product revenue
|
|
|
843,678
|
|
Cost of service revenue
|
|
|
1,193,520
|
|
Sales and marketing
|
|
|
392,014
|
|
Research and development
|
|
|
2,338,679
|
|
General and administrative
|
|
|
1,091,671
|
|
Depreciation
|
|
|
86,314
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,945,876
|
|
|
|
|
|
|
Net loss
|
|
$
|
(463,880
|
)
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-79
M6
Division
|
|
|
|
|
|
|
For the Period
|
|
|
|
January 1
|
|
|
|
to
|
|
|
|
August 26,
|
|
|
|
2008
|
|
|
Net Investment of Parent in Division at January 1, 2008
|
|
$
|
411,750
|
|
Net cash provided to Parent
|
|
|
(983,170
|
)
|
Net loss
|
|
|
(463,880
|
)
|
|
|
|
|
|
Net Investment of Parent in Division at August 26, 2008
|
|
$
|
(1,035,300
|
)
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-80
M6
Division
|
|
|
|
|
|
|
For the Period
|
|
|
|
January 1
|
|
|
|
to
|
|
|
|
August 26,
|
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(463,880
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
Depreciation
|
|
|
86,314
|
|
Provision for doubtful accounts
|
|
|
345,999
|
|
Provision for inventory obsolescence
|
|
|
127,120
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
|
|
1,579,152
|
|
Inventory
|
|
|
4,664
|
|
Deferred costs
|
|
|
186,410
|
|
Prepaid expenses
|
|
|
5,664
|
|
Accounts payable
|
|
|
(82,827
|
)
|
Deferred revenue
|
|
|
(614,211
|
)
|
Accrued compensation
|
|
|
(139,893
|
)
|
Other accrued liabilities
|
|
|
(25,395
|
)
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,009,117
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Patent expenditures
|
|
|
(25,947
|
)
|
|
|
|
|
|
Net cash used in investment activities
|
|
|
(25,947
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Net cash provided to Parent
|
|
|
(983,170
|
)
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(983,170
|
)
|
|
|
|
|
|
Net Division cash balance
|
|
$
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-81
M6
Division
Notes to
Division Financial Statements
Description of
Business
The M6 Division of GENBAND Inc. and Subsidiaries
(Parent) is an IP infrastructure and application
solutions provider. The M6 Division was included in the
Parents April 2007 acquisition of Tekelecs switching
solutions group.
On August 26, 2008, the M6 Divisions direct
operations, customer base, operating assets and liabilities
(exclusive of facilities, leases, cash, debt, income tax assets
or liabilities, and certain other indirect assets and
liabilities) were sold to BroadSoft, Inc. for approximately
$344,000 plus contingent earn-out payments of up to 15% of
future annual qualifying sales for a period of three years from
date of the sale. Direct marketing, sales, research and
development and operating personnel of the M6 Division were
terminated and rehired by BroadSoft, Inc. on the date of sale.
Administrative functions of the Parent that supported the M6
Division included accounting, treasury, tax, legal, public
affairs, executive oversight, human resources, procurement and
other centralized services.
|
|
2.
|
Summary of
Significant Accounting Policies
|
Basis of
Presentation
The financial statements of the M6 Division reflect the
historical results of operations, changes in division equity
(deficit) and cash flows of the M6 Division during the period
from January 1 to August 26, 2008. In addition, the
historical M6 Division financial statements include allocations
of certain corporate functions historically provided by the
Parent including facility, accounting, treasury, tax, legal,
public affairs, executive oversight, human resources,
procurement, employee benefit and savings plans and other
services and intercompany transactions with the Parent. The
allocations are primarily based on specific identification and
the relative percentage of the M6 Divisions revenues and
headcount to the respective total of the Parent. The expense
allocations were determined on a basis that the M6 Division and
the Parent consider to be reasonable estimates of the
utilization of services provided to the M6 Division by the
Parent. These allocations are reflected in operating expenses in
the accompanying Statement of Division Operations for the
period January 1 to August 26, 2008 and totaled $938,615.
The financial information included herein may not be indicative
of the financial position, results of operations, and cash flows
of the M6 Division in the future, or what they would have been
had the M6 Division been a separate stand alone entity during
the period presented.
There are three principal types of intercompany transactions
recorded in the M6 Divisions intercompany account with the
Parent which is reflected as division equity: (1) cash
collections from the M6 Divisions operations that are
deposited into the Parents bank accounts, (2) cash
borrowings from the Parent which are used to fund operations,
and (3) allocations of the Parent expenses and charges.
Cash collections include all cash receipts required to be
deposited into the intercompany account as part of the
Parents cash concentration system. Cash borrowings made by
the M6 Division from the Parents cash concentration system
are used to fund the M6 Divisions operating expenses.
The accompanying M6 Division financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America that require management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, the reported amounts of revenues and
expenses during the reporting period, as well as the
accompanying notes. Actual results could differ from these
estimates.
F-82
M6
Division
Notes to Division Financial
Statements (Continued)
Accounts
Receivable
The M6 Division makes estimates of the collectability of its
accounts receivable. The M6 Division specifically analyzes
accounts receivable and historical bad debts, customer
credit-worthiness, current economic trends, and changes in
customer payment terms and collection trends when evaluating the
adequacy of its allowance for doubtful accounts. The M6 Division
writes off accounts receivable balances against the allowance
for doubtful accounts, net of any amounts recorded in deferred
revenue, when it becomes probable that the receivable will not
be collected. The M6 Division generally does not charge interest
on accounts receivable. Any change in the assumptions used in
analyzing a specific account receivable may result in additional
allowance for doubtful accounts being recognized in the period
in which the change occurs. The M6 Division does not have any
off-balance sheet credit exposures related to its customers.
Inventory
Inventory is stated at the lower of cost or market. Cost is
determined using standard costs, which approximates the average
cost method. Inventory levels are based on projections of future
demand and market conditions. Any sudden decline in demand
and/or rapid
product improvements and technological changes can result in
excess
and/or
obsolete inventories.
On an ongoing basis inventories are reviewed and written down
for estimated obsolescence or unmarketable inventories equal to
the difference between the costs of inventories and the
estimated net realizable value based upon forecasts for future
demand and market conditions. Any adjustment to inventory as a
result of an estimated obsolescence or net realizable condition
is reflected as a component of cost of revenue. At the point of
the loss recognition, a new, lower cost basis for that inventory
is established, and any subsequent improvements in facts and
circumstances do not result in the restoration or increase in
that newly established cost basis.
Property and
Equipment
Property and equipment are stated at cost, and depreciation is
computed using the straight-line method over the estimated
useful lives.
Expenditures for repairs and maintenance are charged to expense
when incurred while expenditures for major improvements are
capitalized and depreciated over the estimated useful life. Upon
retirement or disposition of property and equipment, the cost
and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized.
Revenue
Recognition
The M6 Division generates revenue from sales of hardware (that
includes embedded software that is considered more than
incidental), software licenses, and related post-contract
customer support (PCS) services as part of
multiple-element arrangements or as a separate sale through
renewals. The M6 Division includes hardware and software sales
in product revenue and revenue from customer support,
installation and training in service revenue. Revenue from
hardware, software licenses and PCS revenues are recognized in
accordance with the software revenue recognition guidance and
related interpretations. The M6 Division recognizes revenue when
all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the
F-83
M6
Division
Notes to Division Financial
Statements (Continued)
fee is fixed or determinable, and (iv) collectability is
probable. In making these judgments, the M6 Division uses the
following assumptions or estimates:
Evidence of an arrangement exists. The M6
Division considers a non-cancelable agreement, or group of
closely-related agreements, signed by the customer and the M6
Division to be representative of persuasive evidence of an
arrangement.
Delivery has occurred. The M6 Division
generally considers delivery to have occurred when a product has
been delivered to the customer and no post-delivery obligations
exist. In instances where customer acceptance is required,
delivery is deemed to have occurred when evidence of customer
acceptance has been obtained. Certain of the M6 Divisions
agreements contain products that might not conform to published
specifications or contain a requirement to deliver additional
elements that are essential to the functionality of the
delivered elements. Revenue associated with these agreements is
recognized when the customer specifications have been met or
delivery of the additional elements has occurred.
A substantial portion of revenue is generated by
multiple-element arrangements, which include a combination of
products, PCS, installation services and training. When
arrangements include multiple elements, the M6 Division
allocates the total fee among the various elements using the
residual method. Under the residual method, the M6 Division
recognizes revenue when vendor-specific objective evidence
(VSOE) of fair value exists for all of the
undelivered elements of the arrangement. The M6 Division
determines fair value for these elements by using the price
charged when that element is sold on a stand-alone basis or as a
renewal.
The M6 Division recognizes PCS services ratably over the term of
the service period. PCS revenue is deferred until the related
product has been accepted and all other revenue recognition
criteria have been met. For multiple-element arrangements in
which objective fair values of PCS do not exist, all proceeds
from the arrangement are deferred and recognized on a
straight-line basis over the contractual PCS period once the PCS
is the only undelivered element.
Fees are fixed or determinable. The M6
Division typically sells application software and related
hardware for a set fee, which includes maintenance and support
services for a specified term. The M6 Division considers this
fee to be fixed or determinable unless additional terms are
added that make the fee subject to refund or adjustment or
otherwise provide that the fee is not payable in accordance with
customary payment terms. If the fee is subject to refund or
adjustment, the M6 Division recognizes revenue when the right to
a refund or adjustment lapses. Arrangements with extended
payment terms, which are rare, are deferred until cash is
collected.
Collection is deemed probable. Collection is
deemed probable if, based upon the M6 Divisions
evaluation, the M6 Division expects that the customer will be
able to pay amounts under the arrangement as payments become
due. If the M6 Division determines that collection is not
probable, revenue is deferred and recognized upon the receipt of
cash.
The M6 Division recognizes all amounts billed to customers
related to shipping and handling as revenue and the related
shipping and handling expense as a component of cost of revenue
in the accompanying consolidated statement of division
operations.
The M6 Division presents taxes (e.g. sales tax) collected from
customers and remitted to governmental authorities on a net
basis (excluded from revenue).
F-84
M6
Division
Notes to Division Financial
Statements (Continued)
Cost of
Revenue
Cost of revenue includes (a) royalty and licensing costs of
third-party products and technology that the M6 Division
includes with its products, and (b) direct costs to
manufacture and distribute product and direct costs to provide
product support and support services.
Software
Development Costs and Research and Development
Costs
In accordance with authoritative guidance for software
development costs, amounts incurred subsequent to the
establishment of technological feasibility through general
availability of the product are capitalized until the product is
available for general release to customers. The M6
Divisions current process for developing software is
essentially completed concurrently with the establishment of
technological feasibility. As such, no software development
costs have been capitalized.
Research and development costs are expensed as incurred.
Research and development costs include product development,
product testing and the cost of establishing technological
feasibility.
Income
Taxes
The M6 Division uses the liability method of accounting for
income tax as set forth in the authoritative guidance for income
taxes. Under this method, deferred tax assets and liabilities
are recognized based on temporary differences between the
financial reporting and income tax bases of assets and
liabilities using statutory rates. In addition, income tax
guidance requires a valuation allowance against net deferred tax
assets if, based upon all available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized.
Share-Based
Compensation
Accounting for share-based payments requires companies to
measure all employee share-based compensation awards using a
fair value method and recognize compensation cost in its
financial statements. The guidance requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from initial
estimates. Forfeitures were estimated based on historical data
as well as known future events. The M6 Division recognizes the
estimated fair value of stock option awards granted in the
statement of division operations on a straight-line basis over
the vesting period.
M6 Division employees participated in the Parents stock
option plan and $28,078 of stock-based compensation expense is
reflected in operating expenses of the M6 Division for the
period January 1 to August 26, 2008.
Concentration
of Credit Risk and Significant Customers
Financial instruments that potentially expose the M6 Division to
concentrations of credit risk consist mainly of accounts
receivable. The M6 Division routinely assesses the credit
worthiness of its customers. The M6 Division generally has not
experienced any material losses related to receivables from
individual customers or groups of customers. The M6 Division
does not require collateral. Due to these factors, no additional
credit risk beyond amounts provided for collection losses is
believed by management to be probable in the M6 Divisions
amounts receivable.
The M6 Division had sales to three customers that represented
17%, 11% and 10% of revenue, respectively, during the period
from January 1 to August 26, 2008.
F-85
M6
Division
Notes to Division Financial
Statements (Continued)
Recent
Accounting Pronouncements
In February 2008, the FASB issued authoritative guidance that
delays the effective date of fair value measurements guidance
for all non-financial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (at least
annually), until January 1, 2009.
|
|
3.
|
Property and
Equipment, net
|
Property and equipment, net consists of proprietary lab,
computer equipment and software purchased by the Parent in the
acquisition from Tekelec in April 2007. These assets were
recorded at fair value and are being depreciated over
18 months from the acquisition date. There have been no
additions or retirements since acquisition date in April 2007
and continuing through August 26, 2008.
The M6 Division employees participate in the Parents
defined contribution savings plan (the Savings Plan) under
Section 401(k) of the Internal Revenue Code, whereby
substantially all employees may contribute a percentage of their
compensation on a tax-deferred basis. Parent contributions to M6
Division employees of $105,116 during the period from January 1
to August 26, 2008 are reflected in operating expense in
the accompanying statement of division operations.
Since the acquisition of the M6 Division in April 2007 and
continuing through August 26, 2008, the M6 Division and the
Parent have incurred losses. In addition, net deferred tax
assets were fully reserved during this period through a
valuation allowance that resulted in no recognition of income
tax expense or benefit in the Parents consolidated
statements of operations. Accordingly, no portion of the
Parents consolidated income tax provision has been
allocated to the M6 Division in the accompanying M6 Division
financial statements.
The following income tax information is presented as if the M6
Division filed tax returns on a stand-alone basis.
Provision for income taxes compared with income taxes based on
the federal statutory tax rate of 34% is as follows:
|
|
|
|
|
|
|
For the Period
|
|
|
|
January 1
|
|
|
|
to
|
|
|
|
August 26,
|
|
|
|
2008
|
|
|
Tax (benefit) based on federal statutory rate
|
|
$
|
(157,719
|
)
|
State taxes (benefit)
|
|
|
(15,040
|
)
|
Permanent items
|
|
|
8,824
|
|
Change in tax valuation allowance
|
|
|
163,935
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
|
|
|
|
|
|
|
A valuation allowance has been established for net deferred
income tax assets as it is not considered to be more likely than
not that the deferred tax assets will be realized. These are
comprised mainly of the future tax benefit of net operating loss
carryforwards.
F-86
M6
Division
Notes to Division Financial
Statements (Continued)
All available net operating loss and research and development
credit carryforwards for federal and state income tax purposes
are considered part of the Parents consolidated income tax
provision and would not available to the M6 Division for
utilization on a stand-alone basis. Therefore, they have not
been reflected in these financial statements.
|
|
6.
|
Commitments and
Contingencies
|
From time to time, the M6 Division may be involved in litigation
relating to claims arising in the ordinary course of business.
Management believes that there are no claims or actions pending
or threatened against the M6 Division, which would have a
material impact on the M6 Divisions results of operations
or cash flows upon ultimate disposition.
F-87
REPORT OF
INDEPENDENT ACCOUNTANTS
To the Board of Directors of Casabi, Inc.
We have audited the accompanying balance sheets of Casabi, Inc.
(the Company) as of December 31, 2008 and 2009, and the
related statements of operations, convertible redeemable
preferred stock and stockholders deficit and cash flows
for each of the two years in the period ended December 31,
2009. These financial statements 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 auditing standards
generally accepted in the United States of America. 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 Casabi, Inc. as of December 31, 2008 and 2009, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 2009 in conformity
with accounting principles generally accepted in the United
States of America.
As discussed in Note 1 to the financial statements, the
Company sold substantially all of its assets to BroadSoft, Inc.
on October 27, 2010.
/s/ Burr
Pilger Mayer, Inc.
Palo Alto, California
December 11, 2010
F-88
Casabi, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,842,370
|
|
|
$
|
1,764,101
|
|
|
$
|
760
|
|
Accounts receivable
|
|
|
422,258
|
|
|
|
168,334
|
|
|
|
167,040
|
|
Prepaid and other current assets
|
|
|
136,258
|
|
|
|
105,538
|
|
|
|
11,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,400,886
|
|
|
|
2,037,973
|
|
|
|
179,172
|
|
Property and equipment, net
|
|
|
620,731
|
|
|
|
319,014
|
|
|
|
151,146
|
|
Other assets
|
|
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,021,617
|
|
|
$
|
2,376,987
|
|
|
$
|
350,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, convertible redeemable preferred stock and
stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,167
|
|
Accounts payable
|
|
|
59,279
|
|
|
|
13,677
|
|
|
|
270,424
|
|
Accrued compensation and benefits
|
|
|
262,589
|
|
|
|
229,574
|
|
|
|
140,779
|
|
Other accrued liabilites
|
|
|
148,320
|
|
|
|
98,629
|
|
|
|
36,996
|
|
Deferred revenue current portion
|
|
|
1,694,620
|
|
|
|
1,417,500
|
|
|
|
382,500
|
|
Promissory notes from related parties
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
Notes payable current portion
|
|
|
2,180,000
|
|
|
|
1,941,202
|
|
|
|
1,709,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,344,808
|
|
|
|
3,700,582
|
|
|
|
3,060,792
|
|
Deferred revenue net of current portion
|
|
|
320,000
|
|
|
|
|
|
|
|
|
|
Warrants liability
|
|
|
100,021
|
|
|
|
1,421,316
|
|
|
|
1,427,503
|
|
Notes payable net of current portion
|
|
|
1,070,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,835,073
|
|
|
|
5,121,898
|
|
|
|
4,488,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible redeemable preferred stock,
$0.001 par value; 11,000,000, 11,025,648, and
11,025,648 shares authorized at December 31, 2008 and
2009 and September 30, 2010 (unaudited), respectively,
10,894,909, 8,908,858, and 8,908,858 shares issued and
outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively, aggregate
liquidation preference of $8,177,084 at December 31, 2009
|
|
|
11,507,745
|
|
|
|
10,172,579
|
|
|
|
10,794,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C convertible redeemable preferred stock,
$0.001 par value; 18,000,000, 18,000,000 and no shares
authorized at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively, no shares,
11,705,032, and 11,705,032 issued and outstanding at
December 31, 2008 and 2009 and September 30, 2010
(unaudited), respectively, aggregate liquidation preference of
$8,989,465 at December 31, 2009
|
|
|
|
|
|
|
5,012,755
|
|
|
|
5,635,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par
value; 7,816,234 shares authorized, 7,731,886, 6,267,937,
and 6,267,937 shares issued and outstanding at
December 31, 2008 and 2009 and September 30, 2010
(unaudited), respectively, aggregate liquidation preference of
$4,458,624 at December 31, 2009
|
|
|
7,732
|
|
|
|
6,268
|
|
|
|
6,268
|
|
Common stock, $0.001 par value; 39,000,000, 50,000,000, and
50,000,000 shares authorized at December 31, 2008 and
2009 and September 30, 2010 (unaudited), respectively,
4,017,565 shares issued and outstanding at
December 31, 2008 and 2009 and September 30, 2010
(unaudited)
|
|
|
4,017
|
|
|
|
4,017
|
|
|
|
4,017
|
|
Additional paid-in capital
|
|
|
4,050,853
|
|
|
|
4,903,519
|
|
|
|
3,689,285
|
|
Accumulated deficit
|
|
|
(18,383,803
|
)
|
|
|
(22,844,049
|
)
|
|
|
(24,267,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(14,321,201
|
)
|
|
|
(17,930,245
|
)
|
|
|
(20,567,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible redeemable preferred stock and
stockholders deficit
|
|
$
|
3,021,617
|
|
|
$
|
2,376,987
|
|
|
$
|
350,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-89
Casabi, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Net revenue
|
|
$
|
398,698
|
|
|
$
|
2,037,099
|
|
|
$
|
1,602,571
|
|
|
$
|
2,036,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenue
|
|
|
3,772,640
|
|
|
|
3,118,532
|
|
|
|
2,395,288
|
|
|
|
1,999,985
|
|
Research and development
|
|
|
1,178,950
|
|
|
|
1,863,593
|
|
|
|
1,424,818
|
|
|
|
588,751
|
|
Sales and marketing
|
|
|
1,127,718
|
|
|
|
410,104
|
|
|
|
321,036
|
|
|
|
148,566
|
|
General and administrative
|
|
|
1,105,730
|
|
|
|
1,032,072
|
|
|
|
790,512
|
|
|
|
627,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
7,185,038
|
|
|
|
6,424,301
|
|
|
|
4,931,654
|
|
|
|
3,364,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,786,340
|
)
|
|
|
(4,387,202
|
)
|
|
|
(3,329,083
|
)
|
|
|
(1,328,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
86,205
|
|
|
|
23,645
|
|
|
|
20,247
|
|
|
|
1,326
|
|
Interest expense
|
|
|
(299,743
|
)
|
|
|
(184,421
|
)
|
|
|
(146,463
|
)
|
|
|
(119,367
|
)
|
Other income (expense), net
|
|
|
1,324
|
|
|
|
87,732
|
|
|
|
71,865
|
|
|
|
23,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(212,214
|
)
|
|
|
(73,044
|
)
|
|
|
(54,351
|
)
|
|
|
(95,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,998,554
|
)
|
|
$
|
(4,460,246
|
)
|
|
$
|
(3,383,434
|
)
|
|
$
|
(1,423,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-90
Casabi, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
|
Series A Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2008
|
|
|
10,894,909
|
|
|
$
|
10,636,303
|
|
|
|
|
|
|
|
|
|
|
|
|
7,731,886
|
|
|
$
|
7,732
|
|
|
|
3,987,107
|
|
|
$
|
3,987
|
|
|
$
|
4,857,635
|
|
|
$
|
(11,385,249
|
)
|
|
$
|
(6,515,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,458
|
|
|
|
30
|
|
|
|
2,292
|
|
|
|
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,368
|
|
|
|
|
|
|
|
62,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B convertible redeemable preferred
stock to redemption value
|
|
|
|
|
|
|
871,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(871,442
|
)
|
|
|
|
|
|
|
(871,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,998,554
|
)
|
|
|
(6,998,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
10,894,909
|
|
|
|
11,507,745
|
|
|
|
|
|
|
|
|
|
|
|
|
7,731,886
|
|
|
|
7,732
|
|
|
|
4,017,565
|
|
|
|
4,017
|
|
|
|
4,050,853
|
|
|
|
(18,383,803
|
)
|
|
|
(14,321,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series C convertible redeemable
preferred stock at $0.51260 per share in March 2009, net of
issuance costs of $111,532
|
|
|
|
|
|
|
|
|
|
|
11,705,032
|
|
|
|
5,888,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of Series A convertible preferred stock and
Series B convertible redeemable preferred stock
|
|
|
(1,986,051
|
)
|
|
|
(1,822,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1,463,949
|
)
|
|
|
(1,464
|
)
|
|
|
|
|
|
|
|
|
|
|
1,824,381
|
|
|
|
|
|
|
|
1,822,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue warrants for Series C convertible
redeemable preferred stock in September 2009 as additional
financing cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,417,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B convertible redeemable preferred
stock to redemption value
|
|
|
|
|
|
|
487,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(487,751
|
)
|
|
|
|
|
|
|
(487,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series C convertible redeemable preferred
stock to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(541,403
|
)
|
|
|
|
|
|
|
(541,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,439
|
|
|
|
|
|
|
|
57,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,460,246
|
)
|
|
|
(4,460,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
8,908,858
|
|
|
|
10,172,579
|
|
|
|
11,705,032
|
|
|
|
5,012,755
|
|
|
|
|
6,267,937
|
|
|
|
6,268
|
|
|
|
4,017,565
|
|
|
|
4,017
|
|
|
|
4,903,519
|
|
|
|
(22,844,049
|
)
|
|
|
(17,930,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B convertible redeemable preferred
stock to redemption value (unaudited)
|
|
|
|
|
|
|
621,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621,998
|
)
|
|
|
|
|
|
|
(621,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series C convertible redeemable preferred
stock to redemption value (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
622,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622,362
|
)
|
|
|
|
|
|
|
(622,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,126
|
|
|
|
|
|
|
|
30,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,423,192
|
)
|
|
|
(1,423,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010 (unaudited)
|
|
|
8,908,858
|
|
|
$
|
10,794,577
|
|
|
|
11,705,032
|
|
|
$
|
5,635,117
|
|
|
|
|
6,267,937
|
|
|
$
|
6,268
|
|
|
|
4,017,565
|
|
|
$
|
4,017
|
|
|
$
|
3,689,285
|
|
|
$
|
(24,267,241
|
)
|
|
$
|
(20,567,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-91
Casabi, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,998,554
|
)
|
|
$
|
(4,460,246
|
)
|
|
$
|
(3,383,434
|
)
|
|
$
|
(1,423,192
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
371,934
|
|
|
|
377,490
|
|
|
|
314,232
|
|
|
|
174,135
|
|
Stock-based compensation
|
|
|
62,368
|
|
|
|
57,439
|
|
|
|
43,087
|
|
|
|
30,126
|
|
Loss on disposal of property and equipment
|
|
|
2,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance cost to interest expense
|
|
|
33,180
|
|
|
|
33,180
|
|
|
|
24,885
|
|
|
|
37,277
|
|
Adjustment of fair value of warrant liability
|
|
|
495
|
|
|
|
(95,820
|
)
|
|
|
(71,865
|
)
|
|
|
(24,069
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
327,742
|
|
|
|
253,924
|
|
|
|
317,476
|
|
|
|
1,294
|
|
Prepaid and other assets
|
|
|
(64,298
|
)
|
|
|
10,720
|
|
|
|
35,520
|
|
|
|
94,166
|
|
Accounts payable
|
|
|
33,194
|
|
|
|
(45,602
|
)
|
|
|
(40,947
|
)
|
|
|
256,747
|
|
Accrued compensation and other accrued liabilities
|
|
|
80,445
|
|
|
|
(82,706
|
)
|
|
|
(58,373
|
)
|
|
|
(150,428
|
)
|
Deferred revenue
|
|
|
1,244,620
|
|
|
|
(597,120
|
)
|
|
|
(166,191
|
)
|
|
|
(1,035,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,906,408
|
)
|
|
|
(4,548,741
|
)
|
|
|
(2,985,610
|
)
|
|
|
(2,038,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(118,118
|
)
|
|
|
(75,773
|
)
|
|
|
(70,974
|
)
|
|
|
(6,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(118,118
|
)
|
|
|
(75,773
|
)
|
|
|
(70,974
|
)
|
|
|
(6,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible redeemable preferred stock
and warrants, net of issuance costs
|
|
|
|
|
|
|
5,888,467
|
|
|
|
5,888,467
|
|
|
|
|
|
Proceeds from issuance of promissory notes to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,000
|
|
Increase in bank overdraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,167
|
|
Principal payments on notes payable
|
|
|
(1,150,000
|
)
|
|
|
(1,342,222
|
)
|
|
|
(852,778
|
)
|
|
|
(326,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,147,678
|
)
|
|
|
4,546,245
|
|
|
|
5,035,689
|
|
|
|
281,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(6,172,204
|
)
|
|
|
(78,269
|
)
|
|
|
1,979,105
|
|
|
|
(1,763,341
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
8,014,574
|
|
|
|
1,842,370
|
|
|
|
1,842,370
|
|
|
|
1,764,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,842,370
|
|
|
$
|
1,764,101
|
|
|
$
|
3,821,475
|
|
|
$
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
299,743
|
|
|
$
|
184,421
|
|
|
$
|
20,247
|
|
|
$
|
82,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,320
|
|
|
$
|
1,320
|
|
|
$
|
1,320
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue warrants in conjunction with Series C
convertible redeemable preferred stock financing
|
|
$
|
|
|
|
$
|
1,417,115
|
|
|
$
|
1,417,115
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrant issued in connection with notes payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-92
Casabi,
Inc.
For the Years Ended December 31, 2008 and 2009
and for the Nine Months Ended September 30, 2009 and
2010 (Unaudited)
|
|
1.
|
Business and
Summary of Significant Accounting Policies
|
Casabi, Inc. (the Company) was incorporated in
Delaware in June 2004. The Company is in the business of
providing software for phone carriers to deliver any web-based
content or service to cordless phones and other smart devices at
home.
As of December 31, 2007, the Company was reporting as a
development stage entity. During the year ended
December 31, 2008, the Company established revenues from
its principal operations, and as such, has ceased to report as a
development stage entity.
On October 27, 2010, the Company sold substantially all of
its assets to BroadSoft, Inc. (BroadSoft) in
exchange for cash and forgiveness of debt. See Note 10.
The accompanying unaudited statements as of September 30,
2010 and for the nine months ended September 30, 2009 and
2010 have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, the information included in these notes to the
financial statements related to unaudited financial information
does not include all of the information and footnotes required
by generally accepted accounting principles. In the opinion of
the Companys management, the interim information includes
all adjustments, consisting only of normal recurring adjustments
and accruals, necessary for a fair presentation of the results
for the interim period.
Use of Estimates The preparation of
financial statements in accordance with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from
these estimates.
Concentrations of Credit Risk The
Companys cash, cash equivalents, accounts receivable and
revenue are potentially subject to concentration of credit risk.
Cash and cash equivalents are deposited with financial
institutions that management believes are creditworthy. The
Companys accounts receivable are derived from revenue
earned from customers located primarily in the United States.
The Company performs ongoing credit evaluations of its
customers financial condition and generally requires no
collateral from its customers. The Company had two customers
accounting for 91% of gross accounts receivable as of
December 31, 2009 and three customers accounting for 88% of
gross accounts receivable as of December 31, 2008. The Company
had two customers account for 92% of revenue for the year ended
December 31, 2009 and three customers account for 100% of
its revenue for the year ended December 31, 2008. The
Company does not expect to incur material losses with respect to
financial instruments that potentially subject the Company to
concentration of credit risk.
Cash and Cash Equivalents The Company
considers all highly liquid investments with original or
remaining maturities, at the date of purchase, of three months
or less to be cash equivalents. Cash and cash equivalents are
maintained with a major financial institution. Deposits held
with banks may exceed the amount of insurance provided on such
deposits. The Company has not experienced any losses on its
deposits of cash and cash equivalents.
Fair Value of Financial Instruments
The carrying amount of certain financial instruments, including
cash and cash equivalents, accounts receivable, prepaid
expenses, accounts payable, accrued expenses, and notes payable
approximate their respective fair value due to their relatively
short maturities and market interest rates, if applicable.
F-93
Casabi,
Inc.
Notes to Financial Statements (Continued)
On January 1, 2008, the Company adopted new accounting
guidance, which defines fair value, establishes a framework for
using fair value to measure assets and liabilities, and expands
disclosures about fair value measurements under generally
accepted accounting principles (GAAP) and clarified the
definition of fair value within that framework.
The Company measures the fair value of financial instruments
using a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad
levels. Each level of input has a different level of
subjectivity and difficulty involved in determining fair value.
Level 1 Inputs used to measure
fair value are unadjusted quoted prices that are available in
active markets for the identical assets or liabilities as of the
reporting date. Therefore, determining fair value for
Level 1 investments generally does not require significant
judgment, and the estimation is not difficult.
Level 2 Pricing is provided by
third party sources of market information obtained through
investment advisors. The Company does not adjust for or apply
any additional assumptions or estimates to the pricing
information received from its advisors.
Level 3 Inputs used to measure
fair value are unobservable inputs that are supported by little
or no market activity and reflect the use of significant
management judgment. These values are generally determined using
pricing models for which the assumptions utilize
managements estimates of market participant assumptions.
The determination of fair value for Level 3 instruments
involves the most management judgment and subjectivity.
The following table summarizes the Companys financial
assets measured at fair value on a recurring basis as of
December 31, 2008 and 2009 and September 30, 2010
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,145,161
|
|
|
$
|
1,145,161
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants liability
|
|
$
|
100,021
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,368,806
|
|
|
$
|
1,368,806
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants liability
|
|
$
|
1,421,316
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,421,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 (Unaudited)
|
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
119
|
|
|
$
|
119
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants liability
|
|
$
|
1,427,503
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,427,503
|
|
F-94
Casabi,
Inc.
Notes to Financial Statements (Continued)
The changes in the value of the warrants liability during the
years ended December 31, 2008 and 2009 and the nine months
ended September 30, 2009 and 2010 (unaudited) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Fair value beginning of period
|
|
$
|
99,526
|
|
|
$
|
100,021
|
|
|
$
|
100,021
|
|
|
$
|
1,421,316
|
|
Issuances
|
|
|
|
|
|
|
1,417,115
|
|
|
|
1,417,115
|
|
|
|
30,256
|
|
Change in fair value
|
|
|
495
|
|
|
|
(95,820
|
)
|
|
|
(71,865
|
)
|
|
|
(24,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value end of period
|
|
$
|
100,021
|
|
|
$
|
1,421,316
|
|
|
$
|
1,445,271
|
|
|
$
|
1,427,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation of the warrants is discussed in Note 4.
Property and Equipment Property and
equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, generally three to
five years. Maintenance and repairs are expensed as incurred.
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed Software
development costs are expensed as incurred until technological
feasibility of the underlying software product is achieved.
After technological feasibility is established, software
development costs are capitalized until general availability of
the product. Capitalized costs are then amortized on the greater
of straight-line basis over the estimated product life, or the
ratio of current revenue to total projected product revenue. To
date, technological feasibility and general availability of such
software have occurred simultaneously and software development
costs qualifying for capitalization have been insignificant.
Accordingly, the Company has not capitalized any software
development costs.
Impairment of Long-Lived Assets The
Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the related
carrying amounts may not be recoverable by comparing the
carrying amount of such assets to the estimated undiscounted
future cash flows associated with them. In cases where the
estimated undiscounted cash flows are less than the related
carrying amount, an impairment loss is recognized for the amount
by which the carrying amount exceeds the fair value of the
assets. The fair value is determined based on the present value
of estimated future cash flows using a discount rate
commensurate with the risks involved.
Revenue Recognition The Company
recognizes revenue when all of the following conditions are
satisfied: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or the service has been
provided to the customer; (3) collection of the resulting
receivable is reasonably assured; and (4) the fees are
fixed or determinable. The Companys arrangements do not
contain general rights of return following an initial
30 day warranty period.
For certain arrangements the Company derives maintenance fees
from maintenance contracts, which are generally purchased by its
customers at the same time a license agreement is executed.
Maintenance includes telephone and email support, and the right
to receive upgrades on a
when-and-if-available
basis. Maintenance may generally be renewed on an annual basis.
Maintenance revenue is deferred and recognized ratably over the
term of the maintenance period.
For contracts that involve significant customization and
implementation or consulting services that are essential to the
functionality of the software, the license and services revenues
are
F-95
Casabi,
Inc.
Notes to Financial Statements (Continued)
recognized using the
percentage-of-completion
contract method of accounting. A contract is considered complete
when all significant costs have been incurred or the item has
been accepted by the customer. If the arrangements include other
specified software products that do not have related services
requiring the application of contract accounting for which
vendor specific objective evidence of fair value does not exist
for the multiple products included in an arrangement, no revenue
is recognized for the arrangement until the customization is
completed, after which the entire arrangement fee is recognized
over the remaining post contract service period.
In November 2006, the Company entered into a long-term contract
with a customer requiring development of software products over
a period of time which is accounted for under the completed
contract method. Revenue under this contract is deferred until
the development of software is completed.
In addition, the Company derived revenues from the sale of
time-based licenses for a finite term, that provide the customer
post-contract customer support for the term of the license. The
Company recognizes revenue from these contracts ratably over the
term of the license period.
The Company has not established vendor-specific objective
evidence (VSOE) of fair value for any of the elements that it
currently sells. For arrangements that include multiple
elements, all revenue is deferred and recognized when delivery
of the last element occurs if all other criteria are met or
ratably if maintenance is the only undelivered element.
Research and Development The Company
expenses the cost of research and development as incurred.
Research and development expenses principally consist of payroll
and related costs and depreciation and amortization of equipment
and software used in product development projects.
Stock-Based Compensation The Company
recognizes compensation expense for all costs related to
share-based payments including stock options using a fair-value
based method. The Company recognizes these compensation costs,
net of an estimated forfeiture rate, and recognizes the
compensation costs for only those shares expected to vest on a
straight-line basis over the requisite service period of the
award, which is generally the option vesting term of four years.
Warrants Liability Freestanding
warrants to purchase shares of preferred stock that are
redeemable are classified as liabilities in the balance sheet at
fair value. At the end of each reporting period, changes in fair
value during the period are recorded as a component of other
income or expense. The Company will continue to adjust the
liability for changes in fair value until the earlier of the
exercise of the warrants or the completion of a liquidation
event at which time the liability will be reclassified as common
stock and additional paid-in capital.
Income Taxes The Company makes certain
estimates and judgments in determining income tax expense for
financial statement purposes. These estimates and judgments
occur in the calculation of certain tax assets and liabilities,
which arise from differences in the timing of revenue and
expense recognition for tax and financial statement purposes.
The Company assesses the likelihood that it will be able to
recover its deferred tax assets. The Company considers all
available evidence, both positive and negative, including
historical levels of income, expectations and risks associated
with estimates of future taxable income, and ongoing prudent and
feasible tax planning strategies in assessing the need for the
valuation allowance. As such, the Company established a full
valuation allowance against its deferred tax assets due to the
uncertainty surrounding the realization of the benefits of such
assets. Management periodically evaluates the recoverability of
the deferred tax assets and will recognize the tax benefit only
as reassessment demonstrates they are realizable. At such time,
if it is determined that it is more likely
F-96
Casabi,
Inc.
Notes to Financial Statements (Continued)
than not that the deferred tax assets are realizable, the
valuation allowance will be reduced (see Note 7).
The Companys income tax calculations are based on
application of the respective U.S. federal and state tax
laws. The Companys tax filings, however, are subject to
audit by the respective tax authorities. Accordingly, the
Company recognizes tax liabilities based on its estimates of
whether, and the extent to which, additional taxes will be due
when such estimates are more-likely-than-not to be sustained. To
the extent the final tax liabilities are different than the
amounts originally accrued, the increases or decreases are
recorded as income tax expense or benefit in the statements of
operations. The Company has determined that there are no tax
positions that meet the more-likely-than-not
recognition threshold and therefore no adjustment or reserve has
been made to the financial statements.
Comprehensive Loss Comprehensive loss
includes all changes in stockholders equity (deficit)
during the period from non-owner sources. For the years ended
December 31, 2008 and 2009, the Companys
comprehensive loss approximates net loss.
Recently Issued Accounting
Pronouncements In May 2009, the Financial
Accounting Standards Board (FASB) issued Accounting Standards
Codification (ASC) Topic 855, Subsequent Events. The
pronouncement established general standards of accounting for
and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. The Company adopted this standard for the financial
statements for the year ended December 31, 2009 and the
adoption had no impact on the Companys financial
statements.
In June 2009, the FASB issued ASC Topic 105 (ASC 105), The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles. ASC 105
establishes the FASB Accounting Standards Codification
(Codification) as the single source of authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. The Codification did not include any
new guidance or interpretations of U.S. GAAP, but merely
eliminated the previously existing hierarchy and codified
previously issued standards and pronouncements into specific
topic areas. The Company adopted this standard for the financial
statements for the year ended December 31, 2009. The
adoption had no impact to the Companys financial
statements.
In January 2010, the FASB issued Accounting Standards Update
2010-06,
Fair Value Measurements and Disclosures (ASC 820): Improving
Disclosures about Fair Value Measurements. This update added
new requirements for disclosures about various fair value
measurement categories. Additionally, this pronouncement
clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. The Company has adopted this standard
effective January 1, 2010 (unaudited). The adoption did not
have a material impact on the Companys financial
statements.
Other recent accounting pronouncements issued did not, or are
not believed by management to, have a material impact on the
Companys present or future financial statements.
F-97
Casabi,
Inc.
Notes to Financial Statements (Continued)
|
|
2.
|
Property and
Equipment
|
Property and equipment, net, at December 31, 2008 and 2009
and September 30, 2010 (unaudited), consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Computer equipment
|
|
$
|
881,018
|
|
|
$
|
919,325
|
|
|
$
|
923,012
|
|
Software
|
|
|
413,348
|
|
|
|
427,620
|
|
|
|
430,200
|
|
Furniture and fixtures
|
|
|
45,437
|
|
|
|
68,631
|
|
|
|
68,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,339,803
|
|
|
|
1,415,576
|
|
|
|
1,421,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(719,072
|
)
|
|
|
(1,096,562
|
)
|
|
|
(1,270,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
620,731
|
|
|
$
|
319,014
|
|
|
$
|
151,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $371,934 and $377,490
for the years ended December 31, 2008 and 2009 and $314,232
and $174,135 for the nine months ended September 30, 2009
and 2010 (unaudited), respectively.
The Company has the following outstanding notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Growth Capital Line
|
|
$
|
3,000,000
|
|
|
$
|
1,957,778
|
|
|
$
|
1,631,481
|
|
Equipment Line
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,300,000
|
|
|
$
|
1,957,778
|
|
|
$
|
1,719,481
|
|
Less: unamortized discounts
|
|
|
(49,756
|
)
|
|
|
(16,576
|
)
|
|
|
(9,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,250,244
|
|
|
$
|
1,941,202
|
|
|
$
|
1,709,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth Capital Line In June 2007, the
Company entered into a Loan and Security Agreement (Growth
Capital Line) with a financial institution to borrow up to
$4 million. The debt bears interest at prime plus 1% per
annum. In connection with this agreement, the Company issued to
the financial institution warrants to purchase
130,739 shares of Series B convertible redeemable
preferred stock with an exercise price of $0.91786 per share.
The Growth Capital Line is collateralized by substantially all
of the tangible assets of the Company. Initially, the terms of
the Growth Capital Line were interest only through June 2008,
with monthly principal and interest payments, in the amount of
$166,667, through June 2010.
In March 2009, the Company entered into a Second Amendment to
the Loan and Security Agreement on the Growth Capital Line. The
Second Amendment extended the maturity date to January 1,
2011 and provided for the availability of an additional cash
advance to the Company, not to exceed $2,936,666, in addition to
the then outstanding balance. The interest rate was adjusted to
the greater of 5% or prime plus 2.75% per annum. Additional
requirements of the Second Amendment were: (1) the Company
must provide audited financial statements within 150 days
of the fiscal year
F-98
Casabi,
Inc.
Notes to Financial Statements (Continued)
end; (2) the Company must maintain at least a balance of
$4,000,000 in unrestricted cash at the financial institution;
and (3) the amount of the cash cannot fall below $1,750,000
without a written term sheet or commitment for funding by
investors that would provide 12 months of operating cash.
In February 2010, the Company entered into a Third Amendment to
the Loan and Security Agreement on the Growth Capital Line. The
Third Amendment acknowledged and waived the existing and uncured
event of default that had occurred because the cash balances
maintained at the financial institution were less than
$1,750,000 and no additional funding had been obtained. The
financial institution agreed to defer the principal payments for
February through June 2010, provided that the interest payments
still occur. Principal and interest payments were to resume on
July 1, 2010 and would continue until the maturity date of
January 1, 2011. The Company provided an additional
security interest to the financial institution of the
Companys intellectual property. The Company agreed to
provide evidence of additional bridge financing if the cash
balances maintained at the financial institution were less than
$500,000.
Equipment Line In August 2007, in the
first Amendment to the above Loan and Security Agreement, the
Company obtained an Equipment Loan in the amount of $450,000,
with an interest rate of prime plus 1% per annum. Terms of the
loan are interest only for the first three months, (beginning
December 2007) with principal ($15,000 each month) and
interest payments, due over the remaining 30 months. The
Equipment Loan was fully paid in April 2009 as a result of the
additional cash advance provided by the Second Amendment to the
Loan and Security Agreement.
As of May 31, 2010, the Company was in violation of the
audited financial statement covenant. On November 30, 2010,
the financial institution waived the audited financial statement
covenant violation.
|
|
4.
|
Preferred Stock
Warrants
|
Series C
Convertible Redeemable Preferred Stock
In connection with the Series C convertible redeemable
preferred stock (Series C) financing described in
Note 5, the Company committed to issuing warrants to
purchase 2,926,258 shares of Series C with an exercise
price of $0.5126 per share to certain investors if the Company
did not sell at least $7.5 million of Series C or
close another preferred stock financing in the amount of at
least $1.5 million within 6 months of the initial
closing of Series C. As of September 2009, the Company did
not meet these additional financing criteria and an issuance
cost of $1,417,115 relating to the issuance of these warrants
was recorded against the Series C financing. As of
December 31, 2009 and September 30, 2010 (unaudited),
these warrants have not been issued, however, the Company is
under the obligation to issue the warrants. The fair value of
the obligation to issue the warrant in the amount of $1,417,115
was recorded in the balance sheet as warrants liability and,
subsequently, has been remeasured to fair value. For the nine
months ended September 30, 2009 and 2010 (unaudited), the
Company recognized a gain of $558 and $22,255 to other income
(expense), net, respectively. For the year ended
December 31, 2009, the Company recognized a gain of $3,906
to other income (expense), net.
In connection with the Third Amendment to the Loan and Security
Agreement described in Note 3, the Company issued a warrant
to purchase 62,427 shares of Series C with an exercise
price of $0.5126 per share. This warrant is exercisable
immediately and expires in 2020. The initial fair value of
$30,256 was recorded as a discount to the debt and is being
amortized over the remaining term of the Growth Capital Line,
which matures on January 1, 2011. As the underlying
preferred stock is redeemable, this warrant has been classified
as a liability and, subsequently, the warrant has been
F-99
Casabi,
Inc.
Notes to Financial Statements (Continued)
remeasured to fair value. For the nine months ended
September 30, 2010 (unaudited), the Company recognized a
gain of $376 to other income (expense), net.
The Company determined the fair value of the Series C
warrants as of December 31, 2009 and September 30,
2010 (unaudited) and using the Black-Scholes option-pricing
model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free rate
|
|
|
3.85
|
%
|
|
|
2.53
|
%
|
Expected term (in years)
|
|
|
9.72
|
|
|
|
8.98
|
|
Expected volatility
|
|
|
116
|
%
|
|
|
116
|
%
|
As of December 31, 2009 and September 30, 2010
(unaudited), the Series C warrants had not been exercised
and were still outstanding.
Series B
Convertible Redeemable Preferred Stock
In connection with the Growth Capital Line described in
Note 3, the Company issued a warrant to purchase
130,739 shares of Series B convertible redeemable
preferred stock (Series B) with an exercise price of
$0.9179 per share. This warrant is exercisable immediately and
expires in 2014. The initial fair value of $99,526 was recorded
as a discount to the debt and is being amortized over the term
of the Growth Capital Line. As the underlying preferred stock is
redeemable, this warrant has been classified as a liability, and
subsequently, remeasured to fair value. For the nine months
ended September 30, 2009 and 2010 (unaudited), the Company
recognized a gain of $68,936 and $1,438 to other income
(expense), net, respectively. For the years ended
December 31, 2008 and 2009, the Company recognized a charge
of $495 and a gain of $91,914 to other income (expense), net,
respectively.
The Company determined the fair value of the Series B
warrants as of December 31, 2008 and 2009 and
September 30, 2010 (unaudited) using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free rate
|
|
|
1.55
|
%
|
|
|
2.69
|
%
|
|
|
1.27
|
%
|
Expected term (in years)
|
|
|
5.46
|
|
|
|
4.46
|
|
|
|
3.71
|
|
Expected volatility
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
As of December 31, 2009 and September 30, 2010
(unaudited), the Series B warrants had not been exercised
and were still outstanding.
Series A
Convertible Preferred Stock
In 2006, the Company issued warrants to purchase
84,348 shares of Series A convertible preferred stock
(Series A) with an exercise price of $0.91786 and
expiration date of 2013. As of
F-100
Casabi,
Inc.
Notes to Financial Statements (Continued)
December 31, 2008 and 2009 and September 30, 2010
(unaudited), the Series A warrants had not been exercised
and were still outstanding.
In March 2009, the Company issued 11,705,032 shares of
Series C to existing stockholders for $0.5126 per share and
received total consideration of $6.0 million less issuance
costs of $111,532. Simultaneously, an investor transferred
1,463,949 shares of Series A and 1,822,917 shares
of Series B to the Company in accordance with a negotiated
dilution agreement. As such, the original aggregate purchase
price of these shares has been reclassified to additional
paid-in capital.
The significant terms of the Series A, Series B and
Series C as of December 31, 2009 and
September 30, 2010 (unaudited), are as follows:
Conversion The holder of each share of
preferred stock has the option to convert each share into such
number of fully paid and non-assessable shares of common stock
at any time, after the date of issuance, as is determined by
dividing the issue price (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with
respect to those shares) by the conversion price applicable to
each share in effect on the date the certificate is surrendered
for conversion. The conversion prices for the Series A,
Series B and Series C preferred stock (collectively,
Preferred Stock) are $0.71134, $0.91786, and
$0.51260, respectively. Each share of Series A,
Series B and Series C preferred stock shall
automatically be converted into shares of common stock at the
then-effective conversion price, respectively, upon the earlier
of the date specified by vote or written consent of agreement of
holders of at least 70% of the outstanding shares of
Series A, Series B and Series C preferred stock,
voting together as a single class, or immediately upon the
closing of the sale of the Companys common stock in a firm
commitment, underwritten public offering registered under the
Securities Act of 1933 that results in gross proceeds of not
less than $25,000,000 and the public offering price is based on
a valuation of the Company of at least $150,000,000 on a fully
diluted basis.
|
|
|
|
|
Special Mandatory Conversion If the
Company consummates a financing pursuant to which the holders of
the Series C are entitled to exercise the right of first
offer described in the Second Amended and Restated
Investors Rights Agreement dated March 18, 2009, and
the holders of the Series C do not acquire their pro rata
share of the financing, then the Series C stock held by the
non-participating holders will automatically convert to common
stock at the conversion price.
|
Voting The Series A,
Series B and Series C preferred stockholders shall be
entitled to the number of votes equal to the number of shares of
common stock into which such shares could be converted when
voting other than for directors. Fractional votes by the holders
of Preferred Stock shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after
aggregating all shares into which shares of Preferred Stock held
by each holder could be converted) shall be rounded to the
nearest whole number. With respect to the election of members of
the Board of Directors, one director may be elected by both the
holders of the Series A and the Series B preferred
stock with each class voting as a single class. One director may
be elected by the holders of common stock voting together as a
single class. Two directors may be elected by the holders of the
Preferred Stock and common stock voting together.
Dividends Holders of convertible
preferred stock are entitled to receive cash dividends at the
rate of $0.0569072 per Series A, $0.0734288 per
Series B and $0.0410080 per Series C, on each
outstanding share in preference to any amounts paid to the
common shareholders (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with
respect
F-101
Casabi,
Inc.
Notes to Financial Statements (Continued)
to those shares). Such dividends shall be payable only when, as
and if declared by the Board of Directors, and shall be
noncumulative. No dividends have been declared to date. The
holders of the outstanding shares of Series A can waive any
dividend preference upon the consent of at least 50% of the
holders of the shares. The holders of the Series B and C
outstanding shares can also waive any dividend preference by
vote of at least 70% of the holders of the shares.
Liquidation Preferences In the event
of a liquidation, dissolution, winding up or change of control
of the Company, holders of Series C are entitled to
receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Company to the holders of the
Series A and Series B and common stock, the amount of
the product of $0.7680 per share of Series C, adjusted for
any stock dividends, combinations, splits, recapitalizations and
the like with respect to those shares, plus all declared but
unpaid dividends on each such share then held by them. If upon
the occurrence of such event, the assets and funds thus
distributed among the holders of Series C shall be
insufficient to permit the payment to such holders, then the
entire assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of
the Series C.
After payment has been made to the holders of Series C, the
holders of Series B shall be entitled to receive, prior and
in preference to any distribution of any of the assets or
surplus funds of the Company to the holders of the Series A
and common stock by reason of their ownership thereof, the
amount of $0.91786 per share of Series B then held by them,
adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to those shares,
plus all declared but unpaid dividends on each such share then
held by them. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of Series B
shall be insufficient to permit the payment to such holders,
then the entire assets and funds of the Company legally
available for distribution shall be distributed ratably among
the holders of the Series B.
After payment has been made to the holders of Series C and
Series B, the holders of Series A shall be entitled to
receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Company to the holders of the
common stock by reason of their ownership thereof, the amount of
$0.71134 per share of Series A then held by them, adjusted
for any stock dividends, combinations, splits, recapitalizations
and the like with respect to those shares, plus all declared but
unpaid dividends on each such share then held by them. If upon
the occurrence of such event, the assets and funds thus
distributed among the holders of Series A shall be
insufficient to permit the payment to such holders, then the
remaining entire assets and funds of the Company legally
available for distribution shall be distributed ratably among
the holders of the Series A.
After payment to the holders of Series A, Series B and
Series C, the entire remaining assets and funds of the
Company legally available for distribution, if any, shall be
distributed among the holders of the Series B and common
stock based on the number of shares of common stock held by each
holder of the common stock (on an as-converted to common stock
basis); provided, however, that at such time as a holder of
Series B has received an aggregate amount equal to $1.37679
per share of Series B (including any amounts received above
and subject to adjustment for any stock dividends, combinations
or splits with respect to such shares), such holder shall cease
its participation as a holder of Series B in any further
distribution hereunder.
Redemption The holders of at least 70%
of the Series B and Series C, voting together as a
single class, may require the Company to redeem all of the
Series B and Series C in two equal annual installments
starting on the date that is 60 months after the original
issuance date of the Series B and Series C. The
Company shall pay cash in exchange for the Series B to be
F-102
Casabi,
Inc.
Notes to Financial Statements (Continued)
redeemed at a sum equal to the original issue price per share,
plus an amount equal to 8% of the original issue price
compounded annually from February 15, 2007, through the
date of the redemption request. The Company shall pay cash in
exchange for the Series C to be redeemed at a sum equal to
the original issue price per share, plus an amount equal to 8%
of the original issue price compounded annually from
March 18, 2009, through the date of the redemption request.
2005 Stock Option Plan Under the
Companys 2005 Stock Option Plan (the Plan),
2,389,855 shares of common stock have been authorized for
issuance to employees, advisory board members, or service
providers. An additional 2,200,000 and 2,420,000 shares of
common stock have been authorized for issuance to employees,
advisory board members, or service providers in February 2007
and March 2009, respectively, bringing the total to 7,009,855.
Options may be incentive or nonstatutory stock options.
Incentive stock options are granted only to employees to
purchase shares at not less than fair value at date of grant,
and nonstatutory stock options are granted to advisory board
members or service providers to purchase shares at not less than
85% of fair value at date of grant. If the optionee, at the time
the option is granted, owns more than 10% of the total combined
voting rights of all classes of stock of the Company, the
optionee can purchase shares at not less than 110% of the fair
value at date of grant. Incentive and nonstatutory stock options
vest over the period as determined by the Board of Directors,
generally four years, and are documented in writing through an
option agreement with the optionee. If unexercised, options
granted to employees and advisory board members will expire upon
the earlier of 10 years and one day from the date of grant
or three months after termination as an employee or service
provider of the Company.
The Company is required to estimate the fair value of
share-based payment awards on the date of the grant using an
option-pricing model. The Company currently uses the
Black-Scholes option-pricing model to estimate the fair value of
share-based payments. The weighted-average fair value of stock
options granted to employees during the years ended
December 31, 2008 and 2009, was $0.03 and $0.05 per share,
respectively, and $0.03 per share for the nine months ended
September 30, 2009 (unaudited). There were no option grants
during the nine months ended September 30, 2010
(unaudited). The model requires management to make a number of
assumptions including expected volatility, expected life,
risk-free interest rate and expected dividends. The fair values
were estimated on the grant dates with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
N/A
|
|
Risk-free interest rate
|
|
|
3.24
|
%
|
|
|
3.15
|
%
|
|
|
3.15
|
%
|
|
|
N/A
|
|
Expected term (in years)
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
N/A
|
|
Expected volatility
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
N/A
|
|
Expected Term The expected term
represents the period that the Companys stock-based awards
are expected to be outstanding. For option grants that are
considered to be plain vanilla, the Company used the
simplified method to determine the expected term as provided by
the Securities and Exchange Commission. The simplified method is
calculated as the average of the
time-to-vesting
and the contractual life of the options. For other option
grants, the expected term is derived from
F-103
Casabi,
Inc.
Notes to Financial Statements (Continued)
historical data on employee exercises and post-vesting
employment termination behavior taking into account the
contractual life of the award.
Risk-Free Interest Rate The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for zero coupon U.S. Treasury
notes with maturities approximately equal to the options
expected term.
Expected Volatility The expected
volatility was calculated based on the average historical
volatilities of a group of publicly traded peer companies
determined by management.
Dividend Rate The expected dividend
yield was zero, as the Company has never paid dividends and does
not anticipate paying a dividend within the relevant time frame.
The Company is required to estimate potential forfeitures of
stock grants and adjust stock-based compensation expense
accordingly. The estimate of forfeitures will be adjusted over
the requisite service period to the extent that actual
forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures will be recognized
in the period of change and will also impact the amount of
stock-based compensation expense to be recognized in future
periods.
The Company recognized stock-based compensation expense for
employees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Research and development
|
|
$
|
21,806
|
|
|
$
|
27,246
|
|
|
$
|
20,443
|
|
|
$
|
14,749
|
|
Sales and marketing
|
|
|
6,032
|
|
|
|
1,863
|
|
|
|
1,397
|
|
|
|
|
|
General and administrative
|
|
|
34,530
|
|
|
|
28,330
|
|
|
|
21,247
|
|
|
|
15,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,368
|
|
|
$
|
57,439
|
|
|
$
|
43,087
|
|
|
$
|
30,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation to nonemployees are recorded at the
estimated fair value using the Black-Scholes option-pricing
model on each measurement date. The value of the equity
instrument is charged to results of operations and are
re-measured at each reporting period until they are earned.
These charges have not been material to any period presented.
F-104
Casabi,
Inc.
Notes to Financial Statements (Continued)
Stock option activity under the Plan during the years ended
December 31, 2008 and 2009 and the nine months ended
September 30, 2010 (unaudited), was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
|
Available for
|
|
|
Stock Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Grant
|
|
|
Outstanding
|
|
|
Price
|
|
|
Term
|
|
|
Balances, December 31, 2007
|
|
|
1,531,991
|
|
|
|
3,006,989
|
|
|
$
|
0.13
|
|
|
|
|
|
Granted
|
|
|
(840,502
|
)
|
|
|
840,502
|
|
|
|
0.07
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
(30,458
|
)
|
|
|
0.08
|
|
|
|
|
|
Cancelled
|
|
|
456,642
|
|
|
|
(456,642
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
1,148,131
|
|
|
|
3,360,391
|
|
|
|
0.11
|
|
|
|
8.3
|
|
Additional shares authorized
|
|
|
2,420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,539,458
|
)
|
|
|
1,539,458
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
2,028,673
|
|
|
|
4,899,849
|
|
|
|
0.09
|
|
|
|
8.0
|
|
Cancelled (unaudited)
|
|
|
832,764
|
|
|
|
(832,764
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances September 30, 2010 (unaudited )
|
|
|
2,861,437
|
|
|
|
4,067,085
|
|
|
$
|
0.08
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
3,957,651
|
|
|
$
|
0.10
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
2,355,617
|
|
|
$
|
0.12
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The remaining unamortized stock-based compensation expense for
all employee stock options was $70,669, net of estimated
forfeitures, at December 31, 2009, and will be amortized
over a weighted average remaining period of 2.6 years.
The information about stock options outstanding and exercisable
as of December 31, 2009, by exercise price is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
Exercise
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
Price
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Life (Years)
|
|
|
Price
|
|
|
$0.07
|
|
|
247,500
|
|
|
|
6.1
|
|
|
$
|
0.07
|
|
|
|
245,500
|
|
|
|
6.0
|
|
|
$
|
0.07
|
|
$0.08
|
|
|
3,074,458
|
|
|
|
8.1
|
|
|
$
|
0.08
|
|
|
|
1,322,417
|
|
|
|
6.8
|
|
|
$
|
0.08
|
|
$0.21
|
|
|
1,577,891
|
|
|
|
7.9
|
|
|
$
|
0.21
|
|
|
|
787,700
|
|
|
|
7.7
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,899,849
|
|
|
|
8.0
|
|
|
$
|
0.09
|
|
|
|
2,355,617
|
|
|
|
7.0
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-105
Casabi,
Inc.
Notes to Financial Statements (Continued)
Common Stock At December 31, 2009
and 2008 and September 30, 2010 (unaudited), the Company
has reserved shares of its common stock for future issuance as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Conversion of preferred stock
|
|
|
18,626,795
|
|
|
|
26,881,827
|
|
|
|
26,881,827
|
|
Options outstanding under stock option plan
|
|
|
3,360,391
|
|
|
|
4,899,849
|
|
|
|
4,067,085
|
|
Options available for grant under stock option plan
|
|
|
1,148,131
|
|
|
|
2,028,673
|
|
|
|
2,861,437
|
|
Outstanding preferred stock warrants
|
|
|
215,087
|
|
|
|
215,087
|
|
|
|
277,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,350,404
|
|
|
|
34,025,436
|
|
|
|
34,087,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences and carryforwards which
gave rise to significant portions of deferred tax assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Net operating loss carryforwards
|
|
$
|
6,306,000
|
|
|
$
|
8,924,000
|
|
Research and development credits
|
|
|
510,000
|
|
|
|
840,000
|
|
Accruals and reserves
|
|
|
949,000
|
|
|
|
663,000
|
|
Other
|
|
|
43,000
|
|
|
|
44,000
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
7,808,000
|
|
|
|
10,471,000
|
|
Valuation allowance
|
|
|
(7,808,000
|
)
|
|
|
(10,471,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had approximately
$22,730,000 and $20,490,000 of federal and state net operating
loss carryforwards available to offset future taxable income.
Federal and state net operating loss carryforwards expires in
varying amounts beginning in 2024 and 2014, respectively.
As of December 31, 2009, the Company had credit
carryforwards of approximately $538,000 and $582,000 available
to reduce future taxable income, if any, for both federal and
state income tax purposes, respectively. The federal credit
carryforwards expire beginning in 2027, and the state credits
have no expiration date.
Management establishes a valuation allowance for those
deductible temporary differences when it is more likely than not
that the benefit of such deferred tax assets will not be
recognized. The ultimate realization of deferred tax assets is
dependent upon the Companys ability to generate taxable
income during the periods in which the temporary differences
become deductible. Management considers the historical level of
taxable income, projections for future taxable income, and tax
planning strategies in making this assessment. Managements
assessment in the near term is subject to change if estimates of
future taxable income during the carryforward period are reduced.
Management believes that, based on a number of factors, it is
more likely than not that the deferred tax assets will not be
utilized, and accordingly a full valuation allowance has been
recorded.
F-106
Casabi,
Inc.
Notes to Financial Statements (Continued)
The valuation allowance increased by $3,268,000 and $2,663,000
for the years ended December 31, 2008 and 2009,
respectively.
Utilization of the Companys net operating loss
carryforwards and credits may be subject to an annual limitation
due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The
annual limitation may result in the expiration of net operating
losses and credits before utilization.
Effective January 1, 2009, the Company adopted the FASB
interpretation on accounting for uncertainties in income taxes.
This interpretation prescribes a comprehensive model for the
recognition, measurement, presentation and disclosure in
financial statements of any uncertain tax positions that have
been taken or expected to be taken on a tax return. The
cumulative effect of adopting this interpretation resulted in no
adjustment to accumulated deficit as of January 1, 2009. No
liability related to uncertain tax positions is recorded on the
financial statements. It is the Companys policy to include
penalties and interest expense related to income taxes as a
component of other expense and interest expense, respectively,
as necessary.
The Companys tax years
2004-2009
will remain open for examination by the federal and state
authorities for three and four years, respectively, from the
date of utilization of any net operating loss credits.
|
|
8.
|
Commitments And
Contingencies
|
Leases The Company
sub-leases
its facilities under an agreement that expires in June 2011.
Rent expense for the years ended December 31, 2008 and 2009
were $198,405 and $162,250, respectively. The aggregate minimum
payment on this lease during the years ended December 31,
2010 and 2011 is $120,000 and $60,000, respectively.
As of December 31, 2009, the future minimum lease payments
for the Companys other operating leases are as follows:
|
|
|
|
|
|
|
Future Minimum
|
|
Year Ended December
31,
|
|
Lease Payments
|
|
|
2010
|
|
$
|
3,988
|
|
2011
|
|
$
|
1,995
|
|
Indemnification The Company has
agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines and
settlement amounts incurred by them in any action or proceeding
to which any of them is, or is threatened to be, made a party by
reason of his or her service as a director or officer. This
indemnification includes any action by the Company, arising out
of his or her services as the Companys director or officer
or his or her services provided to any other company or
enterprise at the Companys request. Historically, the
Company has not been required to make payments under this
indemnification and the Company has recorded no liabilities for
this type of obligation.
The Company provides its customers general indemnification under
its proprietary software arrangements. Under these arrangements,
the Company generally states that it will defend and pay
damages, at its own expense, to its customers for any claim for
a third party asserting a patent, copyright, or trade secret
violation. To date, the Company has not incurred any costs
related to these indemnifications.
F-107
Casabi,
Inc.
Notes to Financial Statements (Continued)
The Company has a 401(k) defined contribution plan covering
substantially all employees of the Company. As allowed under
Section 401(k) of the Internal Revenue Code, the plan
provides tax deferred salary deductions for eligible employees.
Eligible employees may contribute up to the maximum amount set
periodically by the Internal Revenue Service. The plan also
allows for discretionary employer contributions. The Company did
not contribute for the years ended December 31, 2008 and
2009 or for the nine months ended September 30, 2009 and
2010 (unaudited).
In June and July 2010, the Company issued $500,000 in promissory
notes to current investors. These notes carry an 8% interest
rate per annum and were due at September 30, 2010. At the
maturity date, the Company must pay an additional $250,000,
which is recorded as accrued interest under other accrued
liabilities at September 30, 2010.
On October 27, 2010, the Company sold substantially all of
its assets to BroadSoft, Inc. The total estimated acquisition
price of $1,895,589 includes cash of $1,738,127 for repayment of
notes payable and other liabilities and $157,462 in the
cancellation of indebtedness from BroadSoft, Inc. No adjustments
have been made to the December 31, 2009 or
September 30, 2010 (unaudited) financial statements to
reflect the impact of the sale of Company assets.
The Company has evaluated all events occurring subsequent to
December 31, 2009 through December 11, 2010, which is
the financial statement issuance date, and, with the exception
of such items noted above, nothing has occurred outside the
normal course of our business operations.
F-108
BroadSoft and
Casabi, Inc.
UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION
(in thousands)
On October 27, 2010, our wholly owned subsidiary BroadSoft
Casabi, LLC acquired substantially all of the assets of Casabi,
Inc. used to provide its cloud-based personalized content and
messaging applications for approximately $2,070 of cash. The
preliminary purchase price was based on managements
initial estimates and currently available information.
The accompanying unaudited condensed pro forma combined
financial statements reflect the acquisition using the purchase
method of accounting in accordance with U.S. generally
accepted accounting principles, or GAAP. The pro forma
acquisition adjustments described in Note 3 were based on
available information and certain assumptions made by the
companys management and may be revised as additional
information becomes available. Pro forma data is not necessarily
indicative of the financial results that would have been
attained had the acquisition occurred at the beginning of the
periods indicated. As actual adjustments may differ from the pro
forma adjustments, the pro forma amounts presented should not be
viewed as indicative of operations in future periods. The
unaudited condensed pro forma combined financial information
does not reflect any cost savings, operating synergies or
revenue enhancements that we may achieve as a result of the
acquisition. In addition, deferred taxes are not included since
they will not have an impact on the information presented due to
the companys full valuation allowance on deferred tax
assets.
The unaudited condensed pro forma combined balance sheet as of
September 30, 2010 illustrates the effect of the
acquisition of the assets of Casabi as if the acquisition had
occurred on such date. The unaudited condensed pro forma
combined statement of operations for the year ended
December 31, 2009 illustrates the effect of the acquisition
of the assets of Casabi as if the acquisition had occurred on
January 1, 2009. The unaudited condensed pro forma combined
statement of operations for the year ended December 31,
2009 combines the historical financial information of Casabi for
the year ended December 31, 2009 and BroadSoft historical
financial information for the year ended December 31, 2009.
The unaudited condensed pro forma combined statement of
operations for the nine months ended September 30, 2010
illustrates the effect of the acquisition of the assets of
Casabi as if the acquisition had occurred on January 1,
2009. The unaudited condensed pro forma combined statement of
operations for the nine months ended September 30, 2010
combines the historical financial information of Casabi for the
nine months ended September 30, 2010 and BroadSoft
historical financial information for the nine months ended
September 30, 2010. The detailed assumptions used to
prepare the pro forma financial information are contained in the
notes to the unaudited condensed pro forma combined financial
statements, and such assumptions should be reviewed in their
entirety.
The pro forma combined financial statements and accompanying
notes thereto should be read together with our historical
financial statements as of and for the year ended
December 31, 2009 and nine months ended September 30,
2010, and Casabis historical financial statements as of
and for the year ended December 31, 2009 and nine months
ended September 30, 2010, included elsewhere in this
prospectus.
The unaudited condensed pro forma combined financial statements
have been prepared pursuant to the rules and regulations of the
SEC. Certain information and certain footnote disclosures
normally included in financial statements prepared in accordance
with GAAP have been omitted pursuant to the rules and
regulations; however, management believes that the disclosures
are adequate such that the information presented is not
misleading.
F-109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BroadSoft
|
|
|
Casabi
|
|
|
Adjustments
|
|
|
|
|
Pro Forma
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,488
|
|
|
$
|
1
|
|
|
$
|
(2,131
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(b)
|
|
$
|
47,357
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
30,611
|
|
|
|
167
|
|
|
|
(167
|
)
|
|
(b)
|
|
|
30,611
|
|
Other current assets
|
|
|
5,152
|
|
|
|
11
|
|
|
|
49
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
(d)
|
|
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
85,251
|
|
|
|
179
|
|
|
|
(2,338
|
)
|
|
|
|
|
83,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
3,104
|
|
|
|
151
|
|
|
|
(10
|
)
|
|
(e)
|
|
|
3,245
|
|
Restricted cash
|
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
Intangible assets, net
|
|
|
2,592
|
|
|
|
|
|
|
|
1,231
|
|
|
(f)
|
|
|
3,823
|
|
Goodwill
|
|
|
5,537
|
|
|
|
|
|
|
|
618
|
|
|
(g)
|
|
|
6,155
|
|
Other long-term assets
|
|
|
2,039
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
14,329
|
|
|
|
171
|
|
|
|
1,839
|
|
|
|
|
|
16,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
99,580
|
|
|
$
|
350
|
|
|
$
|
(499
|
)
|
|
|
|
$
|
99,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable preferred stock, redeemable
convertible preferred stock and stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and bank loans, current portion
|
|
$
|
1,179
|
|
|
$
|
2,210
|
|
|
$
|
(2,122
|
)
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
(d)
|
|
$
|
1,179
|
|
Accounts payable and accrued expenses
|
|
|
11,009
|
|
|
|
468
|
|
|
|
(468
|
)
|
|
(b)
|
|
|
11,009
|
|
Deferred revenue, current portion
|
|
|
52,255
|
|
|
|
382
|
|
|
|
(382
|
)
|
|
(b)
|
|
|
52,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
64,443
|
|
|
|
3,060
|
|
|
|
(3,060
|
)
|
|
|
|
|
64,443
|
|
Notes payable and bank loans
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,194
|
|
Deferred revenue
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,043
|
|
Other long-term liabilities
|
|
|
1,619
|
|
|
|
1,428
|
|
|
|
(1,428
|
)
|
|
(l)
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
69,299
|
|
|
|
4,488
|
|
|
|
(4,488
|
)
|
|
|
|
|
69,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
16,430
|
|
|
|
(16,430
|
)
|
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
|
|
|
|
16,430
|
|
|
|
(16,430
|
)
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share; 5,000,000
authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
(h)
|
|
|
|
|
Common stock, par value $0.01 per share; 100,000,000 shares
authorized, 24,695,952 shares issued and outstanding
|
|
|
247
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
(h)
|
|
|
247
|
|
Additional paid-in capital
|
|
|
131,419
|
|
|
|
3,689
|
|
|
|
(3,689
|
)
|
|
(h)
|
|
|
131,419
|
|
Accumulated other comprehensive loss
|
|
|
(1,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,712
|
)
|
Accumulated deficit
|
|
|
(99,673
|
)
|
|
|
(24,267
|
)
|
|
|
24,118
|
|
|
(i)
|
|
|
(99,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
30,281
|
|
|
|
(20,568
|
)
|
|
|
20,419
|
|
|
|
|
|
30,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
99,580
|
|
|
$
|
350
|
|
|
$
|
(499
|
)
|
|
|
|
$
|
99,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited condensed pro forma
combined financial statements which are an integral part of
these statements.
F-110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BroadSoft
|
|
|
Casabi
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
32,215
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
32,215
|
|
Maintenance and professional services*
|
|
|
27,633
|
|
|
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
29,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
59,848
|
|
|
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
61,884
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
3,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,616
|
|
Maintenance and professional services
|
|
|
10,556
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
12,556
|
|
Amortization of intangibles
|
|
|
571
|
|
|
|
|
|
|
|
186
|
|
|
|
(j
|
)
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
14,743
|
|
|
|
2,000
|
|
|
|
186
|
|
|
|
|
|
|
|
16,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
45,105
|
|
|
|
36
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
44,955
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
22,601
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
22,749
|
|
Research and development
|
|
|
14,230
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
14,819
|
|
General and administrative
|
|
|
10,236
|
|
|
|
627
|
|
|
|
(104
|
)
|
|
|
(m
|
)
|
|
|
10,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
47,067
|
|
|
|
1,364
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
48,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,962
|
)
|
|
|
(1,328
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
(3,372
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(30
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
Interest expense
|
|
|
730
|
|
|
|
119
|
|
|
|
(119
|
)
|
|
|
(k
|
)
|
|
|
730
|
|
Other (income) expense
|
|
|
174
|
|
|
|
(23
|
)
|
|
|
24
|
|
|
|
(l
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
874
|
|
|
|
95
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,836
|
)
|
|
|
(1,423
|
)
|
|
|
13
|
|
|
|
|
|
|
|
(4,246
|
)
|
Provision for income taxes
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Net loss
|
|
$
|
(3,199
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
13
|
|
|
|
|
|
|
$
|
(4,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.34
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
13,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,369
|
|
* Includes subscription revenue for Casabi.
See the accompanying notes to the unaudited condensed pro forma
combined financial statements which are an integral part of
these statements.
F-111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BroadSoft
|
|
|
Casabi
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
37,942
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
37,942
|
|
Maintenance and professional services (*)
|
|
|
30,945
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
32,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
68,887
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
70,924
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
4,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,432
|
|
Maintenance and professional services
|
|
|
12,142
|
|
|
|
3,119
|
|
|
|
|
|
|
|
|
|
|
|
15,261
|
|
Amortization of intangibles
|
|
|
800
|
|
|
|
|
|
|
|
247
|
|
|
|
(j
|
)
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
17,374
|
|
|
|
3,119
|
|
|
|
247
|
|
|
|
|
|
|
|
20,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
51,513
|
|
|
|
(1,082
|
)
|
|
|
(247
|
)
|
|
|
|
|
|
|
50,184
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
28,534
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
28,944
|
|
Research and development
|
|
|
16,625
|
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
18,489
|
|
General and administrative
|
|
|
11,405
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
12,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
56,564
|
|
|
|
3,306
|
|
|
|
|
|
|
|
|
|
|
|
59,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,051
|
)
|
|
|
(4,388
|
)
|
|
|
(247
|
)
|
|
|
|
|
|
|
(9,686
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(39
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
Interest expense
|
|
|
1,398
|
|
|
|
184
|
|
|
|
(184
|
)
|
|
|
(k
|
)
|
|
|
1,398
|
|
Other (income) expense
|
|
|
110
|
|
|
|
(88
|
)
|
|
|
96
|
|
|
|
(l
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
1,469
|
|
|
|
72
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,520
|
)
|
|
|
(4,460
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
(11,139
|
)
|
Provision for income taxes
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7,853
|
)
|
|
|
(4,460
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
(12,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to BroadSoft, Inc.
|
|
$
|
(7,849
|
)
|
|
$
|
(4,460
|
)
|
|
$
|
(159
|
)
|
|
|
|
|
|
$
|
(12,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.98
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,285
|
|
|
|
|
*
|
|
Includes subscription revenue for
Casabi.
|
See the accompanying notes to the unaudited condensed pro forma
combined financial statements which are an integral part of
these statements.
F-112
Notes to
Unaudited Condensed Pro Forma Combined Financial
Information
On October 27, 2010, our wholly owned subsidiary BroadSoft
Casabi, LLC completed the acquisition of substantially all of
the assets of Casabi, Inc. As a result of the transaction, the
assets of Casabi acquired will be recorded at their respective
fair values and added to our assets.
The acquisition is accounted for under the acquisition method of
accounting in accordance with the accounting standards. Under
the acquisition method, the total estimated purchase price, or
consideration transferred, is measured at the acquisition
closing date. The assets of Casabi have been measured based on
various preliminary estimates using assumptions that the
Companys management believes are reasonable utilizing
information currently available. Use of different estimates and
judgments could yield different results.
The process for estimating the fair values of identifiable
intangible assets and certain tangible assets requires the use
of significant estimates and assumptions, including estimating
future cash flows and developing appropriate discount rates. The
excess of the purchase price over the estimated amounts of
identifiable assets of Casabi as of the effective date of the
acquisition was allocated to goodwill in accordance with the
accounting guidance. The purchase price allocation is subject to
finalization of the Companys analysis of the fair value of
the assets and liabilities of Casabi as of the acquisition date.
Accordingly, the purchase price allocation in the unaudited
condensed pro forma combined financial statements is preliminary
and will be adjusted upon completion of the final valuation.
Such adjustments could be material.
For purposes of measuring the estimated fair value of the assets
acquired as reflected in the unaudited condensed pro forma
combined financial statements, in accordance with the accounting
guidance, the Company established a framework for measuring fair
values. The accounting guidance defines fair value as the price
that would be received to sell an asset in an orderly
transaction between market participants at the measurement date
(an exit price). Market participants are assumed to be buyers
and sellers in the principal or most advantageous market for the
asset or liability. Additionally, under the accounting guidance,
fair value measurements for an asset assume the highest and best
use of that asset by market participants. As a result, the
Company may be required to value assets of Casabi at fair value
measures that do not reflect the Companys intended use of
those assets. Use of different estimates and judgments could
yield different results.
In accordance with the accounting guidance, acquisition-related
transaction costs, such as investment banking, advisory and
legal fees are not included as a component of consideration
transferred but are required to be expensed as incurred. The
unaudited condensed pro forma combined balance sheet reflects
the remaining anticipated acquisition-related transaction costs
of both companies as a reduction of cash with a corresponding
increase in accumulated deficit. These costs are not presented
in the unaudited condensed pro forma combined statements of
operations because they will not have a continuing impact on the
combined results.
|
|
2.
|
Preliminary
Purchase Price
|
The unaudited condensed pro forma combined financial information
reflects an estimated purchase price as follows (in thousands):
|
|
|
|
|
Cash paid to Casabi and certain creditors to satisfy liabilities
at closing
|
|
$
|
1,913
|
|
Cancellation of indebtedness owed by Casabi to BroadSoft (1)
|
|
|
157
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
(1) |
|
Of this amount, $88 was outstanding as of September 30,
2010 and $69 was advanced to Casabi after September 30,
2010 and prior to the closing of the transaction. |
F-113
Notes to
Unaudited Condensed Pro Forma Combined Financial
Statements (Continued)
Under the purchase method of accounting, we allocated the total
purchase price to the acquired tangible and intangible assets
based on their estimated fair values as of the closing date of
October 27, 2010. The valuation of the identifiable
intangible assets acquired was based on managements
preliminary estimates, currently available information and
reasonable and supportable assumptions. These estimates are
preliminary as the Company is still in the process of evaluating
the various assumptions used in valuing these assets. The
tangible long-lived assets were recorded at their estimated fair
value, which approximates their carrying value, while the
intangible long-lived assets were valued using a discounted cash
flow method. The excess of the aggregate estimated purchase
price over the estimated fair value of the tangible and
intangible assets and liabilities in the amount of approximately
$618 was classified as goodwill. The estimated fair value of
identifiable intangible assets which are subject to amortization
after the acquisition is $1,231.
The pro forma adjustments included in the unaudited condensed
pro forma combined financial statements are as follows (dollars
in thousands):
(a) Reflects the sum of (i) $1,913 in cash paid to
Casabi and certain creditors to satisfy liabilities at closing
for which BroadSoft will receive future benefit of $60,
(ii) $69 in advances made by BroadSoft to Casabi subsequent
to September 30, 2010, which obligation of Casabi was
cancelled in connection with the closing of the transaction and
(iii) a reduction of cash for expected future transaction costs
of $149.
(b) Adjustment to eliminate Casabi assets and liabilities
not included in the acquisition and liabilities settled with
proceeds at closing.
(c) The adjustment to other current assets reflects the
following:
|
|
|
|
|
Elimination of other current assets not included in the
acquisition
|
|
$
|
(11
|
)
|
Cash paid to a Casabi vendor that will provide to BroadSoft a
future benefit
|
|
|
60
|
|
|
|
|
|
|
|
|
$
|
49
|
|
|
|
|
|
|
(d) Adjustment to eliminate note payable in the amount of
$88 owed by Casabi to BroadSoft as of September 30, 2010.
(e) Reflects the adjustment of the carrying value of
Casabis property and equipment for depreciation subsequent
to September 30, 2010.
(f) Reflects the estimated value attributed to identifiable
intangible assets, consisting of $25 for trade names, $982 for
developed technology and $224 for customer relationships. We can
give no assurance that our final determination of values will
not materially differ from the amounts presented herein. Any
difference in the valuation as compared to the values presented
herein will result in a corresponding change to the goodwill
recorded as a result of the transaction.
(g) Goodwill is computed as follows:
|
|
|
|
|
Purchase price
|
|
$
|
2,070
|
|
Net tangible assets acquired
|
|
|
(221
|
)
|
Identifiable intangible assets acquired
|
|
|
(1,231
|
)
|
|
|
|
|
|
Goodwill
|
|
$
|
618
|
|
|
|
|
|
|
F-114
Notes to
Unaudited Condensed Pro Forma Combined Financial
Statements (Continued)
(h) Reflects the elimination of Casabi historical
stockholders equity (deficit).
(i) The adjustment to accumulated deficit reflects
adjustments for the following:
|
|
|
|
|
Eliminate Casabis historical accumulated deficit
|
|
$
|
24,267
|
|
Increase accumulated deficit for anticipated transaction costs
|
|
|
(149
|
)
|
|
|
$
|
24,118
|
|
(j) Reflects amortization expense that would have been
recorded had the acquisition been completed on January 1,
2009. The $1,231 of identifiable intangible assets are
amortizing assets that have been given a useful life of
5 years and were amortized using the straight-line method.
(k) Adjustment to eliminate amortization of debt issuance
cost and interest expense related to indebtedness of Casabi that
was not acquired.
(l) Adjustment to eliminate Casabis warrant
liabilities and other income due to changes in the fair value of
these warrant liabilities during the periods presented. These
warrants of Casabi were cancelled.
(m) Adjustment to eliminate transaction costs for the nine
months ended September 30, 2010.
F-115
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
9
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
32
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
38
|
|
|
|
|
85
|
|
|
|
|
99
|
|
|
|
|
108
|
|
|
|
|
134
|
|
|
|
|
137
|
|
|
|
|
141
|
|
|
|
|
146
|
|
|
|
|
149
|
|
|
|
|
153
|
|
|
|
|
157
|
|
|
|
|
157
|
|
|
|
|
157
|
|
|
|
|
F-1
|
|
5,300,000 Shares
BroadSoft, Inc.
Common Stock
Goldman, Sachs &
Co.
Jefferies &
Company
Cowen and Company
Needham & Company,
LLC
Pacific Crest
Securities
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
OTHER EXPENSES
OF ISSUANCE AND DISTRIBUTION
|
The following table sets forth all expenses, other than the
underwriting discounts and commissions, payable by us in
connection with the sale of the common stock being registered.
All the amounts shown are estimates except the SEC registration
fee and the FINRA filing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
10,474
|
|
FINRA filing fee
|
|
|
15,189
|
|
Printing and engraving
|
|
|
125,000
|
|
Legal fees and expenses(1)
|
|
|
393,000
|
|
Accounting fees and expenses
|
|
|
120,000
|
|
Transfer agent and registrar fees(2)
|
|
|
10,000
|
|
Miscellaneous fees and expenses
|
|
|
1,337
|
|
|
|
|
|
|
Total
|
|
$
|
675,000
|
|
|
|
|
|
|
|
|
|
(1) |
|
Approximately $40,800 of this amount will be paid by certain
selling stockholders. |
|
|
|
(2) |
|
Approximately $4,200 of this amount will be paid by certain
selling stockholders. |
|
|
ITEM 14.
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
Section 102 of the Delaware General Corporation Law permits
a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director,
except where the director breached his duty of loyalty, failed
to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend
or approved a stock repurchase in violation of Delaware
corporate law or obtained an improper personal benefit.
Section 145 of the Delaware General Corporation Law
provides that a corporation has the power to indemnify a
director, officer, employee or agent of the corporation and
certain other persons serving at the request of the corporation
in related capacities against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by the person in
connection with an action, suit or proceeding to which he is or
is threatened to be made a party by reason of such position, if
such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, in any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except
that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or other adjudicating
court determines that, despite the adjudication of liability but
in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem
proper.
As permitted by the Delaware General Corporation Law, our
amended and restated certificate of incorporation and bylaws
provide that: (i) we are required to indemnify our
directors to the fullest extent permitted by the Delaware
General Corporation Law; (ii) we may, in our discretion,
indemnify our officers, employees and agents as set forth in the
Delaware General Corporation Law; (iii) we are required,
upon satisfaction of certain conditions, to advance all expenses
incurred by our directors in connection with certain legal
proceedings; (iv) the rights conferred in the bylaws are
not exclusive; and (v) we are authorized to enter into
indemnification agreements with our directors, officers,
employees and agents.
We have entered into agreements with our directors and executive
officers that require us to indemnify such persons against
expenses, judgments, fines, settlements and other amounts that
any
II-1
such person becomes legally obligated to pay (including with
respect to a derivative action) in connection with any
proceeding, whether actual or threatened, to which such person
may be made a party by reason of the fact that such person is or
was a director or officer of us or any of our affiliates,
provided such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, our best
interests. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for
indemnification thereunder. At present, no litigation or
proceeding is pending that involves any of our directors or
officers regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
We maintain a directors and officers liability
insurance policy. The policy insures directors and officers
against unindemnified losses arising from certain wrongful acts
in their capacities as directors and officers and reimburses us
for those losses for which we have lawfully indemnified the
directors and officers. The policy contains various exclusions.
In addition, the underwriting agreement filed as
Exhibit 1.1 to this Registration Statement provides for
indemnification by the underwriters of us and our officers and
directors for certain liabilities arising under the Securities
Act, or otherwise.
|
|
ITEM 15.
|
RECENT SALES
OF UNREGISTERED SECURITIES
|
Since January 1, 2007, we have made sales of the following
unregistered securities (share amounts and per share amounts
have been retroactively adjusted to give effect to a 6-for-1
reverse stock split effected on June 14, 2010):
(1) Between January 1, 2007 and June 28, 2010, we
granted stock options under our 1999 Stock Incentive Plan and
2009 Equity Incentive Plan to purchase an aggregate of
4,194,465 shares of our common stock at exercise prices
ranging between $2.40 and $12.42 to a total of
511 employees, directors and consultants. Of these, stock
options to purchase an aggregate of 1,781,034 shares have
been cancelled without being exercised, 79,406 have been
exercised and 2,334,025 remain outstanding.
(2) Since January 1, 2007, we issued and sold an
aggregate of 396,085 shares of our common stock to
employees, directors and consultants at exercise prices ranging
between $0.78 and $9.36 upon the exercise of stock options
granted under our 1999 Stock Incentive Plan and 2009 Equity
Incentive Plan. Of these, 938 shares have been repurchased
and 395,147 remain outstanding.
(3) In August 2007, we issued an aggregate of
55,555 shares of restricted common stock under our 1999
Stock Incentive Plan to one of our executive officers.
(4) In April 2008, we issued an aggregate of 3,666
cash-settled stock appreciation rights, or SARs, under our 1999
Stock Incentive Plan to three consultants at a base price of
$8.58. All of the cash-settled SARs have expired without being
settled.
(5) Between April 2009 and June 2010, we issued restricted
stock units under our 2009 Equity Incentive Plan covering the
right to receive an aggregate of 467,884 shares of our
common stock to certain of our employees and directors. Of
these, restricted stock units covering the right to receive an
aggregate of 7,915 shares have been settled through the
issuance of common stock on vesting and restricted stock units
covering the right to receive an aggregate of
459,969 shares cancelled without being settled.
(6) In June 2009, as part of a stock option exchange
program, we issued stock options under our 2009 Equity Incentive
Plan to purchase an aggregate of 1,821,068 shares of our
common stock at an exercise price of $2.40 per share to a total
of 200 employees, directors and a consultant, in exchange
for the cancellation by such parties of stock options to
purchase an identical number of shares of our common stock that
were previously outstanding under our
II-2
1999 Stock Incentive Plan. Of these, stock options to purchase
an aggregate of 60,384 shares have been cancelled without
being exercised.
(7) In June 2007, we issued an aggregate of
11,000 shares of our
Series B-1
redeemable convertible preferred stock to seven accredited
investors at a per share price of $27.2724, for aggregate
consideration of approximately $300,000, pursuant to the
exercise of warrants previously issued.
(8) In June 2007, we issued an aggregate of
804,569 shares of our Series D redeemable convertible
preferred stock to two accredited investors at a per share price
of $12.429, for aggregate consideration of approximately
$10.0 million.
(9) In September 2008, we issued a warrant to purchase
116,551 shares of our common stock at an exercise price of
$8.58 per share to one accredited investor. The warrant was
issued in conjunction with the establishment of a credit
facility with a commercial lender. This warrant was net
exercised, for no additional consideration, in December 2010 for
a total of 76,195 shares of common stock, pursuant to an
exemption from registration under the Securities Act in reliance
upon Section 3(a)(9) of the Securities Act.
(10) In December 2008, we issued an aggregate of
416,656 shares of our Series E redeemable convertible
preferred stock to 20 accredited investors in connection with
our acquisition of Sylantro Systems Corporation.
(11) In October 2009, we issued an aggregate of
249,994 shares of our
Series E-1
redeemable convertible preferred stock to 17 accredited
investors in connection with our acquisition of Packet Island,
Inc.
(12) In June 2010, we issued 25,181 shares of common
stock at a per share price of $3.97, for aggregate consideration
of approximately $100,000, upon the exercise of two previously
issued warrants.
(13) In June 2010, we issued 11,236 shares of common
stock, for no additional consideration, upon the net exercise of
a previously issued warrant to purchase 20,774 shares at an
exercise price of $3.97 per share, pursuant to an exemption from
registration under the Securities Act in reliance upon
Section 3(a)(9) of the Securities Act.
Unless otherwise stated, the sales of the above securities were
deemed to be exempt from registration under the Securities Act
in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as
transactions by an issuer not involving any public offering or
pursuant to benefit plans and contracts relating to compensation
as provided under Rule 701. The recipients of the
securities in each of these transactions represented their
intentions to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution
thereof and appropriate legends were placed upon the stock
certificates issued in these transactions.
II-3
|
|
ITEM 16.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULE
|
(a) Exhibits.
The following exhibits are included herein or incorporated
herein by reference:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
2
|
.1 (1)
|
|
Asset Purchase Agreement by and among the Registrant, BroadSoft
M6, LLC and GENBAND Inc., dated as of August 14, 2008.
|
|
2
|
.2 (2)
|
|
Amendment to Asset Purchase Agreement and Disclosure Schedule by
and among the Registrant, BroadSoft M6, LLC and GENBAND Inc.,
dated as of August 27, 2008.
|
|
2
|
.3 (3)
|
|
Agreement and Plan of Merger and Reorganization by and among the
Registrant, BroadSoft Sylantro, Inc., Sylantro Systems
Corporation and Shareholder Representative Services LLC, dated
as of December 8, 2008.
|
|
2
|
.4 (4)
|
|
Asset Purchase Agreement by and between Casabi, Inc. and
BroadSoft Casabi, LLC, dated as of October 12, 2010.
|
|
3
|
.1 (5)
|
|
Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.2 (6)
|
|
Amended and Restated Bylaws of the Registrant.
|
|
4
|
.1 (7)
|
|
Specimen Stock Certificate evidencing shares of common stock.
|
|
4
|
.3 (8)
|
|
Fourth Amended and Restated Registration Rights Agreement, dated
as of June 26, 2007.
|
|
4
|
.4 (9)
|
|
First Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of November 25, 2008.
|
|
4
|
.5 (10)
|
|
Second Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of December 23, 2008.
|
|
4
|
.6 (11)
|
|
Third Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of October 19, 2009.
|
|
4
|
.7 (12)
|
|
Fourth Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of March 26, 2010.
|
|
5
|
.1
|
|
Opinion of Cooley LLP regarding legality.
|
|
10
|
.1 (13)
|
|
BroadSoft, Inc. 1999 Stock Incentive Plan, as amended.
|
|
10
|
.2 (14)
|
|
Form of Stock Option Grant Agreement for BroadSoft, Inc. 1999
Stock Incentive Plan.
|
|
10
|
.3 (15)
|
|
Form of Common Stock Purchase Agreement and Stock Restriction
Agreement for BroadSoft, Inc. 1999 Stock Incentive Plan.
|
|
10
|
.4 (16)
|
|
Stock Restriction Agreement by and between James A. Tholen and
the Registrant, dated as of August 30, 2007.
|
|
10
|
.5 (17)
|
|
BroadSoft, Inc. Amended and Restated 2009 Equity Incentive Plan.
|
|
10
|
.6 (18)
|
|
Form of Stock Option Agreement for BroadSoft, Inc. Amended and
Restated 2009 Equity Incentive Plan.
|
|
10
|
.7 (19)
|
|
Form of Restricted Stock Unit Award Agreement for BroadSoft,
Inc. Amended and Restated 2009 Equity Incentive Plan.
|
|
10
|
.8 (20)
|
|
Form of Indemnity Agreement entered into between the Registrant
and certain of its directors and its executive officers.
|
|
10
|
.9 (21)
|
|
Form of Indemnity Agreement entered into between the Registrant
and certain of its directors.
|
|
10
|
.10 (22)
|
|
Form of Executive Change in Control Severance Benefits Agreement
entered into between the Registrant and its executive officers.
|
II-4
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.11 (23)
|
|
Loan and Security Agreement by and among ORIX Venture Finance
LLC, the Registrant, BroadSoft International, Inc. and BroadSoft
M6, LLC, dated as of September 26, 2008.
|
|
10
|
.12 (24)
|
|
Consent and Amendment No. 1 to Loan and Security Agreement by
and among ORIX Venture Finance LLC, the Registrant, BroadSoft
International, Inc., BroadSoft M6, LLC and BroadSoft Sylantro,
Inc., dated as of December 23, 2008.
|
|
10
|
.13 (25)
|
|
Amendment No. 2 to Loan and Security Agreement by and among ORIX
Venture Finance LLC, the Registrant, BroadSoft International,
Inc., BroadSoft M6, LLC and BroadSoft Sylantro, Inc., dated as
of June 30, 2009.
|
|
10
|
.14 (26)
|
|
Consent and Amendment No. 3 to Loan and Security Agreement by
and among ORIX Venture Finance LLC, the Registrant, BroadSoft
International, Inc., BroadSoft M6, LLC, BroadSoft Sylantro, Inc.
and BroadSoft PacketSmart, Inc., dated as of October 15, 2009.
|
|
10
|
.15 (27)
|
|
Amendment No. 4 to Loan and Security Agreement, by and
among the Registrant, BroadSoft International, Inc., BroadSoft
M6, LLC, BroadSoft Sylantro, Inc., BroadSoft PacketSmart, Inc.
and ORIX Venture Finance LLC, dated as of April 1, 2010.
|
|
10
|
.16 (28)
|
|
Sublease Agreement, by and between Marriott International
Administrative Services, Inc. and the Registrant, dated as of
April 13, 2010.
|
|
10
|
.17 (29)
|
|
BroadSoft, Inc. Non-Employee Director Compensation Policy.
|
|
21
|
.1*
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2
|
|
Consent of Burr Pilger Mayer, Inc., Independent Accountants.
|
|
23
|
.3
|
|
Consent of Cooley LLP (included in Exhibit 5.1).
|
|
24
|
.1*
|
|
Power of Attorney (see
page II-9
of original filing).
|
|
|
|
|
|
To be filed by amendment. |
|
|
|
(1) |
|
Filed as exhibit 2.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(2) |
|
Filed as exhibit 2.2 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(3) |
|
Filed as exhibit 2.3 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(4) |
|
Filed as exhibit 99.1 to the registrants Current
Report on
Form 8-K
(File
No. 001-34777)
filed with the Securities and Exchange Commission on
October 29, 2010 and incorporated herein by reference. |
|
(5) |
|
Filed as exhibit 3.1 to the registrants Current
Report on
Form 8-K
(File
No. 001-34777)
filed with the Securities and Exchange Commission on
June 25, 2010 and incorporated herein by reference. |
|
(6) |
|
Filed as exhibit 3.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(7) |
|
Filed as exhibit 4.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
II-5
|
|
|
(8) |
|
Filed as exhibit 4.5 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(9) |
|
Filed as exhibit 4.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(10) |
|
Filed as exhibit 4.7 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(11) |
|
Filed as exhibit 4.8 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(12) |
|
Filed as exhibit 4.9 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(13) |
|
Filed as exhibit 10.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(14) |
|
Filed as exhibit 10.2 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(15) |
|
Filed as exhibit 10.3 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(16) |
|
Filed as exhibit 10.4 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(17) |
|
Filed as exhibit 10.5 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(18) |
|
Filed as exhibit 10.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(19) |
|
Filed as exhibit 10.7 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(20) |
|
Filed as exhibit 10.8 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(21) |
|
Filed as exhibit 10.9 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(22) |
|
Filed as exhibit 10.10 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(23) |
|
Filed as exhibit 10.14 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
II-6
|
|
|
(24) |
|
Filed as exhibit 10.15 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(25) |
|
Filed as exhibit 10.16 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(26) |
|
Filed as exhibit 10.17 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(27) |
|
Filed as exhibit 10.18 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(28) |
|
Filed as exhibit 10.19 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(29) |
|
Filed as exhibit 10.20 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
(b) Financial Statement Schedules.
See index to BroadSoft, Inc.s Consolidated Financial
Statements on page F-1. The following Financial Statement
Schedule is filed herewith on page F-60 and made a part of
this Registration Statement:
Schedule II - Valuation and Qualifying Accounts.
All other schedules, including schedules related to Sylantro
Systems Corporations Consolidated Financial Statements and
M6s Division Statements, have been omitted because they
are not required or are not applicable.
The undersigned Registrant hereby undertakes that, for purposes
of determining liability under the Securities Act of 1933 to any
purchaser, if the Registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of this
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
The undersigned Registrant hereby undertakes that, for the
purpose of determining liability of the Registrant under the
Securities Act of 1933 to any purchaser in the initial
distribution of the securities: the undersigned Registrant
undertakes that in a primary offering of securities of the
undersigned Registrant pursuant to this registration statement,
regardless of the underwriting method
II-7
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned Registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned Registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned Registrant or used
or referred to by the undersigned Registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned Registrant or its securities provided by or on
behalf of the undersigned Registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned Registrant to the purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post- effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Pre-effective
Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Gaithersburg, State of Maryland on
the 13th day of December, 2010.
BROADSOFT, INC.
James A. Tholen
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
*
Michael
Tessler
|
|
President, Chief Executive
Officer and Director
(Principal Executive Officer)
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ James
A. Tholen
James
A. Tholen
|
|
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Robert
P. Goodman
|
|
Director and Chairman of the Board
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
John
J. Gavin, Jr.
|
|
Director
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Douglas
L. Maine
|
|
Director
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
John
D. Markley, Jr.
|
|
Director
|
|
December 13, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Joseph
R. Zell
|
|
Director
|
|
December 13, 2010
|
|
|
|
|
|
|
|
*By:
|
|
/s/ James
A. Tholen
James
A. Tholen
Attorney-in-Fact
|
|
|
|
December 13, 2010
|
II-9
EXHIBIT INDEX
The following exhibits are included herein or incorporated
herein by reference:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
2
|
.1 (1)
|
|
Asset Purchase Agreement by and among the Registrant, BroadSoft
M6, LLC and GENBAND Inc., dated as of August 14, 2008.
|
|
2
|
.2 (2)
|
|
Amendment to Asset Purchase Agreement and Disclosure Schedule by
and among the Registrant, BroadSoft M6, LLC and GENBAND Inc.,
dated as of August 27, 2008.
|
|
2
|
.3 (3)
|
|
Agreement and Plan of Merger and Reorganization by and among the
Registrant, BroadSoft Sylantro, Inc., Sylantro Systems
Corporation and Shareholder Representative Services LLC, dated
as of December 8, 2008.
|
|
2
|
.4 (4)
|
|
Asset Purchase Agreement by and between Casabi, Inc. and
BroadSoft Casabi, LLC, dated as of October 12, 2010.
|
|
3
|
.1 (5)
|
|
Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.2 (6)
|
|
Amended and Restated Bylaws of the Registrant.
|
|
4
|
.1 (7)
|
|
Specimen Stock Certificate evidencing shares of common stock.
|
|
4
|
.3 (8)
|
|
Fourth Amended and Restated Registration Rights Agreement, dated
as of June 26, 2007.
|
|
4
|
.4 (9)
|
|
First Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of November 25, 2008.
|
|
4
|
.5 (10)
|
|
Second Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of December 23, 2008.
|
|
4
|
.6 (11)
|
|
Third Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of October 19, 2009.
|
|
4
|
.7 (12)
|
|
Fourth Amendment to Fourth Amended and Restated Registration
Rights Agreement, dated as of March 26, 2010.
|
|
5
|
.1
|
|
Opinion of Cooley LLP regarding legality.
|
|
10
|
.1 (13)
|
|
BroadSoft, Inc. 1999 Stock Incentive Plan, as amended.
|
|
10
|
.2 (14)
|
|
Form of Stock Option Grant Agreement for BroadSoft, Inc. 1999
Stock Incentive Plan.
|
|
10
|
.3 (15)
|
|
Form of Common Stock Purchase Agreement and Stock Restriction
Agreement for BroadSoft, Inc. 1999 Stock Incentive Plan.
|
|
10
|
.4 (16)
|
|
Stock Restriction Agreement by and between James A. Tholen and
the Registrant, dated as of August 30, 2007.
|
|
10
|
.5 (17)
|
|
BroadSoft, Inc. Amended and Restated 2009 Equity Incentive Plan.
|
|
10
|
.6 (18)
|
|
Form of Stock Option Agreement for BroadSoft, Inc. Amended and
Restated 2009 Equity Incentive Plan.
|
|
10
|
.7 (19)
|
|
Form of Restricted Stock Unit Award Agreement for BroadSoft,
Inc. Amended and Restated 2009 Equity Incentive Plan.
|
|
10
|
.8 (20)
|
|
Form of Indemnification Agreement entered into between the
Registrant and certain of its directors and its executive
officers.
|
|
10
|
.9 (21)
|
|
Form of Indemnification Agreement entered into between the
Registrant and certain of its directors.
|
|
10
|
.10 (22)
|
|
Form of Executive Change in Control Severance Benefits Agreement
entered into between the Registrant and its executive officers.
|
|
10
|
.11 (23)
|
|
Loan and Security Agreement by and among ORIX Venture Finance
LLC, the Registrant, BroadSoft International, Inc. and BroadSoft
M6, LLC, dated as of September 26, 2008.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.12 (24)
|
|
Consent and Amendment No. 1 to Loan and Security Agreement by
and among ORIX Venture Finance LLC, the Registrant, BroadSoft
International, Inc., BroadSoft M6, LLC and BroadSoft Sylantro,
Inc., dated as of December 23, 2008.
|
|
10
|
.13 (25)
|
|
Amendment No. 2 to Loan and Security Agreement by and among ORIX
Venture Finance LLC, the Registrant, BroadSoft International,
Inc., BroadSoft M6, LLC and BroadSoft Sylantro, Inc., dated as
of June 30, 2009.
|
|
10
|
.14 (26)
|
|
Consent and Amendment No. 3 to Loan and Security Agreement by
and among ORIX Venture Finance LLC, the Registrant, BroadSoft
International, Inc., BroadSoft M6, LLC, BroadSoft Sylantro, Inc.
and BroadSoft PacketSmart, Inc., dated as of October 15, 2009.
|
|
10
|
.15 (27)
|
|
Amendment No. 4 to Loan and Security Agreement, by and
among the Registrant, BroadSoft International, Inc., BroadSoft
M6, LLC, BroadSoft Sylantro, Inc., BroadSoft PacketSmart, Inc.
and ORIX Venture Finance LLC, dated as of April 1, 2010.
|
|
10
|
.16 (28)
|
|
Sublease Agreement, by and between Marriott International
Administrative Services, Inc. and the Registrant, dated as of
April 13, 2010.
|
|
10
|
.17 (29)
|
|
BroadSoft, Inc. Non-Employee Director Compensation Policy.
|
|
21
|
.1*
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2
|
|
Consent of Burr Pilger Mayer, Inc., Independent Accountants.
|
|
23
|
.3
|
|
Consent of Cooley LLP (included in Exhibit 5.1).
|
|
24
|
.1*
|
|
Power of Attorney (see
page II-9
of original filing).
|
|
|
|
|
|
To be filed by amendment. |
|
|
|
(1) |
|
Filed as exhibit 2.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(2) |
|
Filed as exhibit 2.2 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(3) |
|
Filed as exhibit 2.3 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(4) |
|
Filed as exhibit 99.1 to the registrants Current
Report on
Form 8-K
(File
No. 001-34777)
filed with the Securities and Exchange Commission on
October 29, 2010 and incorporated herein by reference. |
|
(5) |
|
Filed as exhibit 3.1 to the registrants Current
Report on
Form 8-K
(File
No. 001-34777)
filed with the Securities and Exchange Commission on
June 25, 2010 and incorporated herein by reference. |
|
(6) |
|
Filed as exhibit 3.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
(7) |
|
Filed as exhibit 4.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(8) |
|
Filed as exhibit 4.5 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(9) |
|
Filed as exhibit 4.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(10) |
|
Filed as exhibit 4.7 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(11) |
|
Filed as exhibit 4.8 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(12) |
|
Filed as exhibit 4.9 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(13) |
|
Filed as exhibit 10.1 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(14) |
|
Filed as exhibit 10.2 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(15) |
|
Filed as exhibit 10.3 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(16) |
|
Filed as exhibit 10.4 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(17) |
|
Filed as exhibit 10.5 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(18) |
|
Filed as exhibit 10.6 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(19) |
|
Filed as exhibit 10.7 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |
|
|
|
(20) |
|
Filed as exhibit 10.8 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(21) |
|
Filed as exhibit 10.9 to the registrants Registration
Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(22) |
|
Filed as exhibit 10.10 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(23) |
|
Filed as exhibit 10.14 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(24) |
|
Filed as exhibit 10.15 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(25) |
|
Filed as exhibit 10.16 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(26) |
|
Filed as exhibit 10.17 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
March 15, 2010 and incorporated herein by reference. |
|
|
|
(27) |
|
Filed as exhibit 10.18 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(28) |
|
Filed as exhibit 10.19 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
April 16, 2010 and incorporated herein by reference. |
|
|
|
(29) |
|
Filed as exhibit 10.20 to the registrants
Registration Statement on
Form S-1
(Registration
No. 333-165484)
filed with the Securities and Exchange Commission on
June 1, 2010 and incorporated herein by reference. |