Exhibit 99.1

 

 

 

 

 

Jive Communications, Inc.

Consolidated Financial Statements

As of December 31, 2017 and 2016 and for the

Three years in the period ended December 31, 2017

Together with Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Jive Communications, Inc.

We have audited the accompanying consolidated financial statements of Jive Communications, Inc. and subsidiaries (collectively, the Company), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2017, 2016, and 2015, and the related notes to consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud.

Auditors’ Responsibility

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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to error or fraud. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jive Communications, Inc. and subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years ended December 31, 2017, 2016, and 2015, in accordance with accounting principles generally accepted in the United States of America.

 

May 11, 2018

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JIVE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

 

		December 31,
		2017				2016
Assets
Current assets:
Cash and cash equivalents		$	3,013,694			$	9,694,502
Accounts receivable, net			4,967,428				4,899,896
Current portion of lease receivables, net			1,397,485				468,043
Current portion of unbilled accounts receivable			476,773				767,933
Inventory			318,338				112,786
Other current assets			1,763,142				2,736,579
Total current assets			11,936,860				18,679,739
Lease receivables, net of current portion			1,874,588				666,839
Unbilled accounts receivable, net of current portion			276,062				276,888
Property and equipment, net			3,760,494				3,299,760
Intangible assets, net			1,278,139				1,303,139
Other assets			541,256				121,200
Total assets		$	19,667,399			$	24,347,565
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable		$	3,319,131			$	1,844,157
Accrued compensation			2,249,070				2,052,024
Accrued expenses			3,995,318				2,620,895
Current portion of capital lease obligations			473,741				668,751
Current portion of long-term debt			833,333				1,238,071
Other current liabilities			174,570				63,043
Total current liabilities			11,045,163				8,486,941
Deferred rent			46,728				71,615
Capital lease obligations, net of current portion			122,990				12,168
Long-term debt, net of current portion			14,916,667				6,522,314
Other long-term liabilities			120,281				49,001
Total liabilities			26,251,829				15,142,039
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
Preferred stock, convertible, $0.0001 par value:
Authorized: 33,000,000
Issued and outstanding: 23,578,536 shares at December 31, 2017 and December 31, 2016; aggregate liquidation preference of $40,216,600 at December 31, 2017 and December 31, 2016;			2,358				2,358
Common stock, $0.0001 par value:
Authorized: 115,000,000 shares;
Issued and outstanding: 56,578,146 shares and 58,410,826 shares at December 31, 2017 and December 31, 2016, respectively;			5,658				5,841
Promissory notes to be satisfied through redemption of shares			—				(2,503,646	)
Additional paid-in capital			22,862,789				26,842,526
Accumulated other comprehensive loss			(14,914	)			(2,084	)
Accumulated deficit			(29,440,321	)			(15,139,469	)
Total stockholders’ equity (deficit)			(6,584,430	)			9,205,526
Total liabilities and stockholders’ equity (deficit)		$	19,667,399			$	24,347,565

 

 

See accompanying notes to consolidated financial statements

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JIVE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Years Ended December 31,
		2017				2016				2015
Software subscriptions		$	72,815,327			$	61,618,513			$	50,429,354
Product revenue			7,892,940				5,568,202				4,918,797
Total revenue			80,708,267				67,186,715				55,348,151
Operating expenses:
Cost of software subscriptions			19,284,187				17,222,698				14,652,569
Cost of product revenue			8,351,570				5,992,687				5,274,992
Sales and marketing			44,297,090				32,194,449				25,488,366
Research and development			12,184,722				8,448,140				6,804,504
General and administrative			10,100,738				7,749,794				8,217,730
Total operating expenses			94,218,307				71,607,768				60,438,161
Loss from operations			(13,510,040	)			(4,421,053	)			(5,090,010	)
Interest expense			(756,999	)			(441,639	)			(319,589	)
Loss before provision for income taxes			(14,267,039	)			(4,862,692	)			(5,409,599	)
Provision for income taxes			33,813				15,743				21,058
Net loss		$	(14,300,852	)		$	(4,878,435	)		$	(5,430,657	)

 

 

See accompanying notes to consolidated financial statements

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JIVE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

		Years Ended December 31,
		2017				2016				2015
Net loss		$	(14,300,852	)		$	(4,878,435	)		$	(5,430,657	)
Other comprehensive income (loss)
Foreign currency translation adjustment			(12,830	)			14,654				(16,738	)
Comprehensive loss		$	(14,313,682	)		$	(4,863,781	)		$	(5,447,395	)

 

 

See accompanying notes to consolidated financial statements

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JIVE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

		Convertible Preferred Stock								Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive Loss				Accumulated Deficit				Promissory Notes				Total
		Shares				Amount				Shares				Amount
Balance at December 31, 2014			18,355,695			$	1,836				49,351,170			$	4,934			$	14,545,043			$	—			$	(4,830,377	)		$	—			$	9,721,436
Issuance of common stock on exercise of stock options			—				—				8,680,210				868				158,496				—				—				—				159,364
Repurchase of common stock			—				—				(59,931	)			(5	)			(147,042	)			—				—				—				(147,047	)
Stock-based compensation			—				—				—				—				100,057				—				—				—				100,057
Foreign currency translation adjustment			—				—				—				—				—				(16,738	)			—				—				(16,738	)
Net loss			—				—				—				—				—				—				(5,430,657	)			—				(5,430,657	)
Balance at December 31, 2015			18,355,695				1,836				57,971,449				5,797				14,656,554				(16,738	)			(10,261,034	)			—				4,386,415
Issuance of common stock on exercise of stock options			—				—				439,377				44				60,652				—				—				—				60,696
Issuance of Series A preferred stock			5,222,841				522				—				—				11,999,477				—				—				—				11,999,999
Stock-based compensation			—				—				—				—				125,843				—				—				—				125,843
Foreign currency translation adjustment			—				—				—				—				—				14,654				—				—				14,654
Promissory notes to be satisfied through redemption of shares			—				—				—				—				—				—				—				(2,503,646	)			(2,503,646	)
Net loss			—				—				—				—				—				—				(4,878,435	)			—				(4,878,435	)
Balance at December 31, 2016			23,578,536				2,358				58,410,826				5,841				26,842,526				(2,084	)			(15,139,469	)			(2,503,646	)			9,205,526
Issuance of common stock on exercise of stock options			—				—				125,885				13				24,050				—				—				—				24,063
Repurchase of common stock			—				—				(1,958,565	)			(196	)			(4,499,999	)			—				—				2,503,646				(1,996,549	)
Stock-based compensation			—				—				—				—				496,212				—				—				—				496,212
Foreign currency translation adjustment			—				—				—				—				—				(12,830	)			—				—				(12,830	)
Net loss			—				—				—				—				—				—				(14,300,852	)			—				(14,300,852	)
Balance at December 31, 2017			23,578,536			$	2,358				56,578,146			$	5,658			$	22,862,789			$	(14,914	)		$	(29,440,321	)		$	—			$	(6,584,430	)

 

 

See accompanying notes to consolidated financial statements

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JIVE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Years Ended December 31,
		2017				2016				2015
Cash flows from operating activities:
Net loss		$	(14,300,852	)		$	(4,878,435	)		$	(5,430,657	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,138,792				1,901,843				1,751,969
Stock-based compensation			496,212				125,843				100,057
Loss on disposal of assets			42,042				77,880				12,185
Changes in operating assets and liabilities:
Accounts receivable			(63,859	)			161,515				(2,956,080	)
Inventory			(205,818	)			(8,479	)			33,140
Unbilled accounts receivable			286,812				61,475				250,344
Lease receivable			(2,155,498	)			(1,134,883	)			—
Other current and noncurrent assets			562,351				(1,378,305	)			(263,985	)
Accounts payable			1,440,802				403,302				473,186
Accrued compensation and accrued expenses			1,761,319				1,748,910				489,395
Other liabilities			(16,777	)			85,296				15,822
Net cash used in operating activities			(10,014,474	)			(2,834,038	)			(5,524,624	)
Cash flows from investing activities:
Purchase of property and equipment			(1,842,198	)			(693,172	)			(2,234,424	)
Purchase of intangible asset			—				(14,000	)			(184,103	)
Proceeds from sales of property and equipment			37,766				119,471				52,179
Net cash used in investing activities			(1,804,432	)			(587,701	)			(2,366,348	)
Cash flows from financing activities:
Net proceeds from revolving line of credit and long-term debt			11,883,333				2,675,000				5,350,000
Repayment of long-term debt			(3,893,718	)			(815,532	)			(226,511	)
Repayment of capital lease obligations			(1,090,550	)			(1,270,622	)			(1,629,059	)
Net proceeds from issuance of preferred stock			—				11,999,999				—
Proceeds from exercise of stock options and common stock warrants			24,063				60,696				11,898
Repurchase of common stock			(1,996,549	)			—				(147,047	)
Issuance of promissory notes			—				(2,503,646	)			—
Net cash provided by financing activities			4,926,579				10,145,895				3,359,281
Effect of exchange rate changes on cash			211,519				12,973				(8,791	)
Net change in cash and cash equivalents			(6,680,808	)			6,737,129				(4,540,482	)
Cash and cash equivalents:
Cash and cash equivalents at beginning of year			9,694,502				2,957,373				7,497,855
Cash and cash equivalents at end of year		$	3,013,694			$	9,694,502			$	2,957,373
Supplemental disclosure of cash flow information:
Cash paid for interest		$	767,071			$	420,824			$	326,012
Cash paid for income taxes		$	397			$	11,119			$	4,652
Supplemental schedule of noncash investing and financing activities:
Equipment purchased under capital lease		$	921,647			$	163,001			$	106,597
Promissory notes issued by employees for issuance of Company stock		$	—			$	—			$	147,466
Promissory notes satisfied through redemption of Company stock		$	2,503,646			$	—			$	—

 

 

 

See accompanying notes to consolidated financial statements

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Description of Organization and Summary of Significant Accounting Policies

Description of Business

Jive Communications, Inc. was incorporated in Delaware on August 1, 2006. Jive Communications, Inc. and its subsidiaries (collectively, “the Company”) provide enterprise-grade hosted VoIP and unified communications to businesses and institutions worldwide.

The Company is headquartered in Utah with wholly-owned subsidiaries in Brazil, Canada, Guatemala, and Mexico.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, valuation allowances for net deferred income tax assets, and stock-based compensation. Actual results could differ from those estimates.

Cash and Cash Equivalents and Concentrations of Credit Risk

Cash and cash equivalents consist of cash and investments that are readily convertible into cash and have original maturities to the Company of three months or less. The Company maintains its cash in bank deposit accounts with established commercial banks. To date, the Company has not experienced a loss or lack of access to its invested cash and cash equivalents.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the local currency. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income or loss within the stockholders’ equity in the consolidated balance sheets. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Equity transactions are translated using historical exchange rates. Revenues and expenses are translated at the average exchange rate during the period.

Accounts Receivable

Accounts receivable are recorded at the amount invoiced to customers on normal trade terms and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The estimated amount is based on the aging of the receivable balance, current and historical customer trends, and changes in payment schedules and histories. Account balances are charged off against the allowance for doubtful accounts receivable when the potential for recovery is remote. Recoveries of receivables previously charged off are recorded when payment is received.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Lease Receivables

The Company leases equipment to customers through sales-type leases with no explicit interest rate. Lease receivables are recorded at the commencement date at the amount to be received from the customer over the term of the lease. An interest rate based on current market interest rates is used to determine interest revenue over the life of the lease. There are no fees or costs associated with origination of a lease. All profit or loss associated with the leased equipment is recognized at the commencement date unless a multiple-element arrangement exists. If a multiple element-arrangement exists, the revenue from the sales-type lease is allocated according to the Company’s accounting for multiple-element arrangements. The allowance for doubtful lease receivables is the Company’s best estimate of the amount of probable credit losses in the Company’s existing lease receivables. The estimated amount is based on the aging of the receivable balance, current and historical customer trends, and changes in payment schedules and histories. Account balances are charged off against the allowance for doubtful lease receivables and the accrual of interest is discontinued when the potential for recovery is remote. Recoveries of receivables previously charged off are recorded when payment is received, and at this time the accrual of interest resumes.

Inventory

Inventory, consisting solely of finished goods, is stated at the lower of cost or market. Cost was determined using the standard cost method.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated economic useful lives of the assets or over the related lease terms (if shorter). Rental and telephony equipment are depreciated over three years; network and office equipment and vehicles are depreciated over five years; office furniture is depreciated over seven years; and leasehold improvements are depreciated over the respective lease term.

Expenditures for improvements that extend the physical or economic life of the property are capitalized. Routine maintenance, repairs, and renewal costs are charged to expense as incurred. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in the statements of operations.

Intangible Assets

In 2013 the Company purchased intellectual property through the issuance of a promissory note. The Company determined that the intellectual property has an indefinite life, and accordingly the intangible asset is not subject to amortization.

In 2015 the Company purchased intellectual property. The Company determined that a portion of the intellectual property has an indefinite life and is not subject to amortization. The remainder of the intellectual property has a finite life and is amortized on a straight-line basis over the periods benefited, which is estimated at five years. The amortization expense for the intellectual property is included in cost of software subscriptions.

In 2016 the Company purchased intellectual property. The Company determined that the intellectual property has an indefinite life and is not subject to amortization.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment charges were recorded in 2017, 2016, or 2015.

Intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. No impairment charges were recorded against intangible assets in 2017, 2016, or 2015.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Recognition

The Company’s revenues consist primarily of software subscriptions and product revenue. The Company recognizes revenue when products are shipped or services have been provided and the customer takes ownership of products and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Shipping and other transportation costs charged to customers are recorded in both product revenue and cost of product revenue. Revenue is recorded net of sales tax.

The Company enters into arrangements with multiple-deliverables that are divided into separate units of accounting according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-25 Multiple-Element Arrangements. The Company allocates revenues to each deliverable in a multiple-deliverable arrangement based upon its relative selling price. Accounting Standards Update (“ASU”) No. 2009-13 states that a vendor should determine its best estimate of selling price (“BESP”) in a manner that is consistent with that used to determine the price to sell the deliverable on a stand-alone basis. As the Company charges customers for the various deliverables in the multiple-element arrangement based on a stand-alone price, the stand-alone selling prices charged to customers provide a basis to allocate the arrangement consideration among the multiple deliverables. Consideration allocated to each deliverable, limited to the amount not contingent on future performance, is then recognized when the revenue recognition criteria are met for each of the respective deliverables.

Stock-Based Compensation

Employee stock-based compensation expense is measured at the grant date using the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock price volatility, expected term, risk free interest rate and future dividend payments. Compensation expense is recognized over the vesting period using the straight-line method, net of estimated forfeitures.

Advertising

Advertising costs are expensed as incurred and were approximately $2.90 million, $2.34 million, and $2.14 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

The Tax Cuts and Jobs Act (the Tax Act) was enacted in December 2017. The Tax Act significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. The Tax Act also provides for a transition to a new territorial system of taxation and generally requires companies to include certain untaxed foreign earnings of non-U.S. subsidiaries into taxable income in 2017, or the Transition Tax. As the net untaxed foreign earnings of the non-U.S. subsidiaries of the Company is a deficit, there is no Transition Tax liability for the Company.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in U.S. corporate income tax rates from 35% to 21% under the Tax Act, the Company revalued its ending net deferred tax assets as of December 31, 2017.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Deferred income tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred income tax assets may not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon examination of the relevant taxing authority. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter. The Company has concluded that there are no significant uncertain tax positions requiring disclosure, and there are no material amounts of unrecognized tax benefits.

Research and Development

Research and development costs are expensed as incurred. Research and development costs were approximately $12.2 million, $8.4 million, and $6.8 million for the years ended December 31, 2017, 2016, and 2015, respectively.

 

2.	Accounts Receivable

Accounts receivable consisted of the following:

 

		December 31,
		2017				2016
Accounts receivable-trade		$	5,386,691			$	5,711,911
Allowance for doubtful accounts			(419,263	)			(812,015	)
Accounts receivable, net		$	4,967,428			$	4,899,896

 

3.	Lease Receivables

Lease receivables consisted of the following as of December 31, 2017:

 

		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Financing Receivables
Lease receivables		$	34,498			$	15,109			$	14,721			$	64,328			$	28,532			$	3,466,779

The allowance for doubtful lease receivables was $194,706, $116,777, and $0 for the years ended December 31, 2017, 2016, and 2015, respectively. The allowance was determined by considering both accounts that are overdue and accounts that have not yet come due. There were no accounts that were on nonaccrual status as of December 31, 2017 because all such accounts were charged off against the allowance for doubtful lease receivables. As of December 31, 2017, future payments, excluding interest and other costs, are scheduled to be received as follows:

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ending December 31:
2018		$	1,455,364
2019			1,227,894
2020			617,869
2021			124,009
2022			35,829
Thereafter			5,814
Total lease receivables			3,466,779
Less: allowance for doubtful lease receivables			(194,706	)
Lease receivables, net			3,272,073
Less: current portion of lease receivables, net			(1,397,485	)
Lease receivables, net of current portion		$	1,874,588

Unearned interest of $285,169 will be recognized over the life of the leases as of December 31, 2017.

 

4.	Property and Equipment

Property and equipment consisted of the following:

 

		December 31,
		2017				2016
Rental equipment		$	1,989,687			$	4,002,083
Network equipment			3,696,292				3,141,052
Office equipment			1,430,687				673,598
Telephony equipment			183,077				305,412
Office furniture			162,463				55,343
Leasehold improvements			89,419				71,146
Vehicles			164,190				57,135
Property and equipment			7,715,815				8,305,769
Less: accumulated depreciation and amortization			(3,955,321	)			(5,006,009	)
Property and equipment, net		$	3,760,494			$	3,299,760

Total depreciation and amortization expense on property and equipment was $2,113,792, $1,876,843, and $1,739,469 for the years ended December 31, 2017, 2016, and 2015, respectively.

 

5.	Intangible Assets

Intangible assets consisted of the following:

 

		December 31,
		2017				2016
Domain names		$	1,215,639			$	1,215,639
Technology			125,000				125,000
Total intangibles			1,340,639				1,340,639
Less: accumulated amortization			(62,500	)			(37,500	)
Net carrying amount		$	1,278,139			$	1,303,139

Total amortization expense on intangible assets was $25,000, $25,000, and $12,500 for the years ended December 31, 2017, 2016, and 2015, respectively.

As of December 31, 2017, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following:

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ending December 31:
2018		$	25,000
2019			25,000
2020			12,500
Total		$	62,500

 

6.

Debt

Silicon Valley Bank Credit Facility

As of December 31, 2017, the Company’s debt includes borrowings under the Amended and Restated Loan and Security Agreement dated June 26, 2017 (the “SVB Agreement”), with Silicon Valley Bank (“SVB”). Under the SVB Agreement, the Company has term loan advances and a revolving line of credit (“LOC”), which are secured by the assets of the Company.

The Company has withdrawn $5 million of term loan advances as of December 31, 2017. The term loan commitment is to be repaid in 36 consecutive equal monthly payments commencing on July 1, 2018. The term loan commitment bears interest at the Prime rate plus 1.75% (6.25% as of December 31, 2017). As of December 31, 2017, future principal payments on the term loan are scheduled as follows:

 

Years ending December 31:
2018		$	833,333
2019			1,666,667
2020			1,666,667
2021			833,333
Total		$	5,000,000

The revolving line of credit provides for a maximum borrowing of up to $20 million. The LOC bears interest at the Prime rate plus 1.25% (5.75% as of December 31, 2017), and expires June 2019. The LOC agreement requires that the Company meet certain financial covenants throughout the year. The Company had drawn down $10.75 million from the LOC as of December 31, 2017.

 

7.	Commitments and Contingencies

Operating Leases

The Company leases office facilities under non-cancelable operating leases. As of December 31, 2017, future minimum lease payments under non-cancelable operating leases with terms of one year or more were as follows:

 

Years ending December 31:
2018		$	687,471
2019			2,749,272
2020			2,707,062
2021			2,547,873
2022			2,574,218
Thereafter			7,866,049
Total		$	19,131,945

Amendments to certain lease agreements subsequent to year end were included in the future minimum lease payments schedule. Leases for certain office facilities include scheduled periods of abatement and escalation of rental payments. The Company recognizes rent expense on a straight-line basis for all operating lease arrangements with the difference between required lease payments and rent expense recorded as deferred rent. Total rent expense was $1,144,164, $1,029,809, and $852,448 for the years ended December 31, 2017, 2016, and 2015, respectively.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Capital Leases

The Company is obligated under various capital leases for equipment that expire at various dates during the next three years. As of December 31, 2017, future minimum capital lease payments, excluding taxes, insurance, and other costs are scheduled as follows:

 

Years ending December 31:
2018		$	523,164
2019			93,575
2020			41,516
2021			7,940
2022			3,308
Total future minimum lease payments			669,503
Less: amount representing interest			(72,772	)
Total future minimum lease payments			596,731
Less: current portion of capital lease obligations			(473,741	)
Capital lease obligations, net of current portion		$	122,990

Employee Agreements

The Company has entered into employment agreements with certain executives and key members of management pursuant to which if the Company terminates their employment without cause or if the employee does so for good reason following a change of control of the Company, the employees are entitled to receive certain benefits, including severance payments, accelerated vesting of stock options and continued COBRA coverage. As of December 31, 2017, no events had occurred that would cause these provisions to become effective.

Distributor Dispute

A distributor, whose contract was terminated, filed a series of claims against the Company’s Brazilian subsidiary. The Company disputes these claims and does not believe that the outcome of this matter will have a material adverse effect on the Company’s consolidated financial statements.

 

8.	Stockholders’ Equity

Preferred Stock

The Company has authorized and issued 23,578,536 shares of preferred stock. The first series of preferred stock is designated as Series A preferred stock (“Series A Preferred”) and consists of 18,138,333 authorized shares. The second series of preferred stock is designated as Series A-1 preferred stock (“Series A-1 Preferred”) and consists of 217,562 authorized shares. The third series of preferred stock is designated as Series A-2 preferred stock (“Series A-2 Preferred”) and consists of 3,264,076 authorized shares. The fourth series of preferred stock is designated as Series A-3 preferred stock (“Series A-3 Preferred”) and consists of 1,958,565 authorized shares.

Dividends – The Series A Preferred, the Series A-1 Preferred, Series A-2 Preferred, and Series A-3 Preferred (“Preferred Stock”) do not have a dividend preference over the common stock, except in the case of liquidation when there are accrued but unpaid dividends.

Liquidation – Upon the liquidation, dissolution or winding-up of the Company (as defined in the Company’s certificate of incorporation, as amended), each holder of Preferred Stock is entitled to receive a payment equal to the original per share issuance price, plus any accrued but unpaid dividends, prior to any payment to the common stockholders.

Voting – The holders of Preferred Stock are entitled to one vote for each share of common stock into which such preferred stock could then be converted and vote on all matters on which the holders of common stock are entitled to vote.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Conversion – Each share of Preferred Stock is convertible into common stock at any time at the option of the holder. The number of shares is calculated by dividing the Preferred Stock original per share issuance price by the Preferred Stock conversion price (initially the original per share issuance price). The Preferred Stock conversion price is subject to adjustment for certain defined events.

Redemption – After February 1, 2019, at the election of the holders of at least a majority of the then outstanding shares of Series A Preferred, Series A-2 Preferred, and Series A-3 Preferred the Company may be required to redeem all outstanding shares of Series A Preferred, Series A-2 Preferred, and Series A-3 Preferred that have not been converted into common stock. The redemption price per share will be equal to the greater of the original per share issuance price or the fair market value at time of redemption.

2011 Stock Plan

The Company’s 2011 Stock Plan, originally approved on August 1, 2006 and subsequently amended (“the Plan”), provides for the grant of incentive stock options and nonstatutory stock options. Under the terms of the Plan, an aggregate of 37,416,740 common shares are available for grant to employees, officers, directors and consultants. The Board of Directors determines the terms of each grant. Generally, the options have a vesting period of four to five years with 25% vesting after the first year of service and monthly thereafter, and have a five to six year contractual life. Certain stock options have provisions to accelerate vesting upon the occurrence of certain events. There were 1,359,284 remaining shares available for grant under the Plan as of December 31, 2017.

The following sets forth the outstanding common stock options and related activity:

 

		Number of Options Outstanding				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Term (Years)
Outstanding as of December 31, 2014			13,913,780			$	0.06				3.18
Granted			2,036,900				0.77
Exercised			(8,680,210	)			0.02
Canceled/Forfeited			(1,393,695	)			0.64
Outstanding as of December 31, 2015			5,876,775				0.23				3.14
Granted			4,223,801				0.79
Exercised			(439,377	)			0.14
Canceled/Forfeited			(2,833,179	)			0.09
Outstanding as of December 31, 2016			6,828,020				0.64				4.78
Granted			2,401,600				0.78
Exercised			(125,884	)			0.19
Canceled/Forfeited			(632,765	)			0.73
Outstanding as of December 31, 2017			8,470,971				0.69				4.53
Exercisable as of December 31, 2017			2,733,828				0.50				3.41

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Stock-based compensation expense recognized in the Company’s statements of operations for the years presented consisted of the following:

 

		December 31,
		2017				2016				2015
Cost of software subscriptions		$	10,213			$	6,160			$	3,340
Sales and marketing			183,728				52,641				25,785
Research and development			109,863				2,649				27,490
General and administrative			192,408				64,393				43,442
Total stock-based compensation expense		$	496,212			$	125,843			$	100,057

The fair value of each stock-based award granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

		December 31,
		2017				2016				2015
Risk-free interest rate			1.65%				1.40%				1.43%
Expected stock price volatility			40.94%				41.22%				47.77%
Expected dividend yield			0%				0%				0%
Expected term			4.3 years				5.5 years				5.9 years

The expected terms were calculated as the mean of the option vesting period and the contractual term. The volatilities were calculated from the historical volatilities of comparable public companies. The risk-free interest rate was based on the yield available on U.S. Treasury zero-coupon issues with a term that approximates the expected term of the option. The Company has no plans to declare any future dividends.

The total intrinsic value of options exercised in the years ended December 31, 2017, 2016, and 2015 was $98,190, $340,276, and $6,683,762, respectively.

As of December 31, 2017, approximately $1.6 million of unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 4.0 years.

Warrants

In April 2013, the Company issued a warrant as part of the purchase of an intangible asset. The warrant grants the seller of the intangible asset the ability to purchase 25,000 shares of common stock with a total exercise price of $2,800. The warrant had not been exercised as of December 31, 2017. The fair value of the warrant on the date it was granted was immaterial.

Promissory Note

During the year ended December 31, 2017, the Company repurchased 1,958,565 shares of common stock for cash of $1,996,549 and cancellation of notes receivable of $2,503,646.

 

9.	Employee Benefit Plan

The Company offers a 401(k) retirement plan for its employees, which provides that the Company make matching contributions of 100% of the first 3% of compensation deferred and 50% of the next 3% of compensation deferred. The matching expense was $1,233,214, $723,574, and $668,912 for the years ended December 31, 2017, 2016, and 2015, respectively.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.	Income Taxes

The components of the provision for income taxes are as follows:

 

		December 31,
		2017				2016				2015
Current:
State		$	31,891			$	31,313			$	5,488
Foreign			1,922				(15,570	)			15,570
Income tax provision		$	33,813			$	15,743			$	21,058

The tax effects of the temporary differences that give rise to deferred tax assets and (liabilities) are as follows:

 

		December 31,
		2017				2016
Accruals and reserves		$	112,632			$	171,489
Research and development credits			3,162,341				2,673,137
Net operating loss carryforwards			7,413,711				5,241,559
Depreciation and amortization			(199,015	)			(302,602	)
Other			164,417				326,625
Valuation allowance			(10,654,086	)			(8,110,208	)
Total		$	—			$	—

The provision (benefit) for income taxes differs from the amount computed at statutory rates as follows:

 

		December 31,
		2017				2016				2015
Statutory tax provision		$	(4,850,792	)		$	(1,653,315	)		$	(1,852,677	)
State tax rate, net of federal benefit			(502,444	)			(174,413	)			(270,872	)
Research and development credits			(489,204	)			(486,367	)			(767,728	)
Permanent items			95,260				35,832				32,310
Stock compensation			156,267				42,738				34,019
Change in valuation allowance			2,543,878				2,228,471				2,795,762
Change in statutory rates			3,120,586				—				—
Foreign rate differential			(37,582	)			32,293				36,367
Other, net			(2,156	)			(9,496	)			13,877
		$	33,813			$	15,743			$	21,058

The Company has recorded deferred tax assets and liabilities based upon estimates of their realizable value; such estimates are based upon likely future tax consequences. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, the Company records a valuation allowance. The net change in the valuation allowance for the years ended December 31, 2017 and 2016 was an increase of approximately $2.5 million and $2.4 million, respectively.

As of December 31, 2017, the Company had approximately $24.5 million of federal and $25.9 million of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire if not used in 2035 for federal and 2021 for state tax purposes, respectively.

 

 

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JIVE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Federal and state tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in Section 382 of the Internal Revenue Code. If an ownership change has occurred, utilization of the net operating loss carryforwards could be reduced significantly.

The Company files income tax returns in the U.S. federal jurisdiction and certain state jurisdictions and is subject to routine tax examinations.

 

11.	Subsequent Events

In early 2018, the Company entered into agreements with various entities to release the Company from any future commissions payments and any other obligations totaling $5.6 million, which was financed through a note that was subsequently repaid.

On April 3, 2018, LogMeIn USA, Inc. (“LogMeIn”) acquired all the outstanding equity of the Company and the Company became a wholly owned subsidiary of LogMeIn.

 

 

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