SYNACOR, INC., 10-K filed on 3/31/2021
Annual Report
v3.21.1
Cover Page - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Mar. 26, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Current Fiscal Year End Date --12-31    
Document Transition Report false    
Entity File Number 001-33843    
Entity Registrant Name Synacor, Inc.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 16-1542712    
Entity Address, Address Line One 40 La Riviere Drive, Suite 300    
Entity Address, City or Town Buffalo,    
Entity Address, State or Province NY    
Entity Address, Postal Zip Code 14202    
City Area Code 716    
Local Phone Number 853-1362    
Title of 12(b) Security Common Stock, $0.01 Par Value    
Trading Symbol SYNC    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag false    
Entity Shell Company false    
Entity Public Float     $ 36.3
Entity Common Stock, Shares Outstanding   39,896,237  
Amendment Flag false    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001408278    
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
CURRENT ASSETS:    
Cash and cash equivalents $ 5,748 $ 10,966
Accounts receivable—net of allowance of $510 and $585 17,518 20,532
Prepaid expenses and other current assets 3,091 2,989
Total current assets 26,357 34,487
PROPERTY AND EQUIPMENT, net 10,815 14,948
Operating lease, right-of-use asset 3,146 4,765
GOODWILL 15,952 15,948
INTANGIBLE ASSETS, net 6,380 8,411
OTHER ASSETS 593 1,319
TOTAL ASSETS 63,243 79,878
CURRENT LIABILITIES:    
Accounts payable 9,910 12,583
Accrued expenses and other current liabilities 4,788 5,878
Current portion of deferred revenue 6,617 6,509
Current portion of long-term debt and finance leases 992 2,529
Current portion of operating lease liabilities 2,224 2,165
Total current liabilities 24,531 29,664
LONG-TERM PORTION OF DEBT AND FINANCE LEASES 1,082 729
LONG-TERM PORTION OF OPERATING LEASE LIABILITIES 1,449 2,846
DEFERRED REVENUE 1,823 2,366
DEFERRED INCOME TAXES 501 275
OTHER LONG-TERM LIABILITIES 381 334
Total liabilities 29,767 36,214
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:    
Preferred stock, $0.01 par value—10,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and 2019 0 0
Common stock, $0.01 par value—100,000,000 shares authorized; 40,578,523 shares issued and 39,644,363 shares outstanding at December 31, 2020; 40,075,475 shares issued and  39,201,477 shares outstanding at December 31, 2019 406 401
Treasury stock—at cost, 934,160 shares at December 31, 2020 and 873,998 shares at December 31, 2019 (2,004) (1,931)
Additional paid-in capital 147,940 146,460
Accumulated deficit (112,308) (100,747)
Accumulated other comprehensive loss (558) (519)
Total stockholders’ equity 33,476 43,664
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 63,243 $ 79,878
v3.21.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 510 $ 585
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 100,000,000 100,000,000
Common stock, shares issued (in shares) 40,578,523 40,075,475
Common stock, shares outstanding (in shares) 39,644,363 39,201,477
Treasury stock (in shares) 934,160 873,998
v3.21.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Income Statement [Abstract]    
REVENUE $ 81,362 $ 121,845
COSTS AND OPERATING EXPENSES:    
Cost of revenue (exclusive of depreciation and amortization shown separately below) 42,236 61,990
Technology and development (exclusive of depreciation and amortization shown separately below) 12,007 18,273
Sales and marketing 15,350 21,790
General and administrative (exclusive of depreciation and amortization shown separately below) 14,356 17,734
Depreciation and amortization 8,068 9,865
Total costs and operating expenses 92,017 129,652
LOSS FROM OPERATIONS (10,655) (7,807)
INTEREST EXPENSE 240 (17)
LOSS BEFORE INCOME TAXES (189) (268)
LOSS BEFORE INCOME TAXES (10,604) (8,092)
PROVISION FOR INCOME TAXES 957 929
NET LOSS PER SHARE: $ (11,561) $ (9,021)
NET LOSS PER SHARE:    
Basic (in dollars per share) $ (0.29) $ (0.23)
Diluted (in dollars per share) $ (0.29) $ (0.23)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:    
Basic (in shares) 39,464,954 39,090,239
Diluted (in shares) 39,464,954 39,090,239
v3.21.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net loss $ (11,561) $ (9,021)
Other comprehensive loss:    
Changes in foreign currency translation adjustment (39) (177)
Comprehensive loss $ (11,600) $ (9,198)
v3.21.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Beginning balance (in shares) at Dec. 31, 2018   39,880,054 852,482      
Beginning balance at Dec. 31, 2018 $ 51,171 $ 399 $ (1,899) $ 144,739 $ (91,726) $ (342)
Exercise of common stock options (in shares)   39,572        
Exercise of common stock options 60     60    
Stock-based compensation cost 1,661     1,661    
Vesting of restricted stock units (in shares)   155,849 21,516      
Vesting of restricted stock units (30) $ 2 $ (32)      
Net loss (9,021)       (9,021)  
Other comprehensive loss $ (177)         (177)
Ending balance (in shares) at Dec. 31, 2019 39,201,477 40,075,475 873,998      
Ending balance at Dec. 31, 2019 $ 43,664 $ 401 $ (1,931) 146,460 (100,747) (519)
Exercise of common stock options (in shares) 0          
Stock-based compensation cost $ 1,484     1,484    
Vesting of restricted stock units (in shares)   503,048 60,162      
Vesting of restricted stock units (72) $ 5 $ (73) (4)    
Net loss (11,561)       (11,561)  
Other comprehensive loss $ (39)         (39)
Ending balance (in shares) at Dec. 31, 2020 39,644,363 40,578,523 934,160      
Ending balance at Dec. 31, 2020 $ 33,476 $ 406 $ (2,004) $ 147,940 $ (112,308) $ (558)
v3.21.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (11,561) $ (9,021)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:    
Depreciation and amortization 10,294 11,251
Long-lived asset impairment 806 1,751
Stock-based compensation expense 1,456 1,616
Provision for deferred income taxes 226 44
Change in allowance for doubtful accounts (75) 360
Changes in operating assets and liabilities:    
Accounts receivable, net 3,089 4,676
Prepaid expenses and other assets 624 526
Operating lease right-of-use assets and liabilities, net (305) 95
Accounts payable, accrued expenses and other liabilities (3,081) (8,828)
Deferred revenue (435) (11)
Net cash provided by operating activities 1,038 2,459
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment (3,053) (3,772)
Net cash used in investing activities (3,053) (3,772)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Payments of financing issuance costs 0 (60)
Repayments on long-term debt and finance leases (3,086) (3,427)
Proceeds from exercise of common stock options 0 60
Purchase of treasury stock and shares received to satisfy minimum tax withholdings (73) (32)
Net cash used in financing activities (3,159) (3,459)
Effect of exchange rate changes on cash and cash equivalents (44) (183)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,218) (4,955)
Cash and cash equivalents, beginning of period 10,966 15,921
Cash and cash equivalents, end of period 5,748 10,966
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest 188 268
Cash paid for income taxes 721 706
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:    
Property, equipment and service contracts financed under long-term debt and finance lease obligations 1,675 3,152
Accrued property and equipment expenditures 0 408
Stock-based compensation capitalized to property and equipment $ 28 $ 45
v3.21.1
The Company and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
The Company and Summary of Significant Accounting Policies THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Synacor, Inc., together with its consolidated subsidiaries (collectively, the “Company” or “Synacor”), is a digital technology company that provides email and collaboration software, cloud-based identity management platforms, managed web and mobile portals, and advertising solutions. The Company’s customers include communications providers, media companies, government entities and enterprises. Synacor is a trusted partner for enterprise software platforms and monetization solutions that Synacor delivers through public and private cloud software-as-a-service, software licensing, and professional services. Synacor enables clients to deepen their engagement with their consumers and users.
Basis of Presentation —The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period.
Cash and Cash Equivalents and Restricted Cash—The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents. The Company had no restricted cash as of the years ended December 31, 2020 and 2019.
Accounts Receivable —The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations.
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 assets as follows:
Leasehold improvements
3–10 years
Computer hardware
3–5 years
Computer software3 years
Furniture and fixtures7 years
Other
3–5 years
Computer hardware under finance leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
Long-Lived Assets —The Company reviews the carrying value of its long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. 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. If such assets are considered impaired, the impairment is measured and recognized as the amount by which the carrying amount of the assets exceeds the fair value of the assets. See Note 3 - Property and Equipment —Net further details.
Software Development Costs —The Company capitalizes certain costs incurred for the development of internal use software, as well as the costs of developing software for sale or license to customers.  Internal use software includes the Company’s proprietary portal software and related applications, Cloud ID authentication software, and various applications used in the management of the Company’s portals. Software for sale or license to customers includes the Company’s proprietary Email/Collaboration offerings. Costs incurred during the preliminary project stage for internal software programs are expensed as incurred. External and internal costs incurred during the application development stage (subsequent to the achievement of technological feasibility on software to be sold or licensed) of new software development, as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. Software development costs capitalized for sale or license to customers and cost capitalized for the development of internal use software are amortized over the estimated useful life of the applicable software. Impairment charges are taken as a result of circumstances that indicate that the carrying values of the assets were not fully recoverable. The Company utilizes the discounted cash flow method to determine the fair value of the internal use software.The Company utilizes the net realizable value model to determine the recoverability of software for sale or license to customers. Impairment charges for the years ended December 31, 2020 and 2019 are included in general and administrative expense in the consolidated statement of operations.
Leases — The Company determines if an arrangement is a lease and classifies that lease as either an operating or finance lease at inception. Right-of-use (ROU) assets and liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the reasonably certain lease term. For this purpose, only payments that are fixed and determinable at the time of commencement are considered. As many of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on factors including the Company’s credit rating. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the options will be exercised.The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. The Company has elected to apply the practical expedient and not separate lease and non-lease components of contracts. The Company's lease agreements do not contain any material residual value guarantees.
Operating leases are included in operating lease right-of-use assets, and current and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment-net, and on the current and long-term portion of debt and finance leases in our consolidated balance sheets.
Other Intangible Assets —Other intangible assets consist of customer relationships, trademarks, and purchased technology. Definite-lived intangible assets are amortized on a straight-line basis. The Company reviews its definite-lived intangible assets for impairment when impairment indicators exist. The Company uses undiscounted cash flow to determine whether impairment exists and measures any impairment losses using discounted cash flow.
The components and original estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2020 and 2019:
Original
Estimated
Economic Life
20202019
(Dollars in thousands)
Gross amortizable intangible assets:
Customer and publisher relationships10 years$14,780 $14,780 
Technology5 years2,330 2,330 
Trademark5 years300 300 
Total gross amortizable intangible assets17,410 17,410 
Accumulated amortization:
Customer and publisher relationships(8,425)(6,809)
Technology(2,305)(1,933)
Trademark(300)(257)
Total accumulated amortization(11,030)(8,999)
Amortizable intangible assets, net$6,380 $8,411 
Amortization of intangible assets was $2.0 million in the year ended December 31, 2020 and $2.1 million in the year ended December 31, 2019. Future amortization expense of amortizable intangible assets will be as follows: $1.4 million in the year ending December 31, 2021, $1.3 million in the years ending December 31, 2022, 2023, and 2024, and $1.0 million in the year ending December 31, 2025.
Goodwill —The Company evaluates goodwill for impairment for each of its reporting units at least annually on October 1st, and whenever events occur or circumstances change, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit.
Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units. Companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we consider in determining whether to perform a quantitative test.
When the Company evaluates the potential for goodwill impairment using a qualitative assessment, the Company considers factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative test.
Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. The fair value of each reporting unit is determined using a combination of an income approach and a market approach. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss is measured as the difference between the carrying value and fair value of the reporting unit.
The income approach uses a discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating margins and cash flows, the terminal growth rate and the discount rate. The Company projects revenue growth rates, operating margins and cash flows based on each reporting unit's current business, expected developments and operational strategies typically, over a five-year period.
The market approach determines fair value based on available market pricing for comparable assets. Valuation multiples were calculated utilizing actual transaction prices and revenue or EBITDA data from target companies deemed similar to the reporting unit. Valuation multiples were then applied to certain operating statistics such as revenue or EBITDA, and an estimated control premium was applied.
If the carrying amount of the reporting unit exceeds the reporting unit’s fair value as determined using the two valuation methodologies described above, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit. The determination of our assumptions is subjective and requires significant estimates. Changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill.
During the year ended December 31, 2020, in addition to the annual assessment done as of October 1st, we performed a quantitative test as of the first quarter as a result of the potential future financial impacts of the COVID-19 pandemic, for which all reporting units were found to have a fair value greater than their carrying value.
There were no impairment losses were recorded for goodwill during the years ended December 31, 2020, and 2019.
The change in goodwill for both of our segments is as follows for the years ended December 31, 2020 and 2019 (in thousands):
Software & ServicesPortal & AdvertisingTotal
Balance as of January 1, 2019$11,797 $4,144 $15,941 
Balance as of Effect of foreign currency translation— 
Balance as of December 31, 2019$11,804 $4,144 $15,948 
Effect of foreign currency translation— 
Balance as of December 31, 2020$11,808 $4,144 $15,952 
Revenue Recognition — The Company recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. See Note 2, Revenue from Customers for further discussion on Revenue.
Cost of Revenue —Cost of revenue consists primarily of revenue sharing, content acquisition costs, co-location facility costs, royalty costs and product support costs. Revenue sharing consists of amounts accrued and paid to customers for the internet traffic on Managed Portals where the Company is the primary obligor, resulting in the generation of search and digital advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a percentage of the search and digital advertising revenue.
Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for the Company’s data center facilities. Royalty costs consist of amounts due to third parties for the license of their applications or technology sold with or embedded in our email software. Product support costs consist of employee and operating costs directly related to the Company’s maintenance and professional services support.
Concentrations of Risk As of December 31, 2020 and 2019, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:
Accounts Receivable
20202019
Portal & Advertising Customer A*14 %
* - Less than 10%
For the years ended December 31, 2020 and 2019, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows: 
Revenue
20202019
Portal & Advertising Customer A*13 %
* - Less than 10%
For the years ended December 31, 2020 and 2019, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.
Cost of Revenue
20202019
Portal & Advertising Customer B*19 %
* - Less than 10%
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with high credit quality financial institutions, which, at times, have exceeded federally insured limits of $0.25 million. Although the Company maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances and believes credit risk to be minimal.
Technology and Development —Technology and development expenses consist primarily of compensation-related expenses incurred for the research and development of, enhancements to, and maintenance and operation of the Company’s products, equipment and related infrastructure.
Sales and Marketing —Sales and marketing expenses consist primarily of compensation-related expenses to the Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising costs are expensed as incurred.  Advertising costs totaled $0.2 million in 2020, and $0.4 million in 2019.
General and Administrative —General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, legal, and Corporate IT as well as professional fees and facilities costs.
Earnings (Loss) Per Share —Basic earnings (loss) per share (“EPS”) is calculated in accordance with the Financial Accounting Standards Board (“FASB”) ASC 260, Earnings per Share, using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, stock options, warrants, performance based stock units ("PSUs"), and restricted stock units (“RSUs”) are considered to be potential common shares and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive.
Stock-Based Compensation —The Company records compensation costs related to stock-based awards in accordance with FASB ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest.
Employee Benefit Plan —The Company sponsors a 401(k) profit sharing plan that covers substantially all employees. Under the plan, eligible employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions, and contributed $0.1 million for the year ended December 31, 2020, and $0.2 million for the year ended December 31, 2019.
Income Taxes Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and income tax bases of assets and liabilities and net operating loss (“NOL”) and credit carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2020 and 2019, accrued interest or penalties related to uncertain tax positions was insignificant.
Accounting Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimated amounts.
Fair Value Measurements —Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period. The fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates their carrying value due to their short-term nature.
The provisions of FASB ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:
Level 1 —Level 1 inputs are defined as observable inputs such as quoted prices in active markets.
Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 —Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.
Applicable Recent Accounting Pronouncements
Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13 ("ASU 2016-13") Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", which defers the effective date for public filers that are considered small reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
Recently Adopted
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance is required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. The amendments will be applied prospectively to all implementation costs incurred after adoption. There was no impact to the Company's condensed consolidation financial statements for the year ended December 31, 2020 as a result of adopting this standard update on January 1, 2020.
The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on the Company’s financial statements and related disclosures.
v3.21.1
Revenue from Contracts with Customers
12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue is recognized according to ASC 606, Revenue - Revenue from Contracts with Customers. The Company generates all of its revenue from contracts with customers. Many of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis. The Company usually expects payment within 30 to 90 days from the invoice date (fulfillment of performance obligations or per contract terms). Differences between the amount of revenue recognized and the amount invoiced are recognized as deferred revenue. None of the Company’s contracts as of December 31, 2020 or 2019 contained significant financing components.
The following is a description of principal activities from which the Company generates revenue in each reportable segment. Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers, in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

Software & Services

Synacor’s software and services segment is comprised of our cloud-based identity management platform and our Zimbra email & collaboration platform. Subscription fees and other fees are received from customers for the use of the Company’s proprietary technology, including the use of, or access to, email, Cloud ID, security services, games and other premium services. Monthly subscriber levels typically form the basis for generating recurring and fee-based revenue. This revenue is typically determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed, except in the case of software licenses and support, which are based on a fixed fee. Revenue earned as subscription fees and maintenance and support fees is recognized from customers as its obligation to deliver the service is satisfied, which is when the service is delivered. Revenue is also recognized from the licensing and distribution of the Company’s Email/Collaboration products and services, including licenses of intellectual property. Software license revenue is recognized up front upon delivery of the licensed product and the utility that enables the customer to access authorization keys, provided that a signed contract has been received. The Company typically sells term-based software licenses that expire, which are referred to as subscription licenses, but also sells perpetual licenses for its Email products. The software is delivered before related services are provided and is functional without professional services, updates, and technical support. The Company enters into contracts that can include various combinations of software licenses, maintenance and services, which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each distinct performance obligation, on a relative basis using its standalone selling price.

Portal & Advertising

The Company uses internet advertising to generate revenue from the traffic on its Managed Portals and Advertising solutions, categorized as search advertising and digital advertising. For search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which the Company includes a Google-branded search tool on its Managed Portals. For revenue earned under this relationship the Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). When a Google consumer makes a search query using this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with the Company. The payment received from Google is recognized as revenue. Digital advertising includes video, image and text advertisements delivered on its Managed Portals. Advertising inventory is filled with advertisements sourced by the Company’s direct sales force and advertising network partners. Revenue is generated when an advertisement displays, otherwise known as an impression, or when consumers view or click an advertisement, otherwise known as an action. Digital advertising revenue is on a cost per impression or cost per action basis. Digital advertising also includes advertising fees received for the placement of syndicated digital advertisements with other digital advertising publishers, for which the Company acquires and pays for the space (inventory) on a cost per impression or cost per action basis. Revenue is recognized based on amounts received from advertising customers as the impressions are delivered or the actions occur, according to contractually-determined rates.
Disaggregation of revenue
The following table provides information about disaggregated revenue for the years ended December 31, 2020, and 2019 by the timing of revenue recognition, and includes a reconciliation of the disaggregated revenue by reportable segment (in thousands):
Twelve Months Ended
December 31,
20202019
Software & Services
Products and services transferred over time$33,072 $34,029 
Products transferred at a point in time11,208 10,456 
Total Software & Services$44,280 $44,485 
Portal & Advertising
Products and services transferred over time$3,120 $5,168 
Products transferred at a point in time33,962 72,192 
Total Portal & Advertising$37,082 $77,360 
Total Revenue$81,362 $121,845 
Revenue disaggregated by geography, based on the billing address of our customer, consists of the following (in thousands):
Twelve Months Ended
December 31,
20202019
Revenue
United States$56,879 $99,845 
International24,483 22,000 
Total revenue$81,362 $121,845 
Remaining Performance Obligations
Deferred revenue is recorded when cash payments are received or due in advance of revenue recognition from software licenses, professional services, and maintenance agreements. The timing of revenue recognition may differ from the timing of billings to customers. The changes in deferred revenue, inclusive of both current and long-term, are as follows (in thousands):
Beginning Balance —January 1, 2020$8,875 
Recognition of deferred revenue(10,227)
Deferral of revenue9,623 
Effect of foreign currency translation169 
Ending balance-Ending Balance —December 31, 2020$8,440 
The majority of the deferred revenue balance above relates to the maintenance and support contracts for Email software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being recognized within the next twelve months.
Practical Expedients
The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.
v3.21.1
Property and Equipment-Net
12 Months Ended
Dec. 31, 2020
Property, Plant and Equipment [Abstract]  
Property and Equipment-Net PROPERTY AND EQUIPMENT—NET
As of December 31, 2020 and 2019, property and equipment-net consisted of the following (in thousands):
20202019
Computer equipment$26,994 $25,392 
Computer software33,644 31,037 
Furniture and fixtures913 1,315 
Leasehold improvements883 1,116 
Work in process (primarily software development costs)31 187 
Other172 136 
Property and equipment, gross62,637 59,183 
Less accumulated depreciation(51,822)(44,235)
Property and equipment, net$10,815 $14,948 
Depreciation expense totaled $8.3 million and $9.1 million for the years ended December 31, 2020, and 2019, respectively.
Property and equipment includes computer equipment held under finance leases and long-term debt obligations of $12.5 million and $10.8 million as of December 31, 2020 and 2019, respectively. Accumulated depreciation of computer equipment and software held under finance leases amounted to $9.0 million and $6.2 million as of December 31, 2020 and 2019, respectively.
The Company capitalized a total of $1.2 million and $2.3 million of costs that occurred during the application development phase, related to the development of internal-use software for the years ended December 31, 2020, and 2019, respectively. The Company capitalized a total of $1.3 million and $1.5 million of costs related to the development of software for sale or license for the years ended December 31, 2020 and 2019, respectively, that occurred after technological feasibility had been achieved.
Amortization of software for sale or license was $2.2 million and $1.4 million for the years ended December 31, 2020 and 2019, respectively, and is included in cost of revenue in the consolidated statements of operations.
During the year ended December 31, 2020, impairment charges incurred were related to assets associated with certain leased office spaces being used in a manner different than originally planned, as well as software impairment. When the carrying value of long-lived assets is not recoverable from future undiscounted cash flows, the Company utilizes the discounted cash flow to determine the fair value of the assets and impairment charges are recognized when the fair value of the assets is less than their carrying value, which use unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Impairment charges related to the following assets were included in general and administrative expenses in the consolidated statement of operations for the years ended December 31, 2020, and 2019 (in thousands):
Year Ending December 31,20202019
Computer equipment$27 $
Computer software— 1,557 
Furniture and fixtures57 102 
Leasehold improvements32 90 
Work in process (primarily software development costs)102 — 
Total$218 $1,751 
The following table sets forth long-lived tangible assets by geographic area as of December 31, 2020 and December 31, 2019 (in thousands):

20202019
Long-lived tangible assets:
United States$10,661 $14,629 
International154 319 
Total long-lived tangible assets$10,815 $14,948 
v3.21.1
Accrued Expenses and Other Current Liabilities
12 Months Ended
Dec. 31, 2020
Payables and Accruals [Abstract]  
Accrued Expenses and Other Current Liabilities ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of December 31, 2020 and 2019, accrued expenses and other current liabilities consisted of the following (in thousands):
20202019
Accrued compensation$2,637 $4,209 
Accrued content fees and other costs of revenue142 151 
Accrued taxes256 192 
Accrued royalties and rebates1,030 930 
Other723 396 
Total$4,788 $5,878 
Included in accrued compensation are accrued severance costs. In 2018, the Company initiated a cost reduction program ("2018 plan") to drive overall efficiency while adding capacity and streamlining the organization. The plan involved a reduction in the Company’s workforce by approximately 25 employees. In 2019, the Company initiated a cost reduction program ("2019 plan") in order to further streamline the organization after the loss of a major portal customer. The plan involved a reduction in the Company’s workforce by approximately 50 employees. On August 4, 2020, the Company initiated an additional cost reduction program ("2020 plan") as a result of an ongoing review of our business and operations. The restructuring actions resulted in a reduction in workforce of 35 employees.
In the year ended December 31, 2019, the pre-tax severance charge and outplacement services resulting from the reduction in workforce amounted to $0.6 million. Severance costs charged to sales and marketing was $0.2 million and $0.4 million was charged to technology and development expenses. For the year ended December 31, 2020 the pre-tax severance charge and outplacement services resulting from the reduction in workforce amounted to $1.0 million. Severance costs charged to sales and marketing was $0.4 million and $0.6 million was charged to technology and development expenses.
The following is a roll forward of the accrued severance liability for the years ended December 31, 2020 and 2019 (in thousands):
20202019
Balance at beginning of the year$56 $274 
Charged to expense970 607 
Cash payments related to 2018 plan— (268)
Cash payments related to 2019 plan(56)(557)
Cash payments related to 2020 plan(949)— 
Balance at end of year$21 $56 
v3.21.1
Long-Term Debt
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Long-Term Debt LONG-TERM DEBT
On August 7, 2019, the Company entered into a new Loan and Security Agreement, the "Loan Agreement", with Silicon Valley Bank, or the "Lender". The Lender agrees to provide a $12.0 million secured revolving line of credit, the “credit facility”. The credit facility is available for cash borrowings, subject to a Borrowing Base formula based upon eligible accounts receivable. The maturity of the Agreement is two years from the date of the Agreement.
Any borrowings under the Loan Agreement bear interest, based on an interest rate dependent on cash liquidity for the relevant period. Cash liquidity is defined as cash plus (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances (each as defined in the Loan Agreement). If cash liquidity is greater than $20.0 million then the interest rate is the greater of the "prime rate” as published in The Wall Street Journal (WSJ) for the relevant period plus 0.50% or 5.50%. If cash liquidity is less than $20.0 million then the interest rate is the greater of WSJ prime rate plus 1.00% or 6.00%. The Loan Agreement requires compliance with certain reporting requirements, conditions, and covenants. The financial covenants include that the Company must maintain a Minimum Liquidity Coverage greater than or equal to 2.25:1.00. Additionally, when cash liquidity falls below $20.0 million, the Loan Agreement includes certain trailing six month Free Cash Flow requirements, tested on a quarterly basis. Free Cash Flow is to be defined as (a) Adjusted EBITDA, minus (b) capital expenditures determined in accordance with GAAP (as defined in the Loan Agreement), minus (c) capitalized software expenses, determined in accordance with GAAP, and minus (d) cash taxes, determined in accordance with GAAP.
As of December 31, 2020, there were no borrowings outstanding under the Loan Agreement, and subject to the operation of the borrowing formula, $8.2 million was available for draw under the Loan Agreement.
The Company’s obligations to the Lender are secured by a first priority security interest in all our assets, including our intellectual property. The Loan Agreement contains customary events of default, including non-payment of principal or interest, violations of covenants, material adverse changes, cross-default, bankruptcy and material judgments. Upon the occurrence of an event of default, the Lender may accelerate repayment of any outstanding balance. The Loan Agreement also contains certain financial covenants and other agreements that are customary in loan agreements of this type, including restrictions on paying dividends and making distributions to our stockholders. As of December 31, 2020, the Company was in compliance with the financial covenants.
v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income (loss) before income tax expense was attributable to the following jurisdictions (in thousands):
20202019
United States$(11,810)$(8,799)
Foreign1,206 707 
Total$(10,604)$(8,092)
The provision (benefit) for income taxes for the years ended December 31, 2020 and 2019, was comprised of the following (in thousands):
20202019
Current:
United States Federal$— $— 
State31 35 
Foreign700 850 
Total current provision for income taxes731 885 
Deferred:
United States Federal10 24 
State126 61 
Foreign90 (41)
Net deferred provision for income taxes226 44 
Total provision for income taxes$957 $929 
The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in thousands):
20202019
Deferred income tax assets:
Stock and other compensation expense$2,157 $2,252 
Net operating losses14,169 11,787 
Research and development credits1,676 1,676 
Other federal, state and foreign carryforwards2,458 2,424 
Intangible assets2,221 1,765 
Other459 620 
Gross deferred tax assets23,140 20,524 
Valuation allowances(19,333)(14,025)
Net deferred tax assets3,807 6,499 
Deferred income tax liabilities:
Fixed assets(2,380)(5,139)
Intangible assets and other(1,300)(1,007)
Gross deferred tax liabilities(3,680)(6,146)
Subtotal127 353 
Less unrecognized tax benefit liability related to deferred items(628)(628)
Net deferred tax liabilities$(501)$(275)
There have been no additions or reductions to the unrecognized tax benefit of $0.6 million in any of the years ended December 31, 2020 and 2019. The unrecognized tax benefits at the end of December 31, 2020 and 2019 were primarily related to research and development carryforwards.
The Company does not expect any material changes to its unrecognized tax benefits within the next twelve months.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, penalties and interest were insignificant.
The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign jurisdictions. The tax years 2017 to 2020 remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized.
Income tax expense for the years ended December 31, 2020 and 2019 differs from the expected income tax benefit calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):
20202019
Federal income tax (benefit) expense at statutory rate$(2,227)21 %$(1,699)21 %
State and local taxes—net of federal benefit124 (1)76 (1)
Foreign taxes648 (6)569 (7)
Federal, state and foreign true-up(2,092)20 — — 
Valuation allowance4,458 (43)1,818 (21)
Permanent differences46 — 117 (2)
Other— — 48 (1)
Total$957 (9)%$929 (11)%
No additional U.S. income taxes or foreign withholding taxes have been provided for any additional outside basis differences inherent in the Company’s foreign entities as the Company does not have any material unremitted earnings of the subsidiaries outside of the United States.
At December 31, 2020 and December 31, 2019, the Company has federal NOL carryforwards of $54.7 million and $48.2 million. The NOL generated December 31, 2017 and prior, will begin to expire in 2028. The Company has weighed all the available evidence both positive and negative and has determined that the Company more likely than not will not be able to generate sufficient taxable income in the future to be able to utilize the entire NOL in future periods. Therefore, a full valuation allowance has been recorded against the net deferred income tax asset as of December 31, 2020 and 2019.  The deferred income tax provision is primarily due to the recognition of deferred tax liabilities relating to indefinite-lived goodwill that cannot be predicted to reverse for book purposes during the Company’s loss carry forward periods.
Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in the Internal Revenue Code of 1986, as amended, or the Code, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization. A prior ownership change and certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations. NOLs arising in a tax year ended on or before 2017 can offset 100% of taxable income in future periods, and expire 20 years after they arise. The Tax Cuts add Jobs Act provides that NOLs arising after 2017 can only be used to offset 80% of future taxable income, cannot be carried back, and do not expire. The CAREs Act of 2020, allows for the five year carry back of net operating losses generated in 2018, 2019, and 2020. The Company did not have any NOL carry back opportunities under the CARES Act.
v3.21.1
Segment Information
12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Segment Information SEGMENT INFORMATION
The Company operates its business in two reportable segments: 1) Software & Services and 2) Portal & Advertising. Software & Services generates revenue by providing cloud-based identity management solutions and email/collaboration products. Portal & Advertising generates managed portal fees and advertising revenue from its traffic on its Managed Portals and other advertising solutions it provides for publishers.
The Company’s operations are organized and managed by type of products and services and segment information is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments aggregated to arrive at the Company’s reportable segments.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies, refer to Note 1— Summary of Significant Accounting Policies, for further details. The Company evaluates the performance of its segments and allocates resources to them based on Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash items and other non-recurring income and expenses.
Revenue for all operating segments include only transactions with unaffiliated customers and there is no intersegment revenue.
The Company does not account for, and does not report to management, its assets or capital expenditures by segment other than goodwill and intangible assets used for impairment analysis purposes.
The tables below summarize the financial information for the Company’s reportable segments for the years ended December 31, 2020 and 2019 (in thousands). The “Corporate Unallocated Expenses” category, as it relates to Segment Adjusted EBITDA, primarily includes corporate overhead costs, such as rent, payroll and related benefit costs and professional services which are not directly attributable to any individual segment.

Year Ended
December 31, 2020
RevenueCost of revenue (1)Segment Adjusted
EBITDA
Software & Services$44,280 $14,477 $14,340 
Portal & Advertising37,082 27,759 2,168 
Corporate Unallocated Expenses— — (11,190)
Total Company$81,362 $42,236 $5,318 

Year Ended
December 31, 2019
RevenueCost of revenue (1)Segment Adjusted
EBITDA
Software & Services$44,485 $12,669 $12,531 
Portal & Advertising77,360 49,321 10,657 
Corporate Unallocated Expenses— — (13,685)
Total Company$121,845 $61,990 $9,503 

Notes:
(1) Exclusive of depreciation and amortization shown separately on the consolidated statements of operations
The following table reconciles total Segment Adjusted EBITDA to Net loss:
Year Ended December 31,
20202019
(in thousands)
Total Segment Adjusted EBITDA$5,318 $9,503 
Less:
Provision for income taxes(957)(929)
Interest expense(189)(268)
Other income (expense), net240 (17)
Depreciation and amortization(10,294)(11,251)
Long-lived asset impairment*(806)(1,751)
Stock-based compensation expense(1,456)(1,616)
Restructuring costs**(1,483)(959)
Certain legal and professional services fees***(1,934)(1,733)
Net loss$(11,561)$(9,021)

*"Long-lived asset impairment" includes impairment charges related to property, plant and equipment, capitalized software and leased assets.
**"Restructuring costs" include severance expense, contract termination costs and other exit or disposal costs.
***"Certain legal and professional services fees" includes legal fees and other related expenses outside the ordinary course of business, as well as fees and expenses related to merger and acquisition activities.
v3.21.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
Litigation —The Company and its Chief Executive Officer and former Chief Financial Officer were named as defendants in a federal securities class action lawsuit filed on April 4, 2018 in the United States District Court for the Southern District of New York. The class includes persons who purchased the Company’s shares between May 4, 2016 and March 15, 2018. The plaintiff alleged that the Company made materially false and misleading statements regarding its contract with AT&T and the timing of revenue to be derived therefrom, and that as a result, class members suffered losses because Synacor shares traded at artificially inflated prices. The plaintiff sought an unspecified amount of damages, as well as interest, attorneys’ fees and legal expenses. On August 28, 2019, the court granted the Company’s motion to dismiss but permitted the plaintiff to seek leave to replead. The Clerk of the Court entered judgment in favor of the Company and the individual defendants and closed the case on November 19, 2019. Plaintiff filed its Notice of Appeal on December 16, 2019. The United States Court of Appeals for the Second Circuit upheld the lower court’s decision to grant defendants’ motion to dismiss on October 22, 2020. Plaintiffs had the option to petition for a rehearing on or before November 5, 2020, but did not. As a result, the United States Court of Appeals for the Second Circuit issued a mandate to officially close the class action on November 12, 2020.

In connection with the Offer and Merger, on March 9, 2021, a complaint captioned Cave v. Synacor, Inc., et al., Case No. 1:21-cv-02037 (the “Cave Complaint”), on March 10, 2021, a complaint captioned Delgado v. Synacor, Inc., et al., Case No. 1:21-cv-02054 (the “Delgado Complaint”), on March 11, 2021, complaints captioned Hammond v. Synacor, Inc., et al., Case No. 1:21-cv-02107 (the “Hammond Complaint”), and Gontaruk v. Synacor, Inc., et al., Case No. 1:21-cv-02128 (the “Gontaruk Complaint”), on March 15, 2021, a complaint captioned Perkins v. Synacor, Inc., et al., Case No. 1:21-cv-02250 (the “Perkins Complaint”), on March 16, 2021, complaints captioned Bushansky v. Synacor, Inc., et al., Case No. 1:21-cv-02268 (the “Bushansky Complaint”), Cook v. Synacor, Inc., et al., Case No. 1:21-cv-02271 (the “Cook Complaint”), and Kent v. Synacor, Inc., et al., Case No. 1:21-cv-02276 (the “Kent Complaint”), and on March 17, 2021, a complaint captioned Jones v. Synacor, Inc., et al., Case No. 1:21-cv-02320 (the “Jones Complaint”) were each filed in the United States District Court for the Southern District of New York against the Company and each member of the Board and, in the case of the Gontaruk Complaint, Purchaser and Parent. On March 17, 2021, a complaint captioned Lenahan v. Synacor, Inc., et al., Case No. 1:21-cv-01402 (the “Lenahan Complaint”), was filed in the United States District Court for the Eastern District of New York, and a complaint captioned Waterman v. Synacor, Inc., et al., Case No. 2:21-cv-01296 (the “Waterman Complaint” and together with the Cave Complaint, the Delgado Complaint, the Hammond Complaint, the Gontaruk Complaint, the Perkins Complaint, Bushansky Complaint, the Cook Complaint, the Kent Complaint, the Jones Complaint and the Lenahan Complaint, the “Complaints”), was filed in the United States District Court for the Eastern District of Pennsylvania, in each case against the Company and each member of the Board and, in the case of the Waterman Complaint, Purchaser and Parent. Each of the Complaints was brought on behalf of a purported stockholder of the Company.

Each of the Complaints generally alleges violations of Sections 14(e), 14(d), and 20(a) of the Exchange Act and Rule 14d-9 promulgated thereunder in connection with the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 (“Schedule 14D-9”) for the Offer and, in the case of the Cave Complaint and the Delgado Complaint, asserts common law claims of breach of fiduciary duty against members of the Board in connection with the Offer and Merger, and, in the case of the Cave Complaint, claims of aiding and abetting a breach of fiduciary duty against the Company in connection with the Offer and Merger. In particular, each of the Complaints generally allege that the Schedule 14D-9 contains materially misleading and incomplete information concerning: (i) the background and process leading up to the Offer and the Merger; (ii) the Company’s financial projections set forth in the Schedule 14D-9; (iii) the description of the fairness opinion and financial analyses performed by Canaccord Genuity, LLC, which acted as the Company’s financial advisor for the Offer and Merger; and (iv) with respect to the Cave Complaint, the Bushansky Complaint, the Kent Complaint and the Perkins Complaint, certain conflicts of interest involving Company management. The Cave Complaint also alleges that the members of the Board breached their fiduciary duties of care, loyalty and good faith owed to the plaintiff in connection with the Offer and the Merger. The Delgado Complaint also alleges that the members of the Board breached their fiduciary duties of candor and disclosure owed to the plaintiff with respect to the disclosures included in or omitted from the Schedule 14D-9. The Cook Complaint alleges that the members of the Board breached their fiduciary duties owed to the plaintiff with respect to the Offer consideration. The Cook Complaint also contains additional allegations relating to the Offer consideration and certain deal protection devices agreed to by the Company in the Merger Agreement

The Cave Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to declare that the Merger Agreement was agreed to in breach of the Board’s fiduciary duties and is therefore unlawful and unenforceable; (iv) to direct the members of the Board to exercise their fiduciary duties to commence a sale process that is reasonably designed to secure the best possible consideration for the Company and obtain a transaction which is in the best interests of Company and the plaintiff as a purported Company stockholder; (v) to direct the Company and the Board to account to plaintiff for damages sustained; and (vi) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.
The Delgado Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with the Offer unless the Company discloses additional information discussed in the Delgado Complaint; (ii) to direct the Company and the Board to account to plaintiff for damages sustained; and (iii) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Hammond Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to direct the defendants to disseminate revised disclosures to the Schedule 14D-9; (iii) to direct the defendants to account to plaintiff for damages sustained; and (vi) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Gontaruk Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to direct the individual defendants to disseminate revised disclosures to the Schedule 14D-9; (iv) to declare that the respective defendants violated Sections 14(e), 14(d), and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder; and (iv) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Perkins Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to direct the individual defendants to disseminate revised disclosures to the Schedule 14D-9; and (iv) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Bushansky Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; and (iii) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Cook Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger until the Company disseminates revised disclosures to the Schedule 14D-9; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to direct the defendants to account to the plaintiffs for all damages sustained; and (iv) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Kent Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; and (iii) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Jones Complaint seeks, among other things: (i) to enjoin the defendants from filing any amendment to the Schedule 14D-9 unless and until the defendants agree to include in the amendment the material information addressed in the Jones Complaint; (ii) to enjoin the defendants from proceeding with the Offer and the Merger, unless and until the defendants disclose the information addressed in the Jones Complaint; (iii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iv) to direct the defendants to account to the plaintiffs for all damages sustained; and (v) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Lenahan Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with the Offer and the Merger, unless and until the defendants disclose and disseminate the information addressed in the Lenahan Complaint; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to declare that the defendants violated Sections 14(e), 14(d), and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder; and (iv) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Waterman Complaint seeks, among other things: (i) to enjoin the defendants from proceeding with, consummating or closing the Offer and the Merger; (ii) to rescind the Offer and the Merger or recover damages in the event that the Offer and Merger are consummated; (iii) to direct the defendants to file a Schedule 14D-9 with the information addressed in the Waterman Complaint; (iv) to declare that the defendants violated Sections 14(e), 14(d), and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder; and (v) an award of costs of bringing the lawsuit, including attorneys’ and experts’ fees.

The Company believes that each of these Complaints is wholly without merit.
In addition, the Company is, from time to time, party to litigation arising in the ordinary course of business. It does not believe that the outcome of these claims will have a material adverse effect on its consolidated financial position, results of operations or cash flows based on the status of proceedings at this time. However, these matters are subject to inherent uncertainties and the Company’s view of these matters may change in the future.
v3.21.1
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases LEASES
The Company enters into various non-cancelable operating lease agreements for certain of our offices, data centers, colocations and network equipment. The Company’s leases have original lease periods expiring between 2020 and 2025. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s variable lease payments are immaterial and its lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating lease costs are included in cost of revenue and general and administrative costs in the Company’s consolidated statements of operations. Finance lease amortization costs are included in depreciation and amortization, and finance lease interest costs are included in interest expense in the Company’s consolidated statements of operations.
The components of lease costs are as follows (in thousands):
Year Ended December 31,
20202019
Finance lease cost
Amortization of right-of-use assets$2,862 $3,590 
Interest123 237 
Operating lease cost2,572 3,666 
Total lease cost$5,557 $7,493 
The lease term and discount rate are as follows:
December 31, 2020December 31, 2019
Weighted Average Remaining Lease Term
Operating leases1.4Years2.0Years
Finance leases2.3Years1.2Years
Weighted Average Discount Rate
Operating leases6.0 %6.0 %
Finance leases4.4 %5.0 %

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2020 (in thousands):
Year Ending December 31,Operating LeasesFinance Leases
2021$2,290 $1,070 
20221,134 765 
2023446 328 
202438 29 
2025— 
Total undiscounted cash flows$3,908 $2,194 
Less imputed interest(235)(120)
Present value of lease liabilities$3,673 $2,074 
Supplemental cash flow information related to leases are as follows (in thousands):
Twelve months ended December 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,791 $3,671 
Operating cash flows from finance leases$123 $237 
Financing cash flows from finance leases$3,086 $3,427 
Lease liabilities arising from obtaining right-of-use-assets:
Operating leases$1,208 $175 
Finance leases$1,675 $3,152 

During the year end ended December 31, 2020, the Company recorded $0.6 million in impairment charges related to operating lease ROU assets associated with certain leased office spaces being used in a manner different than originally planned as part of cost cutting initiatives. These charges are included in general and administrative expense in the consolidated statement of operations. No such impairment charges occurred in the year ended December 31, 2019.
Leases LEASES
The Company enters into various non-cancelable operating lease agreements for certain of our offices, data centers, colocations and network equipment. The Company’s leases have original lease periods expiring between 2020 and 2025. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s variable lease payments are immaterial and its lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating lease costs are included in cost of revenue and general and administrative costs in the Company’s consolidated statements of operations. Finance lease amortization costs are included in depreciation and amortization, and finance lease interest costs are included in interest expense in the Company’s consolidated statements of operations.
The components of lease costs are as follows (in thousands):
Year Ended December 31,
20202019
Finance lease cost
Amortization of right-of-use assets$2,862 $3,590 
Interest123 237 
Operating lease cost2,572 3,666 
Total lease cost$5,557 $7,493 
The lease term and discount rate are as follows:
December 31, 2020December 31, 2019
Weighted Average Remaining Lease Term
Operating leases1.4Years2.0Years
Finance leases2.3Years1.2Years
Weighted Average Discount Rate
Operating leases6.0 %6.0 %
Finance leases4.4 %5.0 %

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2020 (in thousands):
Year Ending December 31,Operating LeasesFinance Leases
2021$2,290 $1,070 
20221,134 765 
2023446 328 
202438 29 
2025— 
Total undiscounted cash flows$3,908 $2,194 
Less imputed interest(235)(120)
Present value of lease liabilities$3,673 $2,074 
Supplemental cash flow information related to leases are as follows (in thousands):
Twelve months ended December 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,791 $3,671 
Operating cash flows from finance leases$123 $237 
Financing cash flows from finance leases$3,086 $3,427 
Lease liabilities arising from obtaining right-of-use-assets:
Operating leases$1,208 $175 
Finance leases$1,675 $3,152 

During the year end ended December 31, 2020, the Company recorded $0.6 million in impairment charges related to operating lease ROU assets associated with certain leased office spaces being used in a manner different than originally planned as part of cost cutting initiatives. These charges are included in general and administrative expense in the consolidated statement of operations. No such impairment charges occurred in the year ended December 31, 2019.
v3.21.1
Equity
12 Months Ended
Dec. 31, 2020
Equity [Abstract]  
Equity EQUITY
Stock Repurchases —In February 2014, the board of directors approved a Stock Repurchase Program, which authorizes a repurchase of up to $5.0 million worth of the Company’s outstanding common stock. The Stock Repurchase Program has no expiration date, and may be suspended or discontinued at any time without notice. There were no repurchases under this program during the years ended December 31, 2020 or 2019. The Company has repurchased $0.6 million of its outstanding stock under this authorization to date.
Withhold to Cover —During the years ended December 31, 2020 or 2019, certain employees, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock awards, authorized the withholding of shares of the Company’s common stock to satisfy their minimum statutory tax withholding requirements related to such vesting. These shares were recorded as treasury stock using the cost method at the per share closing price on the date of vesting.
v3.21.1
Stock-based Compensation
12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-based Compensation STOCK-BASED COMPENSATION
The Company has stock-based employee compensation plans for which compensation cost is recognized in its financial statements. The Company is authorized to grant key employees and members of our board of directors stock-based incentive awards, including options to purchase common stock, stock appreciation rights, RSUs, PSUs or other stock units. The cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). The Company utilizes the Black-Scholes option-pricing model to value stock option awards. The Company measures RSUs and PSUs using the fair market value of the restricted shares of common stock on the day the award is granted. Stock-based awards granted to employees and members of our board of directors include stock options and restricted stock units.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted (excluding replacement options in conjunction with modifications described below) during the periods presented:
Years Ended December 31,
20202019
Expected dividend yield— %— %
Expected stock price volatility63.8 %66.7 %
Risk-free interest rate1.8 %2.0 %
Expected life of options (in years)5.705.27
The Company determines expected volatility using historical volatility based on daily closing prices of the Company's common stock over periods that correlate with the expected terms of the awards. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the appropriate expected term of the awards granted. Expected dividends are based on our history and expectation of dividend payouts. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. The expected life assumption represents the weighted-average period awards are expected to remain outstanding. The expected life assumptions are established through a review of historical exercise behavior of stock-based award grants with similar vesting periods.
The Company recorded $1.5 million and $1.6 million of stock-based compensation expense for the years ended December 31, 2020, and 2019, respectively. Expense related to stock option grants of non-qualified stock options (“NSOs”) results in a temporary tax difference, which gives rise to a deferred income tax asset.
Total stock-based compensation expense included in the accompanying consolidated statements of operations for the years ended December 31, 2020 and 2019, is as follows (in thousands):
Years Ended December 31,
20202019
Technology and development$218 $338 
Sales and marketing407 513 
General and administrative831 765 
Total stock-based compensation expense$1,456 $1,616 
Equity Incentive Plans —The Company has two stock option plans (the 2006 Stock Plan and the Amended and Restated 2012 Equity Incentive Plan), which, as of December 31, 2020, authorize the Company to grant up to 17.1 million stock options (ISOs and NSOs), stock appreciation rights, restricted stock, RSUs and PSUs. The ISOs and NSOs will be granted at a price per share not less than the fair value of the Company’s common stock at the date of grant. Options granted to date generally vest over a four-year period with 25% vesting at the end of one year and the remaining 75% vesting monthly thereafter. Options granted generally are exercisable up to 10 years. RSUs generally vest over a 3 year period with one-sixth vesting at the end of each six-month period. PSUs vest annually over a 4 year period with the number of shares earned dependent upon the Company's achievement of certain financial performance targets.
Special Purpose Recruitment Plan —During 2013, our shareholders approved the Special Purpose Recruitment Plan from which equity compensation awards are granted to newly-hired employees. One million shares of common stock were reserved for issuance and have all been granted under this plan.
Stock Option Activity —A summary of stock option activity for the year ended December 31, 2020 is as follows:
Number of
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (in
thousands)
Weighted
Average
Remaining
Contractual
Term (years)
Outstanding at January 1, 20207,296,746 $2.48 
Granted89,100 1.49 
Exercised— — 
Forfeited(161,651)2.28 
Expired(1,261,889)2.73 
Outstanding—December 31, 20205,962,306 $2.42 $4.72
Expected to vest—December 31, 20205,954,759 $2.42 $4.71
Vested and exercisable—December 31, 20205,396,910 $2.47 $— 4.39
Aggregate intrinsic value represents the difference between the closing stock price of the Company’s common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the Nasdaq as of December 31, 2020 was $1.36. There were no options exercised for the year ended December 31, 2020. The total intrinsic value of options exercised was $10 thousand for the year ended December 31, 2019. The weighted-average grant date fair value of options granted was $0.86 per share and $0.97 per share for the years ended December 31, 2020 and 2019, respectively.
As of December 31, 2020, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was $0.6 million, which is expected to be recognized over a weighted-average period of 1.68 years.
RSU Activity —A summary of RSU activity for the year ended December 31, 2020 is as follows:
Number of SharesWeighted Average
Fair Value
Unvested—January 1, 2020
677,354 $1.54 
Granted1,250,595 1.18 
Vested(503,048)1.38 
Forfeited(38,168)1.53 
Unvested—December 31, 2020
1,386,733 $1.27 
As of December 31, 2020, total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was $1.3 million. This cost is expected to be recognized over a weighted-average remaining period of 2.21 years.
PSU Activity  — A summary of PSU activity for the year ended December 31, 2020 is as follows:
Number of SharesWeighted Average
Fair Value
Unvested—January 1, 2020297,789 $1.36 
Granted336,100 1.21 
Vested— — 
Forfeited(74,442)1.36 
Unvested—December 31, 2020559,447 $1.27 
During the year ended December 31, 2020, certain employees were granted PSUs. The PSUs vest annually over three years from the grant date based on continuous service, with the number of shares earned dependent upon the Company's achievement of certain financial performance targets measured over the period from January 1, 2020 through December 31, 2023. The number of shares earned can range from 0% to 150% of the target award.
As of December 31, 2020, total unrecognized compensation cost, adjusted for estimated forfeitures, related to PSUs was $0.4 million. This cost is expected to be recognized over a weighted-average remaining period of 3.58 years.
v3.21.1
Net Loss Per Common Share Data
12 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
Net Loss Per Common Share Data NET LOSS PER COMMON SHARE DATA
Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The Company’s potential common shares consist of the incremental common shares issuable upon the exercise of stock options, and to a lesser extent, shares issuable upon the release of RSUs and PSUs. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.
The following equivalent shares were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the periods presented:
Year Ended December 31,
20202019
Anti-dilutive equity awards:
Stock options6,672,102 7,553,379 
Restricted stock units919,296 447,886 
Performance based stock units372,675 119,116 
v3.21.1
Subsequent Events
12 Months Ended
Dec. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events SUBSEQUENT EVENTS
On February 10, 2021, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, CLP SY Holding, LLC, a Delaware limited liability company (“Parent”), and SY Merger Sub Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of the Parent (“Purchaser”), pursuant to which Purchaser agreed to commence a tender offer (the “Offer”) to purchase any and all of the issued and outstanding shares of the Company’s common stock, par value $0.01 per share (the “Company Shares”), at a price per Company Share of $2.20, in cash, without interest and subject to any withholding taxes required by applicable law (such amount or any higher amount per Company Share that may be paid pursuant to the Offer, the “Offer Price”), which Offer was commenced on March 3, 2021.

The Merger Agreement provides that the Company may not solicit or support any alternative acquisition proposals (subject to customary exceptions for the Company’s Board of Directors to respond to unsolicited proposals or intervening events in the exercise of its fiduciary duties). In addition, in connection with the termination of the Merger Agreement in certain circumstances, the Company will be obligated to pay a termination fee of $3.5 million and/or reimburse Parent for related enforcement costs incurred in connection with the transactions contemplated by the Merger Agreement.

The closing of the Offer is subject to various conditions, including there being validly tendered in the Offer (in the aggregate) and not properly withdrawn prior to the expiration of the Offer that number of Company Shares that equals at least a majority in voting power of the Company Shares then issued and outstanding (the “Minimum Condition”).

As soon as practicable following the acceptance by Purchaser of the Company Shares in the Offer, Purchaser will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”) on the terms and subject to the conditions set forth in the Merger Agreement, with the Merger to be effected pursuant to Section 251(h) of the General Corporation Law of the State of Delaware, as amended (the “DGCL”). As a result of, and at the effective time of the Merger (the “Effective Time”), each outstanding Company Share not purchased in the Offer (other than (1) Company Shares owned by Parent, Purchaser or the Company or any direct or indirect wholly-owned subsidiary of Parent of the Company, including all Company shares held as treasury stock or (2) any Company Shares for which the holder has properly demanded the appraisal of such shares pursuant to the DGCL) will be converted automatically into the right to receive a cash amount, without interest, subject to any withholding of taxes required by applicable law, equal to the Offer Price (referred to as the “Merger Consideration”).

At the Effective Time, subject to the terms and conditions set forth in the Merger Agreement, each stock option to purchase Company Shares (an “Option”), each restricted share unit award (an “RSU”) and each performance share unit award (a “PSU”) of the Company that is outstanding immediately prior to the Effective Time, whether vested or unvested as of the Effective Time, will automatically be cancelled and converted into the holder’s right to receive a cash amount equal to the product of (i) the total number of Company Shares underlying such Option, RSU or PSU and (ii) (a) in the case of any such Option, the excess (if any) of the Merger Consideration over the per-share exercise price of such Option, and (b) with respect to any such RSU or PSU, the Merger Consideration. If the per-share exercise price of an Option is equal to or greater than the Merger Consideration, such Option shall be cancelled for no consideration.

Pursuant to an equity commitment letter dated February 10, 2021, Centre Lane Partners V, L.P. has committed to provide Parent, on the terms and subject to the conditions set forth in the equity commitment letter, at the Effective Time, with an aggregate equity contribution of up to $87.6 million plus the aggregate amount payable to holders of Options, RSUs, and PSUs pursuant to the Merger Agreement. This amount is sufficient to fund the payment of the Offer Price for all of the Company Shares tendered in the Offer and the Merger Consideration for all the Company Shares exchanged in the Merger and any other amounts required to be paid in connection with the transaction (including any amounts payable in respect of the Options, RSUs and PSUs under the Merger Agreement).

Pursuant to the terms of the Merger Agreement, the Offer and the Merger are subject to certain other customary closing conditions, including, but not limited to, the Minimum Condition, the receipt of regulatory approvals, the continued accuracy of the representations of the Company and the absence of any material breach of the Company’s covenants or material adverse effect with respect to the Company.
v3.21.1
The Company and Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation —The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency Foreign Currency The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period.
Cash and Cash Equivalents and Restricted Cash Cash and Cash Equivalents and Restricted Cash—The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents. The Company had no restricted cash as of the years ended December 31, 2020 and 2019.
Accounts Receivable Accounts Receivable —The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations.
Property and Equipment
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 assets as follows:
Leasehold improvements
3–10 years
Computer hardware
3–5 years
Computer software3 years
Furniture and fixtures7 years
Other
3–5 years
Computer hardware under finance leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
Long-Lived Assets Long-Lived Assets —The Company reviews the carrying value of its long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. 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. If such assets are considered impaired, the impairment is measured and recognized as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Software Development Costs Software Development Costs —The Company capitalizes certain costs incurred for the development of internal use software, as well as the costs of developing software for sale or license to customers.  Internal use software includes the Company’s proprietary portal software and related applications, Cloud ID authentication software, and various applications used in the management of the Company’s portals. Software for sale or license to customers includes the Company’s proprietary Email/Collaboration offerings. Costs incurred during the preliminary project stage for internal software programs are expensed as incurred. External and internal costs incurred during the application development stage (subsequent to the achievement of technological feasibility on software to be sold or licensed) of new software development, as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. Software development costs capitalized for sale or license to customers and cost capitalized for the development of internal use software are amortized over the estimated useful life of the applicable software. Impairment charges are taken as a result of circumstances that indicate that the carrying values of the assets were not fully recoverable. The Company utilizes the discounted cash flow method to determine the fair value of the internal use software.The Company utilizes the net realizable value model to determine the recoverability of software for sale or license to customers. Impairment charges for the years ended December 31, 2020 and 2019 are included in general and administrative expense in the consolidated statement of operations.
Leases
Leases — The Company determines if an arrangement is a lease and classifies that lease as either an operating or finance lease at inception. Right-of-use (ROU) assets and liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the reasonably certain lease term. For this purpose, only payments that are fixed and determinable at the time of commencement are considered. As many of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on factors including the Company’s credit rating. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the options will be exercised.The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. The Company has elected to apply the practical expedient and not separate lease and non-lease components of contracts. The Company's lease agreements do not contain any material residual value guarantees.
Operating leases are included in operating lease right-of-use assets, and current and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment-net, and on the current and long-term portion of debt and finance leases in our consolidated balance sheets.
Other Intangible Assets Other Intangible Assets —Other intangible assets consist of customer relationships, trademarks, and purchased technology. Definite-lived intangible assets are amortized on a straight-line basis. The Company reviews its definite-lived intangible assets for impairment when impairment indicators exist. The Company uses undiscounted cash flow to determine whether impairment exists and measures any impairment losses using discounted cash flow.
Goodwill
Goodwill —The Company evaluates goodwill for impairment for each of its reporting units at least annually on October 1st, and whenever events occur or circumstances change, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit.
Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units. Companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we consider in determining whether to perform a quantitative test.
When the Company evaluates the potential for goodwill impairment using a qualitative assessment, the Company considers factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative test.
Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. The fair value of each reporting unit is determined using a combination of an income approach and a market approach. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss is measured as the difference between the carrying value and fair value of the reporting unit.
The income approach uses a discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating margins and cash flows, the terminal growth rate and the discount rate. The Company projects revenue growth rates, operating margins and cash flows based on each reporting unit's current business, expected developments and operational strategies typically, over a five-year period.
The market approach determines fair value based on available market pricing for comparable assets. Valuation multiples were calculated utilizing actual transaction prices and revenue or EBITDA data from target companies deemed similar to the reporting unit. Valuation multiples were then applied to certain operating statistics such as revenue or EBITDA, and an estimated control premium was applied.
If the carrying amount of the reporting unit exceeds the reporting unit’s fair value as determined using the two valuation methodologies described above, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit. The determination of our assumptions is subjective and requires significant estimates. Changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill.
During the year ended December 31, 2020, in addition to the annual assessment done as of October 1st, we performed a quantitative test as of the first quarter as a result of the potential future financial impacts of the COVID-19 pandemic, for which all reporting units were found to have a fair value greater than their carrying value.
Revenue Recognition Revenue Recognition — The Company recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. See Note 2, Revenue from Customers for further discussion on Revenue.
Cost of Revenue
Cost of Revenue —Cost of revenue consists primarily of revenue sharing, content acquisition costs, co-location facility costs, royalty costs and product support costs. Revenue sharing consists of amounts accrued and paid to customers for the internet traffic on Managed Portals where the Company is the primary obligor, resulting in the generation of search and digital advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a percentage of the search and digital advertising revenue.
Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for the Company’s data center facilities. Royalty costs consist of amounts due to third parties for the license of their applications or technology sold with or embedded in our email software. Product support costs consist of employee and operating costs directly related to the Company’s maintenance and professional services support.
Concentrations of Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with high credit quality financial institutions, which, at times, have exceeded federally insured limits of $0.25 million. Although the Company maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances and believes credit risk to be minimal.
Technology and Development Technology and Development —Technology and development expenses consist primarily of compensation-related expenses incurred for the research and development of, enhancements to, and maintenance and operation of the Company’s products, equipment and related infrastructure.
Sales and Marketing Sales and Marketing —Sales and marketing expenses consist primarily of compensation-related expenses to the Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising costs are expensed as incurred.
General and Administrative General and Administrative —General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, legal, and Corporate IT as well as professional fees and facilities costs.
Earnings (Loss) Per Share Earnings (Loss) Per Share —Basic earnings (loss) per share (“EPS”) is calculated in accordance with the Financial Accounting Standards Board (“FASB”) ASC 260, Earnings per Share, using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, stock options, warrants, performance based stock units ("PSUs"), and restricted stock units (“RSUs”) are considered to be potential common shares and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive.
Stock-based Compensation and Employee Benefit Plan Stock-Based Compensation —The Company records compensation costs related to stock-based awards in accordance with FASB ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest.Employee Benefit Plan —The Company sponsors a 401(k) profit sharing plan that covers substantially all employees. Under the plan, eligible employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service.
Income Taxes
Income Taxes Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and income tax bases of assets and liabilities and net operating loss (“NOL”) and credit carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2020 and 2019, accrued interest or penalties related to uncertain tax positions was insignificant.
Accounting Estimates Accounting Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimated amounts.
Fair Value Measurements
Fair Value Measurements —Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period. The fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates their carrying value due to their short-term nature.
The provisions of FASB ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:
Level 1 —Level 1 inputs are defined as observable inputs such as quoted prices in active markets.
Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 —Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.
Applicable Recent Accounting Pronouncements
Applicable Recent Accounting Pronouncements
Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13 ("ASU 2016-13") Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", which defers the effective date for public filers that are considered small reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
Recently Adopted
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance is required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. The amendments will be applied prospectively to all implementation costs incurred after adoption. There was no impact to the Company's condensed consolidation financial statements for the year ended December 31, 2020 as a result of adopting this standard update on January 1, 2020.
The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on the Company’s financial statements and related disclosures.
v3.21.1
The Company and Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Useful Lives of 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 assets as follows:
Leasehold improvements
3–10 years
Computer hardware
3–5 years
Computer software3 years
Furniture and fixtures7 years
Other
3–5 years
Summary of Components and Original Estimated Economic Lives of Amortizable Intangible Assets
The components and original estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2020 and 2019:
Original
Estimated
Economic Life
20202019
(Dollars in thousands)
Gross amortizable intangible assets:
Customer and publisher relationships10 years$14,780 $14,780 
Technology5 years2,330 2,330 
Trademark5 years300 300 
Total gross amortizable intangible assets17,410 17,410 
Accumulated amortization:
Customer and publisher relationships(8,425)(6,809)
Technology(2,305)(1,933)
Trademark(300)(257)
Total accumulated amortization(11,030)(8,999)
Amortizable intangible assets, net$6,380 $8,411 
Schedule of Change in Goodwill
The change in goodwill for both of our segments is as follows for the years ended December 31, 2020 and 2019 (in thousands):
Software & ServicesPortal & AdvertisingTotal
Balance as of January 1, 2019$11,797 $4,144 $15,941 
Balance as of Effect of foreign currency translation— 
Balance as of December 31, 2019$11,804 $4,144 $15,948 
Effect of foreign currency translation— 
Balance as of December 31, 2020$11,808 $4,144 $15,952 
Schedule of Concentrations Equal to or Exceeding 10% of Company's Accounts Receivable, Revenue, and Cost of Revenue As of December 31, 2020 and 2019, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:
Accounts Receivable
20202019
Portal & Advertising Customer A*14 %
* - Less than 10%
For the years ended December 31, 2020 and 2019, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows: 
Revenue
20202019
Portal & Advertising Customer A*13 %
* - Less than 10%
For the years ended December 31, 2020 and 2019, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.
Cost of Revenue