Synacor Inc.
Annual Report 2014

Plain-text annual report

SYNACOR, INC. FORM 10-K (Annual Report) Filed 03/12/15 for the Period Ending 12/31/14 Address Telephone CIK Symbol SIC Code 40 LARIVIERE DRIVE SUITE 300 BUFFALO, NY 14202 716-853-1362 0001408278 SYNC 7370 - Computer Programming, Data Processing, And Industry Computer Services Sector Fiscal Year Technology 12/31 http://www.edgar-online.com © Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________ FORM 10-K (Mark One) OR Commission File Number 001-33843 _______________________________________________ Synacor, Inc. (Exact name of registrant as specified in its charter) (716) 853-1362 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: None. (Title of Class) _______________________________________________ Table of Contents 4 (cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 201 4 (cid:1) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Delaware 16-1542712 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 40 La Riviere Drive, Suite 300 Buffalo, New York 14202 (Address of principal executive offices) (Zip Code) (Title of each class) (Name of each exchange on which registered) Common Stock, $0.01 par value The NASDAQ Global Market  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No (cid:1) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1) No (cid:1) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1) No (cid:1) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:1) No (cid:1) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1) No (cid:1) The aggregate market value of shares of common stock hel d by non-affiliates as of June 30, 2014 , the last business day of the registrant's most recently completed second fiscal quarter, computed by reference to the closing sale price of $ 2.56 per share on The NASDAQ Global Market on June 30 , 201 4 , was approximate ly $ 56,216,937 . For p urposes of this disclosure, shares of common stock held by persons who held more than 10% of the outstanding shares of common stock at such time and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes. As of March 5 , 2015 , there were 27,429,665 , shares of the registrant's common stock issued and outstanding. All share and per share amounts in this Annual Report on Form 10-K reflect the 1-for-2 reverse stock split of the registrant's common stock which took effect immediately prior to the effectiveness of the registration statement for the registrant's initial public offering. _______________________________________________ DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive Proxy Statement to be used in connection with the registrant’s 201 5 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated. That Proxy Statement will be filed within 120 days of registrant’s fis cal year ended December 31, 2014 . Table of Contents Large accelerated filer (cid:1) Accelerated filer (cid:1) Non-accelerated filer (cid:1) (Do not check if a smaller reporting company) Smaller reporting company (cid:1) TABLE OF CONTENTS Table of Contents PART I Item 1. Business 3 Item 1A. Risk Factors 12 Item 1B. Unresolved Staff Comments 34 Item 2. Properties 34 Item 3. Legal Proceedings 35 Item 4. Mine Safety Disclosures 35 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6. Selected Financial Data 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62 Item 8. Financial Statements and Supplementary Data 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62 Item 9A. Controls and Procedures 62 Item 9B. Other Information 63 PART I I I Item 10. Directors, Executive Officers and Corporate Governance 64 Item 11. Executive Compensation 64 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 64 Item 13. Certain Relationships and Related Transactions, and Director Independence 64 Item 14. Principal Accounting Fees and Services 64 PART IV Item 15. Exhibits, Financial Statement Schedules 65 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements that reflect our current views with respect to future events or our future financial performance, are based on information currently available to us, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words “believes,” “can,” “expects,” “anticipates,” “estimates,” “intends,” “objective,” “plans,” “possibly,” “potential,” “predicts,” “targets,” “likely,” “may,” “might,” “would,” “should,” “could,” and similar expressions or phrases (including the negative of such expressions or phrases). We intend all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements in the sections of this Annual Report on Form 10-K titled "Trends Affecting Our Business" and "Key Initiatives" as well as statements about: Any forward-looking statements contained in this Annual Report on Form 10-K are based upon our historical performance and our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. All forward-looking statements involve risks, assumptions and uncertainties. Given these risks, assumptions and uncertainties, you should not place undue reliance on any forward-looking statements. The occurrence of Table of Contents • our expected future financial performance; • our expectations regarding our operating expenses; • our strategies and business plan; • our ability to maintain or broaden relationships with existing customers and develop relationships with new customers; • our success in anticipating market needs or developing new or enhanced services and products to meet those needs; • our expectations regarding market acceptance of our services and products; • our ability to recruit and retain qualified technical and other key personnel; • our competitive position in our industry, as well as innovations by our competitors; • our success in managing growth; • our plans to expand into international markets; • our success in identifying and managing potential acquisitions and integrating acquired companies; • our capacity to protect our confidential information and intellectual property rights; • our need to obtain additional funding and our ability to obtain funding in the future on acceptable terms; and • anticipated trends and challenges in our business and the markets in which we operate. 1 the events described, and the achievement of the expected results, depend on many factors, some or all of which are not predictable or within our control. Actual results may differ materially from expected results. See “Risk Factors” and elsewhere in this Annual Report on Form 10-K for a more complete discussion of these risks, assumptions and uncertainties and for other risks, assumptions and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur, and we therefore qualify all of our forward-looking statements by these cautionary statements. Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which it is made. Except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Table of Contents 2 PA RT I Our Business Synacor, Inc. (“we,” “Synacor” or the “Company”) is the trusted technology development, multiplatform services and revenue partner for video, Internet and communications providers, and device manufacturers. We deliver modern, multiscreen experiences and advertising to consumers that require scale, actionable data and sophisticated implementation. Our customers are actively seeking incremental revenue opportunities. At the same time, consumer expectations are high, driving the need for new features and services, which require scale to be delivered cost-effectively. Consumers want access to digital content via PCs, tablets, smartphones and connected TVs. Video, mobile and social are typically the underpinnings of these new services, and we believe we have has a role to play as a neutral partner by helping to reduce consumer and provider complexity from the proliferation of content, device, technology and distribution options. Our product offerings are categorized as “Start,” “Watch,” and “Communicate.” Our technology offers our customers a comprehensive solution by providing their consumers access to a broad range of online products and services. Following initial integration with our technology, our customers gain access to a wide range of programmers and content and service providers with whom we have licensing and distribution agreements. In addition, we may integrate into our technology the content and services that form part of our customers’ existing offerings. Our flexible architecture integrates with our customers’ billing and subscriber management systems, as well as with third-party content and services. Consumers engage with our products and services through our customers’ portals, and based on consumers’ respective subscription levels. We monetize the online traffic generated by these consumers through search advertising , digital advertising, and syndicated content. Our business model creates deep customer relationships; as Table of Contents ITEM 1. B USINESS • “Start” encompasses our portals, next-gen startpages, widgets, thematic mobile apps, and syndicat ed content. These cross-device start experiences help our customers increase consumer engagement with their brand by delivering relevant content and apps to their customers. • “Watch” includes our award-winning Cloud ID Authentication and Search & Discovery Metadata p latforms, as well as our a dvanced v ideo s ervices. Consumers can watch TV on myriad devices, but we believe that they find the login process frustrating . Synacor Cloud ID addresses this issue by offering auto-authentication and social login, which have been shown to reduce consumer login failure. Once logged-in, our Search & Discovery Metadata Platform ensures consumers can successfully and easily find their desired content. Further, we believe that we have has an important part to play as use of streaming video increases. We are working with partners to bolster our end-to-end offering and build a team to deliver these advanced video solutions. • “Communicate” describes our longtime business of delivering white-label email and messaging solutions, including hosting, secur ity, migration and more. With million s of mailboxes, our established email and messaging business continues to open doors into new opportunities. 3 we monetize our customers’ online traffic, we share a portion of this revenue with our customers, resulting in a mutually beneficial partnership. Additionally, many of our customers pay us to license our complete suite of solutions or a la carte offerings. Recent Developments On January 14, 2015, we purchased all of the intellectual property and tangible personal property from NimbleTV, LLC, a New York City-based provider of multiscreen, live linear television programming for pay-TV subscribers. We believe this strategic purchase complements our expanding video product portfolio. W e announced on March 3, 2015 our partnership with a Comcast Corporation subsidiary, thePlatform, LLC, or thePlatform. Through our partnership, our integrated solutions will now include access to the thePlatform’s video management system, for multiscreen video workflow, policy management and playback services. Our Strategy Our strategy is supported by four key pillars to drive our business, with operational discipline and sound financial footing as its base: Our first pillar of growth - Increasing value for existing customers by optimizing user experience and monetization T hrou gh our portal and email businesses we participate in the $60 billion multiplatform search and advertising market. We are accelerating the time it takes for customer s to launch of our new portal . Our new portal is stream-based , has video threaded throughout and is responsive on mobile , and it has been designed for engagement and monetization. Our second pillar of growth – Innovating on Synacor-as-a-platform for advanced services. Our Cloud ID Authentication Platform has garnered industry recognition and awards—especially for social login and auto authentication, which report some of the highest consumer login success rates in the industry. We believe we have an important role to play as the number of streaming video consumers increases – up to a projected 65 million users in 2016. We see a fragmented landscape of vendors and we believe that our customers are looking for a one-stop, trusted partner. We have begun creating a professional services team to deliver end-to-end, advanced video solutions, and we will work with partners in the video ecosystem to deliver these video solutions. Our third pillar of growth – Winning new customers in current and related verticals We have an established presence among small, medium and large broadband and pay-TV providers in the U.S. and Canada. Some of these providers use our complete suite of solutions, and others use components. This presents a growth opportunity for us within our existing customer base. Table of Contents • increase value for existing customers by optimizing consumer experience and monetization; • innovate on Synacor-as-a-platform for advanced services; • win new customers in current and related verticals; and • extend our product portfolio into emerging growth areas. 4 We also are redefining the “Startpage.” Viewing the startpage as not only a portal, but also as a widget, syndicated content, or a thematic mobile app opens up opportunities for us to syndicate our products to new verticals and publishers. Our fourth pillar of growth – Extending our product portfolio into emerging growth areas As we work on our product, operations, and go-to-market groundwork to support growth of our business, we are also mindful of significant opportunities that lie ahead such as international expansion and delivery of business services. We have an early foothold in Latin America, where we are working with significant operator customers to capitalize on these opportunities to pursue additional opportunities abroad. Products and Services As the trusted partner to our customers, we use our proprietary technology solutions to drive consumer engagement through an array of online content and services such as portals, search, digital advertising, authentication, end-to-end video solutions, apps and syndicated content. We generate revenue from consumer traffic on our start experiences through search and digital advertising revenue, which we collect from our search partner, Google Inc., or Google, our advertising network providers and directly from advertisers. We typically share a portion of this search and digital advertising revenue with our customers. We also generate recurring revenues in the form of subscriber-based fees , which we collect from our customers, for the use of our technology, premium services and paid content. Our portfolio of products and services includes: Table of Contents Start Experiences We create, design and develop multi-device startpages for Internet and communications providers, as well as device manufacturers. Our start experiences include personalized content designed to keep the consumer engaged and are powered by our media and programming library. During 2014, we launched our next-generation start experience that features a continuous stream of content. Coupled with our identity management platform, the consumer’s credentials deliver a seamless, personalized experience across all devices. Our start experiences allow our customers to create branded, dynamic, customizable online experiences containing content from various sources. They also allow for billing integration, personalization and video delivery. 5  Table of Contents Advertising We believe that Internet advertising revenue opportunities continue to grow. We intend to optimize our revenue through the use of video ads and other higher value advertisements on our start experiences and email products, as well as explore opportunities available in mobile advertising. For search advertising, we have a revenue-sharing relationship with Google, pursuant to which we include a Google-branded search tool on our start experiences. When a consumer makes a search query using this tool, we deliver 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 us. Digital advertising includes video, image and text advertisements delivered on one of our start experiences. Advertising inventory is filled with advertisements sourced by our direct sales force, independent advertising sales representatives 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 calculated on a cost per thousand impressions, or cost per mille or CPM, or cost per action basis. Video Experience Our video experience provides our customers and their consumers an end-to-end solution for delivering and viewing television and videos. We offer a streaming video service that gives consumers one place to find TV shows, movies and short-form videos from many genres. We enable distributors to aggregate and merchandise many content sources into one place. Our product supports live TV, video on demand, pay-per-transaction, subscription, over-the-top, or OTT, and more. We give consumers one place to find what they want to watch and many options for how they can watch it. The video experience includes a number of features: flexible playback options, allowing securely delivered video to be played back based on a variety of options; smart recommendations, enhancing the search and discovery process and providi ng the consumer with personalized recommendations; and TV controls, putting consumers in control of the viewing experience to watch live or later on any device and to set notifications for their favorite programming. We are dedicated to being a trusted service partner to our customers , who are navigating a rapidly changing video entertainment industry. We have invested in our video experience product and will continue to do so. Our purchase of assets from NimbleTV and our hiring of NimbleTV’s employees provide us additional technology, expertise and knowledge that will complement our advanced video offering. 6 Technology and Operations Technology Architecture Our technology has been designed and built to support reliability and scalability. To route traffic through our network in the most efficient manner, we use load-balancing products, which spread work among multiple servers, and link controllers, which monitor availability and performance of multiple connections. Our technology is fault tolerant and scalable through the addition of more servers as usage grows. Data Center Facilities We currently operate and maintain six data centers in regionally diverse locations and have a network operations center which is staffed 24 hours a day, seven days a week. Our primary data centers are located in shared facilities in Atlanta, Georgia; Dallas, Texas; Lewis Center, Ohio; Denver, Colorado; Toronto, Canada and Amsterdam, The Netherlands. We also maintain a secondary data center in a shared facility in Buffalo, New York. All systems are fully monitored for reporting continuity and fault isolation. The data centers are each in a physically secure facility using monitoring, environmental alarms, closed circuit television and redundant power sources. Our network operations center also is located in a secure facility. Customers Our customers principally consist of high-speed Internet service providers, such as Cequel Communications, LLC , or Suddenlink Communications, Mediacom Communications Corporation and Table of Contents Cloud ID Our Cloud ID product is an award-winning identity management platform, allowing our customers to unlock entitled con tent for their consumers using single sign-on technology. Our product authorizes consumers to access online entertainment – TV shows, movies, sports and more – across multiple devices. We also offer distributor and application-variable permissions that allow consumers to use their existing credentials to access additional services offered by our customers. Our scalable solution for identity management integrates with existing infrastructure. Cloud ID provides complete access control, ID usage auditing and fraud prevention. Communications (Email) We host millions of mailboxes that deliver messages reliably and consistently for our customers. We offer hosting and management of a cross-device, web-based email product. Our email product is customizable and acts as an extension of our customers’ digital propert ies, giving them and us additional direct advertising revenue opportunities. We also provide our customers migration services from other email hosts to our email product. Subscriber-based Services We offer both free-to-subscriber content and service offerings and paid content and premium services, which are paid for by our customers or their subscribers, individually or in bundled packages. The packages are accessed via our single sign-on capability according to access rules established by our customers and the content or service providers. These are available on our start experiences as well as the websites of the content and service providers. 7 CenturyLink, Inc., or CenturyLink, as well as consumer electronics manufacturers, such as Toshiba America Information Systems, Inc., or Toshiba. Our customer contracts typically have an initial term of two to three years from the deployment of our start experiences and frequently provide for one or more automatic renewal terms of one to two years each. Our customer contracts typically contain service level agreements that call for specific system “up times” and 24 hours per day, seven days per week support. As of December 31, 2014, we had agreements with over 50 customers. Content and Service Providers We license the content which we provide to our customers, including free and paid content offerings and premium services, from numerous third-party content and service partners. These partners provide a variety of content, including news and information, entertainment, sports, music, video, games, shopping, travel, autos, careers and finance. Our relationships with content providers give consumers access to over one hundred thousand short-form video and articles each month. To obtain this content, we enter into a variety of licensing arrangements with the content providers. These arrangements are typically one to three years in duration with payment terms that may be based on traffic, advertising revenue share, number of subscribers, flat fee payments over time, or some combination thereof. We use licensed content to populate our start experiences, as well as to provide premium services and paid content that subscribers may purchase for additional fees. As of December 31, 2014, we had arrangements with over 50 content providers such as The Associated Press, Tribune Content Agency, Tribune Media Services, Inc., Rdio and Bankrate. Sales and Marketing Our sales and marketing efforts focus on five primary areas: customer acquisitions, client services, account management, marketing and advertising sales. Our customer acquisition team consists of direct sales personnel who call upon prospective customers, typically large and mid-sized high-speed Internet service providers and consumer electronics manufacturers. A significant amount of time and effort is devoted to researching and analyzing the requirements and objectives of each prospective customer. Each bid is specifically customized for the prospective customer, and often requires many months of interaction and negotiation before an agreement is reached. Once an agreement is reached, our client services team, working closely with the customer acquisitions team, assumes responsibility for managing the customer relationship during the time of the initial deployment and integration period, which is usually three to six months. During this period, the customer’s technology is assessed and, if required, modifications are proposed to make it compatible with our technology. The client services team is responsible for the quality of the client deployment, customer relationship management during the time of deployment, and integration and project management associated with upgrades and enhancements. After deployment, our account management team takes over management of the customer relationship, analyzing the ways in which a customer could further benefit from increased use of our products and services. The account management team is responsible for ongoing customer relationship management, upgrades and enhancements to the available products and services, as well as tracking the financial elements and performance of the customer relationship. Our marketing team works closely with our account management team to deliver marketing programs that support our customers’ sales efforts as well as their consumers’ interaction with these products and services. We assist our customers in developing marketing materials and advertising that can be accessed by consumers through different media outlets, including the Internet, print, television, and radio. We also assist our customers in training Table of Contents 8 their customer service representatives to introduce and sell premium services and our paid content offerings to new and existing customers. Our advertising sales team sells advertising inventory directly to advertisers, frequently through the advertising agencies representing those advertisers. These advertisers may be small companies with the advertising locally or regionally focused on the start experiences of one customer, or large companies with nationwide advertising on the start experiences of many customers. We have a team of direct advertising sales employees and independent advertising sales representatives focused on this effort and will continue to develop this team and attempt to grow the amount of advertising revenue generated with our customers. As of December 31, 2014, we had arrangements with over 50 advertising partners such as DoubleClick, NCC Media, Criteo, Razorfish and Comcast Spotlight. Government Regulation We generally are not regulated other than under international, federal, state and local laws applicable to the Internet or e-commerce or to businesses in general. Some regulatory authorities have enacted or proposed specific laws and regulations governing the Internet and online entertainment. These laws and regulations cover issues such as taxation, pricing, content, distribution, quality and delivery of services and products, electronic contracts, intellectual property rights, user privacy and information security. Federal laws regarding the Internet that could have an impact on our business include the following: the Digital Millennium Copyright Act of 1998, which is intended to reduce the liability of online service providers of third-party content, including content that may infringe copyrights or rights of others; the Children’s Online Privacy Protection Act, which imposes additional restrictions on the ability of online services to collect user information from minors; and the Protection of Children from Sexual Predators Act, which requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. Laws and regulations regarding user privacy and information security impact our business because we collect and use personal information through our technology. We use this information to deliver more relevant content and services and provide consumers with a personalized online experience. We share this information on an aggregate basis with our customers and content providers and, subject to confidentiality agreements, to prospective customers and content providers. Laws such as the CAN-SPAM Act of 2003 or other user privacy or security laws could restrict our and our customers’ ability to market products to their consumers, create uncertainty in Internet usage and reduce the demand for our services and products or require us to redesign our start experiences. Intellectual Property We believe that the protection of our intellectual property is critical to our success. We rely on copyright, service mark and patent enforcement, contractual restrictions and trade secret laws to protect our proprietary rights. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with certain parties with whom we conduct business in order to limit access to and disclosure of our proprietary information. In January 2015, we acquired intellectual property, including patents, through our purchase of assets from NimbleTV. Additionally, we have applied for patents to protect certain of our intellectual property. Our registered service mark in the United States is Synacor . We endeavor to protect our internally developed systems and maintain our trademarks and service marks. We generally control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners, and our software is protected by United States and international copyright laws. Table of Contents 9 ® In addition to legal protections, we believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product support and services are essential to establishing and maintaining a technology leadership position. Competition The market for Internet-based services and products in which we operate is highly competitive and involves rapidly-changing technologies and customer and consumer requirements, as well as evolving industry standards and frequent product introductions. While we believe that our technology offers considerable value and flexibility to our customers by helping them to extend their consumer relationships to a wide variety of Internet-based services, we face competition at four levels: Our technology competes primarily with high-speed Internet service providers that have internal information technology staff capable of developing similar solutions in-house. In addition, we compete with companies such as Facebook, Inc., Yahoo! Inc., or Yahoo!, Google, AOL LLC, or AOL, Hulu, Netflix, Amazon, and MSN, a division of Microsoft Corporation, or Microsoft, which have destination websites of their own or are capable of delivering content, service offerings and search or advertising models similar to ours. We also compete with providers of paid content and services over the Internet, especially companies with the capability of bundling paid content and premium services in much the same manner that we do. These companies include ESPN3, F-Secure Corporation, Exent Technologies Ltd., Zynga Inc., MLB Advanced Media, Symantec Corporation, McAfee, Inc., Activision Blizzard, Inc. and Electronic Arts Inc. In some cases we have performed software integrations with these companies on behalf of our customers or, as in the case of F-Secure Corporation, we have partnered with them in order to offer their services more broadly to all our customers. We believe the principal competitive factors in our markets include a company’s ability to: Table of Contents • When one of our prospective or existing customers considers another supplier, including one of our partners, for elements of the services or products which we provide. • When consumers choose to rely on other vendors for similar products and services. • When content and service providers prefer to establish direct relationships with one or more of our customers. • When one of our customers decides to make the significant headcount and technology investment to develop products and services in-house similar to those that we provide. • reinforce the brands of our cable, satellite, telecom and consumer electronics customers; • produce products that are flexible and easy to use; • offer competitive fees for start experience development and operation; • generate additional revenue for our customers; • enable our customers to be involved in designing the “look and feel” of their online presence; • offer services and products that meet the changing needs of our customers and their consumers, including emerging technologies and standards; 10 We believe that we distinguish ourselves from potential competitors in three principal ways. First, we provide a white-label solution that, unlike the co-branded approach of most of our competitors, creates a consumer experience that reinforces our customers’ and partners’ brands. Second, we give customers control over the sign-on process and billing function for a wide range of Internet services and content by integrating with their internal systems (where applicable) thereby allowing our customers to “own the consumer.” Finally, our solutions are flexible and neutral, meaning that we allow deliverables that are customized to our customers’ specific needs, as well as advanced video solutions that are either end-to-end or a la carte. Employees As of December 31, 201 4 , we had 230 employees in the United States and 28 in Canada. None of our employees is represented by a labor union, and we consider current employee relations to be good. Corporate Information Synacor's predecessor company was originally formed as a New York corporation, and in November 2002, Synacor re-incorporated under the laws of the State of Delaware. Our headquarters are located at 40 La Riviere Drive, Buffalo, New York 14202, and our telephone number is (716) 853-1362. We have determined that we h ave a single reporting segment. A summary of our financial information by geographic location is found in Note 6, “ Information About Segment and Geographic Areas ,” in the Notes to Consolidated Financial Statements. Our international operations and sales subject us to a variety of risks; see Item 1A, “Risk Factors,” for further discussion. Available Information Our Internet website address is http://www.synacor.com . We provide free access to various reports that we file with or furnish to the Securities and Exchange Commission, or SEC, through our website, as soon as reasonably practicable after they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. Our SEC reports can be accessed through the investor relations section of our website, or through http://www.sec.gov . Information on our website does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. Stockholders may request copies of these documents from: Synacor, Inc. Investor Relations Department 40 La Riviere Dr. Suite 300 Buffalo, New York 14202 Table of Contents • provide high-quality product support to assist the customer’s service representatives; and • aggregate content to deliver more compelling bundled packages of paid content. 11  Our business and financial results are subject to numerous risks and uncertainties, including those described below, which could adversely and materially affect our business, financial condition or results of operations. You should carefully consider these risks and uncertainties, including the following risk factors and all other information contained in this Annual Report on Form 10-K, together with any other documents we file with the SEC. Risks Related to Our Business Our search advertising partner, Google, accounts for a significant portion of our revenue, and any loss of, or diminution in, our business relationship with Google would materially and adversely affect our financial performance. We rely on traffic on our start experiences to generate search and digital advertising revenue, a substantial portion of which is derived from text-based links to advertisers' websites as a result of Internet searches. We have a revenue-sharing relationship with Google under which we include a Google-branded search tool on our start experiences. When a consumer makes a search request using this tool, we deliver it to Google, and Google returns search results to us 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 us. We then typically share a portion of that payment with the applicable customer. Our Google-related search advertising revenue attributable to our customers, which consists of the portion of the payment from the sponsor that Google shares with us, accounted for approximately 5 6%, 51 %, and 42 % of our revenue in 201 2 , 201 3 and 201 4 , or $ 68.5 million, $ 57.5 million and $ 45.4 million, respectively. Our agreement with Google was renewed in March 2014 for a three year term and expires in February 2017 unless we and Google mutually elect to renew it. Additionally, Google may terminate our agreement if we experience a change in control, if we enter into an agreement providing for a change in control, if we do not maintain certain search and digital advertising revenue levels or if we fail to conform to Google's search policies and advertising policies. Google may from time to time change its existing, or establish new, methodologies and metrics for valuing the quality of Internet traffic. Any changes in these methodologies, metrics and advertising technology platforms could decrease the advertising rates that we receive and/or the amount of revenue that we generate from digital advertisements. If advertisers were to discontinue their advertising via Internet searches, if Google's revenue from search-based advertising were to decrease, if Google's share of the search revenue were to be increased or if our agreement with Google were to be terminated for any reason or renewed on less favorable terms, our business, financial condition and results of operations would be materially and adversely affected. Moreover, consumers' increased use of search tools other than the Google-branded search tool we provide would have similar effects. A loss of any significant customer could negatively affect our financial performance. We derive a substantial portion of our revenue from a small number of customers. Revenue attributable to these customers includes the subscriber-based revenue earned directly from them, as well as the search and digital advertising revenue earned through our relationships with our advertising partners, such as Google, based on traffic generated from our start experiences. Revenue attributable to Charter Communications , Inc. , or Charter Communications, CenturyLink (including revenue attributable to Qwest), Toshiba and Verizon Services Group, Inc., or Verizon, together accounted for approximately 73% , 68% and 67% of our revenue , or $88.4 million, $75.6 million and $ 71.1 million for the year s ended December 31, 2012, 2013 and 2014, respectively. For each period, Table of Contents ITEM 1A. RISK FACTORS 12 revenue attributable to o ne of these customers accounted for 20% or more of total revenue, and to each of the other three customers accounting for more than 10% of total revenue . Our contracts with our customers generally have an initial term of approximately two to three years from the launch of their start experiences and frequently provide for one or more automatic renewal terms of one to two years each. If any one of these key contracts is not renewed or is otherwise terminated, or if revenue from these significant customers declines because of competitive or other reasons, our revenue would decline and our ability to achieve or sustain profitability would be impaired. For example, in May 2013 we entered into an amendment to our agreement with Charter Communications which enables Charter Communications to terminate the agreement upon 90 days’ written notice, and in June 2014 we entered into an amendment to our agreement with Charter Communications reducing the breadth of the services that we provide to Charter Communications . Accordingly, we expect revenue attributable to Charter Communications to decline in future periods. In addition to the loss of subscriber-based revenue, including start experience and paid content sales, we would also lose significant revenue from the related search and digital advertising services that we provide. In addition to the decline of revenue, we may have to impair our long-lived assets, to the extent that such assets are used exclusively to support these customers, which would adversely impact our results of operations and financial position. We have a history of significant pre-tax net losses and may not be profitable in future periods, which would limit our ability to use our net operating loss carryforwards. We have incurred significant losses in each year of operation other than 2009, 2011, and 2012, including a pre-tax net loss of $3.6 million in 2010, a pre-tax net loss of $1. 5 milli on in 2013 and a pre-tax net loss of $ 8 .1 million in 2014. Our pre-tax net income in 2009, 2011, and 2012 was $0.3 million, $ 3 .9 million, and $ 5.6 million, respectively. We have taken cost saving measures, including a reduction in workforce carried out in September 2014. However, our expenses may increase in future periods as we implement initiatives designed to grow our business including, among other things, the development and marketing of new services and products, licensing of content, expansion of our infrastructure and international expansion. If our revenue does not sufficiently increase to offset these expected increases in operating expenses, we may incur significant losses and may not be profitable. Our revenue in 2014 declined as compared to 2013, and our revenue in 2013 declined as compared to 2012. W e may not be able to return to or maintain profitability in the future. Any failure to achieve or maintain profitability may materially and adversely affect our business, financial condition, results of operations and impact our ability to utilize our net operating loss carryforwards. In 2014, as a result of the pre-tax cumulative loss we incurred over the past three years, we established a full valuation allowance against our deferred income tax asset, which includes our net operating loss carryforwards. Many individuals are using devices other than personal computers and software applications other than Internet browsers to access the Internet. If users of these devices and software applications do not widely adopt the applications and other solutions we develop for them, our business could be adversely affected. The number of people who access the Internet through devices other than PCs, including tablets, smartphones and connected TVs, has increased dramatically in the past few years and is projected to continue to increase. Similarly, individuals are increasingly accessing the Internet through apps other than Internet browsers, such as those available for download through Apple Inc.'s App Store and the Android Market. We have introduced the next generation of our start experiences, which includes our mobile device portal that configures most mobile devices, as well as our desktop portal s and our custom homescreen for Android devic es. If consumers do not use our new start experiences at all or use our new start experiences less frequently than our previous start experiences , our financial results could be negatively affected. A dditionally, as new devices and new apps are continually being Table of Contents 13 released, it is difficult to predict the problems we may encounter in developing new versions of our apps and other solutions for use on these alternative devices and apps, and we may need to devote significant resources to the creation, support and maintenance of such apps and solutions. If users of these devices and apps do not widely adopt the apps and other solutions we develop, our business, financial condition and results of operations could be adversely affected. Consumer tastes continually change and are unpredictable, and our sales may decline if we fail to enhance our service and content offerings to achieve continued subscriber acceptance. Our business depends on aggregating and providing services and content that our customers will place on our start experiences, including television programming, news, entertainment, sports and other content that their subscribers find engaging, and premium services and paid content that their subscribers will buy. Accordingly, we must continue to invest significant resources in licensing efforts, research and development and marketing to enhance our service and content offerings, and we must make decisions about these matters well in advance of product releases to implement them in a timely manner. Our success depends, in part, on unpredictable and volatile factors beyond our control, including consumer preferences, competing content providers and websites and the availability of other news, entertainment, sports and other services and content. While we work with our customers to have their consumers' homepages and homescreens set to our start experiences, a consumer may easily change that setting, which would likely decrease the use of our start experiences. Similarly, consumers who change their device's operating system or Internet browser may no longer have our start experiences set as their default homepage or homescreen, and unless they change it back to our start experience, their usage of our start experiences would likely decline and our results of operatio ns could be negatively impacted. Consumers who acquire new consumer electronics devices will no longer have our start experience initially set as their default homepage, and unless they change the default to our start experience, their usage of our start experiences would likely decline and our results of operations could be negatively impacted. If our services are not responsive to the requirements of our customers or the preferences of their consumers, or the services are not brought to market in a timely and effective manner, our business, financial condition and results of operations would be harmed. Even if our services and content are successfully introduced and initially adopted, a subsequent shift in the preferences of our customers or their consumers could cause a decline in the popularity of our services and content that could materially reduce our revenue and harm our business, financial condition and results of operations. Our sales growth will be adversely affected if we are unable to expand the breadth of our services and products or to introduce new services and products on a timely basis. To retain our existing customers, attract new customers and increase revenue, we must continue to develop and introduce new services and products on a timely basis and continue to develop additional features to our existing product base. If our existing and prospective customers do not perceive that we will deliver our services and products on schedule, or if they do not perceive our services and products to be of sufficient value and quality, we may lose the confidence of our existing customers and fail to increase sales to these existing customers, and we may not be able to attract new customers, each of which would adversely affect our operating results. Our sales cycles and the contracting process with new customers are long and unpredictable and may require us to incur expenses before executing a customer agreement, which makes it difficult to project when, if at all, we will obtain new customers and when we will generate additional revenue and cash flows from those customers. Table of Contents 14 We market our services and products directly to high-speed Internet service providers and consumer electronics manufacturers. New customer relationships typically take time to obtain and finalize because of the burdensome cost of migrating from an existing solution to our platform. Due to operating procedures in many organizations, a significant time period may pass between selection of our services and products by key decision-makers and the signing of a contract. The length of time between the initial customer sales call and the realization of significant sales is difficult to predict and can range from several months to several years. As a result, it is difficult to predict when we will obtain new customers and when we will begin to generate revenue and cash flows from these potential new customers. As part of our sales cycle, we may incur significant expenses in the form of compensation and related expenses and equipment acquisition before executing a definitive agreement with a prospective customer so that we may be ready to launch shortly following execution of a definitive agreement. If conditions in the marketplace generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any expenses incurred before a definitive agreement is executed, which would in turn have an adverse effect on our business, financial condition and results of operations. Most of our customers are high-speed Internet service providers, and consolidation within the cable and telecommunications industries could adversely affect our business, financial condition and results of operations. Our revenue from high-speed Internet service providers, including our search and digital advertising revenue generated by online consumer traffic on our start experiences, accounted for approximately 8 0 % of our revenue in 201 2 , approximately 8 3 % in 201 3 and approximately 8 5 % in 201 4 . The cable and telecommunications industries have experienced consolidation over the past several years, and we expect that this trend will continue. As a result of consolidation, some of our customers may be acquired by companies with which we do not have existing relationships and which may have relationships with one of our competitors or may have the in-house capacity to perform the services we provide. As a result, such acquisitions could cause us to lose customers and the associated subscriber-based and search and digital advertising revenue. Under our agreements with some of our customers, including Charter Communications , Verizon and CenturyLink, they have the right to terminate the agreement if we are acquired by one of their competitors. Consolidation may also require us to renegotiate our agreements with our customers as a result of enhanced customer leverage. We may not be able to offset the effects of any such renegotiations, and we may not be able to attract new customers to counter any revenue declines resulting from the loss of customers or their subscribers. As technology continues to evolve, the use of our products by our current and prospective consumer electronics manufacturer customers may decrease and our business could be adversely affected. The consumer electronics industry is subject to rapid change, and our contracts with our consumer electronics manufacturer customers are not exclusive. As consumer electronics manufacturers continue to develop new technologies and introduce new models and devices, there can be no assurance that we will be able to develop solutions that will persuade consumer electronics manufacturers that are our customers at such time to utilize our technology for those new devices. If our current and prospective consumer electronics manufacturer customers elect not to integrate our solutions into their new products, our business, financial condition and results of operations could be adversely affected. Moreover, updates to Internet browser technology may adversely affect our business. For example, for our consumer electronics manufacturer customers that have the Windows 8 operating system pre-installed on some of Table of Contents 15 their devices, the Windows 8 operating system places our start experience on a second tab when the Internet browser is launched, leading to decreased search and digital advertising revenue. We invest in features and functionality designed to increase consumer engagement with our start experiences; however, these investments may not lead to increased revenue. Our future growth and profitability will depend in large part on the effectiveness and efficiency of our efforts to provide a compelling consumer experience that increases consumer engagement with our start experiences. We have made and will continue to make substantial investments in features and functionality for our technology that are designed to drive consumer engagement. Not all of these activities directly generate revenue, and we cannot assure you that we will reap sufficient rewards from these investments to make them worthwhile. If the expenses that we incur in connection with these activities do not result in increased consumer engagement that in turn results in revenue increases that exceed these expenses, our business, financial condition and results of operations will be adversely affected. Our services and products may become less competitive or even obsolete if we fail to respond to technological developments. Our future success will depend, in part, on our ability to modify or enhance our services and products to meet customer and consumer needs, to add functionality and to address technological advancements that would improve their performance. For example, if our smartphone and tablet products fail to capture the increased search activity on such devices or if our services and products do not adapt to the increasing video usage on the Internet or to take into account evolving developments in social networking, then they could begin to appear obsolete. Similarly, if we fail to develop new ways to deliver content and services through apps other than traditional Internet browsers, consumers could seek alternative means of accessing content and services. To remain competitive, we will need to develop new services and products and adapt our existing ones to address these and other evolving technologies and standards. However, we may be unsuccessful in identifying new opportunities or in developing or marketing new services and products in a timely or cost-effective manner. In addition, our product innovations may not achieve the market penetration or price levels necessary for profitability. If we are unable to develop enhancements to, and new features for, our existing services and products or if we are unable to develop new services and products that keep pace with rapid technological developments or changing industry standards, our services and products may become obsolete, less marketable and less competitive, and our business will be harmed. We depend on third parties for content that is critical to our business, and our business could suffer if we do not continue to obtain high-quality content at a reasonable cost. We license the content that we aggregate on our start experiences from numerous third-party content providers, and our future success is highly dependent upon our ability to maintain and enter into new relationships with these and other content providers. In the future, some of our content providers may not give us access to high-quality content, may fail to adapt to changes in consumer tastes or may increase the royalties, fees or percentages that they charge us for their content, any of which could have a material negative effect on our operating results. Our rights to the content that we offer to our customers and their consumers are not exclusive, and the content providers could license their content to our competitors. Our content providers could even grant our competitors exclusive licenses. In addition, our customers are not prohibited from entering into content deals directly with our content providers. Any failure to enter into or maintain satisfactory arrangements with content providers would adversely affect our ability to provide a variety of attractive services and products to our customers. Our reputation Table of Contents 16 and operating results could suffer as a result, and it may be more difficult for us to develop new relationships with potential customers. Our revenue and operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations. As a result of the rapidly changing nature of the markets in which we compete, our quarterly and annual revenue and operating results are likely to fluctuate from period to period. These fluctuations may be caused by a number of factors, many of which are beyond our control, including but not limited to the various factors set forth in this "Risk Factors" section, as well as: Table of Contents • any failure to maintain strong relationships and favorable revenue-sharing arrangements with our search and digital advertising partners, in particular Google, including a reduction in the quantity or pricing of sponsored links that consumers click on or a reduction in the pricing of digital advertisements by advertisers; • the timing of our investment in , or the timing of our monetization of , our products and services , such as our end-to-end video solutions portfolio; • any failure of significant customers to renew their agreements with us; • our ability to attract new customers; • our ability to increase sales of premium services and paid content to existing subscribers; • any development by our significant customers of the in-house capacity to replace the services we provide; • the release of new product and service offerings by our competitors or our customers ; • variations in the demand for our services and products and the implementation cycles of our services and products by our customers; • changes to Internet browser technology that renders our start experiences less competitive; • changes in our pricing policies or those of our competitors; • changes in the prices our customers charge for premium services and paid content; • service outages, other technical difficulties or security breaches; • limitations relating to the capacity of our networks, systems and processes; • our failure to accurately estimate or control costs, including costs related to the initial launch of new customers; • maintaining appropriate staffing levels and capabilities relative to projected growth; • the timing of costs related to the development or acquisition of technologies, services or businesses to support our existing customers and potential growth opportunities; and 17 For these reasons and because the market for our services and products is relatively new and rapidly changing, it is difficult to predict our future financial results. Expansion into international markets, which is an important part of our strategy, but where we have limited experience, will subject us to risks associated with international operations. We plan to expand our product offerings internationally, particularly in Asia, Canada, Latin America and Europe. We have limited experience in marketing and operating our services and products in international markets, and we may not be able to successfully develop our business in these markets. Our success in these markets will be directly linked to the success of relationships with potential customers, content partners and other third parties. As the international markets in which we plan to operate continue to grow, we expect that competition in these markets will intensify. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local markets. Some of our domestic competitors who have substantially greater resources than we do may be able to more quickly and comprehensively develop and grow in international markets. International expansion may also require significant financial investment including, among other things, the expense of developing localized products, the costs of acquiring foreign companies and the integration of such companies with our operations, expenditure of resources in developing customer and content relationships and the increased costs of supporting remote operations. Other risks of doing business in international markets include the increased risks and burdens of complying with different legal and regulatory standards, difficulties in managing and staffing foreign operations, recruiting and retaining talented direct sales personnel, limitations on the repatriation of funds and fluctuations of foreign exchange rates, varying levels of Internet technology adoption and infrastructure and our ability to enforce contracts and our intellectual property rights in foreign jurisdictions. In addition, our success in international expansion could be limited by barriers to international expansion such as tariffs, adverse tax consequences and technology export controls. If we cannot manage these risks effectively, the costs of doing business in some international markets may be prohibitive or our costs may increase disproportionately to our revenue. Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks. Our agreements with some of our customers and content providers require fixed payments, which could adversely affect our financial performance. Certain of our agreements with customers and content providers require us to make fixed payments to them. The aggregate amount of such fixed payments for the years ending December 31, 2015, 2016 and 2017 are approximately $1. 9 million, $1.1 million, and $0.4 million, respectively. We are required to make these fixed payments regardless of the achievement of any revenue objectives or subscriber or usage levels. If we do not achieve our financial objectives, these contractual commitments would constitute a greater percentage of our revenue than originally anticipated and would adversely affect our profitability. Our agreements with some of our customers and content providers contain penalties for non-performance, which could adversely affect our financial performance. Table of Contents • general economic, industry and market conditions and those conditions specific to Internet usage and online businesses. 18 We have entered into service level agreements with most of our customers. These agreements generally call for specific system “up times” and 24 hours per day, seven days per week support and include penalties for non-performance. We may be unable to fulfill these commitments due to circumstances beyond our control, which could subject us to substantial penalties under those agreements, harm our reputation and result in a reduction of revenue or the loss of customers, which would in turn have an adverse effect on our business, financial condition and results of operations. To date, we have never incurred any material penalties. System failures or capacity constraints could harm our business and financial performance. The provision of our services and products depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems could result in interruptions in our service. Such interruptions could harm our business, financial condition and results of operations, and our reputation could be damaged if people believe our systems are unreliable. Our systems are vulnerable to damage or interruption from snow storms, terrorist attacks, floods, fires, power loss, telecommunications failures, security breaches, computer malware, computer hacking attacks, computer viruses, computer denial of service attacks or other attempts to, or events that, harm our systems. Our data centers are also subject to break-ins, sabotage and intentional acts of vandalism and to potential disruptions if the operators of the facilities have financial difficulties. Although we maintain insurance to cover a variety of risks, the scope and amount of our insurance coverage may not be sufficient to cover our losses resulting from system failures or other disruptions to our online operations. For example, the limit on our business interruption insurance is approximately $27. 1 million. Any system failure or disruption and any resulting losses that are not recoverable under our insurance policies may materially harm our business, financial condition and results of operations. To date, we have never experienced any material losses. Our data centers are not on full second-site redundancy, however we have the capability to do so; only certain customers require us to. We regularly back-up our systems and store the system back-ups in Atlanta, Georgia, Dallas, Texas, Lewis Center, Ohio, Denver, Colorado, Toronto, Canada, Amsterdam, the Net herlands, and Buffalo, New York . If we were forced to relocate to an alternate site and to rely on our system back-ups to restore the systems, we would experience significant delays in restoring the functionality of our platform and could experience loss of data, which could materially harm our business and our operating results. Security breaches, computer viruses and computer hacking attacks could harm our business, financial condition and results of operations. Security breaches, computer malware and computer hacking attacks are prevalent in the technology industry. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and results of operations. We have previously experienced hacking attacks on our systems, and may in the future experience hacking attacks. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our technology infrastructure to the satisfaction of our customers and their consumers may harm our reputation and our ability to retain existing customers and attract new customers. We may not maintain acceptable website performance for our customers, which may negatively impact our relationships with our customers and harm our business, financial condition and results of operations. A key element to our continued growth is the ability of our customers' consumers in all geographies to access our start experiences within acceptable load times. We refer to this as website performance. We may in the Table of Contents 19 future experience platform disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our technology simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve website performance, especially during peak usage times, and as our solutions become more complex and our user traffic increases. If our start experiences are unavailable when consumers attempt to access them or do not load as quickly as they expect, consumers may seek other alternatives to obtain the information for which they are looking, and may not return to our start experiences as often in the future, or at all. This would negatively impact our relationships with our customers. We expect to continue to make significant investments to maintain and improve website performance. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed. We rely on our management team and need additional personnel to expand our business, and the loss of key officers or an inability to attract and retain qualified personnel could harm our business, financial condition and results of operations. We depend on the continued contributions of our senior management and other key personnel, especially Himesh Bhise, our new President and Chief Executive Officer effective August 4, 2014, George G. Chamoun, our President of Sales and Marketing and William J. Stuart, our Chief Financial Officer. The loss of the services of any of our executive officers or other key employees could harm our business and our prospects. All of our executive officers and key employees are at-will employees, which means they may terminate their employment relationship with us at any time. Our future success also depends on our ability to identify, attract and retain highly skilled technical, managerial, finance, marketing and creative personnel. Further, we will need to hire personnel outside the United States to pursue an international expansion strategy, and we will need to hire additional advertising salespeople to sell more advertisements directly. We face intense competition for qualified individuals from numerous technology, marketing and media companies, and we may incur significant costs to attract them. We may be unable to attract and retain suitably qualified individuals, or we may be required to pay increased compensation in order to do so. If we were to be unable to attract and retain the qualified personnel we need to succeed, our business could suffer. Volatility or lack of performance in the trading price of our common stock may also affect our ability to attract and retain qualified personnel. Many of our senior management personnel and other key employees have become, or will become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options or if the exercise prices of the options that they hold are significantly above the trading price of our common stock. If we are unable to retain our employees, our business, financial condition and results of operations would be harmed. If we fail to manage our growth effectively, our business, financial condition and results of operations may suffer. Following the merger of our predecessor companies, Chek, Inc., or Chek, and MyPersonal.com, Inc., or MyPersonal, to form Synacor, we expanded our business primarily through organic growth. We have sought to, and may continue to seek to, grow through strategic acquisitions. As we strive to return to growth, this may place, Table of Contents 20 significant demands on our management and our operational and financial infrastructure. Our ability to manage our growth effectively and to integrate new technologies and acquisitions into our existing business will require us to continue to expand our operational, financial and management information systems and to continue to retain, attract, train, motivate and manage key employees. Growth could strain our ability to: Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, financial condition and results of operations would be harmed. We may expand our business through acquisitions of, or investments in, other companies or new technologies, or joint ventures or other strategic alliances with other companies, which may divert our management's attention or prove not to be successful. In January 2015, we purchased assets from, and hired the personnel of , NimbleTV , Inc. ; in November 2013, we completed an acquisition of certain mobile device software and technology from Teknision; in January 2012, we completed an acquisition of certain mobile device software and technology from Carbyn; and in March 2013, we entered into a Joint Venture Agreement with Maxit to form Synacor China, Ltd., a company incorporated under the laws of the Cayman Islands, or the JV Company, a joint venture in China. We may decide to pursue other acquisitions of, investments in, or joint ventures involving other technologies and businesses in the future. Such transactions could divert our management's time and focus from operating our business. Our ability as an organization to integrate acquisitions is relatively unproven. Integrating an acquired company, business or technology is risky and may result in unforeseen operating difficulties and expenditures, including, among other things, with respect to: In addition, a significant portion of the purchase price of companies we may acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our operating results. Table of Contents • develop and improve our operational, financial and management controls; • enhance our reporting systems and procedures; • recruit, train and retain highly skilled personnel; • maintain our quality standards; and • maintain customer and content owner satisfaction. • incorporating new technologies into our existing business infrastructure; • consolidating corporate and administrative functions; • coordinating our sales and marketing functions to incorporate the new business or technology; • maintaining morale, retaining and integrating key employees to support the new business or technology and managing our expansion in capacity; and • maintaining standards, controls, procedures and policies (including effective internal controls over financial reporting and disclosure controls and procedures). 21 Future acquisitions could result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could harm our business, financial condition and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. Finally, our skill at investing our funds in illiquid securities issued by other companies, such as our investment in a privately held Delaware corporation called Blazer and Flip Flops, Inc., or B&FF (doing business as The Experience Engine), is untested. Although we review the results and prospects of such investments carefully, it is possible that our investments could result in a total loss. Additionally, we will typically have little or no control in the companies in which we invest, and we will be forced to rely on the management of companies in which we invest to make reasonable and sound business decisions. If the companies in which we invest are not successfully able to manage the risks facing them, such companies could suffer, and our own business, financial condition and results of operations could be harmed. We may require additional capital to grow our business, and this capital may not be available on acceptable terms or at all. The operation of our business and our growth strategy may require significant additional capital, especially if we were to accelerate our expansion and acquisition plans. If the cash generated from operations and otherwise available to us is not sufficient to meet our capital requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We may not be able to raise needed capital on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may cause our existing stockholders to suffer substantial dilution. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common stock. Any debt financing obtained by us in the future could contain restrictive covenants that may potentially restrict our operations, and if we do not effectively manage our business to comply with those covenants, our business, financial condition and results of operations could be adversely affected. If new sources of financing are required but are insufficient or unavailable, we could be required to delay, abandon or otherwise modify our growth and operating plans to the extent of available funding, which would harm our ability to grow our business. Our business depends, in part, on our ability to protect and enforce our intellectual property rights. The protection of our intellectual property is critical to our success. We rely on copyright and service mark enforcement, contractual restrictions and trade secret laws to protect our proprietary rights. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with certain parties with whom we conduct business to limit access to and disclosure of our proprietary information. Additionally, we have applied for patents to protect certain of our intellectual property. However, if we are unable to adequately protect our intellectual property, our business may suffer from the piracy of our technology and the associated loss in revenue. Protecting against the unauthorized use of our intellectual property and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could be costly and divert management resources, either of which could harm our business. Furthermore, many of our current and potential competitors have the ability to dedicate substantially Table of Contents 22 greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. We are not currently involved in any legal proceedings with respect to protecting our intellectual property; however, we may from time to time become a party to various legal proceedings with respect to protecting our intellectual property arising in the ordinary course of our business. Any claims from a third party that we are infringing upon its intellectual property, whether valid or not, could subject us to costly and time-consuming litigation or expensive licenses or force us to curtail some services or products. Companies in the Internet and technology industries tend to own large numbers of patents, copyrights, trademarks and trade secrets, and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. We have been subject to claims that the presentation of certain licensed content on our start experiences infringes certain patents of a third party, none of which have resulted in direct settlement or payments by us or any determination of infringement by us, and as we face increasing competition, the possibility of further intellectual property rights claims against us grows. Our technologies may not be able to withstand any third party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management resources and attention. An adverse determination also could prevent us from offering our services and products to others and may require that we procure substitute products or services for our customers. In the case of any intellectual property rights claim, we may have to pay damages or stop using technology found to be in violation of a third party's rights. We may have to seek a license for the technology, which may not be available to us on reasonable terms and may significantly increase our operating expenses. The technology also may not be available for license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for the infringing aspects of our business, we may be forced to limit our service and product offerings and may be unable to compete effectively. Any of these consequences could harm our operating results. In addition, we typically have contractual obligations to our customers to indemnify and defend them with respect to third-party intellectual property infringement claims that arise from our customers' use of our products or services. Such claims, whether valid or not, could harm our relationships with our customers, have resulted and could result in the future in us or our customers having to enter into licenses with the claimants and have caused and could cause us in the future to incur additional costs or experience reduced revenues. To date, neither the increase in our costs nor any reductions in our revenue resulting from such claims have been material. Such claims could also subject us to costly and time-consuming litigation as well as diverting management attention and resources. Satisfying our contractual indemnification obligations could also give rise to significant liability, and thus harm our business and our operating results. We are not currently subject to any material legal proceedings with respect to third party claims that we or our customers' use of our products and services are infringing upon their intellectual property; however, we may from time to time become a party to various legal proceedings with respect to such claims arising in the ordinary course of our business. Any unauthorized disclosure or theft of personal information we gather could harm our reputation and subject us to claims or litigation. Table of Contents 23 We collect, and have access to, personal information of subscribers, including names, addresses, account numbers, credit card numbers and e-mail addresses. Unauthorized disclosure of personal information regarding website visitors, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. If there were an inadvertent disclosure of personal information, or if a third party were to gain unauthorized access to the personal information we possess, our operations could be seriously disrupted and we could be subject to claims or litigation arising from damages suffered by subscribers or our customers. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding the unauthorized disclosure of personal information. Finally, any perceived or actual unauthorized disclosure of the information we collect could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business. We collect and may access personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business. We collect, and have access to, personal information of subscribers, including names, addresses, account numbers, credit card numbers and e-mail addresses. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other subscriber data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including voluntary third-party certification bodies such as TRUSTe). We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal information or other subscriber data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws or our policies, such violations may also put subscriber information at risk and could in turn have an adverse effect on our business. Any failure to convince advertisers of the benefits of advertising with us would harm our business, financial condition and results of operations. We have derived and expect to continue to derive a substantial portion of our revenue from digital advertising on our start experiences. Such advertising accounted for approximately 2 7 %, 2 9 % and 36 % of our revenue for the years ended December 3 1, 2012, 2013 and 2014, respectively . Our ability to attract and retain advertisers and, ultimately, to generate advertising revenue depends on a number of factors, including: Table of Contents • increasing the numbers of consumers using our start experiences; • maintaining consumer engagement on those start experiences; • competing effectively for advertising spending with other online and offline advertising providers; and 24 If we are unable to provide high-quality advertising opportunities and convince advertisers and agencies of our value proposition, we may not be able to retain existing advertisers or attract new ones, which would harm our business, financial condition and results of operations. Migration of high-speed Internet service providers' subscribers from one high-speed Internet service provider to another could adversely affect our business, financial condition and results of operations. Our high-speed Internet service provider customers' subscribers may become dissatisfied with their current high-speed Internet service provider and may switch to another provider. In the event that there is substantial subscriber migration from our existing customers to service providers with which we do not have relationships, the fees that we receive on a per-subscriber basis, and the related search and digital advertising revenue, could decline. Our business and the trading price of our common stock may be adversely affected if our internal controls over financial reporting are found by management or by our independent registered public accounting firm not to be adequate. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires our management to evaluate and report on our internal control over financial reporting. This report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. In addition, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting beginning with the Annual Report on Form 10-K for the year in which we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. While we have determined that our internal control over financial reporting was effective as of December 31, 201 4 , as indicated in our Management Report on Internal Control over Financial Reporting included in this Annual Rep ort on Form 10 -K , we must continue to monitor and assess our internal control over financial reporting. If our management identifies one or more material weaknesses in our internal control over financial reporting and such weakness remains uncorrected at fiscal year-end, we will be unable to assert such internal control is effective at fiscal year-end. If we are unable to assert that our internal control over financial reporting is effective at fiscal year-end, or if our independent registered public accounting firm, when required, is unable to express an opinion on the effectiveness of our internal controls or concludes that we have a material weakness in our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would likely have an adverse effect on our business and stock price. Even if we conclude our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Acc epted Accounting Principles, or GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Table of Contents • continuing to grow our direct advertising sales force and develop and diversify our advertising capabilities. 25 In addition, a delay in compliance with the auditor attestation provisions of Section 404, when applicable to us, could subject us to a variety of administrative sanctions, including ineligibility for short-form resale registration, action by the SEC, the suspension or delisting of our common stock and the inability of registered broker-dealers to make a market in our common stock, which would further reduce the trading price of our common stock and could harm our business. We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors. We are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited as a result of future transactions in our stock which may be outside our control. As of December 31 , 2014, we had substantial federal and state net operating loss carryforwards. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation's ability to use its pre-change net operating loss carryforwards to offset its post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in our ownership by “five-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. For these purposes, a five-percent stockholder is generally any person or group of persons that at any time during the applicable testing period has owned 5% or more of our outstanding stock. In addition, persons who own less than 5% of the outstanding stock are grouped together as one or more “public groups,” which are also treated as five-percent stockholders. Similar rules may apply under state tax laws. We may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control. As a result, our ability to use our pre-change net operating loss carryforwards to offset United States federal and state taxable income and taxes may be subject to limitations. Our proprietary rights may be inadequately protected. Our success and ability to compete depend substantially upon our intellectual property, which we protect through a combination of confidentiality arrangements and trademark registrations. Additionally, we have applied for patents to protect certain of our intellectual property. We have registered several marks and filed many other trademark applications in the U.S. We have not applied for copyright protection in any jurisdiction, including in the U.S. We enter into confidentiality agreements with most of our employees and consultants, and control access to, and distribution of, our documentation and other licensed information, including information licensed to the JV Company. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. Policing unauthorized use of our licensed technology is difficult and the steps we take may not prevent misappropriation or infringement of our proprietary rights. In addition, litigation may be necessary to enforce our Table of Contents 26 intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of our resources. Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences. We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur with respect to our expansion into international markets. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences, including adverse publicity and damage to our reputation that may have a material adverse effect on our business, financial condition and results of operations. Risks Related to Our Industry The growth of the market for our services and products depends on the continued growth of the Internet as a medium for content, advertising, commerce and communications. Expansion in the sales of our services and products depends on the continued acceptance of the Internet as a platform for content, advertising, commerce and communications. The acceptance of the Internet as a medium for such uses could be adversely impacted by delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, privacy protection, reliability, cost, ease of use, accessibility and quality of service. The performance of the Internet and its acceptance as such a medium has been harmed by viruses, worms, and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If for any reason the Internet does not remain a medium for widespread content, advertising, commerce and communications, the demand for our services and products would be significantly reduced, which would harm our business. The growth of the market for our services and products depends on the development and maintenance of the Internet infrastructure. Our business strategy depends on continued Internet and high-speed Internet access growth. Any downturn in the use or growth rate of the Internet or high-speed Internet access would be detrimental to our business. If the Internet continues to experience significant growth in number of users, frequency of use and amount of data transmitted, the Internet infrastructure might not be able to support the demands placed on it and the performance or reliability of the Internet may be adversely affected. The success of our business therefore depends on the development and maintenance of a sound Internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of complementary products, such as routers, for providing reliable Internet access and services. Consequently, as Internet usage increases, the growth of the market for our products depends upon improvements made to the Internet as well as to individual customers' networking infrastructures to alleviate overloading and congestion. In addition, any delays in the adoption of new standards and protocols required to govern increased levels of Internet activity or increased governmental regulation may have a detrimental effect on the Internet infrastructure. A substantial majority of our revenue is derived from search and digital advertising; our revenue would decline if advertisers do not continue their usage of the Internet as an advertising medium. Table of Contents 27 We have derived and expect to continue to derive a substantial majority of our revenue from search and digital advertising on our start experiences. Such search and digital advertising reven ue accounted for approximately 83 %, 8 1% and 79 % of our revenue for the years ended December 31, 201 2 , 201 3 and 201 4 , or $1 01.6 million, $ 90.4 million and $ 83.9 million, respectively. However, the prospects for continued demand and market acceptance for Internet advertising are uncertain. If advertisers do not continue to increase their usage of the Internet as an advertising medium, our revenue would decline. Advertisers that have traditionally relied on other advertising media may not advertise on the Internet. Most advertising agencies and potential advertisers, particularly local advertisers, have only limited experience advertising on the Internet and devote only a small portion of their advertising expenditures to online advertising. As the Internet evolves, advertisers may find online advertising to be a less attractive or less effective means of promoting their services and products than traditional methods of advertising and may not continue to allocate funds for Internet advertising. Many historical predictions by industry analysts and others concerning the growth of the Internet as a commercial medium have overstated the growth of the Internet and you should not rely upon them. This growth may not occur or may occur more slowly than estimated. Most of our search revenue is based on the number of paid “clicks” on sponsored links that are included in search results generated from our start experiences. Generally, each time a consumer clicks on a sponsored link, the search provider that provided the commercial search result receives a fee from the advertiser who paid for such sponsored link and the search provider pays us a portion of that fee. We, in turn, typically share a portion of the fee we receive with our customer. If an advertiser receives what it perceives to be a large number of clicks for which it needs to pay, but that do not result in a desired activity or an increase in sales, the advertiser may reduce or eliminate its advertisements through the search provider that provided the commercial search result to us. This reaction would lead to a loss of revenue to our search providers and consequently to lesser fees paid to us, which would have a material negative effect on our financial results. Market prices for online advertising may decrease due to competitive or other factors. In addition, if a large number of Internet users use filtering software that limits or removes advertising from the users' view, advertisers may perceive that Internet advertising is not effective and may choose not to advertise on the Internet. The market for Internet-based services and products in which we operate is highly competitive, and if we cannot compete effectively, our sales may decline and our business may be harmed. Competition in the market for Internet-based services and products in which we operate is intense and involves rapidly changing technologies and customer and subscriber requirements, as well as evolving industry standards and frequent product introductions. Our competitors may develop solutions that are similar or superior to our technology. Our primary competitors include high-speed Internet service providers with internal information technology staff capable of developing solutions similar to our technology. Other competitors include Yahoo!, Google, AOL and MSN, a division of Microsoft. Advantages some of our existing and potential competitors hold over us include the following: Table of Contents • significantly greater revenue and financial resources; • stronger brand and consumer recognition; • the capacity to leverage their marketing expenditures across a broader portfolio of services and products; 28 If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our sales could decline, our margins could decline and we could lose market share, any of which would materially harm our business, financial condition and results of operations. Government regulation of the Internet continues to evolve, and new laws and regulations could significantly harm our financial performance. Today, there are relatively few laws specifically directed towards conducting business over the Internet. We expect more stringent laws and regulations relating to the Internet to be enacted. The adoption or modification of laws related to the Internet could harm our business, financial condition and results of operations by, among other things, increasing our costs and administrative burdens. Due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the international, federal and state levels, which are likely to address a variety of issues such as: Table of Contents • more extensive proprietary intellectual property from which they can develop or aggregate content without having to pay fees or paying significantly lower fees than we do; • pre-existing relationships with content providers that afford them access to content while blocking the access of competitors to that same content; • pre-existing relationships with high-speed Internet service providers that afford them the opportunity to convert such providers to competing services and products; • lower labor and development costs; and • broader global distribution and presence. • user privacy and expression; • ability to collect and/or share necessary information that allows us to conduct business on the Internet; • export compliance; • pricing and taxation; • fraud; • advertising; • intellectual property rights; • consumer protection; • protection of minors; • content regulation; • information security; and • quality of services and products. 29 Several federal laws that could have an impact on our business have been adopted. The Digital Millennium Copyright Act of 1998 reduces the liability of online service providers of third-party content, including content that may infringe copyrights or rights of others. The Children's Online Privacy Protection Act imposes additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children from Sexual Predators Act requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. It could be costly for us to comply with existing and potential laws and regulations, and they could harm our marketing efforts and our attractiveness to advertisers by, among other things, restricting our ability to collect demographic and personal information from consumers or to use or disclose that information in certain ways. If we were to violate these laws or regulations, or if it were alleged that we had, we could face private lawsuits, fines, penalties and injunctions and our business could be harmed. Finally, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also increase our costs of doing business, discourage Internet communications, reduce demand for our services and expose us to substantial liability. Public scrutiny of Internet privacy issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current products and solutions to our customers, thereby harming our business. The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet have recently come under increased public scrutiny. The United States government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices. Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, our services or our privacy policies. Risks Related to Ownership of Our Common Stock Concentration of ownership among our directors, officers, large stockholders and their respective affiliates could limit our other stockholders' ability to influence the outcome of key corporate decisions, such as an acquisition of our company. Our directors, executive officers and certain holders of more than 5% of our common stock that are affiliated with our directors , together with their affiliates, beneficially own or control, directly or indirectly, as of March 1, 2015 over 30 % of our outstanding common stock. As a result, these stockholders, if they act together, would have the ability to influence significantly the outcome of matters submitted to our stockholders for approval, Table of Contents 30 including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, if they act together, would have the ability to influence significantly the management and affairs of our company. Accordingly, this concentration of ownership might harm the tradin g price of our common stock by: Our business could be negatively affected as a result of actions of stockholders or others. In June and July 2014, entities associated with JEC Capital Partners and Ratio Capital Partners indicated, through filings with the Securities and Exchange Commission, that they each beneficially own 4.9% of our outstanding shares of common stock. There can be no assurance that JEC Capital Partners, Ratio Capital Partners or another third party will not make an unsolicited takeover proposal in the future or take other action to acquire control of us or to otherwise influence our management and policies. If these entities or another entity do take control of 10% of ou r common stock, our stockholder rights plan could be triggered. Considering and responding to any future proposal is likely to result in significant additional costs to us, and future acquisition proposals, other stockholder actions to acquire control and the litigation that often accompanies them, if any, are likely to be costly and time-consuming and may disrupt our operations and divert the attention of management and our employees from executing our strategic plan. Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or actual or potential changes to the composition of our board of directors , such as the nomination of three individuals for election to our board of directors by JEC Capital Partners and Ratio Capital Partners, may lead to actual or perceived change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce their reliance on, the services we provide or do business with our competitors instead of us because of any such issues, then our business, operating results and financial condition would be adversely affected. Future sales of our common stock may cause the trading price of our common stock to decline. Certain of our stockholders who held shares of our preferred stock before the consummation of our public offering now have demand and piggyback rights to require us to register with the SEC the shares of common stock issued upon conversion of such preferred stock. If we register any of these shares of common stock, the stockholders would be able to sell those shares freely in the public market. Additionally, some of these stockholders are currently able to sell these shares in the public market without registration under Rule 144. In addition, the shares that are either subject to outstanding options or that may be granted in the future under our equity plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements. Table of Contents • delaying, deferring or preventing a change in our control; • impeding a merger, consolidation, takeover or other business combination involving us ; • preventing the election of directors who are nominated by our stockholders ; or • discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. 31 If a substantial number of any of these additional shares described are sold, or if it is perceived that a substantial number of such shares will be sold, in the public market, the trading price of our common stock could decline. Some provisions of our certificate of incorporation, bylaws and Delaware law and our stockholder rights plan may discourage, delay or prevent a merger or acquisition or prevent the removal of our current board of directors and management. Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may discourage, delay or prevent a merger or acquisition or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including: These provisions and other provisions in our charter documents could discourage, delay or prevent a transaction involving a change in our control. Any delay or prevention of a change in control transaction could cause stockholders to lose a substantial premium over the then-current trading price of their shares. These provisions could also discourage proxy contests and could make it more difficult for our stockholders to elect directors of their choosing or to cause us to take other corporate actions such stockholders desire. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests. Finally, on July 14, 2014 we implemented a stockholder rights plan, also called a poison pill, which may have the effect of discouraging or preventing a change of control of us by, among other things, making it uneconomical for a third-party to acquire us on a hostile basis. Table of Contents • our board of directors is classified into three classes of directors with staggered three-year terms; • our directors may only be removed for cause, and only with the affirmative vote of a majority of the voting interest of stockholders entitled to vote; • only our board of directors and not our stockholders will be able to fill vacancies on our board of directors; • only our chairman of the board, our chief executive officer or a majority of our board of directors, and not our stockholders, are authorized to call a special meeting of stockholders; • our stockholders will be able to take action only at a meeting of stockholders and not by written consent; • our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders. 32 We have not paid cash dividends on our capital stock, and we do not expect to do so in the foreseeable future. We have not historically paid cash dividends on our capital stock, and we have agreed not to pay any dividends or make any other distributions in our loan agreement with Silicon Valley Bank. We anticipate that we will retain all future earnings and cash resources for the future operation and development of our business, and as a result, we do not anticipate paying any cash dividends to holders of our capital stock for the foreseeable future. Any future determination regarding the payment of any dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions, bank covenants and other factors that our board may deem relevant. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. The trading price and volume of our common stock has been and will likely continue to be volatile, and the value of an investment in our common stock may decline. The trading price of our common stock has been, and is likely to continue to be, volatile and could decline substantially within a short period of time. For example, since shares of our common stock were sold in our initial public offering in February 2012 at a price of $5.00 per share through the close of business on March 5 , 2015 , our trading price has ranged from $1. 52 to $18.00. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control, including but not limited to the various factors set forth in this "Risk Factors" section, as well as: In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. Such a suit filed against us, regardless of its merits or outcome, could cause us to incur substantial costs and could divert management's attention. Table of Contents • variations in our financial performance; • announcements of technological innovations, new services and products, strategic alliances, asset acquisitions, or significant agreements by us or by our competitors; • recruitment or departure of key personnel, such as the appointment of Himesh Bhise, our current President and Chief Executive Officer or the appointment of Scott Murphy to our board of directors; or the departure of Ronald N. Frankel, our former President and Chief Executive Officer, or the departure of Scott A. Bailey, our former Chief Operating Officer; • changes in the estimates of our operating results or changes in recommendations or withdrawal of research coverage by securities analysts; • market conditions in our industry, the industries of our customers and the economy as a whole; and • adoption or modification of laws, regulations, policies, procedures or programs applicable to our business or announcements relating to these matters. 33 If securities or industry analysts do not publish research or reports about our company, our stock price and trading volume could decline. The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. The requirements of being a public company, including increased costs and demands upon management as a result of complying with federal securities laws and regulations applicable to public companies, may adversely affect our financial performance and our ability to attract and retain directors. As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules and regulations of The NASDAQ Global Market. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and NASDAQ, impose additional requirements on public companies, including enhanced corporate governance practices. For example, the NASDAQ listing requirements require that listed companies satisfy certain corporate governance requirements relating to independent directors, audit committees, distribution of annual and interim reports, stockholder meetings, stockholder approvals, solicitation of proxies, conflicts of interest, stockholder voting rights and codes of business conduct. Our management team has limited experience managing a publicly-traded company or complying with the increasingly complex laws pertaining to public companies. In addition, most of our current directors have limited experience serving on the boards of public companies. The requirements of these rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel must devote a substantial amount of time to these requirements. These rules and regulations will also make it more difficult and more expensive for us to maintain directors' and officers' liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors' and officers' insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes of NASDAQ rules, and officers may be significantly curtailed. None. Our corporate headquarters are located at 40 La Riviere Drive, Buffalo, New York 14202. We lease approximately 45,000 square feet of office space at this address pursuant to a sublease agreement that expires in March 2016. The sublease agreement grants us a right of first offer over approximately 33,000 additional square feet in the same building. Table of Contents ITEM 1B. U NRESOLVED STAFF COMMENTS ITEM 2. PROPERTIES 34 We also maintain administrative and product development offices in New York, New York; Toronto and Ottawa, Ontario, Canada; and Westford, Massachusetts. Our data centers are located in Atlanta, Georgia; Dallas, Texas; Lewis Center, Ohio; Buffalo, New Yor k; Denver, Colorado, Toronto, Canada and Amsterdam, The Netherlands. We believe that our facilities are adequate to meet our current needs and that suitable additional or substitute space will be available as needed. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently involved in any legal proceedings, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, results of operations or financial condition. Not applicable. Table of Contents ITEM 3. LEGAL PROCEEDINGS ITEM 4. MINE SAFETY DISCLOSURES 35 PA RT II Market Information Our common stock has been listed on The NASDAQ Global Market, or Nasdaq, under the symbol “SYNC” since February 10, 2012. The following table sets forth, for the indicated periods, the high and low sales prices per share by quarter for our common stock as reported by NASDAQ. Holders of Record As of March 5 , 201 5 , there were 87 holders of record of our common stock. The number of holders of record of our common stock does not reflect the number of beneficial holders whose shares are held by depositors, brokers or other nominees. Dividend Policy We have never declared or paid cash dividends on our common stock. It is our policy to retain earnings to finance the growth and development of our business and, therefore, we do not anticipate paying any dividends in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on the existing conditions, including our financial condition, operating results, applicable Delaware law, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, our loan and security agreement with Silicon Valley Bank restricts our ability to pay any dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Securities Authorized for Issuance Under Equity Compensation Plans The information required to be disclosed by Item 201(d) of Regulation S-K regarding our equity securities authorized for issuance under our equity incentive plans is incorporated herein by reference to the section entitled “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive Proxy Statement for our Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of fiscal year 201 4 pursuant to Regulation 14A. Table of Contents ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Fiscal Year 2014 Quarters Ended: High Low March 31, 2014 $ 2.82 $ 2.24 June 30, 2014 $ 2.69 $ 2.15 September 30, 2014 $ 2.60 $ 1.83 December 31, 2014 $ 2.06 $ 1.55 Fiscal Year 2013 Quarters Ended: March 31, 2013 $ 6.24 $ 2.72 June 30, 2013 $ 4.17 $ 2.58 September 30, 2013 $ 3.59 $ 2.53 December 31, 2013 $ 2.88 $ 2.25 36 Stock Performance Graph Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Exchange Act, and it shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing. The graph below compares the cumulative total stockholder return of our common stock with that of the NASDAQ Composite Index and the NASDAQ Internet Index from January 2, 201 4 (the first trading day in 201 4) through December 31, 2014 . The graph assumes that $100 was invested in shares of our common stock, the NASDAQ Composite Index and the NASDAQ Internet Index at the close of market on January 2, 2014 , and that dividends, if any, were reinvested. The comparisons in this graph are based on historical data and are not intended to forecast or be indicative of future performance of our common stock. Table of Contents 37 Recent Sales of Unregistered Securities None. Use of Proceeds In February 2012, we completed the initial public offering of shares of our common stock, in which we issued and sold 5,454,545 shares of common stock at a price to the public of $5.00 per share, for aggregate gross proceeds to the Company of $27.3 million, in each case excluding shares of common stock sold by selling stockholders in the offering. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-178049), which was declared effective by the SEC on February 9, 2012. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on February 10, 2012 pursuant to Rule 424(b). Issuer Purchases of Equity Securities None. You should read the following selected consolidated historical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, related notes and other financial information included in this Annual Report on Form 10-K. The selected consolidated financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements and related notes included in this Annual Report on Form 10-K. We derived the selected consolidated financial data for the years ended December 31, 201 2 , 201 3 and 201 4 and as of December 31, 201 3 and 201 4 from our audited consolidated financial statements and related notes, which are included in this Annual Report on Form 10-K. We derived the selected consolidated financial data for the years ended December 31, 2010 and 201 1 and as of December 31, 20 10 , 201 1 and 201 2 from our audited consolidated financial statements and related notes, which are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future. Table of Contents ITEM 6. SE LECTED FINANCIAL DATA 38  Notes: (1) Exclusive o f depreciation shown separately. (2) Includes stock-based compensation as follows: (3) We define adjusted EBITDA as net income (loss) plus: provision (benefit) for income taxes, interest expense, other (income) expense, depreciation, loss in equity interest, stock-based compensation and certain , one-time items . Please see “Adjusted EBITDA” below for more information and for a reconciliation of adjusted EBITDA to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Table of Contents Year Ended December 31, 2010 2011 2012 2013 2014 (in thousands except share and per share data) Consolidated Statements of Operations Data: Revenue $ 66,232 $ 91,060 $ 121,981 $ 111,807 $ 106,579 Costs and operating expenses: Cost of revenue (1) 36,703 48,661 66,620 59,622 57,939 Technology and development (1)(2) 18,494 20,228 25,603 28,458 26,259 Sales and marketing (2) 6,211 8,582 9,120 8,124 10,807 General and administrative (1)(2) 5,656 6,879 11,011 11,663 14,249 Depreciation 2,506 2,667 3,779 4,650 5,126 Gain on sale of domain - - - - (1,000) Total costs and operating expenses 69,570 87,017 116,133 112,517 113,380 Income (loss) from operations (3,338) 4,043 5,848 (710) (6,801) Other income (expense) (2) (17) 1 (37) (28) Interest expense (240) (109) (270) (193) (218) Income (loss) before income taxes (3,580) 3,917 5,579 (940) (7,047) Provision (benefit) for income taxes 11 (6,015) 1,764 (134) 4,821 Loss in equity interest - - - (561) (1,063) Net income (loss) (3,591) 9,932 3,815 (1,367) (12,931) Undistributed earnings allocated to preferred stockholders - 8,583 - - - Net income (loss) attributable to common stockholders $ (3,591) $ 1,349 $ 3,815 $ (1,367) $ (12,931) Net income (loss) per share attributable to common stockholders: Basic $ (1.93) $ 0.59 $ 0.16 $ (0.05) $ (0.47) Diluted $ (1.93) $ 0.45 $ 0.14 $ (0.05) $ (0.47) Weighted average shares used to compute net income (loss) per share attributable to common stockholders: Basic 1,865,294 2,303,443 24,411,194 27,306,882 27,389,793 Diluted 1,865,294 21,974,403 28,097,313 27,306,882 27,389,793 Other Financial Data: Adjusted EBITDA (3) $ 36 $ 7,630 $ 11,626 $ 6,501 $ 2,180 Year Ended December 31, 2010 2011 2012 2013 2014 (in thousands) Technology and development $ 398 $ 295 $ 523 $ 1,184 $ 1,621 Sales and marketing 202 203 404 348 599 General and administrative 268 422 1,072 1,029 1,375 $ 868 $ 920 $ 1,999 $ 2,561 $ 3,595 39  Adjusted EBITDA To provide investors with additional information regarding our financial results, we have disclosed within this Annual Report on Form 10-K adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure. We have included adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our ann ual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA to net income (loss) for each of the periods indicated: Table of Contents Year Ended December 31, 2010 2011 2012 2013 2014 (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 5,412 $ 10,925 $ 41,944 $ 36,397 $ 25,600 Accounts receivables, net 9,654 14,336 15,624 14,569 20,479 Property and equipment, net 7,110 8,301 11,043 14,085 15,128 Total assets 24,327 43,382 76,330 74,789 66,238 Long-term bank financing and capital lease obligations 1,203 2,098 1,712 885 1,383 Total stockholders’ equity 10,156 21,380 50,811 52,231 42,482 • although depreciation is a non-cash charge, the assets being depreciated may have to be replaced in the future, and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements; • adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation; • adjusted EBITDA does not reflect the impact of tax payments that may represent a reduction in cash available to us; and • other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure. 40  Note: (1) Other (income) expense consists primarily of interest income earned and foreign exchange gains and losses. Table of Contents Year Ended December 31, 2010 2011 2012 2013 2014 (in thousands) Reconciliation of Adjusted EBITDA: Net income (loss) $ (3,591) $ 9,932 $ 3,815 $ (1,367) $ (12,931) Provision (benefit) for income taxes 11 (6,015) 1,764 (134) 4,821 Interest expense 240 109 270 193 218 Other (income) expense (1) 2 17 (1) 37 28 Depreciation 2,506 2,667 3,779 4,650 5,126 Loss in equity interest - - - 561 1,063 Stock-based compensation 868 920 1,999 2,561 3,595 Gain on sale of domain - - - - (1,000) Reduction in workforce severance and related costs - - - - 1,260 Adjusted EBITDA $ 36 $ 7,630 $ 11,626 $ 6,501 $ 2,180 41  The following discussion of our results of operations and financial condition should be read in conjunction with the information set forth in “Selected Financial Data” and our financial statements and the notes thereto included in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Overview We are the trusted technology development, multiplatform services and revenue partner for video, Internet and communications providers, and device manufacturers. We deliver modern, multiscreen experiences and advertising to consumers that require scale, actionable data and sophisticated implementation. Our customers are actively seeking incremental revenue opportunities. At the same time, consumer expectations are high, driving the need for new features and services, which require scale to be delivered cost-effectively. Consumers want access to digital content via PCs, tablets, smartphones a nd connected TVs. Video, mobile and social are typically the underpinnings of these new services, and we believe we have has a role to play as a neutral partner by helping to reduce consumer and provider complexity from the proliferation of content, device, technology and distribution options. We generate revenue from consumer traffic on our start experiences through search and digital advertising revenue, which we collect from our search partner, Google Inc., or Google, our advertising network providers and directly from advertisers. We typically share a portion of this search and digital advertising revenue with our customers. We also generate recurring revenues in the form of subscriber-based fees , which we collect from our customers, for the use of our technology, premiu m services and paid content . Growth in our business is dependent on expansion of relationships with our existing customers and new customers adopting our solutions and their respective consumers’ use of our start experiences ramping up as described below. As we expand our Cloud ID, syndicated content and email offerings, we expect to generate increased subscriber-based revenue from our customers. During 201 4 , search and digital advertising revenue was $ 83.9 million, a decrease of 7 % compared to $ 90.4 million for 2013 . Over the same period, our unique visitors decreased by 5 %, ou r search queries decreased by 25 % and our advertising impressions decreased by 9 %. Search revenue decreased by $ 12.1 million , or 21%, in 201 4 compared to 201 3 . W e believe the decrease was due to lower search activity associated with the increased usage of competitor search tools on other devices , such as tablets and smartphones , generally across the consumer base . In addition, a portion of the decrease was due to the residual effect of the placement of our start experiences on the second tab of the default Windows 8 Internet browser by our consumer elect ronics customers. We anticipate that search activity will increase on smartphones and tablets in the future and, although our search queries are down, we believe that our continuing investment in our next- generation start experiences will allow us to compete more effectively for search activity on smartphones and tablet s. Digital advertising revenue in creased by $ 5.6 million , or 17%, in 201 4 compared to 201 3 . We anticipate video advertising may become an increasing percentage of our advertising revenue which may also serve to increase our advertising CPMs. We also anticipate that the signing, and Table of Contents ITEM 7. M ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42 launching, of new customers and our mobile product initiatives may help add new search and digital advertising revenue in future years. Our subscriber-based revenue consists of fees charged for the use of our proprietary technology and for the use of, or access to, services, such as e-mail, security, Cloud ID , online games, music and other premium services and paid content. During 201 4 , subscriber-based revenue was $ 22.7 million, an increase of 6 % from $2 1 .4 million in 201 3 . This increase is primarily driven by growth in the hosting and management of our e-mail product and increasing adoption of our Cloud ID services with our customers. We believe there are opportunities to generate new sources of subscriber-based revenue, such as the introduction of new premium services, including those delive red on smartphones and tablets. As we obtain new customers and those new customers introduce our start experiences to their consumers, we expect that usage of our solutions and our revenue from our start experiences to increase over time. There are a variety of reasons for this ramp-up process. For example, a new customer may migrate its consumers from its existing technology to our technology over a period of time. Moreover, a new customer may initially launch a selection of our services and products, rather than our entire suite of offerings, and subsequently broaden their service and product offerings over time. When a customer launches a new service or product, marketing and promotional activities may be required to generate awareness and interest among consumers. In 201 4 , we derived revenue from over 50 customers, with revenue attributable to four customers, CenturyLink (including revenue attributable to Qwest), Charter Communications , Verizon and Toshiba, together accounting for approximately 6 7 % of our revenue in 201 4 , or $7 1.1 million. One of these customers accounted for 20% or more of revenue in such period, and revenue attributable to each of the other three customers accounted for more than 10% in such period. Revenue attributable to our customers includes the subscriber-based revenue earned directly from them, as well as the search and digital advertising revenue generated through our relationships with our search and digital advertising partners (such as Google for search advertising and advertising networks, advertising agencies and advertisers for digital advertising). This revenue is attributable to our customers because it is produced from the traffic on our start experiences. These search and advertising partners provide us with advertisements that we then deliver with search results and other content on our start experiences. Since our search advertising partner, Google, and our advertising network partners generate their revenue by selling those advertisements, we create a revenue stream for these partners. In 201 4 , search advertising through our relationship with Google generated approximately 42 % of our revenue, or $ 45.2 million (all of which was attributable to our customers). The initiatives described below under “Key Initiatives” are expected to contribute to our ability to maintain and grow revenue and return to profitability via increases in advertising revenue, increases in customers and our consumer reach, and increases in availability of products across more devices. We expect the period in which we experience a return on future investments in each of these initiatives to differ. For example, more direct advertising at higher CPMs would be expected to have an immediate and direct impact on profitability while expansion into international markets may require an investment that involves a longer term return. Trends Affecting Our Business Our customers, predominantly high-speed Internet service providers that also offer television services, are facing increasing competition from companies that deliver video content over the Internet, more commonly referred to as “over-the-top,” or OTT. These new competitors include a number of large and growing companies, such as Google, Netflix, Inc., or Netflix, Hulu, LLC, or Hulu, and Amazon.com Inc., or Amazon. With the increased Table of Contents 43 availability of high-speed Internet access and over-the-top programming, consumers’ video content consumption preferences may shift away from current viewing habits. As a result, many of our customers and potential customers are compelled to find new ways to deliver services and content to their consumers via the Internet. We expect this pressure to become even greater as more video content becomes available online. We expect to continue to benefit from this trend as customers adopt our solutions to package and deliver video programming and other related authentication services on our start experiences. Another trend affecting our customers and our business is the proliferation of Internet-connected devices, especially mobile devices. Smartphones, tablets and connected TVs have made it more convenient for consumers to access services and content online, including television programming. To remain competitive, our customers and potential customers must have the capability to deliver their services and products to consumers on these new devices. Our technology enables them to extend their presence beyond traditional personal computers, and we expect that some portion of our revenue growth will come from traffic on these devices. Our business is also affected by growth in advertising on the Internet, for which the proliferation of high-speed Internet access and Internet-connected devices will be the principal drivers. Further, we expect to see a decline in search advertising revenue based on consumers ’ Internet searching habits increasingly transitioning to mobile devices . However , we believe there continues to be growth opportunity for advertising related to the video, images and text on our start experiences and hosted email. We expect our results of operations will benefit from the growth in the number of mobile Internet users as our customers adopt our mobile and tablet offerings. We continue to be impacted by consumer electronics customers that have the Windows 8 operating system pre-installed on th eir laptop or desktop computers; our start experiences are now placed on a second tab when the Internet browser is launched , and in certain instances, without our Google search bar . This has caused us to reduce our revenue expectations from our consumer electronics customers. Key Initiatives Our strategy is supported by four key pillars to drive our business, with operational discipline and sound financial footing as its base. We plan to: Table of Contents • increase value for existing customers by optimizing consumer experience and monetization; • innovate on Synacor-as-a-platform for advanced services; • win new customers in current and related verticals; and • extend our product portfolio into emerging growth areas. 44 Key Business Metrics In addition to the line items in our financial statements, we regularly review a number of business metrics related to Internet traffic and search and digital advertising to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe disclosing these metrics is useful for investors and analysts to understand the underlying trends in our business. The following table summa rizes our key business metrics for th e years ended December 31, 2012, 2013 and 2014 : Notes: Unique Visitors We define unique visitors as consumers who have visited one of our start experiences at least once during a particular time period. We rely on comScore to provide this data. comScore estimates this data based on the U.S. portion of the Internet activity of its worldwide panel of consumers and its proprietary data collection method. Search Queries We define search queries as the number of instances in which a consumer entered a query into a search bar on our start experiences during a particular time period. We rely on reports from our search partner, Google, to measure the number of such instances. Advertising Impressions We define advertising impressions as graphical, textual or video paid advertisements di splayed to consumers on our start experiences during a particular time period. We rely on reports from technology and advertising partners, including DoubleClick (a division of Google), to measure the number of advertising impressions delivered on our platform. Table of Contents Year Ended December 31, 2012 2013 2014 Key Business Metrics: Unique Visitors (1) 20,440,169 19,818,670 18,886,889 Search Queries (2) 968,233,560 711,992,036 530,933,590 Advertising Impressions (3) 42,170,186,571 40,982,588,804 37,141,508,555 (1) Reflects the number of unique visitors to our start experiences computed on an average monthly basis during the applicable period. (2) Reflects the total number of search queries during the applicable period. (3) Reflects the total number of advertising impressions during the applicable period. 45 Components of our Results of Operations Revenue We derive our revenue from two categories: revenue generated from search and digital advertising activities and subscriber-based revenue, each of which is described below. The following table shows the revenue in each category, both in amount and as a percentage of revenue, for 2012, 2013 and 2014 . Search and Digital Advertising Revenue We use Internet advertising to generate revenue from the t raffic on our start experiences , categorized as search advertising and digital advertising. Subscriber-Based Revenue Subscriber-based revenue represents subscri ption fees and other fees that we receive from customers for the use of our proprietary technology, including the use of, or access to, e-mail, Cloud ID , security, games and other premium services and paid content. Monthly subscriber levels typically form the basis for calculating and generating subscriber-based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. Revenue is recognized from customers as the service is delivered. Table of Contents Year Ended December 31, 2012 2013 2014 (in thousands) Revenue: Search and display advertising $ 101,559 $ 90,447 $ 83,906 Subscriber-based 20,422 21,360 22,673 Total revenue $ 121,981 $ 111,807 $ 106,579 Percentage of revenue: Search and display advertising 83 % 81 % 79 % Subscriber-based 17 19 21 Total revenue 100 % 100 % 100 % • In the case of search advertising, we have a revenue-sharing relationship w ith Google, pursuant to which we include a Google-branded search tool on our start experiences. When a consumer makes a search query using this tool, we deliver 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 us . The net payment we receive from Google is recognized as revenue. • Digital advertising includes video, image and text adve rtisements delivered on one of our start experiences. Advertising inventory is filled with advertisements sourced by our direct sales force, independent advertising sales representatives and advertising network partners. Revenue is generated for us when an advertisement display s, otherwise known as an impression, or when consumers view or click an advertisement, otherwise known as an action. Digital advertising revenue is calculated 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 c ontractually-determined rates. 46 Costs and Expenses Cost of Revenue Cost of revenue consists of revenue sharing, content acquisition costs and co-location facility costs. Revenue sharing consists of amounts accrued and paid to customers for the Internet traffic on start experience s we operate on our customers behalf and where we are 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 ope rating costs for our data center facilities. 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 our products, equipment and related infrastructure . Sales and Marketing Sales and marketing expenses consist primarily of compensation-related expenses to our direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials and other sales and marketing programs. Advertising cost is expensed as incurred. General and Administrative General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources , professional fees and other administrative functions. Depreciation Depreciation includes depreciation of our computer hardware and software, furniture and f ixtures, leasehold improvements and other property, and depreciation on capital leased assets. Gain on Sale of Domain Gain on sale of domain is unique to 2014. T he proceeds collected from the sale of an Internet domain were recognized as a gain in their entirety. Other Income (Expense) Other income (expense) consists primarily of interest income earned and foreign exchange gains and losses. Interest Expense Interest expense primarily consists of expenses associated with our capital leases. Provision (benefit) for Income Taxes Table of Contents 47 Income tax expense (benefit) consists of federal and state income taxes in the United States and taxes i n certain foreign jurisdictions, as well as any changes to deferred tax assets or liabilities, and deferred tax valuation allowances. Loss in Equity Interest Loss in equity interest represents our percentage share of losses in investments in entities in which we can exercise significant influence, but do not own a majority equity interest or otherwise control. Critical Accounting Policies The preparation of consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. See Note 1, The Company and Summary of Significant Accounting Policies , of Notes to the Consolidated Financial Statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. Revenue Recognition We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. The terms of our arrangements with our customers, Google and our advertising network partners are specified in written agreements. These written agreements constitute the persuasive evidence of the arrangements with our customers that are a pre-condition to the recognition of revenue. The evidence used to document that delivery or performance has occurred generally consists of communication of either numbers of subscribers or the revenue generated in a reporting period from customers, advertising partners, vendors and our own internally-generated reports. Occasionally, a customer will notify us of subsequent adjustments to previously reported subscriber data. These adjustments, once accepted by us, will result in adjustments to revenue and cost of revenue. The historical occurrences of such adjustments, and the amounts involved, have not been significant. Although prices used in our revenue recognition formulas are generally fixed pursuant to the written arrangements with our customers, Google and our advertising network partners, the number of subscribers or the amount of search and digital advertising revenue that are subject to our pricing arrangements are not known until the reporting period has ended. Although this data is, in most cases, available prior to the completion of our periodic financial statements, this data may need to be estimated. When made, these estimates are based upon our historical experience with the relevant party. Adjustments to these estimates have historically not been significant. The receipt of this volume data also serves to verify that we have appropriately satisfied our obligation to our customers for that reporting period. Adjustments are recorded in the period in which the data is received. Table of Contents 48 Pursuant to the terms of our customer contracts, we recognize revenue in each period for our services once the contract has been signed, its terms reviewed and understood, the service, content or both have been made available to the customer and reliable active subscriber information is made available to us. We undertake an evaluation of the creditworthiness of both new and, on a periodic basis, existing customers. Based on these reviews we determine whether collection of our prospective revenue is probable. Revenue Sharing We pay our customers a portion of the revenue generated from search and digital advertising. The portion paid to our customers depends on, among other things, the consumer base of the customer and their expected ability to drive consumer traffic to our start experiences. This revenue consists of the consideration we receive from Google and our digital advertising partners in connection with traffic supplied by the applicable customer. Gross Versus Net Presentation of Revenue for Revenue Sharing We evaluate our relationship between our search and digital advertising partners and our customers in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 605-45, Principal Agent Considerations . We have determined that the revenue derived from traffic supplied by our customers is reported on a gross basis because we are the primary obligor (we are responsible to our customers for fulfilling search and digital advertising services and premium and other services), are involved in the service specifications, perform part of the service, have discretion in supplier selection, have latitude in establishing price and bear credit risk. Stock-Based Compensation We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. As a result, we are required to estimate the amount of stock-based compensation we expect to be forfeited based on our historical experience. If actual forfeitures differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially impacted. Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows: Fair Value of Our Common Stock . Because our stock was not publicly traded prior to our initial public offering, the fair value of our common stock underlying our stock options was determined by our board of directors based on valuations prepared by an independent valuation specialist. The board of directors intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. Following the completion of our initial public offering in February 2012, our common stock has been valued by reference to its publicly traded price. Expected Term . The expected term was estimated using the simplified method allowed under SEC guidance. As we develop more experience, our estimate of the life of awards may change. Table of Contents 49 Volatility. As w e have not ha d sufficient trading history to reasonably estimate expected volatility , the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. We did not rely on implied volatilities of traded options in our industry peers' common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. Risk-free Rate . The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Accordingly, we used an expected dividend yield of zero. Income Taxes We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. We also provide reserves as necessary for uncertain tax positions taken on our tax filings. First, we determine if a tax position is more likely than not to be sustained upon audit solely based on technical merits, including resolution of related appeals or litigation processes, if any. Second, based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement we recognize any such differences as a liability. In the event that any unrecognized tax benefits are recognized, the effective tax rate will be affected. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will be the same as these estimates. These estimates are updated quarterly based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. We follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors, including future market conditions and our ability to successfully execute our business plans and/or tax planning strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or decrease in the period in which the assessment is changed. Table of Contents 50 Results of Operations The following tables set forth our results of operations for the periods presented in amount and as a percentage of revenue for those periods. The period to period comparison of financial results is not necessarily indicative of future results. Notes: (1) Exclusive of depreciation shown separately. (2) Includes stock-based compensation as follows: Table of Contents Year Ended December 31, 2012 2013 2014 (in thousands) Revenue $ 121,981 $ 111,807 $ 106,579 Costs and operating expenses: Cost of revenue (1) 66,620 59,622 57,939 Technology and development (1)(2) 25,603 28,458 26,259 Sales and marketing (2) 9,120 8,124 10,807 General and administrative (1)(2) 11,011 11,663 14,249 Depreciation 3,779 4,650 5,126 Gain on sale of domain - - (1,000) Total costs and operating expenses 116,133 112,517 113,380 Income (loss) from operations 5,848 (710) (6,801) Other income (expense) 1 (37) (28) Interest expense (270) (193) (218) Income (loss) before income taxes 5,579 (940) (7,047) Provision (benefit) for income taxes 1,764 (134) 4,821 Loss in equity interest - (561) (1,063) Net income (loss) $ 3,815 $ (1,367) $ (12,931) Year Ended December 31, 2012 2013 2014 (in thousands) Technology and development $ 523 $ 1,184 $ 1,621 Sales and marketing 404 348 599 General and administrative 1,072 1,029 1,375 $ 1,999 $ 2,561 $ 3,595 51  Note: (1) Exclusive of depreciation shown separately. Comparison of Years Ended December 31, 2012, 2013 and 2014 Revenue In 201 4 , our revenue decreased by $ 5.2 million, or 5 %, compared to 201 3 . Digital advertising revenue in creased by $ 5.6 million , or 17% . The increase in digital advertising was driven by a combination of an increase in video advertising and higher contractual rates for such advertisements . Further, v ideo advertising yields higher CPM than traditional image or text advertising. Search advertising revenue decreased by $12.1 million, or 21 % compared to 2013 . W e believe the decrease was due to lower search activity associated with the increased usage of competitor search tools on other devices , such as tablets and smartphones , generally across the consumer base . In addition, a portion of the decrease was due to the residual effect of the placement of our start experiences on the second tab of the default Windows 8 Internet browser by our consumer elect ronics customers. Subscriber-based Table of Contents Year Ended December 31, 2012 2013 2014 Revenue 100 % 100 % 100 % Costs and operating expenses: Cost of revenue (1) 55 53 54 Technology and development (1) 21 25 25 Sales and marketing 7 7 10 General and administrative (1) 9 10 13 Depreciation 3 4 5 Gain on sale of domain - - (1) Total costs and operating expenses 95 101 106 Income (loss) from operations 5 (1) (6) Other income (expense) - - - Interest expense - - - Income (loss) before income taxes 5 (1) (7) Provision (benefit) for income taxes 1 - 5 Loss in equity interest - (1) (1) Net income (loss) 3 % (1) % (12) % Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Revenue: Search and display advertising $ 101,559 $ 90,447 $ 83,906 (11) % (7) % Subscriber-based 20,422 21,360 22,673 5 % 6 % Total revenue $ 121,981 $ 111,807 $ 106,579 (8) % (5) % Percentage of revenue: Search and display advertising 83 % 81 % 79 % Subscriber-based 17 19 21 Total revenue 100 % 100 % 100 % 52 revenue increased $ 1.3 million, or 6 % primarily du e to increases in our email, Cloud ID and video solutions services to our customers. In 2013 , our revenue decreased by $10.2 million, or 8%, compared to 2012. Digital advertising revenue decreased slightly by $0.2 million. Search advertising revenue decreased by 10.9 million, or 16%. We believe a material portion of the decrease was due to the placement of our start experiences on the second tab of the default Windows 8 Internet browser by our consumer electronics customers. In addition, and to a lesser extent, we believe the decrease was due to lower search activity associated with the increased usage of other devices such as tablets and smartphones generally across the consumer base and due to a change in the way we monetize searches through our start experiences. Subscriber-based revenue increased $0.9 million, or 5% primarily du e to increases in our email, Cloud ID and video solutions services to our customers. Cost of Revenue Our cost of revenue decreased by $ 1.7 million, or 3 %, in 201 4 compared to 201 3 . The decrease in our cost of revenue was driven by a decrease in revenue-sharing costs from search due to declining search advertising revenue . The decrease was offset by an increase in revenue-sharing costs from digital advertising due to increase in video-based advertising and better monetization of digital advertising, as discussed above. Cost of reve nue as a percentage of revenue in creased slightly to 54% of revenue in 2014 from 53 % due to shift in the mix of cost of revenue from search advertising to digital advertising, specifically , video-based advertising . Our cost of revenue decreased by $7.0 million, or 11%, in 2013 compared to 2012. The decrease in our cost of revenue was driven by a decrease in revenue-sharing costs due to decreased search and digital advertising. Cost of revenue as a percentage of revenue decreased to 53% of revenue in 2013 from 55% of revenue in 2012 because of changes in digital advertising revenue attributable to the mix of customers and related revenue-sharing arrangements. Technology and Development Expenses Technology and development expenses de creased by $2. 2 million, or 8 %, in 201 4 compared to 201 3. The de crease was primarily due to a shift in activities of certain personnel responsible for products to be marketed, from technology and development to sales and marketing. This change in a ctivities occurred at the direction of our new chief executive officer and took effect on October 1, 2014 , and t he result ing decrease was $1.3 million . A n a dditional decrease of $0.8 million is due to the reduced use of temporary labor in connection with our cost Table of Contents Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Cost of revenue $ 66,620 $ 59,622 $ 57,939 (11) % (3) % Percentage of revenue 55 % 53 % 54 % Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Technology and development $ 25,603 $ 28,458 $ 26,259 11 % (8) % Percentage of revenue 21 % 25 % 25 % 53 reduction plan . These decreases were offset by severance and related expenses associated with our cost reduction plan of $0.5 million and additional stock-based compensation expense associated with re-pricing of stock options of $0.2 million. Technology and development expenses increased by $2.9 million, or 11%, in 2013 compared to 2012. The increase was primarily due to a $2.5 million increase in employee-related costs as a result of the increase in headcount to support new product initiatives and customer deployments. Sales and Marketing Expenses Sales and marketing expenses in creased by $ 2.7 million, or 33 %, in 201 4 compared to 201 3 . The in crease was primarily due to a shift in activities of certain personnel from technology and development to sales and marketing, resulting in additional sales and marketing expense of $1.3 million, as discussed above. Additional increases include $0.5 million in fees paid to third-party consultants for market research, $0.2 million in severance and related expenses associated with our cost reduction plan, and $0.3 million in advertising sales bonus and commission related to the increase in digital advertising revenue . Sales and marketing expenses decreased by $1.0 million, or 11%, in 2013 compared to 2012. The decrease was primarily due to a $1.0 million decrease in compensation-related expenses. General and Administrative Expenses Gener al and administrative expenses increased by $ 2.6 million, or 22 %, in 201 4 compared to 201 3 . The increase is due to several factors, including severance and related expenses associated with our cost reduction plan of $0.6 million, an increase in the provision for bad debt of $0.3 million, higher than typical professional fees of $0. 6 million , office rent increase of $0.2 million, and $0. 9 million costs associated with our transition to a new CEO. General and administrative expenses increased by $0.7 million, or 6%, in 2013 compared to 2012. The increase was primarily due to a $0.3 million increase in legal fees in connection with the formation of the JV Company and $0.2 million increase in rent. Table of Contents Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Sales and marketing $ 9,120 $ 8,124 $ 10,807 (11) % 33 % Percentage of revenue 7 % 7 % 10 % Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) General and administrative $ 11,011 $ 11,663 $ 14,249 6 % 22 % Percentage of revenue 9 % 10 % 13 % 54 Depreciation Depreciation increased by $0. 5 million or 10 % in 201 4 compared to 201 3 . This increase was due to placing certain software development projects into service during the fourth quarter , including our next generation portal, our new back-end C loud ID technology and our new video solutions experience . Depreciation increased by $0.9 million or 23% in 2013 compared to 2012. This increase was primarily driven by the purchase of assets such as computer equipment to support our investment in new projects. Gain on Sale of Domain The gain on sale of a domain amounted to $1.0 million during 2014, which was equal to the sale price. The sale was unique to 2014 and no such transactions occurred in the comparative periods. Other Income (Expense) For each of 201 2 , 201 3 and 201 4 , other income (expense) consisted primarily of interest income coupled with foreign currency transaction losses related to our Canadian operations. Interest Expense Interest expense during 2012, 2013 and 2014 primarily relates to interest on capital lease financing. Table of Contents Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Depreciation $ 3,779 $ 4,650 $ 5,126 23 % 10 % Percentage of revenue 3 % 4 % 5 % Year Ended December 31, 2012 to 2013 2013 to 2014 2012 2013 2014 % Change % Change (in thousands) Gain on sale of domain $ - $ - $ 1,000 - % 100 % Percentage of revenue - % - % 1 % Year Ended December 31, 2012 2013 2014 (in thousands) Other income (expense) $ 1 $ (37) $ (28) Year Ended December 31, 2012 2013 2014 (in thousands) Interest expense $ (270) $ (193) $ (218) 55 P rovision (benefit) for Income Taxes During 2014, we recognized additional income tax benefit related to our net operating loss, or NOL, of approximately $2.8 million . In the fourth quarter of 201 4 , as a result of weighing the positive and negative evidence and guidance for accounting for income taxes , which includes a n evaluation of recent cumulative pre-tax results , we determined it was appropriate to record a valuation allowance against our net deferred income tax asset s because it was determined that it was no longer “ more likely than not ” that such NOLs will be utilized . As a result, we recognized a $ 7.5 million income tax provision expense associated our deferred tax asset valuation allowance. In 2013 our income tax pro vision included a $0.2 million deferred benefit for income taxes which resulted in a $0.1 million tax benefit for income taxes. In 2012 our income tax provision included $2.9 million of deferred income tax expense, partially offset by a tax benefit of $1.1 million relating to a research and development credit. Loss in Equity Interest In 2013 , we entered into a Joint Venture Agreement, pursuant to which we own 50% of the outstanding common stock and 100% of the preferred shares of the JV Company. In 2013 and 2014 , we recorded our share of the losses of the JV Company of $0.6 million and $1.1 million . The investment in the JV Company is being accounted for using the equity method and is classified as an investment in equity interest. The Company provided nearly all of the capital to form the JV Company; accordingly, the Company has recorded 100% of the losses inc urred by the JV Company in 2013 and 2014. Unaudited Quarterly Results of Operations and Other Data The following tables present our unaudited quarterly results of operations and other data for the eight quarters ended December 31, 201 4 . This unaudited quarterly information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, the statement of operations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our financial statements and related notes located elsewhere in this Annual Report on Form 10-K. The results of operations for any quarter are not necessarily indicative of the results of operations for any future periods. Table of Contents Year Ended December 31, 2012 2013 2014 (in thousands) Provision (benefit) for income taxes $ 1,764 $ (134) $ 4,821 Year Ended December 31, 2012 2013 2014 (in thousands) Loss in equity interest $ - $ (561) $ (1,063) 56  Note: (1) Exclusive of depreciation shown separately . Liquidity and Capital Resources Our primary liquidity and capital resource requirements are for financing working capital, investing in capital expenditures such as computer hardware and software, supporting research and development efforts, introducing new technology, enhancing existing technology, and marketing our services and products to new and existing customers. To the extent that existing cash and cash equivalents, cash from operations and cash from short-term borrowings are insufficient to fund our future activities, we may need to raise additional funds through public or private equity offerings or debt financings. In connection with our initial public offering in February 2012, we received aggregate gross proceeds of $27.3 million. The net proceeds to Synacor from the offering were approximately $22.4 million after deducting underwriting discounts of $1.9 million and offering costs of $3.0 million. In September 2013, we entered into a new Loan a nd Security Agreement with Silicon Valley Bank (“SVB”), which was amended in October 2014 (as amended, the “Loan Agreement”) . The Loan Agreement provides for a $10.0 million secured revolving line of credit with a stated maturity of September 27, 2015. The credit facility is available for cash borrowings, subject to a formula based upon eligible accounts receivable. As of December 31, 201 4, $ 10.0 million was available under the revolving credit line, with no outstanding borrowings. Borrowings under the Loan Agreement bear interest, at our election, at an annual rate of either 0.50% above the “prime rate” as published in The Wall Street Journal or LIBOR for the relevant period plus 3.00%. For LIBOR advances, interest is payable (i) on the last day of a LIBOR interest period or (ii) on the last day of each calendar quarter. For prime rate advances, interest is payable (a) on the first day of each month and (b) on each date a prime rate advance is converted into a LIBOR advance. Table of Contents For the Three Months Ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2013 2013 2013 2013 2014 2014 2014 2014 (in thousands, except per-share data) Statements of Operations Data: Revenue $ 29,143 $ 26,708 $ 26,551 $ 29,406 $ 25,248 $ 24,191 $ 26,231 $ 30,909 Costs and operating expenses: Cost of revenue (1) 15,764 14,017 14,083 15,757 13,876 13,146 14,386 16,535 Technology and development (1) 6,865 7,336 7,404 6,911 7,492 7,120 7,577 4,071 Sales and marketing 2,130 2,147 2,058 1,792 2,137 2,457 2,601 3,614 General and administrative (1) 3,144 2,957 2,805 2,891 3,099 3,499 4,090 3,560 Depreciation 1,130 1,138 1,119 1,262 1,058 1,117 1,133 1,818 Gain on sale of domain - - - - - (1,000) - - Total costs and operating expenses 29,033 27,595 27,469 28,613 27,662 26,339 29,787 29,598 Income (loss) from operations $ 110 $ (887) $ (918) $ 793 $ (2,414) $ (2,148) $ (3,556) $ 1,311 Net income (loss) $ 27 $ (637) $ (832) $ 173 $ (2,056) $ (1,868) $ (2,596) $ (6,418) Net income (loss) per share: Basic $ 0.00 $ (0.02) $ (0.03) $ 0.01 $ (0.07) $ (0.07) $ (0.09) $ (0.23) Diluted $ 0.00 $ (0.02) $ (0.03) $ 0.01 $ (0.07) $ (0.07) $ (0.09) $ (0.23) 57 Our 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, 201 4 , we were in compliance with the covenants and anticipate continuing to be so. As of December 31, 201 4 , we had approximately $ 25.6 million of cash and cash equivalents and money market funds. We did not have any short-term or long-term investments. We believe that our existing cash and cash equivalents, along with cash flows from operations and availability under our revolving credit line, will be sufficient to meet our anticipated working capital, ca pital lease payment obligations and capital expenditure requirements for at least the next 12 months. Cash Flows Cash Provided (Used) by Operating Activities Operating activities used $3.3 million of cash in 2014. The cash flow from operating activities primarily resulted from our net loss, adjusted for non-cash items and changes in our operating assets and liabilities . The use of cash by operating activi ties primarily relates to the change in working capital assets and liabilities. Our net loss was $12.9 million, which included non-cash depreciation of $ 5.1 million, non-cash stock-based compensation of $ 3.6 million , non-cash change in the provision for income taxes of $4.8 and a loss in an equity interest of $ 1.0 million, offset by gain on the sale of domain of $ 1 . 0 million , resulting in cash provided by components of net loss of $0.6 million. Changes in our operating assets and liabilities used $3. 9 million of cash, primarily due to an increase in accounts receivable of $ 5.9 million and offset by an increase in accrued expense s and other current liabilities of $2.7 million. The increase in accounts receivable is partially due to our improved revenue performance late in the fourth quarter combined with a change in the mix of our receivables from Google search advertising receivable to digital advertising receivables , while the increase in accrued expense s and other current liabilities primarily relates to an increase in accrued compensation of $1.3 million associated with accrued severance, bonus and commissions and an increase in accrued content fees of $1.2 million due to timing of payments. Other working capital accounts had less significant fluctuations. Operating activities provided $5.2 million of cash in 2013. The positive cash flow from operating activities primarily resulted from our net loss, adjusted for non-cash items, and changes in our operating assets and liabilities. We had a net loss of $1.4 million, which included a non-cash benefit from deferred income taxes of $0.2 million, non-cash depreciation of $4.7 million, non-cash stock-based compensation of $2.6 million, and $0.6 million loss in equity interest. Changes in our operating assets and liabilities used $1.0 million of cash, primarily due to a decrease Table of Contents Year Ended December 31, 2012 2013 2014 (in thousands) Statements of Cash Flows Data: Cash flows provided (used) by operating activities $ 14,657 $ 5,228 $ (3,309) Cash flows used by investing activities $ (4,869) $ (8,857) $ (4,754) Cash flows provided (used) by financing activities $ 21,237 $ (1,926) $ (2,752) 58 in our accounts receivable of $1.1 million and a decrease in our accrued expenses and other current liabilities of $2.2 million. The decrease in our accounts receivable was primarily attributable to the decrease in revenue. The decrease in our accrued expenses and other liabilities of $2.2 million was primarily driven by a $1.7 million decrease in our bonus accrual. Operating activities provided $14.7 million of cash in 2012. The cash flow from operating activities primarily resulted from our net income, adjusted for non-cash items, and changes in our operating assets and liabilities. We had net income of $3.8 million, which included a non-cash benefit from deferred income taxes of $1.6 million, non-cash depreciation of $3.8 million and non-cash stock-based compensation of $2.0 million. Changes in our operating assets and liabilities provided $3.5 million of cash, primarily due to an increase in our accounts payable of $2.3 million and an increase in our accrued expenses and other current liabilities of $1.7 million, partially offset by increases in our accounts receivable of $1.3 million. The increase in our accounts payable was attributable to a $1.4 million increase due to the timing of, and a change in payment terms with, a customer for their revenue share payment. The remaining increase of $0.9 million was primarily driven by increased spending due to the growth of our revenue-share payments associated with our revenue growth. The increase in our accrued expenses and other liabilities of $1.7 million was primarily driven by a $1.0 million increase for operating related expenses and components of our cost of revenue and a $0.5 million increase in our bonus accrual. The increase in our accounts receivable was primarily due to our revenue growth in 2012. Cash Used by Investing Activities Our primary investing activities have consisted of purchases of property and equipment, payments for the acquisitions and for investments made in the JV Company. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations and internal-use software development. We expect to continue to invest in property and equipment and development of software for the remainder of 201 5 and thereafter. Cash used in investing activities in 2014 was $4.8 million, consisting of $5.0 million used for purchases of property and equipment, which primarily relates to software development of our product portfolio, including the payment of $0.7 million of software development costs recorded to accounts payable at December 31, 2013, and $0.8 million for an investment in an equity interest in the JV Company. These uses of cash were offset by $1.0 million proceeds from the sale of a domain. Cash used in investing activities in 2013 was $8.9 million consisting of $5.9 million of purchases of property, equipment and software (specifically related to the build out of our data centers and internal-use software development and including $0.5 million used for payment for the acquisition of Carbyn), $0.9 million contributed t o an equity method investment, $1.0 million paid for the acquisition of Teknision, Inc. (an Ontario-based company), and a $1.0 million purchase of a promissory note having to do with our investment in B&FF. Cash used in investing activities in 2012 was $4.9 million consisting of $4.3 million of purchases of property, equipment and software to build out our data centers and $0.6 million paid for the acquisition of Carbyn. Cash Provided (Used) by Financing Activities For the year ended December 31, 2014, net cash used in financing activities was $2.8 million primarily for repayment of $ 2.3 million on our capital lease obligations and purchase of treasury stock in the amount of $0.6 million. We received $0.1 million from the exercise of common stock options. Table of Contents 59 For the year ended December 31, 2013, net cash used by financing activities was $2.0 million, consisting of $2.1 million of repayments for our capital lease obligations, offset by $0.2 million of proceeds from the exercise of common stock options. For the year ended December 31, 2012, net cash provided by financing activities was $21.2 million, consisting of $25.4 million of proceeds from issuance of common stock in our public offering, partially offset by cash paid for issuance costs of $2.8 million, and $1.2 million of proceeds from the exercise of common stock options, partially offset by $2.6 million for repayments on our capital lease obligations and bank financing. Off-Balance Sheet Arrangements At December 31, 201 4 , we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Table of Contents 60 Contractual Obligations We lease office space and data center space under operating lease agreements and certain equipment under capital lease agreements. We are also obligated to make fixed payments under various contracts with vendors and customers, principally for revenue-sharing and content arrangements. The following table sets forth our future contractual obligations as of December 31, 201 4 : Table of Contents Payments Due by Period 2015 2016 2017 2018 2019 Total Operating lease obligations $ 2,393 $ 1,411 $ 1,193 $ 1,029 $ 384 $ 6,410 Capital lease obligations 1,233 1,050 365 - - 2,648 Contract commitments 1,905 1,080 360 - - 3,345 Total $ 5,531 $ 3,541 $ 1,918 $ 1,029 $ 384 $ 12,403 61  We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These primarily include interest rate and inflation risk. Interest Rate Risk Our cash and cash equivalents primarily consist of cash and money market funds. Other than our $1.0 million investment in B&FF and the $0.1 million in vestment in equity interest in Synacor China, Ltd. , we currently have no investments of any type. Our exposure to market risk for changes in interest rates is limited because nearly all of our cash and cash equivalents have a short-term maturity and are used primarily for working capital purposes. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. Our financial statements are submitted on pages F-1 through F-2 7 of this Annual Report on Form 10-K. None. Evaluation of Disclosure and Control Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 201 4 . The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon Table of Contents ITEM 7A. Q UANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CH ANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. C ONTROLS AND PROCEDURES 62 the evaluation as of December 31, 201 4 , our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ( 2013 framework ) . Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 201 4 . This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm due to a transition period established by the Jumpstart Our Business Startups Act, or JOBS Act, for emerging growth companies. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 201 4 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. None. Table of Contents ITEM 9B. OTHER INFORMATION 63 PAR T III The information required by this item is incorporated by reference to the information in our proxy statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fis cal year ended December 31, 2014 . Our board of directors has adopted a Code of Business Conduct and a Code of Ethics applicable to all officers, directors and employees, which is available on our website ( http://www.synacor.com ) under “Investors—Corporate Governance.” We will provide a copy of these documents to any person, without charge, upon request, by writing to us at Synacor, Inc., Investor Relations Department, 40 La Riviere Dr., Suite 300, Buffalo, New York 14202. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct or Code of Ethics by posting such information on our website at the address and the location specified above. The information required by this item is incorporated by reference to the information in our proxy statement for our 201 5 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fis cal year ended December 31, 2014 . The information required by this item is incorporated by reference to the information in our proxy statement for our 201 5 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fis cal year ended December 31, 2014 . The information required by this item is incorporated by reference to the information in our proxy statement for our 201 5 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fis cal year ended December 31, 2014 . The information required by this item is incorporated by reference to the information in our proxy statement for our 201 5 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fis cal year ended December 31, 2014 . Table of Contents ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 11. EXECUTIVE COMPENSATION ITEM 12. S ECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ITEM 13. CE RTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 64 P ART IV Table of Contents ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements: See Financial Statements and Supplementary Data, Part II, Item 8. (b) Financial Statement Schedules: Financial Statement Schedules have been omitted either because they are not required or because the information required is included in the notes to the financial statements. (c) Exhibits: See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K. 65  SIG NATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Himesh Bhise and William J. Stuart, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Table of Contents SYNACOR, INC. Date: March 1 2 , 2015 /s/ Himesh Bhise Himesh Bhise President and Chief Executive Officer (Principal Executive Officer) 66  Table of Contents Signature Title Date / S / Himesh Bhise Preside nt, Chief Executive Officer and March 12 , 2015 Himesh Bhise Director (Principal Executive Officer) / S / William J. Stuart Chief Financial Officer (Principal March 12 , 2015 William J. Stuart Financial and Accounting Officer) /s/ Marwan Faw a z Director March 12 , 2015 Marwan Fawaz /s/ Gary L. Ginsberg Director March 12 , 2015 Gary L. Ginsberg /s/ Andrew Kau Director March 12 , 2015 Andrew Kau /s/ Jordan Levy Director March 12 , 2015 Jordan Levy /s/ Michael J. Montgomery Director March 12 , 2015 Michael J. Montgomery /s/ Scott Murphy Director March 12 , 2015 Scott Murphy 67 E XHIBITS The following exhibits are incorporated by reference herein or filed here within: Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 3.1 Fifth Amended and Restated Certificate of Incorporation S-1/A 333-178049 1/30/2012 3.2 3.2 Amended and Restated Bylaws S-1/A 333-178049 1/30/2012 3.4 3.3 Certificate of Designations of Series A Junior Participating Preferred Stock 8-K 001-33843 7/15/2014 3.1 4.1 Rights Agreement between the Synacor, Inc. and American Stock Transfer & Trust Company, LLC dated July 14, 2014 8-K 001-33843 7/15/2014 4.1 10.1 Form of Indemnification Agreement between Synacor, Inc. and each of its directors and executive officers and certain key employees S-1 333-178049 11/18/2011 10.1 10.2.1* 2000 Stock Plan S-1 333-178049 11/18/2011 10.2.1 10.2.2* Amendment to 2000 Stock Plan, adopted September 30, 2004 S-1 333-178049 11/18/2011 10.2.2 10.2.3* Amendment to 2000 Stock Plan, adopted June 9, 2006 S-1 333-178049 11/18/2011 10.2.3 10.2.4* Amendment to 2000 Stock Plan, adopted October 19, 2006 S-1 333-178049 11/18/2011 10.2.4 10.2.5* Amendment to 2000 Stock Plan, adopted July 31, 2008 S-1 333-178049 11/18/2011 10.2.5 10.2.6* Form of Stock Option Agreement under 2000 Stock Plan S-1/A 333-178049 1/30/2012 10.2.6 10.2.7* Stock Option Agreement under 2000 Stock Plan with Ronald N. Frankel S-1/A 333-178049 1/30/2012 10.2.7 10.3.1* 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.1 10.3.2* Amendment No. 1 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.2 10.3.3* Amendment No. 2 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.3 10.3.4* Amendment No. 3 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.4 10.3.5* Amendment No. 4 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.5 10.3.6* Amendment No. 5 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.6 10.3.7* Amendment No. 6 to 2006 Stock Plan S-1 333-178049 11/18/2011 10.3.7 10.3.8* Amendment No. 7 to 2006 Stock Plan S-1/A 333-178049 1/18/2012 10.3.8 10.3.9* Form of Stock Option Agreement under 2006 Stock Plan with Jordan Levy S-1/A 333-178049 1/30/2012 10.3.9 68  Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.3.10* Stock Option Agreement under 2006 Stock Plan with Ronald N. Frankel S-1/A 333-178049 1/30/2012 10.3.10 10.3.11* Form of Stock Option Agreement with Ronald N. Frankel under 2006 Stock Plan S-1/A 333-178049 1/30/2012 10.3.11 10.3.12* Form of Stock Option Agreement with George G. Chamoun under 2006 Stock Plan S-1/A 333-178049 1/30/2012 10.3.12 10.3.13* Form of Stock Option Agreement with Scott A. Bailey under 2006 Stock Plan S-1/A 333-178049 1/30/2012 10.3.13 10.3.14* Form of Director Stock Option Agreement under 2006 Stock Plan S-1/A 333-178049 1/30/2012 10.3.14 10.3.15* Form of Director Stock Option Agreement under 2006 Stock Plan S-1/A 333-178049 1/30/2012 10.3.15 10.4.1* 2012 Equity Incentive Plan S-1/A 333-178049 1/18/2012 10.4 10.4.2* Form of Stock Option Agreement under 2012 Equity Incentive Plan S-1/A 333-178049 1/30/2012 10.4.2 10.4.3* Form of Stock Unit Agreement under 2012 Equity Incentive Plan S-1/A 333-178049 1/30/2012 10.4.3 10.4.4* Form of Stock Option Agreement with Ronald N. Frankel under 2012 Equity Incentive Plan 10-K 001-33843 3/26/2013 10.4.4 10.4.5* Form of Early Exercise Stock Option Agreement under 2012 Equity Incentive Plan 10-K 001-33843 3/26/2013 10.4.5 10.4.6* Form of Option Agreement with Scott A. Bailey and George G. Chamoun under 2012 Equity Incentive Plan 10-K 001-33843 3/26/2013 10.4.6 10.4.7* Form of Option Agreement with William J. Stuart under 2012 Equity Incentive Plan 10-K 001-33843 3/26/2013 10.4.7 10.5.1* Letter Agreement dated July 31, 2007 with Ronald N. Frankel S-1 333-178049 11/18/2011 10.5.1 10.5.2* Severance Agreement with Ronald N. Frankel S-1/A 333-178049 12/23/2011 10.5.2 10.5.3* Letter Agreement dated September 10, 2013 with Ronald N. Frankel 10-K 001-33843 3/26/2014 10.5.3 10.5.4* Amendment to Severance Agreement dated September 10, 2013 with Ronald N. Frankel 10-K 001-33843 3/26/2014 10.5.4 10.5.5* Employment Transition Agreement between Ronald N. Frankel and Synacor, Inc. dated March 5, 2014 10-Q 001-33843 5/15/2014 10.3 10.6.1* Letter Agreement dated October 15, 2010 with Scott A. Bailey S-1 333-178049 11/18/2011 10.6 10.6.2* Letter agreement between Scott A. Bailey and Synacor, Inc. dated June 25, 2013 10-Q 001-33843 8/13/2013 10.6 69  Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.6.3* Severance Agreement with Scott A. Bailey 10-K 001-33843 3/26/2014 10.6.3 10.6.4* Letter Agreement dated July 24, 2013 with Scott A. Bailey 10-K 001-33843 3/26/2014 10.6.4 10.7.1* Employment and Noncompetition Agreement dated December 22, 2000 between George G. Chamoun and CKMP, Inc. S-1 333-178049 11/18/2011 10.7.1 10.7.2* Severance Agreement with George G. Chamoun S-1/A 333-178049 12/23/2011 10.7.2 10.7.3* Letter Agreement dated March 26, 2014 with George G. Chamoun 10-K 001-33843 3/26/2014 10.7.3 10.7.4* Amendment to Severance Agreement dated March 26, 2014 with George G. Chamoun 10-K 001-33843 3/26/2014 10.7.4 10.8.1* Letter Agreement dated August 3, 2011 with William J. Stuart S-1 333-178049 11/18/2011 10.8 10.8.2* Severance Agreement with William J. Stuart 10-K 001-33843 3/26/2014 10.8.2 10.8.3* Letter Agreement dated August 26, 2013 with William J. Stuart 10-K 001-33843 3/26/2014 10.8.3 10.9.1 Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated April 1, 2010 S-1/A 333-178049 2/1/2012 10.9.1 10.9.2 Amendment #1 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. of October 1, 2010 S-1/A 333-178049 1/13/2012 10.9.2 10.9.3 Amendment #2 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated May 25, 2011 S-1/A 333-178049 1/13/2012 10.9.3 10.9.4 Amendment #3 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated December 9, 2011 S-1/A 333-178049 1/13/2012 10.9.4 10.9.5 Letter agreement between Charter Communications Operating, LLC and Synacor, Inc. dated March 28, 2013 10-Q 001-33843 5/14/2013 10.1 10.9.6 Amendment #4 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated April 1, 2013 10-Q 001-33843 8/13/2013 10.2 70 † † † † †  Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.9.7 Amendment #5 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated June 12, 2014 10-Q 001-33843 8/14/2014 10.2 10.10.1 Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc. dated January 1, 2012 10-Q 001-33843 11/14/2012 10.1.1 10.10.2 Amendment #1 to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc. dated July 1, 2012 10-Q 001-33843 11/14/2012 10.1.2 10.10.3 Amendment #2 to Master Services Agreement between Qwest Corporation and Synacor, Inc.dated August 23, 2012 10-Q 001-33843 11/14/2012 10.1.3 10.10.4 Amendment #3 to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc.dated December 7, 2012 10-Q 001-33843 5/15/2014 10.2.1 10.10.5 Fifth Amendment to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc.dated January 29, 2013 10-Q 001-33843 5/15/2014 10.2.2 10.10.6 Sixth Amendment to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc.dated November 1, 2013 10-Q 001-33843 5/15/2014 10.2.3 10.10.7 Seventh Amendment to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc.dated October 12, 2014 X 10.11* 2007 Management Cash Incentive Plan 10-Q 001-33843 5/15/2012 10.1 10.12.1 Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated July 1, 2010 S-1/A 333-178049 2/1/2012 10.12 10.12.2 Amendment #1 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated December 1, 2011 10-Q 001-33843 11/14/2013 10.2.1 10.12.3 Amendment #2 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated September 4, 2013 10-Q 001-33843 11/14/2013 10.2.2 10.12.4 Amendment #3 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc and Synacor, Inc. dated September 4, 2013 10-Q 001-33843 11/14/2013 10.2.3 71 † † † † † † † † † † †  Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.12.5 Amendment #4 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated September 4, 2013 10-Q 001-33843 11/14/2013 10.2.4 10.12.6 Statement of Work #1 governed by Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated September 24, 2013 10-Q 001-33843 11/14/2013 10.2.5 10.12.7 Amendment #5 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated September 25, 2014 10-Q 001-33843 11/14/2014 10.2 10.12.8 Amendment #6 to Master Services and Linking Agreement between Toshiba America Information System, Inc. and Synacor, Inc. dated August 5, 2014 X 10.12.9 Marketing Services Statement of Work governed by Master Services and Linking Agreement between Toshiba America Information Systmets, Inc. and Synacor, Inc. dated December 22, 2014 X 10.13.1 Google Services Agreement between Google Inc. and Synacor, Inc. dated March 1, 2011 S-1/A 333-178049 2/1/2012 10.13.1 10.13.2 Amendment Number One to Google Services Agreement between Google Inc. and Synacor, Inc. dated July 1, 2011 S-1/A 333-178049 12/29/2011 10.13.2 10.13.3 Amendment Number Two to Google Services Agreement between Google Inc. and Synacor, Inc. dated May 1, 2012 10-Q 001-33843 8/13/2013 10.1.1 10.13.4 Amendment Number Three to Google Services Agreement between Google Inc. and Synacor, Inc. dated May 1, 2013 10-Q 001-33843 8/13/2013 10.1.2 10.13.5 Amendment Number Four to Google Services Agreement between Google Inc. and Synacor, Inc. dated March 1, 2014 10-Q 001-33843 5/15/2014 10.1 10.13.6 Amendment Number Five to Google Services Agreement between Google Inc. and Synacor, Inc. dated August 1, 2014 X 10.14.1 Sublease dated March 3, 2006 between Ludlow Technical Products Corporation and Synacor, Inc. S-1 333-178049 11/18/2011 10.14.1 10.14.2 First Amendment to Sublease dated September 25, 2006 S-1 333-178049 11/18/2011 10.14.2 10.14.3 Second Amendment to Sublease dated February 27, 2007 S-1 333-178049 11/18/2011 10.14.3 10.15.1* Letter Agreement dated March 1, 2008 with Jordan Levy S-1/A 333-178049 1/30/2012 10.15.1 72 † # # † † † † † #  Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.15.2* Letter Agreement dated June 23, 2009 with Jordan Levy S-1/A 333-178049 1/30/2012 10.15.2 10.15.3* Letter Agreement dated March 1, 2008 with Ronald N. Frankel S-1/A 333-178049 1/30/2012 10.15.3 10.15.4* Letter Agreement dated June 23, 2009 with Ronald N. Frankel S-1/A 333-178049 1/30/2012 10.15.4 10.15.5* Letter Agreement dated March 1, 2008 with George G. Chamoun S-1/A 333-178049 1/30/2012 10.15.5 10.15.6* Letter Agreement dated June 23, 2009 with George G. Chamoun S-1/A 333-178049 1/30/2012 10.15.6 10.16* Form of Common Stock Repurchase Agreement S-1/A 333-178049 1/30/2012 10.16 10.17.1 Master Services Agreement between Verizon Corporate Services Group Inc. and Synacor, Inc. dated July 25, 2011 10-K 001-33843 3/26/2013 10.17.1 10.17.2 Amendment #1 to Master Services Agreement between Verizon Corporate Services Group Inc. and Synacor, Inc. dated December 20, 2012 10-K 001-33843 3/26/2013 10.17.2 10.17.3 Amendment #2 to Master Services Agreement between Verizon Corporate Services Group, Inc. and Synacor, Inc. dated April 1, 2013 10-Q 001-33843 8/13/2013 10.3 10.17.4 Amendment #3 to Master Services Agreement between Verizon Corporate Services Group, Inc. and Synacor, Inc. dated June 6, 2014 10-Q 001-33843 8/14/2014 10.1 10.18.1 Joint Venture Agreement between Maxit Technology Incorporate, Synacor China, Ltd. and Synacor, Inc. dated March 11, 2013 10-Q 001-33843 5/14/2013 10.2.1 10.18.2 Shareholders Agreement between Maxit Technology Incorporated, Synacor China, Ltd. and Synacor, Inc. dated March 11, 2013 10-Q 001-33843 5/14/2013 10.2.2 10.18.3 Amendment to the Joint Venture Agreement dated December 6, 2013 10-K 001-33843 3/26/2014 10.18.3 10.19.1* Special Purpose Recruitment Plan Schedule 14A 001-33843 4/5/2013 App. A 10.19.2* Form of Stock Option Agreement (Early Exercise) under Special Purpose Recruitment Plan 10-Q 001-33843 8/13/2013 10.5 10.20.1 Loan and Security Agreement between Silicon Valley Bank and Synacor, Inc. dated September 27, 2013 10-Q 001-33843 11/14/2013 10.1 10.20.2 First Amendment to the Loan and Security Agreement between Silicon Valley Bank and Synacor, Inc. dated October 28, 2014 X 73 † † † † † † †  Notes: Table of Contents Incorporated by Reference Date of Exhibit Filed Exhibit No. Description Form File No. Filing Number Herewith 10.21.1* Employment Letter Agreement with Himesh Bhise dated August 4, 2014 10-Q 001-33843 11/14/2014 10.1.1 10.21.2* Stock Option Agreement with Himesh Bhise granted on August 4, 2014 10-Q 001-33843 11/14/2014 10.1.2 21.1 List of subsidiaries X 23 .1 Consent of Deloitte & Touche LLP X 24.1 Power of Attorney (contained in the signature page of this Annual Report on Form 10-K) X 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema X 101.CAL XBRL Taxonomy Extension Calculation Linkbase X 101.LAB XBRL Taxonomy Extension Label Linkbase X 101.PRE XBRL Taxonomy Extension Presentation Linkbase X 101.DEF XBRL Taxonomy Extension Definition Linkbase X † Confidential treatment has been granted for portions of this document. The omitted portions have been filed with the Securities and Exchange Commission. # Confidential treatment has been requested for potions of this document. The omitted portions have been filed with the Securities and Exchange Commission. ‡ This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Synacor, Inc. specifically incorporates it by reference. * Indicates management contract or compensatory plan or arrangement. 74 ‡ INDEX TO THE FINANCIAL STATEMENTS Page Financial Statements Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2013 and 2014 F- 3 Consolidated Statements of Operations for the years ended December 31, 201 2 , 201 3 and 201 4 F- 4 Consolidated Statements of Comprehensive Income (Loss) for the year s ended December 31, 2012, 2013 and 201 4 F- 5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 201 2 , 201 3 and 201 4 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 201 2 , 201 3 and 201 4 F- 7 Notes to the Consolidated Financial Statements F- 9 F- 1 RE PORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Synacor, Inc. Buffalo, New York We have audited the accompanying consolidated balance sheets of Synacor, Inc. and subsidiar ies (the "Company") as of December 31, 201 3 and 201 4 , and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 201 4 . These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion . An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Synacor, Inc. and subsidiar ies as of December 31, 201 3 and 201 4 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 201 4 , in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Williamsville, New York March 1 2 , 201 5 F- 2 SYNACOR, INC. CONSOLIDATE D BALANCE SHEETS AS OF DECEMBER 31, 2013 AND 201 4 (In thousands except for share and per share data) The accompanying notes are an integral part of these consolidated financial statements. 2013 2014 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 36,397 $ 25,600 Accounts receivable—net of allowance of $76 and $388 14,569 20,479 Prepaid expenses and other current assets 1,691 2,292 Deferred income taxes 314 - Total current assets 52,971 48,371 PROPERTY AND EQUIPMENT—Net 14,085 15,128 DEFERRED INCOME TAXES, NON-CURRENT 4,455 - OTHER LONG-TERM ASSETS 348 101 GOODWILL 1,565 1,565 CONVERTIBLE PROMISSORY NOTE 1,000 1,000 INVESTMENT IN EQUITY INTEREST 365 73 TOTAL ASSETS $ 74,789 $ 66,238 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 13,573 $ 12,545 Accrued expenses and other current liabilities 5,177 8,403 Current portion of capital lease obligations 1,946 1,150 Total current liabilities 20,696 22,098 LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 885 1,383 OTHER LONG-TERM LIABILITIES 977 275 Total liabilities 22,558 23,756 COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS’ EQUITY: Common stock, $0.01 par value— 100,000,000 authorized, 27,684,598 issued and 27,365,098 shares outstanding at December 31, 2013 and 27,944,853 issued and 27,391,709 shares outstanding at December 31, 2014 277 279 Preferred stock, $0.01 par value— 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2013 and 2014 - - Treasury stock—at cost, 319,500 shares at December 31, 2013 and 553,144 shares at December 31, 2014 (569) (1,142) Additional paid-in capital 102,226 105,961 Accumulated deficit (49,705) (62,636) Accumulated other comprehensive income 2 20 Total stockholders’ equity 52,231 42,482 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 74,789 $ 66,238 F- 3 SYNA COR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 201 2 , 201 3 AND 201 4 (In thousands except for share and per share data) The accompanying notes are an integral part of these consolidated financial statements. 2012 2013 2014 REVENUE $ 121,981 $ 111,807 $ 106,579 COSTS AND OPERATING EXPENSES: Cost of revenue (exclusive of depreciation shown separately below) 66,620 59,622 57,939 Technology and development (exclusive of depreciation shown separately below) 25,603 28,458 26,259 Sales and marketing 9,120 8,124 10,807 General and administrative (exclusive of depreciation shown separately below) 11,011 11,663 14,249 Depreciation 3,779 4,650 5,126 Gain on sale of domain - - (1,000) Total costs and operating expenses 116,133 112,517 113,380 INCOME (LOSS) FROM OPERATIONS 5,848 (710) (6,801) OTHER INCOME (EXPENSE) 1 (37) (28) INTEREST EXPENSE (270) (193) (218) INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INTEREST 5,579 (940) (7,047) PROVISION (BENEFIT) FOR INCOME TAXES 1,764 (134) 4,821 LOSS IN EQUITY INTEREST - (561) (1,063) NET INCOME (LOSS) $ 3,815 $ (1,367) $ (12,931) NET INCOME (LOSS) PER SHARE: Basic $ 0.16 $ (0.05) $ (0.47) Diluted $ 0.14 $ (0.05) $ (0.47) WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE: Basic 24,411,194 27,306,882 27,389,793 Diluted 28,097,313 27,306,882 27,389,793 F- 4 SYNACOR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 201 2 , 201 3 AND 201 4 (In thousands) The accompanying notes are an integral part of these consolidated financial statements. 2012 2013 2014 Net income (loss) $ 3,815 $ (1,367) $ (12,931) Other comprehensive income (loss): Change in foreign currency translation adjustment, net of tax (6) 8 18 Comprehensive income (loss) $ 3,809 $ (1,359) $ (12,913) F- 5 SYNACOR, INC. CONSOLIDATED STATEMENTS OF STO CKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 201 2 , 201 3 AND 20 14 (In thousands except for share data) The accompanying notes are an integral part of these consolidated financial statements. Accumulated Treasury Stock Series A Series A-1 Series B Series C Additional Other Common Stock (Common) Preferred Stock Preferred Stock Preferred Stock Preferred Stock Paid-in Accumulated Comprehensive Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Income (Loss) Total BALANCE - January 1, 2012 3,052,856 $ 31 (319,500) $ (569) 5,548,508 $ 5,077 570,344 $ 730 2,737,500 $ 5,401 2,740,407 $ 17,224 $ 45,639 $ (52,153) $ -$ 21,380 Issuance of common stock upon initial public offering, net of offering costs 5,454,545 54 - - - - - - - - - -22,293 - -22,347 Conversion of preferred stock to common stock upon initial public offering 17,395,136 174 - -(5,548,508) (5,077) (570,344) (730) (2,737,500) (5,401) (2,740,407) (17,224) 28,258 - - -Exercise of common stock options 1,615,128 16 - - - - - - - - - -1,196 - -1,212 Stock-based compensation expense - - - - - - - - - - - -2,063 - -2,063 Net income - - - - - - - - - - - - -3,815 -3,815 Other comprehensive loss - - - - - - - - - - - - - -(6) (6) BALANCE - December 31, 2012 27,517,665 275 (319,500) (569) - - - - - - - -99,449 (48,338) (6) 50,811 Exercise of common stock options 166,933 2 - - - - - - - - - -193 - -195 Stock-based compensation expense - - - - - - - - - - - -2,584 - -2,584 Net loss - - - - - - - - - - - - -(1,367) -(1,367) Other comprehensive income - - - - - - - - - - - - - -8 8 BALANCE - December 31, 2013 27,684,598 277 (319,500) (569) - - - - - - - -102,226 (49,705) 2 52,231 Exercise of common stock options 246,880 2 - - - - - - - - - -66 - -68 Stock-based compensation expense - - - - - - - - - - - -3,669 - -3,669 Vesting of restricted stock units 13,375 - - - - - - - - - - - - - - -Treasury stock withheld to cover tax liability - -(4,594) (11) - - - - - - - - - - -(11) Purchase of treasury stock - -(229,050) (562) - - - - - - - - - - -(562) Net loss - - - - - - - - - - - - -(12,931) -(12,931) Other comprehensive income - - - - - - - - - - - - - -18 18 BALANCE - December 31, 2014 27,944,853 $ 279 (553,144) $ (1,142) -$ - -$ - -$ - -$ -$ 105,961 $ (62,636) $ 20 $ 42,482 F- 6 SYNA COR, INC. C ONSOLIDATED STATEMENTS OF CASH FLOWS FOR T HE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 (In thousands) The accompanying notes are an integral part of these consolidated financial statements. 2012 2013 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,815 $ (1,367) $ (12,931) Adjustments to reconcile net income (loss) to net cash and cash equivalents provided (used) by operating activities: Depreciation 3,779 4,650 5,126 Stock-based compensation expense 1,999 2,561 3,595 Gain on sale of domain - - (1,000) Loss on disposal of property and equipment 35 - - Change in provision for deferred income taxes 1,557 (243) 4,769 Loss in equity interest - 561 1,063 Change in assets and liabilities: Accounts receivable, net (1,288) 1,055 (5,910) Prepaid expenses and other current assets 253 189 (367) Other long-term assets 380 220 247 Accounts payable 2,335 (527) (359) Accrued expenses and other current liabilities 1,715 (2,205) 2,665 Other long-term liabilities 77 334 (207) Net cash provided (used) by operating activities 14,657 5,228 (3,309) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (4,269) (5,920) (4,982) Investment in equity interest - (926) (772) Proceeds from sale of domain - - 1,000 Cash paid for business acquisition (600) (1,011) - Purchase of convertible promissory note - (1,000) - Net cash used by investing activities (4,869) (8,857) (4,754) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on capital lease obligations (2,336) (2,121) (2,258) Proceeds from exercise of common stock options 1,212 195 68 Purchase of treasury stock - - (562) Proceeds from initial public offering 25,364 - - Initial public offering costs (2,753) - - Repayment on bank financing (250) - - Net cash provided (used) by financing activities 21,237 (1,926) (2,752) Effect of exchange rate changes on cash and cash equivalents (6) 8 18 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,019 (5,547) (10,797) CASH AND CASH EQUIVALENTS—Beginning of year 10,925 41,944 36,397 CASH AND CASH EQUIVALENTS—End of year $ 41,944 $ 36,397 $ 25,600 F- 7 SYN ACOR, INC. C ONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR T HE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 (In thousands) The accompanying notes are an integral part of these consolidated financial statements. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 259 $ 165 $ 219 Cash paid for income taxes $ 134 $ 140 $ 112 SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS: Property, equipment and service contracts financed under capital lease obligations $ 2,484 $ 1,039 $ 1,961 Accrued property and equipment expenditures $ 269 $ 719 $ 117 Stock-based compensation capitalized to property and equipment $ - $ - $ 74 Treasury stock received to satisfy minimum tax withholding liabilities $ - $ - $ 11 Accrual for business acquisition $ 500 $ 495 $ - F- 8 SYNA COR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 AND 201 4 , AND FOR THE YEARS ENDED DECEMBER 31, 201 2 , 201 3 AND 201 4 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Synacor, Inc., together with its consolidated subsidiaries, Synacor Canada, Inc. and NTV Internet Holdings, LLC, (collectively, the “Company” or “Synacor”), is a leading provider of start experiences (startpages and homescreens), video solutions, identity anagement (Cloud ID) and various cloud-based services across multiple devices for cable, satellite, telecom and consumer electronics companies. The Company is also a leading provider of authentication and aggregation solutions enabling the delivery of personalized, online content. The Company's technology allows its customers to package a wide array of personalized, online content and cloud-based services with their high-speed Internet, communications, television and other digital offerings. The Company's customers offer the Company's services under their own brands on Internet-enabled devices such as PCs, tablets, smartphones and connected TVs. Initial Public Offering — In February 2012, the Company completed its initial public offering whereby 6,818,170 shares of common stock were sold to the public at a price of $5.00 per share. The Company sold 5,454,545 common shares and selling stockholders sold 1,363,625 common shares. The Company received aggregate proceeds of $25.4 million from the initial public offering, net of underwriters’ discounts and commissions, but before deducting offering expenses of approximately $3.0 million. In connection with the initial public offering in February 2012, the Board of Directors of the Company approved a 1-for-2 reverse stock split of the Company’s common stock. All common shares, stock options, and per share information presented in these consolidated financial statements reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock. The ratio by which shares of preferred stock were convertible into shares of common stock was adjusted to reflect the effects of the reverse stock split. In addition, in accordance with their rights and consistent with the conversion rates discussed in Note 8, Equity , all shares of the Company’s outstanding preferred stock were converted into common stock upon the closing of the initial public offering. 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. 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: F- 9  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 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 to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. There has been no material impairments to long-lived assets in any of the years presented. Goodwill — Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its estimated fair value. The Company has determined it is a single reporting unit, and estimates its fair value using a market approach. If the carrying value of the reporting unit were to exceed its estimated fair value, the second step of the goodwill impairment test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge would then be recognized for the excess of the carrying value of goodwill over its implied estimated fair value. The Company conducts its annual goodwill impairment test as of October 1st. For the years ended December 31, 2012, 2013 and 2014, the Company determined goodwill was not impaired. Revenue Recognition — The Company derives revenue from two categories: revenue generated from advertising activities and subscriber-based revenue, each of which is described below. The following table shows the revenue in each category for the years ended December 31, 2012, 2013 and 2014 (in thousands): The Company uses Internet advertising to generate revenue from the traffic on its start experiences categorized as search advertising and digital advertising. Leasehold improvements 3–10 years Computer hardware 5 years Computer software 3 years Furniture and fixtures 7 years Other 3–5 years Year Ended December 31, 2012 2013 2014 Search and digital advertising $ 101,559 $ 90,447 $ 83,906 Subscriber-based 20,422 21,360 22,673 Total revenue $ 121,981 $ 111,807 $ 106,579 • In the case of search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which it includes a Google-branded search tool on its start experiences. When a consumer F- 10 Subscriber-based revenue represents subscription fees and other fees that the Company receives from customers for the use of its proprietary technology, including the use of, or access to, e-mail, video solutions , C loud ID , security, games and other premium services and paid content. Monthly subscriber levels typically form the basis for calculating and generating subscriber-based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. Revenue is recognized from customers as the service is delivered. Advertising and subscriber-based revenue are recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. The Company evaluates its relationship between search and digital advertising revenue and its start experience customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45, Principal Agent Considerations . The Company has determined that the search and digital advertising revenue derived from the Internet traffic on start experiences is reported on a gross basis because the Company is the primary obligor (Synacor is responsible to its customers for fulfilling search and digital advertising services and premium and other services), is involved in the service specifications, performs part of the service, has discretion in supplier selection, has latitude in establishing price and bears credit risk. Cost of Revenue — Cost of revenue consists of revenue sharing, content acquisition costs and co-location facility costs. Revenue sharing consists of amounts accrued and paid to customers for the Internet traffic on start experiences 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. 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 net payment received from Google is recognized as revenue. • Digital advertising includes video, image and text advertisements delivered on one of the Company’s start experiences. Advertising inventory is filled with advertisements sourced by the Company’s direct sales force, independent advertising sales representatives, and also advertising network partners. Revenue is generated for the Company when an advertisement di splays , otherwise known as an impression, or when consumers view or click an advertisement, otherwise known as an action. Digital advertising revenue is calculated 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 contractual rates. F- 11 Concentrations of Risk — As of December 31, 2013 and 2014, and for the years ended December 31, 2012, 2013 and 2014 the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable and revenue as follows: Note: (1) As of December 31, 2013, the accounts receivable of the Advertising Customer was less than 10%. For the years ended December 31, 2012, 2013 and 2014, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue. 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. Software Development Costs — Costs incurred during the preliminary project stage for software programs are expensed as incurred. External and internal costs incurred during the application development stage of new software development as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. In 2012, 2013 and 2014, the Company incurred $0.8 million, $3.0 million and $3.4 million of combined internal and external costs related to the application development stage. Internal and external training and maintenance costs are expensed as incurred. 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 cost is expensed as incurred. Accounts Receivable 2013 2014 Google 47 % 23 % Portal Customer 11 % 12 % Advertising Customer (1) N/A 11 % Revenue 2012 2013 2014 Google 56 % 51 % 42 % Cost of Revenue 2012 2013 2014 Customer A 20 % 22 % 22 % Customer B 13 % 13 % 12 % Customer C 17 % 12 % 10 % Customer D 12 % 11 % 12 % F- 12 General and Administrative — General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, professional fees and other administrative functions. Sale of Domain — In June 2014, the Company executed a transaction to sell a domain name of its legacy business. The sale amounted to $1.0 million and the entire amount was recorded as a gain on the sale in the accompanying consolidated statement of operations for the year ended December 31, 2014. Earnings (Loss) Per Share — Basic earnings (loss) per share (“EPS”) is calculated in accordance with FASB ASC 260, Earnings per Share , and is calculated using the weighted average number of common shares outstanding during each period. Contingently issuable or repurchasable shares are not used in the calculation of basic earnings (loss) per share until the contingency is resolved. 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, convertible preferred stock and options 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. The shares used to compute basic and diluted net income (loss) per share represent the weighted-average common shares outstanding. The Company's preferred stockholders had the right to participate with common stockholders in dividends and unallocated income. Net losses were not allocated to the preferred stockholders. Therefore, when applicable basic and diluted EPS were computed using the two-class method, under which the Company's undistributed earnings are allocated amongst the common and preferred stockholders. 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 prevesting 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. Rights Plan — On July 14, 2014 the board of directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock and adopted a stockholder rights plan (the “Rights Plan”). The Rights were issued July 14, 2014 to the stockholders of record at the close of business on that date. Each Right allows its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (a “ Series A Junior Preferred Share”) for $10.00 per share (the “Exercise Price”), if the Rights become exercisable. This portion of a Series A Junior Preferred Share will give the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. On July 14, 2014, in conjunction with the adoption of the Rights Plan, the Company designated 2,000,000 shares of its Preferred Stock as Series A Junior Participating Preferred Stock. F- 13 The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 10% or more of the Company’s outstanding common stock (the “Distribution Date”). If a person or group becomes an Acquiring Person, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the Company’s common stock having a market value of twice such price based on the market price of the common stock prior to such acquisition. Additionally, if the Company is acquired in a merger or similar transaction after the Distribution Date, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the acquiring corporation with a market value of $20.00 per share based on the market price of the acquiring corporation’s stock, prior to such merger. In addition, at any time after a person or group becomes an Acquiring Person, but before such Acquiring Person or group owns 50% or more of the Company’s common stock, the board of directors may exchange one share of the Company’s common stock for each outstanding Right (other than Rights owned by such Acquiring Person, which would have become void). An Acquiring Person will not be entitled to exercise the Rights. The Rights will expire on July 14, 2017, provided that if the Company’s stockholders have not ratified the Rights Plan by July 14, 2015, the Rights will expire on such date. 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, 2014, there was no accrued interest or penalties related to uncertain tax positions. Reduction In Workforce — On September 28, 2014, the Company's board of directors approved a cost reduction plan. The plan involves a reduction in the Company’s workforce by approximately 70 employees. The pretax severance charge and outplacement services resulting from the reduction in workforce, combined with the Company's separation from its former Chief Operating Officer, amounted to $1.3 million. Of the $1.3 million in costs, $0.5 million was recorded to technology and development, $0.2 million was recorded to sales and marketing and $0.6 million was recorded to general and administrative in the accompanying statement of operations for the year ended December 31, 2014. As of December 31, 2014, $0.3 million of the reduction in workforce costs remain in accrued expenses and other current liabilities on the accompanying consolidated balance sheet. 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. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts. F- 14 Fair Value of Financial Instruments — 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 Company’s financial assets and liabilities include its capital lease obligations, accrued contingent consideration to Teknision, Inc. and its convertible promissory note. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis. The carrying amounts of the Company’s capital leases approximate fair value of these obligations based upon management’s best estimates of interest rates that would be available for similar debt obligations at December 31, 2013 and 2014. The fair value of accrued contingent consideration recorded by the Company represents the estimated fair value of the contingent consideration the Company expects to pay in the next 12 months. Investments and Fair Value Measurements — In July 2013, the Company made a $1.0 million investment (in the form of a convertible promissory note) in a privately held Delaware corporation called Blazer and Flip Flops, Inc. (“B&FF” doing business as The Experience Engine). B&FF is a professional services company whose principals have experience integrating its customers’ systems with their customers’ devices, including smartphones and tablets. The investment in B&FF is considered an available-for-sale security and is reported on the Company’s consolidated balance sheets as a convertible promissory note. The provisions of 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. The Company classifies its investment in B&FF within Level 3 because it is valued using unobservable inputs. As of December 31, 2013 and 2014 the estimated fair value is equal to the purchase price of $1.0 million. Recent Accounting Pronouncements — In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on its consolidated financial statements. F- 15 2. PROPERTY AND EQUIPMENT—NET As of December 31, 2013 and 2014 property and equipment, net consisted of the following (in thousands): Property and equipment includes computer equipment and software held under capital leases of approximately $5.3 million and $4.8 million as of December 31, 2013 and 2014, respectively. Accumulated depreciation of computer equipment and software held under capital leases amounted to $2.1 million and $2.7 million as of December 31, 2013 and 2014, respectively. 3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of December 31, 2013 and 2014 , accrued expenses and other current liabilities consisted of the following (in thousands): 4. BANK FINANCING In September 2013, the Company entered into a Loan and Secu rity Agreement , with Silicon Valley Bank (“SVB”), which was amended in October 2014 (as amended, the “Loan Agreement”) . The Loan Agreement provides for a $ 10.0 million secured revolving line of credit with a stated maturity of September 27, 2015. The credit facility is available for cash borrowings, subject to a formula based upon eligible accounts receivable. As of December 31, 201 4, $ 10.0 million was available under the revolving credit line. As of December 31, 2013 and 2014, there were no outstanding borrowings. 2013 2014 Computer equipment $ 19,361 $ 21,194 Computer software 4,625 10,741 Furniture and fixtures 1,634 1,847 Leasehold improvements 1,044 1,389 Work in process (primarily software development costs) 3,893 1,203 Other 173 173 30,730 36,547 Less accumulated depreciation (16,645) (21,419) Total property and equipment—net $ 14,085 $ 15,128 2013 2014 Accrued compensation $ 2,787 $ 4,066 Accrued content fees 580 1,745 Accrued business acquisition consideration - 495 Unearned revenue on contracts 247 642 Other 1,563 1,455 Total $ 5,177 $ 8,403 F- 16 Borrowings under the Loan Agreement bear interest, at the Company’s election, at an annual rate of either 0.50 % above the “prime rate” as published in The Wall Street Journal or LIBOR for the relevant period plus 3.00 %. For LIBOR advances, interest is payable (i) on the last day of a LIBOR interest period or (ii) on the last day of each calendar quarter. For prime rate advances, interest is payable (a) on the first day of each month and (b) on each date a prime rate advance is converted into a LIBOR advance. The Company’s obligations to the Lender are secured by a first priority security interest in all our assets, includ ing 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, ban kruptcy and material judgments. Upon the occurrence of an event of default, the Lender may accelerate repayme nt 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 stockhol ders. As of December 31, 201 4 , the Company was in compliance with the covenants. 5. INCOME TAXES Income (loss) from continuing operations before income taxes included income from domestic operations of $5.5 million, $(1.1) million and $(7.1) million for the years ended December 31, 2012, 2013 and 2014, and income from foreign operations of $0.1 million, $0.2 million and $0.1 million for the years ended December 31, 2012, 2013 and 2014. The provision (benefit) for income taxes for the years ended December 31, 2012, 2013 and 2014, comprised the following (in thousands): 2012 2013 2014 Current: United States Federal $ 151 $ 16 $ 21 State 20 22 24 Foreign 36 71 7 Total current provision for income taxes 207 109 52 Deferred: United States Federal 1,022 (119) 4,135 State 535 (97) 634 Foreign - (27) - Net deferred provision (benefit) for income taxes 1,557 (243) 4,769 Total provision (benefit) for income taxes $ 1,764 $ (134) $ 4,821 F- 17 The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2013 and 2014 are as follows (in thousands): A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): The tax positions at the end of 2012, 2013 and 2014 were primarily related to research and development carryforwards. If the $0.6 million of unrecognized tax benefits as of December 31, 2014 were recognized, approximately $0.6 million would decrease the effective tax rate in the period in which each of the benefits is recognized. The remaining amount would be offset by the reversal of related deferred income tax assets on which an unrecognized tax benefit liability is placed. 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, 2013 and 2014, penalties and interest were immaterial. 2013 2014 Deferred income tax assets: Stock and other compensation expense $ 1,516 $ 2,838 Net operating losses 2,255 3,533 Research and development credits 1,676 1,676 Other federal and state carryforwards 414 304 Other 15 294 Gross deferred tax assets 5,876 8,645 Valuation allowances - (7,504) 5,876 1,141 Deferred income tax liabilities: Fixed assets (469) (457) Other (11) (57) Gross deferred tax liabilities (480) (514) Subtotal 5,396 627 Less unrecognized tax benefit liability related to deferred items (627) (627) Net deferred tax assets $ 4,769 $ - Recorded as: Current deferred tax assets $ 314 $ - Non-current deferred tax assets 4,455 - Net deferred tax assets $ 4,769 $ - 2012 2013 2014 Balance—beginning of year $ 26 $ 627 $ 627 Additions for tax positions of prior years 601 - - Reductions for tax positions of prior years - - - Balance—end of year $ 627 $ 627 $ 627 F- 18 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 2003 to 2013 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. The Company is currently not under examination in any major taxing jurisdictions. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. The income tax liability would be insignificant if these earnings were to be repatriated. Income tax (benefit) expense for the years ended December 31, 2012, 2013 and 2014, differs from the expected income tax (benefit) expense calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands): The Company had federal and state NOL carryforwards of approximately $6.0 million and $5.8 million, respectively, at December 31, 2014. In addition, the Company has approximately $1.9 million of NOL carryforwards created by windfall tax benefits relating to stock compensation for which no deferred income tax assets have been recorded in accordance with the rules under FASB ASC 718. The NOLs will begin to expire in 2027. The Company has weighed the positive and negative evidence , including cumulative recent pre-tax losses, and determined that it is more likely than not that the deferred income tax assets, primarily related to the NOLs, will not be realized, and therefore, a full valuation allowance has been recorded against the net deferred income tax assets as of December 31, 2014. 6. INFORMATION ABOUT SEGMENT AND GEOGRAPHIC AREAS Operating segments are components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews operating results and financial information presented on a total Company basis, accompanied by information about revenue by major service line for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure. 2012 2013 2014 Federal income tax (benefit) expense at statutory rate $ 1,895 34 % $ (320) (34) % $ (2,390) (34) % State and local taxes—net of federal benefit 310 6 (75) (8) (410) (6) Foreign taxes 14 - (3) - (1) - Expiration of or changes to federal and state NOLs 446 8 - - - - Federal research and development credit (1,676) (30) - - - - Valuation allowance - - - - 7,504 107 Permanent differences 291 5 264 28 262 4 Uncertain tax position current activity 586 11 - - - - Other (102) (2) - - (144) (2) Total $ 1,764 32 % $ (134) (14) % $ 4,821 69 % F- 19 The following table sets forth revenue and long-lived tangible assets by geographic area (in thousands): 7. COMMITMENTS AND CONTINGENCIES Lease Commitments — The Company leases office space and data center space under operating lease agreements and certain equipment under capital lease agreements with interest rates ranging from 3 % to 7 %. Rent expense for operating leases was approximately $ 1.5 million , $ 1.7 million and $ 2.5 million for 2012, 2013 and 2014, respectively. Lease commitments as of December 31, 2014 can be summarized as follows (in thousands): Years Ended December 31, 2012 2013 2014 Revenue: United States $ 121,306 $ 111,122 $ 105,872 International 675 685 707 Total revenue $ 121,981 $ 111,807 $ 106,579 As of December 31, 2013 2014 Long-lived tangible assets: United States $ 13,825 $ 14,573 Canada - 502 International 260 53 Total long-lived tangible assets $ 14,085 $ 15,128 Years Ending December 31, Operating Lease Commitments 2015 $ 2,393 2016 1,411 2017 1,193 2018 1,029 2019 384 Total lease commitments $ 6,410 Years Ending December 31, Capital Lease Commitments 2015 $ 1,233 2016 1,050 2017 365 Total minimum capital lease commitments 2,648 Less amount representing interest 115 2,533 Current portion of capital lease obligations 1,150 Long-term portion of capital lease obligations $ 1,383 F- 20 Contract Commitments — The Company is obligated to make payments under various contracts with vendors and other business partners, principally for revenue-share arrangements. Contract commitments as of December 31, 2014 can be summarized as follows (in thousands): Teknision Acquisition — The balance of the approximately $ 1.0 million purchase price to acquire the assets of Teknision, Inc. ("Teknision") is due in May 2015 unless such amount is offset in satisfaction of certain indemnification obligations of Teknision. The remaining payment of $ 0.5 million is recorded in accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2014. Litigation — From time to time, the Company is a party to legal actions. In the opinion of management, the outcome of these matters will not have a material impact on the consolidated financial statements of the Company. 8. EQUITY Common Stock — Effective on February 15, 2012, the Company's board of directors and stockholders approved the Fifth Amended and Restated Certificate of Incorporation. The total number of common shares that the Company is authorized to issue is 100,000,000 with a par value of $ 0.01 per share. Preferred Stock — Effective on February 15, 2012, the Company's board of directors and stockholders approved the Fifth Amended and Restated Certificate of Incorporation. The total number of preferred shares that the Company is authorized to issue is 10,000,000 with a par value of $0.01 per share, 2,000,000 of which have been designated as Series A Junior Participating Preferred Stock pursuant to the Rights Plan. None have been issued to date. Conversion — Prior to the Company's initial public offering, each share of Series A, A-1, B, and C preferred stock was convertible at the option of the holder at any time into common stock. The conversion rate was the quotient obtained by dividing the original issue price of the Series A, A-1, B, or C by the conversion price. Subsequent to the Second Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation, the conversion price was adjusted to effect a conversion of one preferred share into one and one-half common shares , as explained in Note 1, The Company and Summary of Significant Accounting Policies . The conversion price was subject to adjustment as set forth in the restated certificate of incorporation for certain dilutive issuances, splits, and combinations, as therein defined. Conversion was automatic upon either the consent of the holders of 66% of the outstanding shares of preferred stock or the effective date of a firm commitment underwritten public offering of the Company's common stock in which the post-offering valuation on a fully diluted basis was at least $150.0 million and the proceeds were not less than $25.0 million. All shares of the Company's outstanding preferred stock were converted into common stock in February 2012 in connection with the Company's initial public offering. Years Ending December 31, Contract Commitments 2015 $ 1,905 2016 1,080 2017 360 Total contract commitments $ 3,345 F- 21 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. The Company repurchased all shares with cash resources. The following table sets forth the shares of common stock repurchased through the program: Withhold to Cover — During the year ended December 31, 2014, certain employees, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock awards, authorized the withholding of 4,594 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. No shares of the Company's common stock were withheld to cover minimum statutory tax withholding requirements during the years ended December 31, 2012 and 2013. 9. STOCK-BASED COMPENSATION The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the fair value of the Company's common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of the Company's common stock, a risk-free interest rate and expected dividends. The Company also estimates forfeitures of unvested stock options. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest. The Company uses the simplified calculation of expected life described in the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment , and volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses an expected dividend yield of zero, as it does not anticipate paying any dividends in the foreseeable future. Expected forfeitures are based on the Company's historical experience. 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, 2012 2013 2014 Shares of common stock repurchased - - 229,050 Value of common stock repurchased (in thousands) $ - $ - $ 562 Years Ended December 31, 2012 2013 2014 Volatility 58 % 59 % 58 % Expected dividend yield - % - % - % Risk-free rate 1.4 % 1.4 % 1.9 % Expected term (in years) 6.25 6.25 6.25 F- 22 The Company recorded $2.0 million, $2.6 million and $3.6 million of stock-based compensation expense for the years ended December 31, 2012, 2013 and 2014, respectively. No income tax deduction is allowed for incentive stock options ("ISOs"). Accordingly, no deferred income tax asset is recorded for the potential tax deduction related to these options. Expense related to stock option grants of non-qualified stock options ("NSOs") result in a temporary difference, which gives rise to a deferred tax asset. Total stock-based compensation expense included in the accompanying consolidated statements of operations for the years ended December 31, 2012, 2013 and 2014, is as follows (in thousands): Equity Incentive Plans — The Company has four stock option plans (the 2000 Stock Plan, the 2006 Stock Plan, the 2012 Equity Incentive Plan and the Special Purpose Recruitment Plan), which authorize the Company to grant up to 9,210,020 stock options (ISOs and NSOs), stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and performance cash awards. 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. The Company began granting RSUs in December 2012, which generally vest over a three year period with one-sixth vesting at the end of each six month period. 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 are reserved for issuance under this plan. Stock Option Activity — A summary of stock option activity for the year ended December 31, 2014 is as follows: Years Ended December 31, 2012 2013 2014 Technology and development $ 523 $ 1,184 $ 1,621 Sales and marketing 404 348 599 General and administrative 1,072 1,029 1,375 Total stock-based compensation expense $ 1,999 $ 2,561 $ 3,595 Number of Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted Average Remaining Contractual Term (in years) Outstanding—January 1, 2014 5,770,168 $ 3.85 Granted 5,056,895 $ 2.54 Exercised (246,880) $ 0.28 Forfeited (3,824,393) $ 4.10 Outstanding—December 31, 2014 6,755,790 $ 2.86 $ 322 7.32 Expected to vest—December 31, 2014 6,350,929 $ 2.85 $ 318 7.19 Vested and exercisable—December 31, 2014 2,996,632 $ 3.17 $ 293 5.05 F- 23 Aggregate intrinsic value represents the difference between the Company's closing stock price of its 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, 2014 was $ 2.00 . The total intrinsic value of options exercised was approximately $ 7.6 million, $ 0.2 million and $ 0.5 million for the years ended December 31, 2012, 2013 and 2014, respectively. The weighted-average grant date fair value of options granted was $ 3.97 per share, $ 1.86 per share and $ 1.31 per share for the years ended December 31, 2012, 2013 and 2014, respectively. As of December 31, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock options was approximately $ 5.8 million, which is expected to be recognized over a weighted-average period of 2.79 years. Option Modifications — Pursuant to the transition agreement the Company entered into in March 2014 with Ronald Frankel, its former President and CEO, 752,725 of Mr. Frankel's options to purchase common stock of the Company were modified to accelerate vesting for options that would have otherwise been forfeited during the transition period to the beginning of the transition period ("Transition Date"), and the period options are exercisable is now the earlier of the third anniversary of the Transition Date or the original 10 year contractual term of each option. The total incremental expense resulting from Mr. Frankel's modification was $0.2 million. Effective August 4, 2014, the compensation committee of the Company's board of directors agreed to modify all outstanding employee options with an exercise price of $3.00 per share or greater, other than options held by directors and executive officers, by resetting the exercise price per share to the closing price of the Company's common stock on August 4, 2014. As a result of the modification, 203 employees had a total of 1,547,382 options reset to an exercise price of $2.38 per share. The total incremental compensation expense resulting from the August 2014 modification is $0.6 million. During the year ended December 31, 2014, the Company recorded $0.4 million expense related to the modification. The remaining expense will be recorded over the remaining requisite service period. Non-plan Option Grant — On August 4, 2014, the Company appointed Himesh Bhise as President and CEO of the Company. In conjunction with the effective date of Mr. Bhise's first day of employment, and as part of Mr. Bhise's compensation, the Company awarded Mr. Bhise options to purchase 2,001,338 shares of the Company's common stock with an exercise price of $2.38 per share. RSU Activity — A summary of RSU activity for the year ended December 31, 2014 is as follows: As of December 31, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $ 1.7 million, which is expected to be recognized over the next 2.59 years. Number of Stock Options Weighted Average Exercise Price Unvested—January 1, 2014 45,000 $ 5.46 Granted 913,638 $ 2.22 Released (13,375) $ 5.68 Forfeited (111,475) $ 2.48 Unvested—December 31, 2014 833,788 $ 2.31 Expected to vest —December 31, 2014 775,981 $ 2.43 F- 24 10. INVESTMENT IN EQUITY INTEREST In March 2013, the Company entered into a Joint Venture Agreement, pursuant to which it owns 50% of the outstanding common stock and 100% of the preferred shares of Synacor China, Ltd., or the JV Company. The Company provided $0.9 million of funding to the JV Company during the year ended December 31, 2013, and $0.8 million of funding during the year ended December 31, 2014. The JV Company will, through its wholly foreign-owned subsidiary in the People's Republic of China (the “PRC”), supply authentication and aggregation solutions for the delivery of online content and services to customers in the PRC. The investment in the JV Company is being accounted for using the equity method and is classified as an investment in equity interest on the Company’s consolidated balance sheets. The Company records its share of the results of the JV Company within earnings in equity interest. Because the Company provided nearly all of the capital to form the JV Company, the Company has recorded 100% of the losses incurred by the JV Company within earnings in equity interest in its 2013 and 2014 consolidated statement s of operations. Since acquiring its interest in the JV Company during 2013, the Company has recorded, in accumulated deficit, cumulative losses in equity interest of $1.6 million. The following tables present summarized financial information for the JV Company (in thousands): Years Ended December 31, 2013 2014 Revenue $ - $ - Loss from operations (561) (1,063) Net loss $ (561) $ (1,063) As of December 31, 2013 2014 Total assets $ 442 $ 78 Total liabilities $ 77 $ 5 F- 25 11. NET INCOME (LOSS) PER COMMON SHARE DATA Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (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. In addition, for the year ended December 31, 2012, the potential common shares included the conversion of preferred stock on an as if converted basis prior to the Company's initial public offering in February 2012. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. The Company considered its preferred stock to be participating securities and, in accordance with the two-class method, earnings allocated to preferred stock and the related number of outstanding shares of preferred stock were excluded from the computation of basic and diluted net income (loss) per common share. The following table presents the calculation of basic and diluted net income (loss) per share for the years ended December 31, 2012, 2013 and 2014 (in thousands, except share and per share amounts): Stock options and RSUs are not included in the calculation of diluted net loss per share for the years ended December 31, 2013 and 2014 because the Company had a net loss for those years. Accordingly, the inclusion of these equity awards would have had an antidilutive effect on the calculation of diluted loss per share. Year Ended December 31, 2012 2013 2014 Basic net income (loss) per share: Numerator: Net income (loss) $ 3,815 $ (1,367) $ (12,931) Denominator: Weighted-average common shares outstanding 24,411,194 27,306,882 27,389,793 Basic net income (loss) per share $ 0.16 $ (0.05) $ (0.47) Diluted net income (loss) per share: Numerator: Net income (loss) $ 3,815 $ (1,367) $ (12,931) Denominator: Number of shares used in the basic computation 24,411,194 27,306,882 27,389,793 Add weighted-average effect of dilutive securities: Conversion of preferred stock (as if converted basis) 1,948,635 - - Stock options and RSUs 1,737,484 - - Number of shares used in diluted calculation 28,097,313 27,306,882 27,389,793 Dilutive net income (loss) per share $ 0.14 $ (0.05) $ (0.47) F- 26 The following equivalent shares were excluded from the calculation of diluted net income (loss) per share because their effect would have been antidilutive for the periods presented: 12. 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; however, no matching contributions were made during the years ended December 31, 201 2 , 201 3 or 201 4 . ****** Year Ended December 31, 2012 2013 2014 Antidilutive Equity Awards: Stock options and RSUs 137,850 3,356,358 7,589,578 F- 27 Exhibit 10.20.2 FIRST A MENDMENT TO LOAN AND SECURITY AGREEMENT This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into this 28th day of October, 2014, between (a) SILICON VALLEY BANK (“Bank”), and (b) SYNACOR, INC., a Delaware corporation (“Borrower”). Recitals A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of September 27, 2013 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”). B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement. C. Borrower has requested that Bank amend the Loan Agreement to make certain changes to the terms set forth therein. D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below. Agreement Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: Section 6.7 (Financial Covenants) . The Loan Agreement shall be amended by deleting 6.7 thereof in its entirety and inserting in lieu thereof the following: “ 6.7 Financial Covenants . Maintain at all times, subject to periodic reporting as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower: (a) Adjusted Quick Ratio . (i) through and including the calendar quarter ending June 30, 2014, a ratio of (A) Quick Assets to (B) outstanding Obligations, of at least 2.50 to 1.0 (to be tested as of the last day of each quarter), and (ii) commencing with the month ending September 30, 2014, a ratio of (A) Quick Assets to (B) Current Liabilities minus the current portion of Deferred Revenue, of at least 1.50 to 1.0. 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement. 2. Amendments to Loan Agreement. (b) EBITDA . Measured as of the end of each fiscal quarter on a trailing twelve month basis, EBITDA of at least (i) for each fiscal quarter through and including the fiscal quarter ending June 30, 2014, $1,500,000, and (ii) for the fiscal quarter ending September 30, 2014 and for each fiscal quarter thereafter, ($5,000,000).” Section 13.1 ( Definitions ). (a) The Loan Agreement shall be amended by inserting the following text to appear at the end of the definition entitled “EBITDA” appearing in Section 13.1 thereof: “, including, without limitation, severance and related charges to employees of Borrower made in the quarter ending September 30, 2014, or the quarter ending December 31, 2014 , in an aggregate amount for both quarters not exceeding Two Million Dollars ($2,000,000.00).” (b) The Loan Agreement shall be amended by deleting the term “Key Person” and its definition from Section 31.1 thereof. (c) The Loan Agreement shall be amended by deleting the following term and its definition set forth in Section 13.1 thereof and inserting in lieu thereof the following: “ “ Quick Assets ” is, on any date, (a) Borrower’s consolidated unrestricted and unencumbered cash and Cash Equivalents, which, commencing with the month ending September 30, 2014, shall in each case be maintained at Bank or subject to a Control Agreement, and (b) net billed accounts receivable determined according to GAAP.” (d) The Loan Agreement shall be amended by inserting the following new terms and their respective definitions to appear alphabetically in Section 13.1 thereof: “ “ Current Liabilities ” are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.” “ “ Total Liabilities ” is, on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness and the current portion of Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all other Subordinated Debt.” Compliance Certificate . The Loan Agreement shall be amended by replacing the Compliance Certificate appearing as Exhibit E thereto with the Compliance Certificate appearing as Exhibit A hereto. All references in the Loan Agreement to the Compliance Certificate shall hereafter be deemed to refer to Exhibit A hereto. The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document. This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect. 3. Limitation of Amendments. 4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows: Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing; Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment; The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized; The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower; The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights. 5. Ratification of Intellectual Property Security Agreements . Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in that certain Intellectual Property Security Agreement between Borrower and Bank, dated as of September 27, 2013, and acknowledges, confirms and agrees that such Intellectual Property Security Agreement (a) contains an accurate and complete listing of all Intellectual Property Collateral, as defined in such Intellectual Property Security Agreement, and (b) shall remain in full force and effect. 6. Ratification of Perfection Certificate . Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of September 27, 2013, and updated as of October __, 2014, previously delivered by Borrower to Bank, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in said Perfection Certificate have not changed, as of the date hereof. 7. Integration . This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents. 8. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. [Signature page follows.] 9. Effectiveness . This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment to Bank of a fully-earned, non-refundable modification fee equal to Twenty Thousand Dollars ($20,000.00), and (c) Borrower’s payment of Bank’s legal fees and expenses incurred in connection with this Amendment. In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. BORROWER: SYNACOR, INC. BANK: SILICON VALLEY BANK By: /s/ William J. Stuart Name: William J. Stuart Title: Chief Financial Officer By: /s/ Russell Follansbee Name: Russell Follansbee Title: Vice President EXHIBIT A COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK Date: FROM: SYNACOR, INC. The undersigned authorized officer of SYNACOR, INC. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”): (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement. Please indicate compliance status by circling Yes/No under “Complies” column. Reporting Covenants Required Complies Monthly financial statements with Compliance Certificate Monthly within 30 days Yes No Annual financial statement (CPA Audited), if not otherwise publicly available FYE within 120 days Yes No Borrowing Base Certificate A/R & A/P Agings Monthly within 30 days Yes No The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”) ___________________________________________________________________________________________ ___________________________________________________________________________________________  The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate. Financial Covenants Required Actual Complies Maintain at all times (tested on a Quarterly Basis): Adjusted Quick Ratio 1.50:1.0 _____:1.0 Yes No Trailing 12 Month EBITDA ($5,000,000) $_______ Yes No Other Matters The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”) -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. Yes No SYNACOR, INC. By: Name: Title: BANK USE ONLY Received by: _____________________ authorized signer Date: _________________________ Verified: ________________________ authorized signer Date: _________________________ Compliance Status: Yes No Schedule 1 to Compliance Certificate Financial Covenants of Borrower In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern. Dated: ____________________ I. Adjusted Quick Ratio (Section 6.7(a)) Required: 1.50:1.00 Actual: ___: 1.0 Is Line I equal to or greater than 1.50:1:00? No, not in compliance Yes, in compliance II. EBITDA (Section 6.7(b)) Required: ($5,000,000) on a trailing twelve month basis Actual: ________________ A. Value of the consolidated unrestricted and unencumbered cash and Cash Equivalents of Borrower and its Subsidiaries maintained at Bank or subject to Control Agreement $_______ B. Value of the net billed accounts receivable of Borrower $_______ C. Line A plus line B $_______ D. Aggregate value of all outstanding O bligations $_______ E. Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line E above that matures within one (1) year $_______ F. Current Liabilities (Line D plus Line E) $_______ G. Aggregate value of all amounts received or invoiced by Borrower in advance of performance under contracts and not yet recognized as revenue $_______ H. Line F minus Line G $_______ I. Adjusted Quick Ratio (Line C divided by Line H) ___:1.0 A. Net Income $________ B. Interest Expense $_________ C. To the extent included in the determination of Net Income depreciation and amortization expense $_________ D. Income tax expense $_________ Is line G equal to or greater than ($5,000,000)? No, not in compliance Yes, in compliance (56120.02714) 1746822.1 E. Stock compensation $_________ F. Non-cash items and one-time expenses approved by Bank, in its sole discretion, including, without limitation, severance payments to employees of Borrower made in either the quarter ending December 31, 2014 or the quarter ending March 31, 2015, in an aggregate combined amount for both quarters not exceeding Two Million Dollars ($2,000,000.00). $_________ G. EBITDA (Sum of lines A through F) $_________ Exhibit 21.1 Synacor, Inc. List of Subsidiaries Name Jurisdiction NTV Internet Holdings, LLC Delaware Synacor Canada, Inc. Canada Synacor China, Ltd. Cayman Islands  Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos . 333-179608 and 333-188691 Form S-8 of our report dated March 1 2 , 2015, relating to the consolidated financial statements of Synacor, Inc. and subsidiaries (the “Company”) appearing in this Annual Report on Form 10-K of Synacor, Inc. for the year ended December 31, 2014. /s/ Deloitte & Touche LLP Williamsville, New York March 1 2 , 2015 Exhibit 31.2 CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William J. Stuart, certify that: 1. I have reviewed this Annual Report on Form 10-K of Synacor, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  Date: March 1 2 , 2015 By: /s/ WILLIAM J. STUART William J. Stuart Chief Financial Officer (Principal Financial and Accounting Officer) Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I, Himesh Bhise, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Synacor, Inc. on Form 10-K for the fiscal year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Synacor, Inc. I, William J. Stuart, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Synacor, Inc. on Form 10-K for the fiscal year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Synacor, Inc. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Synacor, Inc. and will be retained by Synacor, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certification “accompanies” the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. Date: March 1 2 , 2015 /s/ Himesh Bhise Himesh Bhise President and Chief Executive Officer (Principal Executive Officer) Date: March 1 2 , 2015 /s/ William J. Stuart William J. Stuart Chief Financial Officer (Principal Financial and Accounting Officer) 

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