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Form 10-Q Synacor, Inc. For: Sep 30

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November 14, 2014 4:14 PM EST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________
FORM 10-Q
___________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September�30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from������������to������������
Commission File Number 001-33843
___________________________________________________
Synacor, Inc.
(Exact name of registrant as specified in its charter)�
___________________________________________________
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)
(716) 853-1362
(Registrants telephone number, including area code)
___________________________________________________
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��x����No��o
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��x����No��o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):


Large�accelerated�filer
�
o
��
Accelerated�filer
�
o
Non-accelerated filer
�
x��(Do not check if a smaller reporting company)
��
Smaller�Reporting�Company
�
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).����Yes��o����No��x
As of November 6, 2014, there were 27,380,870 shares of the registrants common stock outstanding.


TABLE OF CONTENTS
�
�
�
�
�
�
�

i

PART I  FINANCIAL INFORMATION
Item�1.
Financial Statements
SYNACOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETSUNAUDITED
AS OF DECEMBER 31, 2013 AND SEPTEMBER�30, 2014
(In thousands except for share and per share data)
�
December 31, 2013
�
September 30, 2014
ASSETS
�
�
�
CURRENT ASSETS:
�
�
�
Cash and cash equivalents
$
36,397

�
$
24,359

Accounts receivablenet of allowance of $76 and $328
14,569

�
16,908

Prepaid expenses and other current assets
1,691

�
1,790

Deferred income taxes
314

�
1,150

Total current assets
52,971

�
44,207

PROPERTY AND EQUIPMENTNet
14,085

�
15,536

DEFERRED INCOME TAXES, NON-CURRENT
4,455

�
6,255

OTHER LONG-TERM ASSETS
348

�
127

GOODWILL
1,565

�
1,565

CONVERTIBLE PROMISSORY NOTE
1,000

�
1,000

INVESTMENT IN EQUITY INTEREST
365

�
141

TOTAL ASSETS
$
74,789

�
$
68,831

LIABILITIES AND STOCKHOLDERS EQUITY
�
�
�
CURRENT LIABILITIES:
�
�
�
Accounts payable
$
13,573

�
$
10,794

Accrued expenses and other current liabilities
5,177

�
7,050

Current portion of capital lease obligations
1,946

�
1,276

Total current liabilities
20,696

�
19,120

LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS
885

�
1,344

OTHER LONG-TERM LIABILITIES
977

�
366

Total liabilities
22,558

�
20,830

COMMITMENTS AND CONTINGENCIES (Note 6)


�


STOCKHOLDERS EQUITY:
�
�
�
Preferred stock, $0.01 par value10,000,000 shares authorized, no shares issued and outstanding at December 31, 2013 and September 30, 2014


�


Common stock, $0.01 par value100,000,000 shares authorized, 27,684,598 issued and 27,365,098 outstanding at December�31, 2013, and 100,000,000 authorized, 27,931,603 issued and 27,379,450 shares outstanding at September 30, 2014
277

�
279

Treasury stockat cost, 319,500 shares at December�31, 2013 and 552,153 shares at September 30, 2014
(569
)
�
(1,141
)
Additional paid-in capital
102,226

�
105,075

Accumulated deficit
(49,705
)
�
(56,220
)
Accumulated other comprehensive income
2

�
8

Total stockholders equity
52,231

�
48,001

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
$
74,789

�
$
68,831


The accompanying notes are an integral part of these condensed consolidated financial statements.

1

SYNACOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSUNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER�30, 2013 AND 2014
(In thousands except for share and per share data)
�
Three Months�Ended
September 30,
�
Nine Months�Ended
September 30,
�
2013
�
2014
�
2013
�
2014
REVENUE
$
26,551

�
$
26,231

�
$
82,402

�
$
75,670

COSTS AND OPERATING EXPENSES:
�
�
�
�
�
�
�
Cost of revenue (exclusive of depreciation shown separately below)
14,083

�
14,386

�
43,864

�
41,404

Research and development (exclusive of depreciation shown separately below)
7,404

�
7,577

�
21,548

�
22,188

Sales and marketing
2,058

�
2,601

�
6,332

�
7,194

General and administrative (exclusive of depreciation shown separately below)
2,805

�
4,090

�
8,772

�
10,689

Depreciation
1,119

�
1,133

�
3,387

�
3,308

Gain on sale of domain


�


�


�
(1,000
)
Total costs and operating expenses
27,469

�
29,787

�
83,903

�
83,783

LOSS FROM OPERATIONS
(918
)
�
(3,556
)
�
(1,501
)
�
(8,113
)
OTHER EXPENSE
(15
)
�
(14
)
�
(30
)
�


INTEREST EXPENSE
(39
)
�
(75
)
�
(140
)
�
(186
)
LOSS BEFORE INCOME TAXES AND EQUITY INTEREST
(972
)
�
(3,645
)
�
(1,671
)
�
(8,299
)
BENEFIT FOR INCOME TAXES
(260
)
�
(1,288
)
�
(446
)
�
(2,613
)
LOSS IN EQUITY INTEREST
(120
)
�
(239
)
�
(314
)
�
(829
)
NET LOSS
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
�
�
�
�
�
�
�
�
NET LOSS PER SHARE:
�
�
�
�
�
�
�
Basic
$
(0.03
)

$
(0.09
)

$
(0.06
)

$
(0.24
)
Diluted
$
(0.03
)

$
(0.09
)

$
(0.06
)

$
(0.24
)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:
�
�
�
�
�
�
�
Basic
27,333,693


27,378,299


27,293,898


27,391,159

Diluted
27,333,693


27,378,299


27,293,898


27,391,159


The accompanying notes are an integral part of these condensed consolidated financial statements.

2

SYNACOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSUNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER�30, 2013 AND 2014
(In thousands)
�
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September�30,
�
2013
�
2014
�
2013
�
2014
Net loss
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
Other comprehensive income (loss):

�

�

�

��Change in foreign currency translation adjustment
1

�
(3
)
�
7

�
6

Comprehensive loss
$
(831
)
�
$
(2,599
)
�
$
(1,532
)
�
$
(6,509
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

SYNACOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER�30, 2013 AND 2014
(In thousands)
�
Nine�Months�Ended
September 30,
�
2013
�
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
�
�
�
Net loss
$
(1,539
)
�
$
(6,515
)
Adjustments to reconcile net loss to net cash provided (used) in operating activities:
�
�
�
Depreciation
3,387

�
3,308

Stock-based compensation expense
1,862

�
2,754

Gain on sale of domain


�
(1,000
)
Provision for deferred income taxes
(468
)
�
(2,636
)
Loss in equity interest
314

�
829

Change in assets and liabilities, net of effect of acquisition:
�
�
�
Accounts receivable, net
1,265

�
(2,338
)
Prepaid expenses and other current assets
(408
)
�
(84
)
Other long-term assets
115

�
221

Accounts payable
(2,586
)
�
(2,099
)
Accrued expenses and other current liabilities
(1,246
)
�
1,877

Other long-term liabilities
64

�
(611
)
Net cash provided (used) in operating activities
760

�
(6,294
)
CASH FLOWS FROM INVESTING ACTIVITIES:
�
�
�
Purchases of property and equipment
(4,550
)
�
(3,945
)
Investment in equity interest
(400
)
�
(605
)
Proceeds from sale of domain


�
1,000

Cash paid for business acquisition
(500
)
�


Purchase of convertible promissory note
(1,000
)
�


Net cash used in investing activities
(6,450
)
�
(3,550
)
CASH FLOWS FROM FINANCING ACTIVITIES:
�
�
�
Repayments on capital lease obligations
(1,662
)
�
(1,700
)
Proceeds from exercise of common stock options
179

�
62

Purchase of treasury stock


�
(562
)
Net cash used in financing activities
(1,483
)
�
(2,200
)
Effect of exchange rate changes on cash and cash equivalents
7

�
6

NET DECREASE IN CASH AND CASH EQUIVALENTS
(7,166
)
�
(12,038
)
CASH AND CASH EQUIVALENTSBeginning of period
41,944

�
36,397

CASH AND CASH EQUIVALENTSEnd of period
$
34,778

�
$
24,359

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
�
�
�
Cash paid for interest
$
125

�
$
186

Cash paid for income taxes
$
138

�
$
112

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
�
�
�
Property and equipment financed under capital lease obligations
$
490

�
$
1,458

Service agreement financed under capital lease obligations
$


�
$
31

Accrued property and equipment expenditures
$
808

�
$
39

Stock based compensation capitalized to property and equipment
$


�
$
37

Treasury stock received to satisfy minimum tax withholding liabilities
$


�
$
9

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

SYNACOR, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED
AS OF DECEMBER 31, 2013 AND SEPTEMBER�30, 2014, AND
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER�30, 2013 AND 2014

1. The Company and Summary of Significant Accounting Policies
Synacor, Inc., together with its consolidated subsidiary, Synacor Canada, Inc. (collectively, the Company), is a leading provider of start experiences (startpages and homescreens), TV Everywhere, Identity Management (IDM) 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.
Basis of Presentation  The interim unaudited condensed 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 subsidiary. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise have the power to control, are accounted for using the equity method and are included as investments in equity interest on the condensed consolidated balance sheets. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Companys management, the interim unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Companys financial position for the periods presented. These interim unaudited condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or for any subsequent period and should be read in conjunction with the audited consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the fiscal year ended December�31, 2013 (as amended).
Accounting Estimates  The preparation of consolidated 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 consolidated 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 consolidated financial statements. Accordingly, actual results may differ from estimated amounts.
Concentrations of Risk  As of December�31, 2013 and September�30, 2014, and for the three and nine months ended September�30, 2013 and 2014, the Company had concentrations equal to or exceeding 10% of the Companys accounts receivable and revenue as follows:
�
Accounts Receivable
�
December�31,
2013
�
September 31,
2014
Google
47
%
�
22
%
Display Advertising Partner
11
%
�
10
%

����
�
Revenue
�
Revenue
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September 30,
�
2013
�
2014
�
2013
�
2014
Google
50
%
�
39
%
�
52
%
�
45
%


5



For the three and nine months ended September�30, 2013 and 2014, the following customers received revenue-share payments equal to or exceeding 10% of the Companys cost of revenue. The costs represent revenue share paid to customers for their supply of Internet traffic on the Company's start experiences:
�
�
Cost�of�Revenue
�
Cost�of�Revenue
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September 30,
�
2013
�
2014
�
2013
�
2014
Customer A
24
%
�
22
%
�
21
%
�
23
%
Customer B
13
%
�
14
%
�
13
%
�
13
%
Customer C (1)
10
%
�
N/A

�
11
%
�
10
%
Customer D
15
%
�
16
%
�
13
%
�
12
%

Notes:
(1)
For the three months ended September�30, 2014, the cost of revenue-share payments received by Customer C were less than 10%.
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 consolidated statement of operations during the second quarter of 2014.

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 Companys common stock and adopted a stockholder rights plan (the Rights Plan). The dividend was paid on 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.

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 Companys 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 Companys 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 corporations 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 Companys common stock, the board of directors may exchange one share of the Companys 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 Companys stockholders have not ratified the Rights Plan by July 14, 2015, the Rights will expire on such date.
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 Companys 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 research 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 three and nine months ended September 30, 2014. As of September 30, 2014, $1.1 million of the reduction in workforce costs remain in accrued expenses and other current liabilities on the condensed consolidated balance sheet.

6


Recent Accounting Pronouncements  In May 2014, the Financial Accounting Standards Board ("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 the consolidated financial statements.


2. 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., or 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 consumers' devices, including smartphones and tablets.
The investment in B&FF is considered an available-for-sale security and is reported on the Companys condensed consolidated balance sheets as a convertible promissory note.
The provisions of the FASB Accounting Standard Codification (ASC) 820, Fair Value Measurements and Disclosures, establish a framework for measuring the fair value in accordance with U.S. GAAP and establish 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 Companys 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 Companys own data.
The Company classifies its investment in B&FF within Level 3 because it is valued using unobservable inputs. As of September 30, 2014, the estimated fair value is equal to the carrying amount, which was the purchase price of $1.0 million.

3. Property and EquipmentNet
Property and equipment, net consisted of the following:
�
December�31,
2013
�
September 30,
2014
�
(in thousands)
Computer equipment (1)
$
19,361

�
$
20,920

Computer software
4,625

�
5,241

Furniture and fixtures
1,634

�
1,772

Leasehold improvements
1,044

�
1,232

Work in process (primarily software development costs)
3,893

�
6,148

Other
173

�
173

�
30,730

�
35,486

Less accumulated depreciation (2)
(16,645
)
�
(19,950
)
Total property and equipmentnet
$
14,085

�
$
15,536


7

Notes:
(1)
Includes equipment under capital lease obligations of $5.3 million and $6.7 million as of December�31, 2013 and September�30, 2014, respectively.

(2)
Includes $2.1 million and $3.0 million of accumulated depreciation of equipment under capital leases as of December�31, 2013 and September�30, 2014, respectively.

4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
�
December�31,
2013
�
September 30, 2014
�
(in thousands)
Accrued compensation
$
2,787

�
$
4,066

Accrued content fees
580

�
1,300

Unearned revenue on contracts
247

�
410

Other
1,563

�
1,274

Total
$
5,177

�
$
7,050


5. 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 Companys 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 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. Profitability measures by service line are not routinely prepared or used. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the Company level. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure.
The following table sets forth revenue and long-lived tangible assets by geographic area:
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September 30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Revenue
�
�
�
�
�
�
�
United States
$
26,386

�
$
26,070

�
$
81,883

�
$
75,174

International
165

�
161

�
519

�
496

Total revenue
$
26,551

�
$
26,231

�
$
82,402

�
$
75,670

�
December�31,
2013
�
September 30,
2014
�
(in thousands)
Long-lived tangible assets
�
�
�
United States
$
13,825

�
$
15,040

Canada


�
411

International
260

�
85

Total long-lived tangible assets
$
14,085

�
$
15,536


6. Commitments and Contingencies
Contract Commitments  The Company is obligated to make payments under various contracts with vendors and other business partners, principally for revenue-share and content arrangements. Contract commitments as of September�30, 2014 are summarized as follows:
Year ending December�31:
(in thousands)
2014 (remaining three months)
$
1,288

2015
1,630

2016
1,080

2017
360

2018


Due after 5 years


Total contract commitments
$
4,358

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 condensed consolidated balance sheet.
Litigation  From time to time, the Company is a party to legal actions. In the opinion of management, the outcome of these matters is not expected to have a material impact on the consolidated financial statements of the Company.

7. Equity
Common Stock  Effective on February�15, 2012, the Companys 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 Companys 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.

8

Stock Repurchases  Effective February 26, 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:
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September 30,
�
2013
�
2014
�
2013
�
2014
Shares of common stock repurchased


�


�


�
229,050

Value of common stock repurchased (in thousands)
$


�
$


�
$


�
$
562

Withhold to Cover  During the nine months ended September 30, 2014, certain employees, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock awards, authorized the withholding of 3,603 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 nine months ended September 30, 2013.

8. Stock-based Compensation
The fair value of each stock option was determined on the date of grant using the Black-Scholes option pricing model, and stock-based compensation is recorded over the requisite service period. The Company recorded $0.7 million and $1.2 million of stock-based compensation expense for the three months ended September�30, 2013 and 2014, respectively. Stock-based compensation for the nine months ended September�30, 2013 and 2014 amounted to $1.9 million and $2.8 million, 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 condensed consolidated statements of operations for the periods presented, is as follows :
�
Three�Months�Ended
September 30,
�
Nine�Months�Ended
September 30,
�
2013

2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Research and development
$
318


$
691


$
860


$
1,392

Sales and marketing
97


129


249


361

General and administrative
268


406


753


1,001

Total stock-based compensation expense
$
683


$
1,226


$
1,862


$
2,754


9

Stock Option Activity  A summary of the stock option activity for the nine months ended September�30, 2014 is presented below:
�
Number of
Stock
Options
�
Weighted
Average
Exercise
Price
�
Aggregate
Intrinsic�Value
(in thousands)
�
Weighted Average Remaining Contractual Term (in years)
OutstandingJanuary 1, 2014
5,770,168

�
$
3.85

�
�
�
�
Granted (1)
4,972,895

�
$
2.56

�
�
�
�
Exercised
(236,755
)
�
$
0.26

�
�
�
�
Forfeited (1)
(2,978,768
)
�
$
4.50

�
�
�
�
OutstandingSeptember 30, 2014
7,527,540

�
$
2.85

�
$
283

�
7.17
Vested and expected to vestSeptember 30, 2014
6,869,530

�
$
2.89

�
$
283

�
6.97
Vested and exercisableSeptember 30, 2014
3,341,870

�
$
3.18

�
$
281

�
4.55
Note:
(1) The number of options granted and forfeited includes options cancelled and replaced in conjunction with the modifications described below.

Aggregate intrinsic value represents the difference between the Companys closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Companys closing stock price as reported on the NASDAQ as of September�30, 2014 was $1.91 per share. The total intrinsic value of options exercised for the three months ended September�30, 2014 was minor and total intrinsic value of options exercised for the nine months ended September�30, 2014 amounted to $0.5 million. The weighted average fair value of options issued, excluding the options issued as replacements in the modifications below, during the nine months ended September�30, 2014 amounted to $1.32.
As of September�30, 2014, the unrecognized compensation cost related to non-vested options granted, for which vesting is probable, under the plan was approximately $6.8 million. This cost is expected to be recognized over a weighted-average period of 2.9 years. The total fair value of shares vested was $1.3 million for the nine months ended September�30, 2014.
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 is $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 three and nine months ended September 30, 2014, the Company recorded $0.3 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.


10

RSU Activity  A summary of RSU activity for the nine months ended September�30, 2014, is as follows:
�
Number of
Shares
�
Weighted-Average
Grant Date Fair
Value
UnvestedJanuary 1, 2014
45,000

�
$
5.46

Granted
913,638

�
$
2.22

Released
(10,250
)
�
$
5.64

Forfeited
(39,000
)
�
$
2.70

UnvestedSeptember 30, 2014
909,388

�
$
2.32

Expected to vestSeptember 30, 2014
825,609

�
$
2.43

As of September�30, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $2.1 million, which is expected to be recognized over the next 2.9 years.

9. 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 stock of Synacor China, Ltd., or the JV Company. The Company has agreed to provide up to $2.0 million in funding to the JV Company over the two-year period following the initial funding. The Company provided $0.9 million of funding to the JV Company during the year ended December 31, 2013, and $0.6 million of funding during the nine months ended September 30, 2014. The JV Company will, through its wholly foreign-owned subsidiary in the People's Republic of China (the PRC), supply start experiences, 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 Companys condensed 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 loss in equity interest in the condensed consolidated statements of operations. Since acquiring its interest in the JV Company in 2013, the Company has recorded, in accumulated deficit, cumulative losses in equity interest of $1.4 million.
����
The following tables represents summarized financial information of the JV Company for the three and nine months ended September�30, 2013 and 2014, and as of December 31, 2013 and September 30, 2014:

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2014

2013

2014

(in thousands)

(in thousands)
Revenue
$



$



$



$


Loss from operations
(120
)
�
(239
)
�
(314
)
�
(829
)
Net loss
$
(120
)

$
(239
)

$
(314
)

$
(829
)
�
December�31,
2013
�
September 30,
2014
�
(in thousands)
Total assets
$
442

�
$
218

Total liabilities
$
77

�
$
77


10. 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 Companys 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

11

of RSUs. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.
The following table presents the calculation of basic and diluted net loss per share for the three and nine month periods ended September�30, 2013 and 2014:
�
Three Months Ended,
September 30,
�
Nine Months Ended,
September 30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands, except share and per share data)
Basic net loss per share:


�


�


�


��Numerator:


�


�


�


��������Net loss
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
��Denominator:
�
�
�
�


�


��������Weighted-average common shares outstanding
27,333,693

�
27,378,299

�
27,293,898

�
27,391,159

�
�
�
�
�
�
�
�
Basic net loss per share
$
(0.03
)
�
$
(0.09
)
�
$
(0.06
)
�
$
(0.24
)
�
�
�
�
�
�
�
�
Diluted net loss per share:
�
�
�
�


�


��Numerator:
�
�
�
�


�


��������Net loss
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
��Denominator:
�
�
�
�


�


��������Number of shares used in basic calculation
27,333,693

�
27,378,299

�
27,293,898

�
27,391,159

��������Add weighted-average effect of dilutive securities:
�
�
�
�
�
�
�
��������������None


�


�


�


��Number of shares used in diluted calculation
27,333,693

�
27,378,299

�
27,293,898

�
27,391,159

�
�
�
�
�
�
�
�
Diluted net loss per share
$
(0.03
)
�
$
(0.09
)
�
$
(0.06
)
�
$
(0.24
)
The following equivalent shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
�
Three Months Ended,
September 30,
�
Nine�Months�Ended
September 30,
��
2013
�
2014
�
2013
�
2014
Antidilutive equity awards:
�
�
�
�
�
�
�
Stock options and RSUs
5,529,388

�
8,436,928

�
5,529,388

�
8,436,928



12

11. Subsequent Events

Amendment to Loan Agreement  On October 28, 2014, the Company entered into the First Amendment to the Loan and Security Agreement (the Amendment) with Silicon Valley Bank (SVB), which amends the financial covenants and certain definitions that are used in the financial covenants of the Loan and Security Agreement dated as of September 27, 2013 (the  Loan Agreement). The changes to financial covenants and certain definitions are effective September 30, 2014.

The Loan Agreement provides for a $10.0 million secured revolving line of credit with a stated maturity date of September�27, 2015. The secured revolving credit facility is available for cash borrowings and is subject to a borrowing formula based upon eligible accounts receivable. Borrowings under the Loan Agreement bear interest, at the Companys 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%. The Loan Agreement is secured by a first priority security interest in all the Companys assets, including its intellectual property. As of September 30, 2014 and through the date of this filing, the Company is in compliance with its covenants under the Loan Agreement.

Board of Directors Appointment  Effective October 28, 2014, the board of directors appointed Scott Murphy as a director of the Company.� This appointment fills the one remaining vacancy on the Company's board of directors. Mr. Murphy will be a Class III director and serve in this role until the 2017 annual meeting of stockholders. Mr. Murphy was also appointed to the audit committee. Consistent with the Companys non-employee director compensation policy, Mr. Murphy will receive annual cash retainers for his service on the board and the audit committee and an initial stock option grant of 50,000 shares.

13

Item�2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section�21E of the Securities Exchange Act of 1934, as amended. In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of ours and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as may, expect, believe, anticipate, intend, could, estimate, or continue, and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These forward-looking statements include statements in this Item�2, Managements Discussion and Analysis of Financial Condition and Results of Operations. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled Risk Factors included elsewhere in this Form 10-Q and in our other Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December�31, 2013 (as amended). Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q and with the consolidated financial statements and notes thereto and managements discussion and analysis of financial condition and results of operation appearing in our Annual Report on Form 10-K for the fiscal year ended December�31, 2013 (as amended).
Overview
We are a leading provider of start experiences (startpages and homescreens), TV Everywhere, Identity Management (IDM) and various cloud-based services across multiple devices for cable, satellite, telecom and consumer electronics companies. For these customers, we are also a leading provider of authentication and aggregation solutions enabling the delivery of personalized online content. Our technology allows our customers to package a wide array of personalized online content and cloud-based services with their high-speed Internet, communications, television and other offerings. Our customers offer our services under their own brands on Internet-enabled devices such as PCs, tablets, smartphones and connected TVs.
We generate revenue from search and display advertising and by charging subscriber-based fees for services and products delivered through our start experiences. Our results are driven primarily by our customer mix, the product and service mix preferences of those customers and the pricing of those products and services. We generate the majority of our revenue from search and display advertising on our start experiences, which comprise consumer-facing components of our technology. Adding new customers with large consumer bases and expansion of our relationships with existing customers have historically resulted in an increasing shift in our revenue mix towards search and display advertising revenue. Growth in our business (through growth in search and display advertising revenue) is dependent on new customers adopting our solutions and their respective consumers use of our start experiences ramping up as described below. Increases in search and display advertising revenue are largely driven by our model of sharing a portion of this search and advertising revenue with our customers. As we expand our cloud-based and value added services offerings, we expect to generate increased subscriber-based revenue from our customers.
For the three and nine months ended September�30, 2014, search and display advertising revenue was $20.6 million and $59.0 million, a decrease of 2% and 11% compared to $20.9 million and $66.4 million for the three and nine months ended September�30, 2013. Over the same periods, our unique visitors decreased by 5% and 6%, respectively, our search queries decreased by 25% and 26%, respectively, and our advertising impressions increased by 1% and decreased by 13%, respectively. Search revenue decreased by $3.1 million and $8.6 million for the three and nine months ended September�30, 2014 compared to the same periods ended September�30, 2013. We believe a material portion of the decrease in revenue 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, 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. Display advertising revenue increased by $2.8 million and $1.1 million for the three and nine months ended September�30, 2014 compared to the same periods ended September�30, 2013 as a result of increased engagement and placement of video-based advertising. These increases were offset by pricing changes in one of our customer contracts, another customers implementation of more secure webmail, which affected our ability to insert display advertising on that customers webmail site, and�operational changes in practices and policies for display advertising. We anticipate video-based advertising may become an increasing percentage of our advertising revenue which may also serve to increase our advertising cost per thousand impressions (referred to as cost per mille, or

14

CPMs). We also anticipate that the signing, and launching, of new customers and our mobile product initiatives will likely help add new search and display 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, TV Everywhere, online games, music and other value added services and paid content. During the three and nine months ended September�30, 2014, subscriber-based revenue was $5.7 million and $16.7 million, increases of 1% and 4% compared to $5.6 million and $16.0 million for the three and nine months ended September�30, 2013. This increase is primarily driven by growth in adoption of our TV Everywhere services by our customers. We believe there are opportunities to generate new sources of subscriber-based revenue, such as the introduction of new value added services, including those delivered on smartphones and tablets. We believe that the variety of value added services and the introduction of new value added services will also drive increased search and display advertising revenue.
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 period. 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. Search and display advertising revenue typically grows significantly during the first one to three years after a customer launch, although there can be notable variances from customer to customer. Thereafter, changes in revenue tend to mirror changes in the consumer base of the applicable customer.
For the three and nine months ended September�30, 2014, we derived revenue from over 50 customers, with revenue attributable to four customers, CenturyLink, Inc. or CenturyLink (including revenue attributable to Qwest Communications International, Inc., or Qwest, which merged with CenturyLink in April 2011), Charter Communications Inc., or Charter, Verizon Corporate Services Group, Inc., or Verizon, and Toshiba America Information Systems, Inc., or Toshiba, together accounting for approximately 68% and 67% of our revenue for the three and nine months ended September�30, 2014, or $17.9 million and $50.4 million, respectively. One of these customers accounted for 20% or more of revenue in such periods, and revenue attributable to each of the other three customers accounted for more than 10% in such periods.
Revenue attributable to our customers includes the subscriber-based revenue earned directly from them, as well as the search and display advertising revenue generated through our relationships with our search and display advertising partners (such as Google Inc., or Google, for search advertising and advertising networks, advertising agencies and advertisers for display advertising). This revenue is attributable to our customers because it is produced from the traffic on our start experiences. These 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 the three and nine months ended September�30, 2014, search advertising through our relationship with Google generated approximately 39% and 45% of our revenue, or $10.3 million and $34.2 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, including international customers and consumers, 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. We intend to utilize a portion of our cash and cash equivalents to improve our ability to achieve consistent profitability in the future by enhancing our technology and our systems capabilities to more efficiently support our customers, develop new products and features and report upon, analyze and manage the financial performance of the business.
Key Initiatives
We are focused on several key initiatives to drive our business:
"
instill operating discipline and get Synacor back on sound financial footing;
"
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

15

"
extend product portfolio into emerging growth areas.
Key Business Metrics
In addition to the line items in our consolidated financial statements, we regularly review a number of business metrics related to Internet traffic and search and display 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 summarizes our key business metrics, which are unaudited, for the three and nine months ended September�30, 2013 and 2014:
�
Three Months Ended September 30,
�
Nine Months Ended September�30,
�
2013
�
2014
�
2013
�
2014
Key Business Metrics:
�
�
�
�
�
�
�
Unique Visitors (1)
19,373,165

�
18,382,373

�
19,773,438

�
18,667,739

Search Queries (2)
165,556,903

�
124,737,947

�
554,226,885

�
408,108,308

Advertising Impressions (3)
9,518,576,265

�
9,655,536,256

�
31,294,537,578

�
27,139,904,203

Notes:
(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.
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 displayed 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.
Components of our Results of Operations
Revenue
We derive our revenue from two categories: revenue generated from search and display advertising activities and subscriber-based revenue, each of which is described below. We record our search and display advertising revenue on a gross basis, which includes the net amount received from Google under our agreement with them.

16

The following table shows the revenue in each category, both in amount and as a percentage of revenue, for the three and nine months ended September�30, 2013 and 2014:
�
Three�Months�Ended�September 30,
�
Nine�Months�Ended�September�30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Revenue:
�
�
�
�
�
�
�
��Search and display advertising
$
20,944


$
20,571

�
$
66,429


$
59,000

��Subscriber-based
5,607


5,660

�
15,973


16,670

Total revenue
$
26,551

�
$
26,231

�
$
82,402

�
$
75,670

Percentage of revenue:
�
�
�
�
�
�
�
��Search and display advertising
79
%

78
%
�
81
%

78
%
��Subscriber-based
21


22

�
19


22

Total revenue
100
%
�
100
%
�
100
%
�
100
%
Search and Display Advertising Revenue
We use Internet search and display advertising to generate revenue from the traffic on our start experiences.
"
In the case of 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, which we in turn share with the applicable customer. The net payment we receive from Google is recognized as revenue.
"
We generate display advertising revenue when consumers view or click on a text, graphic or video advertisement that was delivered on a Synacor-operated start experience. We fill our advertising inventory with advertisements sourced by our direct salesforce, independent advertising sales representatives and advertising network partners. Revenue may be calculated differently depending on our agreements with our advertisers or the agreements between our advertising network partners and their advertisers. It may be calculated on a cost per impression basis, which means the advertiser pays based on the number of times its advertisements appear, or a cost per action basis, which means that an advertiser pays when a consumer performs an action after engaging one of its advertisements, or on a fixed fee basis. Historically only a small percentage of our display advertising revenue has been calculated on a cost per action basis or fixed fee basis.
Subscriber-Based Revenue
We define subscriber-based revenue as subscription fees and other fees that we receive from our customers for the use of our proprietary technology and the use of, or access to, e-mail, TV Everywhere, security, games and other services, including value added 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. We recognize revenue from our customers as the service is delivered.
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 our customers for the traffic on the start experiences we operate for them that results in the generation of search and display advertising revenue. The revenue-sharing agreements with our customers are primarily variable payments based on a percentage of the search and display 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 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 our data center facilities.
Research and Development

17

Research and development expenses consist primarily of compensation-related expenses incurred for the development of, enhancements to, and maintenance and operation of our technology 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 and other administrative functions.
Depreciation
Depreciation includes depreciation of our computer hardware and software, furniture and fixtures, leasehold improvements and other property, as well as depreciation on capital leased assets.
Other Expense
Other 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.
Benefit for Income Taxes
Income tax benefit consists of federal and state income taxes in the United States and taxes in certain foreign jurisdictions.
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 and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the condensed consolidated financial statements. We believe that our critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the condensed consolidated financial statements.
For a discussion of our critical accounting policies and estimates, see Critical Accounting Policies and Estimates included in our Annual Report on Form 10-K for the year ended December�31, 2013 (as amended) under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations. We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December�31, 2013 (as amended).
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed within this Quarterly Report on Form 10-Q adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

18

We have included adjusted EBITDA in this Quarterly Report on Form 10-Q 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 annual 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 U.S. GAAP. Some of these limitations are:
"
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 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.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other U.S. GAAP results. The following table presents a reconciliation of adjusted EBITDA to net loss for each of the periods indicated:
�
Three�Months�Ended� September 30,
�
Nine�Months�Ended September 30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Reconciliation of Adjusted EBITDA:
�
�
�
�
�
�
�
Net loss
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
Benefit for income taxes
(260
)
�
(1,288
)
�
(446
)
�
(2,613
)
Interest expense
39

�
75

�
140

�
186

Other
15

�
14

�
30

�


Depreciation
1,119

�
1,133

�
3,387

�
3,308

Stock-based compensation
683

�
1,226

�
1,862

�
2,754

Loss on equity interest
120

�
239

�
314

�
829

Gain on sale of domain


�


�


�
(1,000
)
Reduction in workforce severance and related costs


�
1,260

�


�
1,260

Adjusted EBITDA
$
884

�
$
63

�
$
3,748

�
$
(1,791
)

19

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.
�
Three�Months�Ended� September 30,
�
Nine�Months�Ended� September 30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Revenue
$
26,551

�
$
26,231

�
$
82,402

�
$
75,670

Costs and operating expenses:
�
�
�
�
�
�
�
��Cost of revenue (1)
14,083

�
14,386

�
43,864

�
41,404

��Research and development (1)(2)
7,404

�
7,577

�
21,548

�
22,188

��Sales and marketing (2)
2,058

�
2,601

�
6,332

�
7,194

��General and administrative (1)(2)
2,805

�
4,090

�
8,772

�
10,689

��Depreciation
1,119

�
1,133

�
3,387

�
3,308

��Gain on sale of domain


�


�


�
(1,000
)
Total costs and operating expenses
27,469

�
29,787

�
83,903

�
83,783

Loss from operations
(918
)
�
(3,556
)
�
(1,501
)
�
(8,113
)
Other expense
(15
)
�
(14
)
�
(30
)
�


Interest expense
(39
)
�
(75
)
�
(140
)
�
(186
)
Loss before income taxes and equity interest
(972
)
�
(3,645
)
�
(1,671
)
�
(8,299
)
Benefit for income taxes
(260
)
�
(1,288
)
�
(446
)
�
(2,613
)
Loss in equity interest
(120
)
�
(239
)
�
(314
)
�
(829
)
Net loss
$
(832
)
�
$
(2,596
)
�
$
(1,539
)
�
$
(6,515
)
Notes:
(1)
Exclusive of depreciation shown separately.
(2)
Includes stock-based compensation as follows:
�
Three�Months�Ended� September 30,
�
Nine�Months�Ended� September 30,
�
2013
�
2014
�
2013
�
2014
�
(in thousands)
�
(in thousands)
Research and development
$
318

�
$
691

�
$
860

�
$
1,392

Sales and marketing
97

�
129

�
249

�
361

General and administrative
268

�
406

�
753

�
1,001

�
$
683

�
$
1,226

�
$
1,862

�
$
2,754



20

�
Three�Months�Ended� September 30,
�
Nine�Months�Ended September 30,
�
2013
�
2014
�
2013
�
2014
Revenue
100
�%
�
100
�%
�
100
�%
�
100
�%
Costs and operating expenses:

�

�

�

��Cost of revenue (1)
53

�
55

�
53

�
55

��Research and development (1)
28

�
29

�
26

�
29

��Sales and marketing
8

�
10

�
8

�
10

��General and administrative (1)
11

�
16

�
11

�
14

��Depreciation
4

�
4

�
4

�
4

��Gain on sale of domain


�


�


�
(1
)
Total costs and operating expenses
103

�
114

�
102

�
111

Loss from operations
(3
)
�
(14
)
�
(2
)
�
(11
)
Other expense


�


�


�


Interest expense


�


�


�


Loss before income taxes and equity interest
(4
)
�
(14
)
�
(2
)
�
(11
)
Benefit for income taxes
(1
)
�
(5
)
�
(1
)
�
(3
)
Loss in equity interest


�
(1
)
�


�
(1
)
Net loss
(3
)
�
(10
)
�
(2
)
�
(9
)
Note:
(1)
Exclusive of depreciation shown separately.
Comparison of the Three and Nine Months ended September�30, 2013 and 2014
Revenue
�
Three�Months�Ended September 30,
�
�
�
Nine Months Ended
September 30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in�thousands)
�
�
Revenue:
�
�
�
�
�
�
�
�
�
Search and display advertising
$
20,944

�
$
20,571

�
(2
)%
�
$
66,429

�
$
59,000

�
(11
)%
Subscriber-based
5,607

�
5,660

�
1

�
15,973

�
16,670

�
4

Total revenue
$
26,551

�
$
26,231

�
(1
)
�
$
82,402

�
$
75,670

�
(8
)
Percentage of revenue:
�
�
�
�
�
�
�
�
�
�
�
Search and display advertising
79
%
�
78
%
�
�
�
81
%
�
78
%
�
�
Subscriber-based
21

�
22

�
�
�
19

�
22

�
�
Total revenue
100
%
�
100
%
�
�
�
100
%
�
100
%
�
�
Three months ended 2013 compared to 2014. Revenue decreased by $0.3 million, or 1%, compared to the same period in 2013. Search revenue decreased by $3.1 million. 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, 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. Display advertising revenue increased by $2.8 million as a result of increased engagement and placement of video-based advertising. Otherwise, advertising revenue remained relatively flat. Subscriber-based revenue increased $0.1 million, or 1% compared to the same period in 2013 mainly due to growth in adoption of our TV Everywhere service by our customers.
Nine months ended 2013 compared to 2014. Revenue decreased by $6.7 million, or 8%, compared to the same period in 2013. Search revenue decreased by $8.6 million. 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, 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. Display advertising revenue increased by $1.1 million as a result of increased engagement and placement of video-based advertising. The increase in display advertising revenue attributable to video-based advertising was approximately $2.3 million, which was somewhat offset by pricing changes in one of our customer

21

contracts, another customers implementation of more secure webmail, which affected our ability to insert display advertising on that customers webmail site, and�operational changes in practices and policies for display advertising. Subscriber-based revenue increased $0.7 million, or 4% compared to the same period in 2013 mainly due to growth in adoption of our TV Everywhere service by our customers.
Cost of Revenue
�
Three�Months�Ended September 30,
�
�
�
Nine Months�Ended
September 30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in�thousands)
�
�
Cost of revenue
$
14,083

�
$
14,386

�
2
%

$
43,864

�
$
41,404

�
(6
)%
Percentage of revenue
53
%
�
55
%
�
�
�
53
%
�
55
%
�
�
����
Three months ended 2013 compared to 2014. Our cost of revenue increased by $0.3 million, or 2% for the three months ended September�30, 2014 compared to the same period in 2013. The increase in our cost of revenue was driven by an increase in revenue-sharing costs from display advertising due to increase placement of video-based advertising, offset by decreased revenue-sharing costs from search due to declining search revenue. Cost of revenue as a percentage of revenue increased, from 53% to 55%, due to a shift in the mix of cost of revenue from search to video-based advertising.

Nine months ended 2013 compared to 2014. Our cost of revenue decreased by $2.5 million or 6% for the nine months ended September�30, 2014 compared to the same period in 2013. The decrease in our cost of revenue was driven by a decrease in revenue-sharing costs from search due to declining search revenue. The decrease was offset by an increase in revenue-sharing costs from display advertising due to increase placement of video-based advertising. Cost of revenue as a percentage of revenue increased, from 53% to 55%, due to a shift in the mix of cost of revenue from search to video-based advertising.

Research and Development Expenses
�
Three�Months�Ended September 30,
�
�
�
Nine Months�Ended
September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in�thousands)
�
�
Research and development
$
7,404

�
$
7,577

�
2
%
�
$
21,548

�
$
22,188

�
3
%
Percentage of revenue
28
%
�
29
%
�
�
�
26
%
�
29
%
�
�
����
Three months ended 2013 compared to 2014. Research and development expenses increased by $0.2 million, or 2%, compared to 2013.

Nine months ended 2013 compared to 2014. Research and development expenses increased by $0.6 million, or 3%, compared to 2013.

The increase in each the three and nine month periods is due to severance and related expenses associated with our cost reduction plan of $0.5 million and additional stock-based compensation expense resulting from the repricing of stock options of $0.2 million, both of which were recorded during the third quarter of 2014. These increases were offset by a decrease in the use of outside consultants during 2014.

Sales and Marketing Expenses
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended
September 30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in�thousands)
�
�
Sales and marketing
$
2,058

�
$
2,601

�
26
%
�
$
6,332

�
$
7,194

�
14
%
Percentage of revenue
8
%
�
10
%
�
�
�
8
%
�
10
%
�
�
����
Three months ended 2013 compared to 2014. Sales and marketing expenses increased by $0.5 million or 26% compared to 2013. This increase is primarily due to fees paid for market research performed by a third party consultant of $0.2 million combined with approximately $0.2 million severance and related expenses associated with our cost reduction plan recor

22

ded during the three months ended September 30, 2014. We did not incur these costs during the three months ended September 30, 2013.

Nine months ended 2013 compared to 2014. Sales and marketing expenses increased by $0.9 million or 14% compared to 2013. This increase is due primarily to fees paid for market research performed by third party consultants of $0.4 million combined with approximately $0.2 million severance and related expenses associated with our cost reduction plan recorded during the nine months ended September 30, 2014. We did not incur these costs during the nine months ended September 30, 2013.
����
General and Administrative Expenses
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended
September 30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in�thousands)
�
�
General and administrative
$
2,805

�
$
4,090

�
46
%
�
$
8,772

�
$
10,689

�
22
%
Percentage of revenue
11
%
�
16
%
�
�
�
11
%
�
14
%
�
�
����
Three months ended 2013 compared to 2014. General and administrative expenses increased by $1.3 million or 46% compared to 2013. The increase is principally due to severance and related expenses associated with our cost reduction plan of $0.6 million, an increase in the provision for bad debt of $0.2 million and $0.4 million costs associated with our transition to a new CEO.

Nine months ended 2013 compared to 2014. General and administrative expenses increased by $1.9 million or 22% compared to 2013. The increase is principally due to 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 $0.4 million and $0.7 million costs associated with our transition to a new CEO.


Depreciation
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in thousands)
�
�
Depreciation
$
1,119

�
$
1,133

�
1
%
�
$
3,387

�
$
3,308

�
(2
)%
Percentage of revenue
4
%
�
4
%
�
�
�
4
%
�
4
%
�
�
����
The change in depreciation was nominal for the three and nine months ended September�30, 2014 compared to the three and nine months ended September�30, 2013. The minor fluctuations were primarily driven by the timing of purchases of assets such as computer equipment and development costs to support our investment in new projects, as well as timing of new projects being placed into service.


Gain on Sale of Domain
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�
�
�
(in thousands)
�
�
Gain on sale of domain
$


�
$


�

%
�
$


�
$
1,000

�
100
%
Percentage of revenue

%
�

%
�
�
�

%
�
1
%
�
�
����
The gain on sale of a domain amounted to $1.0 million for the nine months ended September�30, 2014, which was equal to the sale price. The sale was unique to the second quarter of 2014 and no such transactions occurred in the comparative periods.



23

Other Expense
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended September�30,

�
�
2013
�
2014
�
%�Change
�
2013

2014

%�Change
�
(in�thousands)
�
�
�
(in thousands)

�
Other expense
$
15

�
$
14

�
7
%
�
$
30

�
$



100
%
����
Other expense consists mainly of interest income coupled with foreign currency transaction losses related to our international operations.


Interest Expense
�
Three�Months�Ended September 30,
�

�
Nine�Months�Ended September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in�thousands)
�

�
(in thousands)
�
�
Interest expense
$
39

�
$
75

�
92
%
�
$
140

�
$
186

�
33
%
Our interest expense consists mainly of interest due on our capital lease obligations, for which the fluctuation in the three and nine months ended September�30, 2014 to the comparative periods is nominal.
Benefit for Income Taxes
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in thousands)
�
�
�
(in thousands)
�
�
Benefit for income taxes
$
260

�
$
1,288

�
395
%
�
$
446

�
$
2,613

�
486
%
Our income tax benefit increased for both the three and nine month periods ended September�30, 2013 and September�30, 2014. The increase in deferred tax benefit for each period is attributable to increases in our taxable losses for the corresponding periods.
Loss in Equity Interest
�
Three�Months�Ended September 30,
�
�
�
Nine�Months�Ended� September�30,
�
�
�
2013
�
2014
�
%�Change
�
2013
�
2014
�
%�Change
�
(in thousands)
�
�
�
(in thousands)
�
�
Loss in equity interest
$
(120
)
�
$
(239
)
�
(99
)%
�
$
(314
)
�
$
(829
)
�
164
%
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 Synacor China, Ltd., or the JV Company. For the three and nine months ended September�30, 2014, we recorded our share of the losses of the JV Company of $0.2 million and $0.8 million, respectively.
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 availability of 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 September 2013, we entered into a Loan and Security Agreement with Silicon Valley Bank ("Lender"), which we 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 September�30, 2014, due to the operation of the borrowing formula, approximately $8.1 million was available under the revolving credit line, with no outstanding borrowings.

24

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.
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 September�30, 2014, we were in compliance with the covenants and anticipate continuing to be so.
Under the terms of our joint venture agreement with the JV Company, we have agreed, upon the satisfaction of certain conditions, to provide $0.5 million in additional funding to the JV Company over the remainder of the two year period following the initial investment in March 2013 through the purchase of non-voting, non-convertible Series A preferred shares of the JV Company.
As of September�30, 2014, we had approximately $24.4 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, capital lease payment obligations, JV Company funding obligations and capital expenditure requirements for at least the next 12 months.

Cash Flows
�
Nine�Months�Ended�September 30,
�
2013
�
2014
�
(in thousands)
Statements of Cash Flows Data:
�
�
�
Cash flows provided (used) in operating activities
$
760

�
$
(6,294
)
Cash flows used in investing activities
$
(6,450
)
�
$
(3,550
)
Cash flows used in financing activities
$
(1,483
)
�
$
(2,200
)
Cash Used in Operating Activities
In the nine months ended September 30, 2013 operating activities provided $0.8 million of cash. The net cash provided in operating activities primarily resulted from our operations after adjusting for non-cash items. Net loss was $1.5 million, which included a non-cash benefit from deferred income taxes of $0.5 million, non-cash depreciation of $3.4 million, non-cash stock-based compensation of $1.9 million and a non-cash loss in an equity interest of $0.3 million. Changes in our operating assets and liabilities used $2.8 million of cash, primarily due to a net decrease of our operating liabilities, which includes accounts payable, accrued expenses and other current and long-term liabilities of $3.8 million. The decrease in our accounts payable was primarily driven by lower revenue-share payments associated with our decrease in revenue. The decrease in accrued expenses and other current liabilities was primarily due to the decrease of accrued compensation costs of $1.1 million primarily relating to bonuses earned and accrued in 2012 and paid in 2013. This decrease in cash from operating liabilities was partially offset by a decrease in accounts receivable by $1.3 million due to the timing of collections made.
����
In the nine months ended September�30, 2014 operating activities used $6.3 million of cash. 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. Net loss was $6.5 million, which included non-cash depreciation of $3.3 million, non-cash stock-based compensation of $2.8 million and a non-cash loss in an equity interest of $0.8 million, offset by non-cash change in deferred income tax provision of $2.6 million and gain on sale of domain of $1.0 million. Changes in our operating assets and liabilities used $3.0 million of cash, primarily due to an increase in accounts receivable of $2.3 million and a reduction of accounts payable to $2.1 million, offset by a net increase in accrued expenses and other current liability and other long-term liabilities of $1.3million . The increases in accounts receivable and accounts payable are largely driven by timing of payments. The increase in accrued expenses is a result of accrued severance costs.

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Cash Used in Investing Activities
Our primary investing activities have consisted of purchases of property and equipment and 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 in the development of software for the remainder of 2014 and thereafter.
Cash used in investing activities in the nine months ended September 30, 2013 was $6.5 million, consisting of $4.6 million used for purchases of property and equipment specifically related to the build out of our data centers and internal-use software development, $0.5 million used for the final payment for the acquisition of Carbyn, $1.0 million used for an investment (in the form of a convertible promissory note) in a privately held Delaware corporation called Blazer and Flip Flops, Inc., or B&FF (doing business as The Experience Engine), a professional services company, and $0.4 million used for an investment in an equity interest in the JV Company.
Cash used in investing activities during the nine months ended September�30, 2014 was $3.6 million, consisting of $3.9 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 $0.6 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 Financing Activities
For the nine months ended September 30, 2013, net cash used in financing activities was $1.5 million primarily for repayment of $1.7 million on our capital lease obligations partially offset by proceeds of $0.2 million from the exercise of common stock options.
For the nine months ended September�30, 2014, net cash used in financing activities was $2.2 million primarily for repayment of $1.7 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.
Off-Balance Sheet Arrangements
As of September�30, 2014, 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.
Item�3.
Quantitative and Qualitative Disclosures About Market Risk
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 $0.3 million investment in equity interest in the JV Company, 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. If we had outstanding borrowings under our Loan Agreement with Silicon Valley Bank, we would be exposed to fluctuations in interest rates that are variable to the market.
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.
Item�4.
Controls and Procedures
Evaluation of Disclosure Controls and 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 September�30, 2014. 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 SECs 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 companys management, including its

26

principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation as of September�30, 2014, 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in managements evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended September�30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27

PART II  OTHER INFORMATION
Item�1.
Legal Proceedings
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.
Item�1A.
Risk Factors
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 Quarterly Report on Form 10-Q, together with any other documents we file with the SEC. Risks and uncertainties not currently known to us or that we currently deem to be immaterial may in the future materially and adversely affect our business, financial condition and results of operations.
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 display 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 57%, 56%, and 51% of our revenue in 2011, 2012, and 2013, or $51.5 million, $68.5 million, and $57.5 million, respectively, and approximately 45% of our revenue in the nine months ended September�30, 2014, or $34.2 million. 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 display 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 display 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 display advertising revenue earned through our relationships with our advertising partners, such as Google, based on traffic generated from our start experiences. For example, revenue attributable to Charter, CenturyLink (including our revenue attributable to Qwest) and Toshiba together accounted for approximately 62% of our revenue for the year ended December�31, 2011, or $56.9 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other two customers accounting for more than 10% in such period. Revenue attributable to Charter, CenturyLink (including revenue attributable to Qwest), Toshiba and Verizon together accounted for approximately 73% of our revenue for the year ended December�31, 2012, or $88.4 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other three customers accounting for more than 10% in such period. Revenue attributable to Charter, CenturyLink (including revenue attributable to Qwest), Toshiba and Verizon together accounted for approximately 68% of our revenue for the year ended December�31, 2013, or $75.6 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other

28

three customers accounting for more than 10% in such period. Revenue attributable to Charter, CenturyLink (including revenue attributable to Qwest), Toshiba and Verizon together accounted for approximately 67% of our revenue for the nine months ended September�30, 2014, or $50.4 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other three customers accounting for more than 10% in such period.
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 which enables Charter to terminate the agreement upon 90 days written notice, and in June 2014 we entered into an amendment to our agreement with Charter reducing the breadth of the services that we provide to Charter. Accordingly, we expect revenue attributable to Charter 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 display 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 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 net loss of $3.6 million in 2010 and a net loss of $1.4 million in 2013. We experienced a net loss of $6.5 million in the nine months ended September�30, 2014 as compared to a net loss of $1.5 million for the nine months ended September�30, 2013. Our net income in 2009, 2011, and 2012 was $0.3 million, $9.9 million, and $3.8 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 for the nine months ended September�30, 2014 declined as compared to the same period in 2013, and our revenue in 2013 declined as compared to 2012. Accordingly, we 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.

We establish a valuation allowance when it is necessary to reduce deferred income tax assets to an amount for which realization is likely. We have performed the required assessment of positive and negative evidence regarding the realization of deferred income tax assets in accordance with ASC 740 and have considered all available positive and negative evidence to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of its deferred income tax assets. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified.

In evaluating the objective evidence provided by historical results, we considered (among other things) the past three years of cumulative income, projected reversal of deferred tax liabilities, recent and prospective operating results, the ability to carry-back net operating losses generated through December 31, 2013 against taxable income reported in prior years, and that the first year of expiration of our net operating loss carryforwards is 2028. We also considered subjective evidence related to the forecast of expected operating results for the years over the carryforward period. Based on the analysis of positive and negative evidence, we believe that there was enough positive evidence to outweigh the negative evidence so that as of September�30, 2014 no valuation allowance of our deferred tax assets of $7.4 million was necessary.

We will continue to monitor and evaluate the positive and negative evidence considered in arriving at the above conclusion, in order to assess whether such conclusion remains appropriate in future periods.
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. If consumers increasingly access the Internet on devices other than PCs, and if

29

we are unable to successfully implement monetization strategies for such devices, our financial results could be negatively affected. While we are developing solutions to these alternative means of accessing the Internet, including through our acquisitions of mobile device software and technology from Carbyn in January 2012 and Teknision in November 2013, we do not currently offer our customers and their subscribers a wide variety of apps and other non-browser solutions. Additionally, as new devices and new apps are continually being 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 value added 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 upon the installation of our customer's services or the sale of our customer's product, a consumer may easily change that setting, which would likely decrease the use of our start experiences. Similarly, consumers that 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 operations could be negatively impacted. Consumers that 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.
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

30

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 display advertising revenue generated by online consumer traffic on our start experiences, accounted for approximately 86% of our revenue in 2011, approximately 80% in 2012, approximately 83% in 2013, and approximately 86% in the nine months ended September�30, 2014. 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 display advertising revenue. Under our agreements with some of our customers, including Charter, 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 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 display 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

31

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 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:
"
any failure to maintain strong relationships and favorable revenue-sharing arrangements with our search and display 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 display advertisements by advertisers;

"
any failure of significant customers to renew their agreements with us;

"
our ability to attract new customers;

"
our ability to increase sales of value added 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 timing and success of new service and product introductions by us, our customers or our competitors;

"
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 value added 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;


32

"
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

"
general economic, industry and market conditions and those conditions specific to Internet usage and online businesses.
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, 2014 (three months remaining), 2015, 2016, and the two years thereafter are approximately $1.3 million, $1.6 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.
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

33

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 $27.6 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.
Although we regularly back-up our systems and store the system back-ups in Atlanta, Georgia, Dallas, Texas, Lewis Center, Ohio, Denver, Colorado, Amsterdam, the Netherlands, and Buffalo, New York, we do not have full second-site redundancy. 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 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 current 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

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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 in the future continue to seek to, grow through strategic acquisitions. As we strive to return to growth, this may place, 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:

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develop and improve our operational, financial and management controls;

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enhance our reporting systems and procedures;

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recruit, train and retain highly skilled personnel;

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maintain our quality standards; and

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maintain customer and content owner satisfaction.

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 2012, we completed an acquisition of certain mobile device software and technology from Carbyn; in November 2013, we completed an acquisition of certain mobile device software and technology from Teknision; 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:

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incorporating new technologies into our existing business infrastructure;

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consolidating corporate and administrative functions;

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coordinating our sales and marketing functions to incorporate the new business or technology;

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maintaining morale, retaining and integrating key employees to support the new business or technology and managing our expansion in capacity; and


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maintaining standards, controls, procedures and policies (including effective internal controls over financial reporting and disclosure controls and procedures).

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.
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.

We face many risks in connection with our joint venture, including, among other things, with respect to:

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Increasing competition in the industry and the JV Company's ability to compete in the Chinese market through its wholly foreign-owned subsidiary, or WFOE;
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The impact of regulatory changes in the industry;
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Potential difficulties associated with operating the joint venture and the WFOE;
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The joint venture's ability to obtain additional financing;
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The WFOE's ability to offer competitive services in the Chinese market at a favorable margin;
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General business and economic conditions, including seasonality of the industry and growth trends in the industry;
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Our ability to successfully enter the Chinese market and operate internationally;
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Potential delays, including obtaining permits, licenses and other governmental approvals;
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Trade barriers and potential duties; and

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Our and the joint venture's ability to protect intellectual property.

If we and the JV Company are not able to successfully manage these and other risks related to the joint venture, it could harm our business, financial condition and results of operations.

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

36

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 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.

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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 display advertising on our start experiences. Such advertising accounted for approximately 23%, 27%, and 29% of our revenue for the years ended December�31, 2011, 2012, and 2013, respectively, and 33% of our revenue for the nine months ended September�30, 2014. Our ability to attract and retain advertisers and, ultimately, to generate advertising revenue depends on a number of factors, including:

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increasing the numbers of consumers using our start experiences;

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maintaining consumer engagement on those start experiences;

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competing effectively for advertising spending with other online and offline advertising providers; and

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continuing to grow our direct advertising sales force and develop and diversify our advertising capabilities.

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 display advertising revenue, could decline.


38

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, 2013, as indicated in our Management Report on Internal Control over Financial Reporting included in our Annual Report on Form 10K for the year ended December 31, 2013 (as amended), 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 Accepted 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.
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.
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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 September�30, 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

39

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 joint venture's business prospects in China are dependent on government telecommunications infrastructure and budgetary policies, particularly the allocation of funds to sustain the growth of the telecommunications industry in China.
Our joint venture's business prospects in China include telecommunication service operators, and telecommunication service operators in China are directly or indirectly owned or controlled by the government of China. Accordingly, our joint venture's business prospects in China will also be heavily dependent on these government policies. Insufficient future funding allocated to China's telecommunications industry by the government could directly reduce the market for our joint venture's software and services in China. Chinese government initiatives directed at the market could also significantly affect the market conditions for our joint venture's Chinese customers and influence their level of spending on the services we offer. While some of these initiatives may increase market competition and generate more demand for our services, the anticipated increase in demand may not materialize. Our joint venture's prospective customers may not adapt well to the market conditions under the evolving regulatory environment and their demand for our joint venture's software and services may decrease as a result. The telecommunications industry in China may also become less competitive over time, either as a result of market driven consolidations or as a result of government efforts to curtail competition. A less competitive market may create fewer incentives for spending on technology innovations and upgrades, which may directly affect our joint venture's business prospects in China.
Our proprietary rights may be inadequately protected and there is a risk of poor enforcement of intellectual property rights in China.
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. Since the Chinese legal system in general and the intellectual property regime in particular, are relatively weak, it is often difficult to enforce intellectual property rights in China.
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 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

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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 display advertising; our revenue would decline if advertisers do not continue their usage of the Internet as an advertising medium.
We have derived and expect to continue to derive a substantial majority of our revenue from search and display advertising on our start experiences. Such search and display advertising revenue accounted for approximately 79%, 83%, and 81% of our revenue for the years ended December�31, 2011, 2012, and 2013, or $72.1 million, $101.6 million, and $90.4 million, respectively, and 78% of our revenue for the nine months ended September�30, 2014, or $59.0 million. 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:

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significantly greater revenue and financial resources;


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stronger brand and consumer recognition;

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the capacity to leverage their marketing expenditures across a broader portfolio of services and products;

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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;

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pre-existing relationships with content providers that afford them access to content while blocking the access of competitors to that same content;

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pre-existing relationships with high-speed Internet service providers that afford them the opportunity to convert such providers to competing services and products;

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lower labor and development costs; and

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broader global distribution and presence.

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:

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user privacy and expression;

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ability to collect and/or share necessary information that allows us to conduct business on the Internet;

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export compliance;

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pricing and taxation;

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fraud;

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advertising;

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intellectual property rights;

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consumer protection;

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protection of minors;

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content regulation;

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information security; and

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quality of services and products.

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

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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 holders of more than 5% of our common stock, together with their affiliates, beneficially own or control, directly or indirectly, as of November 6, 2014 over 25% 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, 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 trading price of our common stock by:

"
delaying, deferring or preventing a change in our control;

"
impeding a merger, consolidation, takeover or other business combination involving us; or

"
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

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 some 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 our common stock, our stockholders 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

43

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 may lead to the perception of a 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.
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 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:

"
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.

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.

44

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.
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 November 6, 2014, our trading price has ranged from $1.53 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:

"
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 departures of Ronald N. Frankel, our former President and Chief Executive Officer, or 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.

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.
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.

45

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.
Item�2.
Unregistered Sales of Equity Securities and Use of Proceeds
����
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
Period
Total Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2014-January 31, 2014
0
0
0
$0
February 1, 2014-February 28, 2014
0
0
0
$0
March 1, 2014-March 31, 2014
22,000 (1)
$2.5256
22,000 (1)(2)
$4,944,436.80
April 1, 2014-April 30, 2014
103,050 (1)
$2.4784
103,050 (1)(2)
$4,689,037.68
May 1, 2014-May 31, 2014
104,000 (1)
$2.4183
104,000 (1)(2)
$4,437,521.92
June 1, 2014-June 30, 2014
0
0
0
$4,437,521.92
July 1, 2014-July 31, 2014
0
0
0
$4,437,521.92
August 1, 2014-August 31, 2014
0
0
0
$4,437,521.92
September 1, 2014-September 30, 2014
0
0
0
$4,437,521.92
Notes:
(1)
Represents shares of outstanding common stock.

(2)
On March 5, 2014, we announced that our board of directors had approved a Stock Repurchase Program, which authorized the repurchase of up to $5,000,000 worth of or outstanding common stock. The Stock Repurchase Program has no expiration date, and may be suspended or discontinued at any time without notice. All such shares were

46

repurchased under the Stock Repurchase Program. Additionally, as of November 6, 2014, we have repurchased a total of 229,050 shares of our common stock under the Stock Repurchase Program at an average price per share of $2.4557. As of November 6, 2014, we may yet purchase up to $4,437,521.92 worth of our outstanding common stock under the Stock Repurchase Program.
Item�3.
Defaults Upon Senior Securities
Not applicable.
Item�4.
Mine Safety Disclosures
Not applicable.
Item�5.
Other Information

47

On November 11, 2014, our board of directors appointed George Chamoun, one of our executive officers, as President of Sales and Marketing. Prior to such appointment, Mr. Chamoun was our Executive Vice President of Sales and Marketing from June 2009 to November 2014 and was our Senior Vice President of Client Services from December 2000 to June 2009. Mr.�Chamoun was co-founder of Chek, Inc., one of our predecessor companies, and served as its President from January 1998 until its acquisition. Mr.�Chamoun holds a B.A. in Political Science from the State University of New York at Buffalo.
Item�6.
Exhibits
The exhibits listed in the Index to Exhibits (following the signatures page of this Quarterly Report on Form 10-Q) are filed with, or incorporated by reference in, this Quarterly Report on Form 10-Q.

48

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
�
SYNACOR, INC.
November 14, 2014
By:
/s/ HIMESH BHISE
�
�
Himesh Bhise
�
�
President and Chief Executive Officer
�
�
(Principal Executive Officer)
�
�
�
November 14, 2014
By:
/s/ WILLIAM J. STUART
�
�
William J. Stuart
�
�
Chief Financial Officer and Secretary
�
�
(Principal Financial and Accounting Officer)

49

EXHIBIT INDEX
�
�
Exhibit
No.
Exhibit
3.1*
Certificate of Designations of Series A Junior Participating Preferred Stock of Synacor, Inc.
4.1*
Rights Agreement, dated July 14, 2014, between Synacor, Inc. and American Stock Transfer & Trust Company, LLC, which includes the form of Certificate of Designations as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C.
10.1.1!
Employment Letter Agreement with Himesh Bhise dated August 4, 2014.
10.1.2!
Stock Option Agreement with Himesh Bhise granted on August 4, 2014.
10.2
Amendment #5 to Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated as of September 25, 2014.
31.1
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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
101.SCH
XBRL Taxonomy Schema Linkbase Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Definition Linkbase Document
101.LAB
XBRL Taxonomy Labels Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
*
Incorporated by reference to Form 8-K filed on July 15, 2014.
!
Indicates management contract or compensatory plan or arrangement.
Pursuant to Rule�406T of Regulation S-T, the Interactive Data Files on Exhibit�101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section�18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.





50

July 31, 2014
Himesh Bhise

Dear Himesh:
Synacor, Inc. (the Company) is pleased to offer you employment on the following terms:
1. ����Position, Term. Your title will be Chief Executive Officer, and you will at all times report to the Companys Board of Directors (the Board). This is a full-time exempt position. While you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company. By signing this letter agreement (the Agreement), you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company. Upon commencement of your employment you will be appointed to the Companys Board. Without limiting Section 9, the term of this Agreement shall commence on August 4, 2014 (the Effective Date), which shall be the date your employment with the Company commences, and shall continue thereafter for an initial period ending on the third anniversary of the Effective Date. On the third anniversary of the Effective Date and on each successive anniversary of the Effective Date thereafter, this Agreement shall be automatically renewed for successive one-year periods subject to termination by either party upon providing written notice of such termination at least sixty (60) days prior to the end of any such period (the Term).
2. ����Cash Compensation. The Company will pay you a starting salary at the rate of $400,000 per year, payable in accordance with the Companys standard payroll schedule. This salary will be subject to increase, but not decrease, pursuant to the Companys employee compensation policies in effect from time to time. In addition, you will be eligible to be considered for an incentive bonus for each fiscal year of the Company. The bonus (if any) will be awarded based on objective and/or subjective criteria established and approved by the Board or its Compensation Committee after consultation with you. Your target bonus will be equal to 100% of your then annual base salary. Any bonus for the fiscal year in which your employment begins will be prorated, based on the number of days you are employed by the Company during that fiscal year. The bonus for a fiscal year will be paid after the Companys books for that year have been closed (but in any event within 2� months after the close of that fiscal year) but only if you are employed by the Company at the time of payment, except as is otherwise provided in Section 6. The determinations of the Board with respect to your bonus will be final and binding. In addition, upon the commencement of your employment, the Company will pay you a signing bonus of $40,000.
3.����Employee Benefits. As a regular employee of the Company, you will be eligible to participate in all Company-sponsored benefits provided to executive officers. In addition, you will be entitled to paid vacation in accordance with the Companys vacation policy, as in effect from time to time.
4.����Equity Compensation. Upon commencement of your employment, you will receive a grant of an option to purchase 2,001,338 shares of the Companys common stock (representing 6% of the Companys common stock on a fully diluted and as converted basis) (the Grant). You will vest in 25% of the Grant on the one year anniversary of your employment, and the balance of the Grant will vest in equal monthly installments over the next 36 months. In

����


addition, (a) if the Company undergoes a Change of Control before your service with the Company terminates and, within twelve months after such Change of Control the Company (or the surviving corporation) terminates your employment for any reason other than Cause or Permanent Disability or you terminate your employment for Good Reason and a Separation occurs, then (1) if such Change of Control occurs within the first 12 months after the Effective Date, the vested portion of the Grant shall be determined by adding 36 months to your actual service, and (2) if such Change of Control occurs after the date that is 12 months after the Effective Date, then 100% of the then unvested shares of your Grant will immediately vest and be exercisable and (b) if the Company terminates your employment for any reason other than Cause or Permanent Disability or you terminate your employment for Good Reason, in each case prior to a Change of Control, and a Separation occurs, then the vested portion of the Grant shall be determined by adding 12 months to your actual service.
5. ����Travel Expenses. Your principal place of business will be at the Companys headquarters in Buffalo, NY. You agree to rent an apartment in the Buffalo, NY area within four months after your commencement of employment. The Company will reimburse you for reasonable travel expenses commuting from the Philadelphia, PA area to the Companys headquarters and will provide a stipend of $2,000 per month for an apartment and other living expenses in the Buffalo, NY area.
6.����Severance Pay.
(a)����General. Subject to this Section 6 and the other terms and conditions of this Agreement, you or the Company may terminate your employment at any time for any reason or no reason. If the Company terminates your employment without Cause, or terminates this Agreement prior to the Effective Date, or if you terminate your employment for Good Reason, and a Separation occurs (a Qualified Termination), then you will be entitled to the benefits described in this Section 6. However, this Section 6 will not apply unless you (i)�have returned all Company property in your possession, (ii)�have resigned as a member of the Boards of Directors of the Company and all of its subsidiaries, to the extent applicable, and (iii)�have executed a general release of all claims that you may have against the Company or persons affiliated with the Company with respect to your employment or termination of your employment. The release will be in the form attached hereto as Exhibit A. You must execute and return the release on or before the date specified by the Company in the prescribed form (the Release Deadline). The Release Deadline will in no event be later than 50 days after your Separation. If you fail to return the release on or before the Release Deadline, or if you revoke the release, then you will not be entitled to the benefits described in this Section�6. If your employment terminates for any reason other than a Qualified Termination, then you will be entitled only to payment of salary and benefits accrued through the date of your termination and any rights to benefits otherwise provided for under the terms of the applicable employee benefit plan.
(b)����Salary Continuation. If you experience a Qualified Termination then (i) the Company will continue to pay your then-annual base salary for a period of twelve months after your Separation, (ii) the Company will pay you any earned but unpaid bonus for the year preceding the year in which your employment is terminated, payable on the same date as bonuses are paid to other executives with respect to such fiscal year and (iii) if you are eligible for and properly elect to continue group health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) after your Separation, the Company will pay the monthly premium under COBRA for you and, if applicable, your dependents for a twelve-month period following your Separation. In addition, if such Qualified Termination occurs within 12 months following a Change of Control, then the Company will also pay you an amount equal to your annual target bonus amount for the year in which the termination occurs, payable in installments accordance with the Companys standard payroll procedures over a twelve-month period. Your base salary will be paid at the rate in effect at the time of your Separation and in accordance with the Companys standard payroll procedures. The salary continuation payments and, if applicable, target bonus payments, will commence on the Companys first payroll that occurs on or following the 61st day after your Separation and, once they commence, will include any unpaid amounts accrued from the date of your Separation. Any amounts you earn through subsequent employment or otherwise shall not reduce any payments to which you are entitled hereunder.

����
2


(c)����Section 409A. For purposes of Section�409A of the Code, each salary continuation payment under Section�6(b) is hereby designated as a separate payment. If the Company determines that you are a specified employee under Section�409A(a)(2)(B)(i) of the Code at the time of your Separation, then (i)�the salary continuation payments under Section�6(b), to the extent that they are subject to Section�409A of the Code, will commence on the first business day following the earlier of (a) the expiration of the six-month period measured from the Separation or (b) your death after your Separation and (ii)�the installments that otherwise would have been paid during the first six months after your Separation will be paid in a lump sum when the salary continuation payments commence. Additionally, in the event that following this Agreements effective date Company reasonably determines that any compensation or benefits payable under this Agreement may be subject to Section 409A of the Code, Company and you shall work together to adopt such amendments to this Agreement or adopt other policies or procedures (including amendments, policies and procedures with retroactive effect), or take any other commercially reasonable actions necessary or appropriate to (x) exempt compensation and benefits payable under this Agreement from Section 409A of the Code and/or preserve the intended tax treatment of compensation and benefits provided with respect to this Agreement or (y) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance. With respect to expenses eligible for reimbursement or any in-kind benefits to be paid or provided under the terms of the Agreement, (i) the amount of such expenses eligible for reimbursement in any taxable year or in-kind benefits provided during any tax year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in another taxable year, (ii) any reimbursements of such expenses shall be made no later than the end of the calendar year following the calendar year in which the related expenses were incurred and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
(d)����Potential Payment Reduction. Notwithstanding any other provisions in this Agreement, in the event that any payment or benefit received or to be received by you (including, without limitation, any payment or benefit received in connection with a Change in Control or the termination of your employment, whether pursuant to the terms of this Agreement or any other plan, program, arrangement or agreement) (all such payments and benefits, together, the Total Payments) would be subject (in whole or in part) to any excise tax imposed under Section 4999 of the Code, or any successor provision thereto (the Excise Tax), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, agreement, arrangement or program, the Total Payments shall be reduced (but in no event to less than zero) in the following order to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax: (i) cash payments that do not constitute deferred compensation within the meaning of Section 409A of the Code, (ii) acceleration of vesting of equity and equity-based awards and non-cash benefits that do not constitute deferred compensation within the meaning of Section 409A of the Code and (iii) all other cash payments, acceleration of vesting of equity and equity-based awards and non-cash benefits that do constitute deferred compensation within the meaning of Section 409A of the Code (the payments and benefits in clauses (i), (ii) and (iii), together, the Potential Payments); provided, however, that the Potential Payments shall only be reduced if (a) the net amount of the Total Payments, as so reduced (and after subtracting the net amount of federal, state, municipal and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (b) the net amount of the Total Payments without such reduction (but after subtracting the net amount of federal, state, municipal and local income taxes on such Total Payments and the amount of Excise Tax to which you would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). All determination under this Section 6(d) shall be made by a nationally recognized accounting firm or law firm selected by the Company (the Tax Advisor). The Company and you will each provide the Tax Advisor access to and copies of any books, records and documents in the possession of the Company or Employee, as the case may be, reasonably requested by the Tax Advisor, and otherwise cooperate with the Tax Advisor in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 6(d).

����
3


7.����Proprietary Information and Inventions Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Companys standard Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit�B.
8.����Attorneys Fees. The Company shall reimburse you for all reasonable legal fees and expenses incurred in connection with his review and negotiation of this offer letter and documentation with respect to his Option executed in connection herewith, subject to appropriate documentation of same, up to a maximum of $5,000.
9.����Withholding Taxes. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You are encouraged to obtain your own tax advice regarding your compensation from the Company. You agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or the Board related to tax liabilities arising from your compensation.
10.����Interpretation, Amendment and Enforcement. This Agreement and the exhibits hereto constitute the complete agreement between you and the Company, contain all of the terms of your employment with the Company and supersede any prior agreements, representations or understandings (whether written, oral or implied) between you and the Company. This Agreement may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of the Company. The terms of this Agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this Agreement or arising out of, related to, or in any way connected with, this Agreement, your employment with the Company or any other relationship between you and the Company (the Disputes) will be governed by New York law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in New York in connection with any Dispute or any claim related to any Dispute.
11.����Assignment. This Agreement and all of your rights and obligations hereunder are personal to you and may not be transferred or assigned by you at any time. This Agreement shall be binding on any successor to the Company in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the Company shall mean the Company and any successor to all or substantially all of its business and/or assets, which assumes and agrees to perform this Agreement by operation of law, or otherwise. This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his estate.
12.����Notices. Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally delivered in writing to the person being served or the designated officer of the corporate party being served; deposited in the United States mail, first class, registered or certified with return receipt requested, postage prepaid and addressed as specified below to the person otherwise designated, on the date of receipt, refusal or non-delivery indicated on the return receipt; sent by overnight mail; or sent by telecopier; and addressed to the Company at its headquarters and to you at your most recent address on file with the Company.
13.����Indemnification. You and the Company will enter into an indemnification agreement, in the form attached hereto as Exhibit C.
14.����Definitions. The following terms have the meaning set forth below wherever they are used in this Agreement:
Cause means (a)�your unauthorized use or disclosure of the Companys confidential information or trade secrets, which use or disclosure causes material harm to the Company, (b)�your material breach of Agreement or the Proprietary Information and Inventions Agreement between you and the Company, (c)�your material failure to

����
4


comply with the Companys material written policies or rules, (d)�your conviction of, or your plea of guilty or no contest to, a felony under the laws of the United States or any State, or (e)�your gross negligence or willful misconduct in the performance of your duties, provided that, in the case of clauses (c) or (e), (A) the Company has given written notice to you of the facts and circumstances as the basis for a termination for Cause within 30 days following the Companys knowledge of such facts and circumstances, (B) you do not remedy the circumstances constituting Cause within 10 business days after receipt of such notice to cure, and (C) the Company terminates you within 120 days following its knowledge of such facts and circumstances.
Change of Control means:
(a)����the consummation of any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction;
(b)����the sale, transfer or other disposition of all or substantially all of the Companys assets;
(c)����a change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either:
(i)����had been directors of the Company on the date 24 months prior to the date of such change in the composition of the Board (the Original Directors); or
(ii)����were appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A)�the Original Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this Paragraph�(ii); or
(d)����Any transaction or series of related transactions as a result of which any person becomes the beneficial owner (as defined in Rule�13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Companys then outstanding voting securities. For purposes of this Subsection�(d), the term person shall have the same meaning as when used in sections�13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but shall exclude (i)�a trustee or other fiduciary holding securities under an employee benefit plan of the Company and (ii)�a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.
A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Companys incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction. In addition, a transaction will not constitute a Change of Control unless such transaction also constitutes a change in control event as defined in Treasury Regulation �1.409A-3(i)(5).
Code means the Internal Revenue Code of 1986, as amended.
Good Reason means the occurrence of any of the following, without your consent (i) a material diminution in your duties, authority, responsibilities or title (which shall include for the avoidance of doubt, serving as a member of the Board or reporting directly to the Board), (ii) a reduction in your then current salary or bonus target

����
5


percentage, (iii) the Companys material breach of this Agreement, (iv) the requirement that you relocate your family and primary residence or (v) the Company provides a notice of non-renewal of the then-current Term; provided that (A) you have given written notice to the Company of the facts and circumstances as the basis for a resignation for Good Reason within 30 days following your knowledge of such facts and circumstances, (B) the Company does not remedy the circumstances constituting Good Reason within 30 business days after receipt of such notice to cure, which cure in the event that it relates to subsection (ii) shall include a retroactive adjustment in compensation, and (C) you resign within 120 days following your knowledge of such facts and circumstances.
Permanent Disability means that you are unable to perform the essential functions of your position, with or without reasonable accommodation, for a period of at least 120 consecutive days because of a physical or mental impairment.
Separation means a separation from service, as defined in the regulations under Section 409A of the Code.
* * * * *

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6


We hope that you will accept our offer to join the Company. You may indicate your agreement with these terms and accept this offer by signing and dating both the enclosed duplicate original of this Agreement and the enclosed Proprietary Information and Inventions Agreement and Indemnification Agreement and returning them to me. As required by law, your employment with the Company is contingent upon your providing legal proof of your identity and authorization to work in the United States.

Himesh, we are very pleased to be presenting you with this offer. We are confident that your skills, enthusiasm and professionalism will add to Synacors success while creating the opportunities and rewards that will help you achieve your professional goals. We look forward to having you as a part of our team.

Very truly yours,
�
SYNACOR, INC.
�
�
�
�
/s/ Jordan Levy
�
JORDAY LEVY
�
CHAIRMAN OF THE BOARD OF DIRECTORS
�


I have read and accept this employment offer:


�
/s/ Himesh Bhise
�
Signature of Himesh Bhise
�


�
Dated:
July�31, 2014
�
����
Attachments

Exhibit A: Form of Release
Exhibit B: Proprietary Information and Inventions Agreement
Exhibit C: Indemnification Agreement

����
7


SYNACOR, INC.
INDUCEMENT GRANT
NOTICE OF STOCK OPTION GRANT
(EARLY EXERCISE)

The Optionee whose name is set forth below has been granted the following option to purchase shares of the common stock of Synacor, Inc. (the Company):
�
Name of Optionee:
�
Himesh Bhise
�
Total Number of Shares:
�
2,001,338
�
Type of Option:
�
Nonstatutory Stock Option
�
Exercise Price per Share:
�
$2.38
�
Date of Grant:
�
August 4, 2014
�
Vesting Commencement Date:
�
August 4, 2014
�
Date Exercisable:
�
This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
�
Vesting Schedule:
�
This option vests with respect to the first 25% of the shares subject to this option when the Optionee completes 12 months of continuous Service (as defined in the attached Stock Option Agreement) from the Vesting Commencement Date. Thereafter, this option vests with respect to an additional 2.083% of the shares subject to this option when the Optionee completes each additional month of continuous Service. This option may vest on an accelerated basis as set forth in Section 4 of the Stock Option Agreement.
�
Expiration Date:
�
August 3, 2024. This option expires earlier if the Optionees Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in the attached Stock Option Agreement.
The Optionee and the Company agree that this option is granted under this Notice of Stock Option Grant and the Stock Option Agreement, which is attached to, and made a part of, this document.
The Optionee further agrees to accept by email all documents relating to the Stock Option Agreement or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify the Optionee by email.
The Optionee further agrees to comply with the Companys Insider Trading Policy when selling shares of the Companys common stock.
OPTIONEE
�
�
SYNACOR, INC.
�
�
�
�
�
�
�
/s/ Himesh Bhise
�
�
By:
/s/ Jordan Levy
�
�
�
�
�
Title:
Chairman


����




SYNACOR, INC.
INDUCEMENT GRANT
STOCK OPTION AGREEMENT
WHEREAS, the Optionee is a new Employee who either (i) has not previously served as an Employee or director of the Company, or (ii) has entered into a new employment relationship with the Company following a bona fide period of non-employment; and
WHEREAS, the Compensation Committee of the Board or a majority of the Companys Independent Directors has determined that the Optionee shall be granted an option under this Agreement as an inducement material to the Optionees entering into employment with the Company.
The parties hereby agree to the following:
1.Purpose of Option. The purpose of this option is to provide an inducement material to the Optionee entering into employment with the Company. This option is intended to encourage ownership in the Company by an individual whose long-term employment or other service relationship with the Company is considered essential to the Companys continued progress and, thereby, encourage the Optionee to act in the shareholders interest and share in the Companys success. This option is intended to be exempt from the shareholder approval requirements pursuant to the inducement grant exception provided by Rule 5635(c)(4) of the Nasdaq Listing Rules.
2.Grant of Option. Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Agreement, the Company has granted the Optionee an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.
3.Administration of Option.
3.1����Procedures; Administrative Bodies. This Agreement shall be administered by the Board, the Committee and/or their delegates. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act (Rule 16b-3), this option shall be granted by the entire Board or a Committee of two or more non-employee directors within the meaning of Rule 16b-3. In order to comply with any applicable Nasdaq or other stock exchange listing requirements, this option is granted by the Compensation Committee of the Board or a majority of the Companys Independent Directors and will be administered in a manner that complies with such requirements. Except to the extent prohibited by applicable law, the Administrator may delegate to one or more individuals the day-to-day administration of this option. Such delegation may be revoked at any time.
3.2����Powers of the Administrator. Subject to the provisions of this option and, in the case of a Committee or delegates acting as the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator shall have the authority, in its discretion to (i)�determine the terms and conditions of this option, including but are not limited to, any vesting and/or exercisability acceleration or waiver of forfeiture restrictions, the acceptable forms of consideration, and any restriction or limitation regarding any Shares relating hereto, (ii)�determine whether and to what extent any performance goals have been attained, (iii) interpret the option, (iv) make, amend and rescind rules relating to the option, (v) impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Optionee of any Shares issued pursuant to the option, including restrictions under an insider trading policy and restrictions as to the use of a specified brokerage firm for such resales, and (vi) make all other decisions relating to the operation of the option.
3.3����Effect of Administrators Decision. The Administrators decisions, determinations and interpretations shall be final and binding on the Optionee.
4.Exercisability and Vesting.

����




4.1����This option is immediately exercisable with respect to all or any part of the option (however, this option may not be exercised for fractional shares), as set forth in the Notice of Stock Option Grant.
4.2����This option vests in accordance with the vesting schedule set forth in the Notice of Stock Option Grant. In no event will this option vest for additional shares after the Optionees Service has terminated for any reason. In addition, (a) if the Company undergoes a Change of Control before the Optionees Service terminates and, within twelve months after such Change of Control the Company (or the surviving corporation) terminates the Optionees Service for any reason other than Cause or Permanent Disability or the Optionee terminates his Service for Good Reason and a Separation occurs, then (1) if such Change of Control occurs within the first 12 months of the Optionees Service, the vested portion of this option shall be determined by adding 36 months to the Optionees actual Service, and (2) if such Change of Control occurs after 12 months of the Optionees Service, then 100% of this option will immediately vest and (b) if the Company terminates the Optionees Service for any reason other than Cause or Permanent Disability or the Optionee terminates his Service for Good Reason, in each case, prior to a Change of Control, and a Separation occurs, then the vested portion of this option shall be determined by adding 12 months to the Optionees actual Service.
5.Method of Exercise.

����




5.1����When the Optionee wishes to exercise this option, the Optionee must notify the Company by filing the proper Notice of Exercise form at the address given on the form or, if the Company has designated a brokerage firm to administer this option, the Optionee must notify such brokerage firm in the manner such brokerage firm requires. The Optionees notice must specify how many shares the Optionee wishes to purchase. The notice will be effective when the Company receives it. However, if the Optionee wishes to exercise this option by executing a same-day sale (as described below), the Optionee must follow the instructions of the Company and the broker who will execute the sale. Except in the case of the Optionees death, this option can only be exercised by the Optionee. If someone else wants to exercise this option after the Optionees death or Permanent Disability, that person must prove to the Companys satisfaction that he or she is entitled to do so.
5.2����The entire Exercise Price of Shares issued upon exercise of the option shall be payable in cash or cash equivalents at the time when such Shares are purchased. In addition, the Administrator may, in its sole discretion and to the extent permitted by applicable law, accept payment of all or a portion of the Exercise Price through any one or a combination of the following forms or methods:
(a)����By delivering to the Company a personal check, a cashiers check or a money order, or arranging for a wire transfer.
(b)����By delivering to the Company certificates for shares of Company stock that the Optionee owns, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering shares of Company stock, the Optionee may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to the Optionee;
(c)����By giving to a securities broker approved by the Company irrevocable directions to sell all or part of the Optionees option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to the Optionee.) The directions must be given in accordance with the instructions of the Company and the broker. This exercise method is sometimes called a same-day sale;
(d)����Subject to such conditions and requirements as the Administrator may impose from time to time, through a net exercise procedure;
(e)����Through any other form or method consistent with applicable laws, regulations and rules.
5.3����This option may be exercised only for whole Shares.
5.4����The Company will not permit the Optionee to exercise this option if the issuance of shares at that time would violate any law or regulation.
5.5����Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from the Optionees former spouse, nor is the Company obligated to recognize the Optionees former spouses interest in the Optionees option in any other way.
6.Right of Repurchase.
6.1����Until they vest in accordance with the Notice of Stock Option Grant, the Shares acquired under this Agreement shall be Restricted Shares. Except as permitted by the following sentence, the Optionee may not sell, transfer, pledge or otherwise dispose of any Restricted Shares without the written consent of the Company. The Optionee may transfer Restricted Shares to the Optionees spouse, children or grandchildren, or to a trust established by the Optionee for the benefit of the Optionee, the Optionees spouse, children and/or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this

����




Agreement. If Restricted Shares are subject to a stock split, stock dividend or similar transaction, then the additional shares the Optionee receive as a result will also be Restricted Shares.
6.2����If the Optionees Service terminates for any reason, the Company may repurchase any Restricted Shares then held by the Optionee for a purchase price equal to the lower of (i) the exercise price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the right of repurchase is exercised. If the Company wishes to exercise its right to repurchase the Restricted Shares, it must do so within 120 days of the termination of the Optionees Service. The Company may exercise its right to repurchase by providing notice to the Optionee, however, the Company will be deemed to automatically exercise its right of repurchase if it does not notify the Optionee within 120 days of the termination of the Optionees Service that it is declining to do so.
6.3����If the Company exercises its right to repurchase the Optionees Restricted Shares, the Company will send the Optionee a check or otherwise remit payment to the Optionee in an amount equal to the repurchase price described in the preceding paragraph. Upon the Optionees receipt of such payment, the Optionee will no longer have any rights with respect to the Restricted Shares (including the right to vote or transfer the shares) and the Restricted Shares will be deemed to have been repurchased by the Company.
6.4����Restricted Shares will bear a legend referring to the Companys right of repurchase and any certificates issued representing Restricted Shares may be held in escrow by the Company. As the Optionees vested percentage increases, the Optionee may request (at reasonable intervals) that the Company release to the Optionee a non-legended certificate for the Optionees vested shares.
7.Termination of Service.
7.1����This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (This option will expire earlier if the Optionees Service terminates, as described below, and this option may be terminated earlier as provided below.)
7.2����If the Optionees Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of the Optionees termination date and does not vest as a result of the Optionees termination of Service. The Company determines when the Optionees Service terminates for this purpose.
7.3����If the Optionees Service terminates for any reason except death or Permanent Disability, then this option, to the extent vested as of the Optionees termination date, will expire at the close of business at Company headquarters on the date three months after the Optionees termination date.
7.4����If the Optionee dies before the Optionees Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
7.5����If the Optionees Service terminates because of the Optionees Permanent Disability, then this option will expire at the close of business at Company headquarters on the date 12 months after the Optionees termination date.
8.Adjustments; Dissolutions and Liquidations; Corporate Transactions.

����




8.1����Adjustments. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares or a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, corresponding proportionate adjustments shall automatically be made in (i) the number and kind of shares covered by this option, and (ii) the Exercise Price of this option and the repurchase price applicable to Restricted Shares.
In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a recapitalization, a spin-off or a similar occurrence, the Administrator shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing. Any adjustment in the number of and kind of shares subject to this option under this Section 8.1 shall be rounded down to the nearest whole share, although the Administrator in its sole discretion may make a cash payment in lieu of a fractional share. Except as provided in this Section 8, the Optionee shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.
8.2����Dissolution or Liquidation. To the extent not previously exercised or settled this option shall terminate immediately prior to the dissolution or liquidation of the Company.
8.3����Corporate Transactions. In the event that the Company is a party to a merger, consolidation or Change of Control (other than one described in Section 18.6(c)), this option, to the extent outstanding on the date of such transaction shall be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which the Company is party, in the manner determined by the Administrator, with such determination having final and binding effect on all parties), which agreement or determination need not treat all portions of this option in an identical manner. The treatment specified in the transaction agreement or by the Administrator shall include one or more of the following:
1.
The continuation of this option by the Company (if the Company is the surviving entity);
2.
The assumption of this option by the surviving entity or its parent, provided that such assumption shall comply with applicable tax requirements;
3.
The substitution by the surviving entity or its parent of an equivalent award (including, but not limited to, an award to acquire the same consideration paid to the holders of Shares in the transaction), provided that such substitution shall comply with applicable tax requirements; and
4.
The cancellation of this option and a payment to the Optionee with respect to each Share subject to this option (whether or not then vested) equal to the excess of (i)�the value, as determined by the Administrator in its absolute discretion, of the property (including cash) received by the holder of a Share as a result of the transaction, over (ii) the per-share Exercise Price of this option (such excess, the Spread). Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving entity or its parent having a value equal to the Spread. In addition, any escrow, holdback, earn-out or similar provisions in the transaction agreement may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of Shares, but only to the extent the application of such provisions does not adversely affect the status of this option as exempt from Code Section 409A. If the Spread is zero or a negative number, then this option may be cancelled without making a payment to the Optionee.
Any action taken under this Section 8.3 shall either preserve this options status as exempt from Code Section 409A or comply with Code Section 409A.
9.Tax Treatment.

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9.1����This option is intended to be a nonstatutory stock option, as provided in the Notice of Stock Option Grant.
9.2����The Optionee will not be allowed to exercise this option unless the Optionee makes arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. These arrangements include payment in cash. With the Companys consent, these arrangements may also include (a)�payment from the proceeds of the sale of shares through a Company-approved broker, (b)�withholding shares of Company stock that otherwise would be issued to the Optionee when the Optionee exercises this option with a fair market value no greater than the minimum amount required to be withheld by law, (c)�surrendering shares that the Optionee previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d)�withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
10.Transferability. Prior to the Optionees death, only the Optionee may exercise this option. The Optionee cannot transfer or assign this option. For instance, the Optionee may not sell this option or use it as security for a loan. If the Optionee attempts to do any of these things, this option will immediately become invalid. The Optionee may, however, dispose of this option in the Optionees will or by means of a written beneficiary designation; provided that the Optionees beneficiary or a representative of the Optionees estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement as if such beneficiary or the estate were the Optionee.
11.Restrictions on Resale. The Optionee will not sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as the Optionees Service continues and for such period of time after the termination of the Optionees Service as the Company may specify.
12.Leaves of Absence and Part-Time Work. For purposes of this option, the Optionees Service does not terminate when the Optionee goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Companys leave of absence policy, or the terms of the Optionees leave. However, the Optionees Service terminates when the approved leave ends, unless the Optionee immediately returns to active work. If the Optionee goes on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Companys leave of absence policy or the terms of the Optionees leave. If the Optionee commences working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with the Optionees reduced work schedule.
13.Modification or Assumption of Option. Within the limitations of this Agreement, the Administrator may modify, reprice or extend this options. The foregoing notwithstanding, no modification of this option shall, without the consent of the Optionee, impair his or her rights or obligations under this option.
14.Option not a Service Contract. Nothing in this option or this Agreement gives the Optionee the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate the Optionees Service at any time, with or without cause.
15.Stockholder Rights. The Optionee, or the Optionees estate or heirs, has no rights as a stockholder of the Company until the Optionee has exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before the Optionee exercises this option, except as described herein.
16.Applicable Law. This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).

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17.Other Agreements. This Agreement and the Notice of Stock Option Grant constitute the entire understanding between the Optionee and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.
18.Definitions.
18.1����Affiliate means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity, or any entity that does not qualify as a Subsidiary but does qualify as a subsidiary under Rule 405 of the Securities Act of 1933, as amended.
18.2����Administrator means the Board or any Committees as will be administering the option in accordance with Section 3.
18.3����Agreement means this Stock Option Agreement, including the Notice of Stock Option Grant to which this Stock Option Agreement is attached.
18.4����Board means the Board of Directors of the Company.
18.5����Cause means (a) the Optionees unauthorized use or disclosure of the Companys confidential information or trade secrets, which use or disclosure causes material harm to the Company, (b) the Optionees material breach of his employment offer letter or Proprietary Information and Inventions Agreement, in each case, between the Optionee and the Company, (c) the Optionees material failure to comply with the Companys material written policies or rules, (d) the Optionees conviction of, or the Optionees plea of guilty or no contest to, a felony under the laws of the United States or any State, (e) the Optionees gross negligence or willful misconduct in the performance of the Optionees duties, provided that,in the case of clauses (c) or (e), (A) the Company has given the Optionee written notice of the facts and circumstances as the basis for a termination for Cause within 30 days following the Companys knowledge of such facts and circumstances, (B) the Optionee does not remedy the circumstances constituting Cause within 10 business days after receipt of such notice to cure, and (C) the Company terminates the Optionee within 120 days following its knowledge of such facts and circumstances.
18.6����Change of Control means:
(a)����the consummation of any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction;
(b)����the sale, transfer or other disposition of all or substantially all of the Companys assets;
(c)����a change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either:
(i)����had been directors of the Company on the date 24 months prior to the date of such change in the composition of the Board (the Original Directors); or
(ii)����were appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A)�the Original Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this Paragraph�(ii); or

����




(d)����Any transaction or series of related transactions as a result of which any person becomes the beneficial owner (as defined in Rule�13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Companys then outstanding voting securities. For purposes of this Subsection�(d), the term person shall have the same meaning as when used in sections�13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but shall exclude (i)�a trustee or other fiduciary holding securities under an employee benefit plan of the Company and (ii)�a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.
A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Companys incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction. In addition, a transaction will not constitute a Change of Control unless such transaction also constitutes a change in control event as defined in Treasury Regulation �1.409A-3(i)(5).
18.7����Code means the Internal Revenue Code of 1986, as amended.
18.8����Committee means a Committee of one or more members of the Board or of other individuals satisfying applicable laws appointed by the Board to administer this option.
18.9����Company means Synacor, Inc., a Delaware corporation.
18.10����Employee means a commonlaw employee of the Company, a Parent, a Subsidiary or an Affiliate.
18.11����Exercise Price means the amount for which one Share may be purchased upon exercise of this option, as set forth in the Notice of Stock Option Grant.
18.12����Fair Market Value means the closing price of a Share on any established stock exchange or a national market system on the applicable date or, if the applicable date is not a trading day, on the last trading day prior to the applicable date, as reported in a source that the Administrator deems reliable. If Shares are no longer traded on an established stock exchange or a national market system, the Fair Market Value shall be determined by the Administrator in good faith on such basis as it deems appropriate. The Administrators determination shall be conclusive and binding on all persons.
18.13����Good Reason means the occurrence of any of the following, without the Optionees consent (i) a material diminution in the Optionees duties, authority, responsibilities or title (which shall include for the avoidance of doubt, serving as a member of the Board or reporting directly to the Board), (ii) a reduction in the Optionees then current salary or bonus target percentage, (iii) the Companys material breach of the employment offer letter between the Optionee and the Company, (iv) the requirement that the Optionee relocate the Optionees family or primary residence or (v) the Company provides a notice of non-renewal of the then-current term of the employment offer letter between the Optionee and the Company; provided that (A) the Optionee has given written notice to the Company of the facts and circumstances as the basis for a resignation for Good Reason within 30 days following the Optionees knowledge of such facts and circumstances, (B) the Company does not remedy the circumstances constituting Good Reason within 30 business days after receipt of such notice to cure, which cure in the event that it relates to subsection (ii) shall include a retroactive adjustment in compensation, and (C) the Optionee resigns within 120 days following the Optionees knowledge of such facts and circumstances.
18.14����Independent Director means a member of the Board who is an independent director within the meaning of Nasdaq Listing Rule 5605.
18.15����Optionee means the individual named in the Notice of Stock Option Grant.
18.16����Parent means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing

����




50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the date hereof shall be considered a Parent commencing as of such date.
18.17����Permanent Disability means that the Optionee is unable to perform the essential functions of the Optionees position, with or without reasonable accommodation, for a period of at least 120 consecutive days because of a physical or mental impairment.
18.18����Restricted Shares shall have the meaning set forth in Section 6.1.
18.19����Rule 16b-3 shall have the meaning set forth in Section 3.1.
18.20����Separation means a separation from service, as defined in the regulations under Section 409A of the Code.
18.21����Service means service as an Employee.
18.22����Share means one share of the common stock of the Company.
18.23����Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the date hereof shall be considered a Subsidiary commencing as of such date.

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, THE OPTIONEE AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE.


����


AMENDMENT #5
TO
MASTER SERVICES AND LINKING AGREEMENT




This Amendment #5 to the Master Services and Linking Agreement (Amendment) effective as of June 30, 2014 (Amendment Effective Date) is between Synacor, Inc. (Synacor) and Toshiba America Information Systems, Inc. (Client) under which the parties hereby mutually agree to modify and amend the Master Services and Linking Agreement entered into as of July 1, 2010 (including the exhibits, schedules and amendments thereto, the Agreement).

1.0
Term: Pursuant to Section 7.2 of the Agreement, the parties hereby agree to renew the Agreement however the parties agree that the Renewal Term shall be for two (2) years ending on September 30, 2016, rather than for one (1) year as provided for in Section 7.2.

2.0
Scope of the Amendment: This Amendment supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among the parties relating to the subject matter of this Amendment and all past dealing or industry custom. This Amendment shall be integrated into and shall form a part of the Agreement upon execution. All terms and conditions of the Agreement shall remain unchanged except as expressly modified in this Amendment and the terms of the Agreement, as modified by this Amendment, are hereby ratified and confirmed. Where the terms of the Agreement conflict with those of this Amendment, however, the terms of this Amendment shall control. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the Amendment Effective Date.

SYNACOR, INC.

TOSHIBA AMERICA INFORMATION




SYSTEMS, INC.








By:
/s/ George C. Chamoun


By:
/s/ Mark A. Simons

Name:
George C. Chamoun


Name:
Mark A. Simons

Title:
Executive Vice President of Sales and Marketing


Title:
President & CEO

















Exhibit 31.1
CERTIFICATIONS
I, Himesh Bhise, certify that:
1.
I have reviewed this Quarterly Report on Form�10-Q 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 registrants other certifying officer(s) 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: November�14, 2014
/s/ Himesh Bhise
Chief Executive Officer




Exhibit 31.2
CERTIFICATIONS
I, William J. Stuart, certify that:
1.
I have reviewed this Quarterly Report on Form�10-Q 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 registrants other certifying officer(s) 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: November�14, 2014
/s/ William J. Stuart
Chief Financial 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 Quarterly Report of Synacor,�Inc. on Form�10-Q for the quarterly period ended September�30, 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-Q fairly presents, in all material respects, the financial condition and results of operations of Synacor,�Inc.
November 14, 2014
/s/ Himesh Bhise
�
Himesh Bhise
�
President and Chief Executive Officer
�
(Principal Executive Officer)
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 Quarterly Report of Synacor,�Inc. on Form�10-Q for the quarterly period ended September�30, 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-Q fairly presents, in all material respects, the financial condition and results of operations of Synacor,�Inc.
November 14, 2014
/s/ William J. Stuart
�
William J. Stuart
�
Chief Financial Officer
�
(Principal Financial and Accounting Officer)
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-Q 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-Q), irrespective of any general incorporation language contained in such filing.



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