Form 6-K

0001193125-17-073311.txt : 20170307 0001193125-17-073311.hdr.sgml : 20170307 20170307161503 ACCESSION NUMBER: 0001193125-17-073311 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20170307 FILED AS OF DATE: 20170307 DATE AS OF CHANGE: 20170307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Mimecast Ltd CENTRAL INDEX KEY: 0001644675 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 STATE OF INCORPORATION: X0 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37637 FILM NUMBER: 17672123 BUSINESS ADDRESS: STREET 1: ONE ROPEMAKER STREET CITY: LONDON STATE: X0 ZIP: EC2Y 9AW BUSINESS PHONE: 44(0)2078478700 MAIL ADDRESS: STREET 1: ONE ROPEMAKER STREET CITY: LONDON STATE: X0 ZIP: EC2Y 9AW 6-K 1 d285766d6k.htm FORM 6-K Form 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

March 7, 2017

MIMECAST LIMITED

CityPoint, One Ropemaker Street,

Moorgate London EC2Y 9AW

United Kingdom

Tel: +44 0207 847 8700

(Address, Including ZIP Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

On November 21, 2016, Mimecast Limited, a public limited company organized under the laws of the Bailiwick of Jersey (the “Company” or “Mimecast”), and its indirectly wholly owned subsidiary, Mimecast Development Limited, a company incorporated under the laws of England and Wales (“MDL”), completed the acquisition of substantially all of the assets of iSheriff, Inc. (“iSheriff”) pursuant to the terms of that certain Asset Purchase Agreement (the “Purchase Agreement”) dated November 21, 2016 by and among MDL, the Company, iSheriff and Updata Partners IV, L.P. et. al., (the “Acquisition”).

The total preliminary purchase price of $6.2 million consisted of a cash payment of approximately $5.6 million, subject to certain adjustments, and $0.6 million in purchase price held back in respect of claims for indemnification for one year from the purchase date. Additionally, the Purchase Agreement includes contingent consideration related to a discretionary purchase price in the amount of $2.0 million, which is payable at the sole and absolute discretion of the Company on the one year anniversary of the purchase date. The cash payment may be adjusted for certain working capital adjustments which are identified by the Company within 75 days of the acquisition date and subject to a 30-day review period by the seller. The Company and iSheriff are currently reviewing working capital adjustments proposed by the Company. These adjustments, if any, will affect the final amount of the purchase price and the allocation of that purchase price to the working capital accounts.

The primary purpose of this Report on Form 6-K is to file certain financial statements of iSheriff and certain pro forma financial information of the Company (as set forth below) to be incorporated by reference into the Company’s Registration Statement on Form F-3 (File No. 333-215642) as filed with the Securities and Exchange Commission (the “SEC”) on January 20, 2017.

Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited consolidated financial statements of iSheriff, including the consolidated balance sheets as of June 30, 2016 and 2015 and the consolidated statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ deficit and cash flows for the years ended June 30, 2016 and 2015 are filed as Exhibit 99.2 to this Report on Form 6-K.The report of Grant Thornton LLP is included in Exhibit 99.2 to this Report on Form 6-K.

The unaudited condensed consolidated financial statements of iSheriff, including the condensed consolidated balance sheet as of September 30, 2016 and the condensed consolidated statements of operations and comprehensive loss and cash flows for the three months ended September 30, 2016 and 2015 are filed as Exhibit 99.3 to this Report on Form 6-K.

(b) Pro Forma Financial Information.

The following unaudited pro forma financial information of the company is filed as Exhibit 99.4 to this Report on Form 6-K:

(1)

Unaudited pro forma condensed combined statement of operations of Mimecast for the year ended March 31, 2016; and

(2)

Unaudited pro forma condensed combined statement of operations of Mimecast for the six months ended September 30, 2016.

The Company has not provided a pro forma combined balance sheet as of September 30, 2016 because the Acquisition was reflected in the Company’s unaudited consolidated balance sheet as of December 31, 2016 included in the Company’s Report on Form 6-K filed with the SEC on February 9, 2017.

See Exhibit Index attached hereto.

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.


	MIMECAST LIMITED

Date: March 7, 2017	By:	/s/ Peter Campbell
		Peter Campbell
		Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Exhibit Description

99.1		Consent of Grant Thornton LLP.

99.2		Audited consolidated balance sheets of iSheriff, Inc. as of June 30, 2016 and 2015 and related consolidated statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ deficit and cash flows of iSheriff, Inc. for the years ended June 30, 2016 and 2015.

99.3		Unaudited condensed consolidated balance sheet of iSheriff, Inc. as of September 30, 2016 and June 30, 2016 and related condensed consolidated statements of operations and comprehensive loss and cash flows for the three months ended September 30, 2016 and 2015.

99.4		Unaudited pro forma condensed combined statement of operations of Mimecast for the year ended March 31, 2016 and pro forma condensed combined statement of operations of Mimecast for the six months ended September 30, 2016.

EX-99.1 2 d285766dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 17, 2017, with respect to the consolidated financial statements of iSheriff, Inc. for the years ended June 30, 2016 and 2015 included in this Report on Form 6-K. We consent to the incorporation by reference of said report in the Registration Statements of Mimecast Limited on Form F-3 File No. 333-215642 and on Form S-8 File No. 333-208384.

/s/ Grant Thornton LLP

Boston, Massachusetts

March 7, 2017

EX-99.2 3 d285766dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

iSheriff, Inc.

Consolidated Financial Statements

As of June 30, 2016 and 2015 and for the

Years ended June 30, 2016 and 2015

(With Report of Independent Auditors)

iSheriff, Inc.

Consolidated Financial Statements

As of June 30, 2016 and 2015 and for the

Years ended June 30, 2016 and 2015

Table of Contents


	Page
Report of Independent Certified Public Accountants		1

Consolidated Balance Sheets		3

Consolidated Statements of Operations and Comprehensive Loss		4

Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit		5

Consolidated Statements of Cash Flows		6

Notes to Consolidated Financial Statements		7

Report of Independent Certified Public Accountants

Board of Directors

iSheriff, Inc.

We have audited the accompanying consolidated financial statements of iSheriff, Inc. (a Delaware corporation) and subsidiaries, which comprise the consolidated balance sheets as of June 30, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s responsibility for the financial statements

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

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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

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

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iSheriff, Inc. and subsidiaries as of June 30, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of matter regarding going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s current assets at June 30, 2016 and 2015 are not

sufficient to settle current liabilities. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/ Grant Thornton LLP

Boston, Massachusetts

February 17, 2017

iSheriff, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30,
	2016			2015
Assets
Current assets:
Cash	$	476		$	1,329
Trade accounts receivable, net of allowance		408			566
Prepaid expenses and other current assets		77			216

Total current assets		961			2,111
Restricted cash		125			125
Other non-current assets		4			4

Total assets	$	1,090		$	2,240

Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Trade accounts payable	$	196		$	203
Accrued expenses		261			592
Current portion of deferred revenue		1,409			2,160
Current portion of note payable		8,922			7,941

Total current liabilities		10,788			10,896
Deferred revenue, net of current portion		470			720
Related party note payable		3,138			—
Note payable, net of current portion		—			500

Total liabilities		14,396			12,116

Commitments and contingencies (Note 8)

Convertible preferred stock (Series A and A-1), $0.001 par value; 25,005,240 shares authorized at June 30, 2016 and 2015; 21,730,240 shares issued and outstanding at June 30, 2016 and 2015; aggregate liquidation preference of $22,740 at June 30, 2016 (Note 5)		16,492			16,492
Stockholders’ deficit:
Common stock, $0.001 par value; 31,177,367 shares authorized at June 30, 2016 and 2015; 953,915 shares issued and outstanding at June 30, 2016 and June 30, 2015		1			1
Additional paid-in capital		540			531
Accumulated other comprehensive loss		(43	)		(52	)
Accumulated deficit		(30,296	)		(26,848	)

Total stockholders’ deficit		(29,798	)		(26,368	)

Total liabilities, convertible preferred stock and stockholders’ deficit	$	1,090		$	2,240

See accompanying notes to consolidated financial statements.

iSheriff, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands)


	Year Ended June 30,
	2016			2015
Revenue	$	3,048		$	4,681
Cost of revenue		1,001			1,320

Gross profit		2,047			3,361
Operating expenses:
Research and development		1,274			1,754
Sales and marketing		2,303			2,792
General and administrative		1,180			2,685

Total operating expenses		4,757			7,231

Operating loss		(2,710	)		(3,870	)
Other income (expense):
Other expense, net		—			(16	)
Interest expense		(656	)		(517	)
Foreign exchange expense		(46	)		(42	)

Total other expense, net		(702	)		(575	)

Net loss before income taxes		(3,412	)		(4,445	)
Provision for income taxes		(36	)		(48	)

Net loss	$	(3,448	)	$	(4,493	)

Comprehensive loss:
Net loss	$	(3,448	)	$	(4,493	)
Other comprehensive gain (loss):
Foreign currency translation adjustment		9			(49	)

Comprehensive loss	$	(3,439	)	$	(4,542	)

See accompanying notes to consolidated financial statements.

iSheriff, Inc.

Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share data)


	Total Convertible Preferred Stock (Series A and A-1) (Note 5)				Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Deficit
	Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Deficit
Balances at June 30, 2014		21,730,240	$	16,492		567,482	$	1	$	416	$	(3	)	$	(22,355	)	$	(21,941	)
Issuance of common stock upon exercise of stock options		—		—		1,833		—		—		—			—			—
Issuance of common stock in lieu of interest		—		—		384,600		—		73		—			—			73
Stock-based compensation expense		—		—		—		—		42		—			—			42
Foreign currency translation adjustment		—		—		—		—		—		(49	)		—			(49	)
Net loss		—		—		—		—		—		—			(4,493	)		(4,493	)

Balances at June 30, 2015		21,730,240	$	16,492		953,915	$	1	$	531	$	(52	)	$	(26,848	)	$	(26,368	)
Stock-based compensation expense		—		—		—		—		9		—			—			9
Foreign currency translation adjustment		—		—		—		—		—		9			—			9
Net loss		—		—		—		—		—		—			(3,448	)		(3,448	)

Balances at June 30, 2016		21,730,240	$	16,492		953,915	$	1	$	540	$	(43	)	$	(30,296	)	$	(29,798	)

See accompanying notes to consolidated financial statements.

iSheriff, Inc.

Consolidated Statements of Cash Flows

(In thousands)


	Year ended June 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(3,448	)	$	(4,493	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		—			91
Bad debt expense		—			30
Non-cash interest expense		37			37
Unrealized foreign currency transaction (gain) loss		(28	)		15
Stock-based compensation expense		9			42
Loss on disposal of property and equipment		—			12
Changes in operating assets and liabilities:
Trade accounts receivable		158			307
Prepaid expenses and other current and long-term assets		102			99
Trade accounts payable		21			(233	)
Accrued expenses		288			6
Deferred revenue		(1,001	)		(2,052	)

Net cash used in operating activities		(3,862	)		(6,139	)

Cash flows from financing activities:
Borrowings on related party note payable		3,000			—
Repayment of third party debt		—			(500	)

Net cash provided by (used in) financing activities		3,000			(500	)

Effect of foreign exchange rates on cash		9			(49	)
Net decrease in cash		(853	)		(6,688	)
Cash at beginning of period		1,329			8,017

Cash at end of period	$	476		$	1,329

Supplemental disclosure:
Common stock issued in lieu of interest	$	—		$	73
Cash paid for income taxes	$	58		$	104

See accompanying notes to consolidated financial statements.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

1. Description of Business

iSheriff, Inc., (the “Company”), formerly Total Defense, Inc., and prior to that Carbon Acquisition Corporation was incorporated in Delaware in March 2011. The name of the Company was changed from Carbon Acquisition Corporation to Total Defense, Inc. in June 2011 and then to iSheriff, Inc. in April 2014. The Company is headquartered in California, USA with operations in Europe, Asia and Australia. The Company delivers a cloud-based, enterprise device security platform to managed service providers and small-to-medium enterprises. iSheriff enables compliance and policy enforcement by securing and controlling applications, network access, inbound and outbound content and data, and hardware connections used by end users and endpoint devices. iSheriff operates principally in North America, Europe, Asia and Australia.

The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, customer concentration, management of international activities, protection of proprietary rights, patent litigation, and dependence on key individuals.

Liquidity

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. To date, the Company has funded its operations primarily through private placements of its convertible preferred stock and issuance of debt. The Company had an accumulated deficit of $30,296 as of June 30, 2016,

Management has taken actions to improve operations and consider strategic alternatives. In June 2016, the Company hired an investment banker to assist and advise with these efforts. In November 2016, substantially all of the assets of the Company were sold to Mimecast Development Limited, an indirectly wholly-owned subsidiary of Mimecast Limited (“Mimecast”) (Note 11).

The consolidated financial statements as of and for the years ended June 30, 2016 and 2015 do not include any adjustments to reflect the effects of the sale of assets on its recoverability and classification of assets or the amounts and classification of liabilities that could have resulted from the uncertainty related to the Company’s ability to continue as a going concern as of June 30, 2016.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements. The Company believes that a significant accounting policy is one that is both important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effect of matters that are inherently uncertain.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Principles of consolidation

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

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.

Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition, allowances for doubtful accounts and the determination of the fair value of share-based awards issued and share-based compensation expense.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.

Cash

Cash consists of cash on deposit with banks. The Company has cash balances at one accredited financial institution in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, the Company considers historical loss adjustments taking into account current market conditions, the customers’ financial condition, the amount of receivables in dispute, the current receivables aging and current payment patterns. Account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted, and the potential for recovery is considered remote. For the years ended June 30, 2016 and 2015, bad debt expense was $0 and $30, respectively. The allowance for doubtful accounts as of June 30, 2016 and 2015 was $15 and $30, respectively.

Three customers accounted for 14%, 11% and 11% of gross trade accounts receivable balance as of June 30, 2016. Two customers accounted for 22% and 11% of gross trade accounts receivable balance as of June 30, 2015.

One customer accounted for 10% of gross revenue in fiscal year 2016 and one customer accounted for 12% of gross revenue in fiscal year 2015. No other customers represented more than 10% of revenue in the periods presented.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily consist primarily of prepaid expenses as well as other current assets such as short-term deposits and other receivables.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

Property, Equipment, and Leasehold Improvements

Property and equipment are stated at cost less accumulated depreciation. Repairs and maintenance are expensed as incurred. Depreciation is calculated on the straight-line method over the estimated useful lives of the various assets. The costs of leasehold improvements are amortized over the shorter of the useful life of the assets or the remaining lease terms. Estimated useful lives of property and equipment range from 3 to 6 years. Upon disposal of assets, the costs of assets and the related accumulated depreciation are removed from the accounts. Gains or losses on disposal are reflected in current earnings.

For the year ended June 30, 2015, the Company recorded a loss on disposal of equipment of $12. As of June 30, 2016 and 2015, the Company had no remaining fixed assets.

Restricted Cash

Restricted cash relates to amounts restricted as collateral for corporate credit cards. The cash becomes unrestricted upon cancellation of the credit cards.

Revenue recognition

The Company derives its revenue from subscription arrangements whereby the customer is charged a fee for access for a defined term. Subscription arrangements include access to use the Company’s software via the Internet and support services.

The Company recognizes revenue when all of the following conditions are satisfied:

•

there is persuasive evidence of an arrangement;

•

the service has been or is being provided to the customer;

•

the collection of the fees is probable; and

•

the amount of fees to be paid by the customer is fixed or determinable.

The Company’s subscription arrangements provide customers the right to access its hosted software applications. Customers do not have the right to take possession of the Company’s software during the hosting arrangement. Accordingly, the Company recognizes revenue in accordance with ASC 605, Revenue Recognition, and Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.

Subscription revenue is recognized ratably over the term of the contract, which typically range from one to three years in duration, beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Revenue is presented net of any taxes collected from customers.

Deferred revenue

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services described above and is recognized as the revenue recognition criteria are met.

Deferred revenue that is expected to be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent in the accompanying consolidated balance sheets.

Cost of revenue

Cost of revenue primarily consists of expenses related to supporting and hosting the Company’s product offerings. These costs include salaries, benefits, incentive compensation and share-based compensation expense related to the management of the Company’s data centers and customer support team. Cost of revenue also includes third-party service provider costs such as data center and networking expenses, external helpdesk support and royalties.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

Software development costs

Costs incurred to develop software applications used in the Company’s software-as a-service platform consist of certain direct costs of materials and services incurred in developing or obtaining internal-use computer software, and payroll and payroll-related costs for employees who are directly associated with, and who devote time to, the project. These costs generally consist of internal labor during configuration, coding, and testing activities. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance and general and administrative or overhead costs are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. Qualified costs incurred during the operating stage of the Company’s software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs incurred for maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred. During the years ended June 30, 2016 and 2015, the Company believes the substantial majority of its development efforts were either in the preliminary project stage of development or in the operation stage (post-implementation), and accordingly, no costs have been capitalized during these periods. These costs are included in the accompanying consolidated statements of operations as research and development expense.

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance with FASB Accounting Standards Update (“ASU”) No. 2011-04:

•

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

•

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The carrying values of trade accounts receivable, trade accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the Company’s outstanding notes payable approximates fair value (a level 2 fair value measurement) reflecting interest rates currently available to the Company.

Fair Value Option for Financial Assets and Financial Liabilities

Authoritative guidance allows companies to choose to measure many financial instruments and certain other items at fair value. The Company has elected not to apply the fair value option to any of its financial assets or liabilities.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

As of June 30, 2016, the Company has early adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, issued by the FASB in November 2015, which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The Company adopted this guidance retrospectively to all periods presented. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation, which requires the recognition of expense related to the fair value of share-based compensation awards in the statements of operations. For share options issued under the Company’s share-based compensation plan to employees, the fair value of each option grant is estimated on the date of grant, and an estimated forfeiture rate is used when calculating share-based compensation expense for the period. For service-based awards, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. For awards subject to both performance and service-based vesting conditions, the Company recognizes share-based compensation expense using an accelerated recognition method when it is probable that the performance condition will be achieved. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For share-based awards classified as liabilities, the Company accounts for such liability such that the compensation expense will be re-measured at each reporting date until such award is settled. Total compensation expense related to liability awards was not material for the years ended June 30, 2016 and 2015.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive income (loss) in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified

Foreign Currency Translation

Local currencies are the functional currencies of the Company’s foreign subsidiaries. The Company translates assets and liabilities of foreign operations to the U.S. Dollar at current rates of exchange and revenue and expenses are translated using weighted average exchange rates. The Company includes foreign currency translation adjustments in stockholders’ equity (deficit) as a component of accumulated other comprehensive income (loss).

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss), as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive income (loss) are foreign currency translation adjustments.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines or penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

The Company’s product license and service agreements include a limited indemnification provision for claims from third parties related to the Company’s intellectual property. The indemnification is generally limited to the amount paid by the customer. To date, there have been no claims under such indemnification provision that have been significant.

Recently issued accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance was effective for annual reporting and interim periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective application, with early adoption not permitted. On July 9, 2015 the FASB voted to approve a one-year deferral of the effective date of this guidance. In accordance with the agreed upon delay, the guidance is effective for the Company on July 1, 2019. The Company is currently evaluating the adoption method it will apply and the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. This guidance relates to footnote disclosure only and its adoption will not impact the Company’s financial position, results of operations or liquidity.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires the Company to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. This amendment is effective for the Company in the fiscal year beginning July 1, 2016, but early adoption is permissible. The new guidance will be applied retrospectively to each prior period presented. The adoption of ASU 2015-03 is not expected to have a material effect on the Company’s consolidated financial statements or disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The ASU amends the codification to simplify several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This amendment is effective for the Company in the fiscal year beginning July 1, 2018, but early adoption is permissible. The Company is currently in the process of evaluating the impact and timing of adoption of the ASU 2016-09 on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This amendment is effective for the Company in the fiscal year beginning July 1, 2019, but early adoption is permissible. The Company is currently evaluating the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The purpose of ASU 2016-16 is to simplify the income tax accounting of an intra-entity transfer of an asset other than inventory and to record its effect when the transfer occurs. This amendment is effective for the Company in the fiscal year beginning July 1, 2019, but early adoption is permissible. The Company is currently in the process of evaluating the impact and timing of adoption of the ASU 2016-16 on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for the Company in the fiscal year beginning July 1, 2019, but early adoption is permissible. The Company is currently in the process of evaluating the impact and timing of adoption of the ASU 2016-18 on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

3. Debt

The Company is party to a note payable agreement with CA, Inc. (“CA”) entered into in connection with the acquisition of Carbon Acquisition Corp in 2011. The note payable (the “CA Note”) is for $6,000 and was due June 13, 2016 or upon a change of control or a restricted payment as defined by the agreement. The note carries interest at a rate of eight percent (8%) per annum. Interest is non-cumulative and payable on the maturity date. For the years ended June 30, 2016 and 2015, the Company recorded interest expense of $481 and $480, respectively related to the CA Note. The balance due under the CA Note including accrued interest was $8,422 and $7,941 at June 30, 2016 and 2015, respectively.

In conjunction with the acquisition by Mimecast, the Company executed a Debt Settlement Agreement with CA, Inc. under which the Company paid $750 for forgiveness of the $6,000 note payable and all accumulated interest (Note 11).

As of June 30, 2014, the Company owed $1,000 to a third-party as a final payment for the purchase of certain assets in 2012. In July 2014, upon repayment of $500 of the $1,000, the parties agreed to extend the payment due date of the remaining $500 to July 2016 in exchange for 384,600 shares of common stock. The company valued the common shares at $73 and recorded this amount to prepaid interest at the time of the share issuance in July 2014. This amount is being recognized over the two year extension term. For the years ended June 30, 2016 and 2015, the Company recognized $37 and $37, of interest expense related to this extended payment terms arrangement.

4. Related Party Notes Payable

In August 2015, the Company executed a Senior Convertible Promissory Note (the “Note”) with Updata Partners IV, L.P., a shareholder in the Company. The Note allows the Company to borrow up to $3,000 during the period until December 31, 2015. Loan drawdowns bear interest at 8% per annum and accrues on the unpaid principal balance until the full balance is paid or converted. The Note is repayable on the earlier of August 1, 2018 or upon default. As of June 30, 2016, the full $3,000 had been drawn down and is classified along with accrued interest of $138 as related party note payable, a long-term liability in the Company’s consolidated balance sheet. For the year ended June 30, 2016, the Company incurred $138 of interest expense.

On September 15, 2016, the loan agreement was amended to increase the maximum loan amount by $200 which could be drawn down through October 30, 2016. Additional borrowings carry the same interest rate of 8% and maturity date of August 1, 2018.

5. Convertible Preferred Stock

The Company has issued Series A and Series A-1 convertible preferred stock (collectively, the “Convertible Preferred Stock” or the “Preferred Stock”). The holders of Convertible Preferred Stock have liquidation rights in the event of a deemed liquidation that, in certain situations, is not solely within the control of the Company. Therefore, the Convertible Preferred Stock is classified outside of stockholders’ deficit.

As of June 30, 2016 and 2015, the outstanding Convertible Preferred Stock consisted of the following:


	Preferred Shares Authorized		Preferred Shares Issued and Outstanding		Carrying Value		Common Stock Issuable Upon Conversion
Series A convertible preferred stock		16,105,240		16,105,240	$	12,000		16,105,240
Series A-1 convertible preferred stock		8,900,000		5,625,000		4,492		5,625,000

		25,005,240		21,730,240	$	16,492		21,730,240

The Series A and Series A-1 convertible preferred stock had a liquidation preference of $16,800 and $5,940, respectively, at June 30, 2016.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

The holders of the Convertible Preferred Stock have the following rights and preferences:

Voting

The holders of Convertible Preferred Stock are entitled to vote, together with the holders of common stock, on matters submitted to stockholders for a vote. The holders of Convertible Preferred Stock are entitled to the number of votes equal to the number of shares of Common Stock into which each preferred share is convertible at the time of such vote. A vote of the holders of a majority of the then outstanding Convertible Preferred Stock are required for certain corporate actions related to authorized capital, amending articles of incorporation, redemption, asset transfers, liquidation of the Company and changes to the number of board members.

Conversion

Each share of Convertible Preferred Stock is convertible at the option of the holder at any time after the date of issuance. Each share of Convertible Preferred Stock will be automatically converted into shares of common stock at the applicable conversion rate then in effect (i) upon the closing of a firm commitment public offering with at least $160,000 of gross proceeds to the Company, at a price of at least $10.00 per share, subject to appropriate adjustment in the event of any stock split, stock dividend, combination or other similar recapitalization, or (ii) upon the written consent of at least a majority of the holders of the then-outstanding shares of Convertible Preferred Stock voting together as a single class.

The conversion rate of Series A Convertible Preferred Stock is determined by dividing $0.7450991106 by the Conversion Price of the Series A. The conversion ratio of Series A-1 Convertible Preferred Stock is determined by dividing $0.80 by the Conversion Price of the Series A-1. The Conversion Price of Series A and Series A-1 Convertible Preferred Stock is initially $0.7450991106 and $0.80, respectively. Conversion Prices are subject to appropriate adjustment in the event of any stock split, stock dividend, combination or other similar recapitalization and other adjustments as set forth in the Company’s certificate of incorporation, as amended and restated. As of June 30, 2016 and 2015, all outstanding shares of Convertible Preferred Stock were convertible into common stock on a 1-for-1 basis.

Dividends

The preferred stock accrues cumulative dividends at the rate of eight percent (8%) per annum. Holders of Convertible Preferred Stock are entitled to receive dividends only when, as, and if declared by the Board of Directors. As of June 30, 2016, cumulative unpaid dividends totaled $6,240.

Liquidation

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of Series A Preferred Stock or Common Stock, the holders of Series A-1 Preferred Stock shall be entitled to be paid, out of the assets of the Company an amount per share of Series A-1 Preferred Stock equal to the Series A-1 Original Issue Price, plus all accrued but unpaid dividends on the Series A-1 Preferred Stock, for each share of Series A-1 Preferred Stock then held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company shall be insufficient to make payment in full to all holders of Series A-1 Preferred Stock of the liquidation preference, then such assets shall be distributed to the holders of Series A-1 Preferred Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

After the payment of the full liquidation preferences of the Series A-1 Preferred Stock, but before any distribution or payment shall be made to the holders of Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company an amount per share of the Series A Preferred Stock equal to the Original Issue Price, plus all accrued but unpaid dividends on the Series A Preferred Stock, for each share of Series A Preferred Stock then held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company shall be insufficient to make payment in full to all holders of Series A Preferred Stock of the liquidation preference, then such assets shall be distributed to the holders of the Series A Preferred Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

After the payment of the full liquidation preferences of the Convertible Preferred Stock, the assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock.

Deemed liquidation events shall include mergers, consolidations and the sale of substantially all of the assets of the Company.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

6. Equity

Common Stock

As of June 30, 2016 and 2015, there were 31,177,367 shares authorized and 953,915 common shares issued and outstanding.

The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of Preferred Stock. The Common Stock has the following characteristics:

Voting

The holders of shares of Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders and written actions in lieu of meetings.

Dividends

The holders of shares of Common Stock are entitled to receive dividends, if and when declared by the Board of Directors. Cash dividends may not be declared or paid to holders of shares of Common Stock until all accrued unpaid dividends on Series A and Series A-1 Convertible Preferred Stock have been paid in accordance with their terms. No dividends have been declared or paid by the Company since its inception.

Liquidation

After payment to of their respective liquidation preferences to the holders of shares of Convertible Preferred Stock, the holders of shares of Common Stock are entitled to share ratably in the Company’s remaining assets available for distribution to its stockholders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon occurrence of a deemed liquidation event.

Common stock shares reserved for future issuance

As of June 30, 2016 and 2015, the Company has reserved 27,448,426 shares of common stock for the conversion of Preferred Stock, stock options authorized under the 2011 Stock Incentive Plan and outstanding warrants for the exercise of common stock.

Common Stock Warrants

The Company has outstanding warrants to purchase 1,353,289 shares of common stock at $0.19 per share. The warrants were issued in 2013 and 2012. The warrants were immediately exercisable; 1,315,789 warrants expire in 2023 and 37,500 expire in 2022.

7. Share-based compensation

Under the Company’s 2011 Equity Incentive Plan, (the “Plan”), the Company was authorized to grant options, restricted stock, restricted stock units and stock appreciation rights to the Company’s employees, directors and consultants with a maximum term of ten years. A total of 3,894,760 shares of common stock were reserved for issuance under the Plan. As of June 30, 2016, 123,074 shares remained available for issuance under the Plan.

As required by the Plan, the exercise price for stock options and stock appreciation rights granted is not to be less than the fair value of common stock as of the date of grant. The fair value of common stock is determined by the Company’s board of directors by taking into consideration its most recently available valuation of common stock performed by management and the board of directors as well as additional factors which might have changed since the date of the most recent valuation through the date of grant.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

During the years ended June 30, 2016 and 2015, the Company granted 2,934,312 and 698,000 stock options, respectively, to certain employees. The vesting of most of these awards is time-based and the restrictions typically lapse over four years. Of the 2,934,312 options granted in fiscal 2016, 791,763 contained performed based vesting conditions which were deemed not probable as of June 30, 2016.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of a representative group of companies with similar characteristics to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

The Company’s assumptions for valuing options granted in the years ended June 30, 2016 and 2015 were an expected term of approximately six years, expected volatility of approximately 55%, interest rate of approximately 1.25% and a 0% estimated dividend yield.

The following table summarizes the Company’s stock option activity from July 1, 2015 through June 30, 2016:


	Shares Issuable Under Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term




						(In years)
Outstanding as of June 30, 2015		847,000		$	0.17		7.4
Granted		2,934,312			0.19
Exercised		—			—
Forfeited		(39,479	)		0.19

Outstanding as of June 30, 2016		3,741,833		$	0.19		9.4

Options vested and expected to vest as of June 30, 2016		1,182,524		$	0.19		8.4
Options exercisable as of June 30, 2016		541,151		$	0.19		6.9

As the value of common stock has not increased since grant date, the intrinsic value of options outstanding is zero.

The weighted average grant date fair value of common stock options granted was $0.10 per share for the years ended June 30, 2016 and 2015.

The Company has issued options for the purchase of 500,000 shares of Series A-1 convertible preferred stock with an exercise price of $0.16 per share. The company believes these options are financial instruments that may require a transfer of assets because of the redemption feature of the underlying stock. Therefore, these options are classified as a liability that is remeasured to fair value at each reporting period with changes in the fair value included as a component of other income (expense), net. The Company believes the value of these options is insignificant and to date has not recorded any changes to fair value.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

The Company recorded stock-based compensation expense related to stock options and restricted common stock in the following expense categories of its statements of operations and comprehensive loss:


	Year ended June 30,
	2016		2015
Cost of revenue	$	1	$	8
Research and development		4		15
Sales and marketing		3		13
General and administrative		1		6

	$	9	$	42

As of June 30, 2016, the Company had of $84 of net unrecognized stock-based compensation cost related to awards with service based vesting conditions, which is expected to be recognized over a weighted average period of 3.0 years.

8. Commitments and Contingencies

The Company generally leases office space under short-term contracts. As of June 30, 2016 the Company has no lease commitments beyond one year. Rent expense for the years ended June 30, 2016 and 2015 was $71 and $547, respectively.

The Company has an agreement with a strategic advisor for which a contingent payment is due upon successful completion of a transaction. In November 2016, the Company paid the strategic advisor $525 upon completion of the sale of the Company’s assets (Note 11).

The Company is involved in certain litigation matters arising in the ordinary course of business. In the opinion of the Company, these actions will not have a material effect, if any, on the Company’s financial position, results of operations, or liquidity.

9. Employee Benefit Plan

The company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan) covering employees who satisfy certain eligibility requirements. The 401(k) Plan allows each participant to defer a percentage of their eligible compensation subject to applicable annual limits pursuant to the limits established by the Internal Revenue Service.

10. Income Taxes

The domestic and international components of loss before provision for income taxes are presented as follows:


	Years Ended June 30,
	2016			2015
Domestic	$	(3,474	)	$	(4,540	)
International		62			95

Loss before taxes	$	(3,412	)	$	(4,445	)

During the years ended June 30, 2016 and 2015, the Company’s income tax provision consisted primarily of domestic state taxes and foreign taxes.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:


	Years Ended June 30,
	2016			2015
Federal statutory income tax rate		34.0	%		34.0	%
Other		(1.0	)		2.0
Change in deferred tax asset valuation allowance		(33.0	)		(36.0	)

Effective income tax rate		0.0	%		0.0	%

The components of the deferred income tax assets are as follows:


	June 30,
	2016			2015
Deferred Tax Assets:
Net operating loss carryforwards	$	8,056		$	6,539
Intangible assets		3,036			3,036
Tax credit carryforwards		460			460
Deferred revenue		106			806
Other		172			133

Total gross deferred tax assets		11,830			10,974
Valuation allowance		(11,830	)		(10,484	)

Net deferred tax assets		—			490
Deferred Tax Liabilities:
Foreign exchange gains		—			(490	)

Net deferred tax assets	$	—		$	—

At June 30, 2016, the Company had federal and state net operating loss carryforwards of approximately $21,094, and $15,611, respectively. The federal and state loss carryforwards will begin to expire in 2032. The Company had state tax credit carryforwards of $152 that do not expire. Utilization of the net operating loss carry-forwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the inability to fully offset future annual taxable income and could result in the expiration of the net operating loss carry-forwards before utilization. The Company has not made a final determination of the impact that any such limitations may have on the utilization of its net operating loss carry-forwards.

The Company evaluated its net deferred income taxes, which included an assessment of the cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance is required. After considering its recent history of losses and management’s expectations of additional near-term losses, the Company recorded a valuation allowance on its net federal and state deferred tax assets. During 2016 and 2015, the Company maintained a valuation allowance against all of its federal and state deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. The Company will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating positive and negative evidence that may exist. The change in valuation allowance during 2016 and 2015 related to operations resulting in increases of $1,346 and $1,151, respectively.

The Company has not provided for income taxes on the undistributed earnings of its foreign subsidiaries as they are considered permanently re-invested outside the U.S. Upon repatriation, these foreign earnings would be sheltered by U.S. net operating loss carryforwards or foreign tax credits, which may reduce the US federal and state tax liability associated with any future dividends. Determining the unrecognized deferred U.S. income tax liability on permanently re-invested earnings is not practicable.

At June 30, 2016 and 2015, there were no unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. At June 30, 2016 and 2015, there was no accrued interest and penalties. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within twelve months.

iSheriff, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2016 and 2015

(in thousands, except share and per share data, unless otherwise noted)

The Company is subject to federal and state income tax in the United States and is also subject to income and withholding tax in certain other foreign tax jurisdictions. At June 30, 2016, The Company’s tax years are still open under statute from 2013 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods.

11. Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through February 17, 2017, the date at which the financial statements were available to be issued.

On November 21, 2016, substantially all of the assets of the Company were acquired by Mimecast Development Limited, an indirectly wholly-owned subsidiary of Mimecast Limited. Assets sold include the cloud-based, security platform assets of the Company. The total preliminary purchase price of $6,174 consisted of a cash payment of $5,574, subject to certain adjustments, and $600 in purchase price held back in respect of claims for indemnification for one year from the purchase date. Additionally, the Asset Purchase Agreement includes contingent consideration related to a discretionary purchase price in the amount of $2,000 which is payable at the sole and absolute discretion of Mimecast on the one year anniversary of the purchase date. The cash payment may be adjusted for certain working capital adjustments which are identified by Mimecast within 75 days of the acquisition date and subject to a 30-day review period by the Company. These adjustments, if any, will affect the final amount of the purchase price.

In conjunction with the acquisition by Mimecast, the Company settled its obligation to CA, Inc. (Note 3) for which the company paid $750 for forgiveness of the $6,000 note payable and all accumulated interest.

In November 2016, the Company paid the strategic advisor $525 upon completion of the sale of the Company’s assets (Note 8).

EX-99.3 4 d285766dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

iSheriff, Inc.

Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016 and for the

Three Months Ended September 30, 2016 and 2015

(Unaudited)

iSheriff, Inc.

Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016 and for the

Three Months Ended September 30, 2016 and 2015

(Unaudited)

Table of Contents


	Page
Condensed Consolidated Balance Sheets (unaudited)		1

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)		2

Condensed Consolidated Statements of Cash Flows (unaudited)		3

Notes to Condensed Consolidated Financial Statements (unaudited)		4

iSheriff, Inc

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	September 30, 2016			June 30, 2016
	September 30, 2016			June 30, 2016
Assets
Current assets:
Cash	$	205		$	476
Trade accounts receivable, net of allowance		391			408
Prepaid expenses and other current assets		55			77

Total current assets		651			961
Restricted cash		80			125
Other non-current assets		4			4

Total assets	$	735		$	1,090

Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Trade accounts payable	$	200		$	196
Accrued expenses		176			261
Current portion of deferred revenue		1,350			1,409
Current portion of note payable		9,043			8,922

Total current liabilities		10,769			10,788
Deferred revenue, net of current portion		450			470
Related party note payable		3,401			3,138

Total liabilities		14,620			14,396

Commitments and contingencies (Note 5)

Convertible preferred stock (Series A and A-1), $0.001 par value; 25,005,240 shares authorized at September 30, 2016 and June 30, 2016; 21,730,240 shares issued and outstanding at September 30, 2016 and June 30, 2016; aggregate liquidation preference of $26,700 and $22,740 at September 30, 2016 and June 30, 2016, respectively		16,492			16,492
Stockholders’deficit:
Common stock, $0.001 par value; 31,177,367 shares authorized at September 30, 2016 and June 30, 2016; 953,915 shares issued and outstanding at September 30, 2016 and June 30, 2016		1			1
Additional paid-in capital		540			540
Accumulated other comprehensive loss		(40	)		(43	)
Accumulated deficit		(30,878	)		(30,296	)

Total stockholders’ deficit		(30,377	)		(29,798	)

Total liabilities, convertible preferred stock and stockholders’ deficit	$	735		$	1,090

See accompanying notes to condensed consolidated financial statements.

iSheriff, Inc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended September 30,
	2016			2015
Revenue	$	619		$	887
Cost of revenue		173			252

Gross profit		446			635
Operating expenses:
Research and development		289			351
Sales and marketing		319			542
General and administrative		209			276

Total operating expenses		817			1,169

Operating loss		(371	)		(534	)
Other income (expense):
Other expense, net		—			(39	)
Interest expense		(192	)		(143	)
Foreign exchange expense		(10	)		(5	)

Total other expense, net		(202	)		(187	)

Net loss before income taxes		(573	)		(721	)
Provision for income taxes		(9	)		(7	)

Net loss	$	(582	)	$	(728	)

Comprehensive loss:
Net loss	$	(582	)	$	(728	)
Other comprehensive gain (loss):
Foreign currency translation adjustment		3			(1	)

Comprehensive loss	$	(579	)	$	(729	)

See accompanying notes to condensed consolidated financial statements.

iSheriff, Inc

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three months ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(582	)	$	(728	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense		9			9
Unrealized foreign currency transaction loss		—			3
Changes in operating assets and liabilities:
Trade accounts receivable		17			132
Prepaid expenses and other current and long-term assets		13			(22	)
Trade accounts payable		4			(69	)
Accrued expenses		99			(145	)
Deferred revenue		(79	)		(453	)

Net cash used in operating activities		(519	)		(1,273	)

Cash flows from investing activities:
Decrease in restricted cash		45			—

Net cash provided by investing activities		45			—

Cash flows from financing activities:
Borrowings on related party note payable		200			1,000

Net cash provided by financing activities		200			1,000
Effect of foreign exchange rates on cash		3			(1	)

Net decrease in cash		(271	)		(274	)
Cash at beginning of period		476			1,329

Cash at end of period	$	205		$	1,055

See accompanying notes to condensed consolidated financial statements.

iSheriff, Inc

Notes to Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016

(Unaudited)

1. Description of Business

Liquidity

As of June 30, 2016, the Company had unrestricted cash of $476 and a working capital deficit of $9,827, primarily due to the outstanding balance of notes payable and accrued interest of $8,922 that was due in June 2016 and for which the Company was in default. These circumstances raised substantial doubt about the Company’s ability to continue as a going concern as of June 30, 2016. There were no changes to the Company’s outstanding obligations or working capital deficit position during the three months ended September 30, 2016 and therefore as of September 30, 2016, there continues to be substantial doubt about the Company’s ability to continue as a going concern. In November 2016, substantially all of the assets of the Company were sold to Mimecast Development Limited, an indirectly wholly-owned subsidiary of Mimecast Limited (“Mimecast”) (Note 6).

The financial statements for the three months ended September 30, 2016 do not include any adjustments to reflect the effects of the sale of assets on its recoverability and classification of assets or the amounts and classification of liabilities that could have resulted from the uncertainty related to the Company’s ability to continue as a going concern as of June 30, 2016 or September 30, 2016.

iSheriff, Inc

Notes to Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016

(Unaudited)

2. Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

These interim financial statements of the Company should be read in conjunction with the Company’s financial statements for the year ended June 30, 2016. Accordingly, significant accounting policies and other disclosures normally provided have been omitted.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2016 and June 30, 2016, and the Company’s results of operations and cash flows for the three-month periods ended September 30, 2016 and 2015. Operating results and cash flows for the three-month periods are not necessarily indicative of the operating results and cash flows that may be expected for the year ending June 30, 2017.

Recently Issued Accounting Standards

iSheriff, Inc

Notes to Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016

(Unaudited)

iSheriff, Inc

Notes to Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016

(Unaudited)

3. Debt

The Company is party to a note payable agreement with CA, Inc. (“CA”) entered into in 2011 in connection with the purchase of Carbon Acquisition Corp. The note payable (the “CA Note”) is for $6,000 and was due June 13, 2016 or upon a change of control or a restricted payment as defined by the agreement. The note carries interest at a rate of eight percent (8%) per annum. Interest is non-cumulative and payable on the maturity date. For the three months ended September 30, 2016 and 2015, the Company recorded interest expense of $121 and $121, respectively related to the CA Note. The balance due under the CA Note including accrued interest was $8,543 and $8,422 at September 30, 2016 and June 30, 2016, respectively.

In conjunction with the acquisition by Mimecast, the Company settled its obligation to CA, Inc. for $750 (Note 6).

As of June 30, 2014, the Company owed $1,000 to a third-party as a final payment for the purchase of certain assets in 2012. In July 2014, upon repayment of $500 of the $1,000, the parties agreed to extend the payment due date of the remaining $500 to July 2016 in exchange for 384,600 shares of common stock. The company valued the common shares at $73 and recorded this amount to prepaid interest at the time of the share issuance in July 2014. This amount is being recognized over the two year extension term. . For the three months ended September 30, 2016 and 2015, the Company recognized $9 and $9 of interest expense related to this extended payment terms arrangement.

4. Related Party Note Payable

As of September 30, 2016, the full $3,200 had been drawn down and is classified along with accrued interest of $201 as related party note payable, a long-term liability in the Company’s consolidated balance sheet. For the three months ended September 30, 2016 and 2015, the Company incurred $63 and $13 of interest expense, respectively.

5. Commitments and Contingencies

The Company generally leases office space under short-term contracts. As of September 30, 2016 the Company has no lease commitments beyond one year. Rent expense for the three months ended September 30, 2016 and 2015 was $6 and $29, respectively.

iSheriff, Inc

Notes to Condensed Consolidated Financial Statements

As of September 30, 2016 and June 30, 2016

(Unaudited)

6. Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through February 17, 2017, the date at which the financial statements were available to be issued.

In November 2016, the Company paid a strategic advisor $525 upon completion of the sale of the Company’s assets (Note 5).

EX-99.4 5 d285766dex994.htm EX-99.4 EX-99.4

Exhibit 99.4

MIMECAST LIMITED

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) of Mimecast Limited, a public limited company organized under the laws of the Bailiwick of Jersey (“Mimecast” or “the Company”), and iSheriff, Inc., a Delaware corporation (“iSheriff”), have been prepared to give effect to Mimecast’s acquisition (the “Acquisition”) of substantially all of the assets of iSheriff, pursuant to the terms of the Asset Purchase Agreement (the “Purchase Agreement”) dated November 21, 2016 by and among Mimecast, Mimecast Development Limited, a company incorporated under the laws of England and Wales and an indirectly wholly-owned subsidiary of Mimecast, iSheriff and Updata Partners IV, L.P. et. al. On November 21, 2016, the Company completed its acquisition of iSheriff for a total purchase price of $6.2 million, consisting of a cash payment of approximately $5.6 million, subject to certain adjustments, and $0.6 million in purchase price held back in respect of claims for indemnification for one year from the purchase date. Additionally, the Purchase Agreement includes contingent consideration related to a discretionary purchase price in the amount of $2.0 million which is payable at the sole and absolute discretion of Mimecast on the one year anniversary of the purchase date. The cash payment may be adjusted for certain working capital adjustments identified by Mimecast within 75 days of the acquisition date and subject to a 30-day review period by iSheriff. The Company and iSheriff are currently reviewing working capital adjustments proposed by the Company. These adjustments, if any, will affect the final amount of the purchase price.

The Acquisition will be accounted for using the acquisition method of accounting for business combinations under U.S. generally accepted accounting principles, or U.S. GAAP. Based on the Purchase Agreement and analysis performed, Mimecast has been identified as the acquirer.

For purposes of preparing the Pro Forma Financial Statements, the historical financial information for Mimecast is based on its fiscal year ended March 31, 2016 and the interim six months ended September 30, 2016. The historical financial information for iSheriff is based on its fiscal year ended June 30, 2016 and the interim six months ended September 30, 2016. Information for the six months ended September 30, 2016 was derived from the historical unaudited condensed consolidated statement of operations of iSheriff for the three months ended September 30, 2016, contained in Exhibit 99.3 of this Report on Form 6-K and the historical unaudited consolidated statement of operations for iSheriff for the three months ended June 30, 2016 not included within this Report on Form 6-K. The unaudited pro forma condensed combined statements of operations for the six months ended September 30, 2016 and the year ended March 31, 2016 combine the historical results of the Company and iSheriff and give effect to the Acquisition as if it had occurred on April 1, 2015. The Company has not provided a pro forma combined balance sheet as of September 30, 2016 because the acquisition was reflected in the Company’s unaudited condensed consolidated balance sheet as of December 31, 2016 contained in Exhibit 99.1 of the Company’s Report on Form 6-K filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2017.

The historical condensed combined financial information has been adjusted to give effect to pro forma events that are: 1) directly attributable to the Acquisition; 2) factually supportable; and 3) with respect to the statements of operations, expected to have a continuing impact on the combined results.

The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information was based on a preliminary valuation of the assets acquired and liabilities assumed, and the accounting is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and, in some instances, are incomplete and have been made for the purpose of providing unaudited pro forma condensed combined financial information. Any adjustments to the preliminary estimated fair value amounts could have a significant impact on the unaudited pro forma condensed combined financial information contained herein, and the Company’s future results of operations and financial position. Furthermore, the Company could incur additional costs associated with integrating the business of the Company and iSheriff. The accompanying Pro Forma Financial Statements do not reflect the financial impact of any future cost savings, restructurings, synergies, integration costs or non-recurring activities and one-time transaction costs that may be realized or incurred in subsequent reporting periods. As the Pro Forma Financial Statements reflect only those adjustments that are expected to have a continuing impact on the results of operations, there may be certain non-recurring charges not reflected on the pro forma condensed combined statements of operations that will be included in the actual consolidated statements of operations of Mimecast following the closing of the acquisition.

The Pro Forma Financial Statements are provided for information purposes only and are not intended to represent, or be indicative of, the future anticipated financial position or results of operations or the results that would have occurred had the Acquisition been consummated on the dates indicated herein. The Pro Forma Financial Statements should be read in conjunction with: (i) the accompanying notes to the unaudited pro forma condensed combined financial statements, (ii) the separate historical audited consolidated financial statements and related notes of Mimecast as of and for the year ended March 31, 2016 included in the Company’s Annual Report on Form 20-F filed with the SEC on May 25, 2016, (iii) the separate historical unaudited condensed consolidated financial statements and related notes of Mimecast as of and for the six months ended September 30, 2016 contained in Exhibit 99.1 of Mimecast’s Report on Form 6-K filed with the SEC on November 9, 2016, (iv) the separate historical unaudited condensed consolidated financial statements and related notes of Mimecast as of and for the three and nine months ended December 31, 2016 contained in Exhibit 99.1 of Mimecast’s Report on Form 6-K filed with the SEC on February 9, 2017, and (v) the historical audited and unaudited consolidated financial statements and related notes of iSheriff for the year ended June 30, 2016 and for the three months ended September 30, 2016, respectively, which are contained in Exhibits 99.2 and 99.3, respectively, of this Report on Form 6-K.

Based on the Company’s preliminary review of iSheriff’s summary of significant accounting policies disclosed in iSheriff’s financial statements, the nature and amount of any adjustments to the historical financial statements of iSheriff to conform iSheriff’s accounting policies to those of the Company’s are not expected to be significant. Further review of iSheriff’s accounting policies and financial statements may result in required revisions to iSheriff’s policies and classifications to conform to the Company’s.

Mimecast Limited

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended March 31, 2016

(in thousands, except per share data)


	Historical Mimecast (1)			Historical iSheriff (2)			Proforma Adjustments				Proforma Combined
Revenue	$	141,841		$	3,048		$	(1,953	)	A, B	$	142,936
Cost of revenue		41,809			1,001			130		A, C		42,940

Gross profit		100,032			2,047			(2,083	)			99,996
Operating expenses:
Research and development		17,663			1,274							18,937
Marketing and selling		65,187			2,303			15		C		67,505
General and administrative		19,756			1,180							20,936

Total operating expenses		102,606			4,757			15				107,378

Operating loss		(2,574	)		(2,710	)		(2,098	)			(7,382	)
Other income (expense):
Interest income		74			—							74
Interest expense		(690	)		(656	)		656		D		(690	)
Foreign exchange income (expense)		811			(46	)						765

Total other income (expense), net		195			(702	)		656				149

Loss before income taxes		(2,379	)		(3,412	)		(1,442	)			(7,233	)
Provision for income taxes		865			36							901

Net loss	$	(3,244	)	$	(3,448	)	$	(1,442	)		$	(8,134	)

Basic net loss per share	$	(0.08	)								$	(0.20	)

Diluted net loss per share	$	(0.08	)								$	(0.20	)

Basic weighted average shares outstanding		40,826										40,826

Diluted weighted average shares outstanding		40,826										40,826

(1)

As reported in Mimecast Limited’s Annual Report on Form 20-F, as filed with the SEC on May 25, 2016.

(2)

As reported in iSheriff, Inc.‘s audited financial statements for the year ended June 30, 2016 included in this Report on Form 6-K as Exhibit 99.2.

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

Mimecast Limited

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended September 30, 2016

(in thousands, except per share data)


	Historical Mimecast (1)			Historical iSheriff (2)			Proforma Adjustments				Proforma Combined
Revenue	$	85,821		$	1,211		$	(459	)	A, B	$	86,573
Cost of revenue		23,716			410			67		A, C		24,193

Gross profit		62,105			801			(526	)			62,380

Operating expenses:
Research and development		10,097			570							10,667
Marketing and selling		44,329			952			8		C		45,289
General and administrative		13,053			541			(22	)	E		13,572

Total operating expenses		67,479			2,063			(14	)			69,528

Operating loss		(5,374	)		(1,262	)		(512	)			(7,148	)
Other income (expense):
Interest income		143			40							183
Interest expense		(183	)		(371	)		371		D		(183	)
Foreign exchange income (expense)		6,815			(21	)						6,794

Total other income (expense), net		6,775			(352	)		371				6,794

Income (loss) before income taxes		1,401			(1,614	)		(141	)			(354	)
Provision for income taxes		854			25							879

Net income (loss)	$	547		$	(1,639	)	$	(141	)		$	(1,233	)

Basic net income (loss) per share	$	0.01									$	(0.02	)

Diluted net income (loss) per share	$	0.01									$	(0.02	)

Basic weighted average shares outstanding		54,462										54,462

Diluted weighted average shares outstanding		58,022										54,462

(1)

As reported in Mimecast Limited’s Report on Form 6-k, as filed with the SEC on November 9, 2016.

(2)

Unaudited financial information for iSheriff for the six months ended September 30, 2016 was derived from the historical unaudited statement of operations for the three months ended September 30, 2016 included in this Report on Form 6-K as Exhibit 99.3 and the historical unaudited statement of operations for the three months ended June 30, 2016, not included in this Report on Form 6-K.

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

Mimecast Limited

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

(in thousands, except share and per share data)

1. Basis of Presentation

On November 21, 2016, Mimecast Limited, a public limited company organized under the laws of the Bailiwick of Jersey (the “Company” or “Mimecast”), and its indirectly wholly owned subsidiary, Mimecast Development Limited, a company incorporated under the laws of England and Wales (“MDL”), completed the acquisition of substantially all of the assets of iSheriff, Inc. (“iSheriff”), a cloud-based security provider, pursuant to the terms of that certain Asset Purchase Agreement (the “Purchase Agreement”) dated November 21, 2016 by and among MDL, the Company, iSheriff and Updata Partners IV, L.P. et. al., (the “Acquisition”).

The total preliminary purchase price of $6.2 million consisted of a cash payment of approximately $5.6 million, subject to certain adjustments, and $0.6 million in purchase price held back in respect of claims for indemnification for one year from the purchase date. Additionally, the Purchase Agreement includes contingent consideration related to a discretionary purchase price in the amount of $2.0 million, which is payable at the sole and absolute discretion of the Company on the one year anniversary of the purchase date. The Company considers the payment of the discretionary purchase price to be remote and has determined the fair value of contingent consideration to be zero. The cash payment may be adjusted for certain working capital adjustments identified by the Company within 75 days of the acquisition date and subject to a 30-day review period by the seller. The Company and iSheriff are currently reviewing working capital adjustments proposed by the Company. These adjustments, if any, will affect the final amount of the purchase price and the allocation of that purchase price to the working capital accounts.

The unaudited pro forma condensed combined statement of operations for the year ended March 31, 2016 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2016, and the audited historical financial information of iSheriff for the fiscal year ended June 30, 2016 contained in Exhibit 99.2 of this Report on Form 6-K, and has been prepared as if the Acquisition had occurred on April 1, 2015. For purposes of the pro forma condensed combined statement of operations for the six months ended September 30, 2016, results for iSheriff are derived from the historical unaudited statement of operations of iSheriff for the three months ended June 30, 2016 not included in this Report on Form 6-K and adding the historical unaudited statement of operations of iSheriff for the three months ended September 30, 2016, contained in Exhibit 99.3 of this Report on Form 6-K. Revenue and net loss of iSheriff for the three months ended June 30, 2016 which are included in both the pro forma condensed combined statement of operations for the six months ended September 30, 2016 and for the year ended June 30, 2016 are $0.6 million and $1.1 million, respectively. The Company has not provided a pro forma combined balance sheet as of September 30, 2016 because the Acquisition was reflected in the Company’s unaudited condensed consolidated balance sheet as of December 31, 2016 contained in Exhibit 99.1 of the Company’s Report on Form 6-K filed with the SEC on February 9, 2017.

The financial data in the unaudited pro forma condensed combined financial statements are presented in U.S. dollars and have been prepared in accordance with Mimecast’s accounting policies that conform to U.S. GAAP and the rules and regulations of SEC Regulation S-X.

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statements of operations, are expected to have a continuing impact on the results of operations.

The accompanying Pro Forma Financial Statements do not reflect the financial impact of any future cost savings, restructurings, synergies, integration costs or non-recurring activities and one-time transaction costs that may be realized or incurred in subsequent reporting periods. As the Pro Forma Financial Statements reflect only those adjustments that are expected to have a continuing impact on the results of operations, there may be certain non-recurring charges not reflected on the pro forma condensed combined statements of operations that will be included in the actual consolidated statements of operations of Mimecast following the closing of the Acquisition.

The Company has accounted for the Acquisition under the acquisition method of accounting in accordance with the authoritative guidance on business combinations under the provisions of Accounting Standards Codification

Mimecast Limited

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

(in thousands, except share and per share data)

(“ASC”) 805, Business Combinations. The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information was based on a preliminary valuation of the assets acquired and liabilities assumed, and the accounting is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and, in some instances, are incomplete and have been made for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final purchase accounting may occur, and these differences could be material.

The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods presented, nor is it necessarily indicative of the future results of the combined company.

2. Preliminary Purchase Price Allocation

The total preliminary purchase price of $6.2 million consisted of a cash payment of approximately $5.6 million, subject to certain adjustments, and $0.6 million in purchase price held back in respect of claims for indemnification for one year from the purchase date. Additionally, the Purchase Agreement includes contingent consideration which is payable at the sole and absolute discretion of the Company on the one year anniversary of the purchase date. The Company considers payment of the contingent consideration to be remote and thus determined the fair value of contingent consideration to be zero. The cash payment may be adjusted for certain working capital adjustments which are identified by the Company within 75 days of the acquisition date. The Company and iSheriff are currently reviewing working capital adjustments proposed by the Company. These adjustments, if any, will affect the final amount of the purchase price and the allocation of that purchase price to the working capital accounts. The Company expects to finalize the purchase price and allocations in the period ending March 31, 2017.

The Acquisition has been accounted for as a business combination and, in accordance with ASC 805, the Company has recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The following table summarizes the preliminary purchase price allocation recorded in the three months ended December 31, 2016 which is what was used for the purpose of this pro forma analysis (in thousands):


Fair value of assets acquired and liabilities assumed:
Prepaid expenses	$	65
Accounts receivable		237
Intangible assets		1,654
Goodwill		5,151

Total assets acquired		7,107
Deferred revenue		(805	)
Accrued liabilities		(128	)

Total fair value of assets acquired and liabilities assumed	$	6,174

The preliminary allocation of the purchase price is subject to revisions as additional information is obtained about the facts and circumstances that existed at the time of acquisition. The amounts presented in the table above are preliminary and have been used to prepare pro forma adjustments in the Pro Forma Financial Statements. The final acquisition accounting will be determined when the Company has completed the detailed valuations and necessary calculations. The final acquisition accounting may include (1) changes in fair value of intangible assets such as developed technology and customer relationships, as well as goodwill and (2) other changes to assets and liabilities. Such changes may be material.

The significant intangible assets identified in the preliminary purchase price allocation discussed above include developed technology and customer relationships, which are amortized over their respective useful lives on a straight-line basis. To value the developed technology asset, the Company utilized the income approach, specifically a discounted cash-flow method known as the multi-period excess earnings method. Customer relationships represent

Mimecast Limited

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

(in thousands, except share and per share data)

the underlying relationships with certain customers to provide ongoing services for products sold. The Company utilized the income approach, specifically the distribution method, a subset of the excess-earnings method to value the customer relationships.

A portion of the purchase price has been allocated to intangible assets and goodwill, respectively, and is reflected in the tables above. The fair value of the assets acquired and liabilities assumed is less than the purchase price, resulting in the recognition of goodwill. The goodwill reflects the value of the synergies we expect to realize and the assembled workforce and is not deductible for tax purposes. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the acquisition, which remains preliminary, and using assumptions that the Company’s management believes are reasonable given the information then available. The final allocation of the purchase price may differ materially from the information presented in these Pro Forma Financial Statements.

The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:


	Amount		Weighted Average
	(in thousands)		(in years)
Developed technology	$	1,546		10
Customer relationships		108		7

Total identifiable intangible assets	$	1,654

3. Pro Forma Adjustments

The following describes the pro forma adjustments related to the Acquisition that have been made in the accompanying unaudited pro forma condensed combined statements of operations for the year ended March 31, 2016 and the six months ended September 30, 2016, giving effect to the Acquisition as if it had been consummated on April 1, 2015, all of which are based on preliminary estimates that could change significantly as additional information is obtained:

Adjustment to remove revenue of $1.4 million and $0.4 million for the iSheriff year ended June 30, 2016 and the six months ended September 30, 2016, respectively, and costs of $25,000 and $10,000 for the iSheriff year ended June 30, 2016 and the six months ended September 30, 2016, respectively, directly attributable to iSheriff products not acquired in the Purchase Agreement.

Adjustment to decrease the assumed deferred revenue obligations to a fair value of approximately $0.8 million, a $0.6 million decrease from the carrying value. The calculation of fair value is preliminary and subject to change. The fair value was determined based on the estimated costs to fulfill the remaining contract obligations, plus a normal profit margin. After the Acquisition, this adjustment will have a continuing impact and will reduce revenue related to the assumed performance obligations as the services are provided over the next three years. The pro forma adjustments to reduce revenue by $0.6 million for the iSheriff year ended June 30, 2016 and $0.1 million for the six months ended September 30, 2016 reflect the difference between the contractual payments received under the contracts and the fair value of the assumed performance obligations as they are satisfied, assuming the transaction was completed on April 1, 2015.

Represents adjustments to record amortization expense for the year ended March 31, 2016 related to the acquired identifiable intangible assets calculated as if the Acquisition had occurred on April 1, 2015. The fair value of the identified intangible assets was determined, as discussed in Note 2. The adjustment to amortization expense has been recorded on a straight-line basis and is as follows:

Mimecast Limited

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

(in thousands, except share and per share data)


	Year ended March 31, 2016			Six months ended September 30, 2016
	Year ended March 31, 2016			Six months ended September 30, 2016
		(in thousands)
Included in cost of revenue:
Developed technology	$	(155	)		(77	)

Total amortization expense included in cost of revenue	$	(155	)	$	(77	)

Included in operating expenses:
Customer relationships	$	(15	)	$	(8	)

Total amortization expense included in operating expenses	$	(15	)	$	(8	)

Total pro forma adjustments	$	(170	)	$	(85	)

To eliminate interest expense related to iSheriff’s outstanding debt because the expense does not have a continuing impact on the operations of the combined business.

To eliminate non-recurring transaction fees incurred by Mimecast and iSheriff in connection with the Acquisition and recorded as general and administrative expense in Mimecast’s and iSheriff’s historical statements of operations because the expenses do not have a continuing impact on the operations of the combined business.