ACQUISITIONS - Note 11

3 Months Ended

Jun. 30, 2011

ACQUISITIONS - Note 11

11. ACQUISITIONS

On June 16, 2011, the Company entered into an agreement with Zerigo, Inc. ("Zerigo"), a provider of cloud services pursuant to which the Company acquired 100% of the outstanding stock of Zerigo from its sole shareholder. Under the terms of the agreement, the Company paid him $750,000 in cash and issued 207,756 shares of its common stock, at an average price of $3.61 per share based on the trailing five-day average closing price of the Company's common stock on the NASDAQ Capital Market as of the effective date of the transaction. In addition, the Company agreed to pay him an earn-out of up to $500,000 cash upon the achievement of specified software development milestones by December 31, 2011.

The Company recorded a total acquisition price as follows (in thousands):

Cash, net of cash acquired	$	715
Issuance of common stock in connection with acquisition		750
Net liabilities assumed		862
Total acquisition costs	$	2,327

The Company allocated the purchase price of the acquisition to tangible assets and identifiable intangible assets acquired, based on their estimated fair values. The excess of purchase price over the aggregate fair values was recorded as goodwill. The amount of goodwill recognized is primarily attributable to the operating synergies expected to be realized through the acquisition of Zerigo and the workforce of the acquired business. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management. Intangible assets will be amortized on a straight-line basis.

The allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):

Net tangible assets	$	25
Intangible asset - technology		800
Intangible asset - customer relationship		51
Intangible asset - trade name/domain		195
Goodwill		1,256
Total acquisition costs	$	2,327

Intangible assets of $3,820,000 consist of goodwill, technology, customer relationship, and trade name/domain. Total accumulated amortization on intangible asset was $120,000 at June 30, 2011. Amortization expense for the customer relationship intangible asset is included in selling, general and administrative expenses. Amortization expense for technology will be included in cost of service revenue.