ACQUISITIONS - Note 11

6 Months Ended

Sep. 30, 2011

Notes to Financial Statements

ACQUISITIONS - Note 11

11. ACQUISITIONS

Zerigo, Inc.

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 the selling shareholder $750,000 in cash and issued 207,756 shares of its common stock. In addition, the Company agreed to pay the selling shareholder an earn-out of up to $500,000 cash upon the achievement of specified software development milestones by December 31, 2011. The fair value of the consideration transferred consisted of the following (in thousands):

Cash	$	750
Contingent payments		441
Fair value of shares of stock issued		750
Total purchase price	$	1,941

The Company recorded the acquired tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values. The excess of the consideration transferred over the aggregate fair values of the assets acquired and liabilities assumed is 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 estimated fair values of the assets acquired and liabilities assumed are as follows (in thousands):

		Estimated
		Fair Value
Assets acquired:
Cash	$	35
Property and equipment, net		25
Intangible assets		1,046
Total assets acquired		1,106
Liabilities assumed
Accounts payable		(8)
Deferred income tax liability, non-current		(413)
Total liabilities assumed		(421)
Net identifiable assets acquired		685
Goodwill		1,256
Total purchase price	$	1,941

Contactual, Inc.

On September 15, 2011, the Company entered into an agreement with Contactual, Inc. ("Contactual"), a provider of cloud-based call center and customer interaction management solutions pursuant to which the Company acquired 100% of the outstanding shares of capital stock of Contactual from its shareholders. Under the terms of the agreement, the Company issued 6,700,000 shares of common stock. The share amount was reduced at closing by 215,100 shares of common stock in exchange for 8x8's agreement to pay statutory tax withholding on behalf of five former executives of Contactual. The preliminary estimated fair value of the consideration transferred consisted of the following (in thousands):

Cash	$	892
Fair value of shares of stock issued		28,375
Total purchase price	$	29,267

The Company recorded the acquisition of tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values. The excess of the consideration transferred over the aggregate fair values of the assets acquired and liabilities assumed is recorded as goodwill. The amount of goodwill recognized is primarily attributable to the operating synergies expected to be realized through the acquisition of Contactual 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 preliminary estimated fair values of the assets acquired and liabilities assumed are as follows:

		Estimated
		Fair Value
Assets acquired:
Cash	$	894
Restricted cash		28
Accounts receivable, net		572
Prepaids and other assets		265
Property and equipment, net		347
Intangible assets		11,150
Total assets acquired		13,256
Liabilities assumed
Accounts payable		(2,059)
Accrued compensation		(1,255)
Deferred revenue		(253)
Other accrued liabilities		(166)
Total current liabilities		(3,733)
Deferred income tax liability, non-current		(301)
Accrued liabilities, non-current		(131)
Total liabilities assumed		(4,165)
Net identifiable assets acquired		9,091
Goodwill		20,176
Total purchase price	$	29,267

The above estimated fair values of consideration transferred and assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as of the acquisition date. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are subject to change. Such changes could be significant. The Company expects to finalize the valuation as soon as practicable but no later than one-year from the acquisition date.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Contactual as if the merger occurred at the beginning of each of the reporting periods presented. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from this acquisition including the acquisition costs of $0.5 million and amortization charges from acquired intangible assets. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each reporting period presented.

The unaudited pro forma financial information for the three and six months ended September 30, 2011 combined the historical results of the Company for the three and six months ended September 30, 2011, the historical results of Contactual for the three and six months ended June 30, 2011, and the effects of the pro forma adjustments described above.

The unaudited pro forma financial information for the three and six months ended September 30, 2010 combined the historical results of the Company for the three and six months ended September 30, 2010, the historical results of Contactual for the three and six months ended June 30, 2010 and the effects of the pro forma adjustments described above.

		Three Months Ended				Six Months Ended
		September 30,				September 30,
		2011		2010		2011		2010
		(In thousands, except per share data)
Pro forma net revenue	$	21,664	$	19,196	$	42,216	$	37,736
Pro forma net income	$	695	$	1,364	$	2,007	$	1,495
Pro forma net income per share (basic)	$	0.01	$	0.02	$	0.03	$	0.02
Pro forma net income per share (diluted)	$	0.01	$	0.02	$	0.03	$	0.02

There is no impact to the Company's tax provision for the three and six months ended September 30, 2011 and 2010 from the pro forma adjustments since the Contactual had tax losses and the Company had a 100% valuation allowance on deferred tax assets in those periods.