NOTE 7 – ACQUISITIONS

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. The Company records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating results in the period in which the adjustments were determined. The results of operations of the acquired businesses described below have been included in our consolidated financial statements beginning on their respective acquisition dates unless indicated otherwise below.

Accanto

On July 20, 2012 the Company acquired certain assets, technology and employees of Accanto Systems, S.r.l. (Accanto), a supplier of service assurance solutions for telecommunication service providers which enables carriers to monitor and manage the delivery of voice services over converged, next generation telecom architectures. Accanto’s technology is synergistic with the Company’s packet flow strategy and brings voice service monitoring capabilities for legacy environments and for next generation network voice services. The Company intends to maintain a relationship with the selling entity such that the selling entity will serve as a distributor for the Company. The results of Accanto’s operations, related to those assets, technology and employees acquired, have been included in the consolidated financial statements since that date. The total purchase price of $15.0 million consisted entirely of cash consideration. The goodwill recognized primarily relates to the value in combining Accanto’s product with our customer base.

The following table summarizes the allocation of the purchase price (in thousands):


Allocation of the purchase consideration:
Current assets	$	389
Fixed assets		237
Identifiable intangible assets		5,280
Goodwill		10,732

Total assets acquired		16,638
Current liabilities		(839	)
Deferred revenue		(240	)
Deferred income tax liabilities		(559	)

	$	15,000

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill from the Accanto acquisition will be included within the Company’s single reporting unit and will be included in the Company’s enterprise-level annual review for impairment. The acquired software intangible had tax basis of approximately $2.1 million which carried over as part of the acquisition and will be deductible for tax purposes. Under Italian tax law the Company may chose to step up all or a portion of the basis for the remaining value of the acquired software as well as the customer relationships and goodwill by paying a substitute tax on those assets. The Company has not completed its economic analysis of this item and has until June 2013 to make an election to step up the basis in intangibles acquired. As this election does not relate to the agreement between the Company and Accanto, it will not affect balances recorded in purchase accounting.

The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Accanto and the Company. These assumptions include estimates of future revenues associated with the technology purchased as part of the acquisition and the migration of the current technology to more advanced version of the software. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements. The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands):


	Fair Value		Useful Life (Years)
Acquired software	$	3,500		8
Distributor relationships		1,780		6

	$	5,280

The weighted average useful life of identifiable intangible assets acquired from Accanto is 7.3 years. Acquired software is amortized using an accelerated amortization method. Distributor relationships are amortized on a straight-line basis.

The Company incurred approximately $586 thousand of acquisition-related costs which are included in general and administrative expense during the six months ended September 30, 2012.

In the fiscal year ended March 31, 2012, the Company completed the acquisitions of Psytechnics, Ltd (Psytechnics), Fox Replay BV (Replay) and Simena, LLC (Simena) described more fully in Note 7 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Simena

On November 18, 2011, the Company completed the acquisition of Simena for $10.1 million. The purchase price is no longer preliminary.

In connection with the acquisition of Simena, the Company became obligated to pay the seller up to $10.8 million in additional purchase consideration subject to adjustment based on the final determination of certain assets and liabilities. As a result, a majority of the changes to the value of the contingent consideration would be expected to have an offsetting impact on the recorded values of the assets and liabilities assumed as part of the transaction.

The contingent liability was recorded at its fair value of $8.0 million at the acquisition date. The Company has re-measured the fair value at September 30, 2012 and will re-measure the fair value of the consideration at each subsequent reporting period and recognize any adjustment to fair value as part of earnings.

Replay

On October 3, 2011, the Company completed the acquisition of Replay for $20.2 million.

Psytechnics

On April 1, 2011, the Company completed the acquisition of Psytechnics for $17.0 million.

During the six months ended September 30, 2012, the Company has recorded $8.4 million of revenue directly attributable to Simena, Replay and Accanto within its consolidated financial statements.

The following table presents unaudited pro forma results of the historical Consolidated Statements of Operations of the Company and Accanto, Replay and Simena for the three and six months ended September 30, 2012 and 2011, giving effect to the mergers as if they occurred on April 1, 2012 and 2011 (in thousands, except per share data):


	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
Pro forma revenue	$	84,860	$	77,158	$	162,151	$	143,877
Pro forma net income	$	8,845	$	4,238	$	10,702	$	1,879
Pro forma income per share:
Basic	$	0.21	$	0.10	$	0.26	$	0.04
Diluted	$	0.21	$	0.10	$	0.25	$	0.04
Pro forma shares outstanding
Basic		41,695		42,258		41,718		42,433
Diluted		42,344		42,720		42,400		43,061

The pro forma results for the three and six months ended September 30, 2012 primarily includes adjustments for amortization of intangibles. This pro forma information does not purport to indicate the results that would have actually been obtained had the acquisition been completed on the assumed date, or which may be realized in the future.