Intangible Assets and Goodwill

3 Months Ended

Oct. 31, 2011

Notes to Financial Statements

Intangible Assets and Goodwill

(8) Intangible Assets and Goodwill

Intangible assets with determinable lives, other than customer relationships and software development costs are amortized on a straight-line basis over their estimated period of benefit, ranging from four to five years. Customer relationships are amortized over a two-year period at a rate of 65% of the gross value acquired in the first year subsequent to their acquisition and 35% of the gross value acquired in the second year. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets with definitive lives are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented. Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. The date of our annual impairment test is March 1.

The Company estimates that it has no significant residual value related to its intangible assets. Acquired intangibles generally are amortized on a straight-line basis over weighted average lives. Intangible assets amortization expense for the three and six months ended October 31, 2011 totaled approximately $41,000 and $82,000, respectively. Intangible assets amortization expense for the three and six months ended October 31, 2010 totaled approximately $107,000 and $214,000, respectively. Intangible asset amortization is included in selling, general and administrative expense. The components of finite-lived intangible assets acquired are as follows:

	Weighted
	Average		October 31,		April 30,
	Life		2011		2011
Trade names		5 Years	$	733,000	$	733,000
Customer relationships		2 Years		758,000		758,000
Non-compete agreement		4 Years		68,000		68,000
Software development costs (a)				2,388,000		1,480,000
Total gross carrying amount				3,947,000		3,039,000
Less accumulated amortization expense				1,181,000		1,099,000
Net intangible assets			$	2,766,000	$	1,940,000

The following table outlines the estimated future amortization expense related to intangible assets:

Year ending April 30:
2012	$	164,000
2013		162,000
2014		134,000
	$	460,000

(a) At the time XcelaSAN is made available for general release to customers the capitalized costs will be amortized to cost of sales over the estimated useful life of the underlying technology.