DISCONTINUED OPERATIONS - BUSINESS DIVESTITURE

9 Months Ended

Dec. 31, 2013

BUSINESS DIVESTITURE

BUSINESS DIVESTITURE

2. DISCONTINUED OPERATIONS - BUSINESS DIVESTITURE

Over the last several years, the Company began to shift its strategy to focus primarily on growth opportunities in the mobile and social media industries.  Consistent with this strategy, on November 15, 2013, the Company completed the sale of the MDMS Business, and the related underlying enterprise resource planning (“ERP”) platform required to support the MDMS Business, to Rocket for a total purchase price of approximately $22 million (the “Sale”), of which approximately $19.8 million was received at closing and approximately $2.2 million is being held by a third party escrow agent for 12 months to serve as security for the Company’s general indemnification obligations. As a result of this divestiture, the historical results of the MDMS Business has been reclassified and presented as discontinued operations for all periods presented.  Also, in connection with, and effective on, the closing of the Sale, the Company assigned to Rocket its Lease Agreement with The Irvine Company, dated November 9, 2004, as amended by the First Amendment thereto dated December 7, 2009. The lease was for approximately 15,000 square feet of office space in Irvine, California and ran through October 2015.  Rocket has agreed to allow the Company to continue to occupy a portion of the space while the Company identifies a new facility to accommodate the personnel previously employed at the premises and continuing with the Company following the Sale. See footnote 9-Subsequent Event for further detail on the lease agreement.

In connection with the Sale, the parties also entered, at closing, into several ancillary and related agreements, including a transition services agreement designed to facilitate the transition of the MDMS Business to Rocket and minimize disruptions to the Company’s retained businesses, and an intellectual property license agreement, which will permit Rocket to use certain intellectual property owned by the Company and will permit the Company to use certain intellectual property owned by Rocket following the Sale. The costs of providing these services were considered immaterial and therefore were not included in discontinued operations on the statement of comprehensive income (loss).

The Company identified costs that were considered to be related to ongoing activities separately from those related to the divested MDMS Business. Costs identified as relating to continuing operations include costs related to certain personnel and general and administrative costs, as well as other finance and legal costs which are equivalent to the resources expected on an ongoing basis after the divestiture. All compensation, benefits, stock-based compensation and other personnel related costs associated with these positions were included in ongoing operations. The Company also included costs related to being a public company, such as external audit costs, costs associated with the Sarbanes-Oxley Act, board of directors’ fees, SEC filing fees, and NASDAQ fees. Facilities and information systems/technology costs were allocated based upon the percentage of headcount of the employees assumed to be working primarily on continuing operations. All specific costs of the divested MDMS Business were classified as discontinued operations as they were considered necessary and were directly related the divested business.

The Company identified assets and liabilities that were related to the divested MDMS Business and presented them as assets and liabilities from discontinued operations on the unaudited condensed consolidated balance sheets. Assets related to the MDMS Business included certain trade accounts receivable, fixed assets, and goodwill. Goodwill was allocated to the MDMS Business based on the relative fair values of the MDMS Business and continuing operations. Liabilities related to the MDMS Business included certain deferred revenue related to unamortized annual support revenue and certain pension liabilities.

The following table presents the carrying amount of major classes of assets and liabilities relating to the discontinued operations as of March 31, 2013 (in thousands):

	March 31, 2013
Assets:
Account receivables, net	$	411
Total current assets of discontinued operations	$	411
Property and equipment, net	92
Goodwill	13,473
Total noncurrent assets of discontinued operations	$	13,565
Liabilities:
Accrued liabilities	$	55
Deferred revenue	3,393
Total current liabilities of discontinued operations	$	3,448
Noncurrent liabilties	34
Total noncurrent liabilities of discontinued operations	$	34

Current and historical results of operations of the MDMS Business have been classified as discontinued operations. Income from discontinued operations for the three and nine months ended December 31, 2013 and 2012 represents the results of operations of the MDMS Business.  As of December 31, 2013, the Company has not had and does not anticipate generating any future cash flows related to the MDMS Business other than the $2.2 million cash expected to be received from escrow.

The financial results of the discontinued operations for the three and nine months ended December 31, 2013 and 2012, were as follows (in thousands):

	Three Months Ended December 31,					Nine Months Ended December 31,
	2013			2012		2013		2012
Revenue of discontinued operations	$	1,140		$	2,309	$	5,821	$	6,917
Income from discontinued operations	567			1,420		3,230		4,207
Income tax expense (benefit)	(515		)	550		561		1,623
Income from discontinued operations, net of tax	1,082			870		2,669		2,584
Gain on sale of discontinued operations	9,926			—		9,926		—
Income tax expense	3,813			—		3,813		—
Gain on sale of discontinued operations, net of tax	6,113			—		6,113		—
Total income from discontinued operations	$	7,195		$	870	$	8,782	$	2,584