Note 2. Acquisitions

Strategic Office Solutions, Inc., dba Daegis

On June 29, 2010, the Company acquired all of the issued and outstanding shares of common stock of Strategic Office Solutions, Inc., dba Daegis, for approximately $37.4 million. Payment was made in the form of $24.0 million in cash, $7.2 million in equity, and $6.2 million in convertible notes. The Company issued 2,085,714 shares of common stock to the former owners of Daegis at $3.46 per share (closing market price on the acquisition date) for a total of $7.2 million. The notes consisted of a $5.0 million Subordinated Purchase Note and a $1.2 million Subordinated Indemnity (Escrow) Note. Under the terms of the Subordinated Purchase Note the Company incurred interest at 8% per annum. On September 1, 2010 the Company converted the Subordinated Purchase Note and all related accrued interest into 1,448,614 shares of common stock at a conversion price of $3.50 per share. Under the terms of the Subordinated Indemnity (Escrow) Note the Company incurred interest at 3% per annum for the first eighteen months and 8% per annum thereafter. On September 1, 2010 the Company converted the Subordinated Indemnity (Escrow) Note and all related accrued interest into 344,667 shares of common stock at a conversion price of $3.50 per share. Both notes were cancelled upon conversion.

Daegis is a provider of eDiscovery solutions for corporate legal departments and law firms. We believe our eDiscovery solutions complement our integrated content archiving product and that this acquisition advances the Company’s growth strategy to acquire superior software and services companies that can leverage its technology strengths and extensive customer base while enabling the combined company to meet a broader set of customer and market needs.

The goodwill of $19.5 million arising from the acquisition consists of increased market presence and opportunities, enhanced product mix and operating efficiencies expected from combining the operations of the two entities. All of the goodwill was assigned to the eDiscovery segment and is deductible for income tax purposes. In conjunction with our annual impairment test in fiscal 2012, we subsequently recorded impairment charges of $13.5 million for the goodwill and charges of $1.5 million for the intangible assets of eDiscovery. The intangible assets impaired were $0.2 million of trademarks, $1.2 million of technology-based, and $0.1 million of non-compete (see Note 5).

The following table summarizes the consideration paid for Daegis and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, June 29, 2010 (in thousands):


Consideration
Cash	$	24,000
Equity instruments (2,085,714 common shares of the Company)		7,217
Convertible notes		6,200

Fair value of total consideration	$	37,417

Recognized amounts of identifiable assets acquired and liabilities assumed
Financial assets	$	2,270
Accounts receivable		5,422
Other assets		705
Property and equipment		1,867
Identifiable intangible assets		11,000
Financial liabilities		(3,366)
Total identifiable net assets		17,898

Goodwill		19,519
	$	37,417

Acquisition related costs (included in selling, general and administrative expense in the Company's consolidated statement of operations for the year ended April 30, 2011)	$	1,423

The fair value of the 2,085,714 common shares issued as part of the consideration paid for Daegis ($7,216,570) was determined on the basis of the closing market price of the Company’s common shares on the acquisition date.

The amounts of Daegis’ revenue and earnings included in the Company’s consolidated statement of operations for the year ended April 30, 2011, and the supplemental pro forma revenue and earnings of the combined entity had the acquisition date been May 1, 2010, or May 1, 2009, are:


(in thousands, except per share amounts)		Revenue		Net income (loss)		Net income (loss) per share

Actual from June 29, 2010 to April 30, 2011	$	23,112	$	5,805	$	0.43
Supplemental pro forma from May 1, 2010 to April 30, 2011		47,817		(17,668)		(1.30)
Supplemental pro forma from May 1, 2009 to April 30, 2010		51,811		(6,002)		(0.62)