Acquisitions

9 Months Ended

Oct. 31, 2012

Acquisitions [Abstract]

ACQUISITIONS

NOTE C – ACQUISITIONS

On August 16, 2012, we acquired substantially all of the outstanding stock of Meta Health Technology, Inc., a New York corporation (“Meta”). We paid a total purchase price of approximately $15,000,000, consisting of cash payment of $13,400,000 and the issuance of 393,086 shares of our common stock at a price of $4.07 per share. The fair value of the common stock at the date of issuance was $3.82. For the three and nine month periods ending October 31, 2012, we recorded $406,000 and $957,000, respectively, of acquisition costs related to the Meta transaction, which were recorded in selling, general and administrative expense. These costs were primarily related to services provided by legal, financial, and accounting professional advisors. At October 31, 2012 we have acquired 100% of Meta’s outstanding shares.

The acquisition of Meta represents our on-going growth strategy, and is reflective of our solutions development process, which is led by the needs and requirements of our clients and the marketplace in general. The Meta suite of solutions, when bundled with our existing solutions, will help current and prospective clients better prepare for compliance with the ICD-10 transition. As we move forward, we believe that the integration of our business analytics solutions with the coding solutions acquired in this transaction will position us to address the complicated issues of clinical analytics as our clients prepare for the proposed changes in commercial and governmental payment models.

The purchase price is subject to certain adjustments related principally to the delivered working capital level and/or indemnification provisions. Under the acquisition method of accounting, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date as follows:

	Balance at August 16, 2012
Assets purchased:
Cash	$	1,126,000
Accounts receivable		2,300,000
Fixed assets		133,000
Other assets		513,000
Client relationships		4,464,000
Internally developed software		3,646,000
Trade name		1,588,000
Supplier agreements		1,582,000
Covenants not to compete		720,000
Goodwill(1)		7,978,000
Total assets purchased	$	24,050,000
Liabilities assumed:
Accounts payable and Accrued liabilities		1,164,000
Deferred revenue obligation, net		3,494,000
Deferred tax liability		4,602,000
Net assets acquired	$	14,790,000
Consideration:
Company common stock		1,502,000
Cash paid		13,288,000
Total Consideration	$	14,790,000

(1) Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired , which is not deductible for tax purposes.

The acquired operations of Meta are consolidated with the results of the Company from August 16, 2012. Due to the new deferred tax liabilities recorded as a result of the above purchase price allocation, we were able to reduce our valuation allowance by approximately $3,600,000 representing the significant deferred tax benefit recorded in the three and nine months ended October 31, 2012.

Pro Forma Results

The operating results of Meta for the period August 16, 2012 through October 31, 2012, which include sales of $1,259,000 and net income of approximately $177,000, have been included in our consolidated financial statements.

The following unaudited pro forma information assumes the Meta acquisition occurred as of the beginning of the earliest period presented. The unaudited pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the acquisition including, historical interest expense, adjustments to interest expense for certain provisions in the asset purchase agreement, adjustments for transaction-related expenses, adjustments for salary and benefits for certain employees, and amortization charges from acquired intangible assets were combined at the beginning of the earliest period presented. The unaudited pro forma supplemental results have been prepared based on estimates and assumptions, which the Company believes are reasonable and are not necessarily indicative of the consolidated financial position or results of operations had the acquisition occurred at the beginning of the earliest period presented, nor of future results of operations. For purposes of the pro forma presentation, the financial results of Interpoint for the three and nine months ended September 30, 2011 have been combined with the results of the Company for the three and nine months ended October 31, 2011. The Meta results for the three and nine months ended October 31, 2011 and 2012 are based on the three and nine months ended September 30, 2011 and 2012. Subsequent to the acquisition, the Meta results will be recorded based on the Company’s fiscal year-end. The unaudited pro forma results are as follows (in thousands):

	Three Months Ended October 31,
	2012		2011
Revenue	$	7,129	$	6,817
Net income (loss)		1,231		(1,393	)
Net income (loss) attributable to common shareholders		1,197		(1,572	)
Income (loss) per share:
Basic	$	0.10	$	(0.22	)
Diluted	$	0.08	$	(0.22	)

	Nine Months Ended October 31,
	2012		2011
Revenue		22,733		19,196
Net income (loss)		1,249		(6,762	)
Net income (loss) attributable to common shareholders		798		(7,302	)
Income (loss) per share:
Basic	$	0.07	$	(0.73	)
Diluted	$	0.06	$	(0.73	)