Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

Acquisitions

2. Acquisitions

During the first six months of 2011 the Company completed three acquisitions:  ForceLogix, Inc. (“ForceLogix”), Salesforce Assessments Ltd and Litmos Ltd.

ForceLogix

On December 23, 2010 the Company entered into an Asset Purchase Agreement with ForceLogix Technologies Inc. to purchase all of the issued and outstanding shares of common stock of ForceLogix, the sole subsidiary of ForceLogix Technologies. The purchase of the shares was completed on February 25, 2011 and entitles the Company to the assets of ForceLogix’s business of consulting and software solutions. ForceLogix is a provider of SaaS-based coaching and talent development solutions that helps organizations optimize and increase the effectiveness of their sales force.  The ForceLogix solution is pre-integrated with our on-demand Monaco suite. The acquisition enhances the Company’s Sales Talent Management suite and cross selling opportunities.

Assets acquired and liabilities assumed were recorded at their estimated fair values as of February 25, 2011.  The Company has included the financial results of ForceLogix in its condensed consolidated financial statements from the date of acquisition. For the six months ended June 30, 2011, ForceLogix contributed $0.2 million to our total revenues and the net loss was insignificant. The Company is not required to present pro forma financial statements giving effect to the acquisition under applicable SEC rules and regulations and accounting rules.

The total purchase price for ForceLogix was $3.75 million, consisting of a closing cash payment of $3.0 million and an additional $750,000 to be paid six months from the date of the closing of the acquisition, subject to standard representations and warranties.

Preliminary Purchase Price Allocation

The total purchase price for ForceLogix was allocated to the assets acquired and liabilities assumed based upon their fair value at the acquisition date as set forth below.  The allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date).  The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the aforementioned cash payment due six months from the date of the closing, tax accounting related to the intangibles and residual goodwill.  We expect to continue to obtain information to assist us in determining the fair value of the net assets acquired at the acquisition date during the measurement period.

(in thousands)
Intangible Assets	$	2,200
Deferred Revenue	(91		)
Total Identifiable Net Assets	2,109
Goodwill	1,641
Total Purchase Price	$	3,750

Preliminary Valuation of Intangible Assets Acquired

The preliminary fair value of intangible assets acquired in connection with the acquisition, including developed technology, customer relationships and tradenames, totaled $2.2 million. The acquired intangible assets have estimated useful lives of 7 to 8 years.

Developed technology represents the fair values of ForceLogix’s products that have reached technological feasibility.  The estimated useful life was primarily based on projected product cycle and technology evolution.  Customer relationships represent the fair value of the underlying customer support contracts and related relationships with ForceLogix’s existing customers.  The estimated useful life was primarily based on projected customer retention rates.  Tradenames and trademarks represent the fair value of brand and name recognition associated with the marketing of ForceLogix’s products and services.  The estimated useful life was based on the projected product cycle and associated marketing of the brand and name.

The excess of the purchase price over the preliminary assets acquired and liabilities assumed was recorded as goodwill.  The goodwill arising from the acquisition mainly consists of the entity-specific synergies and economies of scale expected from joining ForceLogix with the Company.

Acquisition Related Expenses

Acquisition related expenses primarily consist of direct transaction costs such as professional service fees.  For the six months ended June 30, 2011, the Company incurred a total of $164,000 acquisition-related expenses associated with the ForceLogix acquisition.  These direct transaction costs were recorded as expenses in the Company’s condensed consolidated statements of operations.

SalesForce Assessments

On March 25, 2011 the Company entered into an Asset Purchase Agreement for the purchase of substantially all of the assets of Salesforce Assessments.  Salesforce Assessments is a provider of SaaS-based sales assessments.  The total purchase price paid for Salesforce Assessments was a cash payment of $260,000 upon closing.

Assets acquired and liabilities assumed were recorded at their estimated fair values as of March 25, 2011.  The Company has included the financial results of Salesforce Assessments in its condensed consolidated financial statements from the date of acquisition. During the quarter, the revenue and the net loss produced by Salesforce Assessments was insignificant to the Company’s net operating results. The Company is not required to present pro forma financial statements giving effect to the acquisition under applicable SEC rules and regulations and accounting rules.

Litmos

On June 10, 2011 the Company entered into an Asset Purchase Agreement with Litmos, Limited (Litmos), a New Zealand corporation to purchase all of the issued and outstanding shares of common stock of Litmos,. Litmos is a provider of SaaS-based learning management systems (LMS). The Litmos LMS platform delivers a self-service online training system that facilitates the management and delivery of web-based training courses for business users.

Assets acquired and liabilities assumed were recorded at their estimated fair values as of June 10, 2011.  The Company has included the financial results of Litmos in its condensed consolidated financial statements from the date of acquisition.  For the six months ended June 30, 2011, Litmos contributed less than $0.1 million to our total revenues.  During the quarter, the net loss produced by Litmos was insignificant to the Company’s net operating results.  The Company is not required to present pro forma financial statements giving effect to the acquisition under applicable SEC rules and regulations and accounting rules.

The total purchase price for Litmos was $2.6 million in cash payment. An additional $600,000 is to be paid one year from the date of the closing of the acquisition subject to Litmos meeting certain employee retention and indemnity requirements. This is considered compensation expense and will be expensed ratably over the next year as the likelihood of meeting the retention requirements is deemed probable. The ratable portion of this compensation expense of $35,000 is included in operating expenses for the second quarter of fiscal 2011.

Preliminary Purchase Price Allocation

The total purchase price for Litmos was allocated to the assets acquired and liabilities assumed based upon their fair value at the acquisition date as set forth below.  The allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). We expect to continue to obtain information to assist us in determining the fair value of the net assets acquired at the acquisition date during the measurement period.

(in thousands)
Intangible Assets	$	950
Cash and Receivables	18
Deferred Tax Liabilities	(226		)
Accruals and other liabilities	(18		)
Total Identifiable Net Assets	724
Goodwill	1,876
Total Purchase Price	$	2,600

Preliminary Valuation of Intangible Assets Acquired

The preliminary fair value of intangible assets acquired in connection with the acquisition, including developed technology, customer relationships and trade names and trademarks which, totaled $1.0 million.  The acquired intangible assets have estimated useful lives of 6 to 10 years.

Developed technology represents the fair values of Litmos’ products that have reached technological feasibility.  The estimated useful life was primarily based on projected product cycle and technology evolution.  Customer relationships represent the fair value of the underlying customer contracts and related relationships with Litmos’ existing customers.  The estimated useful life was primarily based on projected customer retention rates.  Trade names and trademarks represent the fair value of brand and name recognition associated with the marketing of Litmos’ products and services.  The estimated useful life was based on the projected product cycle and associated marketing of the brand and name.

The excess of the purchase price over the preliminary assets acquired and liabilities assumed was recorded as goodwill.  The goodwill arising from the acquisition mainly consists of the entity-specific synergies and economies of scale expected from joining Litmos with the Company.

Acquisition Related Expenses

Acquisition related expenses primarily consist of direct transaction costs such as professional service fees.  For the six months ended June 30, 2011, the Company incurred a total of $93,000 acquisition-related expenses associated with the Litmos acquisition.  These direct transaction costs were recorded as expenses in the Company’s condensed consolidated statements of operations.