NOTE 5. ACQUISITIONS

Uptivity Acquisition

On May 6, 2014, we acquired 100% of the outstanding shares of CallCopy, Inc., a Delaware corporation doing business as Uptivity (“Uptivity”). Uptivity provides a complete mid-market workforce optimization suite of software products and services to call centers comprised of speech and desktop analytics, agent coaching, call and desktop recording, as well as quality, performance, workforce management and satisfaction surveys. inContact acquired Uptivity for an aggregate purchase price of $48.9 million of primarily cash and stock. The purchase consideration was paid with cash in the amount of $15.0 million, estimated fair market value of vested stock options converted to cash of $1.9 million and 3,821,933 shares of the Company’s common stock valued at approximately $32.0 million. An additional 434,311 shares of restricted common stock were issued, but not included in the purchase consideration because the shares are subject to repurchase rights, which will lapse as services are provided over a three year period. The acquisition of Uptivity was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. Under the purchase method of accounting, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, as determined by management. The total purchase price was allocated as follows (in thousands):

		Amount
Assets acquired:
Cash	$	3,894
Accounts receivable		742
Other current assets		1,363
Property, plant and equipment and other assets		584
Intangible assets		24,448
Goodwill		32,684
Total assets acquired		63,715

Liabilities assumed:
Trade accounts payable		1,124
Accrued liabilities		1,934
Current portion of deferred revenue		1,516
Long-term portion of deferred revenue		353
Deferred tax liability		9,884
Total liabilities assumed		14,811
Net assets acquired	$	48,904

In connection with the acquisition, we incurred professional fees of $934,000, including transaction costs such as legal and valuation services, which were expensed as incurred. These costs are included within general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, represents future economic benefits expected to arise from synergies from combining operations and assembled workforce acquired. All of the goodwill was assigned to the Software segment. The entire amount allocated to goodwill is not expected to be deductible for tax purposes.

Intangible assets acquired from the acquisition include customer relationships, which are amortized on a double-declining basis, technologies and trade name and trademarks, which are amortized on a straight-line basis. The fair values of the intangible assets were determined primarily using the income approach and the discount rates range from 17.0% to 20.6%. The following sets forth the intangible assets purchased as part of the Uptivity acquisition and their respective preliminary estimated economic useful life at the date of the acquisition (in thousands, except useful life):

	Amount		Economic Useful Life (in years)


Customer relationships	$	11,460		8
Trade name and trademarks		1,942		5
Technology		7,686		7
In-process research and development		3,360		Indefinite
Total intangible assets	$	24,448

The Company recorded a deferred tax benefit of $9.4 million at the time of the acquisition. The tax benefit related to recording a deferred tax liability upon acquisition of Uptivity related to a reduction of carrying value of deferred revenue and acquisition of intangibles for which no tax benefit will be derived. The reduction of carrying value resulted in a partial reversal of the deferred tax asset valuation allowance upon consolidation.

For the quarter ended June 30, 2015, our Condensed Consolidated Financial Statements include approximately $5.2 million and $1.8 million of net revenue and net loss, respectively, related to the operations of Uptivity. For the six months ended June 30, 2015, our Condensed Consolidated Financial Statements include approximately $9.9 million and $4.8 million of net revenue and net loss, respectively, related to the operations of Uptivity. The following table presents our unaudited pro forma results of operations of the Company and Uptivity as if the companies had been combined as of January 1, 2013, and includes pro forma adjustments related to the fair value of deferred revenue, amortization of acquired intangible assets and share-based compensation expense. Direct and incremental transaction costs are excluded from the three and six months ended June 30, 2015 and 2014 pro forma condensed combined financial information presented below, and was included in the three and six months ended June 30, 2013 pro forma condensed combined financial information. The tax benefit of $9.4 million that resulted from the acquisition was recorded in the three and six months ended June 30, 2013 pro-forma period.

	Three Months Ended						Six Months Ended
	June 30, 2015						June 30, 2015
	As Reported			Pro forma			As Reported			Pro forma
Net revenue	$	53,071		$	53,071		$	104,409		$	104,409
Net loss		(7,290	)		(5,865	)		(13,278	)		(11,468	)
Basic and diluted net loss per common share		(0.12	)		(0.10	)		(0.22	)		(0.19	)

	Three Months Ended						Six Months Ended
	June 30, 2014						June 30, 2014
	As Reported			Pro forma			As Reported			Pro forma
Net revenue	$	41,111		$	42,982		$	78,165		$	85,298
Net income (loss)		3,428			(5,458	)		1,704			(8,485	)
Basic net income (loss) per common share		0.06			(0.09	)		0.03			(0.15	)
Diluted net income (loss) per common share		0.06			(0.09	)		0.03			(0.15	)

The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved had Uptivity been acquired at the beginning of 2013 or of results that may be obtained in any future period.

Transcend Acquisition

In December 2012, we entered into an agreement with Transcend Products LLC (“Transcend”) pertaining to the potential acquisition of Transcend to provide enhanced functionality for our existing service offerings. The option to purchase Transcend was exercised and the purchase closed in July 2013 for $2.7 million in cash and 376,459 shares of our common stock valued at $2.9 million, which was discounted from $3.0 million in the purchase agreement for the lack of marketability. Furthermore, if the acquisition generates certain levels of revenue during the two-year period beginning in August 2013, we will pay to Transcend an additional earnout payment of $1.0 million in cash or shares of our common stock. During the third quarter of 2014, the Company determined that fair market value of this contingent liability decreased to zero and therefore was eliminated. The Company recorded a benefit of $146,000, relating to the remeasurement of the fair value of the contingent liability which was included in software cost of revenue in the Condensed Consolidated and Statements of Operations and Comprehensive Income (Loss) during the third quarter of 2014.

The purchase price allocations for our acquisition of Transcend Products were prepared by the Company’s management utilizing a valuation report, which was prepared in accordance with the provisions of ASC 805 Business Combination, and other tools available to the Company, including conversations with Transcend’s management and projections of revenues and expenses. The fair values of the intangible assets were determined primarily using the income approach and the discount rates range from 13.4% to 16.4%. The total purchase price, which includes the contingent consideration liability above, was preliminarily allocated as follows (in thousands):

	July 2, 2013
Property and equipment, net	$	29
Intangible assets, net		3,249
Goodwill		2,477
Total assets acquired	$	5,755

In connection with the acquisition, we incurred professional fees of $23,000, including transaction costs such as legal and valuation services, which were expensed as incurred. These costs are included within general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, was primarily attributed to buyer synergies and assembled workforce. All of the recorded goodwill relates to the Software segment.

Intangible assets acquired in the acquisition include customer relationships, patents and technology, which are amortized on a straight-line basis. The following sets forth the intangible assets purchased as part of the Transcend acquisition and their economic useful life at the date of acquisition (in thousands, except useful life):

	Gross Assets		Economic Useful Life (in years)
Customer relationships	$	168		3.5
Patents		2,168		10.0
Technology		913		5.0
Total intangibles	$	3,249

All recorded goodwill relates to the Software segment.