5.	ACQUISITIONS

On January 9, 2013, the Company completed its acquisition of Vineyard Networks Inc. ("Vineyard"), a privately held developer of Layer 7 Deep Packet Inspection ("DPI") and application classification technology located in Kelowna, Canada. Vineyard's integrated DPI and application classification technology provides enterprise and service provider networking infrastructure vendors with these capabilities through its integrated software suite, primarily through a variety of subscription based original equipment manufacturer and partner agreements. This acquisition complements the Company's hardware and application software-based IPE and DPI solutions, expands the way it sells solutions to customers, and increases the Company's customer base, previously comprised primarily of network operators, thereby allowing the Company to provide complementary technology and solutions to a greater number of customers.

For the three monts ended March 31, 2013, Vineyard contributed approximately $0.4 million in revenue and $0.5 million in net loss.

The total purchase price was $20.9 million, consisting of $9.8 million cash consideration and $11.1 million in the Company's common stock in exchange for 100% of the outstanding securities of Vineyard. Of the consideration paid, $2.0 million and $1.9 million in cash and stock, respectively, will be held in escrow for a period of 18 or 36 months from the closing of the acquisition and will be released subject to resolution of certain contingencies. In addition to the purchase consideration, the Company has recorded deferred compensation of $5.9 million, consisting of approximately $2.7 million in cash consideration and $3.2 million in the Company's common stock, related to retention agreements with Vineyard's three founders, which will be disbursed from the escrow account after one year of continuous employment with the Company. The Company recognized $1.4 million in compensation costs for the three months ended March 31, 2013.

The Company recognized $1.0 million of acquisition-related costs during the first quarter of 2013. These acquisition related charges were expensed in the period incurred and reported in the Company's condensed consolidated statements of operations within operating expenses.

The following table summarizes the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date (in thousands):



Assets acquired
Cash	$	822
Accounts receivable, trade		525
Other current assets		2,095
Identifiable intangible assets		8,460
Goodwill (1)		12,751
Other assets		303
Total assets acquired		24,956
Liabilities assumed
Accounts payable and other accrued liabilities		420
Deferred revenue		555
Notes payable		511
Deferred tax liability		2,546
Total liabilities assumed		4,032
Net assets acquired	$	20,924


(1)	None of the goodwill recognized is expected to be deductible for income tax purposes.

Intangible Assets Acquired

The following table presents details of the intangible assets acquired from Vineyard completed during the first quarter of 2013 (in thousands, except years):

	Estimated Useful Life (In Years)		Amount
Developed technology		5	$	5,910
Customer relationships		5		2,550
Total			$	8,460

Acquired technology consists of existing research and development projects at the time of the acquisition that have reached technological feasibility. No in process research and development was included in acquired intangibles as of March 31, 2013.

Pro Forma Financial Information

The following tables summarize the supplemental condensed consolidated statements of operations information on an unaudited pro forma basis as if the acquisition of Vineyard occurred on January 1, 2012 and include adjustments that were directly attributable to the foregoing transactions or were not expected to have a continuing impact on the Company. The pro forma results are for illustrative purposes only for the applicable period and do not purport to be indicative of the actual results that would have occurred had the transactions been completed as of the beginning of the period, nor are they indicative of results of operations that may occur in the future (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2013			2012

Pro forma revenues	$	14,636		$	12,620
Pro forma net loss		(3,751	)		(1,752	)
Basic and diluted loss per share	$	(0.19	)	$	(0.12	)

The pro forma financial information reflects acquisition-related expenses incurred, pro forma adjustments for the additional amortization associated with finite-lived intangible assets acquired, deferred compensation costs related to the retention of certain Vineyard employees, the change in stock compensation expense as a result of the exercise of stock options immediately prior to closing of the Vineyard transaction, stock compensation related to the stock options granted to Vineyard employees, and the related tax expense. The weighted average common shares also reflect the issuance of 517,696 shares in January 2012.

These adjustments are as follows (in thousands, except per share data):

	Three Months Ended
	March 31,
	2013			2012

Acquisition-related expenses	$	(1,006	)	$	0
Intangible amortization		36			414
Net change in stock compensation expense		(636	)		927
Increase (decrease) in deferred compensation expense		(1,342	)		1,468
Increase in weighted average common shares outstanding for shares issued and not already included in the weighted average common shares outstanding		46			518