(5) Acquisitions

We account for business combinations using the acquisition method of accounting and accordingly, the identifiable assets acquired and liabilities assumed are recorded based upon management’s estimates of current fair values as of the acquisition date. The estimation process includes analyses based on income and market approaches. Goodwill represents the excess purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues. Identifiable intangible assets with finite lives are amortized over their useful lives. Amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in general and administrative expenses in the periods in which such costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Effective August 23, 2016, the Company acquired certain assets of AdapChain, Inc. (“AdapChain”), a privately-held Pennsylvania corporation and a provider of high-quality modular integration technology, pursuant to the terms of an asset purchase agreement, dated as of August 23, 2016 (the “Purchase Agreement”). This acquisition will expand and complement the products and services offered by Logility.

Under the terms of the Purchase Agreement, the Company acquired the assets for a purchase price of $4,000,000 in cash plus a post-closing working capital adjustment of $385,000 and $102,000 in purchase price adjustments related to the fair value of deferred revenue. Additional consideration is payable at the end of each three month period in the 36-month period following the Closing Date

(such 36-month period being the “Earnout Period”) from the license fee revenues contracted for and recorded as revenue in accordance with GAAP by either AdapChain or the Company from the sale of AdapChain software during such three month period, up to a maximum aggregate amount of $2.0 million over the Earnout Period. This additional consideration will be accounted for as post-combination services and, therefore, will be expensed as incurred, since the previous shareholders of AdapChain must remain employed by the Company in order to receive these earnout payments. The cumulative earnout paid as of April 30, 2017 was $203,000. The Company incurred acquisition costs of approximately $139,400 during year ended April 30, 2017, respectively. The operating results of AdapChain are not material for pro forma disclosure. We allocated $800,000 of the total purchase price to goodwill, which has been assigned to the Supply Chain Management segment and is deductible for income tax purposes.

The following preliminary allocation of the total purchase price reflects the fair value of the assets acquired and liabilities assumed as of August 23, 2016 (in thousands):


				Useful Life
Cash	$	46
Accounts receivable, net		510
Other current assets		66
Property and equipment, net		16
Goodwill		800
Non-compete		100			1-3 years
Trade name		200			3 years
Current technology		2,900			3 years

Total Assets Acquired		4,638
Current liabilities		(135	)
Long-term liabilities		(16	)

Total liabilities assumed		(151	)

Net assets acquired	$	4,487

Non-compete agreements, trade name and current technology are being amortized on a straight-line basis over the remaining estimated economic life of the assets, including the period being reported. The fair value of deferred revenues in a business combination is considered to be an assumed liability (which must arise from a legal performance obligation) and, accordingly, is estimated based on the direct cost of fulfilling the obligation plus a normal profit margin, which approximates fair value. Also, in practice, the normal profit margin is limited to the profit margin on the costs to provide the product or service (that is, the fulfillment effort).