2. ACQUISITIONS

Panopticon Software AB

The Company acquired all of the outstanding shares of Panopticon Software, AB and subsidiaries (“Panopticon”), a privately held Swedish Company specializing in the delivery of real-time visual data discovery solutions, under a stock purchase agreement dated June 14, 2013, which closed on August 28, 2013. As a result of this transaction, the Company has acquired technologies to enable it to expand its product platform and increase its addressable market. The Company accounted for this acquisition in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”). The purchase consideration included $175,000 in seller financing pertaining to the Company’s direct acquisition of Panopticon’s U.S. subsidiary, Panopticon Software, Inc. and 1,866,716 Datawatch common shares, with an additional 216,994 shares held back for a period of 15 months to secure indemnification obligations of the Panopticon sellers under the share purchase agreement, and 86,231 restricted stock units. The shares issued were valued at approximately $42,644,000 ($23.12 per share). The shares issued as consideration at closing are subject to a contractual lockup restriction which precludes the sale of such shares without the Company’s prior consent for a period of six months following the transaction date, although the Company lifted the restriction with respect to approximately 40% of such shares effective December 12, 2013. In addition, the restricted stock units issued as consideration are subject to vesting periods ranging from three to six months. Panopticon’s operating results are reflected in the accompanying consolidated financial statements as of the acquisition date (August 28, 2013). The Company has allocated the cost to acquire Panopticon to its identifiable tangible and intangible assets and liabilities, with the remaining amount classified as goodwill.

The estimated fair value of net assets acquired and net liabilities acquired in the of Panopticon transaction are summarized as follows:

	Amount
Current assets	$	1,336
Property, plant and equipment		2
Other intangible assets		15,840
Goodwill		28,152
Obligations under deferred revenue		(189)
Accounts payable and accrued expenses		(756)
Deferred income taxes		(1,566)
Purchase Price	$	42,819
Less:
Common stock issued	$	(42,644)
Seller financing		(175)
Cash and cash equivalents acquired		(383)
Net cash provided by acquisition	$	383

Fair value of intangible assets was determined using a combination of the income approach and the cost approach and relief from royalty method. As the acquisition was a stock acquisition, the goodwill recognized will not be deductible for tax purposes. In addition, the Company incurred approximately $1,000,000 of acquisition related costs in fiscal 2013 and these costs are included in general and administrative expense in the accompanying consolidated statement of operations.

Management is responsible for the valuation of net assets acquired and considered a number of factors, including valuations and appraisals, when estimating the fair values and estimated useful lives of acquired assets and liabilities. At September 30, 2013, the allocation of the purchase price has been finalized.

The intangible assets, excluding goodwill, are being amortized on a straight-line basis over their estimated lives as follows (in thousands):

	Fair Value		Estimated Lives
Customer Relationships	$	7,200		15.0 years
Developed Technology		7,900		7.5 years
Trade Name		120		2.5 years
Assembled Workforce		620		Indefinite

Total intangible assets	$	15,840

The following unaudited pro forma financial information reflects the combined results of operations for the fiscal years ended September 30, 2013 and September 30, 2012, assuming that Panopticon was acquired at the beginning of each respective fiscal period. This information does not necessarily reflect the results of operations that would have occurred had the acquisitions taken place at the beginning of the period, and is not necessarily indicative of the results which may be obtained in the future (in thousands, except per share data):

	September 30,
	2013		2012
Total revenue	$	33,271	$	28,828
Net income (loss)		(6,542)		(2,639)
Net income (loss) per share
Basic and diluted	$	(0.79)	$	(0.33)
Number of weighted average shares
Basic and diluted		8,322		8,117