2.2.0.7falseMergers and Acquisitions0203 - Disclosure - Mergers and Acquisitionstruefalsefalsefalse1USDfalsefalseUSDStandardhttp://www.xbrl.org/2003/iso4217USDiso42170USDEPSDividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli0SharesStandardhttp://www.xbrl.org/2003/instancesharesxbrli0$20bbbb_MergersAndAcquisitionsAbstractbbbbfalsenadurationMergers and Acquisitions.falsefalsefalsefalsefalsetruefalsefalsefalsefalsefalsefalse1falsefalsefalsefalse00falsefalsefalsexbrli:stringItemTypestringMergers and Acquisitions.false31us-gaap_BusinessCombinationDisclosureTextBlockus-gaaptruenadurationNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalsefalsefalseverboselabelfalse1falsefalsefalsefalse00<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<b><font style="font-family: 'Times New Roman', Times">3.  </font></b>
</td>
<td>
<b><font style="font-family: 'Times New Roman', Times">Mergers
and Acquisitions</font></b>
</td>
</tr>
</table>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #ffffff">
<b><i><font style="font-family: 'Times New Roman', Times">Saf-T-Net,
Inc. Merger</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
On March 19, 2010, the Company completed its merger with
Saf-T-Net, Inc. (“Saf-T-Net”) pursuant to the
Agreement and Plan of Merger dated March 7, 2010. Pursuant
to the Agreement and Plan of Merger, the Company paid merger
consideration of $34.4 million. The effective cash portion
of the purchase price of Saf-T-Net before transaction costs of
approximately $0.5 million was $34.2 million, net of
Saf-T-Net’s March 19, 2010 cash balance of
$0.2 million. The Company has included the financial
results of Saf-T-Net in its consolidated financial statements
beginning March 20, 2010.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
Saf-T-Net is the provider of AlertNow, a leading messaging and
mass notification solution for the K-12 marketplace. The Company
believes the merger with Saf-T-Net supports the Company’s
long-term strategic direction and the demands for innovative
technology in the education industry. The Company believes that
the merger with Saf-T-Net will help the Company meet the growing
demands of its clients, including the ability to send mass
communications via various means.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The Company has accounted for the merger under the acquisition
method of accounting. Assets acquired and liabilities assumed
were recorded at their fair values as of March 19, 2010.
The total preliminary purchase price was $34.4 million,
excluding the estimated acquisition related transaction costs of
approximately $0.5 million and excluding acquired cash.
Acquisition-related transaction costs include investment
banking, legal and accounting fees, and other external costs
directly related to the merger.
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<div align="left" style="margin-top: 12pt; margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #ffffff">
<b><i><font style="font-family: 'Times New Roman', Times">Preliminary
Purchase Price Allocation</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
Under the acquisition method of accounting, the total estimated
purchase price was allocated to Saf-T-Net’s net tangible
liabilities and intangible assets based on their estimated fair
values as of March 19, 2010. The Company recorded the
excess of the purchase price over the net tangible liabilities
and identifiable intangible assets as goodwill. The preliminary
allocation of the purchase price shown in the table below was
based upon management’s preliminary valuation, which was
based on estimates and assumptions that are subject to change.
The areas of the purchase price allocation that are not yet
finalized relate primarily to income and non-income based taxes.
The preliminary estimated purchase price is allocated as follows
(in thousands):
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<table border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff; text-align: left">
<!-- Table Width Row BEGIN -->
<tr style="font-size: 1pt" valign="bottom">
<td width="87%"> </td><!-- colindex=01 type=maindata -->
<td width="2%"> </td><!-- colindex=02 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=02 type=lead -->
<td width="1%" align="right"> </td><!-- colindex=02 type=body -->
<td width="1%" align="left"> </td><!-- colindex=02 type=hang1 -->
<td width="3%"> </td><!-- colindex=03 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=03 type=lead -->
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<td width="1%" align="left"> </td><!-- colindex=03 type=hang1 -->
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<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Cash and cash equivalents
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
238
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Accounts receivable
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
468
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Prepaid expenses and other current assets
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
30
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Property and equipment
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
14
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Accounts payable
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
(1,459
</td>
<td nowrap="nowrap" align="left" valign="bottom">
)
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Other accrued liabilities
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
(586
</td>
<td nowrap="nowrap" align="left" valign="bottom">
)
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Deferred tax liabilities, net
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
(3,176
</td>
<td nowrap="nowrap" align="left" valign="bottom">
)
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Deferred revenue
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
(2,835
</td>
<td nowrap="nowrap" align="left" valign="bottom">
)
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td>
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Net tangible liabilities acquired
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
(7,306
</td>
<td nowrap="nowrap" align="left" valign="bottom">
)
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Definite-lived intangible assets acquired
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
15,680
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Goodwill
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
26,021
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td>
 
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Total estimated purchase price
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
34,395
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 3px double #000000">
 
</td>
<td style="border-top: 3px double #000000">
 
</td>
<td>
 
</td>
</tr>
</table>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
Prior to the end of the measurement period for finalizing the
purchase price allocation, if information becomes available that
would indicate adjustments to the purchase price allocation are
required, any such adjustments will be included in the purchase
price allocation retrospectively.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
Of the total estimated purchase price, a preliminary estimate of
$7.3 million has been allocated to net tangible liabilities
acquired, and $15.7 million has been allocated to
definite-lived intangible assets acquired. Definite-lived
intangible assets consist of the value assigned to
Saf-T-Net’s customer relationships of $12.7 million,
developed and core technology of $2.3 million, and
trademarks of $0.7 million.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The value assigned to Saf-T-Net’s customer relationships
was determined by discounting the estimated cash flows
associated with the existing customers as of the date the merger
was consummated taking into consideration estimated attrition of
the existing customer base. The estimated cash flows were based
on revenues for those existing customers net of operating
expenses and net of capital charges for other tangible and
intangible assets that contribute to the projected cash flow
from those customers. The projected revenues were based on
assumed revenue growth rates and customer renewal rates.
Operating expenses were estimated based on the supporting
infrastructure expected to sustain the assumed revenue growth
rates. Net capital charges for assets that contribute to
projected customer cash flow were based on the estimated fair
value of those assets. A discount rate of 19% was deemed
appropriate for valuing the existing customer base and was based
on the risks associated with the respective cash flows taking
into consideration the Company’s weighted average cost of
capital. The Company amortizes the value of Saf-T-Net’s
customer relationships on a straight-line basis over seven
years. Amortization of customer relationships is not deductible
for tax purposes.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The value assigned to Saf-T-Net’s developed and core
technology was determined by discounting the estimated royalty
savings associated with an estimated royalty rate for the use of
the technology to their present value. Developed and core
technology, which consists of products that have reached
technological feasibility, includes products in Saf-T-Net’s
current product line. The royalty rates used to value the
technology were based on estimates of prevailing royalty rates
paid for the use of similar technology and technology in market
transactions involving licensing arrangements of companies that
operate in service-related industries. A discount rate of 19%
was deemed appropriate for valuing developed and core technology
and was based on the risks associated with the respective
royalty savings taking into consideration the Company’s
weighted average cost of capital. The Company amortizes the
developed and core technology on a straight-line basis over
three years. Amortization of developed and core technology is
not deductible for tax purposes.
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<div align="left" style="margin-top: 6pt; margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The value assigned to Saf-T-Net’s trademarks was determined
by discounting the estimated royalty savings associated with an
estimated royalty rate for the use of the trademarks to their
present value. The trademarks consist of Saf-T-Net’s trade
name and various trademarks related to its existing product
lines. The royalty rates used to value the trademarks were based
on estimates of prevailing royalty rates paid for the use of
similar trade names and trademarks in market transactions
involving licensing arrangements of companies that operate in
service-related industries. A discount rate of 19% was deemed
appropriate for valuing Saf-T-Net’s trademarks and was
based on the risks associated with the respective royalty
savings taking into consideration the Company’s weighted
average cost of capital. The Company amortizes the trademarks on
a straight-line basis over three years. Amortization of
trademarks is not deductible for tax purposes.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
Of the total estimated purchase price, approximately
$26.0 million has been allocated to goodwill and is not
deductible for tax purposes. Goodwill represents factors
including expected synergies from combining operations and is
the excess of the purchase price of an acquired business over
the fair value of the net tangible and intangible assets
acquired. Goodwill will not be amortized but instead will be
tested for impairment at least annually (more frequently if
indicators of impairment arise). In the event that management
determines that the goodwill has become impaired, the Company
will incur an accounting charge for the amount of the impairment
during the fiscal quarter in which the determination is made.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
As a result of the Saf-T-Net merger, the Company recorded a net
deferred tax liability of approximately $3.2 million in its
preliminary purchase price allocation. This balance is comprised
of approximately $6.0 million in deferred tax liabilities
resulting primarily from the estimated amortization expense of
identified intangibles, and approximately $2.8 million in
deferred tax assets that relate primarily to federal and state
net operating loss carry forwards.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #ffffff">
<b><i><font style="font-family: 'Times New Roman', Times">Deferred
Revenue</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
In connection with the preliminary purchase price allocation,
the Company determined the estimated fair value of the support
obligation assumed from Saf-T-Net in connection with the merger
utilizing a cost
<font style="white-space: nowrap">build-up</font>
approach. The cost
<font style="white-space: nowrap">build-up</font>
approach determines fair value by estimating the costs relating
to fulfilling the obligation plus a normal profit margin. The
sum of the costs and operating profit approximates the amount
that the Company would be required to pay a third party to
assume the support obligation. The Company based its estimated
costs to fulfill the support obligation on the historical direct
costs related to providing the support services and correcting
any errors in Saf-T-Net’s software products. These
estimated costs did not include any costs associated with
selling efforts or research and development or the related
fulfillment margins on these costs. Profit associated with
selling efforts is excluded because Saf-T-Net had concluded the
selling effort on the support contracts prior to March 19,
2010. The Company estimated the profit margin to be
approximately 24%, which approximates the Company’s
operating profit margin to fulfill the obligations. In
allocating the purchase price, the Company recorded an
adjustment to reduce the carrying value of Saf-T-Net’s
March 19, 2010 deferred support revenue by approximately
$2.6 million to $2.8 million, which represents the
Company’s estimate of the fair value of the support
obligation assumed. As former Saf-T-Net customers renew these
support contracts, the Company will recognize revenue for the
full value of the support contracts over the remaining term of
the contracts, the majority of which are one year.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #ffffff">
<b><i><font style="font-family: 'Times New Roman', Times">Pro
Forma Financial Information</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The unaudited financial information in the table below
summarizes the combined results of operations of the Company and
Saf-T-Net on a pro forma basis, as though the companies had been
combined as of the beginning of each of the periods presented.
The pro forma financial information is presented for
informational purposes only and is not indicative of the results
of operations that would have been achieved if the acquisition
had taken place at the beginning of each of the periods
presented. The pro forma financial information for all periods
presented also includes amortization expense from acquired
intangible assets, adjustments to interest expense, interest
income and related tax effects.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
The unaudited pro forma financial information for the three and
six months ended June 30, 2010 combines the historical
results for the Company for the three and six months ended
June 30, 2010 and the historical results for Saf-T-Net for
the period from January 1, 2010 to March 19, 2010. The
unaudited pro forma financial information for the three and six
months ended June 30, 2009 combines the historical results
for the Company for the three and six months ended June 30,
2009 and the historical results for Saf-T-Net for the same
period and also gives effect to the Company’s merger with
ANGEL Learning, Inc. (“ANGEL”) on May 8, 2009 as
if all transactions had occurred on January 1, 2009. The
consolidated financial results for the Company for the three
months ended June 30, 2010
include revenue and net loss for Saf-T-Net for the period from
April 1, 2010 to June 30, 2010 of $1.8 million
and $0.7 million, respectively. The consolidated financial
results for the Company for the six months ended June 30,
2010 include revenue and net loss for Saf-T-Net for the period
from March 20, 2010 to June 30, 2010 of
$2.0 million and $0.9 million, respectively.
</div>
<div style="margin-top: 3pt; font-size: 1pt"> 
</div>
<table border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff; text-align: left">
<!-- Table Width Row BEGIN -->
<tr style="font-size: 1pt" valign="bottom">
<td width="61%"> </td><!-- colindex=01 type=maindata -->
<td width="2%"> </td><!-- colindex=02 type=gutter -->
<td width="3%" align="right"> </td><!-- colindex=02 type=lead -->
<td width="1%" align="right"> </td><!-- colindex=02 type=body -->
<td width="3%" align="left"> </td><!-- colindex=02 type=hang1 -->
<td width="3%"> </td><!-- colindex=03 type=gutter -->
<td width="3%" align="right"> </td><!-- colindex=03 type=lead -->
<td width="1%" align="right"> </td><!-- colindex=03 type=body -->
<td width="3%" align="left"> </td><!-- colindex=03 type=hang1 -->
<td width="3%"> </td><!-- colindex=04 type=gutter -->
<td width="3%" align="right"> </td><!-- colindex=04 type=lead -->
<td width="1%" align="right"> </td><!-- colindex=04 type=body -->
<td width="3%" align="left"> </td><!-- colindex=04 type=hang1 -->
<td width="3%"> </td><!-- colindex=05 type=gutter -->
<td width="3%" align="right"> </td><!-- colindex=05 type=lead -->
<td width="1%" align="right"> </td><!-- colindex=05 type=body -->
<td width="3%" align="left"> </td><!-- colindex=05 type=hang1 -->
</tr>
<!-- Table Width Row END -->
<!-- TableOutputHead -->
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="7" nowrap="nowrap" align="center" valign="bottom">
<b>Three Months Ended<br />
</b>
</td>
<td>
 
</td>
<td colspan="7" nowrap="nowrap" align="center" valign="bottom">
<b>Six Months Ended<br />
</b>
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="7" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>June 30,</b>
</td>
<td>
 
</td>
<td colspan="7" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>June 30,</b>
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="3" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2009</b>
</td>
<td>
 
</td>
<td colspan="3" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2010</b>
</td>
<td>
 
</td>
<td colspan="3" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2009</b>
</td>
<td>
 
</td>
<td colspan="3" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2010</b>
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="15" nowrap="nowrap" align="center" valign="bottom">
<b>(Unaudited)</b>
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="15" nowrap="nowrap" align="center" valign="bottom">
<b>(In thousands, except per share amounts)</b>
</td>
</tr>
<tr style="line-height: 3pt; font-size: 1pt">
<td> 
</td>
</tr>
<!-- TableOutputBody -->
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Total revenues
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
97,233
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
107,728
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
191,578
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
211,462
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Net income
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
1,382
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
4,360
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
2,461
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
8,808
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Basic net income per common share
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.04
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.13
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.08
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.26
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Diluted net income per common share
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.04
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.13
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.08
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
0.25
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
</table>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #ffffff">
<b><i><font style="font-family: 'Times New Roman', Times">ANGEL
Learning, Inc. Merger</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #ffffff">
On May 8, 2009, the Company completed its merger with ANGEL
pursuant to the Agreement and Plan of Merger dated May 1,
2009. Pursuant to the Agreement and Plan of Merger, the Company
paid merger consideration of $101.3 million, which includes
$87.4 million in cash and $13.9 million in shares of
the Company’s common stock, or approximately
0.5 million shares of common stock. The effective cash
portion of the purchase price of ANGEL before transaction costs
was approximately $80.8 million, net of ANGEL’s
May 8, 2009 cash balance of approximately
$6.6 million. The Company has included the financial
results of ANGEL in its consolidated financial statements
beginning May 9, 2009.
</div>
</div>
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<!-- Begin Block Tagged Notefalsefalsefalseus-types:textBlockItemTypetextblockDescription of a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. This element may be used as a single block of text to encapsulate the entire disclosure (including data and tables) regarding business combinations, including leverage buyout transactions (as applicable).Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141
-Paragraph 51, 52
Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 88-16
Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Paragraph 67-73
Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Paragraph F4
-Subparagraph e
-Appendix F
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