Was wondering about the increase in goodwill in the year-end statements. There was a larger balance than I had expected given the Q3 numbers.
Here's why it changed. At year-end, the $4.0m royalty liability was added on one side of the balance sheet, and two sorts of fixed assets were added on the other: an intangible asset valued at 1.8m and goodwill valued at $2.3m. The $0.1m difference is a rounding issue.
This also partly explains the higher depreciation/amortisation costs in the P&L.
"Safend has received grants from the government of Israel through the Office of the Chief Scientist of Israel's Ministry of Industry, Trade and Labor ("OCS"), for the financing of a portion of its research and development expenditures in Israel. Safend is required to pay back the grants to the Israeli government based on royalty rate of 3.5% of total Safend revenues and there is no termination date for the payments. The Israeli government charges interest at LIBOR for any outstanding grant amounts due to be repaid. As part of the preliminary purchase price allocation recorded in the third quarter ended September 30, 2011, the Company did not record the fair value of the obligation to the Israeli government associated with these grants. The total value of the grants owed as of September 22, 2011 was approximately $5.4 million and the Company determined the fair value of this liability was $4,043,000. In connection with this adjustment, the Company also revised the amounts which had previously been recorded for acquired intangible assets in the amount of $1,770,000 and goodwill in the amount of $2,273,000. These amounts have been reflected in the table above. At December 31, 2011 this liability amounted to $4,307,553, reflecting additional grants received since the acquisition date. The Company's policy to accrete the discount recorded to the liability subsequent to the acquisition date is based on the effective interest method."
The other change to goodwill was the $1.0m reduction resulting from the extraordinary loss.
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