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XYRATEX LTDNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(U.S. dollars and amounts in thousands, except per share data, unless otherwise stated)4. Acquisition and purchase of intangible assets (Continued)actually have been reported if the acquisition had actually occurred at the beginning of the periodspresented or that may be reported in the future.Unaudited Pro FormaYear Ended November 30,2004 2003Revenue .................................................... $463,808 $357,997Net income (loss) from continuing operations ......................... $(121,469) $(34,460)Net income (loss) from continuing operations per common share, class Bpreferred ordinary and class B ordinary share, basic and diluted .......... $ (6.67) $ (9.24)Beyond3On September 2, 2004 the Company acquired the intellectual property of Beyond3, a developer ofadvanced optical inspection systems based in San Jose, California. The structure of the transactioninvolves an initial cash consideration of $1,402, including acquisition costs of $102, plus future paymentsof which $1,200 is based on the achievement of certain product delivery milestones and furtheramounts up to $16,000 are based on forty to sixty percent of operating profit for the four years endingNovember 30, 2008. No additional amounts had been paid or were payable at November 30, 2005.Beyond3 was a privately run business engaged in the business of providing test solution products tomanufacturers of disk drives. The Company’s primary reason for the acquisition was to broaden itsexpertise and product range within its Storage Infrastructure segment.This acquisition has been accounted for as a purchase of assets and therefore no element of thepurchase price is allocated to goodwill. The Company has estimated the fair values of the acquiredassets and liabilities. The preliminary allocation of the purchase price to tangible and intangible assetsis as follows:Identifiable intangible assets:Patents and core technology .................................. 387In process research and development ........................... 852Supplier contracts ......................................... 39Assembled workforce ....................................... 124Initial purchase price ........................................ $1,402The value attributable to in-process research and development (‘‘IPR&D’’) was recorded as anoperating expense on the acquisition date because the acquired technology had not reachedtechnological feasibility and had no alternative uses. The value was determined by estimating the coststo develop the acquired IPR&D into commercially viable products, estimating the resulting after-taxnet cash flows (‘‘free cash flow’’) from such projects, and discounting the free cash flows back to theirpresent value. The discount rate included a factor that took into account the uncertainty surroundingthe successful development of the acquired IPR&D. These estimates are subject to change, given theuncertainties of the development process, and no assurance can be given that deviations from theseestimates will not occur.F-20