Note 3 – Business Acquisitions

On May 30, 2018, OneSpan acquired the remaining interest in Dealflo Limited and its subsidiaries (“Dealflo”), increasing our ownership percentage to 100% from 1%. Dealflo, formerly a privately-held company based in the United Kingdom, provides identity verification and end-to-end financial agreement solutions. Upon acquisition, Dealflo became a wholly-owned subsidiary of OneSpan.

Dealflo’s total purchase price consideration was $53.9 million, net of $5.7 million of cash acquired. The total purchase price consideration includes $53.1 million of cash paid to acquire the remaining 99% interest in Dealflo, as well as $0.8 million of fair value of our previous 1% ownership interest. At December 31, 2017, the book value of this ownership interest was $0.3 million. As described in Note 2, upon the adoption of ASU 2016-01 on January 1, 2018, the book value of this ownership interest was increased by $0.5 million to record the equity investment at $0.8 million within our consolidated financial statements.

The acquisition is accounted for as a business combination using the acquisition method of accounting, which requires the net assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q, and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of June 30, 2018, the primary areas that are not yet finalized due to information that we are still in the process of obtaining include the fair values of acquired intangible assets and related deferred tax liabilities, and assumed deferred revenue.

The following table summarizes our preliminary allocation of the purchase price consideration based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (net of cash acquired), all of which are preliminary pending completion of the final valuation:


	Total
	(in thousands)
Acquired tangible assets	$	1,873
Acquired intangible assets		16,100
Liabilities assumed		(4,036)
Goodwill		39,917
Total purchase price consideration	$	53,854

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Dealflo, including expected benefits from synergies resulting from the acquisition, as well as the knowledge and experience of the workforce in place. In accordance with applicable accounting standards, goodwill is not amortized and will be tested for impairment at least annually, or more frequently, if certain indicators are present. Goodwill and intangible assets related to this acquisition are not deductible for foreign tax purposes.

Based on the preliminary results of the acquisition valuation, approximately $16.1 million of the purchase price consideration has been allocated to identifiable intangible assets. The following table summarizes the major classes of intangible assets, as well as the estimated weighted-average amortization periods:


		Estimated Fair Value	Estimated Weighted Average Amortization Period
Identifiable Intangible Assets		(in thousands)	(Years)
Customer relationships	$	10,000	7
Technology		5,900	4
Trademarks		200	3
	$	16,100

The results of operations of Dealflo subsequent to the acquisition date have been included in the consolidated statements of operations. Dealflo revenue and net income (loss) included in the results of operations for the three and six months ended June 30, 2018 were $558 and $(821), respectively.

The acquisition related costs directly attributable to the business combination of $1.1 million, including professional fees, and other direct expenses, were expensed as incurred and included in general and administrative expense in the unaudited condensed consolidated statements of operations.

Unaudited Pro Forma Financial Information

The following presents the unaudited pro forma combined results of operations of the Company with Dealflo for the six months ended June 30, 2018 and 2017, assuming that Dealflo was acquired at the beginning of 2017, and after giving effect to certain pro forma adjustments. Pro forma adjustments for the six months ended June 30, 2018 reflect estimated amortization expense for intangible assets purchased of $1,488, the elimination of $250 of revenue related to intercompany transactions, and the elimination of $1,087 of non-recurring acquisition-related costs. Pro forma adjustments for the six months ended June 30, 2017 reflect estimated amortization expense for intangible assets purchased of $1,488, the addition of $1,087 of non-recurring acquisition-related costs, the elimination of $250 of revenue related to intercompany transactions, and a $593 reduction of revenue to reflect the estimated fair value adjustment of acquired deferred revenue.

These unaudited pro forma results are not necessarily indicative of the actual consolidated results of operations had the acquisition actually occurred on January 1, 2017 or of future results of operations of the consolidated entities (in thousands except per share data):


	Six months ended
	June 30,
	2018		2017
Revenue	$	98,922	$	89,952
Net loss		(3,335)		(4,174)
Basic net loss per share		(0.08)		(0.10)
Diluted net loss per share		(0.08)		(0.10)
Shares used in computing basic and diluted net loss per share		39,902		39,783