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Business Combinations, Goodwill and Intangibles

12 Months Ended

Dec. 31, 2016

Business Combinations, Goodwill and Intangibles

3. Business Combinations, Goodwill and Intangibles

Acquisition of Sabine

On March 7, 2014, the Company completed the acquisition of Sabine, Inc. (“Sabine”) through a stock purchase agreement (“SPA”). Sabine manufactures, designs and sells Sacom professional wireless microphone systems for live and installed audio. It also makes FBX Feedback Exterminator for reliable automatic feedback control. With the addition of Sabine, ClearOne will have reliable and exclusive access to the wireless microphones that are a critical component of ClearOne’s complete microphone portfolio.

Pursuant to the SPA, the Company (i) paid initial consideration of $8,141 in cash, (ii) accrued for possible additional earn-out payments over the next two years, estimated to be $657, and (iii) issued 150,000 shares of restricted common stock of the Company, valued at $1,679 (determined on the basis of the closing market price of the Company’s stock on the acquisition date). The purchase price was paid out of cash on hand. The SPA contains representations, warranties and indemnifications customary for a transaction of this type.

The following table summarizes the consideration paid for the acquisition:

	Consideration
Cash	$	8,141
Common stock		1,679
Contingent consideration		657
Total	$	10,477

The fair values of Sabine assets acquired and liabilities assumed are based on the information that was available during the measurement period of twelve months from the date of acquisition. The fair value of identified assets and liabilities acquired and goodwill is as follows:

	Fair value
Cash	$	125
Accounts receivable		255
Inventories		844
Prepaid and other		105
Intangibles		3,970
Property and equipment		292
Other long-term assets		11
Goodwill		5,510
Deferred tax asset		245
Trade accounts payable		(420	)
Accrued liabilities		(405	)
Stock registration costs		(55	)
Total	$	10,477

The goodwill of $5,510 related to the acquisition of Sabine is composed of expected synergies in utilizing Sabine technology in ClearOne product offerings, reduction in future combined research and development expenses, and intangible assets including acquired workforce that do not qualify for separate recognition. The goodwill balance of $5,510 related to the acquisition of Sabine is expected to be deductible for tax purposes.

Spontania business of Spain-based Dialcom Networks, S.L.

On April 1, 2014 ClearOne closed on the acquisition of the Spontania business of Spain-based Dialcom Networks, S.L. The Spontania cloud-based service empowers customers to deploy HD video conferencing, web collaboration, and more with equipment most businesses have and use every day - video-conferencing endpoints, desktops, laptops, web browsers, tablets, and smartphones. With Spontania there is no hardware investment and the service operates off of a reservation-less model, enabling on-demand video communications from virtually anywhere, anytime, with anyone on any device.

The aggregate purchase price under the terms of the transaction was approximately €3.66 million in cash (approximately US$5.1 million), after certain closing adjustments. ClearOne did not assume any debt or cash. The cash purchase price was paid out of cash on hand. The addition of this technology was an integral part of the Company’s strategy to build an all-inclusive video collaboration portfolio.

The fair value of identified assets and liabilities acquired from the Spontania acquisition was as follows:

	Fair value
Intangibles	$	1,335
Property and equipment		47
Goodwill		3,741
Accrued liabilities		(71	)
Total	$	5,052

The goodwill of $3,741 relates to the acquisition of Spontania cloud-based technology and intangible assets including acquired workforce that does not qualify for separate recognition.

Acquisitions Expenses

The Company incurred $588 in acquisition related expenses for the Sabine and Spontania acquisitions, all of which were categorized under General and administrative expenses in the Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2014.

Goodwill

Changes in the carrying amount of the Company’s goodwill for the years ended December 31, 2016, 2015, and 2014 were as follows:

	2016		2015		2014
Balance as of January 1,
Goodwill	$	12,724	$	12,724	$	3,472
Accumulated impairment losses		—		—		—
		12,724		12,724		3,472
Goodwill acquired during the year		—		—		9,252
Balance as of December 31,
Goodwill		12,724		12,724		12,724
Accumulated impairment losses		—		—		—
	$	12,724	$	12,724	$	12,724

Intangible Assets

Intangible assets as of December 31, 2016, and 2015 consisted of the following:

	Estimated	As of December 31,
	useful lives	2016			2015
Tradename	5 to 7 years	$	555		$	555
Patents and technological know-how	10 years		6,010			5,850
Proprietary software	3 to 15 years		4,341			4,341
Other	3 to 5 years		324			324
			11,230			11,230
Accumulated amortization			(5,553	)		(4,432	)
Total intangible assets, net		$	5,677		$	6,638

During the years ended December 31, 2016, 2015 and 2014, amortization of these intangible assets were $1,121, $1,258, and 1,210 respectively.

The estimated future amortization expense of intangible assets is as follows:

Years ending December 31,
2017	$	928
2018		853
2019		781
2020		602
2021		602
Thereafter		1,911
	$	5,677