Acquisitions

9 Months Ended

Sep. 30, 2019

Devicescape Asset Purchase

On April 22, 2019, the Pareteum, together with Devicescape Holdings, Inc., a Delaware corporation and wholly owned subsidiary of the Company (the “Holdco” and together with the Company, the “Buyer”) entered into an asset purchase agreement (the “Purchase Agreement”) with Devicescape Software, Inc., a California corporation (“Devicescape”), whereby the Buyer acquired certain assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco would continue as a surviving subsidiary of the Pareteum holding the acquired assets and assuming those certain liabilities of Devicescape (the “Devicescape Purchase”). In connection with the Devicescape Purchase, and pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Buyer paid cash consideration of $2,000 and issued to the stockholders of Devicescape an aggregate of 400,000 shares of the Company’s common stock at a value of $1,692 based on the $4.23 per share closing price of our common stock on April 22, 2019. Transaction costs were $137.

The Devicescape Purchase has been treated as an asset purchase, whereby assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the assets acquired and is allocated to the individual assets acquired and liabilities assumed based on their relative fair values and does not give rise to goodwill.

The allocation of the purchase price was as follows:


Purchase consideration:
Cash consideration and transaction costs	$	2,137
Shares issued to stockholders	1,692
Total purchase consideration	$	3,829

Purchase price allocation:
Assets:
Accounts receivable	$	71
Escrow receivable	200
Intangible assets	3,646
Total assets	3,917
Liabilities:
Accounts payable and other liabilities	88
Total liabilities	88
Estimated fair value of net assets acquired	$	3,829

The fair value of intangible assets was estimated as follows:


	Estimated Fair Value		Useful Life
Developed technology	$	3,525	8 years
Customer relationships	121		8 years
Intangible assets	$	3,646

The value of the developed technology intangible asset was calculated using the relief-from-royalty method, an income approach. The relief-from-royalty method measures the fair value of an asset by identifying the avoided royalty costs of licensing an asset of similar utility from a third party. The value of the customer relationships intangible asset was calculated using the excess earnings method of the income approach. The excess earnings method calculates the present value of the residual after-tax cash flows, or excess earnings,

attributable to the subject intangible asset after certain deductions are applied for the use of the other assets that contribute to the generation of the cash flows.

iPass Business Combination

On November 12, 2018, Pareteum entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Pareteum and TBR, Inc. ("Purchaser"), and iPass, Inc. ("iPass"). Pursuant to the Merger Agreement, Purchaser, a wholly owned subsidiary of the Pareteum, commenced an offer for the outstanding iPass common shares for the transaction consideration, upon the terms and subject to the conditions set forth in the Prospectus/Offer to Exchange dated December 4, 2018 (together with any amendments and supplements thereto, the “Offer to Exchange”), and the related Letter of Transmittal. The Offer to Exchange and withdrawal rights expired at 5:00 p.m. New York City time on February 12, 2019, and promptly following such time Purchaser accepted for payment and promptly paid for all validly tendered iPass common shares in accordance with the terms of the Offer to Exchange. The Company acquired 100% of the voting shares of iPass.

On February 12, 2019, Pareteum Corporation entered into a consent agreement (the "Consent") with iPass SPV, and Fortress Credit Corp. (together with its affiliates, “Fortress”). Also, on February 12, 2019 the Company entered into a Joinder to Security Agreement, a Joinder to Guarantee, and a Pledge Agreement, each for the benefit of or with Fortress, guaranteeing the indebtedness assumed in the iPass acquisition and granting a first-priority security interest in all of the assets of the Company to Fortress. Pursuant to the Consent, Fortress consented to the consummation of the Merger Agreement by and among the Company, iPass and TBR, Inc. The Company paid Fortress a cash fee of $200 and issued to Fortress warrants to purchase an aggregate of 325,000 shares of common stock.

On February 12, 2019, following acceptance and payment for the validly tendered iPass common shares and pursuant to the terms and conditions of the Merger Agreement, the Company completed its acquisition of iPass from the stockholders of iPass when TBR, Inc. merged with and into iPass, with iPass surviving as a wholly owned subsidiary of the Pareteum (the “Merger”). The Merger was governed by Section 251(h) of the Delaware General Corporation Law, as amended, with no stockholder vote required to consummate the Merger. At the effective time of the Merger, each iPass common share outstanding was converted into the right to receive 1.17 shares of the Company's common stock in exchange for each share of iPass common stock. The iPass common shares are no longer listed on the Nasdaq Capital Market. The purchase consideration was comprised of 9,865,412 shares of the Company's common stock. In accordance with ASC 805, the Company recognized the settlement of a pre-existing relationship in the form of a software license that the Company purchased from iPass on May 8, 2018, which is included in consideration transferred.

The allocation of the purchase price was as follows:


Purchase consideration:
Shares issued to stockholders	$	28,610
Estimated fair value of software license	1,531
Total purchase consideration	30,141

Purchase price allocation:
Assets:
Cash and cash equivalents	860
Accounts receivable	4,344
Property, equipment, and software development	873
Other assets	4,890
Intangible assets	11,106
Total assets	22,073

Liabilities:
Accounts payable, accrued expenses and other current liabilities	17,207
Deferred revenue	1,700
Loans outstanding	9,989
Other liabilities	857
Total liabilities	29,753
Estimated fair value of net assets acquired	(7,680)
Goodwill	$	37,821

The fair value of intangible assets was estimated as follows:


	Estimated Fair Value		Useful Life
Developed technology	$	2,585	8 years
Customer relationships	8,378		5 years
Trade name	143		2 years
Intangible assets	$	11,106

The value of the developed technology intangible asset was calculated using the relief-from-royalty method. The value of the customer relationships intangible asset was calculated using the excess earnings method of the income approach. The value of the trade name intangible asset was calculated using the relief-from-royalty method. The weighted average useful life of the intangible assets acquired is estimated at 5.7 years.

For the period ended September 30, 2019, the condensed consolidated financial statements included iPass and its subsidiaries from the closing date of February 12, 2019 through September 30, 2019. Management expects that all of the goodwill in this business combination will be deductible for income tax purposes.