Business Combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination

Business Combinations

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, which is subject to a final working capital adjustment, (ii) accrued for possible additional earn-out payments over the next three years, estimated to be $667, 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 estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that such information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. The measurement period for purchase price allocation ends as soon as information on the facts and circumstances becomes available, but will not exceed twelve months from the date of acquisition. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to intangible assets and possible allocation to goodwill, retroactive to the period in which the acquisition occurred. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant.

The following table summarizes the consideration paid for the acquisition:

	Consideration
Cash	$	8,141
Common stock	1,679
Contingent consideration	667
Total	$	10,487

The fair value of identified assets and liabilities acquired was as follows:

	Fair value
Cash	$	125
Accounts receivable	255
Inventories	844
Prepaid and other	116
Intangibles	3,180
Property and equipment	292
Goodwill	6,555
Trade accounts payable	(420		)
Accrued liabilities	(405		)
Stock registration costs	(55		)
Total	$	10,487

The fair value of accounts receivable acquired is $255 which is net of an allowance for doubtful accounts of $2.

The goodwill of $6,555 related to the acquisition of 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 $6,555 related to the acquisition of Sabine is deductible for tax purposes.

Supplemental Pro Forma Information:

1) Revenue and net income from the Sabine business from March 8, 2014 to September 30, 2014 was $2,887 and$374 respectively.

2) Revenue and earnings of the combined entity as though the business combination occurred as of January 1, 2013 were as follows:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Revenue	$	15,739	$	13,252	$	42,827	$	37,947
Earnings	1,646		1,702		2,830		3,490
Basic earnings per common share	$	0.18	$	0.19	$	0.31	$	0.38
Diluted earnings per common share	$	0.17	$	0.18	$	0.29	$	0.37

3) There were no material, nonrecurring pro forma adjustments directly attributable to the acquisition included in this Supplemental Pro Forma Information.

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

December 20, 2013 ClearOne, Inc. entered into an agreement to acquire 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 Spontania purchase closed on April 1, 2014. 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 completes the company’s strategy to build an all-inclusive video collaboration portfolio.

The estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that such information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. The measurement period for purchase price allocation ends as soon as information on the facts and circumstances becomes available, but will not exceed twelve months from the date of acquisition. Adjustments in the purchase price allocation may require a recasting of the amountsallocated to intangible assets and possible allocation to goodwill, retroactive to the period in which the acquisition occurred. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant.

The fair value of identified assets and liabilities acquired was as follows:

	Fair value
Property and equipment	$	47
Intangibles	2,488
Goodwill	2,569
Accrued liabilities	(52		)
Total	$	5,052

The goodwill of $2,569 relates to the acquisition of Spontania cloud-based technology and intangible assets including acquired workforce that does not qualify for separate recognition.

Supplemental Pro Forma Information:

1) Revenue and net loss from the Spontania business from April 1, 2014 to September 30, 2014 was $335 and $472 respectively.

2) Revenue and earnings of the combined entity as though the business combination occurred as of January 1, 2013 is not available. The Spontania business was part of a business unit of Dialcom Networks, S.L., and thus separate stand-alone financial information for Spontania is not available.

Acquisitions Expenses

The Company incurred $16 and $459 in total acquisition related expenses, all of which are categorized under General and administrative expenses in the Consolidated Statement of Operations for the three and nine months ended September 30, 2014.