BROADSMART ACQUISITION

6 Months Ended

Jun. 30, 2018

NOTE 15 – BROADSMART ACQUISITION

In March 2016, the Company acquired the assets of Broadsmart for approximately:

(i)

$38.0 million in cash,

(ii)

233,402 shares of the Company's ordinary shares issued from treasury stock with a fair value of $1.7 million based on closing market price per share as of the date of the acquisition, and

(iii)

additional contingent cash payments of

(a)

up to $0.2 million, if two certain individuals ($0.1 million for each) previously employed by Broadsmart did not accept the Company's employment offer, and

(b)

$2.0 million, if the acquired assets generated 2016 revenues of at least $15.6 million.

At the time of closing, $3.0 million of the cash consideration was paid into escrow to cover indemnification claims by the Company against the sellers. No asset or liability is included in the accompanying unaudited condensed consolidated balance sheets for this item. The $0.2 million contingent payment discussed in (iii)(a) above was made during the three months ended March 31, 2018. This payment had not been made as of December 31, 2017 and was included in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheet. The $2.0 million contingent payment discussed in (iii)(b) above was paid into escrow at the time of closing, but was not earned, as revenues for the year ended December 31, 2016 did not reach the target. The Company recorded a $2.0 million receivable from earnout escrow in the unaudited condensed consolidated balance sheet as of December 31, 2016 and a $1.7 million consideration adjustment/gain on mark-to-market reducing operating expenses for the year ended December 31, 2016.

During the first quarter ended March 31, 2017, the Company recognized impairment charges of $31.5 million on Broadsmart intangible assets, including goodwill. The carrying value of the Broadsmart business after the impairment was $18.5 million at March 31, 2017. Refer to Note 5, “Intangible Assets” and Note 6, “Goodwill” for further details.

On June 23, 2017, the founders of Broadsmart left the Company. On August 4, 2017, the Company reached a mutual agreement with the founders that included release to the Company of $1.0 million of the $3.0 million held in escrow to cover indemnification claims and the $2.0 million earnout amount. The remaining $2.0 million escrow to cover indemnification claims will remain in escrow until March 2019, pursuant to the provisions of the purchase agreement, to cover potential claims by the Company for telecommunications taxes. During the year ended December 31, 2017, the Company collected both escrow amounts. The $1.0 million was recorded as a consideration adjustment/gain on mark-to-market, less amounts due from the founders and the $2.0 million receivable from earnout escrow was removed.

MAGICJACK VOCALTEC LTD 10-Q