On February 14, 2018, the Company acquired 3VR Security, Inc. (“3VR”), a video technology and analytics company, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Eagle Acquisition, Inc., a California corporation and a wholly owned subsidiary of the Company (“Merger Sub”), 3VR, and Fortis Advisors LLC, a Delaware limited liability company, acting as Security Holder Representative. Pursuant to the Merger Agreement, at the effective time, Merger Sub merged with and into 3VR and 3VR became a wholly-owned subsidiary of the Company (the “Acquisition”).

Under the terms of the Merger Agreement, at the closing of the Acquisition, the Company acquired all of the outstanding shares of 3VR for total purchase consideration of $6.2 million, consisting of:

An aggregate of up to $1.0 million, or 294,927 shares, of the Company’s common stock were issued subsequent to the closing of the transaction and were held back for a period of up to 12 months following the closing for the satisfaction of certain indemnification claims. On May 9, 2018, the Company and the Security Holder Representative reached agreement as to the satisfaction of certain of the indemnification claims asserted by the Company at the closing of the Acquisition. As a result, the purchase consideration, and the amount of goodwill recorded, were reduced by $660,000. Of the 294,927 shares that were held back at closing, 181,319 shares were canceled. On January 25, 2019, subject to the terms of the Merger Agreement, the Company filed an additional dispute with the security holder representative for an amount exceeding the remaining amount of the holdback shares of approximately $0.3 million, or 93,406 shares.

Additionally, in the event that 3VR achieved $24.1 million in product shipments in 2018, the Company would have been obligated to issue further earn-out consideration of $3.5 million payable in shares of the Company’s common stock (subject to certain conditions) with a potential maximum earn-out value of $7.0 million in the event that such shipments exceeded $48.2 million. Further, in calendar year 2019, the Company may be obligated to pay, in cash, and subject to certain conditions, contingent consideration equal to the lesser of (a) 35% of the gross margin of certain products sold and services rendered by 3VR in 2018 pursuant to a supply arrangement and (b) $25.0 million, each subject to adjustments. Management has assessed the probability of the issuance of shares related to the payment of the contingent consideration noted above, and determined it as remote. Accordingly, no value was ascribed to the contingent consideration as of December 31, 2018.

On February 14, 2019, the Company repaid the noteholders an aggregate principal amount, including accrued interest, of $2,060,000.

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. Such estimates and assumptions are subject to change within the measurement period (up to one year from the Acquisition). The following table summarizes the fair values of assets acquired and liabilities assumed at the date of the Acquisition (in thousands):

Cash	$	195
Accounts receivable		2,029
Inventory		257
Prepaid expenses and other current assets		169
Property and equipment		334
Trademarks		400
Customer relationships		2,900
Developed technology		3,000
Total identifiable assets acquired		9,284
Accounts payable		(1,590	)
Accrued expenses and liabilities		(726	)
Deferred revenue		(2,928	)
Debt		(3,622	)
Total liabilities assumed		(8,866	)
Net identifiable assets acquired		418
Goodwill		5,796
Purchase price	$	6,214

In June 2018, the Company recorded an adjustment to its accounting for the amount recorded as accounts receivable at acquisition. Accordingly, the fair value of accounts receivable was decreased by $561,000, with a corresponding increase to goodwill and reflected in the Company’s purchase price allocation.

Acquisition related intangibles included in the above table are finite-lived and are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands):

	Gross Purchased Intangible		Estimated Useful Life
	Assets		(in Years)
Trademarks	$	400	5
Customer relationships		2,900	10
Developed technology		3,000	10
	$	6,300

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The Acquisition resulted in $5.8 million of goodwill which is not deductible for tax purposes. With the addition of the 3VR video security and analytics platform, the Company believes this goodwill largely reflects the expansion of its Hirsch product and service offerings through the complementary offerings of 3VR. In accordance with ASC 350, goodwill will not be amortized but tested for impairment at least annually in the fourth quarter. See Note 5, Goodwill and Intangible Assets.

The results of operations of 3VR for the period from the acquisition date through December 31, 2018 are included in the accompanying consolidated statements of operations. Pursuant to ASC Topic 805, Business Combinations (“ASC 805”), the Company incurred and expensed approximately $548,000 and $212,000 in acquisition and transitional costs associated with the Acquisition during the years ended December 31, 2018 and 2017, respectively, which were primarily general and administrative expenses.

On November 1, 2018, the Company completed the acquisition of Thursby Software Systems, Inc., a provider of security software for mobile devices, pursuant to an Agreement and Plan of Merger (the “Thursby Agreement”), by and among the Company, TSS Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub 1”), TSS Acquisition, LLC., a wholly owned subsidiary of the Company (“Merger Sub 2” and together with Merger Sub 1, the “Merger Subs”), Thursby Software Systems, Inc., (“TSS”), and William Thursby as the sole Shareholder of TSS. Pursuant to the Thursby Agreement, at the effective time, Merger Sub 1 merged with and into TSS and TSS became a wholly-owned subsidiary of the Company (“Merger 1”), following which TSS merged with and into Merger Sub 2, whereupon which the separate corporate existence of TSS ceased with Merger Sub 2 surviving the merger (“Merger 2”).

Under the terms of the Thursby Agreement, at the closing of the acquisition, the Company acquired all of the outstanding shares of TSS for total purchase consideration of $3.1 million, consisting of:

An aggregate of up to $0.5 million, or 85,324 shares, of the Company’s common stock issuable at the closing of the transaction are being held back for a period of up to 12 months following the closing for the satisfaction of certain indemnification claims.

Additionally, in the event that revenue from TSS products is greater than $8.0 million, $11.0 million, or $15.0 million in product shipments in 2019, the Company will be obligated to issue earn-out consideration of up to a maximum of $7.5 million payable in shares of the Company’s common stock, subject to certain conditions. In the event that such revenue is less than $15.0 million in 2019, but 2020 revenue from TSS products exceeds $15.0 million, the Company will be obligated to issue an additional $2.5 million in earn-out consideration payable in shares of the Company’s common stock. The maximum total earn-out consideration payable for all periods is $7.5 million in the aggregate, payable in shares of the Company’s common stock. Management has assessed the probability of the issuance of shares related to the earn-out consideration, and the payment of the contingent consideration noted above, and determined it as remote. Accordingly, no value was ascribed to the earn-out as of December 31, 2018.

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. Such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition). The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash	$	3,485
Accounts receivable		526
Inventory		1,361
Prepaid expenses and other current assets		12
Trademarks		200
Customer relationships		1,500
Developed technology		700
Total identifiable assets acquired		7,784
Accounts payable		(31	)
Accrued expenses and liabilities		(67	)
Deferred revenue		(243	)
Other current liabilities		(4,307	)
Total liabilities assumed		(4,648	)
Net identifiable assets acquired		3,136
Goodwill		3,490
Purchase price		6,626
Less: cash acquired		(3,485	)
Net purchase price	$	3,141

	Gross Purchased Intangible		Estimated Useful Life
	Assets		(in Years)
Trademarks	$	200	5
Customer relationships		1,500	10
Developed technology		700	10
	$	2,400

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of TSS resulted in $3.5 million of goodwill which is not deductible for tax purposes. With the addition of the TSS security software for mobile devices, the Company believes this goodwill largely reflects the synergistic strengthening of its Identity offerings providing complete solutions for secure and convenient logical access across smart cards and derived credentials on Apple iOS and Android mobile devices. In accordance with ASC 350, goodwill will not be amortized but is tested for impairment at least annually in the fourth quarter. See Note 5, Goodwill and Intangible Assets.

The results of operations of TSS for the period from the acquisition date through December 31, 2018 are included in the accompanying consolidated statements of operations. Pursuant to ASC 805, the Company incurred and expensed approximately $208,000 in acquisition and transitional costs associated with the acquisition of TSS during the year ended December 31, 2018 which were primarily general and administrative expenses.