BUSINESS COMBINATION

On June 17, 2015, the Company completed the acquisition (the “IDC Acquisition”) of IDchecker NL B.V., a company incorporated under the laws of The Netherlands (“IDC NL”), and ID Checker, Inc., a California corporation and wholly owned subsidiary of IDC NL (“IDC Inc.” and together with IDC NL, “IDchecker”), pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) dated May 26, 2015, by and among the Company, IDC NL, ID Checker Holding B.V. (“Parent”), Stichting Administratiekantoor OPID (together with Parent, the “Sellers”), and the other individuals specified therein. Upon completion of the IDC Acquisition, IDC NL and IDC Inc. became wholly owned subsidiaries of the Company and the transaction was accounted for as an acquisition of a business. IDchecker is a provider of cloud-based identification document verification services. During the fourth quarter of fiscal 2017, IDC NL changed its name to Mitek Systems, B.V and became a wholly owned subsidiary of Mitek Holding B.V., a company incorporated under the laws of The Netherlands and a wholly owned subsidiary of the Company.

Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of IDC NL and IDC Inc. At the closing of the IDC Acquisition, the Company paid a purchase price of $5.9 million, which consisted of (i) a cash payment to the Sellers of $5.6 million, subject to adjustments for transaction expenses, indebtedness, and working capital adjustments (the “Cash Payment”) and (ii) the forgiveness of the outstanding balance of approximately $0.3 million on a promissory note issued by the Company to Parent. Approximately $2.7 million in shares of the Company’s common stock (the “Closing Shares”), or 712,790 shares, were issued to the Sellers at the closing of the IDC Acquisition. In January 2016, the Company issued 137,306 additional shares (the “Earnout Shares”), to the Sellers for achievement by IDchecker of certain revenue and net income targets for the nine-month period ended September 30, 2015. Additionally, 81,182 Earnout Shares were earned by the Sellers for achievement by IDchecker of certain revenue and net income targets for the twelve-month period ended September 30, 2016. Vesting of both the Closing Shares and Earnout Shares is subject to the continued employment of the founders of IDchecker and such shares are being accounted for as compensation for future services in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. For additional information regarding the Closing Shares and Earnout Shares, see Note 5 to the Company’s consolidated financial statements.

Upon the closing of the IDC Acquisition, the Company deposited $1.8 million of the Cash Payment and 20% of the Closing Shares into an escrow fund to serve as collateral and partial security for working capital adjustments and certain indemnification rights. In January 2016, the Company also deposited 27,461 Earnout Shares into an escrow fund. Additionally, when the Earnout Shares are issued in respect of the twelve-month period ended September 30, 2016, 20% of such Earnout Shares will be added to the escrow fund. The escrow fund will be maintained until the date that is 24 months after the Earnout Shares for the twelve-month period ended September 30, 2016 are issued or until such earlier time as the escrow fund is exhausted. During the fourth quarter of Fiscal 2017, the $1.8 million escrow funds and the Closing Shares held in escrow were released to the Sellers.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as part of the IDC Acquisition as of June 17, 2015 (amounts shown in thousands):



	June 17, 2015
Current assets	$	620
Property, plant and equipment	42
Intangible assets	3,570
Assets acquired	$	4,232
Current liabilities	$	(476	)
Other liabilities	(810		)
Liabilities assumed	$	(1,286	)
Fair value of net assets acquired	$	2,946
Total consideration paid	5,819
Goodwill before effect in exchange rates as of June 17, 2015	$	2,873
Effect of movements in exchange rates as of September 30, 2017	141
Goodwill as of September 30, 2017	$	3,014

The Company estimated the fair value of identifiable acquisition-related intangible assets primarily based on discounted cash flow projections that will arise from these assets. The Company exercised significant judgment with regard to assumptions used in the determination of fair value such as with respect to discount rates and the determination of the estimated useful lives of the intangible assets, (see Note 4 to the Company’s consolidated financial statements). The excess of the purchase price over the fair value of the assets acquired and liabilities assumed was allocated to goodwill. Goodwill in the amount of $2.9 million was recorded in the Consolidated Balance Sheets at the date of the IDC Acquisition. The goodwill recognized was due to expected synergies and other factors and is not expected to be deductible for income tax purposes.