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9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

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Inventory

 Inventories of $81,000 as of September 30, 2016 were comprised of work in process of $64,000 representing direct labor costs on in-process projects and finished goods of $17,000 net of reserves for obsolete and slow-moving items of $3,000.

Inventories of $46,000 as of December 31, 2015 were comprised of work in process of $42,000 representing direct labor costs on in-process projects and finished goods of $4,000 net of reserves for obsolete and slow-moving items of $3,000.

Intangible Assets

The Company has intangible assets in the form of trademarks, trade names and patents. The carrying amounts of the Company’s acquired trademark and trade name intangible assets were $0 as of September 30, 2016 and December 31, 2015, respectively, which include accumulated amortization of $347,000 as of September 30, 2016 and December 31, 2015. Amortization expense for the intangible assets was $0 for the three and nine months ended September 30, 2016 and $3,000 and $9,000 for three and nine months ended September 30, 2015, respectively. All intangible assets were amortized over their estimated useful lives with no estimated residual values. Any costs incurred by the Company to renew or extend the life of intangible assets will be evaluated under ASC No. 350, Intangibles – Goodwill and Other, for proper treatment.

The carrying amounts of the Company’s patent assets were $109,000 and $117,000 as of September 30, 2016 and December 31, 2015, respectively, which include accumulated amortization of $550,000 and $542,000 as of September 30, 2016 and December 31, 2015, respectively. Amortization expense for patent assets was $3,000 and $8,000 for the three and nine months ended September 30, 2016 and 2015, respectively. Patent assets are being amortized on a straight-line basis over their weighted-average remaining life of approximately 9.75 years.

 The estimated acquired intangible amortization expense for the next five fiscal years is as follows:

Fiscal Year Ended December 31,	Estimated Amortization Expense ($ in thousands)
2016 (3 months)	$	3
2017		12
2018		12
2019		12
2020		12
Thereafter		58
Totals	$	109

Goodwill

 The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment.  A two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. The first step was conducted by determining and comparing the fair value, employing the market approach, of the Company’s reporting unit to the carrying value of the reporting unit. The Company continues to have only one reporting unit, Identity Management. Based on the results of this impairment test, the Company determined that its goodwill was not impaired as of September 30, 2016 and December 31, 2015.