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Business Combinations | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Business Combinations | 4. Business Combinations Thursby Software Systems On November 1, 2018, the Company completed the acquisition of Thursby Software Systems, Inc. (“Thursby”), 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, and William Thursby as the sole Shareholder of Thursby. Pursuant to the Thursby Agreement, at the effective time, Merger Sub 1 merged with and into Thursby and Thursby became a wholly-owned subsidiary of the Company (“Merger 1”), following which Thursby merged with and into Merger Sub 2, whereupon which the separate corporate existence of Thursby 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 Thursby for total purchase consideration of $3.1 million, consisting of:
| (i) | $0.6 million in cash, net of cash acquired;
| (ii) | issuance of 426,621 shares of the Company’s common stock with a value of approximately $2.5 million.
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 were held back for a period of up to 12 months following the closing for the satisfaction of certain indemnification claims. In the fourth quarter of 2019, the Company and William Thursby reached agreement as to the satisfaction of the indemnification claims, and accordingly, the Company released the 85,324 holdback shares. Additionally, in the event that revenue from Thursby products was greater than $8.0 million, $11.0 million, or $15.0 million in product shipments in 2019, the Company would have been obligated to issue earnout 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 was less than $15.0 million in 2019, but 2020 revenue from Thursby products exceeds $15.0 million, the Company will be obligated to issue an additional $2.5 million in earnout consideration payable in shares of the Company’s common stock. The maximum total earnout 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 earnout consideration and determined it as remote. Accordingly, no value was ascribed to the earnout consideration as of March 31, 2020. Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. 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 |  |  | 1,297 |
Prepaid expenses and other current assets |  |  | 12 |
Trademarks |  |  | 200 |
Customer relationships |  |  | 1,500 |
Developed technology |  |  | 700 |
Total identifiable assets acquired |  |  | 7,720 |
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 |  |  | 3,072 |
Goodwill |  |  | 3,554 |
Purchase price |  |  | 6,626 |
Less: cash acquired |  |  | (3,485 | )
Net purchase price |  | $ | 3,141 |
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 Assets |  |  | Estimated Useful Life (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 Thursby resulted in $3.6 million of goodwill, which is not deductible for tax purposes. With the addition of the Thursby 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 6, Goodwill and Intangible Assets. Pursuant to ASC 805, the Company incurred and expensed approximately $27,000 in acquisition and transactional costs associated with the acquisition of Thursby during the year ended December 31, 2019, which were primarily general and administrative expenses. No expenses were incurred in the three months ended March 31, 2020. Viscount Systems, Inc. On January 2, 2019, the Company completed the purchase of substantially all the assets of the Freedom, Liberty, and Enterphone™ MESH products and services of Viscount Systems, Inc. (“Viscount”) and the assumption of certain liabilities (the “Asset Purchase”). Under the terms of the Asset Purchase, the Company was obligated to pay at closing aggregate consideration of $2.9 million consisting of:
| (i) | payment in cash of approximately $1.3 million, and
| (ii) | the issuance of 419,288 shares of the Company’s common stock with a value of approximately $1.6 million.
An aggregate of approximately 31,447 shares of the Company’s common stock issuable at the closing of the transaction were held back for 12 months following the closing for the satisfaction of certain indemnification claims. In the first quarter of 2020, the Company released the 31,447 holdback shares as the indemnification claims were satisfied. Additionally, in the event that revenue from the assets purchased under the agreement in 2019 was greater than certain specified revenue targets, the Company would be obligated to issue earnout consideration of up to a maximum of $3.5 million payable in shares of the Company’s common stock (subject to certain conditions). In the event that such revenue targets were not met in 2019, but 2020 revenue from the assets purchased exceeds certain higher targets for 2020, then the Company will be obligated to issue up to a maximum of $2.25 million in earnout consideration in the form of common stock. The maximum total earnout consideration liability for all periods is $3.5 million in the aggregate, payable in the Company’s common stock. At December 31, 2019, management had assessed the probability of the issuance of shares related to the earnout consideration and determined its fair value to be $750,000. In the first quarter of 2020, the Company and the selling stockholders of the net assets acquired from Viscount reached agreement that certain of the revenue targets were achieved. Accordingly, in the second quarter of 2020, the Company will issue to the selling stockholders, noted above, the related earnout consideration of 157,233 shares of its common stock. The amount of earnout consideration is included in other accrued expenses and liabilities in the accompanying condensed consolidated balance sheets. 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):
Accounts receivable |  | $ | 636 |
Inventory |  |  | 249 |
Prepaid expenses and other current assets |  |  | 29 |
Property and equipment |  |  | 190 |
Operating lease ROU assets |  |  | 550 |
Trademarks |  |  | 160 |
Customer relationships |  |  | 710 |
Developed technology |  |  | 800 |
Total identifiable assets acquired |  |  | 3,324 |
Accounts payable |  |  | (372 | )
Operating lease liabilities |  |  | (61 | )
Accrued expenses and liabilities |  |  | (120 | )
Deferred revenue |  |  | (34 | )
Earnout consideration liability |  |  | (200 | )
Other current liabilities |  |  | (326 | )
Long-term operating lease liabilities |  |  | (489 | )
Total liabilities assumed |  |  | (1,602 | )
Net identifiable assets acquired |  |  | 1,722 |
Goodwill |  |  | 1,200 |
Net purchase price |  | $ | 2,922 |
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 Assets |  |  | Estimated Useful Life (in Years) |
Trademarks | $ | 160 |  |  |  | 5 |
Customer relationships |  | 710 |  |  |  | 10 |
Developed technology |  | 800 |  |  |  | 10 |
| $ | 1,670 |  |  |  |  |
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The Asset Purchase resulted in $1.2 million of goodwill. With the addition of Viscount’s products and services, the Company believes this goodwill largely reflects the expansion of its Premises offerings with advanced, complementary solutions for the commercial and small- and medium-sized business markets, leveraging Freedom’s IT-centric software, defined architecture, and hardware-light platform. In accordance with ASC 350, goodwill will not be amortized but is tested for impairment at least annually in the fourth quarter. See Note 6, Goodwill and Intangible Assets. Pursuant to ASC 805, the Company incurred and expensed approximately $27,000 in acquisition and transactional costs associated with the Asset Purchase during the year ended December 31, 2019, which were primarily general and administrative expenses. No expenses were incurred in the three months ended March 31, 2020.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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