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Note 4 - PistolStar, Inc. Acquisition | 9 Months Ended
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Sep. 30, 2020
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
4. | PistolStar, Inc. acquisition
On June 30, 2020, the Company acquired PistolStar, Inc., a private company based in the United States, which provides enterprise-ready identity access management solutions, including multi-factor authentication, identity-as-a-service, single sign-on and self-service password reset to commercial, government and education customers throughout the United States and internationally. From April 10, 2020 until the Company acquired PistolStar, it licensed PortalGuard®, PistolStar's authentication software, which the Company combines with its biometric authentication solutions offered to existing and prospective customers. The total purchase price of $2.5 million included cash payments of $2.0 million and the issuance of a $500,000 promissory note. The purchase price is subject to a working capital adjustment, which has been estimated to be a reduction of $108,000. The acquisition of PistolStar has been accounted for as a business combination and, in accordance with ASC 805, the Company has recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The following table summarizes the preliminary purchase price allocation as of September 30, 2020:
Purchase consideration: |  |  |  |
Total cash paid, net of acquired cash |  | $ | 2,000,000 |
4% Promissory note, net of discount of $36,000 |  |  | 464,000 |
Working capital adjustment |  |  | (108,000 | )
Total purchase price consideration |  | $ | 2,356,000 |
Fair value of assets acquired and liabilities assumed: |  |  |  |
Cash and cash equivalents |  | $ | 100,747 |
Accounts receivable |  |  | 184,792 |
Prepaid expenses and other current assets |  |  | 9,485 |
Fixed assets |  |  | 36,467 |
Intangible assets |  |  | 1,480,000 |
Goodwill |  |  | 1,154,526 |
Total assets acquired |  |  | 2,966,017 |
Accrued expenses and other current liabilities |  |  | 738 |
Accrued payroll |  |  | 19,279 |
Deferred revenue |  |  | 590,000 |
Total fair value of assets acquired and liabilities assumed |  | $ | 2,356,000 |
The promissory note, which was issued to the previous owner of PistolStar, carries interest at 4% per annum and is payable in four installments over the 12 -month period following the closing. During the three months ended September 30, 2020, the Company made one payment in the amount of $130,000. In the three and nine months ended September 30, 2020, acquisition-related expenses were immaterial. Acquisition-related expenses have been included primarily in general and administrative expenses in the condensed consolidated statements of operations. The operating results of PistolStar have been included in the condensed consolidated statements of operations since July 1, 2020. The significant intangible assets identified in the purchase price allocation discussed above include the Trade Name, Proprietary Software, and Customer Relationships. To value the Trade Name and Proprietary Software, the Company utilized the Relief from Royalty Method, which quantifies the cost savings associated with asset ownership via a discounted cash flow analysis. To value the Customer Relationships, the Company utilized the Excess Earnings Method, which isolates the value of the specific intangible asset by discounting its income stream to present value. The fair value of the assets acquired and liabilities assumed reflected in the tables above is less than the purchase price, resulting in the recognition of goodwill. The goodwill reflects the value of the synergies the Company expects to realize and the assembled workforce. The following table presents the preliminary fair values and useful lives of the identifiable intangible assets acquired:
|  | Amount |  |  | Estimated useful life (in years) |
Trade Name |  | $ | 130,000 |  |  |  | 15 |  |
Proprietary Software |  |  | 420,000 |  |  |  | 5 |  |
Customer relationships |  |  | 930,000 |  |  | 8 | - | 10 |
Total identifiable intangible assets |  | $ | 1,480,000 |  |  |  |  |  |

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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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