Business Combination

9 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combination

2. BUSINESS COMBINATION

On June 17, 2015, the Company completed the acquisition (the “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 Acquisition, IDC NL and IDC Inc. became wholly owned subsidiaries of the Company and the transaction has been accounted for as an acquisition of a business. IDchecker is a provider of cloud-based identification document verification services.

The total consideration for the Acquisition was $5.6 million in cash (the “Cash Payment”), subject to adjustments for transaction expenses, indebtedness, and working capital adjustments, and forgiveness of the outstanding balance of approximately $0.3 million on a promissory note issued by the Company to IDchecker. Approximately $2.7 million in shares (the “Closing Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), or 712,790  Closing Shares, were issued to the Sellers at the closing of the Acquisition. In January 2016, the Company issued 137,306 additional shares (the “Paid 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.  In addition, the Company may issue to the Sellers up to an aggregate of $1.0 million in additional shares of Common Stock (together with the Paid Earnout Shares, the “Earnout Shares”) subject to the achievement of certain revenue and net income targets by IDchecker during the twelve-month period ending on September 30, 2016 (the “Earnout Period”). If the revenue or net income achieved by IDchecker during the Earnout Period is less than the applicable targets but equal to or greater than 80% of such targets, the Sellers will receive a prorated amount of Earnout Shares. 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 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 obligations. In January 2016, the Company also deposited 27,461 Earnout Shares into an escrow fund, and to the extent any future Earnout Shares are issued to the Sellers, 20% of such Earnout Shares will be placed in the escrow fund. The escrow fund will be maintained for up to 24 months following the last issuance of Earnout Shares or until such earlier time as the escrow fund is exhausted.

The purchase price is subject to a post-closing adjustment in net working capital as provided in the Share Purchase Agreement.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as part of the 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	$	2,873
Effect of movements in exchange rates		(40	)
Goodwill	$	2,833

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.  The goodwill recognized is due to expected synergies and other factors and is not expected to be deductible for income tax purposes.