Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May ~~4, 2018,~~3, 2019, the registrant had ~~15,172,425~~16,514,984 shares of common stock ~~$0.001 par value per share,~~ outstanding.

	March 31,			December 31,			March 31,			December 31,
	2018			2017			2019			2018
ASSETS
Current assets:
Cash	$	16,685		$	19,052		$	8,930		$	10,866
Accounts receivable, net of allowances of $270 and $306 as of March 31, 2018 and December 31, 2017, respectively		12,518			12,282
Accounts receivable, net of allowances of $426 and $387 as of March 31, 2019 and December 31, 2018, respectively								15,456			14,952
Inventories		11,556			11,126			12,460			13,631
Prepaid expenses and other current assets		1,853			1,779			2,361			2,743
Total current assets		42,612			44,239			39,207			42,192
Property and equipment, net		2,151			2,043			2,669			2,624
Operating lease right-of-use assets								5,970			—
Intangible assets, net		10,217			4,365			11,997			10,980
Goodwill		5,880			—			10,441			9,286
Other assets		1,072			715			1,322			1,224
Total assets	$	61,932		$	51,362		$	71,606		$	66,306
LIABILITIES AND STOCKHOLDERS´ EQUITY
Current liabilities:
Accounts payable	$	7,028		$	5,863		$	6,304		$	5,654
Current portion - payment obligation		919			888			1,050			1,025
Current portion - financial liabilities, net of discount and debt issuance costs of $557 and $404, respectively		12,401			9,829
Current portion - financial liabilities, net of discount and debt issuance costs of $68 and $25, respectively								11,787			11,554
Operating lease liabilities								2,067			—
Notes payable		2,000			—			—			2,000
Deferred revenue		4,327			1,090			2,779			2,174
Accrued compensation and related benefits		1,897			1,515			1,779			1,794
Other accrued expenses and liabilities		3,202			2,020			4,165			5,277
Total current liabilities		31,774			21,205			29,931			29,478
Long-term payment obligation		2,731			2,998			1,569			1,860
Long-term financial liabilities, net of discount and debt issuance costs of $424 and $582, respectively		2,622			2,921
Long-term operating lease liabilities								4,072			—
Long-term deferred revenue								625			636
Other long-term liabilities		387			385			559			632
Total liabilities		37,514			27,509			36,756			32,606
Commitments and contingencies (see Note 13)
Commitments and contingencies (see Note 17)
Stockholders´ equity:
Identiv, Inc. stockholders' equity:
Series B Preferred stock, $0.001 par value: 5,000 shares authorized; 0 and 3,000 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively		3			3
Common stock, $0.001 par value: 50,000 shares authorized; 16,088 and 15,341 shares issued and 15,143 and 14,436 shares outstanding as of March 31, 2018 and December 31, 2017, respectively		16			15
Series B preferred stock, $0.001 par value: 5,000 shares authorized; 5,000 issued and outstanding as of March 31, 2019 and December 31, 2018								5			5
Common stock, $0.001 par value: 50,000 shares authorized; 17,569 and 17,004 shares issued and 16,479 and 15,967 shares outstanding as of March 31, 2019 and December 31, 2018, respectively								18			17
Additional paid-in capital		431,383			428,470			446,466			444,145
Treasury stock, 947 and 905 shares as of March 31, 2018 and December 31, 2017, respectively		(7,647	)		(7,485	)
Treasury stock, 1,090 and 1,047 shares as of March 31, 2019 and December 31, 2018, respectively								(8,381	)		(8,153	)
Accumulated deficit		(401,951	)		(399,647	)		(405,168	)		(404,353	)
Accumulated other comprehensive income		2,784			2,675			2,080			2,209
Total Identiv, Inc. stockholders' equity		24,588			24,031			35,020			33,870
Noncontrolling interest		(170	)		(178	)		(170	)		(170	)
Total stockholders´ equity		24,418			23,853			34,850			33,700
Total liabilities and stockholders' equity	$	61,932		$	51,362		$	71,606		$	66,306

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Net revenue	$	16,528		$	13,392		$	19,522		$	16,528
Cost of revenue		10,020			7,695			10,818			10,020
Gross profit		6,508			5,697			8,704			6,508
Operating expenses:
Research and development		1,687			1,477			2,026			1,687
Selling and marketing		3,903			3,379			4,498			3,903
General and administrative		2,555			1,787			2,622			2,555
Restructuring and severance		110			—			(12	)		110
Total operating expenses		8,255			6,643			9,134			8,255
Loss from operations		(1,747	)		(946	)		(430	)		(1,747	)
Non-operating income (expense):
Interest expense, net		(476	)		(674	)		(279	)		(476	)
Gain on extinguishment of debt		—			977
Foreign currency (losses) gains, net		(38	)		(152	)
Foreign currency losses, net								(2	)		(38	)
Loss before income taxes and noncontrolling interest		(2,261	)		(795	)		(711	)		(2,261	)
Income tax (provision) benefit		(40	)		118
Income tax provision								(104	)		(40	)
Loss before noncontrolling interest		(2,301	)		(677	)		(815	)		(2,301	)
Less: Income attributable to noncontrolling interest		(5	)		(10	)
Less: Loss attributable to noncontrolling interest								—			(5	)
Net loss attributable to Identiv, Inc.	$	(2,306	)	$	(687	)	$	(815	)	$	(2,306	)
Basic and diluted net loss per share attributable to Identiv, Inc.	$	(0.15	)	$	(0.06	)
Weighted average shares used to compute basic and diluted loss per share		15,111			11,127

Net loss per common share:
Basic							$	(0.06	)	$	(0.15	)
Diluted							$	(0.06	)	$	(0.15	)
Weighted average common shares outstanding, basic and diluted								16,837			15,111

The accompanying notes are an integral part of these condensed consolidated financial statements.

Series B Convertible Preferred Stock

Common Stock

Shares

Amount

Shares

Amount

Addional Paid-in Capital

Treasury
Stock

Accumulated
Deficit

Accumulated Other Comprehensive Income

Noncontrolling Interest

Total
Equity

Balances, December 31, 2017

3,000

$
3

14,436

$
15

$
428,470

$
(7,485
)

$
(399,647
)

$
2,675

$
(178
)

$
23,853

Net loss

—

—

—

—

—

—

(2,306
)

—

5

(2,301
)
Other comprehensive loss

—

—

—

—

—

—

—

109

3

112

Impact of adoption of Topic
   606 (Note 2)

—

—

—

—

—

—

2

2

Issuance of common stock in
   connection with acquisition
   of business

610

1

2,293

—

—

—

—

2,294

Issuance of common stock
   in connection with
   vesting of stock awards

—

—

139

—

—

—

—

—

—

—

Stock-based compensation

—

—

—

—

635

—

—

—

—

635

Shares withheld in payment
   of taxes in connection with
   net share settlement of
   restricted stock units

—

—

(42
)

—

—

(162
)

—

—

—

(162
)
Issuance costs associated
   with issuance of Series B
   preferred stock

—

—

—

—

(20
)

—

—

—

—

(20
)
Issuance of shares to non-
   employees

—

—

—

—

5

—

—

—

—

5

Balances, March 31, 2018

3,000

$
3

15,143

$
16

$
431,383

$
(7,647
)

$
(401,951
)

$
2,784

$
(170
)

$
24,418

	Series B Preferred Stock				Common Stock					Additional Paid-in		Treasury			Accumulated			Accumulated Other Comprehensive			Noncontrolling			Total
	Shares		Amount		Shares			Amount		Capital		Stock			Deficit			Income			Interest			Equity
Balances, December 31, 2018		5,000	$	5		15,967		$	17	$	444,145	$	(8,153	)	$	(404,353	)	$	2,209		$	(170	)	$	33,700
Net loss		—		—		—			—		—		—			(815	)		—			—			(815	)
Unrealized income (loss) from foreign currency translation adjustments		—		—		—			—		—		—			—			(129	)		—			(129	)
Issuance of common stock in connection with acquisition of business		—		—		419			1		1,634		—			—			—			—			1,635
Issuance of common stock in connection with vesting of stock awards		—		—		126			—		—		—			—			—			—			—
Stock-based compensation		—		—		—			—		687		—			—			—			—			687
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units		—		—		(43	)		—		—		(228	)		—			—			—			(228	)
Issuance of common stock in connection with warrant exercise		—		—		10			—		—		—			—			—			—			—
Balances, March 31, 2019		5,000	$	5		16,479		$	18	$	446,466	$	(8,381	)	$	(405,168	)	$	2,080		$	(170	)	$	34,850

	Series B Preferred Stock				Common Stock					Additional Paid-in			Treasury			Accumulated			Accumulated Other Comprehensive		Noncontrolling			Total
	Shares		Amount		Shares			Amount		Capital			Stock			Deficit			Income		Interest			Equity
Balances, December 31, 2017		3,000	$	3		14,436		$	15	$	428,470		$	(7,485	)	$	(399,647	)	$	2,675	$	(178	)	$	23,853
Net loss		—		—		—			—		—			—			(2,306	)		—		5			(2,301	)
Unrealized income (loss) from foreign currency translation adjustments		—		—		—			—		—			—			—			109		3			112
Impact of adoption of Topic 606		—		—		—			—		—			—			2			—		—			2
Issuance of common stock in connection with acquisition of business		—		—		610			1		2,293			—			—			—		—			2,294
Issuance of common stock in connection with vesting of stock awards		—		—		139			—		—			—			—			—		—			—
Stock-based compensation		—		—		—			—		635			—			—			—		—			635
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units		—		—		(42	)		—		—			(162	)		—			—		—			(162	)
Issuance costs associated with issuance of Series B preferred stock		—		—		—			—		(20	)		—			—			—		—			(20	)
Issuance of shares to non-employees		—		—		—			—		5			—			—			—		—			5
Balances, March 31, 2018		3,000	$	3		15,143		$	16	$	431,383		$	(7,647	)	$	(401,951	)	$	2,784	$	(170	)	$	24,418

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net loss	$	(2,301	)	$	(677	)	$	(815	)	$	(2,301	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		740			630			852			740
Gain on extinguishment of debt		—			(977	)
Accretion of interest on long-term payment obligation		64			87			44			64
Stock-based compensation expense								687			635
Amortization of debt issuance costs		109			223			25			109
Stock-based compensation expense		635			591
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		2,327			625			157			2,327
Inventories		(167	)		(995	)		1,431			(167	)
Prepaid expenses and other assets		(262	)		(359	)		318			(262	)
Accounts payable		(429	)		1,431			268			(429	)
Payment obligation liability		(300	)		(291	)		(310	)		(300	)
Deferred revenue		311			(159	)		560			311
Accrued expenses and other liabilities		(262	)		(910	)		(1,728	)		(262	)
Net cash provided by (used in) operating activities		465			(781	)
Net cash provided by operating activities								1,489			465
Cash flows from investing activities:
Capital expenditures		(67	)		(50	)		(65	)		(67	)
Acquisition of business, net of acquired cash		(1,384	)		—
Acquisition of business, net of cash acquired								(1,287	)		(1,384	)
Net cash used in investing activities		(1,451	)		(50	)		(1,352	)		(1,451	)
Cash flows from financing activities:
Proceeds from issuance of debt, net of issuance costs		9,599			21,484			1,646			9,599
Repayment of debt		(10,952	)		(22,014	)
Repayments of debt								(1,371	)		(10,952	)
Repayments of notes payable								(2,000	)		—
Taxes paid related to net share settlement of restricted stock units		(162	)		(68	)		(228	)		(162	)
Net cash used in financing activities		(1,515	)		(598	)		(1,953	)		(1,515	)
Effect of exchange rates on cash		134			195			(120	)		134
Net decrease in cash		(2,367	)		(1,234	)		(1,936	)		(2,367	)
Cash at beginning of period		19,052			9,116			10,866			19,052
Cash at end of period	$	16,685		$	7,882		$	8,930		$	16,685
Supplemental Disclosures of Cash Flow Information
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	353		$	415		$	245		$	353
Taxes paid, net	$	44		$	46		$	29		$	44
Non-cash investing and financing activities:
Warrants issued as debt issuance costs in connection with debt agreements	$	—		$	2,319
Common stock issued for acquisition of business	$	2,294		$	—
Promissory notes issued for acquisition of business	$	2,000		$	—
Common stock issued for acquisition of business, net							$	1,635		$	2,294
Promissory notes issued in acquisition of business							$	—		$	2,000
Share-settled liability associated with acquisition of business	$	1,000		$	—		$	—		$	1,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. (“Identiv” or the “Company”) and ~~Summary of Significant Accounting Policies~~its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the fiscal year 2018 financial statements to conform to the fiscal year 2019 presentation. The reclassifications had no impact on net loss, total assets, or stockholders’ equity.

The accompanying unaudited condensed consolidated financial statements of ~~Identiv, Inc. (“Identiv” or~~ the ~~“Company”)~~Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included. The results of operations for the three months ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018~~2019 or any future period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” ~~“Quantitative and Qualitative Disclosures About Market Risk,”~~ and the audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017. The preparation of unaudited condensed consolidated financial statements necessarily requires the Company to make estimates~~2018.

2. Significant Accounting Policies and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the condensed consolidated balance sheet dates and the reported amounts of revenues and expensesRecent Accounting Pronouncements

Except for the periods presented. The Company may experience significant variations in demand for its products quarter to quarter and typically experiences a stronger demand cycle in the second half of its fiscal year. As a result, the quarterly results may not be indicativeadoption of the ~~full year results. The December 31, 2017 balance sheet was derived from the audited financial statements as of that date.~~

~~Reclassifications~~ — ~~Certain reclassifications~~new accounting standard for leases mentioned below, no material changes have been made to the ~~fiscal~~Company's significant accounting policies disclosed in Note 1, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ~~2017 financial statements to conform to~~ended December 31, 2018.

Leases —The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and long-term operating lease liabilities on the ~~fiscal year 2018 presentation. The reclassifications had no impact~~Company’s condensed consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on ~~net loss, total assets, or stockholders’ equity.~~

~~Concentration of Credit Risk~~ ~~— No customer represented more than 10% of net revenue for either~~the present value of the ~~three months ended March 31, 2018 or 2017.No customer represented 10% or more~~future minimum lease payments over the lease term at commencement date. As most of the Company’s ~~accounts receivable balance~~leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at ~~March 31, 2018 or December 31, 2017.~~the lease commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which is accounted for as a single lease component.

~~Business Combinations~~ — ~~Business combinations are accounted for at fair value under the purchase method~~Adoption of accounting. Acquisition costs are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.New Accounting Standards

In ~~circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under~~February 2016, the Financial Accounting Standards Board (“FASB”) ~~Accounting Standards Codification (“ASC”) Topic 480,~~ ~~Distinguishing Liabilities from Equity~~,amended the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value as a component of operating expenses.

~~Results of operations and cash flows of acquired companies are included in the Company’s operating results from the date of acquisition.~~

~~Intangible Assets~~ —Amortizable intangible assets include trade names, non-compete agreements, developed technology and customer relationships acquired as part of business combinations. Intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives ranging from three to twelve years and are reviewedexisting accounting standards for ~~impairment in accordance with ASC 360,~~ ~~Property, Plant and Equipment.~~

~~Goodwill~~ —~~In accordance with ASC 350,~~ ~~Intangibles-Goodwill and Other~~ (“ASC 350”), the Company’s goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In testing for goodwill, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the

Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

~~Research and Development~~ — Costs to research, design, and develop the Company’s products are expensed as incurred and consist primarily of employee compensation and fees for the development of prototype products. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Generally, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achieving technological feasibility have not been significant and generally have been expensed as incurred. At March 31, 2018, the amount of capitalized software development costs totaled $0.4 million and is included primarily in other assets in the accompanying condensed consolidated balance sheet. Software development costs capitalized in 2017 totaled $0.4 million.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.

~~In March 2016, the FASB issued~~ leases, Accounting Standards Update (“ASU”) ~~2016-09,~~ 2016-02, Leases~~Compensation – Stock Compensation, which provides~~ ~~guidance~~. The amendments require lessees to ~~simplify several aspects of~~recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. The accounting ~~for share-based payment transactions, including~~by lessors will remain largely unchanged from that applied under previous U.S. GAAP. The Company is required to adopt the ~~accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification~~amendments in the ~~statement~~first quarter of ~~cash flows. The guidance is effective for reporting periods beginning after December 15, 2016.~~ fiscal 2019.

The Company adopted ~~this guidance~~the new standard in the first quarter of 2019, effective January 1, ~~2017.~~2019, using the modified retrospective method, under which the new standard was applied prospectively rather than restating the prior periods presented. The ~~Company's~~Company elected the practical expedients under the transition guidance, which include the use of hindsight in determining the lease term and the practical expedient package to not reassess whether any expired or existing contracts are or contain leases, to not reassess the classification of any expired or existing leases, and to not reassess initial direct costs for any existing leases. In addition, the Company elected the practical expedient to recognize lease and non-lease components as a single lease component. The Company has elected not to record on the balance sheet leases with an initial term of twelve months or less. Upon adoption, the Company recognized both operating lease ROU assets and corresponding operating lease liabilities of ~~this standard did not have a significant impact~~approximately $5.8 million and $5.9 million, respectively, on its condensed consolidated ~~financial statements. No excess income tax benefit or tax deficiencies have been recorded as a result~~balance sheet. There was no impact on the condensed consolidated statements of ~~the adoption~~operations and there will be no change to accumulated deficit with respect to previously unrecognized excess tax benefits. The Company is electing to continue to account for forfeitures on an estimated basis. The Company has elected to present the condensed consolidated statements of cash ~~flows on a prospective transition method and no prior periods have been adjusted.~~

~~In February 2016, the FASB issued~~ ~~ASU 2016-02,~~ ~~Leases~~ ~~(“ASU 2016-02”), which~~ amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities but will recognize expenses similar to current lease accounting. The guidance is effective for reporting periods beginning after December 15, 2018; however early adoption is permitted. The new guidance must be adopted using a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact of the adoption of this guidance will have on its condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(“Topic 606”), which supersedes the revenue recognition requirements in~~ ~~Revenue Recognition~~ (Topic 605)” and Subtopic 985-605 “Software - Revenue Recognition.” Topic 605 and Subtopic 985-605 are collectively referred to as “Topic 605” or “prior GAAP.” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.flows.

The Company adopted Topic 606 on January 1, 2018 using the modified retrospective transition method. Under this method, the Company evaluated contracts that were in effect at the beginning of fiscal 2018 as if those contracts had been accounted for under Topic 606. Under the modified retrospective transition approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with historical, pre-Topic 606 accounting.

~~On the adoption date, a cumulative catch up adjustment was recorded to beginning retained earnings to reflect the impact of all existing arrangements under Topic 606. T~~he Company increased retained earnings and decreased deferred revenue by approximately $2,000 for an uncompleted software development and technical support services contract with a customer. Under Topic 605 accounting, since the Company was unable to establish vendor-specific objective evidence (“VSOE”) of fair value for the product development and technical support services components in the contract, the Company was required to defer the revenue and recognize it over the term of the contract. Under Topic 606, the Company would have been required to establish the standalone selling price of each of the performance obligations in the contract and recognize the product development services revenue upon delivery, and recognize the technical support services revenue ratably over the term of the contract.

~~The Company does not expect the impact of the adoption of Topic 606 to be material to its annual revenue and net income on an ongoing basis.~~ 3. RevenueRevenue generated under Topic 606 is expected to be materially comparable to revenue recognized under Topic 605 in fiscal 2018 primarily due to the elimination of deferred revenue associated with the product development services discussed above that, under Topic 605, would have continued to be recognized into revenue in 2018 and 2019, offset by an increase in the revenue recognized related to the amount and timing of technical support services provided in the contract discussed above. The actual effects on revenue recognized for the first quarter of fiscal 2018 are reported in the table below.

~~No incremental sales commission costs or other costs related to obtaining customer contracts were capitalized at the adoption date as they were immaterial.~~

The timing of revenue recognition for hardware and professional services is expected to remain substantially unchanged. The Company’s overall mix of revenue recognized at a point in time versus over time is expected to increase in the future due to the intended growth and expansion of its services offerings. For the three months ended March 31, 2018, approximately 95% of the Company’s revenue was recognizable on delivery and 5% over time.

~~The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of March 31, 2018 (in thousands):~~

The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2018 (in thousands, except per share amounts):

~~The adoption of Topic 606 had no impact on the Company’s net cash provided by operating activities, net cash used in investing activities or net cash used in financing activities.~~

Revenue is recognized upon transfer of control of ~~the~~ promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of its products, software licenses, and services, which are generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value is generally the transaction price to be allocated to the separate performance obligations. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.

The Company derives revenues primarily from sales of hardware products, software ~~licensing,~~licenses, professional services, software maintenance and support, and extended hardware warranties.

Hardware Product Revenues —The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product (which includes software integral to the functionality of the hardware product). The second performance obligation is to provide assurance that the product complies with its agreed-upon specifications and is free from defects in material and workmanship for a period of one to three years (i.e. assurance warranty). The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of delivery because the customer obtains control of the product at that point in time. The Company has concluded that control generally transfers at that point in time because the customer has title to the hardware, physical possession, and a present obligation to pay for the hardware. None of the transaction price is allocated to the assurance warranty component, as the Company accounts for these product warranty costs in accordance with ~~ASC~~Accounting Standards Codification ("ASC”) 460, Guarantees ~~Guarantees~~(“ASC 460”). Payments for hardware contracts are generally due 30 to 60 days after shipment of the hardware product.

Software ~~Licensing~~License Revenues — The Company’s license arrangements grant customers the perpetual right to access and use the licensed software products at the outset of an arrangement. Technical support and software updates are generally made available throughout the term of the support agreement, which is generally one to three years. The Company accounts for these arrangements as two performance obligations (1) the software licenses, and (2) the related updates and technical support. The software license revenue is recognized upon delivery of the license to the customer, while the software updates and technical support is recognized over the term of the support contract. Payments are generally due 30 to 60 days after delivery of the software licenses.

Professional Services Revenues — Professional services revenues consist primarily of programming customization services performed relating to the integration of the Company’s software products with the customers other systems, such as HR systems. Professional services contracts are generally billed on a time and materials basis and revenue is recognized as the services are performed. ~~For contracts billed on a fixed price basis, revenue is recognized once the contract is complete.~~ Payments for services are generally due when services are performed.

Software Maintenance and Support Revenues — Support and maintenance contract revenues consist of the services provided to support the specialized programming applications performed by our professional services group. Support and maintenance contracts are typically billed at inception of the contract and recognized as revenue over the contract period, typically over a 1one to 3three year period.

Extended Hardware Warranties Revenues — Sales ~~of some~~ of our hardware products may also include optional extended hardware warranties, which typically provide assurance that the product will continue function as initially intended. Extended hardware warranty contracts are typically billed at inception of the contract and recognized as revenue over the respective contract period, typically over 1one to 2two year periods after the expiration of the original assurance warranty.

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the Company allocates revenues to each performance obligation based on its relative standalone selling price (“SSP”).

Judgment is required to determine the ~~standalone selling price ("SSP")~~SSP for each distinct performance ~~obligation.~~obligation in a contract. For the majority of items, the Company estimates SSP using historical transaction data. The Company uses a ~~single amount~~range of amounts to estimate SSP ~~for items that are not sold separately, including perpetual licenses sold with technical support and software maintenance. The Company uses the SSP~~ when it sells each of the products and services ~~are sold~~ separately and needs to determine whether there is a discount ~~that needs~~ to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the Company determines the SSP using information that may include market conditions and other observable inputs.

The ~~Company’s products are generally sold with a right~~determination of ~~return which are accounted for as variable consideration when estimating~~SSP is an ongoing process and information is reviewed regularly in order to ensure SSPs reflect the ~~amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional~~most current information ~~becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.~~or trends.

The Company disaggregates revenue from contracts with customers based on the timing of transfer of goods or services to customers (point-in-time or over time) and geographic region based on the shipping location of the customer. The geographic regions that are tracked are the Americas, Europe and the Middle East, and Asia-Pacific regions. The Company operates as ~~four~~two operating segments.

Total net ~~sales~~revenue based on the disaggregation criteria described above are as follows (in thousands):

	Three Months Ended March 31,												Three Months Ended March 31,
	2018						2017 (1)						2019						2018
	Point-in- Time		Over Time		Total		Point-in- Time		Over Time		Total		Point-in- Time		Over Time		Total		Point-in- Time		Over Time		Total
Americas	$	12,484	$	748	$	13,232	$	8,859	$	249	$	9,108	$	13,524	$	1,201	$	14,725	$	12,484	$	748	$	13,232
Europe and the Middle East		2,294		14		2,308		1,867		12		1,879		2,865		65		2,930		2,294		14		2,308
Asia-Pacific		985		3		988		2,403		2		2,405		1,867		—		1,867		985		3		988
Total	$	15,763	$	765	$	16,528	$	13,129	$	263	$	13,392	$	18,256	$	1,266	$	19,522	$	15,763	$	765	$	16,528


(1) As discussed in Note 1, prior periods have not been adjusted for the adoption of Topic 606.

Amounts invoiced in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company’s deferred revenue balance is ~~primarily~~ related software maintenance contracts. Payment terms and conditions vary by contract type, although payment is typically due within 30 to 90 days of contract inception. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers.

Changes in deferred revenue during the three months ended March 31, ~~2018~~2019 were as follows (in thousands):

Revenue expected to be recognized in ~~any~~ future ~~period~~periods related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, and contracts where revenue is recognized as invoiced, was approximately ~~$3.5~~$1.3 million as of March 31, ~~2018.~~2019. Since the Company typically invoices customers at contract inception, this amount is included in its deferred revenue balance. As of March 31, ~~2018,~~2019, the Company expects to recognize approximately ~~54%~~73% of the revenue related to these unsatisfied performance obligations during the remainder of ~~2018, 34%~~2019, 18% during ~~2019,~~2020, and ~~12%~~9% thereafter.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs (i.e. commissions) meet the requirements to be capitalized. Capitalized incremental costs related to contracts are amortized over the respective contract periods. For the three months ended March 31, ~~2018,~~2019, total capitalized costs to obtain ~~a contract~~contracts were immaterial.

~~As discussed in Note 1,~~ ~~Organization and Summary of Significant Accounting Policies,~~ ~~and Note 2,~~ ~~Revenue, the Company has elected the following practical expedients in accordance with Topic 606:~~

On February 14, 2018, the Company acquired 3VR Security, Inc. (“3VR”), a video technology and analytics company, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Eagle Acquisition, Inc., a California corporation and a wholly owned subsidiary of the Company (“Merger Sub”), 3VR, and Fortis Advisors LLC, a Delaware limited liability company, acting as Security Holder Representative. Pursuant to the Merger Agreement, at the effective time, Merger Sub merged with and into 3VR and 3VR became a wholly-owned subsidiary of the Company (the “Acquisition”).

Under the terms of the Merger Agreement, at the closing of the Acquisition, the Company acquired all of the outstanding shares of 3VR for total purchase consideration of ~~$6.9~~$6.2 million, consisting ofof:

An aggregate of up to $1.0 million, or 294,927 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. On May 9, 2018, the Company and the Security Holder Representative reached agreement as to the satisfaction of certain of the indemnification claims asserted by the Company at the closing of the Acquisition. As a result, the purchase consideration, and the amount of goodwill recorded, were reduced by $660,000. Of the 294,927 shares that were held back at closing, 181,319 shares were canceled. On January 25, 2019, subject to the terms of the Merger Agreement, the Company filed an additional dispute with the security holder representative for an amount exceeding the remaining amount of the holdback shares of approximately $0.3 million, or 93,406 shares. On April 15, 2019, the Company and the Security Holder Representative reached agreement as to the satisfaction of the remaining indemnification claims asserted by the Company at the closing of the Acquisition. As a result, in the second quarter of 2019, the

purchase consideration, and the amount of goodwill recorded, will be reduced by the remaining $340,000 and the remaining 93,406 holdback shares will be canceled.

Additionally, in the event ~~that the surviving corporation achieves~~3VR achieved $24.1 million in product shipments in 2018, the Company ~~will be~~would have been obligated to issue ~~a further~~ earn-out consideration of $3.5 million payable in shares of the Company’s common stock (subject to certain conditions) with a potential maximum earn-out value of $7.0 million in the event that such shipments ~~exceed~~exceeded $48.2 million. Further, in calendar year 2019, the Company may ~~also~~ be obligated to pay, in cash, and subject to certain conditions, contingent consideration equal to the lesser of (a) 35% of the gross margin of certain products sold and services rendered by 3VR in 2018 pursuant to a supply arrangement and (b) $25.0 million, each subject to adjustments. Management has assessed the probability of the issuance of shares related to the ~~earn-out consideration, and the~~ payment of the contingent consideration noted above, and determined it as ~~remote, accordingly~~remote. Accordingly, no value was ascribed to the ~~earn-out~~contingent consideration as of March 31, ~~2018.~~2019.

On February 14, 2019, the Company repaid the noteholders an aggregate principal amount, including accrued interest, of $2,060,000.

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, atbefore the ~~date~~settlement of ~~acquisition~~the remaining indemnification claims noted above, which will be recorded by the Company in the second quarter of 2019, (in thousands):

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):

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of 3VR resulted in ~~$5.9~~$5.8 million of ~~goodwill.~~goodwill which is not deductible for tax purposes. With the addition of the 3VR video security and analytics platform, the Company believes this goodwill largely reflects the expansion of its Hirsch product and service offerings through the complementary offerings of 3VR. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill will not be amortized but will be tested for impairment at least ~~annually.~~annually in the fourth quarter. See Note 6, Goodwill and Intangible Assets.

~~The results of operations of 3VR for the period from the acquisition date through March 31, 2018 are included in the accompanying condensed consolidated statements of operations.~~ 12

Pursuant to ASC 805, Business Combinations(“ASC 805”), the Company incurred and expensed ~~approximately$212,000~~approximately $8,000 and ~~$485,000~~$548,000 in acquisition and transitional costs associated with the acquisition of 3VR during the ~~year ended December 31, 2017 and the~~ three months ended March 31, 2019 and the year ended December 31, 2018, respectively, which were primarily general and administrative ~~related.~~expenses.

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:

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 are being held back for a period of up to 12 months following the closing for the satisfaction of certain indemnification claims.

Additionally, in the event that revenue from Thursby products is greater than $8.0 million, $11.0 million, or $15.0 million in product shipments in 2019, the Company will be obligated to issue earn-out 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 is 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 earn-out consideration payable in shares of the Company’s common stock. The maximum total earn-out 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 earn-out consideration, and the payment of the contingent consideration noted above, and determined it as remote. Accordingly, no value was ascribed to the earn-out consideration as of March 31, 2019.

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):

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 $3.5 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 $23,000 and $208,000 in acquisition and transitional costs associated with the acquisition of Thursby during the three months ended March 31, 2019 and the year ended December 31, 2018, respectively, which were primarily general and administrative expenses.

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:

An aggregate of approximately 31,446 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.

Additionally, in the event that revenue from the assets purchased under the agreement in 2019 is greater than certain specified revenue targets, the Company will be obligated to issue earn-out 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 are 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 earn-out consideration in the form of stock. The maximum total earn-out consideration payable for all periods is $3.5 million in the aggregate, payable in the Company’s common stock. Management has assessed the probability of the issuance of shares related to the earn-out consideration and determined its fair value of $0.2 million as of March 31, 2019.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of the assets of Viscount resulted in $1.2 million. 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 and $227,000 in acquisition and transitional costs associated with the acquisition of the assets of Viscount during the three months ended March 31, 2019 and the year ended December 31, 2018, respectively, which were primarily general and administrative expenses.

The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement ~~and Disclosures~~ (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no assets that are measured and recognized at fair value on a recurring basis. There were nonominal cash equivalents as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

The Company’s only liabilities measured at fair value on a recurring basis are the contingent consideration associated with the acquisitions of 3VR, Thursby and Viscount. The fair value of the earn-out consideration is based on achieving certain revenue and profit targets as defined under the respective merger agreements. The valuation of the earn-out consideration is classified as a Level 3 measurement as it is based on significant unobservable inputs and involves management judgment and assumptions about achieving revenue and profit targets and discount rates. The unobservable inputs used in the measurement of the earn-out consideration are highly sensitive to fluctuations and any changes in the inputs or the probability weighting thereof could significantly change the measured value of the earn-out consideration at each reporting period. As of March 31, 2019, the fair value attributed to earn-out consideration related to the assets purchased from Viscount was $0.2 million. No fair value was assigned to the earn-out consideration in the 3VR and Thursby acquisitions.

Changes in the fair value of liabilities classified in Level 3 of the fair value hierarchy were as follows (in thousands):

Certain of the Company's assets, including intangible assets, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections. For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5,6, Goodwill and Intangible Assets.

Privately-held investments, which are normally carried at cost, are measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure.

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had $0.3 million of privately-held investments measured at fair value on a nonrecurring basis which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

As of March 31, 2018, the Company had $1.0 million of liabilities measured at fair value on a nonrecurring basis which were classified as Level 1 liabilities due to the settlement provisions being a set amount of shares of the Company’s common stock. There were no share settled liabilities as of March 31, 2018. The share settled liabilities is included in accrued expenses in the accompanying condensed consolidated balance sheet.

The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, accounts payable, financial liabilities and other accrued liabilities approximate fair value due to their short maturities.

The following table summarizes the carrying amount of goodwill resulting from the acquisitions of 3VR, Thursby, and Viscount (in thousands):

In accordance with ASC 350, the Company tests goodwill for impairment on an annual basis, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In testing for goodwill impairment, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. During the quarter ended March 31, 2019, the Company noted no indicators of goodwill impairment and concluded no further testing necessary.

The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands):

Each period, the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. Intangible assets subject to amortization are amortized over their useful lives as shown in the table above. The Company evaluates its amortizable intangible assets for impairment at the end of each reporting period. The Company did not identify any impairment indicators during the three months ended March 31, 2019.

The following table illustrates the amortization expense included in the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018, respectively (in thousands):

5.The estimated annual future amortization expense for purchased intangible assets with definite lives as of March 31, 2019 is as follows (in thousands):

The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consists of (in thousands):

The Company recorded depreciation expense of $0.2 million and $0.3 million during the three months ended March 31, 2019 and 2018, respectively.

Hirsch Acquisition – Secure Keyboards and Secure Networks. Prior to the 2009 acquisition of Hirsch by the Company, effective November 1994, Hirsch had entered into a settlement agreement (the “1994 Settlement Agreement”) with two limited partnerships, Secure Keyboards, Ltd. (“Secure Keyboards”) and Secure Networks, Ltd. (“Secure Networks”). At the time, Secure Keyboards and Secure Networks were related to Hirsch through certain common shareholders and limited partners, including Hirsch’s then President Lawrence Midland, who resigned as President of the Company effective July 31, 2014. Immediately following the acquisition, Mr. Midland owned 30% of Secure Keyboards and 9% of Secure Networks. Secure Networks was dissolved in 2012 and Mr. Midland owned 24.5% of Secure Keyboards upon his resignation effective July 31, 2014.

On April 8, 2009, Secure Keyboards, Secure Networks and Hirsch amended and restated the 1994 Settlement Agreement to replace the royalty-based payment arrangement under the 1994 Settlement Agreement with a new, definitive installment payment schedule with contractual payments to be made in future periods through 2020 (the “2009 Settlement Agreement”). The Company was not an original party to the 2009 Settlement Agreement as the acquisition of Hirsch occurred subsequent to the 2009 Settlement Agreement being entered into. The Company has, however, provided Secure Keyboards and Secure Networks with a limited guarantee of Hirsch’s payment obligations under the 2009 Settlement Agreement (the “Guarantee”). The 2009 Settlement Agreement and the Guarantee became effective upon the acquisition of Hirsch on April 30, 2009. The Company’s annual payment to Secure Keyboards and Secure Networks in any given year under the 2009 Settlement Agreement is subject to an increase based on the percentage increase in the Consumer Price Index during the previous calendar year.

The final payment to Secure Networks was made on January 30, 2012 and the final payment to Secure Keyboards is due on January 30, 2021. The Company’s payment obligations under the 2009 Settlement Agreement will continue through January 30, 2021, unless the Company elects at any time on or after January 1, 2012 to earlier satisfy its obligations by making a lump-sum payment to Secure Keyboards. The Company does not intend to make a lump-sum payment and therefore a portion of the payment obligation amount is classified as a long-term liability.

The Company included $44,000 and $64,000 of interest expense during the three months ended March 31, 2019 and 2018 respectively, in its condensed consolidated statements of operations for interest accreted on the long-term payment obligation.

The ongoing payment obligation in connection with the Hirsch acquisition as of March 31, 2019 is as follows (in thousands):

On February 8, 2017, the Company entered into Loan and Security Agreements with East West Bank (“EWB”) and Venture Lending & Leasing VII, Inc. and Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL8”). The Loan and Security agreement, as amended, with EWB provides for a $16.0 million revolving loan facility (“Revolving Loan Facility”), and the Loan and Security Agreement with VLL7 and VLL8 provided for a $10.0 million term loan facility (“Term Loan Facility”). In

connection with the closing of such agreements, the Company repaid all outstanding amounts under its credit agreement with its previous lender.

The Revolving Loan Facility, as amended, bears interest at prime rate plus 1.0%, matured and became due and payable on February 8, 2019 and included a non-formula line of credit sublimit of up to $3.0 million. Interest is payable monthly beginning on March 1, 2017. On February 6, 2019, the Company entered into an amendment (the “Tenth Amendment”) to its Loan and Security Agreement with EWB. Under the Tenth Amendment, the Revolving Loan Facility under the Loan and Security Agreement was increased from $16.0 million to $20.0 million, the interest rate was reduced from prime rate plus 1.0% to prime rate plus 0.75%, the maturity date was extended to February 8, 2021, and certain financial covenants were amended, including covenants with respect to minimum EBITDA levels. The Company may voluntarily prepay amounts outstanding under the Revolving Loan Facility without prepayment charges. In the event the Revolving Loan Facility is terminated prior to its maturity, the Company would be required to pay an early termination fee in the amount of 1.0% of the revolving line. Additional borrowing requests under the Revolving Loan Facility are subject to various customary conditions precedent, including satisfaction of a borrowing base test as more fully described in the Revolving Loan Facility.

On December 28, 2017, the Company paid down an aggregate principal amount of $5.0 million of the $10.0 million outstanding principal balance of its Term Loan Facility. The Company paid to VLL7 and VLL8 approximately $5.9 million, consisting of $5.0 million in outstanding principal, and $0.9 million of accrued and unpaid interest outstanding at the prepayment date, together with all scheduled interest that would have accrued and been payable through the stated maturity of the Term Loan. As a result, the Company recorded a loss on extinguishment of debt totaling $1.8 million, representing the difference between the reacquisition price of the repaid portion of the Term Loan and the its net carrying amount.

On May 31, 2018, the Company paid off the remaining amounts payable under its $10.0 million principal amount term loan under the Loan and Security Agreement with VLL7 and VLL8. The Company paid to VLL7 and VLL8 approximately $5.2 million, consisting of $4.6 million in outstanding principal, and $0.6 million of accrued and unpaid interest outstanding at the prepayment date together with all the scheduled interest that would have accrued and been payable through the stated maturity of the term loan. As a result, the Company recorded a loss on extinguishment of debt totaling $1.4 million, representing the difference between the reacquisition price of the repaid portion of the Term Loan and its carrying amount.

The Company was obligated to pay customary fees and expenses, including customary facility fees for credit facilities of this size and type, in the aggregate amount of approximately $120,000, in connection with the closing of the two facilities. An additional facility fee of $40,000 was paid in connection with the Revolving Loan Facility on February 8, 2018.

The Revolving Loan Facility contains customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company's ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. The Revolving Loan Facility also contains various financial covenants, including but not limited to a liquidity covenant requiring the Company to maintain at least $4.0 million of cash. In addition, the Revolving Loan Facility contains customary events of default that entitle EWB to cause any or all of the Company's indebtedness under the Revolving Loan Facility to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. Upon the occurrence and during the continuance of an event of default, EWB may terminate its lending commitment and/or declare all or any part of the unpaid principal of all loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan and Security Agreement to be immediately due and payable.

As of March 31, 2019, the Company was in compliance with all financial covenants under the Revolving Loan Facility.

The proceeds of the Term Loan and the initial draw under the Revolving Loan Facility, after payment of fees and expenses, were used to repay all outstanding amounts under the credit agreement with the Company’s previous lender. In connection with the repayment, warrants to purchase an aggregate of 400,000 shares of common stock issued to the Company’s previous lender were cancelled. The proceeds of any additional draws under the Revolving Loan Facility will be used for working capital and other general corporate purposes.

On February 14, 2018, the Company completed the acquisition of 3VR. As part of the purchase price consideration paid in the acquisition of 3VR, the Company issued subordinated unsecured promissory notes (“notes payable”) in the aggregate principal amount of $2.0 million, with an annual interest rate of 3.0%, payable on the one year anniversary of the closing date. On February 21, 2018, the Company paid 3VR’s lender $3.6 million in full repayment of all indebtedness outstanding of 3VR.

The Company conducts business globally and, as a result, files federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the probable outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the condensed consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal.

The Company applies the provisions of, and accounted for uncertain tax positions in accordance with ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company generally is no longer subject to tax examinations for years prior to 2014. However, if loss carryforwards of tax years prior to 2014 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months.

The Company is authorized to issue 10,000,000 shares of preferred stock, 40,000 of which have been designated as Series A Participating Preferred Stock, par value $0.001 per share, and 5,000,000 of which have been designated as Series B Non-Voting Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). No shares of the Company’s Series A Participating Preferred Stock were outstanding as of March 31, 2019 and December 31, ~~2017 and 2016.~~2018. During 2017, the Company’s board of directors (the “Board”) authorized the issuance of up to 5,000,000 shares of the Series B Preferred Stock, ~~3,000,000~~5,000,000 of which were outstanding as of March 31, 2019 and December 31, 2018.

The Board may from time to time, without further action by the Company’s stockholders, direct the issuance of shares of preferred stock in other series and may, at the time of issuance, determine the rights, preferences and limitations of each series, including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of the Company’s common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of the Company’s common stock. Upon the affirmative vote of the Board, without stockholder approval, the Company may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of its common stock.

On December 20, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of 21 April Fund, Ltd. and 21 April Fund, LP (collectively, the “Purchasers”), pursuant to which the Company, in a private placement, agreed to issue and sell to the Purchasers an aggregate of up to 5,000,000 shares of the Series B Preferred Stock, $0.001 par value per share (collectively referred to as the “Shares”). The Purchasers agreed to purchase an aggregate of 3,000,000 Shares (“Tranche 1”) at a price of $4.00

per share in cash at the initial closing of the transaction, and at the sole option of the Company, an additional 2,000,000 Shares at a price of $4.00 per share in cash at a second closing, if any (the “Private Placement”). The total purchase price payable to the Company iswas $20,000,000, of which $12,000,000 was paid at the initial ~~closing and $8,000,000 will be paid, if~~closing. On May 30, 2018, the Company issued 2,000,000 Shares (“Tranche 2”), at ~~all, at~~a price of $4.00 per share in the second ~~closing.~~closing of the Private Placement. Gross proceeds to the Company from the second closing were approximately $8.0 million, before deducting fees and certain expenses payable by the Company. The ~~Company is required to use the~~ proceeds from the issuance of the Shares are required to be used to pay off existing debt obligations of the Company and to fund future acquisitions of technology, business and other ~~assets.~~assets by the Company.

Each Share shall be convertible into the Company’s common stock (i) following the sixth (6th) anniversary of the initial closing of the Private Placement or (ii) if earlier, during the thirty (30) day period following the last trading day of any period of three (3) or more consecutive trading days that the closing market price of the Company’s common stock exceeds $10.00. Each Share is convertible at the option of the holder of shares of Series B Preferred Stock into such number of shares of the Company’s common stock determined by taking the accreted value of such Share (purchase price plus accrued but unpaid dividends) and dividing such value by the stated value of such Share ($4.00 per share, subject to adjustment for dilutive issuances, stock splits, stock dividends and the like); provided, however, that the Company shall not convert any Shares if doing so would cause the holder thereof, along with its affiliates, to beneficially own in excess of 19.9% of the outstanding common stock immediately after giving effect to the applicable

conversion (the “Ownership Limitation”), unless waiver of this restriction has been effected by the holder requesting conversion of Shares.

Based on the current conversion price, the outstanding shares of ~~the~~ Series B Preferred Stock as of March 31, ~~2018~~2019 would be convertible into ~~3,000,000~~5,208,000 shares of the Company’s common stock. However, the conversion rate will be subject to adjustment in the event of certain instances, such as if the Company issues shares of its common stock at a price less than $4.00 per common share, subject to a minimum conversion price of $3.27 per share. As of March 31, ~~2018,~~2019, none of the contingent conditions to adjust the total common shares to convert the Shares had been met.

Each Share is entitled to an annual dividend of 5% for the first six (6) years following the issuance of such Share and 3% for each year thereafter, with the Company retaining the option to settle each year’s dividend after the tenth (10^th) year in cash. The dividends accrue and are payable in kind upon such time as the Shares convert into the Company’s common stock. In general, the Shares are not entitled to vote except in certain limited cases, including in change of control transactions where the ~~expected~~ price per share distributable to the Company’s stockholders is expected to be less than $4.00 per share. The Certificate of Designation with respect to the Series B Preferred Stock further provides that in the event of, among other things, any change of control, liquidation or dissolution of the Company, the holders of the Series B Preferred Stock will be entitled to receive, on a pari passu basis with the holders of the common stock, the same amount and form of consideration that the holders of the Company’s common stock receive (on an as-if-converted-to-common-stock basis and without regard to the Ownership Limitation).

The following table summarizes Series B Preferred Stock and the accretion of dividends activity for the three months ended March 31, 2019 (in thousands):

On August 13, 2014, in connection with the Company’s entry into a consulting agreement, the Company issued a consultant a warrant to purchase up to 85,000 shares of the Company’s common stock at a per share exercise price of $10.70 (the “2014 Consultant Warrant”). One fourth of the shares under the warrant are exercisable for cash three months from the date the 2014 Consultant Warrant was issued and quarterly thereafter. The 2014 Consultant Warrant expires on August 13, 2019. In the event of an acquisition of the Company, the 2014 Consultant Warrant shall terminate and no longer be exercisable as of the closing of the acquisition. As of March 31, ~~2018, none of the shares under~~2019, the 2014 Consultant Warrant had not been exercised.

On February 8, 2017, the Company entered into Loan and Security Agreements (each, a “Loan and Security Agreement”) with each of ~~East West Bank ("EWB")~~EWB and ~~Venture Lending & Leasing VII, Inc.~~VLL7 and ~~Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL8”)~~VLL8 as discussed in Note 7,9, Financial Liabilities. The Loan and Security Agreement with EWB, as amended, provides for a $16.0 million ~~revolving loan facility (the “Revolving~~Revolving Loan ~~Facility”),~~Facility, and the Loan and Security Agreement with VLL7 and VLL8 provides for a term loan (the “Term Loan”) in an aggregate principal amount of $10.0 million (the “Term Loan Facility”). In connection with the ~~Company's~~ Revolving Loan Facility, the Company issued to EWB a warrant (the "EWB Warrant") to purchase up to 40,000 shares of the Company's common stock at a per share exercise price of $3.64, and in connection with the Company’s Term Loan Facility, issued to each of VLL7 and VLL8 a warrant to purchase 290,000 shares of the Company's common stock at a per share exercise price of $2.00 (the “VLL7 Warrant” and the “VLL8 Warrant,” respectively). The Company calculated the fair value of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatility of 78.8%, risk-free interest rate of 1.94%, no dividend yield, and an expected life of five years. The fair values of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant of $125,000, $1,037,500 and $1,037,500, respectively, were classified as equity as the settlement of the warrants will be in shares and is within the control of the Company. Each of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant is immediately exercisable for cash or by net exercise and will expire five years after its issuance, or on February 8, 2022. In

connection with entering into the Loan and Security Agreements with EWB and VLL7 and VLL8, warrants to purchase an aggregate of 400,000 shares of common stock issued to the Company’s previous lender were cancelled.

In connection with securing of the new credit facilities and cancelling of all the warrants previously issued to the previous lender, the Company issued a warrant to a consultant to purchase 60,000 shares of its common stock at an exercise price of $4.60 per share (the “2017 Consultant Warrant”). The Company calculated the fair value of the 2017 Consultant Warrant using the Black Scholes pricing model using the following assumptions: estimated volatility of 78.8%, risk-free interest rate of 1.22%, no dividend yield, and an expected life of two years. The fair value of the 2017 Consultant Warrant of $119,000 was classified as equity as the settlement of the warrant will be in shares and is within the control of the Company. The 2017 Consultant Warrant iswas immediately exercisable for cash or by net exercise and ~~will expire two years after its issuance, or on~~had an expiration date of February 8, 2019. On January 30, 2019, the Company issued 10,449 shares of its common stock upon the cashless net exercise of the entire 2017 Consultant Warrant.

Below is the summary of outstanding warrants issued by the Company as of March 31, ~~2018:~~2019:

The Company has a stock-based compensation ~~plans~~plan to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons. The Company’s stock-based compensation ~~plans consist~~plan consists of ~~the 2007 Stock Option Plan (the “2007 Plan”) and~~ the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended. Shares are no longer available for issuance under the Company’s 2010 Bonus and Incentive Plan (the “2010 Plan”) and the 2007 Stock Option Plan (the “2007 Plan”).

On June 6, 2011, the Company’s stockholders approved the 2011 Plan, which is administered by the Compensation Committee of the Board. The 2011 Plan provides that stock options, stock units, restricted shares, and stock appreciation rights may be granted to executive officers, directors, consultants, and other key employees. The Company reserved 400,000 shares of common stock under the 2011 Plan, plus 459,956 shares of common stock that remained available for delivery under the 2007 Plan and the 2010 Plan as of June 6, 2011. In aggregate, as of June 6, 2011, 859,956 shares were available for future grants under the 2011 Plan, including shares rolled over from 2007 Plan and 2010 Plan. Subsequent to June 6, 2011 through December 31, ~~2015,~~2017, the number of shares of common stock authorized for issuance under the 2011 Plan ~~had~~has been increased by ~~1.0 million~~an aggregate of 3,000,000 shares. On May ~~12, 2016,~~31, 2018, the Company’s stockholders approved an amendment ~~and restatement of~~to the 2011 Plan to ~~among other things,~~ increase the number of shares of common stock authorized for issuance by ~~2.0 million shares and extend the term of the 2011 Plan.~~500,000 shares.

A summary of activity for the Company’s stock option plans for the three months ended March 31, ~~2018~~2019 follows:

Number
Outstanding

Average Exercise
Price per Share

Weighted Average
Remaining
Contractual Term
(Years)

Average Intrinsic
Value

Balance at December 31, 2017

672,441

$
6.28

—

$
—

Granted

—

—

Cancelled or Expired

(10,589
)

17.85

Exercised

—

—

Balance at March 31, 2018

661,852

$
6.09

7.09

$
—

Vested or expected to vest at
March 31, 2018

653,617

$
6.11

7.08

$
—

Exercisable at March 31, 2018

491,847

$
6.64

6.73

$
—

	Number Outstanding			Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)		Average Intrinsic Value
Balance at December 31, 2018		621,602		$	5.87		6.32	$	—
Granted		—			—
Cancelled or Expired		(46,000	)		8.52
Exercised
Balance at March 31, 2019		575,602		$	5.66		6.50	$	302,233
Vested or expected to vest at March 31, 2019		574,705		$	5.66		6.56	$	301,623
Exercisable at March 31, 2019		520,045		$	5.79		6.50	$	264,454

The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock and the option exercise price of in-the-money options multiplies by the number of such options.

The following table summarizes information about options outstanding as of March 31, ~~2018:~~2019:

	Options Outstanding						Options Exercisable				Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$4.36 - $7.20		479,810		7.94	$	4.48		313,138	$	4.55		468,810		7.03	$	4.46		413,253	$	4.47
$7.50 - $11.30		157,311		5.03		9.29		153,978		9.26		85,198		4.89		9.74		85,198		9.74
$12.00 - $19.70		17,396		4.26		13.66		17,396		13.66		17,244		3.26		13.60		17,244		13.60
$21.70 - $29.20		7,335		2.70		24.66		7,335		24.66
$4.36 - $29.20		661,852		7.09	$	6.09		491,847	$	6.64
$21.70 - $24.20												4,350		2.43		23.27		4,350		23.27
$4.36 - $24.20												575,602						520,045

At March 31, ~~2018,~~2019, there was ~~$0.4~~$0.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures related to unvested options, that is expected to be recognized over a weighted-average period of ~~1.4~~0.44 years.

The following is a summary of ~~restricted stock and restricted stock unit (“RSU”)~~RSU activity for the three months ended March 31, ~~2018:~~2019:

The fair value of the Company’s ~~restricted stock awards and~~ RSUs is calculated based upon the fair market value of the Company’s stock aton the date of grant. As of March 31, ~~2018,~~2019, there was ~~$4.6~~$4.8 million of unrecognized compensation ~~cost~~expense related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.9 years. ~~As of March 31, 2018, an aggregate of 1,542,490 RSUs were outstanding under the 2011 Plan.~~

The following table illustrates all employee stock-based compensation expense related to stock options and RSUs included in the condensed consolidated statements of operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

~~Common~~Restricted Stock ~~Reserved for Future Issuance~~Unit Net Share Settlements

~~Common stock reserved for future issuance as of~~During the three months ended March 31, 2019 and 2018, ~~was as follows:~~the Company repurchased 42,880 and 42,447 shares, respectively of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees.

Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. The following table sets forth the computation of basic earnings per share (“EPS”):

The following common stock equivalents have been excluded from diluted net loss per share for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 because their inclusion would be anti-dilutive:

~~Accumulated other comprehensive income at March 31, 2018 and December 31, 2017 consists of foreign currency translation adjustments totaling $2.8 million and $2.7 million, respectively.~~

During the three months ended March 31, 2018 and 2017, the Company repurchased 42,447 and 16,160 shares, respectively of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees.

~~The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consist of (in thousands):~~

~~The Company recorded depreciation expense of $0.3 million during each of the three months ended March 31, 2018 and 2017.~~

~~The following table summarizes the carrying amount of goodwill resulting from the Acquisition of 3VR (in thousands):~~

In accordance with its accounting policy and ASC 350, the Company tests goodwill with indefinite lives annually for impairment and assesses whether there are any indicators of impairment on an interim basis. The Company performs interim goodwill impairment reviews between its annual reviews if certain events and circumstances have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. The Company believes the methodology that it uses to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides it with a reasonable basis to determine whether impairment has occurred. However, many of the factors employed in determining whether its goodwill is impaired are outside of its control and it is reasonably likely that assumptions and estimates will change in future periods. These changes in assumptions and estimates could result in future impairments. During the quarter ended March 31, 2018, the Company noted no indicators of goodwill impairment and concluded no further testing necessary.

~~The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands):~~

Developed

Customer

Trademarks

Technology

Relationship

Total

Amortization period (in years)

5

10 – 12

4 – 12

Gross carrying amount at December 31, 2017

$
—

$
4,600

$
10,639

$
15,239

Accumulated amortization

—

(3,257
)

(7,617
)

(10,874
)

Intangible Assets, net at December 31, 2017

$
—

$
1,343

$
3,022

$
4,365

Gross carrying amount at March 31, 2018

$
400

$
7,600

$
13,539

$
21,539

Accumulated amortization

(10
)

(3,406
)

(7,906
)

(11,322
)

Intangible Assets, net at March 31, 2018

$
390

$
4,194

$
5,633

$
10,217

Each period, the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. Intangible assets subject to amortization are amortized over their useful lives as shown in the table above. The Company evaluates its amortizable intangible assets for impairment at the end of each reporting period. The Company did not identify any impairment indicators during the three months ended March 31, 2018.

The following table illustrates the amortization expense included in the condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017, respectively (in thousands):

~~The estimated annual future amortization expense for purchased intangible assets with definite lives as of March 31, 2018 is as follows (in thousands):~~

~~Hirsch Acquisition – Secure Keyboards and Secure Networks~~. Prior to the 2009 acquisition of Hirsch by the Company, effective November 1994, Hirsch had entered into a settlement agreement (the “1994 Settlement Agreement”) with two limited partnerships, Secure Keyboards, Ltd. (“Secure Keyboards”) and Secure Networks, Ltd. (“Secure Networks”). At the time, Secure Keyboards and Secure Networks were related to Hirsch through certain common shareholders and limited partners, including Hirsch’s then President Lawrence Midland, who resigned as President of the Company effective July 31, 2014. Immediately following the acquisition, Mr. Midland owned 30% of Secure Keyboards and 9% of Secure Networks. Secure Networks was dissolved in 2012 and Mr. Midland owned 24.5% of Secure Keyboards upon his resignation effective July 31, 2014.

The Company included $0.1 million of interest expense during each of the three months ended March 31, 2018 and 2017 in its condensed consolidated statements of operations for interest accreted on the long-term payment obligation.

~~The ongoing payment obligation in connection with the Hirsch acquisition as of March 31, 2018 is as follows (in thousands):~~

On February 8, 2017, the Company entered into Loan and Security Agreements with EWB and VLL7 and VLL8, which provide for a $16.0 million Revolving Loan Facility and a $10.0 million Term Loan Facility, respectively. In connection with the closing of such agreements, the Company repaid all outstanding amounts under its credit agreement with its previous lender.

The Revolving Loan Facility, as amended, bears interest at prime rate plus 1.0%, matures and becomes due and payable on February 8, 2019 and includes a non-formula line of credit sublimit of up to $3.0 million. Interest is payable monthly beginning on March 1, 2017. The Company may voluntarily prepay amounts outstanding under the Revolving Loan Facility, without prepayment charges. In the event the Revolving Loan Facility is terminated prior to its maturity, the Company would be required to pay an early termination fee in the amount of 1.0% of the revolving line. Additional borrowing requests under the Revolving Loan Facility are subject to various customary conditions precedent, including satisfaction of a borrowing base test as more fully described in the Revolving Loan Facility.

The Term Loan matures on August 8, 2020. Payments under the Term Loan Facility are interest-only for the first twelve months at a per annum rate of 12.5%, followed by principal and interest payments amortized over the remaining term of the Term Loan. If the Company elects to prepay the Term Loan before its maturity, all accrued and unpaid interest outstanding at the prepayment date will be due and payable, together with all the scheduled interest that would have accrued and been payable through the stated maturity of the Term Loan, provided that at any time after the Company has made at least twelve scheduled amortization payments of principal and interest on the Term Loan, the Company shall only be required to pay 80% of the scheduled interest that would have accrued and been payable through the stated maturity of the Term Loan. On December 28, 2017, the Company paid down an aggregate principal amount of $5.0 million of the $10.0 million outstanding principal balance of its Term Loan Facility. The Company paid to VLL7 and VLL8 approximately $5.9 million, consisting of $5.0 million in outstanding principal, and $0.9 million of accrued and unpaid interest outstanding at the prepayment date, together with all scheduled interest that would have accrued and been payable through the stated maturity of the Term Loan. As a result, the Company recorded a loss on extinguishment of debt totaling $1.8 million, representing the difference between the reacquisition price of the repaid portion of the Term Loan and the its net carrying amount.

The Company is obligated to pay customary fees and expenses, including customary facility fees for credit facilities of this size and type, in the aggregate amount of approximately $120,000, in connection with the closing of the two facilities. An additional facility fee of $40,000 was paid in connection with the Revolving Loan Facility on February 8, 2018.

Each of the Revolving Loan Facility and the Term Loan Facility contain customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company's ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. The Revolving Loan Facility also contains various financial covenants, including but not limited to a liquidity covenant requiring the Company to maintain at least $4.0 million of cash. In addition, each of the Revolving Loan Facility and the Term Loan Facility contains customary events of default that entitle EWB or VLL7 and VLL8, as appropriate, to cause any or all of the Company's indebtedness under the Revolving Loan Facility or the Term Loan Facility, respectively, to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. Upon the occurrence and during the continuance of an event of default, EWB and VLL7 and VLL8 may terminate their lending commitments and/or declare all or any part of the unpaid principal of all loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan and Security Agreements to be immediately due and payable.

~~As of March 31, 2018, the Company was in compliance with all financial covenants under the Revolving Loan Facility.~~

The following table summarizes the timing of repayment obligations for the Company’s long-term financial liabilities for the next three years under the current terms of the Loan and Security Agreement with VLL7 and VLL8, as amended, at March 31, 2018 (in thousands):

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, as of December 31, 2017.

As the Company’s previously unremitted earnings have now been subjected to U.S. federal income tax, any repatriation of these earnings to the U.S. would not be expected to incur significant additional taxes related to such amounts.

~~The Company applies the provisions of, and accounted for uncertain tax positions in accordance with ASC 740,~~ ~~Income Taxes~~ (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company generally is no longer subject to tax examinations for years prior to 2013. However, if loss carryforwards of tax years prior to 2013 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months.

~~11.~~14. Segment Reporting, ~~and~~ Geographic Information, and Concentration of Credit Risk

ASC 280, Segment Reporting (“ASC 280”) establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses and about which separate financial information is available to its chief operating decision makers (“CODM”). The Company’s CODM is its CEO.

In the fourth quarter of 2018, the Company realigned the way in which it organized its operating segments in making operating decisions and assessing financial performance by combining the Identity and Credential segments. The ~~Company~~combined segment is ~~organized into four reportable operating segments: Premises,~~referred to as the Identity ~~Credentials and~~segment. All ~~Other.~~comparative segment information for fiscal 2018 has been reclassified to conform to the fiscal 2019 presentation.

The CODM reviews financial information and business performance for each operating segment. The Company evaluates the performance of its operating segments at the revenue and gross profit levels. The Company does not report total assets, capital expenditures or operating expenses by operating segment as such information is not used by the CODM for purposes of assessing performance or allocating resources.

Net revenue and gross profit information by segment for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 is as follows (in thousands):

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Premises:
Net revenue	$	7,506		$	5,364		$	9,330		$	7,506
Gross profit		4,155			3,099			4,379			4,155
Gross profit margin		55	%		58	%		47	%		55	%
Identity:
Net revenue		2,780			3,089
Gross profit		929			1,124
Gross profit margin		33	%		36	%
Credentials:
Net revenue		6,242			4,935
Gross profit		1,424			1,470
Gross profit margin		23	%		30	%
All Other:
Net revenue		—			4			10,192			9,022
Gross profit		—			4			4,325			2,353
Gross profit margin		—			100	%		42	%		26	%
Total:
Net revenue		16,528			13,392			19,522			16,528
Gross profit		6,508			5,697			8,704			6,508
Gross profit margin		39	%		43	%		45	%		39	%
Operating expenses:
Research and development		1,687			1,477			2,026			1,687
Selling and marketing		3,903			3,379			4,498			3,903
General and administrative		2,555			1,787			2,622			2,555
Restructuring and severance		110			—			(12	)		110
Total operating expenses:		8,255			6,643			9,134			8,255
Loss from operations		(1,747	)		(946	)		(430	)		(1,747	)
Non-operating income (expense):
Interest expense, net		(476	)		(674	)		(279	)		(476	)
Gain on extinguishment of debt		—			977
Foreign currency (losses) gains, net		(38	)		(152	)
Foreign currency losses, net								(2	)		(38	)
Loss before income taxes and noncontrolling interest	$	(2,261	)	$	(795	)	$	(711	)	$	(2,261	)

Geographic net revenue is based on the customer’s ship-to location. Information regarding net revenue by geographic region for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 is as follows (in thousands):

No customer accounted for 10% or more of net revenue for either of the three months ended March 31, 2019 or 2018. One customer accounted for 10% of net accounts receivable at March 31, 2019. No customer accounted for 10% or more of net accounts receivable balance at December 31, 2018.

Long-lived assets by geographic location as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows (in thousands):

~~In the first quarter of~~On February 14, 2018, the Company ~~engaged~~acquired 3VR. As a ~~property management firm to actively market and search for a tenant to sublease the newly acquired 3VR office facility in San Francisco, California. The Company currently occupies only a small area~~result of the ~~leased space. Restructuring expenses recorded~~acquisition, in the three months ended March 31, 2018, ~~consists~~the Company incurred restructuring and severance expenses of $0.1 million consisting primarily of facility rental related ~~costs.~~

Nocosts associated with the 3VR office facility in San Francisco, California. Restructuring and severance expenses incurred in the three months ended March 31, 2019 consist of facility rental costs discussed above, offset by sublease income received from a tenant that sublet the office space in the third quarter of 2018 over the remaining term of the original lease. In the fourth quarter of 2018, the Company recorded a restructuring accrual ~~was recorded~~of $0.1 million for its future rental payment obligation associated with vacated office space at March 31, 2018 as the Company has not yet ceased use of the facility. At March 31, 2017, unpaid restructuring and severance accruals are included in other accrued expenses and liabilities within current liabilities in the condensed consolidated balance sheets. its Fremont, California facility

Restructuring and severance activities during the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):

The Company’s leases consist primarily of operating leases for administrative office spaces, research and development facilities, a manufacturing facility, and sales offices in various countries around the world. The Company determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component. Total lease expense was approximately $374,000 for the three months ended March 31, 2019. Rent expense was approximately $286,000 for the three months ended March 31, 2018.

Initial lease terms are determined at commencement and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. Remaining lease terms range from one to seven years, some of which include options to extend for up to five years. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets. As the Company’s leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s incremental borrowing rate based on information available at commencement date.

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2019 (in thousands):

As of March 31, 2019, the weighted average remaining lease term for the Company’s operating leases is 3.9 years, and the weighted average discount rate used to determine the present value of the Company’s operating leases is 6.4%. Sublease rental income due in the future under non-cancelable subleases is $2.4 million.

Cash paid for amounts included in the measurement of operating lease liabilities was $0.5 million for the three months ended March 31, 2019. Cash received from sublease rentals was $0.2 million for the three months ended March 31, 2019.

The following table summarizes the Company’s principal contractual commitments as of March 31, ~~2018~~2019 (in thousands):

Purchase commitments for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from its customers, the Company may have to change, reschedule, or cancel purchases or purchase orders from its suppliers. These changes may lead to vendor cancellation charges on these purchases or contractual commitments.

The Company provides warranties on certain product sales for periods ranging from 12 to 2436 months, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior 12 months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize additional cost of sales may be required in future periods. ~~Historically, the warranty accrual and the expense amounts have been immaterial.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements, within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements reflect current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “will,” “believe,” “could,” “should,” “would,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 under the heading “Risk Factors,” The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms the “Company,” “Identiv,” “we” and “us” as used herein refers collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless otherwise stated.

Identiv, Inc. is a global provider of physical security ~~technology company that secures~~ and ~~manages~~secure identification. Our products, software, systems, and services address the markets for physical and logical access ~~to physical places, things~~control, video analytics and information. Global organizations in government, education, retail, transportation, healthcare and other markets rely upon our solutions. We empower them to create secure and convenient experiences in schools, government offices, factories, critical infrastructure, transportation, hospitals and virtually every type of facility and for a wide range of ~~products.~~

~~Our operating segments focus~~Radio Frequency Identification (“RFID”)-enabled applications. Customers in government, enterprise, consumer, education, healthcare, banking, retail, transportation and other sectors rely on ~~the following solutions:~~

~~The foundation~~a one-stop provider of ~~our business is our deep technical expertise in RFID, smart card technology, and~~software delivering physical security ~~technologies. Our close~~management, video surveillance, logical access, analytics and identities; and devices spanning access readers, panels, processing appliances, and identity cards. We provide services to deliver optimized total solutions, serving as a single-point provider for our customers rather than several separate vendors that the customer ~~relationships~~would otherwise have to coordinate and ~~analytics platforms allow us to develop customer-relevant products and applications. This is underpinned by our core value of uncompromising quality.~~manage.

~~To deliver these solutions, we~~We have organized our operations into ~~four~~two reportable business segments, principally by ~~product~~solution families: Premises and Identity. In the fourth quarter of 2018, we realigned the way in which we organize our operating segments in making operating decisions and assessing financial performance by combining our Identity and Credentials ~~and~~segments. The combined segment is now referred to as the Identity segment. All ~~Other.~~comparative segment information for fiscal 2018 has been reclassified to conform to the fiscal 2019 presentation.

The ~~foundation of~~Premises segment includes our solutions to address the premises security market for government and enterprise, including access control, video surveillance, analytics, customer experience and other applications.

Our physical security platform ~~has been~~is anchored by the Hirsch Velocity management software, our line of controllers including the advanced MX line, ~~Hirsch's Velocity management software and~~our TouchSecure access readers, a wide range of integrations and our Identiv Global Services team that ~~provide Velocity/MX’s unique flexibility across a wide range of industries~~develops optimized solutions for our customers’ total business and ~~implementations.~~security environment, incorporating our products and partner products that together best serve our customers’ goals. We have further extended our physical access platform with our Identiv Connected Physical Access Manager (“ICPAM”) software, derived from Cisco’s Physical Access Manager (“CPAM”) system and available in partnership with Cisco. Additionally, we sell either individual components or complete bundled solutions which can include any or all among software, edge controllers, multi-door panels, access readers, access cards and other components.system.

In February 2018, we acquired 3VR Security, Inc. (“3VR”), a video technology and analytics company. With the acquisition, we ~~have~~ added the 3VR video security and analytics platform, which is a natural complement to our ~~Hirsch line.~~physical access offering. Nearly all customers for access control are customers for video security, and vice versa. Additionally, the events and data generated by both platforms combine to create what we believe to be uniquely valuable information for our customers to provide frictionless yet robust security. 3VR’s platform is architected as an analytics system, proven across applications in the retail, banking, and other vertical markets, and valuable to our ~~traditional Hirsch and ICPAM~~physical security markets in government, education, critical infrastructure, transportation and others. ~~Additionally,~~In addition to technology, 3VR brought deep market presence, across over 170 banks, installations with over 50,000 cameras under our software’s management, top-tier retailers, and a 100% U.S.-made platform.

In January 2019, we acquired substantially all of the assets of the Freedom, Liberty, and Enterphone™ MESH products and services of Viscount Systems, Inc. (“Viscount”). The web-based Freedom and Liberty access control and Enterphone MESH IP telephone entry solutions are known for their early adoption of a web, API-based, cloud-ready architecture, creating an IT-centric software-focused and hardware-light platform. Scaling from small- and medium-sized businesses (“SMB”) up to enterprise scale for government and commercial markets, Freedom and the entry-level Liberty product line are complementary to our other products. With Freedom, customers can build integrated access control and video management systems under one centrally managed or distributed network, seamlessly integrating physical security devices such as card readers, ID management, Active Directory/LDAP, visitor entry, alarm points, and video applications and analytics. We believe the combination creates one of the most-advanced, IT-centric solutions for physical security, delivering a seamless evolution from traditional physical access models to next-generation, cloud and web-based, and mobile-enabled systems. Our TouchSecure (“TS”) readers, TS Cards, VMS platform, mobile logical access and our Identiv Global Services (“IGS”) services are applicable to nearly all Freedom and Liberty customers.

We sell either individual components or complete bundled solutions which can include any or all among software, edge controllers, IoT devices, multi-door panels, access readers, access cards, 3VR appliances and other ~~components.~~components or services, some of which are detailed below:

Premises Software — Our ~~modular Hirsch MX controllers are designed~~software platform for premises security ranges from physical access to ~~be scalable, allowing customers to start with a small system~~video analytics and ~~expand over time. Hirsch MX controllers can operate autonomously, whether as a single controller or as part of a networked system with Velocity software.~~business intelligence. The Hirsch Velocity software platform enables centralized management of access and security operations across an organization, including control of doors, gates, turnstiles, elevators and other building equipment, monitoring users as they move around a facility, preventing unwanted access, maintaining compliance and providing a robust audit trail. Velocity continues to be especially successful with federal and state government customers. The Freedom and Liberty platforms present an IT-centric and highly scalable alternative, specifically for the SMB market. We believe our ICPAM software platform is ideal for the Cisco and wider IT channel, and is tightly integrated with Cisco’s VSM video management system as well as their IP telephony infrastructure. We believe our 3VR VisionPoint™ VMS (Video Management System) for real-time search is an ideal video management software for forensic search, case management and business intelligence. Available in both a Standard and Pro version, with an optional enterprise server for large and remote deployments, VisionPoint VMS provides tools to gather intelligence from video, speed up searches and easily develop cases. VisionPoint VMS can be installed on commercial off-the-shelf hardware, on certified partner hardware, and is included on any of 3VR’s powerful NVR/HVR appliances.

ToControllers — Our modular Hirsch MX controllers are designed to be scalable, allowing customers to start with a small system and expand over time. Hirsch MX controllers can operate autonomously, whether as a single controller or as part of a networked system with Velocity software. Our Freedom Crypto and IoT Bridges provide hardware-light solutions, providing low-cost implementations and building a bridge to fully software-defined, hardware-light (or hardware-free) access platforms.

FICAM — We believe our ~~price/performance/quality-leading commercial offerings, we have added what we believe to be~~Velocity, MX and TS Reader solution is the highest performance, lowest per-door cost access control system for the U.S. federal government security mandate known as the Federal Identity, Credential and Access Management (“FICAM”) architecture. ~~This~~Our solution brings all of the advantages above into the next generation of physical security for the U.S. government departments and agencies to achieve Federal Information Processing Standard (“FIPS”) 201 compliance. Similar to our leading Hirsch Velocity solution for the U.S. government market, the Freedom platform acquired from Viscount is also FICAM-compliant and allows customers to choose an evolutionary, alternative architecture going forward. Within FICAM, the most infrastructure-efficient architecture is a specification known as 13.02. With Freedom and Velocity, we now are the only vendor providing two 13.02-compliant solutions, and we represent half of the four 13.02 approved solutions at this time.

Access Readers — Our ~~TouchSecure (“TS”)~~TS readers feature multiple layers of security based on a certified hardware security element. These door readers provide unique features to support a wide range of security standards. We support the majority of legacy ~~card credentials~~cards with a robust next-generation platform that can help companies migrate to more secure credentials and technologies, including smart cards, near field communication ("NFC") and government-issued credentials including Common Access Card (“CAC”), Personal Identification Verification ~~Identification~~ (“PIV”), Personal Identification Verification ~~Identification~~ – Interoperable (“PIV-I”) and others. Additionally, our Scramblepad readers employ numerical scrambling on the keypad to protect access codes from being stolen as they are entered, and providing both secure two-factor authentication and convenient alternative-factor access.

~~In addition to this solution offering, in 2017, we launched~~Identiv Global Services — Identiv Global Services ~~(“IGS”), a service offering with~~provides a comprehensive catalog of end-to-end services that facilitates customer success, ~~and~~ drives deeper adoption of ~~the Identiv~~our product ~~portfolio.~~portfolio and encourages long-term customer engagement. IGS supports customers throughout their premises security lifecycle from system design, to integration, deployment toand managed services. IGS experts enable customers to address today’s complex security and IT systems interoperability requirements, and ~~help~~helps them achieve a tailor-made ~~set-up.~~solution.

The Identity segment includes our products and solutions enabling secure access to ~~our core~~information serving the logical access and cyber security market and protecting assets and objects in the IoT with RFID.

Information security solutions range from securing enterprise information access and secure transactions across PCs, networks, mobile devices, email, login, secure payments, and printers via delivery of smart card reader products ~~we have a range of product initiatives to leverage leading technology advances across mobile, biometric, machine-learning~~ and other areas, to provide convenient, frictionless, low-cost yet highly secure physical access. We invest independently and in partnership with other leading technology companies in these emerging aspects of physical security and analytics platforms.

Our ~~Identity~~information security products include smart card readers, which includes a broad range of contact, contactless, portable and mobile smart card readers, tokens and terminals that are utilized around the world to enable logical access (i.e., PC, network or data access) and security and identification applications, such as national ID, payment, e-Health and e-Government. Through our acquisition of Thursby Software Systems (“Thursby”) in November of 2018, as well as our internal product development, we provide mobile apps, software and systems to enable secure and convenient logical access across smart cards and derived credentials on Apple iOS and Android mobile devices. Our solutions include:

Mobile Security — Thursby’s software solutions provide strong security for enterprise and personal mobility, supporting bring-your-own-device (“BYOD”) and two-factor authentication (“2FA”) on mobile devices. We enable Department of Defense (“DoD”) issued Common Access Card (“CAC”), federally issued PIV cards, derived credentials, and commercially issued PIV-I cards to access, sign, encrypt, and decrypt information and emails from Apple iOS and Android mobile phones or tablet devices. These capabilities have allowed over a hundred thousand DoD and federal employees, including the U.S. Navy Reserve, via the Ready-2-Serve (“R2S”) mobile application, to use personal and government-furnished mobile devices to access needed information on-the-go. Prior to the acquisition, Thursby had sold more than one million software licenses to a range of customers and industries, including government, healthcare, finance, energy, education, research, Fortune 500, Global 2000, and original equipment manufacturers (“OEMs”).

We have established a leading position as a trusted provider of convenient high-security solutions to government and enterprise customers. Our products are customizable to specific customer preferences, providing both high security and excellent end-user convenience. Thursby’s seamless support of both government-grade smart card deployments and derived credentials reflects our philosophy of supporting customers' adoption of technologies at their own pace, optimized for their own use cases.

Smart Card Readers — With over 20 years of smart card reader, application and token experience, and over 40 million smart card readers and modules deployed, we are known for our expertise in this complex ecosystem. We combine our deep technical expertise with an optimized supply chain, to provide what we believe to be the most optimal, cost-effective and high-quality smart card-based reader products. Whether Identiv branded products, ~~original equipment manufacturers (“OEM”)~~OEM branded, or embedded chips or modules, ~~our position is as the~~we are a trusted business solution provider for users and issuers of smart cards and embedded-chip applications.

Our ~~Credentials segment includes NFC and~~ RFID ~~products, including inlays and inlay~~based solutions address a wide range of applications from access control to asset tracking, product authenticity, brand protection, customer engagement, tamper detection, product instrumentation, transportation access and other ~~cards, labels, tags~~IoT applications. The RFID devices enable frictionless interaction with the physical world and ~~stickers, as well as other radio frequency (“RF”) and integrated circuits (“IC”) components and our generally~~are grouped into transponders and access cards and transponders. Our TS Cards product line, we believe, is the first complete solution to allow customers to pay only for the most basic low-frequency proximity access technology while having the ability to evolve to the higher-security high-frequency and highest-security public key infrastructure (“PKI”) based access credentials. This product line exemplifies our values: we place no burden on our customers, instead providing the most cost-effective solution to their basic needs; and then deliver within this platform the ability for them to move to higher-level needs and capabilities, when they want, when they are ready and when they will realize economic and experience benefits.cards.

Transponders — Our transponder products span the full range of high frequency (“HF”) and ultra-high frequency (“UHF”) technologies. Our differentiation is analogous to application-specific integrated circuits (“ASICS”) in the semiconductor market. We leverage our flexible platform, our deep technical expertise and our infrastructure and supply chain to deliver solutions optimized for our customers’ business goals. We believe we are more responsive, more flexible, more experienced in business-optimized solutions and have a better track record of sustained delivery of solution-specific, high-quality RFID devices than our competitors. Our ~~credentials products~~transponders are manufactured in our state-of-the-art facility in Singapore and are used in a diverse ~~range of~~ physical applications, including electronic entertainment such as virtual reality (“VR”), games, loyalty cards, mobile payment systems, transit and event ticketing, brand authenticity from pharmaceuticals to consumer goods, hospital resource management, cold-chain management and many others.

28Access Cards — Our uTrust cards encompass contactless single-technology, multi-technology, or credentials with a contact chip, including uTrust Proximity Credentials, uTrust Smart ID Secure Credentials, uTrust MIFARE Classic Credentials, and our uTrust TS Cards. This gives our customers easy access to RFID technology for reliable data exchange of physical access control system (PACS) data, up to options for versatile, high-frequency, interoperable, MIFARE-compatible smart cards. Our uTrust TS Cards address emerging security requirements while maintaining compatibility with existing low-security standards such as prox. We believe they offer the first complete solution to allow customers to pay only for the most basic low-frequency proximity access technology while having the ability to evolve to the higher-security high-frequency and highest-security public key infrastructure (“PKI”) based credentials. This product line exemplifies our values: we place no burden on our customers, instead providing what we believe to be the most cost-effective solution to their basic needs; and then delivering within this platform the ability for them to move to higher-level needs and capabilities, when they want, when they are ready and when they will realize economic and experience benefits.

Leveraging our expertise in RFID, physical access and physical authentication, we are developing new solutions to extend our platforms across a wide variety of physical use cases. The next major opportunity in our connected world is the IoT, which fundamentally is about physical things. We believe our core strength in physical access and physical instrumentation markets, our well-established platforms and our deep knowledge of the relevant technologies, position us well in this growth market.

The All Other segment included legacy product lines, such as Chipdrive and Digital Media readers. No revenues from this segment were generated in 2018 and nominal revenues were generated in 2017. No revenues are expected to be generated in future periods. In the fourth quarter of 2016, we phased out our Digital Media product lines and discontinued our Chipdrive product line.

We primarily conduct sales and marketing activities in each of the markets in which we compete, utilizing our own sales and marketing organization to solicit prospective channel partners and customers, provide technical advice and support with respect to products, systems and services, and manage relationships with customers, distributors and/or OEMs. We utilize indirect sales channels that may include OEMs, dealers, systems integrators, value added resellers, resellers or Internet sales, although we also sell directly to end users. In support of our sales efforts, we participate in industry events and conduct sales training courses, targeted marketing programs, and ongoing customer, channel partner and third-party communications programs.

For a discussion of our net revenue by segment and geographic location, see Note ~~11,~~14, Segment Reporting, ~~and~~ Geographic Information, and Concentration of Credit Risk, in the accompanying notes to our unaudited condensed consolidated financial statements.

Geographic net revenue based on each customer’s ship-to location is as follows (in thousands):

Net revenue infor the three months ended March 31, ~~2018~~2019 increased ~~23%~~18% compared with ~~the first three months of 2017. Approximately 45% of our net revenue in~~ the three months ended March 31, ~~2018~~2018. Approximately 48% of our net revenue for the three months ended March 31, 2019 came from our Premises segment. Net revenue ~~in the~~from our Premises segment was ~~$7.5~~$9.3 million and ~~$5.4~~$7.5 million for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Net revenue ~~in the~~from our Identity segment, which represented approximately ~~17%~~52% of total net revenue, was ~~$2.8~~$10.2 million infor the three months ended March 31, ~~2018~~2019 compared to ~~$3.1~~$9.0 million in the prior year period. Net revenue in our Credentials segment represented approximately 38% of our net revenue. Net revenue in the Credentials segment was $6.2 million in the three months ended March 31, 2018 compared to $4.9 million in the comparable period in 2017.

Net revenue in the Americas was approximately ~~$13.2~~$14.7 million infor the three months ended March 31, ~~2018,~~2019, accounting for ~~80%~~75% of total net revenue, and was up ~~45%~~11.3% compared to ~~$9.1~~$13.2 million infor the three months ~~of 2017.~~ended March 31, 2018. Net revenue from our Premises solutions for security programs within various U.S. government agencies and commercial customers for access control and video solutions, as well as reader, controller and appliance products, represented approximately ~~52%~~59% of our net revenue in the Americas region.

Net revenue in our Premises segment for the three months ended March 31, ~~2018~~2019 increased ~~44%~~28% compared to the prior year period primarily due to sales of Freedom, Liberty, and Enterphone™ MESH products and services following the acquisition of Viscount in January 2019, additional sales of video technology and analytics ~~hardware and~~ software products and related support services following the acquisition of 3VR in February 2018, as well as higher sales of physical access control solutions and products, ~~higher sales through our channel partners,~~ and higher software product sales. Net revenue infrom our Identity segment ~~increased 58% in~~decreased 6% for the three months ended March 31, ~~2018~~2019 compared to the ~~comparable~~prior year period ~~of the previous year~~ primarily due to ~~higher~~sales of mobile security solution products, including a large bulk order of readers to the U.S. Navy Reserve, following the acquisition of Thursby in November 2018, offset by lower smart card reader ~~sales. Net revenue in our Credentials segment increased 41% in the three months ended March 31, 2018 compared with the same period of the prior year primarily due to higher~~and access card ~~sales, partially offset by lower sales of RFID and NFC transponder products.~~sales.

As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memoranda from the Office of Management and Budget (“OMB M-11-11”). We believe that our solution for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To address our sales opportunities in the United States in general and with our U.S. Government customers in particular, we focus on a strong U.S. sales organization and our sales presence in Washington D.C.

Net revenue in Europe, the Middle East, and Asia-Pacific was approximately $4.8 million for the three months ended March 31, 2019, accounting for 25% of total net revenue, was up 45.5% compared to $3.3 million infor the three months ended March 31, 2018 ~~accounting for 20% of total net revenue and was down 23% compared to $4.3 million in the first three months of 2017~~ primarily as a result of ~~lower sales in our Asia-Pacific region, partially offset by~~ higher sales in ~~our~~both the Europe and the Middle East region and the Asia-Pacific region. Net revenue in these regions are very dependent on the completion of large projects and the timing of orders placed by some of our customers. Sales of Identity readers and RFID and NFC products and tags comprise a significant proportion of our net revenue in these regions.

Net revenue from our Premises products ~~increased 8% in~~decreased 11% for the three months ended March 31, ~~2018~~2019 from the prior year period primarily due to ~~higher~~lower sales of physical access control solutions in the Europe and the Middle East ~~region, partially offset by a decrease in sales in the Asia-Pacific~~ region. Net revenue from our Identity products ~~decreased by approximately 54% in~~increased 61% for the three months ended March 31, ~~2018~~2019 compared with the same period of the prior year primarily due to ~~lower~~higher sales of smart card readers and access cards in both the Europe and the Middle East region and Asia-Pacific ~~region.~~regions. Identity readers comprised approximately ~~26%~~87% of ~~the~~ net revenue in both the Europe and the Middle East and the Asia-Pacific regions infor the first three months of 2018. Net revenue from our Credentials products, which comprised approximately 53% of sales in both the Europe and the Middle East and the Asia-Pacific regions in the first three months of 2018, was comparable with the same period of the prior year primarily as a result of lower transponder and access card product sales in the Asia-Pacific region, offset by higher transponder product sales in the Europe and the Middle East region.ended March 31, 2019.

In our business overall, we may experience significant variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year. Sales of our ~~Premises~~physical access control solutions and related products to U.S. Government agencies are subject to annual government budget cycles and generally are highest in the third quarter of each year. However, the usual seasonal trend can be negatively impacted by actions such as government shutdowns and the passing of continuing resolutions which can act to delay the completion of certain projects. Sales of our identity reader chips, many of which are sold to government agencies worldwide, are impacted by testing and compliance schedules of government bodies as well as roll-out schedules for application deployments, both of which contribute to variability in demand from quarter to quarter. Further, this business is typically subject to seasonality based on differing commercial and global government budget cycles. Lower sales are expected in the U.S. in the first half, and in particular the first quarter of the year, with higher sales typically in the second half of each year. In Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year. Accordingly, our net revenue levels in the first quarter each year often depends on the relative strength of project completions and sales mix between our U.S. customer base and our international customer base.

In addition to the general seasonality of demand, overall U.S. Government expenditure patterns have a significant impact on demand for our products due to the significant portion of revenues that are typically sourced from U.S. Government agencies. Therefore, any significant reduction in U.S. Government spending could adversely impact our financial results and could cause our operating results to fall below any guidance we provide to the market or below the expectations of investors or security analysts.

Our base operating expenses (i.e., research and development, selling and marketing, and general and administrative ~~spending)~~expense) increased ~~23% in~~12% for the ~~first~~ three months ~~of 2018~~ended March 31, 2019 compared with the same period of ~~2017.~~2018. Research and development spending increased by ~~14% in~~20% for the ~~first~~ three months ~~of 2018~~ended March 31, 2019 compared with the same period of ~~2017 resulting from additional~~2018 primarily due to an increase in headcount, and external contractor costs associated with the acquisition of 3VR in the first quarter of 2018. Selling and marketing spending in the first three months of 2018 increased by 16% compared with the same period of 2017, due toincluding the additional headcount and related costs associated with the ~~acquisition~~acquisitions of ~~3VR~~Thursby in the fourth quarter of 2018 and the assets of Viscount in the first quarter of 2019. Selling and marketing spending for the three months ended March 31, 2019 increased by 15% compared with the same period of 2018, primarily due to additional headcount and related costs, and the amortization of acquired intangibles associated with the acquisitions of Thursby in the fourth quarter of 2018 and ~~higher external contractor costs compared to~~the assets of Viscount in the first quarter of 2019. General and administrative spending for the three months ended March 31, 2019 is comparable with the same period in the prior ~~year. General and administrative spending in the first three months of 2018 increased 43% from the same period in the prior year~~ primarily due to ~~higher transaction~~additional headcount and related costs, and the amortization of acquired intangibles associated with the ~~acquisition~~acquisitions of ~~3VR~~Thursby in ~~February~~the fourth quarter of 2018 and the ~~effect~~assets of ~~reimbursements received~~Viscount in the first quarter of 2017 from our insurance provider for legal fees incurred in connection with matters related to a complaint by a former employee, related investigations, the class and derivative litigation and related proceedings, and reductions in our legal accruals.2019.

The following table includes segment net revenue and segment net profit information ~~for our Premises, Identity, Credentials and All Other segments~~by business segment and reconciles gross profit to results of ~~continuing~~ operations before income taxes and noncontrolling interest (in thousands):


	Three Months Ended March 31,									Three Months Ended March 31,
	2018			2017			% Change			2019			2018			% Change
Premises:
Net revenue	$	7,506		$	5,364			40	%	$	9,330		$	7,506			24	%
Gross profit		4,155			3,099			34	%		4,379			4,155			5	%
Gross profit margin		55	%		58	%					47	%		55	%
Identity:
Net revenue		2,780			3,089			(10	%)
Gross profit		929			1,124			(17	%)
Gross profit margin		33	%		36	%
Credentials:
Net revenue		6,242			4,935			26	%
Gross profit		1,424			1,470			(3	%)
Gross profit margin		23	%		30	%
All Other:
Net revenue		—			4			0	%		10,192			9,022			13	%
Gross profit		—			4			0	%		4,325			2,353			84	%
Gross profit margin		—			100	%					42	%		26	%
Total:
Net revenue		16,528			13,392			23	%		19,522			16,528			18	%
Gross profit		6,508			5,697			14	%		8,704			6,508			34	%
Gross profit margin		39	%		43	%					45	%		39	%
Operating expenses:
Research and development		1,687			1,477			14	%		2,026			1,687			20	%
Selling and marketing		3,903			3,379			16	%		4,498			3,903			15	%
General and administrative		2,555			1,787			43	%		2,622			2,555			3	%
Restructuring and severance		110			—			0	%		(12	)		110		N/A
Total operating expenses:		8,255			6,643			24	%		9,134			8,255			11	%
Loss from operations		(1,747	)		(946	)		85	%		(430	)		(1,747	)		(75	%)
Non-operating income (expense):
Interest expense, net		(476	)		(674	)		(29	%)		(279	)		(476	)		(41	%)
Gain on extinguishment of debt		—			977			(100	%)
Foreign currency gains (losses), net		(38	)		(152	)		(75	%)
Foreign currency losses, net											(2	)		(38	)	N/A
Loss before income taxes and noncontrolling interest	$	(2,261	)	$	(795	)		184	%	$	(711	)	$	(2,261	)		(69	%)

Net revenue in the first quarter of ~~2018~~2019 was ~~$16.5~~$19.5 million, up ~~23%~~18% compared with ~~$13.4~~$16.5 million in the first quarter of ~~2017. Total net~~2018. Net revenue was higher ~~in the first three months of 2018, mainly~~ driven by higher sales ~~in our Premises and Credentials~~across both segments. ~~A more detailed discussion of net revenue by segment follows below.~~

Net revenue in our Premises segment was $9.3 million in the first quarter of 2019, an increase of 24% from $7.5 million in the first quarter of ~~2018, an increase of 40% from $5.4 million in the first quarter of 2017.~~2018. The increase was primarily due to sales of Freedom, Liberty, and Enterphone™ MESH products and services following the acquisition of the assets of Viscount in January 2019, additional sales of video technology and analytics ~~hardware and~~ software products and related support services following the acquisition of 3VR in February 2018, as well as higher sales of physical access control solutions, ~~higher sales through our channel partners,~~ and higher software sales.

Net revenue in our Identity segment of ~~$2.8~~$10.2 million in the first quarter of ~~2018 decreased 10%~~2019 increased 13% from ~~$3.1~~$9.0 million in the first quarter of ~~2017 as a result of lower smart card reader and reader module and chipset sales in the Asia-Pacific region, partially offset by higher smart card reader sales in the Americas region.~~

~~Net revenue in our Credentials segment was $6.2 million in the first quarter of 2018, an increase of 26% from $4.9 million in the first quarter of 2017.~~2018. The increase was primarily due to sales of mobile security solution products, including a ~~result~~large bulk order of readers to the U.S. Navy Reserve, following the acquisition of Thursby in November 2018, and higher sales of smart card readers, offset by lower sales of access card product ~~sales in the Americas region, partially offset by lower RFID and NFC transponder product sales in the Americas and Asia-Pacific regions.~~sales.

Gross profit for the first quarter of ~~2018~~2019 was ~~$6.5~~$8.7 million, or ~~39%~~45% of net revenue, compared with ~~$5.7~~$6.5 million or ~~43%~~39% of net revenue in the first quarter of ~~2017.~~2018. Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.

In our Premises segment, gross profit on sales of physical access control solutions, including panels, controllers, and access readers, and sales of video technology and analytics hardware and software products, and related support services, was $4.4 million in the first quarter of 2019 compared with $4.2 million in the first quarter of ~~2018 and $3.1 million in the first quarter of 2017.~~2018. Gross profit margins in the Premises segment ~~of 55% were lower~~decreased to 47% in the first quarter of ~~2018 compared to 58%~~2019 from 55% in the ~~comparable period~~first quarter of ~~2017~~2018. The decrease was primarily ~~attributable~~due to ~~the impact~~adjustments to our inventory reserves as a result of ~~a higher proportion~~management’s assessment of ~~lower margin sales within the segment.~~on-hand inventory levels and current demand forecasts.

In our Identity segment, gross profit on sales of information security readers, smart card reader modules and reader chipsets was ~~$0.9~~$4.3 million in the first quarter of ~~2018~~2019 compared to ~~$1.1~~$2.4 million in the first quarter of ~~2017.~~2018. Gross profit margins in the Identity segment ~~of 33% were lower~~ in the first quarter of ~~2018 compared~~2019 increased to ~~36% in the comparable period of 2017 primarily attributable to a proportion of higher margin reader chipset sales in 2017.~~

~~In our Credentials segment, gross profit on sales of physical access cards and transponder related products for identification, authenticity and tracking applications was $1.4 million~~42% from 26% in the first quarter of ~~2018 compared~~2018. The increase was primarily due to ~~$1.5 million~~a large bulk order of readers to the U.S. Navy Reserve in the first quarter of ~~2017~~. Gross profit margins in the Credentials segment were lower in the first quarter of 2018 at 23% compared to 30% in the first quarter of 2017 primarily due to the impact of higher a proportion of lower margin access card sales.2019.

We expect there will be variation in our gross profit from period to period, as our gross profit has been and will continue to be affected by a variety of factors, including, without limitation, competition, product pricing, the volume of sales in any given quarter, manufacturing volumes, product configuration and mix, the availability of new products, product enhancements, software and services, risk of inventory write-downs and the cost and availability of components.

Information about our operating expenses for the three ~~months~~ ended March 31, ~~2018~~2019 and ~~2017~~2018 is set forth below (dollars in thousands).

Research and development expenses consist primarily of employee compensation and fees for the development of hardware, software and firmware products. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Research and development expenses infor the ~~first quarter of 2018~~three months ended March 31, 2019 increased compared to the comparable prior year period primarily ~~attributable~~due to an increase in headcount, including the additional headcount and ~~external contractor~~related costs associated with the ~~acquisition~~acquisitions of ~~3VR~~Thursby in the fourth quarter of 2018 and the assets of Viscount in the first quarter of ~~2018.~~2019.

Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Selling and marketing expenses infor the ~~first quarter of 2018~~three months ended March 31, 2019 increased compared to the prior year ~~quarter~~period primarily ~~attributable~~due to ~~the~~ additional headcount and related costs, and the amortization of acquired intangibles associated with the ~~acquisition~~acquisitions of ~~3VR~~Thursby in the fourth quarter of 2018 and the assets of Viscount in the first quarter of ~~2018 and higher external contractor costs compared to the same period in the prior year.~~2019.

General and administrative expenses consist primarily of compensation expense for employees performing administrative functions as well as professional fees arising from legal, auditing and other professional services.

General and administrative ~~expenses in~~expense for the ~~first quarter of 2018 were higher compared~~three months ended March 31, 2019 was comparable to the same ~~quarter~~period of the prior year primarily due to $0.5 million in transaction related costs associated with the acquisition of 3VR in February of 2018, the impact of reimbursements received of $0.3 million in the first quarter of 2017 from our insurance provider for legal fees incurred in connection with matters related to a complaint by a former employee, related investigations, the class and derivative litigation and related proceedings, and reductions in our legal accruals of $0.2 million.year.

In the ~~first quarter of~~three months ended March 31, 2018, we ~~engaged a property management firm to actively market~~incurred restructuring and ~~search for a tenant to sublease~~severance expenses of $0.1 million consisting primarily of facility rental related costs associated with the ~~newly acquired~~ 3VR office facility in San Francisco, ~~California. We currently occupy only a small area of the leased space.~~ California which we acquired on February 14, 2018.

Restructuring and severance expenses ~~recorded~~incurred in the three months ended March 31, ~~2018 consists primarily~~2019 consist of facility rental ~~related costs.~~costs discussed above, offset by sublease income received from a tenant that sublet the office space in the third quarter of 2018 over the remaining term of the original lease.

See Note ~~12,~~15, Restructuring and Severance, in the accompanying notes to our unaudited condensed consolidated financial statements for more information.

Interest expense, net consists of interest on financial liabilities and interest accretion expense for a liability on a long-term payment obligation arising from our acquisition of Hirsch Electronics Corporation. The lower net interest expense in the first quarter of ~~2018~~2019 is primarily attributable to ~~lower borrowings outstanding compared to~~ the ~~comparable period in the prior year.~~

~~For the three months ended March 31, 2017, the gain on extinguishment of debt represents the~~ ~~difference between the reacquisition price of~~$5.0 million principal repayment under our previous ~~debt facility~~term loan payable with Venture Lending & Leasing VII, Inc. and ~~its net carrying amount. See Note 9,~~ ~~Financial Liabilities~~,Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL 8”) in ~~the accompanying notes to our unaudited condensed consolidated financial statements for more information.~~May 2018.

Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. dollar, the Indian Rupee, and the Euro. ~~Accordingly, they are predominantly non-cash items.~~ Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.

As of March 31, ~~2018,~~2019, our deferred tax assets are fully offset by a valuation allowance. Accounting Standards Codification ~~or ASC,~~(“ASC”) 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against all of our net U.S. and foreign deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.

We recorded an income tax provision during the three months ended March 31, ~~2018.~~2019. The effective tax rates for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 differ from the federal statutory rate of ~~34%~~21% primarily due to a change in valuation allowance, ~~a true-up of prior taxes, changes to uncertain tax positions,~~ and the provision or benefit in certain foreign jurisdictions, which are subject to ~~lower~~higher tax rates.

As of March 31, ~~2018,~~2019, our working capital, which we define as current assets less current liabilities, was ~~$10.8~~$9.3 million, a decrease of ~~$12.2~~$3.4 million compared to ~~$23.0~~$12.7 million as of December 31, ~~2017.~~2018. As of March ~~31, 2018,~~30, 2019, our cash balance was ~~$16.7~~$8.9 million.

On February 8, 2017, we entered into Loan and Security Agreements (each, a “Loan and Security Agreement”) with ~~EWB~~East West Bank (“EWB”) and VLL7 and VLL8. The Loan and Security Agreement with EWB ~~provides~~provided for a $10.0 million revolving loan facility, and the Loan and Security Agreement with VLL7 and VLL8 ~~provides~~provided for a term loan in an aggregate principal amount of $10.0 million. In connection with the closing of both Loan and Security Agreements, we repaid all outstanding amounts under our credit agreement with our previous lender. See Note 9, Financial Liabilities, in the accompanying notes to our condensed consolidated financial statements for more information.

On December 28, 2017, we paid down an aggregate principal amount of $5.0 million of the $10.0 million outstanding principal balance of the term loan under the Loan and Security Agreement with VLL7 and VLL8, and $0.9 million of accrued and unpaid interest outstanding at the prepayment date, together with all the scheduled interest that would have accrued and been payable through the stated maturity of the term loan. On May 31, 2018, we repaid the remaining amounts payable under the term loan of approximately $5.2 million, consisting of $4.6 million in outstanding principal, and $0.6 million of accrued and unpaid interest outstanding at the prepayment date together with all the scheduled interest that would have accrued and been payable through the stated maturity of the term loan. See Note 9, Financial Liabilities, in the accompanying notes to our condensed consolidated financial statements for more information.

On December 20, 2017, we entered into a Securities Purchase Agreement with each of 21 April Fund, Ltd. and 21 April Fund, LP (collectively, the “Purchasers”), in which we, through a private placement, agreed to issue and sell an aggregate of up to 5,000,000 shares of Series B non-voting convertible preferred stock. The Purchasers purchased an aggregate of 3,000,000 preferred shares at a price of $4.00 per share in cash at the initial closing of the transaction. ~~We have~~On May 30, 2018, we completed the ~~option to issue and sell an additional~~second closing of the private placement of 2,000,000 preferred shares at a price of $4.00 per ~~share in cash at a second closing within one year of initial closing.~~ share. The total purchase price ~~payable~~paid to us iswas $20,000,000, of which $12,000,000 was paid at the initial closing and $8,000,000 ~~will be paid, if at all,~~ at the second closing. We are required to use the proceeds from the issuance of the preferred shares to pay off existing debt obligations and to fund future acquisitions of technology, business and other assets. See Note 5,11, Stockholders’ Equity, in the accompanying notes to our condensed consolidated financial statements for more information.

As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant additional taxes related to such amounts. However, our estimates are provisional and subject to further analysis. Generally, most of our foreign subsidiaries have accumulated deficits and cash and cash equivalents that are held outside the United States are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the United States. We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences. As of March 31, ~~2018,~~2019, the amount of cash included at such subsidiaries was ~~$2.5~~$1.1 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We have historically incurred operating losses and negative cash flows from operating activities, and we ~~expect to~~may continue to incur losses ~~for~~in the ~~foreseeable~~ future. As of March 31, ~~2018,~~2019, we ~~have~~had a total accumulated deficit of ~~$402.0~~$405.2 million. During the three months ended March 31, ~~2018,~~2019, we incurred a consolidated net loss of ~~$2.3~~$0.8 million. ~~Although we have, and expect to continue, to realize benefits of the restructuring initiatives realized in 2016, we may continue to incur losses in the future.~~

We believe our existing cash balance, together with cash generated from operations and available credit under our Loan and Security ~~Agreements,~~Agreement, will be sufficient to satisfy our working capital needs to fund operations for the next twelve months. We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. We may also chose to finance our cash requirements through public or private equity offerings, debt financings or other arrangements. However, there can be no assurance that additional capital, if required, will be available to us or that such capital will be available to us on acceptable terms. If we raise funds by issuing equity securities, dilution to stockholders could result. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings could impose significant restrictions on our operations. The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Our

Loan and Security ~~Agreements impose~~Agreement imposes restrictions on our operations, increases our fixed payment obligations and ~~have~~has restrictive covenants. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.

The following summarizes our cash flows for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

Cash provided by operating activities for the three months ended March 31, 2019 was primarily due to the net loss of $0.8 million, offset by an increase in cash from net changes in operating assets and liabilities of $0.7 million, and adjustments for certain non-cash items of $1.6 million, consisting primarily of depreciation, amortization, amortization of debt issuance costs, and stock-based compensation. Cash provided by operating activities for the three months ended March 31, 2018 was primarily due to the net loss of $2.3 million, partially offset by an increase in cash from net changes in operating assets and liabilities of $1.2 million and adjustments for certain non-cash items of $1.5 million, consisting primarily of depreciation, amortization, amortization of debt issuance costs, and stock-based compensation. ~~For~~

Cash used in investing activities for the three months ended March 31, ~~2017, cash used in operating activities~~2019 was ~~primarily due~~$1.4 million, of which $1.3 million related to the ~~net loss~~acquisition of ~~$0.7~~the assets of Viscount, and less than $0.1 million ~~and a decrease in cash from net changes in operating assets and liabilities of $0.7 million, partially offset by adjustments for certain non-cash items of $0.6 million.~~

related to capital expenditures. Cash used in investing activities for the three months ended March 31, 2018 was $1.5 million and related to the acquisition of 3VR of $1.4 million, net of cash acquired and $0.1 million related to capital expenditures. ~~Cash used in investing activities for the three months ended March 31, 2017 was approximately $0.1 million and related to capital expenditures.~~

Cash used in financing activities during the three months ended March 31, ~~2018~~2019 related primarily to borrowings under our revolving loan facility of ~~debt, net of issuance costs, of $9.6~~$1.6 million, offset by repayments under our revolving loan facility of ~~debt~~$1.4 million, repayment of ~~$11.0~~notes payable of $2.0 million associated with the acquisition of 3VR in the first quarter of 2018, and taxes paid related to net share settlement of restricted stock units of $0.2 million. Cash used in financing activities during the three months ended March 31, ~~2017 was attributable~~2018 related to borrowings under our revolving loan facility of ~~debt, net of issuance costs, of $21.5~~$9.6 million, offset by repayments under our revolving loan facility of ~~debt of $22.0~~$11.0 million and taxes paid related to net share settlement of restricted stock units of ~~$0.1~~$0.2 million.

Significant commitments that will require the use of cash in future periods include obligations under operating leases, our contractual payment obligation assumed upon our acquisition of Hirsch, debt obligations, purchase commitments and other obligations. Gross committed operating lease obligations are ~~$6.9~~$7.3 million, our contractual payment obligation assumed upon our acquisition of Hirsch is ~~$4.0~~$2.7 million, the ~~bank term loan,~~ revolving loan facility and interest related obligation is ~~$16.8 million, notes payable of $2.0~~$11.9 million, and purchase commitments and other obligations are ~~$15.5~~$14.0 million at March 31, ~~2018.~~2019. Total commitments due within one year are ~~$31.8~~$28.0 million and due thereafter are ~~$13.3~~$7.8 million at March 31, ~~2018.~~2019. These commitment levels are based on existing terms of our operating leases, obligation with suppliers, our contractual payment obligation and our existing loan ~~agreements~~agreement as of March 31, ~~2018.~~2019.

We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation. We have other important accounting policies and practices; however, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. Management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.

As a result of adopting ASC ~~606~~842 as of January 1, ~~2018, and the acquisition of 3VR in the first quarter of 2018,~~2019, there ~~have~~has been a material ~~changes~~change in our critical accounting policies during the three months ended March 31, ~~2018,~~2019, as described in Note 1, ~~Organization and Summary of~~ Significant Accounting Policies ~~Note 2,~~ ~~Revenue,~~ and Recent Accounting Pronouncements, and Note 3,16, ~~Business Combinations,~~Leases, to our condensed consolidated financial statements included in Part I, Item I of this Form 10-Q. With the exception of ~~these changes,~~this change, during the three months ended March 31, ~~2018,~~2019, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

See Note 1, 2, S~~Organization~~ignificant Accounting Policies and ~~Summary of Significant~~Recent Accounting ~~Policies,~~Pronouncements, in the accompanying notes to our unaudited condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, which is incorporated herein by reference.

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

We have made no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended March 31, ~~2018~~2019 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

On December 16, 2015, we and certain of our present and former officers and directors were named as defendants in a putative class action lawsuit filed in the United States District Court for the Northern District of California, entitled Rok v. Identiv, Inc., et al., Case No. 15-cv-05775, alleging violations of Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act of 1934. On May 3, 2016, the court-appointed lead plaintiff Thomas Cunningham in the Rok lawsuit filed an amended complaint and a notice of dismissal without prejudice of all current or former officers and directors other than Jason Hart and Brian Nelson. On June 6, 2016, each of us, Jason Hart, and Brian Nelson filed a motion to dismiss for failure to state a claim upon which relief can be granted in the Rok lawsuit; on August 5, 2016, the court granted those motions with leave for the lead plaintiff to file a second amended complaint. On September 12, 2016, the lead plaintiff in the Rok lawsuit filed a second amended complaint. On October 10, 2016, each of us, Jason Hart, and Brian Nelson filed a motion to dismiss that second amended complaint for failure to state a claim upon which relief can be granted in the Rok lawsuit; on January 4, 2017, the court granted those motions with prejudice and entered judgment for us and the other defendants and against the lead plaintiff. On February 6, 2017, the lead plaintiff initiated an appeal of the court’s decision in the Ninth Circuit Court of Appeals. Following the lead plaintiff’s routine request to extend filing deadlines, which the Court of Appeals approved, the lead plaintiff’s opening appellate brief was filed on June 14, 2017. Following Jason Hart’s routine request to extend filing deadlines, which the Court of Appeals approved, the answering briefs of the Company and the other defendants were filed on August 14, 2017. Following the lead plaintiff’s routine request to extend filing deadlines, which the Court of Appeals approved, the lead plaintiff’s optional reply brief was filed on October 5, 2017. The Ninth Circuit Court of Appeals held oral argument on March 13, 2018. On March 23, 2018, the Ninth Circuit issued an order affirming the dismissal with prejudice. In the interim, on January 3, 2018, lead plaintiffs filed a motion under Federal Rules of Civil Procedure Rule 60(b) in the trial court to vacate the January 4, 2017 judgment of dismissal. On February 9, 2018, following additional briefing, the trial court denied the motion.

~~In addition, three shareholder derivative actions were filed between January and February 2016.~~ On January 1, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the United States District Court for the Northern District of California, entitled Oswald v. Humphreys, et al., Case No. 16-cv-00241-CRB, alleging breach of fiduciary duty and waste claims. On January 25, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the Superior Court of the State of California, County of Alameda, entitled Chopra v. Hart, et al., Case No. RG16801379, alleging breach of fiduciary duty claims. On February 9, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the Superior Court of the State of California, County of Alameda, entitled Wollnik v. Wenzel, et al., Case No. HG16803342, alleging breach of fiduciary duty, corporate waste, gross mismanagement, and unjust enrichment claims. These lawsuits generally allege that we made false and/or misleading statements and/or failed to disclose information in certain public filings and disclosures between 2013 and 2015. Each of the lawsuits seeks one or more of the following remedies: unspecified compensatory damages, unspecified exemplary or punitive damages, restitution, declaratory relief, equitable and injunctive relief, and reasonable costs and attorneys’ fees. On May 2, 2016, the court in the Chopra lawsuit entered an order staying proceedings in the Chopra lawsuit in favor of the Oswald lawsuit, based on a stipulation to that effect filed by the parties in the Chopra lawsuit on April 28, 2016. Similarly, on June 28, 2016, the court in the Wollnik lawsuit entered a stipulated order staying proceedings in the Wollnik lawsuit in favor of the Oswald lawsuit. On June 17, 2016, the plaintiff in the Oswald lawsuit filed an amended complaint. On August 1, 2016, we filed a motion to dismiss for failure by plaintiff to make a pre-lawsuit demand on our board of directors, which motion was heard on October 14, 2016. The judge in the Oswald lawsuit issued an order on November 7, 2016 granting our motion to dismiss, without prejudice. In addition, the court stayed the case so that plaintiff could exercise whatever rights he had under Section 220 of the Delaware General Corporation Law. On or around November 30, 2016, the plaintiff purported to serve a books and records demand under Section 220 of the Delaware General Corporation Law. We ~~have~~ responded to that demand. On March 21, 2017, we and the plaintiff in the Oswald lawsuit filed a stipulation and proposed order lifting the stay of the case, granting the plaintiff leave to amend, and setting a briefing schedule. That stipulation proposed that the judge’s stay of the case entered November 7, 2016 be lifted, that a stay of proceedings as to the individual defendants that the judge previously entered remain in place, that the plaintiff may file a second amended complaint on or before April 10, 2017, that we may file a motion to dismiss that second amended complaint on or before May 12, 2017, that the plaintiff’s opposition to such a motion to dismiss shall be filed on or before June 12, 2017, that our reply in support of such a motion shall be filed on or before June 30, 2017, and that the hearing on such a motion to dismiss shall be held on August 11, 2017 or such other date as the court may order. On March 22, 2017, the court entered an order approving that stipulation. The plaintiff in the Oswald lawsuit filed his second amended complaint on April 10, 2017. We then filed a motion to dismiss that second amended complaint on May 12, ~~2017, the plaintiff filed an opposition to that motion to dismiss~~2017. After further briefing and argument, on June 12, 2017, and we filed a reply in support of the motion on June 30, 2017. The hearing on that motion to dismiss was rescheduled by stipulation of the parties to September 22, 2017 and then further rescheduled by the court to October 6, 2017. The hearing on that motion to dismiss was held on October 6, 2017, and that day the court entered a minute entry indicating the motion would be denied. On October 22, 2017, the court issued its written order denying the motion to dismiss on the basis of demand futility. ~~On December 15, 2017, the court held a status conference.~~ On January 3, 2018, the court entered a stipulated order setting a response and briefing schedule for defendants to the second amended complaint.

~~Pursuant to the schedule, defendants~~Defendants filed motions to dismiss the second amended complaint in the Oswald action under Rule 12(b)(6) on January 16, 2018. ~~Plaintiff filed his opposition brief on February 14, 2018. Defendants filed reply briefs on March 2, 2018. The court heard~~After further briefing and argument, on ~~the motions to dismiss on March 23, 2018. On~~ April 13, 2018, the court entered an order granting ~~the~~defendants’ motions to dismiss. On April 19, 2018, ~~Plaintiff~~plaintiff Oswald filed a motion for leave to file a third amended complaint. On that same date, ~~Plaintiff~~plaintiff Chopra, a plaintiff in a related and stayed derivative action in state court, filed a motion to intervene in the Oswald action. ~~Defendants’ oppositions~~After further briefing and argument, on July 16, 2018, the court entered an order granting the Chopra motion to ~~both motions are due May 21, 2018. Plaintiffs’ replies~~intervene and denying the Oswald motion for leave to ~~both motions are due June~~file a third amended complaint. After the filing of an unopposed administrative motion for entry of judgment by defendants, on October 1, ~~2018. A hearing has been set~~2018, the court entered an order granting administrative motion for ~~June 15, 2018 for both motions before Judge Breyer.~~entry of final judgment and entered final judgment in favor of all named defendants and against plaintiffs Oswald and Chopra. On October ~~18, 2017, the court in the Wollnik lawsuit conducted a case management conference, at the conclusion of which the court scheduled a complex determination hearing for November 28, 2017. We~~23, 2018, plaintiff Oswald filed a notice of ~~non-opposition to complex case designation and request for coordination~~appeal with the Ninth Circuit. Responsive appellate briefs are due June 3, 2019. In the interim, the state court Chopra ~~lawsuit on October 24, 2017.~~and Wollnik actions have remained stayed with periodic status conferences. The plaintiff in the Wollnik lawsuit filed a statement of non-opposition to complex case designation on or about November 27, 2017. The court continued the complex determination hearing to April 3, 2018. On April 3, 2018, the court deemed the Wollnik action to be a complex matter. No further datesnext status conferences have ~~yet~~ been scheduled in ~~this matter.~~the Chopra and Wollnik cases on November 5, 2019. We intend to vigorously defend against these lawsuits. We cannot currently predict the impact or resolution of each of these lawsuits or reasonably estimate a range of possible loss, if any, which could be material, and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

From time to time, we could become subject to claims arising in the ordinary course of business or could be named a defendant in additional lawsuits. The outcome of such claims or other proceedings cannot be predicted with certainty and may have a material effect on our financial condition, results of operations or cash flows.

Our business and results of operations are subject to numerous risks, uncertainties, and other factors that you should be aware of. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I - Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There have been no material changes from the risk factors disclosed in our 2018 Annual Report on Form 10-K.The risks, uncertainties and other factors described in ~~these~~the risk factors are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the risks, uncertainties and other factors could have a materially adverse effect on our business, financial condition, results of operations, cash flows or product market share and could cause the trading price of our common stock to decline substantially.

~~Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results and financial condition.~~

We record goodwill and intangible assets at fair value upon the acquisition of a business. Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired. Goodwill and indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if conditions warrant, by comparing the carrying value of a reporting unit to its estimated fair value. Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable. Declines in operating results, divestitures, sustained market declines and other factors that impact the fair value of a reporting unit could result in an impairment of goodwill or intangible assets and, in turn, a charge to net income. Any such charges could have a material adverse effect on our results of operations or financial condition.

In addition to the above and other information set forth in this Quarterly Report, you should carefully consider the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2017.

During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we repurchased ~~42,447~~42,880 shares and ~~16,160~~42,447 shares, respectively, of common stock surrendered to us to satisfy tax withholding obligations in connection with the vesting of ~~RSUs~~restricted stock units issued to employees.

On May 9, the Compensation Committee of the Board of Directors approved certain changes to the compensation of our Chief Financial Officer, Sandra Wallach. Ms. Wallach’s base salary was increased, effective as of April 1, 2018, from $265,000 to $275,000, and she will be eligible to receive a bonus of up to $25,000. In addition, the Compensation Committee granted Ms. Wallach an RSU award for 40,000 shares of our common stock of which 25% vests on April 1, 2019 with additional vesting in equal quarterly installments over the following three years.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DELAWARE	77-0444317
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2201 Walnut Avenue, Suite 100 Fremont, California	94538
(Address of principal executive offices)	(Zip Code)

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 par value per share		INVE		The Nasdaq Stock Market LLC

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	5
	Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2730
Item 4.	Controls and Procedures	3740

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3841
Item 1A.	Risk Factors	3942
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
~~Item 5.~~	~~Other Information~~	3942
Item 6.	Exhibits	4042

SIGNATURES		4143

Performance Obligation	When Performance Obligation is Typically Satisfied	When Payment is Typically Due	How Standalone Selling Price is Typically Estimated
Hardware products	When customer obtains control of the product (point-in-time)	Within 30-60 days of shipment	Observable in transactions without multiple performance obligations
Software licenses	When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time)	Within 30-60 days of the beginning of license period	Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions
Professional services	As services are performed and/or when contract is fulfilled (point-in-time)	Within 30-60 days of delivery	Observable in transactions without multiple performance obligations
Software maintenance and support services	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions
Extended hardware warranties	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions


	Series B Convertible Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount		Addional Paid-in Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income		Noncontrolling Interest			Total Equity
Balances, December 31, 2017		3,000	$	3		14,436		$	15	$	428,470		$	(7,485	)	$	(399,647	)	$	2,675	$	(178	)	$	23,853
Net loss		—		—		—			—		—			—			(2,306	)		—		5			(2,301	)
Other comprehensive loss		—		—		—			—		—			—			—			109		3			112
Impact of adoption of Topic 606 (Note 2)		—		—		—			—		—			—			2								2
Issuance of common stock in connection with acquisition of business						610			1		2,293			—			—			—		—			2,294
Issuance of common stock in connection with vesting of stock awards		—		—		139			—		—			—			—			—		—			—
Stock-based compensation		—		—		—			—		635			—			—			—		—			635
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units		—		—		(42	)		—		—			(162	)		—			—		—			(162	)
Issuance costs associated with issuance of Series B preferred stock		—		—		—			—		(20	)		—			—			—		—			(20	)
Issuance of shares to non- employees		—		—		—			—		5			—			—			—		—			5
Balances, March 31, 2018		3,000	$	3		15,143		$	16	$	431,383		$	(7,647	)	$	(401,951	)	$	2,784	$	(170	)	$	24,418

	As Reported Under Topic 606			Adjustments		Balance Under Prior GAAP
Net revenue	$	16,528		$	—	$	16,528
Cost of revenue		10,020			—		10,020
Operating expenses		8,255			—		8,255
Provision for income taxes		(40	)		—		(40	)
Net loss		(2,306	)		—		(2,306	)
Basic and diluted net loss per share		(0.15	)				(0.15	)

	Amount
Deferred revenue at December 31, 2017	$	1,090
Impact of adoption of Topic 606		(2	)
Deferred revenue at January 1, 2018		1,088
Fair value of deferred revenue acquired in acquisition, net of recognition		2,637
Deferral of revenue billed in current period, net of recognition		895
Recognition of revenue deferred in prior periods		(293	)
Balance as of March 31, 2018	$	4,327

	Amount
Deferred revenue at December 31, 2018	$	2,810
Fair value of deferred revenue acquired in acquisition, net of recognition		13
Deferral of revenue billed in current period, net of recognition		1,444
Recognition of revenue deferred in prior periods		(863	)
Balance as of March 31, 2019	$	3,404

Cash	$	195		$	195
Accounts receivable		2,589			2,029
Inventory		257			257
Prepaid expenses and other current assets		169			169
Property and equipment		334			334
Trademarks		400			400
Customer relationships		2,900			2,900
Developed technology		3,000			3,000
Total identifiable assets acquired		9,844			9,284
Accounts payable		(1,590	)		(1,590	)
Accrued expenses and liabilities		(711	)		(726	)
Deferred revenue		(2,928	)		(2,928	)
Debt		(3,622	)		(3,622	)
Total liabilities assumed		(8,851	)		(8,866	)
Net identifiable assets acquired		993			418
Goodwill		5,880			5,796
Purchase price	$	6,873
Net purchase price				$	6,214

	Gross Purchased Intangible Assets		Estimated Useful Life (in Years)
Trademarks	$	400		5
Customer relationships		2,900		10
Developed technology		3,000		10
	$	6,300

Cash	$	3,485
Accounts receivable		526
Inventory		1,361
Prepaid expenses and other current assets		12
Trademarks		200
Customer relationships		1,500
Developed technology		700
Total identifiable assets acquired		7,784
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		3,136
Goodwill		3,490
Purchase price		6,626
Less: cash acquired		(3,485	)
Net purchase price	$	3,141

	Viscount Earn-out Consideration
Balance at December 31, 2018	$	—
Acquisition of Viscount		200
Remeasurement of obligation		—
Balance at March 31, 2019	$	200

	Premises			Identity		Total
Balance at December 31, 2018	$	5,796		$	3,490	$	9,286
Acquisition of business		1,173			—		1,173
Currency translation adjustment		(18	)		—		(18	)
Balance at March 31, 2019	$	6,951		$	3,490	$	10,441

				Developed			Customer
	Trademarks			Technology			Relationships			Total
Amortization period (in years)	5			10 – 12			4 – 12

Gross carrying amount at December 31, 2018	$	600		$	8,300		$	15,039		$	23,939
Accumulated amortization		(77	)		(3,978	)		(8,904	)		(12,959	)
Intangible assets, net at December 31, 2018	$	523		$	4,322		$	6,135		$	10,980

Gross carrying amount at March 31, 2019	$	758		$	9,093		$	15,745		$	25,596
Accumulated amortization		(114	)		(4,201	)		(9,284	)		(13,599	)
Intangible assets, net at March 31, 2019	$	644		$	4,892		$	6,461		$	11,997

2019 (remaining nine months)	$	1,926
2020		2,567
2021		1,112
2022		1,112
2023		1,035
Thereafter		4,245
Total	$	11,997

2019 (remaining nine months)	$	956
2020		1,408
2021		363
Present value discount factor		(108	)
Total		2,619
Less: Current portion - payment obligation		(1,050	)
Long-term payment obligation	$	1,569

	Tranche 1		Tranche 2		Total
Series B Preferred Stock
Balance at December 31, 2018	$	12,600	$	8,233	$	20,833
Cumulative dividends on Series B preferred stock		158		100		258
Balance at March 31, 2019	$	12,758	$	8,333	$	21,091

Number of Common Shares Issuable Upon Conversion
Balance at December 31, 2018		3,150		2,058		5,208
Cumulative dividends on Series B preferred stock		39		25		64
Balance at March 31, 2019		3,189		2,083		5,272

Exercise of outstanding stock options, vesting of restricted stock units ("RSU"), and issuance of RSUs vested but not released			2,431,800
ESPP			293,888
Shares of common stock available for grant under the 2011 Plan			523,037
Noncontrolling interest in Bluehill ID AG			10,355
Warrants to purchase common stock			705,000
Shares of common stock issuable upon conversion of Series B preferred stock			7,541,449
Total			11,505,529

	Number Outstanding			Weighted Average Fair Value		Number of RSUs			Weighted Average Fair Value
Unvested at December 31, 2017		1,460,044		$	3.08
Unvested at December 31, 2018							1,367,630		$	3.81
Granted		352,969			3.71		226,000			5.21
Vested		(156,013	)		3.60		(152,527	)		3.60
Forfeited		(114,510	)		2.67		(10,871	)		3.45
Unvested at March 31, 2018		1,542,490		$	3.20
Unvested at March 31, 2019							1,430,232		$	4.05
Shares vested but not released		329,056		$	2.77		425,966		$	3.39

~~Exercise of outstanding stock options and vesting of RSUs, issuance of RSUs vested but not released~~			~~2,533,398~~
~~ESPP~~			~~293,888~~
~~Shares of common stock available for grant under the 2011 Plan~~			~~282,995~~
~~Noncontrolling interest in Bluehill ID AG~~			~~10,355~~
~~Warrants to purchase common stock~~			~~765,000~~
~~Shares of common stock issuable on conversion of Series B Preferred Stock~~			~~5,000,000~~
~~Shares of common stock subject to holdback provisions of acquisition of 3VR~~			~~294,927~~
~~Total~~			~~9,180,563~~

	Three Months Ended March 31,
Numerator:	2019			2018
Net loss attributable to Identiv, Inc.	$	(815	)	$	(2,306	)
Accretion of Series B preferred stock dividends		(258	)		—
Numerator for basic EPS - loss available to common stockholders	$	(1,073	)	$	(2,306	)

Denominator:
Weighted average common shares outstanding		16,837			15,111
Net loss per common share - basic	$	(0.06	)	$	(0.15	)

	Premises		Credentials		Identity		All Other		Total
Balance at December 31, 2017	$	—	$	—	$	—	$	—	$	—
Acquisition of business		5,880		—		—		—		5,880
Goodwill impairment during the period		—		—		—		—		—
Balance at March 31, 2018	$	5,880	$	—	$	—	$	—	$	5,880

2018 (remaining nine months)	$	1,594
2019		2,125
2020		2,125
2021		670
2022		670
Thereafter		3,033
Total	$	10,217

2018 (remaining nine months)	$	930
2019		1,277
2020		1,422
2021		367
Present value discount factor		(346	)
Total		3,650
Less: Current portion - payment obligation		(919	)
Long-term payment obligation	$	2,731

Operating lease ROU assets:
Americas	$	5,177	$	—
Europe and the Middle East		130		—
Asia-Pacific		663		—
Total operating lease right-of-use assets	$	5,970	$	—

	Operating Leases		Purchase Commitments		Other Contractual Commitments		Total
2018 (remaining nine months)	$	1,455	$	13,574	$	68	$	15,097
2019		1,812		450		13		2,275
2020		1,612		450		13		2,075
2021		1,375		450		13		1,838
2022		578		450		13		1,041
Thereafter		37		—		13		50
Total	$	6,869	$	15,374	$	133	$	22,376

	Purchase Commitments		Other Contractual Commitments		Total
2019 (remaining nine months)	$	12,998	$	102	$	13,100
2020		872		—		872
Total	$	13,870	$	102	$	13,972

Exhibit Number		Description

2.1* 10.1^		Agreement and Plan of Merger dated as of February 6, 2018 among the Company, Eagle Acquisition, Inc., 3VR Security, Inc., and Fortis Advisors LLC, as Securityholder Representative (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, 2018).

~~10.1~~		~~Third~~Eleventh Amendment to Loan and Security Agreement dated ~~January 31, 2018~~March 28, 2019 between the Company, ~~and East West Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 1, 2018).~~

~~10.2~~		Form of Securityholder Agreement dated as of February 6, 2018 between the Company, each of the shareholders and noteholders of 3VR Security, Inc., and the Management Carve-out Participants (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, 2018).

~~10.3~~		~~Form of Subordinated Unsecured Promissory Note (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, 2018).~~

~~10.4^~~		~~Fourth Amendment to Loan and Security Agreement dated February 5, 2018 between the Company~~Thursby Software Systems, LLC and East West Bank.

~~10.5^~~		~~Fifth Amendment to Loan and Security Agreement dated March 6, 2018 between the Company, 3VR Security, Inc. and East West Bank.~~

31.1^		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2^		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32^#		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	IDENTIV, INC.

May ~~15, 2018~~10, 2019	By:	/S/ Steven Humphreys
		Steven Humphreys
		Chief Executive Officer
		(Principal Executive Officer)

May ~~15, 2018~~10, 2019	By:	/S/ Sandra Wallach
		Sandra Wallach
		Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ ~~(Do not check if a smaller reporting company)~~☑

Smaller reporting company

Emerging growth company