(~~EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)~~Exact Name of Registrant as Specified in its Charter)

~~(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)~~

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, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

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 ☑

AtAs of November ~~7, 2016, 11,086,151~~3, 2017, the registrant had 14,245,138 shares of common stock, ~~were~~$0.001 par value per share, outstanding.

	September 30,			December 31,			September 30,			December 31,
	2016			2015			2017			2016
ASSETS
Current assets:
Cash	$	9,183		$	16,667		$	15,741		$	9,116
Accounts receivable, net of allowances of $299 and $346 as of September 30, 2016 and December 31, 2015, respectively		9,159			7,915
Accounts receivable, net of allowances of $459 and $307 as of September 30, 2017 and December 31, 2016, respectively								10,642			9,430
Inventories		12,140			14,726			13,396			11,596
Prepaid expenses and other current assets		3,399			1,518			2,492			1,510
Total current assets		33,881			40,826			42,271			31,652
Property and equipment, net		2,672			4,218			2,117			2,416
Intangible assets, net		6,183			7,275			4,728			5,820
Other assets		851			1,129			722			712
Total assets	$	43,587		$	53,448		$	49,838		$	40,600
LIABILITIES AND STOCKHOLDERS´ EQUITY
Current liabilities:
Accounts payable	$	6,369		$	6,280		$	7,552		$	6,024
Current portion - payment obligation		760			681			877			786
Current portion - financial liabilities, net of discount of $375 and $0, respectively		9,625			—
Current portion - financial liabilities, net of discount and debt issuance costs of $596 and $181, respectively								9,957			8,119
Deferred revenue		1,145			1,515			1,143			1,085
Accrued compensation and related benefits		1,667			1,905			1,639			1,520
Other accrued expenses and liabilities		6,876			5,835			2,978			5,032
Total current liabilities		26,442			16,216			24,146			22,566
Long-term payment obligation		4,209			4,878			3,281			3,987
Long-term financial liabilities, net of discount of $0 and $196, and debt issuance costs of $11 and $448, respectively (see Note 7)		8,289			17,656
Long-term financial liabilities, net of discount and debt issuance costs of $1,463 and $221, respectively								6,474			9,779
Other long-term liabilities		549			508			181			335
Total liabilities		39,489			39,258			34,082			36,667
Commitments and contingencies (see Note 11)
Stockholders´ equity:
Identiv, Inc. stockholders' equity:
Preferred stock, $0.001 par value: 10,000 shares authorized; none issued and outstanding		—			—			—			—
Common stock, $0.001 par value: 50,000 shares authorized; 11,788 and 11,365 shares issued and 11,078 and 10,747 shares outstanding as of September 30, 2016 and December 31, 2015, respectively		11			11
Common stock, $0.001 par value: 50,000 shares authorized; 15,082 and 11,836 shares issued and 14,234 and 11,109 shares outstanding as of September 30, 2017 and December 31, 2016, respectively								14			11
Additional paid-in capital		399,415			396,407			415,776			400,266
Treasury stock, 710 and 618 shares as of September 30, 2016 and December 31, 2015, respectively		(6,667	)		(6,487	)
Treasury stock, 848 and 727 shares as of September 30, 2017 and December 31, 2016, respectively								(7,302	)		(6,708	)
Accumulated deficit		(390,445	)		(377,814	)		(395,131	)		(391,509	)
Accumulated other comprehensive income		1,963			2,229			2,556			2,053
Total Identiv, Inc. stockholders' equity		4,277			14,346			15,913			4,113
Noncontrolling interest		(179	)		(156	)		(157	)		(180	)
Total stockholders´ equity		4,098			14,190			15,756			3,933
Total liabilities and stockholders´equity	$	43,587		$	53,448		$	49,838		$	40,600

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net revenue	$	15,560		$	17,196		$	41,521		$	47,717		$	15,432		$	15,560		$	43,664		$	41,521
Cost of revenue		8,640			9,675			24,038			27,466			9,571			8,640			26,423			24,038
Gross profit		6,920			7,521			17,483			20,251			5,861			6,920			17,241			17,483
Operating expenses:
Research and development		1,480			2,235			4,997			6,567			1,597			1,480			4,584			4,997
Selling and marketing		3,312			5,236			10,807			15,698			3,448			3,312			10,142			10,807
General and administrative		2,115			6,456			9,674			15,057			1,247			2,115			5,119			9,674
Impairment of goodwill		—			—			—			988
Restructuring and severance		160			215			3,100			408			(49	)		160			(49	)		3,100
Total operating expenses		7,067			14,142			28,578			38,718			6,243			7,067			19,796			28,578
Loss from operations		(147	)		(6,621	)		(11,095	)		(18,467	)		(382	)		(147	)		(2,555	)		(11,095	)
Non-operating income (expense):
Interest expense, net		(525	)		(478	)		(1,814	)		(1,367	)		(643	)		(525	)		(1,995	)		(1,814	)
Foreign currency gain (loss), net		35			(10	)		309			(186	)
Gain on extinguishment of debt														—			—			977			—
Foreign currency (losses) gains, net														(51	)		35			(202	)		309
Loss before income taxes and noncontrolling interest		(637	)		(7,109	)		(12,600	)		(20,020	)		(1,076	)		(637	)		(3,775	)		(12,600	)
Income tax benefit (provision)		(105	)		(59	)		(35	)		(141	)
Income tax benefit														42			(105	)		161			(35	)
Loss before noncontrolling interest		(742	)		(7,168	)		(12,635	)		(20,161	)		(1,034	)		(742	)		(3,614	)		(12,635	)
Less: Loss (income) attributable to noncontrolling interest		(1	)		6			4			72
Less: Income (loss) attributable to noncontrolling interest														2			(1	)		(8	)		4
Net loss attributable to Identiv, Inc.	$	(743	)	$	(7,162	)	$	(12,631	)	$	(20,089	)	$	(1,032	)	$	(743	)	$	(3,622	)	$	(12,631	)
Basic and diluted net loss per share attributable to Identiv, Inc.	$	(0.07	)	$	(0.66	)	$	(1.16	)	$	(1.85	)	$	(0.07	)	$	(0.07	)	$	(0.28	)	$	(1.16	)
Weighted average shares used to compute basic and diluted loss per share		11,024			10,895			10,855			10,834			14,409			11,024			12,806			10,855

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net loss	$	(742	)	$	(7,168	)	$	(12,635	)	$	(20,161	)	$	(1,034	)	$	(742	)	$	(3,614	)	$	(12,635	)
Other comprehensive loss, net of income taxes:
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustment		(64	)		30			(285	)		(112	)		378			(64	)		518			(285	)
Foreign currency translation reclassified into net loss upon acquisition of noncontrolling interest		—			—			—			(444	)
Total other comprehensive (loss) income, net of income taxes		(64	)		30			(285	)		(556	)
Total other comprehensive income (loss), net of income taxes														378			(64	)		518			(285	)
Comprehensive loss		(806	)		(7,138	)		(12,920	)		(20,717	)		(656	)		(806	)		(3,096	)		(12,920	)
Less: Comprehensive income attributable to noncontrolling interest		11			6			23			78
Less: Comprehensive (income) loss attributable to noncontrolling interest														(16	)		11			(23	)		23
Comprehensive loss attributable to Identiv, Inc. common stockholders	$	(795	)	$	(7,132	)	$	(12,897	)	$	(20,639	)	$	(672	)	$	(795	)	$	(3,119	)	$	(12,897	)

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

	Identiv, Inc. Stockholders´ Equity																						Identiv, Inc. Stockholders´ Equity
						Additional								Accumulated Other														Additional									Accumulated Other
	Common Stock					Paid-in		Treasury			Accumulated			Comprehensive			Noncontrolling			Total			Common Stock					Paid-in			Treasury			Accumulated			Comprehensive		Noncontrolling			Total
	Shares			Amount		Capital		Stock			Deficit			Income			Interest			Equity			Shares			Amount		Capital			Stock			Deficit			Income		Interest			Equity
Balances, December 31, 2015		10,747		$	11	$	396,407	$	(6,487	)	$	(377,814	)	$	2,229		$	(156	)	$	14,190
Balances, December 31, 2016																								11,109		$	11	$	400,266		$	(6,708	)	$	(391,509	)	$	2,053	$	(180	)	$	3,933
Net loss		—			—		—		—			(12,631	)		—			(4	)		(12,635	)		—			—		—			—			(3,622	)		—		8			(3,614	)
Other comprehensive loss		—			—		—		—			—			(266	)		(19	)		(285	)		—			—		—			—			—			503		15			518
Issuance of common stock in connection with public offering																								2,845			3		12,557			—			—			—		—			12,560
Issuance of warrants		—			—		376		—			—			—			—			376			—			—		2,319			—			—			—		—			2,319
Issuance of common stock in connection with vesting of stock awards		423			—		—		—			—			—			—			—			401			—		—			—			—			—		—			—
Stock-based compensation		—			—		2,632		—			—			—			—			2,632			—			—		1,916			—			—			—		—			1,916
Repurchase of common stock		(92	)		—		—		(180	)		—			—			—			(180	)
Balances, September 30, 2016		11,078		$	11	$	399,415	$	(6,667	)	$	(390,445	)	$	1,963		$	(179	)	$	4,098
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units																								(121	)		—		—			(594	)		—			—		—			(594	)
Cancellation of reacquired warrants from extinguishment of debt																								—			—		(1,282	)		—			—			—		—			(1,282	)
Balances, September 30, 2017																								14,234		$	14	$	415,776		$	(7,302	)	$	(395,131	)	$	2,556	$	(157	)	$	15,756

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

	Nine Months Ended
	September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(3,614	)	$	(12,635	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,081			2,492
Gain on extinguishment of debt		(977	)		—
Accretion of interest on long-term payment obligation		277			335
Amortization of debt issuance costs		617			633
Stock-based compensation expense		1,916			2,245
Loss on disposal of fixed assets		—			329
Changes in operating assets and liabilities:
Accounts receivable		(1,197	)		(1,166	)
Inventories		(1,785	)		2,741
Prepaid expenses and other assets		(992	)		(182	)
Accounts payable		1,531			154
Payment obligation liability		(892	)		(925	)
Deferred revenue		58			(370	)
Accrued expenses and other liabilities		(2,087	)		155
Net cash used in operating activities		(5,064	)		(6,194	)
Cash flows from investing activities:
Capital expenditures		(686	)		(425	)
Net cash used in investing activities		(686	)		(425	)
Cash flows from financing activities:
Proceeds from issuance of debt, net of issuance costs		42,735			—
Repayments of debt		(42,805	)		—
Sale of common stock, net of issuance costs		12,560			—
Taxes paid related to net share settlement of restricted stock units		(594	)		(180	)
Net cash provided by (used in) financing activities		11,896			(180	)
Effect of exchange rates on cash		479			(685	)
Net increase (decrease) in cash		6,625			(7,484	)
Cash at beginning of period		9,116			16,667
Cash at end of period	$	15,741		$	9,183
Supplemental Disclosures of Cash Flow Information
Interest paid	$	1,379		$	1,181
Taxes paid, net	$	96		$	158
Non-cash investing and financing activities:
Warrants issued as debt issuance costs in connection with debt agreements	$	2,319		$	376
Liability to be settled in common stock	$	250		$	—
Property and equipment included in accruals	$	—		$	83
Restricted stock units issued to settle liability	$	—		$	387

Nine Months Ended

September 30,

2016

2015

Cash flows from operating activities:

Net loss

$
(12,635
)

$
(20,161
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

2,492

2,203

Impairment of goodwill and long-lived assets

—

988

Accretion of interest on long-term payment obligation

335

398

Amortization of debt issuance costs

633

698

Stock-based compensation expense

2,245

3,700

Loss on disposal of fixed assets

329

—

Changes in operating assets and liabilities:

Accounts receivable

(1,166
)

2,961

Inventories

2,741

(6,159
)
Prepaid expenses and other assets

(182
)

(599
)
Accounts payable

154

(2,739
)
Payment obligation liability

(925
)

(856
)
Deferred revenue

(370
)

916

Accrued expenses and other liabilities

155

1,792

Net cash used in operating activities

(6,194
)

(16,858
)
Cash flows from investing activities:

Capital expenditures

(425
)

(553
)
Net cash used in investing activities

(425
)

(553
)
Cash flows from financing activities:

Proceeds from issuance of debt, net of issuance costs

—

4,000

Proceeds from issuance of common stock under stock plans

—

46

Repurchase of common stock

(180
)

(1,915
)
Net cash (used in) provided by financing activities

(180
)

2,131

Effect of exchange rates on cash

(685
)

149

Net decrease in cash

(7,484
)

(15,131
)
Cash at beginning of period

16,667

36,547

Cash at end of period

$
9,183

$
21,416

Non-cash investing and financing activities:

Warrants issued as debt issuance costs in connection with debt modification

$
376

$
—

Common stock issued to settle earn-out obligation

$
—

$
3,510

Common stock issued to acquire share of noncontrolling interest

$
—

$
1,216

Property and equipment included in accruals

$
83

$
51

Restricted stock units issued to Board of Directors in lieu of cash

$
387

$
—

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

The accompanying unaudited condensed consolidated financial statements of Identiv, Inc. (“Identiv” or the “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, including 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 and nine months ended September 30, ~~2016~~2017 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2016~~2017 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, ~~2015.~~2016. The preparation of unaudited condensed consolidated financial statements necessarily requires the Company to make estimates 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 expenses 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 indicative of the full year results. The December 31, ~~2015~~2016 balance sheet was derived from the audited financial statements as of that date.

~~Certain reclassifications, such as the accounting for debt issuance costs consistent with Accounting Standards Update (“ASU”)~~, ~~Simplifying the Presentation of Debt Issuance Costs~~ ~~(“ASU 2015-03”),~~ ~~have been made to the fiscal year 2015 financial statements to conform to the fiscal year 2016 presentation.~~

Concentration of Credit Risk — No customer represented more than 10% of net revenue for either of the three or nine months ended September 30, 2017. No customer represented more than 10% of net revenue for the three months ended September 30, 2016 and one customer accounted for 10% of net revenue for the nine months ended September 30, ~~2016. One customer represented 19% of net revenue for the three months ended September 30, 2015, and one customer represented 18% of net revenue for the nine months ended September 30, 2015.~~2016, respectively. No customer represented more than 10% of the Company’s accounts receivable balance at September 30, ~~2016~~2017 or December 31, ~~2015.~~2016.

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 September 30, 2017, the amount of capitalized software development costs totaled $0.5 million and is included in prepaid expenses and other current assets the accompanying condensed consolidated balance sheet. No software development costs were capitalized in 2016.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“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 ~~Financial Accounting Standards Board ("FASB")~~FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation, which provides guidance to simplify several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, ~~2016; however, early adoption is permitted.~~ 2016. The Company ~~is currently evaluating the impact of the~~adopted this guidance effective January 1, 2017. The Company's adoption of this ~~guidance will~~standard did not have a significant impact on its condensed consolidated financial statements. No excess income tax benefit or tax deficiencies have been recorded as a result of the adoption 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 April 2015, the FASB issued 2015-05,~~ ~~Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement~~ (“ASU 2015-05”), which clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of ASU 2015-05 did not have a material impact on the Company’s condensed consolidated financial statements.

~~In April 2015, the FASB issued ASU 2015-03,~~ ~~Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~ ~~(“ASU 2015-03”).~~ The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015. The Company adopted

this guidance as of January 1, 2016. The new guidance has been applied on a retrospective basis, wherein the consolidated balance sheet of December 31, 2015 has been retrospectively adjusted to reflect the effects of applying the new guidance. As a result of the change to the December 31, 2015 consolidated balance sheet, deferred debt issuance costs included in other assets and long-term financial liabilities decreased by $0.4 million. After the retrospective application to December 31, 2015, subsequent amortization of the deferred debt issuance costs results in an increase to long-term debt.

~~In January 2015, the FASB issued ASU 2015-01,~~ ~~Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items~~ (“ASU 2015-01”). Under ASU 2015-01, an entity will no longer be allowed to separately disclose extraordinary items, net of tax, in the income statement after income from continuing operations if an event or transaction is unusual in nature and occurs infrequently. ASU 2015-01 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. Upon adoption, the Company may elect prospective or retrospective application. The adoption of ASU 2015-01 did not have a material impact on the Company’s condensed consolidated financial statements.

~~In August 2014, the FASB issued ASU No. 2014-15,~~ ~~Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern~~, (“ASU 2014-15”), which requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption will have on its condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606) (“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year to annual periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance is effective for the Company beginning January 1, 2018. Companiescanelect a fullretrospectivemethodto recast prior-periodfinancialstatementsor a modifiedretrospectivemethodtorecognizethecumulative effect as an adjustmenttotheretainedearningsintheinitial year. The Company plansto implementthestandardinthefirstquarterof 2018 ~~and~~on a modifiedretrospectivebasis. The Company does notanticipatethatthisstandard will ~~provide the Company additional time to evaluate the method and~~ have a material impact ~~that ASU 2014-09 will have~~ on its condensed consolidated financial statements.

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 the Accounting Standards Codification (“ASC”), 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 September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, there were no assets that are measured and recognized at fair value on a recurring basis. There were no cash equivalents as of September 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

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. During the three and nine months ended September 30, 2016, the Company noted no indicators of impairment. During the three and nine months ended September 30, 2015, the Company noted certain indicators of impairment, including a sustained decline in its stock price and continued reduced performance in its Identity reporting unit. Based on the results of step one of the goodwill impairment analysis, it was determined that the Company’s net adjusted carrying value exceeded its estimated fair value for the Identity reporting unit. As a result, goodwill relating to the Identity segment was determined to be fully impaired resulting in an

~~impairment charge of $1.0 million which was recorded in the condensed consolidated statements of operations for the period.~~ For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5,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 September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company had $0.3 million of privately-held investments measured at fair value on a nonrecurring basis which were classified as a Level 3 ~~asset~~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. ~~During the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2016, the Company determined that no privately-held investments were impaired.~~ The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

As of September 30, ~~2016~~ ~~and December 31, 2015, there were no~~2017, the Company had $0.3 million of liabilities ~~that are~~ measured ~~and recognized~~ at fair value on a ~~non-recurring basis.~~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 December 31, 2016. 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 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. No shares of the Company’s preferred stock, including the Series A Participating Preferred Stock, were outstanding as of September 30, 2017 and December 31, 2016. The Company’s board of directors may from time to time, without further action by the Company’s stockholders, direct the issuance of shares of preferred stock in 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.

In May 2017, the Company sold an aggregate of 2,845,360 shares of its common stock at a public offering price of $4.85 per share in an underwritten public offering. The Company received net proceeds of approximately $12.6 million from the sale of the common stock in the public offering, after deducting the underwriting discount and other offering related expenses of $1.2 million. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds from the offering to acquire or invest in complementary technologies or other assets.

InOn August 13, 2014, in connection with the Company’s entry into a consulting agreement, ~~in August 2014,~~ 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 ~~“Consultant~~“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 September 30, ~~2016,~~2017, none of the shares under the 2014 Consultant Warrant had ~~not~~ been exercised.

~~In connection~~On February 8, 2017, the Company entered into Loan and Security Agreements with ~~the Company’s entry into a credit agreement with Opus~~each of East West Bank ~~(“Opus”~~("EWB") and Venture Lending & Leasing VII, Inc. and Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL8”) as discussed in Note 7, Financial Liabilities,. In connection with the Company's Revolving Loan Facility and Term Loan, the Company issued ~~Opus~~to EWB a warrant (the "EWB Warrant") to purchase up to ~~100,000~~40,000 shares of the ~~Company’s~~Company's common stock at a per share exercise price of ~~$9.90 (the “Opus Warrant”).~~ ~~On March 31, 2016, the Company entered into~~$3.64, and issued to each of VLL7 and VLL8 a ~~third amendment~~warrant to ~~its Credit Agreement increasing the number of~~purchase 290,000 shares of the Company's common stock ~~underlying~~at a per share exercise price of $2.00 (the “VLL7 Warrant” and the ~~warrant from 100,000~~“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. In accordance with ASC 505-50, Equity-Based Payments to ~~200,000~~Non-Employees, 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 ~~decreased~~is within the exercise price from $9.90 to $2.19 per share subject to modification. The Company also agreed to issue new warrants to purchase 100,000 shares of common stock in the event that the outstanding principal balancecontrol of the ~~Company’s loans with Opus exceeds specified thresholds on each of September 30, 2016, December 31, 2016 and March 31, 2017. The terms of any new warrants issued will be identical to those~~Company. Each of the ~~existing warrant, except that each new warrant issued will be exercisable for 100,000 shares~~EWB Warrant, the VLL7 Warrant and ~~have an exercise price equal to~~ the average closing price of the Company’s common stock for the five trading days ending on the last day of the quarter with respect to which the new warrant is issued. In addition, the existing registration rights agreement was amended to include the new warrants and change the circumstances under which the Company must register shares underlying the warrants issued to Opus (the “Amended Rights Agreement”). ~~The Opus~~VLL8 Warrant is immediately exercisable for cash or by net exercise and ~~expires~~will expire five years after its issuance, or on ~~March 31, 2019. The shares issuable upon exercise~~February 8, 2022. None of the ~~Opus~~shares under the EWB Warrant had been exercised. In connection with entering into Loan and ~~new Opus~~Security Agreements with EWB and VLL7 and VLL8, warrants ~~if any, are~~ to ~~be registered at the request~~purchase an aggregate of ~~Opus pursuant~~400,000 shares of common stock issued to the ~~Registration Rights Agreement, dated March 31, 2014, as amended by Amendment No. 1~~Company’s previous lender, Opus Bank (“Opus”) were cancelled.

In connection with securing of the new credit facility and cancelling of all the warrants previously issued to ~~Registration Rights Agreement, dated March 31, 2016, between the Company and Opus. As of September 30, 2016, the~~ Opus, ~~Warrant had not been exercised.~~

~~On September 30, 2016, the Company’s outstanding principal threshold, as required in its Credit Agreement, as amended, was not attained. As a result,~~ the Company issued a ~~new~~ warrant ~~(“New Opus Warrant”)~~to a consultant to purchase ~~100,000~~60,000 shares of its common stock at ~~a per share~~an exercise price of ~~$2.22~~$4.60 per share ~~to Opus.~~ (the “2017 Consultant Warrant”). The ~~New Opus~~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 is immediately exercisable for cash or by net exercise and ~~expires~~will expire two years after its issuance, or on ~~September 30, 2021.~~February 8, 2019. None of the shares under the 2017 Consultant Warrant had been exercised.

On August 14, 2013, in a private placement, the Company issued 834,847 shares of its common stock at a price of $8.50 per share and warrants to purchase an additional 834,847 shares of its common stock atwith an exercise price of $10.00 per share (the “2013

Private Placement Warrants”) to accredited and other qualified investors (the “Investors”). The 2013 Private Placement Warrants ~~have~~had a term of four years and ~~are~~were exercisable beginning six months following the date of issuance. In addition, the placement agent was issued warrants to purchase 100,000 shares of common stock at an exercise price of $10.00 per share as compensation. Subsequent to issuance, warrants to purchase an aggregate of 747,969 shares were exercised. The number of shares issuable upon exercise of the 2013 Private Placement Warrants iswas subject to adjustment for any stock dividends, stock splits or distributions by the Company, or upon any merger or consolidation or sale of assets of the Company, tender or exchange offer for the Company’s common stock, or a reclassification of the Company’s common stock. On August 14, 2017, the remaining 186,878 warrants expired unexercised.

Below is the summary of outstanding warrants issued by the Company as of September 30, ~~2016:~~2017:

The Company has various stock-based compensation plans 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 of the ~~Director Option Plan, 1997 Stock Option Plan, 2000 Stock Option Plan,~~ 2007 Stock Option Plan (the “2007 ~~Plan”), the 2010 Bonus and Incentive Plan (the “2010~~ Plan”) and the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended.

In June 2010, the Company’s stockholders approved the 2010 Plan which granted cash and equity-based awards to executive officers, directors and other key employees as designated by the Compensation Committee of the Board. An aggregate of 300,000 shares of the Company’s common stock was reserved for issuance under the 2010 Plan as equity-based awards, including shares, nonqualified stock options, restricted stock or deferred stock awards. These awards provide the Company´s executives, directors and other key employees the opportunity to earn shares of common stock depending on the extent to which certain performance goals are met. Since the adoption of the 2011 Plan (described below), the Company utilizes shares from the 2010 Plan only for performance-based awards and all equity awards granted under the 2010 Plan are issued pursuant to the 2011 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 ~~the~~ 2007 Plan and 2010 Plan. Subsequent to June 6, 2011 through December 31, 2015, the number of shares of common stock authorized for issuance under the 2011 Plan ~~has~~had been increased by ~~an aggregate of 3.0~~1.0 million shares. On May 12, 2016, the Company’s stockholders approved an amendment and restatement of 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.

A summary of activity for the Company’s stock option plans for the nine months ended September 30, ~~2016~~2017 follows:

The following table summarizes information about options outstanding as of September 30, ~~2016:~~2017:

	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		540,363		9.15	$	4.58		183,894	$	4.90		479,810		8.47	$	4.48		256,300	$	4.58
$7.50 - $11.30		320,768		7.07		9.59		210,142		9.44		165,388		6.29		9.26		146,119		9.20
$12.00 - $19.70		40,009		6.46		13.56		39,666		13.55		17,396		4.75		13.66		17,396		13.66
$21.70 - $33.90		17,411		4.19		25.14		17,411		25.14
$34.40 - $43.40		7,784		0.40		41.33		7,784		41.33
$4.36 - $43.40		926,335		8.15	$	7.40		458,897	$	9.12
$21.70 - $29.20												12,891		3.59		25.37		12,891		25.37
$4.36 - $29.20												675,485		7.75	$	6.29		432,706	$	7.13

At September 30, ~~2016,~~2017, there was ~~$1.7~~$0.7 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 ~~2.28~~1.7 years.

The following is a summary of restricted stock and restricted stock unit (“RSU”) activity for the nine months ended September 30, ~~2016:~~2017:

	Number Outstanding			Weighted Average Fair Value		Average Intrinsic Value		Number Outstanding			Weighted Average Fair Value
Balance at December 31, 2015		721,918		$	13.32	$	—
Unvested at December 31, 2016									1,973,459		$	2.80
Granted		1,756,732			2.06				338,646			5.12
Vested		(603,869	)		7.29				(480,764	)		3.41
Forfeited		(243,515	)		15.14				(132,441	)		3.19
Balance at September 30, 2016		1,631,266		$	2.97	$	-
Unvested at September 30, 2017									1,698,900		$	3.06
Shares vested but not released									295,386		$	2.51

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 at the date of grant. As of September 30, ~~2016,~~2017, there was ~~$2.1~~$4.7 million of unrecognized compensation cost related to unvested RSUs granted, which is expected to be recognized over a weighted average period of ~~2.89~~2.8 years. As of September 30, ~~2016,~~2017, an aggregate of ~~1,631,266~~1,403,514 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 and nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Cost of revenue	$	26	$	34	$	72	$	98	$	24	$	26	$	71	$	72
Research and development		69		73		205		212		130		69		361		205
Selling and marketing		148		363		433		911		193		148		463		433
General and administrative		620		659		1,535		2,316		317		620		1,021		1,535
Total	$	863	$	1,129	$	2,245	$	3,537	$	664	$	863	$	1,916	$	2,245

Common stock reserved for future issuance as of September 30, ~~2016~~2017 was as follows:

Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. For the three and nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, common stock equivalents consisting of outstanding stock options, RSUs and warrants were excluded from the calculation of diluted net loss per share because these securities were anti-dilutive due to the net loss in the respective periods. The total number of common stock equivalents excluded from diluted net loss per share relating to these securities was ~~3,129,479~~3,203,620 common stock equivalents for both the three and nine months ended September 30, ~~2016,~~2017, and ~~2,323,430~~3,129,479 common stock equivalents for both the three and nine months ended September 30, ~~2015,~~2016, respectively.

Accumulated other comprehensive income (“AOCI”) at September 30, ~~2016~~2017 and December 31, ~~2015~~2016 consists of foreign currency translation adjustments totaling ~~$2.0~~$2.6 million and ~~$2.2~~$2.1 million, respectively. ~~As a result of the acquisition of the noncontrolling interest in a subsidiary company, $0.5 million was reclassified out of AOCI into net loss during the nine months ended September 30, 2015.~~

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

	September 30,		December 31,		September 30,		December 31,
	2016		2015		2017		2016
Raw materials	$	3,654	$	5,033	$	4,081	$	3,346
Work-in-progress		764		12		31		285
Finished goods		7,722		9,681		9,284		7,965
Total	$	12,140	$	14,726	$	13,396	$	11,596

	September 30,			December 31,			September 30,			December 31,
	2016			2015			2017			2016
Building and leasehold improvements	$	2,252		$	2,670		$	1,863		$	1,884
Furniture, fixtures and office equipment		2,290			2,242			1,933			2,002
Plant and machinery		8,901			8,858			9,319			8,848
Purchased software		1,941			2,510			1,923			1,717
Total		15,384			16,280			15,038			14,451
Accumulated depreciation		(12,712	)		(12,062	)		(12,921	)		(12,035	)
Property and equipment, net	$	2,672		$	4,218		$	2,117		$	2,416

The Company recorded depreciation expense of ~~$0.5~~$0.3 million and ~~$0.4~~$0.5 million during the three months ended September 30, 2017 and 2016, respectively, and ~~2015, respectively,~~$1.0 million and $1.4 ~~million and $1.2~~ million during the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

	September 30,		December 31,		September 30,		December 31,
	2016		2015		2017		2016
Accrued restructuring	$	487	$	633	$	—	$	237
Accrued professional fees		4,138		1,731		1,203		2,371
Income taxes payable		187		282		238		334
Other accrued expenses		2,064		3,189		1,537		2,090
Total	$	6,876	$	5,835	$	2,978	$	5,032

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

Existing

Customer

Technology

Relationship

Total

Amortization period (in years)

11.75

4.0 – 11.75

Gross carrying amount at December 31, 2015

$
4,600

$
10,639

$
15,239

Accumulated amortization

(2,361
)

(5,603
)

(7,964
)

Intangible Assets, net at December 31, 2015

$
2,239

$
5,036

$
7,275

Gross carrying amount at September 30, 2016

$
4,600

$
10,639

$
15,239

Accumulated amortization

(2,697
)

(6,359
)

(9,056
)

Intangible Assets, net at September 30, 2016

$
1,903

$
4,280

$
6,183

	Existing			Customer
	Technology			Relationship			Total
Amortization period (in years)		11.75		4.0 – 11.75

Gross carrying amount at December 31, 2016	$	4,600		$	10,639		$	15,239
Accumulated amortization		(2,809	)		(6,610	)		(9,419	)

Intangible Assets, net at December 31, 2016	$	1,791		$	4,029		$	5,820

Gross carrying amount at September 30, 2017	$	4,600		$	10,639		$	15,239
Accumulated amortization		(3,145	)		(7,366	)		(10,511	)

Intangible Assets, net at September 30, 2017	$	1,455		$	3,273		$	4,728

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 and nine months ended September 30, ~~2016.~~2017.

During the second quarter of 2015, the Company noted certain indicators of impairment, including a sustained decline in its stock price and continued reduced performance in its Identity reporting unit. Based on the results of step one of the goodwill impairment analysis, it was determined that the Company’s net adjusted carrying value exceeded its estimated fair value for the Identity reporting unit. As a result, the Company ~~concluded that the carrying value of goodwill for the Identity reporting unit was fully impaired and recorded an impairment charge of approximately $1.0~~ ~~million in its condensed consolidated statements of operations during the second quarter of 2015.~~

The following table illustrates the amortization expense included in the condensed consolidated statements of operations for the three and nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively (in thousands):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Cost of revenue	$	112	$	112	$	336	$	336	$	112	$	112	$	336	$	336
Selling and marketing		252		252		756		756		252		252		756		756
Total	$	364	$	364	$	1,092	$	1,092	$	364	$	364	$	1,092	$	1,092

The estimated annual future amortization expense for purchased intangible assets with definite lives over the next five years as of September 30, 2017 is as follows (in thousands):

2016 (remaining three months)	$	363
2017		1,455
2017 (remaining three months)			$	363
2018		1,455		1,455
2019		1,455		1,455
2020		1,455		1,455
Thereafter				—
Total	$	6,183	$	4,728

Hirsch Acquisition – Secure Keyboards and Secure Networks. Prior to the 2009 acquisition of Hirsch Electronics Corporation (“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 from the Company 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. The Company’s payment obligations under the 2009 Settlement Agreement to Secure Keyboards will continue through the calendar year ending December 31, 2020, with the final payment due on January 30, 2021, unless the Company elects at any time to 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 in the condensed consolidated balance sheets.

The Company included $0.1 million and $0.3 million of interest expense during the three and nine months ended September 30, ~~2016,~~2017, respectively, and $0.1 million and ~~$0.4~~$0.3 million of interest expense during the three and nine months ended September 30, ~~2015,~~2016, 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 September 30, ~~2016~~2017 is as follows (in thousands):


2016 (remaining three months)	$	291
2017		1,200
2017 (remaining three months)				$	300
2018		1,248			1,237
2019		1,298			1,288
2020		1,444			1,433
Thereafter		372
2021					369
Present value discount factor		(884	)		(469	)
Total	$	4,969			4,158
Less: Current portion - payment obligation					(877	)
Long-term payment obligation				$	3,281

	September 30,			December 31,			September 30,			December 31,
	2016			2015			2017			2016
Secured term loan	$	10,000		$	10,000		$	10,000		$	10,000
Bank revolving loan facility		8,300			8,300			8,490			8,300
Total before discount and debt issuance costs		18,300			18,300			18,490			18,300
Less: Current portion of financial liabilities		(10,000	)		—			(9,957	)		(8,119	)
Less: Current portion of unamortized discount and debt issuance costs								(596	)		(181	)
Less: Long-term portion of unamortized discount and debt issuance costs		(11	)		(644	)		(1,463	)		(221	)
Long-term financial liabilities	$	8,289		$	17,656		$	6,474		$	9,779

On March 31, 2014, the Company entered into a credit agreement (the “Credit Agreement”) with Opus. The Credit Agreement ~~provides~~provided for a term loan in aggregate principal amount of $10.0 million (“Term Loan”) and an additional $10.0 million revolving loan facility (“Revolving Loan Facility”). On February 8, 2017, the Company entered into new Loan and Security Agreements. In connection with the closing of such agreements, the Company repaid all outstanding amounts under its Credit Agreement, as amended, with Opus. In evaluating the transaction, the Company compared the net present value cash flows under the existing Credit Agreement and the new Loan and Security Agreements to determine whether the terms of the new debt facility and the existing facility were "substantially different." As the net present value of cash flows varied by more than 10%, the Company concluded that the transaction should be accounted for as a debt extinguishment. As a result, the Company recorded a gain on extinguishment of debt totaling $977,000, representing the difference between the reacquisition price of the previous debt facility, net of cancelled warrants previously issued to Opus, and its net carrying amount.

On February 8, 2017, the Company entered into Loan and Security Agreements with each of EWB and VLL7 and VLL8. The Loan and Security Agreement with EWB provides for a $10.0 million revolving loan facility ("Revolving Loan Facility"), and the Loan Security Agreement with VLL7 and VLL8 provides for a term loan in aggregate principal amount of $10.0 million (the "Term Loan"). The obligations of the Company under each of the ~~Credit Agreement~~Revolving Loan Facility and the Term Loan and Security Agreements are secured by substantially all assets of the Company. ~~Certain of the Company’s domestic subsidiaries have guaranteed the credit facilities~~

The Revolving Loan Facility bears interest at prime rate plus 2.0% and ~~have granted Opus security interests in substantially all of their respective assets.~~matures and becomes due and payable on February 8, 2019. Interest is payable monthly beginning on March 1, 2017. The Company may voluntarily prepay ~~the Term Loan and~~amounts outstanding ~~amounts~~ under the Revolving Loan Facility, without prepayment ~~charges, and is required to make prepayments of~~charges. In the ~~Term Loan in certain circumstances or condemnation events using the proceeds of asset sales or insurance.~~

~~In connection with the Company’s entry into the Credit Agreement, the Company paid customary lender fees and expenses, including facility fees. In addition, as discussed in Note 3,~~ ~~Stockholders’ Equity~~, the Company issued the Opus Warrant to purchase up to 100,000 shares of the Company’s common stock at a per share exercise price of $9.90. The Company calculated the fair value of the Opus Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatility of 92.09%, risk-free interest rate of 1.73%, no dividend yield, and an expected life of five years. In accordance with ASC 505-50, ~~Equity-Based Payments to Non-Employees~~ the fair value of the Opus Warrant of $0.8 million was classified as equity as the settlement of the warrant will be in shares and is within the control of the Company. The Company recognized $0.9 million in costs, both cash and equity, related to the Term Loan and Revolving Loan Facility. In accordance with ASC 835-30, ~~Interest – Imputation of Interest~~ ~~amended by ASU 2015-03,~~ ~~Simplifying the Presentation of Debt Issuance Costs,~~ ~~the costs are recorded as a direct deduction from the carrying amount of the Term Loan~~event the Revolving Loan Facility ~~and amortized as interest expense over the term of the Credit Agreement.~~

~~On November 10, 2014,~~is terminated prior to its maturity, the Company entered into an amendment to its Credit Agreement (the “Amended Credit Agreement”) with Opus. Under the Amended Credit Agreement, the Revolving Loan Facility was increased from $10.0 million to $30.0 million and the revolving loan maturity date was extended to November 10, 2017. In addition, the Company is no longerwould be required to ~~make scheduled monthly installment payments~~pay an early termination fee in the amount of ~~principal under the Term Loan. Rather, the entire principal balance~~1.0% of the ~~Term Loan will be due on March 31, 2017. Under the terms~~revolving line, and an additional cash early termination fee of ~~the Amended Credit Agreement, both the principal amount of the Term Loan and the principal amount outstanding~~1.0% if terminated prior to February 8, 2018. Additional borrowing requests under the Revolving Loan Facility ~~bear interest at~~are subject to various customary conditions precedent, including satisfaction of a ~~floating rate equal to: (a) if~~borrowing base test as more fully described in the Company holds more than $30.0 million in cash with Opus, the greater of (i) the prime rate plus 1.50% and (ii) 4.75%; (b) if the Company holds $30.0 million or less but more than $20.0 million in cash with Opus, the greater of (i) the prime rate plus 2.25% and (ii) 5.50%; or (c) if the Company holds $20.0 million or less in cash with Opus, the greater of (i) the prime rate plus 2.75% and (ii) 6.00%. InterestRevolving Loan Facility.

facilities continues to be payable monthly. Additionally, the Amended Credit Agreement (i) modifies certain loan covenants applicable to the Company’s stock repurchase plan, (ii) removes from the loan collateral shares of the Company’s common stock repurchased by the Company and (iii) extends the current tangible net worth covenant by one year. The Company paid customary lender fees and third party fees related to the debt modification. In accordance with ASC 470-50, ~~Debt – Modifications and Extinguishments,~~ ~~the amendment has been treated as a debt modification, and costs related to the amendment are recorded as a direct deduction from the carrying amount of~~August 8, 2020. Payments under the Term Loan are interest-only for the first twelve months at a per annum rate of 12.5%, followed by principal and ~~Revolving Loan Facility and~~interest payments amortized ~~as interest expense~~ over the remaining term of the ~~Amended Credit Agreement.~~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,

The ~~Amended Credit Agreement contains~~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 will be payable in connection with the Revolving Loan Facility on February 8, 2018.

Each of the Revolving Loan Facility and the Term Loan contain customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the ~~Company’s~~Company's ability to incur liens, incur indebtedness, make certain restricted payments, merge or consolidate and dispose of assets. The ~~Amended Credit Agreement~~Revolving Loan Facility also ~~provides for customary~~contains various financial covenants as set forth in the Revolving Loan Facility, including but not limited to a ~~minimum tangible net worth~~liquidity covenant ~~a maximum senior leverage ratio and a minimum asset coverage ratio.~~requiring the Company to maintain at least $4.0 million of cash. In addition, iteach of the Revolving Loan Facility and the Term Loan contains customary events of default that entitle ~~Opus~~the EWB or VLL7 and VLL8, as appropriate, to cause any or all of the ~~Company’s~~Company's indebtedness under the ~~Amended Credit Agreement~~Revolving Loan Facility or the Term Loan, respectively, to become immediately due and payable. ~~Events~~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, ~~Opus~~EWB and VLL7 and VLL8 may terminate ~~its~~their lending commitments and/or declare all or any part of the unpaid principal of all ~~indebtedness,~~loans, all interest accrued and unpaid thereon and all other amounts payable under the ~~Amended Credit Agreement~~Loan and Security Agreements to be immediately due and payable. ~~The~~

As of September 30, 2017, the Company ~~has considered the components of the material adverse change clause of the Amended Credit Agreement and determined the likelihood of default~~was in compliance with all financial covenants under ~~the existing terms is remote. The Term Loan, net of discount and debt issuance costs, outstanding under the Amended Credit Agreement is classified as short-term and~~ the Revolving Loan Facility ~~net of discount and debt issuance costs, is classified as long-term in the accompanying condensed consolidated balance sheets as of September 30, 2016.~~

On December 4, 2015, the Company entered into an additional amendment (the “Second Amendment”) to its Credit Agreement with Opus. The Second Amendment amended the financial covenants and restricts the Company from permitting its consolidated tangible net worth, plus amounts payable to Secure Keyboards (see Note 6), to be less than $8,000,000 plus, 50% of any proceeds from debt or equity issued after December 1, 2015.

On March 31, 2016, the Company entered into an additional amendment (the “Third Amendment”) to its Credit Agreement with Opus. Under the Third Amendment, the Revolving Loan Facility was reduced from $30.0 million to $10.0 million and certain financial covenants were amended and added, including covenants with respect to tangible net worth, maximum senior leverage ratio, minimum asset coverage ratio, minimum EBITDA, minimum cash of at least $7.5 million, and minimum future outstanding principal balance thresholds. In addition, as discussed in Note 3, ~~Stockholders’ Equity~~ the Company amended the Opus Warrant. On September 30, 2016, as a result of not attaining a minimum outstanding principal threshold, the Company issued the New Opus Warrant to purchase 100,000 shares of common stock. The Company calculated the fair value of the Opus Warrant and the New Opus Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatility of 83.92%, risk free interest rate of 0.90%, no dividend yield, and an expected life of three years. Term Loan.

The ~~fair value of the Opus Warrant and the New Opus Warrant of $0.4 million is~~ ~~recorded as a direct deduction from the carrying amount~~proceeds of the Term Loan and ~~is being amortized as interest expense over~~ the ~~remaining term~~initial draw under Revolving Loan Facility, after payment of ~~the Credit Agreement, as amended~~.

~~The Company was not in compliance with certain financial covenants~~fees and expenses, were used to repay all outstanding amounts under the Credit Agreement ~~as amended, as~~with Opus. In connection with the repayment, warrants to purchase an aggregate of ~~September 30, 2016, which non-compliance was waived by Opus.~~400,000 shares of common stock issued to Opus were cancelled. The proceeds of any additional draws under the Revolving Loan Facility will be used for working capital and other general corporate purposes.

The following table summarizes the timing of repayment obligations for the Company’s long-term financial liabilities for the next four years under the current terms of the Credit Agreement, as amended, at September 30, ~~2016~~2017 (in thousands):

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 has no present intention of remitting undistributed retained earnings of any of its foreign subsidiaries. Accordingly, the Company has not established a deferred tax liability with respect to undistributed earnings of its foreign subsidiaries.

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 ~~2011.~~2012. However, if loss carryforwards of tax years prior to 2011 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.

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.

The Company is organized into four reportable operating segments: Physical Access Control Systems (“PACS”), previously referred to as Premises, Identity, Credentials and All Other.

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 CODM does not review operating expenses or asset information by operating segment for purposes of assessing performance or allocating resources.

Net revenue and gross profit information by segment for the three and nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
PACS:
Net revenue	$	7,253		$	5,976		$	17,908		$	15,212		$	6,434		$	7,253		$	17,622		$	17,908
Gross profit		4,334			3,531			10,244			9,130			3,412			4,334			9,556			10,244
Gross profit margin		60	%		59	%		57	%		60	%		53	%		60	%		54	%		57	%
Identity:
Net revenue		3,508			3,109			8,923			8,970			3,421			3,508			10,568			8,923
Gross profit		1,359			1,526			3,324			3,988			1,229			1,359			3,666			3,324
Gross profit margin		39	%		49	%		37	%		44	%		36	%		39	%		35	%		37	%
Credentials:
Net revenue		4,799			7,788			14,110			22,324			5,577			4,799			15,471			14,110
Gross profit		1,227			2,255			3,654			6,357			1,220			1,227			4,013			3,654
Gross profit margin		26	%		29	%		26	%		28	%		22	%		26	%		26	%		26	%
All Other:
Net revenue		-			323			580			1,211			—			—			3			580
Gross profit		-			209			261			776			—			—			6			261
Gross profit margin		0	%		65	%		45	%		64	%		—			—			200	%		45	%
Total:
Net revenue		15,560			17,196			41,521			47,717			15,432			15,560			43,664			41,521
Gross profit		6,920			7,521			17,483			20,251			5,861			6,920			17,241			17,483
Gross profit margin		44	%		44	%		42	%		42	%		38	%		44	%		39	%		42	%
Operating expenses:
Research and development		1,480			2,235			4,997			6,567			1,597			1,480			4,584			4,997
Selling and marketing		3,312			5,236			10,807			15,698			3,448			3,312			10,142			10,807
General and administrative		2,115			6,456			9,674			15,057			1,247			2,115			5,119			9,674
Impairment of goodwill		—			—			—			988
Restructuring and severance		160			215			3,100			408			(49	)		160			(49	)		3,100
Total operating expenses:		7,067			14,142			28,578			38,718			6,243			7,067			19,796			28,578
Loss from operations		(147	)		(6,621	)		(11,095	)		(18,467	)		(382	)		(147	)		(2,555	)		(11,095	)
Non-operating income (expense):
Interest expense, net		(525	)		(478	)		(1,814	)		(1,367	)		(643	)		(525	)		(1,995	)		(1,814	)
Foreign currency gain (loss), net		35			(10	)		309			(186	)
Gain on extinguishment of debt														—			—			977			—
Foreign currency (losses) gains, net														(51	)		35			(202	)		309
Loss before income taxes and noncontrolling interest	$	(637	)	$	(7,109	)	$	(12,600	)	$	(20,020	)	$	(1,076	)	$	(637	)	$	(3,775	)	$	(12,600	)

Geographic net revenue is based on the customer’s ship-to location. Information regarding net revenue by geographic region for the three and ~~six~~nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 is as follows (in thousands):

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Americas	$	9,924		$	12,473		$	27,343		$	32,423		$	10,291		$	9,924		$	28,894		$	27,343
Europe and the Middle East		2,834			2,294			6,654			7,386			1,771			2,834			5,767			6,654
Asia-Pacific		2,802			2,429			7,524			7,908			3,370			2,802			9,003			7,524
Total	$	15,560		$	17,196		$	41,521		$	47,717		$	15,432		$	15,560		$	43,664		$	41,521
Revenues:
Americas		64	%		73	%		66	%		68	%		67	%		64	%		66	%		66	%
Europe and the Middle East		18	%		13	%		16	%		15	%		11	%		18	%		13	%		16	%
Asia-Pacific		18	%		14	%		18	%		17	%		22	%		18	%		21	%		18	%
Total		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%

Long-lived assets by geographic location as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows (in thousands):

	September 30,		December 31,		September 30,		December 31,
	2016		2015		2017		2016
Property and equipment, net:
Americas	$	1,152	$	2,096	$	877	$	1,100
Europe and the Middle East		205		295		115		162
Asia-Pacific		1,315		1,827		1,125		1,154
Total property and equipment, net	$	2,672	$	4,218	$	2,117	$	2,416

During the nine months ended September 30, 2015, severance costs were incurred for certain employees terminated as part of management’s continuing efforts to simplify business operations. As a result, the Company recorded $0.4 million in restructuring and severance costs and other closure related costs and an additional $0.1 million in severance costs recorded in general and administrative expenses related to the elimination of certain executive positions in conjunction with the corporate restructuring and cost reduction activities.

In the first quarter of 2016, the Company implemented a worldwide restructuring plan designed to refocus the Company’s resources on its core business segments, including physical access and transponders, and to consolidate its operations in several worldwide locations. The restructuring plan included reducing the Company’s non-manufacturing employee base, reallocating overhead roles into direct business activities and eliminating certain management and executive roles. In the third quarter of ~~2016, the Company incurred additional facilities related restructuring costs of $0.1 million and severance related adjustments of $0.1 million in connection with this restructuring plan. As a result,~~2017, the Company recorded ~~$3.1 million in restructuring and severance costs in~~a credit resulting from actual expenditures being less than originally accrued. In the nine months ended September 30, ~~2016.~~2016, the Company incurred restructuring and severance costs of $3.1 million.

All unpaid restructuring and severance accruals are included in other accrued expenses and liabilities within current liabilities in the condensed consolidated balance sheets at September 30, ~~2016~~2017 and December 31, ~~2015.~~2016. Restructuring and severance activities during the nine months ended September 30, ~~2016~~2017 and ~~September 30, 2015~~2016 were as follows (in thousands):

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
Balance at beginning of period	$	633		$	1,377		$	237		$	633
Restructuring expense incurred for the period		3,100			408			(49	)		3,100
Other cost reduction activities for the period	—				81
Payments and non-cash item adjustment during the period		(3,246	)		(1,855	)		(188	)		(3,246	)
Balance at end of period	$	487		$	11		$	—		$	487

The ~~Company leases its facilities, certain equipment, and automobiles under non-cancelable operating lease agreements. Those lease agreements existing~~following table summarizes the Company’s principal contractual commitments as of September 30, ~~2016 expire at various dates during the next five years.~~2017 (in thousands):

The Company recognized rent expense of $0.3 million and $1.2 million in the three and nine months ended September 30, 2016, respectively, and $0.4 million and $1.3 million, in the three and nine months ended September 30, 2015, respectively, in its condensed consolidated statements of operations.

~~Purchases~~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 following table summarizes the Company’s principal contractual commitments as of September 30, 2016 (in thousands):~~

The Company provides warranties on certain product sales for periods ranging from 12 to 24 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.

On December 16, 2015, the Company and certain of its 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 the Company, 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, the Company, 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, which motions are scheduled to be heard on December 16, 2016. In addition, three shareholder derivative actions were filed between January and February 2016. On January 1, 2016, certain of the Company’s present and former officers and directors were named as defendants, and the Company was 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-JCS, alleging breach of fiduciary duty and abuse of control claims. On January 25, 2016, certain of the Company’s present and former officers and directors were named as defendants, and the Company was 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 the Company’s present and former officers and directors were named as defendants, and the Company was 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 the Company 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, the Company filed a motion to dismiss for failure by plaintiff to make a pre-lawsuit demand upon the Company’s 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 the Company’s motion to dismiss, without prejudice. In addition, the court stayed the case so that plaintiff could exercise whatever rights he has under Section 220 of the Delaware General Corporation Law. The Company intends to vigorously defend against these lawsuits. The Company 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 its business and have a material adverse impact on its financial condition.

ITEMITEM 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 provide 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 II, Item 1A of this Quarterly Report under the heading “Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. 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 is a global security technology company that secures ~~data,~~and manages access to physical places, things and ~~things. We sell~~information. Global organizations in government, education, retail, transportation, healthcare and other markets rely upon our products globally to customers in the government, enterprise and commercial markets to address vertical market segments including public services administration, military and defense, law enforcement, healthcare, education, banking, industrial, retail and critical infrastructure.solutions. We empower them to create ~~safe,~~ secure ~~validated~~ and convenient experiences in schools, government offices, factories, critical infrastructure, transportation, hospitals and virtually every type of facility and for ~~every type~~a wide range of ~~product.~~products.

The foundation of our business is our expertise in ~~radio frequency identification (“RFID”) products~~RFID, smart card technology, and access control, our close customer relationships that allow us to develop customer-relevant products, and our core value of quality.

To deliver these solutions, we have organized our operations into four reportable business segments, principally by product families: ~~Physical Access Control Systems, previously referred to as Premises,~~PACS, Identity, Credentials, and All Other.

~~In our PACS segment, we provide solutions and services that enable the issuance, management and use of secure identity credentials in diverse markets.~~ The foundation of our ~~PACS business~~physical access platform is the Hirsch line of controllers including the advanced MX line, Hirsch's Velocity management software and a wide range of integrations that provide Velocity/MX’s unique flexibility across a wide range of industries and implementations. We have further extended our ~~ICPAM~~physical access platform with our Identiv Connected Physical Access Manager (“ICPAM”) software, ~~EDGE controller~~derived from Cisco’s Physical Access Manager (“CPAM”) system and ~~reader package.~~ available in partnership with Cisco. Both of these platforms are available with our MX multi-door controllers as well as our edge controllers, which are targeted as one to two door installations and leverage existing Ethernet infrastructure (“Power-over-Ethernet”). 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.

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. 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.

~~uTrust~~To our price/performance/quality-leading commercial offerings, we have added what we believe to be 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 brings all of the advantages above into the next generation of physical security for the U.S. government departments and agencies to achieve FIPS 201 compliance.

Our TouchSecure (“TS”) door readers provide unique features to support a ~~number~~wide range of security ~~environments and~~ standards. ~~For example, uTrust Scramblepad readers employ numerical scrambling on the keypad to protect access codes from being stolen as they are entered. uTrust TS readers~~We support the majority of legacy card credentials with a robust next-generation platform that can help companies migrate to more secure credentials and technologies, including smart cards, ~~NFC~~near field communication ("NFC") and government-issued ~~credentials.~~credentials including CAC, PIV, 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.

22In addition to our core 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 access enabling platforms.

~~In our~~Our Identity ~~segment, we offer~~ products to secure enterprise information, including PCs, networks, email encryption, login, and printers via delivery of smart card reader products and identity management via our idOnDemand service. Identiv offersinclude 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~~data access) and security and identification applications, such as national ID, payment, e-Health and e-Government.

~~Related to our~~With over 20 years of smart card reader, ~~product line,~~application and token experience, we are ~~a leading~~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 products. Whether Identiv branded products, original equipment manufacturers (“OEM”) branded, or embedded chips or modules, our position is as the trusted business solution provider ~~in the definition~~for all users and ~~provisioning~~issuers of ~~access~~smart cards and other devices to allow users to conveniently and securely access their facilities and resources, and to empower facilities and security administrators to deploy exactly the solutions they want to provide the optimal mix of cost, security and convenience to their user community, whether students, hospital patients, military and government personnel, consumers or a vast array of users.embedded-chip applications.

~~In our~~Our Credentials segment ~~we offer access cards~~include NFC and RFID ~~and NFC~~ products, including inlays and inlaybased and other cards, ~~inlays,~~ labels, tags and stickers, as well as other ~~RF components.~~radio frequency (“RF”) and integrated circuits (“IC”) components and are generally grouped into 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 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 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.

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. These products are manufactured in our state-of-the-art facility in Singapore and are used in a diverse range of ~~identity-based~~physical applications, including electronic entertainment such as virtual reality (“VR”), games, loyalty ~~schemes,~~cards, mobile payment systems, transit and event ticketing, ~~and~~ brand authenticity from pharmaceuticals to consumer goods, hospital resource management, cold-chain management and many others.

Leveraging our expertise in RFID, physical access and physical authentication, ~~we're~~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 Internet of ~~things,~~Things, which fundamentally is about physical things. We believe our core strength in physical access and physical instrumentation (RFID) markets, our well-established platforms and our deep knowledge of the relevant technologies, position us well in this growth market.

The All Other segment includes ~~products,~~legacy product lines, such as Chipdrive and Digital Media readers. The products included in the All Other segment do not meet the quantitative thresholds for determining reportable segments and therefore have been combined for reporting purposes. No revenues are expected to be generated in 2017.

We primarily conduct ~~our own~~ 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 ~~original equipment manufacturers (“OEMs”).~~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.

Our corporate headquarters are located in Fremont, California. We maintain research and development facilities in California, ~~and~~ Chennai, India, and Munich, Germany, and local operations and sales facilities in Germany, the United Kingdom, Hong Kong, Singapore, India ~~Singapore~~ and the ~~U.S.~~United States. We were founded in 1990 in Munich, Germany and incorporated in 1996 under the laws of the State of Delaware.

For a discussion of our net revenue by segment and geographic location, see Note 9, Segment Reporting and Geographic Information 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):

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2017			2016
Americas	$	27,343		$	32,423		$	28,894		$	27,343
Europe and the Middle East		6,654			7,386			5,767			6,654
Asia-Pacific		7,524			7,908			9,003			7,524
Total	$	41,521		$	47,717		$	43,664		$	41,521
Revenues:
Americas		66	%		68	%		66	%		66	%
Europe and the Middle East		16	%		15	%		13	%		16	%
Asia-Pacific		18	%		17	%		21	%		18	%
Total		100	%		100	%		100	%		100	%

Net revenue in the nine months ended September 30, ~~2016 was down 13%~~2017 increased 5% compared with the first nine months of ~~2015.~~2016. Approximately ~~43%~~40% of our net revenue in the ~~first~~ nine months ended September 30, ~~2016~~2017 came from our PACS segment. Net revenue in the PACS segment was ~~$17.9~~$17.6 million and ~~$15.2~~$17.9 million for the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively. Net revenue in the Identity segment, which represented approximately 24% of total net revenue, was $10.6 million in the nine months ended September 30, 2017 compared to $8.9 million in the prior year period. Net revenue in our Credentials segment represented approximately ~~34%~~35% of our net revenue. Net revenue in the Credentials segment was ~~$14.1~~$15.5 million in the nine months ended September 30, ~~2016~~2017 compared to ~~$22.3~~$14.1 million in the comparable period in ~~2015. Net revenue in the Identity segment, which represents approximately 21% of total net revenue, was $8.9 million as compared to the prior year period of $9.0 million.~~2016.

Net revenue in the Americas was approximately ~~$26.3~~$28.9 million in the ~~first~~ nine of months ~~of 2016,~~ended September 30, 2017, accounting for ~~63%~~66% of total net revenue, and was ~~down 19%~~up 6% compared to ~~$32.4~~$27.3 million in the ~~first~~ nine months of ~~2015.~~2016. Net revenue from our PACS solution for security programs within various U.S. government agencies, as well as RFID and NFC products, inlays and tags ~~comprise a significant proportion~~represented approximately 55% of our net revenue in the Americas region.

Net revenue in our PACS segment infor the ~~Americas increased by approximately 17% in the first~~ nine months ~~of 2016 compared with~~ended September 30, 2017 was comparable to the ~~same~~prior year period ~~of the previous year, while net revenue in our Credentials segment decreased 48% in the first nine months of 2016 compared with the same period of the previous year. PACS net revenue increases were~~ primarily due to ~~an increase in orders for physical access control solutions from federal government customers, and~~higher of software products sales, higher sales through our channel ~~partners. Credentials segment net revenue decreases were primarily due~~partners, and an increase in professional services engagements, offset by lower sales of physical access control solutions attributable to ~~transponder sales to certain large~~the timing of orders received from federal government customers ~~for electronic gaming applications in~~late or after the ~~first nine months~~end of ~~2015 that were not repeated in~~ the ~~comparable period~~third quarter of ~~2016.~~2017. Net revenue ~~from~~in our Identity segment decreased in the nine months ended September 30, ~~2016~~2017 compared to the comparable period of the previous year primarily due ~~primarily~~ to lower smart card reader sales. Net revenue in our Credentials segment increased 22% in the nine months ended September 30, 2017 compared with the same period of the prior year primarily due to higher transponder and access card 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 ~~customer’s~~customers move towards compliance with federal directives and mandates. To expand our sales opportunities in the United States in general and with our U.S. Government customers in particular, we have strengthened our U.S. sales organization and ~~reopened a~~our sales presence in Washington D.C.

Net revenue in Europe, the Middle East, and Asia-Pacific was approximately ~~$15.3~~$14.8 million in the nine months ended September 30, 2017, accounting for 34% of total net revenue and was up 4% compared to $14.2 million in the first nine months of 2016 ~~accounting for 37% of total net revenue, and was comparable to the first nine months of 2015~~primarily as a result of ~~primarily~~ increased sales in our Asia-Pacific region, partially offset by ~~a decline~~lower sales in our Europe and the Middle East ~~regions.~~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 larger 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 PACS products ~~increased~~decreased in the nine months ended September 30, 2017 from the prior year period due to ~~higher~~lower sales of physical access control solutions primarily in ~~both regions.~~the Europe and the Middle East region. Net revenue from our Identity products increased by approximately ~~13%~~40% in the ~~first~~ nine months ~~of 2016~~ended September 30, 2017 compared with the same period of the ~~previous~~prior year, primarily due to higher sales of smart card readers in ~~these regions.~~the Asia-Pacific region. Identity readers comprised approximately ~~42%~~50% of the net revenue ~~throughout these~~in both the Europe and the Middle East and the Asia-Pacific regions in the first nine months of ~~2016.~~2017. Net revenue from our Credentials products, which comprised approximately ~~38%~~37% of sales in ~~this region, declined by approximately 10%~~both the Europe and the Middle East and the Asia-Pacific regions in the first nine months of ~~2016~~2017, decreased 8% compared with the same period of the ~~previous~~prior year primarily as a result of lower transponder and access card product sales in the ~~Asia-Pacific.~~Asia-Pacific region, partially offset by higher transponder product sales in the Europe and the Middle East region.

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 PACS solutions 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~~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) decreased ~~32%~~22% in the first nine of months of ~~2016~~2017 compared with the same period of ~~2015.~~2016. Research and development spending decreased by ~~24%~~8% in the first nine months of ~~2016~~2017 compared with the same period of ~~2015 as the benefit of~~2016 resulting from restructuring initiatives ~~realized during~~undertaken in the first ~~nine months~~quarter of ~~2016.~~2016 and additional headcount reductions in 2017. Selling and marketing spending in the first nine months of ~~2016 was down~~2017 decreased by ~~31%~~6% compared with the ~~first nine months~~same period of ~~2015,~~2016, due to cost ~~saving~~savings initiatives taken in the sales and marketing organization reducing ~~both headcount and~~ marketing program spending. General and administrative spending in the first nine months of ~~2016~~2017 decreased ~~36%~~47% from the same period in the ~~previous~~prior year primarily ~~as a result of cost savings associated with the restructuring initiatives implemented~~due to lower legal and professional fees, reimbursements received from an insurance provider for legal fees incurred related to legal proceedings, and credits received from service providers for legal fees invoiced in ~~the beginning of 2016.~~prior periods.

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

	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2016			2015			% Change			2016			2015			% Change			2017			2016			% Change			2017			2016			% Change
PACS:
Net revenue	$	7,253		$	5,976			21	%	$	17,908		$	15,212			18	%	$	6,434		$	7,253			(11	%)	$	17,622		$	17,908			(2	%)
Gross profit		4,334			3,531			23	%		10,244			9,130			12	%		3,412			4,334			(21	%)		9,556			10,244			(7	%)
Gross profit margin		60	%		59	%					57	%		60	%					53	%		60	%					54	%		57	%
Identity:
Net revenue		3,508			3,109			13	%		8,923			8,970			(1	%)		3,421			3,508			(2	%)		10,568			8,923			18	%
Gross profit		1,359			1,526			(11	%)		3,324			3,988			(17	%)		1,229			1,359			(10	%)		3,666			3,324			10	%
Gross profit margin		39	%		49	%					37	%		44	%					36	%		39	%					35	%		37	%
Credentials:
Net revenue		4,799			7,788			(38	%)		14,110			22,324			(37	%)		5,577			4,799			16	%		15,471			14,110			10	%
Gross profit		1,227			2,255			(46	%)		3,654			6,357			(43	%)		1,220			1,227			(1	%)		4,013			3,654			10	%
Gross profit margin		26	%		29	%					26	%		28	%					22	%		26	%					26	%		26	%
All Other:
Net revenue		-			323			(100	%)		580			1,211			(52	%)		—			—			0	%		3			580			(99	%)
Gross profit		-			209			(100	%)		261			776			(66	%)		—			—			0	%		6			261			(98	%)
Gross profit margin		0	%		65	%					45	%		64	%					—			—						200	%		45	%
Total:
Net revenue		15,560			17,196			(10	%)		41,521			47,717			(13	%)		15,432			15,560			(1	%)		43,664			41,521			5	%
Gross profit		6,920			7,521			(8	%)		17,483			20,251			(14	%)		5,861			6,920			(15	%)		17,241			17,483			(1	%)
Gross profit margin		44	%		44	%					42	%		42	%					38	%		44	%					39	%		42	%
Operating expenses:
Research and development		1,480			2,235			(34	%)		4,997			6,567			(24	%)		1,597			1,480			8	%		4,584			4,997			(8	%)
Selling and marketing		3,312			5,236			(37	%)		10,807			15,698			(31	%)		3,448			3,312			4	%		10,142			10,807			(6	%)
General and administrative		2,115			6,456			(67	%)		9,674			15,057			(36	%)		1,247			2,115			(41	%)		5,119			9,674			(47	%)
Impairment of goodwill		—			—			—			—			988			(100	%)
Restructuring and severance		160			215			(26	%)		3,100			408			660	%		(49	)		160			(131	%)		(49	)		3,100			(102	%)
Total operating expenses:		7,067			14,142			(50	%)		28,578			38,718			(26	%)		6,243			7,067			(12	%)		19,796			28,578			(31	%)
Loss from operations		(147	)		(6,621	)		(98	%)		(11,095	)		(18,467	)		(40	%)		(382	)		(147	)		160	%		(2,555	)		(11,095	)		(77	%)
Non-operating income (expense):
Interest expense, net		(525	)		(478	)		10	%		(1,814	)		(1,367	)		33	%		(643	)		(525	)		22	%		(1,995	)		(1,814	)		10	%
Gain on extinguishment of debt																				—			—			0	%		977			—			0	%
Foreign currency gains (losses), net		35			(10	)		(450	%)		309			(186	)		(266	%)		(51	)		35			(246	%)		(202	)		309			(165	%)
Loss before income taxes and noncontrolling interest	$	(637	)	$	(7,109	)		(91	%)	$	(12,600	)	$	(20,020	)		(37	%)	$	(1,076	)	$	(637	)		69	%	$	(3,775	)	$	(12,600	)		(70	%)

Total net revenue in the third quarter of ~~2016~~2017 was ~~$15.6~~$15.4 million, down ~~10%~~1% compared with ~~$17.2~~$15.6 million in the third quarter of ~~2015.~~2016. For the nine months ended September 30, ~~2016,~~2017, total net revenue was ~~$41.5~~$43.7 million, ~~down 13%~~up 5% compared with ~~$47.7~~$41.5 million for the comparable period for ~~2015.~~2016. Total net revenue was ~~lower~~higher in the first nine months of ~~2016,~~2017, mainly driven ~~by lower sales in our Credentials segment partially offset~~ by higher sales in our ~~PACS~~Identity and ~~Identity~~Credentials segments. A more detailed discussion of net revenue by segment follows below.

Net revenue in our PACS segment was $6.4 million in the third quarter of 2017, a decrease of 11% from $7.3 million in the third quarter of ~~2016,~~2016. The decrease was primarily due to lower sales of physical access control solutions attributable to the timing of orders received from federal government customers late or after the quarter ended, partially offset by an increase ~~of 21% from $6.0 million~~ in ~~the third quarter of 2015. In~~professional services engagements and higher sales through our channel partners. Net revenue in the nine months ended September 30, ~~2016, net revenue in our PACS segment~~2017 of $17.6 million was comparable to $17.9 ~~million, an increase of 18% from $15.2~~ million in the nine months ended September 30, 2015. The increase in the nine months ended September 30, 2016 primarily was due to higher sales of physical access control solutions, including an increase in professional services engagements, attributable to greater demand from federal government customers and higher sales through our channel partners compared to the comparable period of the prior year.2016.

Net revenue in our Identity segment of $3.4 million in the third quarter of 2017 decreased 2% from $3.5 million in the third quarter of 2016 ~~increased 13% from $3.1 million~~as a result of higher smart card reader sales in the ~~third quarter of 2015.~~Asia-Pacific region, offset by lower smart card reader sales in the Americas region. In the nine months ended September 30, ~~2016,~~2017, net revenue in our Identity segment was ~~$8.9~~$10.6 million, ~~a decrease~~an increase of 1%

18% from ~~$9.0~~$8.9 million in the nine months ended September 30, ~~2015. This decrease in Identity segment net revenue~~2016. The increase was primarily due to higher smart card reader sales in the Asia-Pacific region, partially offset by lower smart card reader sales in ~~Europe and~~ the ~~Asia-Pacific regions, partially offset by increases in smart card reader sales in the U.S. and to federal government customers.~~Americas region.

Net revenue in our Credentials segment was $5.6 million in the third quarter of 2017, an increase of 16% from $4.8 million in the third quarter of ~~2016,~~2016. The increase was primarily a ~~decrease~~result of ~~38% from $7.8 million~~higher transponder and access card product sales in the ~~third quarter of 2015.~~Americas region, partially offset by lower transponder product sales in the Europe and the Middle East region. In the nine months ended September 30, ~~2016,~~2017, net revenue in our Credentials segment was ~~$14.1~~$15.5 million, ~~a decrease~~an increase of ~~37%~~10% from ~~$22.3~~$14.1 million in the nine months ended September 30, ~~2015.~~2016. The ~~decrease~~increase was primarily ~~due to~~a result of higher transponder and access card product sales ~~to certain large customers for electronic gaming applications~~ in the ~~comparable periods of 2015 that were not repeated~~Americas and the Europe and the Middle East regions, partially offset by lower transponder and access card product sales in the Asia-Pacific region.

No net revenue was recognized in our All Other segment in the third quarter of 2017 and 2016, ~~partially offset by an increase in access card sales in the U.S.~~

respectively. Net revenue in our All Other segment was less than $0.1 million in the third quarter of 2016, compared to $0.3 million in the third quarter of 2015. In the nine months ended September 30, 2016, net revenue in our All Other segment was $0.6 million, compared to $1.2 millionrecognized in the nine months ended September 30, ~~2015. Digital Media reader product sales were down significantly~~2017 was negligible compared to $0.6 million in the ~~three and nine months ended September 30, 2016 compared~~comparable period in the prior year. The decrease is due to the ~~same period~~phasing out of our digital media product lines and the discontinuation of our Chipdrive product line in ~~2015 and are expected to remain at low levels as certain customers are expected to exit this business. In addition, we are exiting~~ the ~~Chipdrive business and negligible future sales are expected.~~fourth quarter of 2016.

Gross profit for the third quarter of ~~2016~~2017 was ~~$6.9~~$5.9 million, or ~~44%~~38% of net revenue, compared with ~~$7.5~~$6.9 million or 44% of net revenue in the third quarter of ~~2015.~~ 2016. In the nine months ended September 30, ~~2016,~~2017, gross profit was ~~$17.5~~$17.2 million, or ~~42%~~39% of net revenue, compared with ~~$20.3~~$17.5 million, or 42% of net revenue in the nine months ended September 30, ~~2015.~~ 2016. 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. The decrease in gross profit margins in 2016 was primarily attributable to the change in product mix, with a higher proportion of sales of lower margin physical access control system products and information readers and modules.

In our PACS segment, gross profit on sales of physical access control solutions, including panels, controllers, and access readers was $3.4 million in the third quarter of 2017 and $4.3 million in the third quarter of 2016, and ~~$3.5 million in the third quarter of 2015, and $10.2~~$9.6 million and ~~$9.1~~$10.2 million in the nine months ended September 30, 2017 and 2016, ~~and 2015, respectively.~~respectively. Gross profit was ~~higher~~lower in the nine months ended September 30, ~~2016~~2017 as a direct result of lower segment sales and higher sales of lower margin products in the PACS segment during the period. Gross profit margins in the PACS segment of ~~60%~~53% were ~~higher~~lower in the third quarter of ~~2016~~2017 compared to ~~59%~~60% in the comparable period of ~~2015, and lower in the nine months ended September 30,~~ 2016 ~~compared to the comparable period of 2015 at 57% and 60%, respectively, both~~ primarily attributable to the impact of ~~product mix~~a higher proportion of lower margin sales within the segment.

In our Identity segment, gross profit on sales of information readers and modules as well as cloud-based credential provisioning and management services was $1.2 million in the third quarter of 2017 compared to $1.4 million in the third quarter of 2016 ~~compared to $1.5 million in the third quarter of 2015,~~, and ~~$3.3~~$3.7 million and ~~$4.0~~$3.3 million in the nine months ended September 30, 2017 and 2016, ~~and 2015, respectively.~~respectively. Gross profit was lower in the nine months ended September 30, ~~2016~~2017 as a direct result of higher sales of lower ~~sales~~margin products in the Identity segment during the period. Gross profit margins in the Identity segment of 36% were lower in the ~~nine months ended September 30, 2016, at 37%,~~third quarter of 2017 compared to 39% in the ~~nine months ended September 30, 2015~~comparable period of ~~44%, due~~2016 primarily attributable to ~~product mix and~~the delivery of orders to international customers with lower ~~margins on smart card readers following the go-to market change to a distribution sales model in certain international markets.~~margins.

In our Credentials segment, gross profit on sales of physical access credentials and ~~RFID~~authenticity and ~~NFC inlays and tags used in electronic entertainment~~tracking applications was $1.2 million in the third quarter of ~~2016~~2017 compared to ~~$2.3~~$1.2 million in the third quarter of ~~2015,~~2016, and ~~$3.7~~$4.0 million and ~~$6.4~~$3.7 million in the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively. Gross profit margins in the Credentials segment were lower in the third quarter of ~~2016~~2017 at ~~26%~~22% compared to ~~28%~~26% in the third quarter of ~~2015~~2016 primarily due to ~~manufacturing inefficiencies attributable to~~the impact of higher a proportion of lower ~~transponder production volumes during the quarter.~~margin sales.

We expect there will be ~~some~~ 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 and nine months ended September 30, ~~2016~~2017 and ~~September 30, 2015~~2016 is set forth ~~below.~~below (dollars in thousands).

	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2016			2015			% Change			2016			2015			% Change			2017			2016			% Change			2017			2016			% Change
Research and development	$	1,480		$	2,235			(34	%)	$	4,997		$	6,567			(24	%)	$	1,597		$	1,480			8	%	$	4,584		$	4,997			(8	%)
as a % of net revenue		10	%		13	%					12	%		14	%					10	%		10	%					10	%		12	%

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 in the ~~three~~third quarter of 2017 increased compared to the comparable prior year period primarily due to the higher product certification costs. Research and development expenses decreased in the nine months ended September 30, ~~2016 decreased primarily due~~2017 compared to the ~~benefit~~prior year period as a result of the restructuring initiatives ~~realized during~~undertaken in the first ~~three quarters~~quarter of ~~2016.~~2016 and additional headcount reductions in 2017, partially offset by higher product certification costs.

	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2016			2015			% Change			2016			2015			% Change			2017			2016			% Change			2017			2016			% Change
Selling and marketing	$	3,312		$	5,236			(37	%)	$	10,807		$	15,698			(31	%)	$	3,448		$	3,312			4	%	$	10,142		$	10,807			(6	%)
as a % of net revenue		21	%		30	%					26	%		33	%					22	%		21	%					23	%		26	%

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 in the third quarter of 2017 were comparable to the prior year quarter. Selling and marketing expenses in the nine months ended September 30, 2017 decreased primarily due to a reduction in ~~headcount and~~ marketing program spending ~~attributable~~compared to ~~our restructuring initiatives realized during~~ the ~~first three quarters of 2016.~~same period in the prior year.

	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2016			2015			% Change			2016			2015			% Change			2017			2016			% Change			2017			2016			% Change
General and administrative	$	2,115		$	6,456			(67	%)	$	9,674		$	15,057			(36	%)	$	1,247		$	2,115			(41	%)	$	5,119		$	9,674			(47	%)
as a % of net revenue		14	%		38	%					23	%		32	%					8	%		14	%					12	%		23	%

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 decreased primarily due to lower professional and legal fees, including reimbursements of $0.8 million and ~~professional~~$1.0 million in the three and nine months ended September 30, 2017, respectively, 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 ~~the benefit of restructuring initiatives realized during the first three quarters of 2016.~~ derivative litigation and all related proceedings.

In the first quarter of 2016, we implemented a worldwide restructuring plan designed to refocus our resources on our core business segments, including physical access and transponders, and to consolidate our operations in several worldwide locations. The restructuring plan included reducing our non-manufacturing employee base, reallocating overhead roles into direct business activities and eliminating certain management and executive roles. In the third quarter of 2017, we recorded a credit resulting from actual expenditures being less than originally accrued. In the nine months ended September 30, 2016, we incurred ~~additional facilities related~~ restructuring ~~costs~~ and severance ~~related adjustments in connection with this restructuring plan.~~costs of $3.1 million.

See Note 10, 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 to a long-term payment obligation arising from our acquisition of Hirsch Electronics Corporation. The higher net interest expense in the three and nine months ended September 30, 2016 compared to the comparable periods of 2015 is primarily due to the write-down of unamortized debt issuance costs of approximately $0.2 million relating to the revolving loan facility modification in the firstthird quarter of ~~2016~~2017 and ~~the higher amount of borrowings outstanding during~~ the nine months ended September 30, ~~2016~~2017 is attributable to higher interest costs related to our debt facility, partially offset by lower debt levels compared to the comparable ~~period~~periods in the prior year.

debt represents the difference between the reacquisition price of the existing debt facility and its net carrying amount. See Note 6, ~~Long-term Payment Obligation,~~ 7,~~and Note 7,~~ Financial Liabilities, in the accompanying notes to our unaudited condensed consolidated financial statements for more information.

Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. dollar 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 September 30, ~~2016,~~2017, our deferred tax assets are fully offset by a valuation allowance. 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 ~~a minimal~~an income tax ~~provision~~benefit during the three and nine months ended September 30, ~~2016.~~2017. The effective tax rates for the nine months ended September 30, ~~2016~~2017 and ~~September 30, 2015~~2016 differ from the federal statutory rate of 34% 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 tax rates.

As of September 30, ~~2016,~~2017, our working capital, which we define as current assets less current liabilities, was ~~$7.5~~$18.1 million, ~~a decrease~~an increase of ~~$17.1~~$9.0 million compared to ~~$24.6~~$9.1 million as of December 31, ~~2015.~~2016. As of September 30, ~~2016,~~2017, our cash balance was ~~$9.2~~$15.7 million.

The following summarizes our cash flows for the nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
Net cash used in operating activities	$	(6,194	)	$	(16,858	)	$	(5,064	)	$	(6,194	)
Net cash used in investing activities		(425	)		(553	)		(686	)		(425	)
Net cash (used in) provided by financing activities		(180	)		2,131
Net cash provided by (used in) financing activities								11,896			(180	)
Effect of exchange rates on cash		(685	)		149			479			(685	)
Net decrease in cash		(7,484	)		(15,131	)
Net increase (decrease) in cash								6,625			(7,484	)
Cash, beginning of period		16,667			36,547			9,116			16,667
Cash, end of period	$	9,183		$	21,416		$	15,741		$	9,183

Significant commitments that will require the use of cash in future periods include obligations under operating leases, a long-term payment obligation, secured note and revolver, purchase commitments and other obligations. Gross committed operating lease obligations were ~~$2.0~~$4.6 million, the long-term gross payment obligation was ~~$5.9~~$4.6 million, the bank term loan, revolving loan facility and interest related obligation were ~~$19.4~~$20.7 million, and purchase commitments and other obligations were ~~$9.0~~$9.8 million at September 30, ~~2016.~~2017. Total commitments due within one year were ~~$20.8~~$22.0 million and due thereafter were ~~$15.5~~$17.7 million at September 30, ~~2016.~~2017. These commitment levels as of September 30, ~~2016~~2017 are based on existing terms of our operating leases, obligations with suppliers, a liability to a former related party and an existing credit agreement ~~as amended, with Opus.~~.

Cash used in operating activities for the nine months ended September 30, 2017 was primarily due to the net loss of $3.6 million and by decreases in cash from net changes in operating assets and liabilities of $5.4 million, partially offset by adjustments for certain non-cash items of $3.9 million, consisting primarily of a gain on extinguishment of debt, depreciation, amortization, amortization of debt issuance costs, and stock-based compensation. For the nine months ended September 30, 2016, cash used in operating activities was primarily due to the net loss of $12.6 million, partially offset by ~~increases~~an increase in cash from net changes in operating assets and liabilities of ~~$0.3~~$0.4 million and by adjustments for certain non-cash items of $6.0 million, consisting primarily of depreciation, amortization, amortization of debt issue costs, loss on disposal of fixed assets and stock-based compensation. For the nine months ended September 30, 2015, cash used in operating activities was primarily due to the net loss of $20.2 million and decreases in cash from net changes in operating assets and liabilities of $4.7 million which were partially offset by adjustments for certain non-cash items of $8.0 million.

Cash used in investing activities for the nine months ended September 30, 2017 and 2016 was $0.7 million and ~~2015 was~~ $0.4 million, ~~and $0.6 million,~~ respectively, and ~~was~~ related to capital expenditures.

Cash provided by financing activities during the nine months ended September 30, 2017 related to borrowings of debt, net of issuance costs, of $42.7 million, and proceeds from the sale of our common stock, net of issuance costs of $12.6 million, offset by repayments of debt of $42.8 million and taxes paid related to net share settlement of restricted stock units of $0.6 million. Cash used in financing activities during the nine months ended September 30, 2016 was attributable to taxes paid related to ~~repurchases of our common stock surrendered to us to satisfy tax withholding obligations in connection with the vesting~~net share settlement of restricted stock units ~~issued to employees~~ of $0.2 million. Cash provided by financing activities during the nine months ended September 30, 2016 primarily reflects $4.0 million proceeds from draws on the bank revolver which was partially offset by $1.9 million for the repurchase of common stock.

We consider the undistributed earnings of our foreign subsidiaries, if any, as of September 30, ~~2016,~~2017, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. Generally, most of our foreign subsidiaries have accumulated deficits and cash positions that are held outside the U.S. and are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the U.S. 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 September 30, ~~2016,~~2017, the amount of cash held at such subsidiaries was ~~$1.2~~$0.9 million. We have not, nor do we currently anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

On ~~March 31, 2014,~~February 8, 2017, we entered into ~~a Credit~~Loan and Security Agreements with East West Bank, and Venture Lending & Leasing VII, Inc., or VLL7, and Venture Lending & Leasing VIII, Inc., or VLL8. The Loan and Security Agreement with ~~Opus (as amended from time to time as of~~East West Bank provides for a $10.0 million revolving loan facility, and the ~~date of this report). The Credit~~Loan and Security Agreement with VLL7 and VLL8 provides for a term loan in ~~the~~ aggregate principal amount of $10.0 ~~million~~million. In connection with the closing of both Loan and ~~an additional $10.0 million revolving loan facility. For additional information concerning the amendment of the~~Security Agreements, we repaid all outstanding amounts under our Credit Agreement ~~see~~with Opus Bank. See Note 7, Financial Liabilities, in the accompanying notes to our ~~unaudited~~ condensed consolidated financial ~~statements.~~statements for more information.

We have historically incurred operating losses and negative cash flows from operating activities. As of September 30, ~~2016,~~2017, we have a total accumulated deficit of ~~$390.4~~$395.1 million. During the nine months ended September 30, ~~2016,~~2017, we had a consolidated net loss of ~~$12.6~~$3.6 million. Although we have, and expect to continue, to realize benefits of ~~the~~our restructuring initiatives ~~realized~~implemented in ~~nine months of~~ 2016, we may continue to incur losses in the future.

Our condensed consolidated financial statements as of September 30, 2016 were prepared assuming that we will continue as a going concern. This assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our continuation as a going concern is contingent upon our ability to generate revenues and cash flows to meet our obligations on a timely basis and our ability to raise capital, secure financing or dispose of certain noncore assets as required. Our plans may be

adversely impacted if we fail to realize our assumed levels of revenues and expenses or savings from our cost reduction activities. If events, such as reductions or delays in spending under various federal budget programs, cause a significant adverse impact on our revenues, expenses or savings from our cost reduction activities, we may need to delay, reduce the scope of, or eliminate one or more of our development programs or obtain funds through collaborative arrangements with others that may require us to relinquish rights to certain of our technologies, or programs that we would otherwise seek to develop or commercialize ourselves, and to reduce personnel related costs. We ~~believe~~ ~~cash generated from operations and bank borrowing capacity provides sufficient liquidity to meet our obligations and continue as a going concern for the next twelve months~~.

~~Over the longer term, we~~ believe our existing cash balance, together with cash generated from operations and available credit under our ~~Amended Credit Agreement~~Loan and ~~our ability to raise capital through public and private offerings~~Security Agreements, will be sufficient to satisfy our working capital needs to fund ~~operations.~~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 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 restrictions on our operations, increases our fixed payment obligations and have 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.

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.

During the three months ended September 30, ~~2016,~~2017, 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, ~~2015.~~2016.

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

There have been no significant changes in our exposure to market risk during the three months ended September 30, ~~2016.~~2017. For discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, contained in our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

As of the end of the three months ended September 30, ~~2016,~~2017, as required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of members of our senior management, including our CEO and ~~interim~~ CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures are those controls and other procedures that are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our CEO and ~~interim~~ CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on our evaluation, our management, including our CEO and ~~interim~~ CFO, concluded that as of September 30, ~~2016,~~2017, our disclosure controls and procedures were ~~not~~ effective ~~because of~~at the material weakness described below in Management’s Report on Internal Control over Financial Reporting. Notwithstanding the material weakness discussed below, our management, including our CEO and interim CFO, has concluded that the condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.reasonable assurance level.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and or directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual consolidated financial statements.

A control system, no matter how well designed and operated, can only provide reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected.

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the ~~company’s~~Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the audit of the Company’s financial statements as of and for the year ended December 31, 2015, management identified a material weakness in internal control over financial reporting during 2015, and the material weakness was ongoing. Management determined that the design and operating effectiveness of the Company’s controls over the financial statement close process related to the application of our accounting policies and the presentation of disclosures in the financial statements had been inadequate. Specifically, this material weakness arose from insufficient review and oversight of the recording of complex and non-routine transactions, including revenue transactions, due to an insufficient number of accounting personnel with appropriate knowledge, experience or training in U.S. GAAP.

A number of remediation actions and organizational changes were enacted to address specific control weaknesses identified in our revenue and expenditure cycles. During the course of 2016, as part of our restructuring initiatives announced in the first quarter of 2016, we streamlined our global operations, transitioned to a single accounting system across substantially all our businesses, and strengthened our global accounting and finance function in Orange County, California. In 2017, we implemented procedures and controls over the financial statement close process, reallocated worldwide accounting resources, and continued to strengthen our accounting and finance team by hiring additional personnel with U.S. GAAP experience. We believe these initiatives allow for the necessary review and oversight of the recording complex and non-routine transactions. Management has determined that with the remediation measures undertaken in 2016 and through June 30, 2017, the material weakness has been fully remediated as of June 30, 2017. Our conclusion has not been reviewed by our independent registered public accounting firm.

Our management, including our CEO and ~~interim~~ CFO, assessed our internal control over financial reporting as of September 30, ~~2016.~~2017. In making the assessment of internal control over financial reporting, our management based its assessment on the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control — Integrated Framework of 2013.” Our management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal accounting and finance ~~organization.~~organization, but has not been reviewed by our independent registered public accounting firm.

Based on management’s assessment, ~~including consideration of the control deficiencies discussed below,~~ management has concluded that the Company’s internal control over financial reporting was ~~not~~ effective as of September 30, ~~2016, due to the following material weakness.~~

~~Inadequate design and application of controls related to financial statement close process –~~ Management determined that the design and operating effectiveness of our controls over the financial statement close process related to the application of our accounting policies and the presentation of disclosures in the financial statements has been inadequate. Specifically, this material weakness arises from insufficient review and oversight of the recording of complex and non-routine transactions due to an insufficient number of accounting personnel with appropriate knowledge, experience or training in U.S. GAAP. A similar material weakness was previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, 2013 and 2015, and a remediation plan was implemented. However in 2015, in the context of managing a significant change in accounting systems and organizational structure, the loss of legacy knowledge in respect of our old consolidation system, the diversion of resources related to an internal investigation which delayed the filing of our quarterly reports on Form 10-Q, and other external factors, it became apparent that all the information necessary to record complex and non-routine transactions had not been available and addressed timely, resulting in a number of late accounting adjustments.

~~Remediation of Material Weakness in Internal Control Over Financial Reporting~~

A number of remediation actions and organizational changes have been enacted to address specific control weaknesses identified in our revenue and expenditure cycles, and have completed the move to a single accounting system across substantially all our businesses during the course of 2016. In particular, we have carried out the financial close and consolidation process entirely

within our new system environment since the second quarter of 2016. Additionally, as part of our restructuring changes announced in the first quarter of 2016, we are continuing to streamline our global operations and concentrate our accounting and finance function in Orange County, California, close to our executive management and U.S. GAAP resources. Management expects to complete the implementation of remediation measures, and as a result remediate the existing material weakness described above, during 2016.

In addition, under the direction of the Audit Committee of the Board, our management will continue to review and make necessary changes to the overall design of our internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures to address control deficiencies.2017.

Other than, the items noted above, we have made no changes to our internal control over financial reporting during the three months ended September 30, ~~2016~~2017 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we could be subject to claims arising in the ordinary course of business or be a defendant in lawsuits. The outcome of such claims or other proceedings cannot be predicted with certainty, and the resolution of any such claims could be material.

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 ~~motions are~~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 has not yet scheduled ~~to be heard~~oral argument or entered a ruling on ~~December 16, 2016.~~the lead plaintiff’s appeal. 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-JCS,~~16-cv-00241-CRB, alleging breach of fiduciary duty and ~~abuse of control~~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 ~~has~~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 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 is denied and the court will issue an order to that effect. The court has not yet issued that order. 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 and, if the complex determination is denied, a further case management conference in July 2018. 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. The risks, uncertainties and other factors described in these 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.

~~Our loan covenants may affect our liquidity or limit our ability to incur debt, make investments, sell assets, merge or complete other significant transactions.~~

In March 2014, we entered into a Senior Secured Credit Facility Agreement with Opus Bank, as lender, (as amended from time to time as of the date of this report, the “Credit Agreement”). The Credit Agreement includes provisions that place limitations on a number of our activities, including our ability to incur additional debt, create liens on our assets or make guarantees, make certain investments or loans, pay dividends or dispose of or sell assets or enter into a merger or similar transaction. Our obligations under the Credit Agreement are secured by substantially all of our assets. Certain of our domestic subsidiaries have guaranteed the credit facilities under the Credit Agreement and have granted the lender security interests in substantially all of their assets. The Credit Agreement contains financial covenants, including covenants that require us to achieve certain levels of financial performance as

measured periodically in terms of our tangible net worth, EBITDA, and specific asset levels as they relate to outstanding debt. We have failed to maintain compliance with the financial covenants a number of times, and we and the lender have amended the Credit Agreement in the past to modify and/or waive compliance with certain of these financial covenants, most recently in March 2016. We were not in compliance with certain of the financial covenants as of September 30, 2015, March 31, 2016, June 30, 2016, and September 30, 2016. While we have obtained waivers from the lender with respect to these events, we cannot assure you that we will not be out of compliance with one or more financial covenants again in the future, or that the lender will continue to waive any such failures to be in compliance with covenants. If an event of default with respect to certain covenants (including financial covenants) occurs, the lender may, among other things, accelerate the indebtedness and seize collateral or exercise other remedies provided under the Credit Agreement. If repayment of the indebtedness is accelerated, we could face a substantial liquidity problem and may be forced to dispose of material assets or operations, seek to obtain equity capital, or restructure or refinance our indebtedness. Such alternative measures may not be available or successful. Also, our loan covenants may limit our ability to dispose of material assets or operations or to restructure or refinance our indebtedness. Even if we are able to restructure or refinance our indebtedness, the economic terms may not be favorable to us. Any of the foregoing could have a material adverse effect on our financial condition and results of operations. Our ability to make periodic interest payments and to repay our debt when due in 2017 depends on our financial and operating performance, which in turn, is subject to prevailing economic and competitive conditions and the other factors discussed in the ~~Risk Factors~~ section of our Annual Report on Form 10-K for the year ended December 31, 2015 and the other information discussed in this report. If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and may be forced to dispose of material assets or operations, seek to obtain equity capital, or restructure or refinance our indebtedness as noted above. Such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

In addition to ~~the above and~~ the other information set forth in this Quarterly Report, you should carefully consider the risk factors previously disclosed in Item ~~1A.~~1A to Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Exhibits are listed on the Exhibit Index at the end of this Quarterly Report. The exhibits required by Item 601 of Regulation S-K, listed on such Index in response to this Item, are incorporated herein by reference.

~~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.~~

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~~ State or other jurisdiction of incorporation or organization)	(I.R.S. Employer ~~INCORPORATION OR ORGANIZATION)~~Identification No.)

2201 Walnut Avenue, Suite 100 Fremont, California	94538
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)Address of principal executive offices)	(Zip Code)

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2016~~2017 and ~~2015~~2016	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, ~~2016~~2017 and ~~2015~~2016	5
	Condensed Consolidated Statement of Equity for the Nine Months Ended September 30, ~~2016~~2017	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2016~~2017 and ~~2015~~2016	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2220
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	34

Item 6.	Exhibits	3534

SIGNATURES		36
~~EXHIBIT INDEX~~		3735

	Number Outstanding			Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)		Average Intrinsic Value
Balance at December 31, 2016		832,941		$	7.11			$	—
Granted		—			—
Cancelled or Expired		(157,456	)		10.62
Exercised		—			—
Balance at September 30, 2017		675,485		$	6.29		7.75	$	151,116
Vested or expected to vest at September 30, 2017		660,599		$	6.33		7.73	$	146,195
Exercisable at September 30, 2017		432,706		$	7.13		7.32	$	75,558

Exercise of outstanding stock options and vesting of RSUs			~~2,557,601~~2,374,385
ESPP			293,888
Shares of common stock available for grant under the 2011 Plan			~~697,984~~395,330
Noncontrolling interest in Bluehill AG			10,355
Warrants to purchase common stock			~~571,878~~765,000
Shares issuable to settle liability			53,880
Total			~~4,131,706~~3,892,838

	Operating Leases		Purchase Commitments		Other Contractual Commitments		Total
2017 (remaining three months)	$	318	$	8,706	$	42	$	9,066
2018		1,195		1,048		—		2,243
2019		1,089		—		—		1,089
2020		893		—		—		893
2021		636		—		—		636
Thereafter		450		—		—		450
Total	$	4,581	$	9,754	$	42	$	14,377

	Operating Lease		Purchase Commitments		Other Contractual Commitments		Total
2016 (remaining three months)	$	368	$	6,312	$	13	$	6,693
2017		1,029		2,679		11		3,719
2018		266		—		—		266
2019		171		—		—		171
2020		159		—		—		159
Thereafter		2		—		—		2
Total	$	1,995	$	8,991	$	24	$	11,010

	~~IDENTIV, INC~~.

~~November 14, 2016~~	~~By:~~	/S~~/ Steven Humphreys~~
		~~Steven Humphreys~~
		~~Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~November 14, 2016~~	~~By:~~	/S~~/ Steven Finney~~
		~~Steven Finney~~
		~~Interim Chief Financial Officer and Secretary~~
		~~(Principal Financial Officer)~~

Exhibit Number		~~DESCRIPTION OF DOCUMENT~~Description


~~4.1~~		~~Warrant issued to Opus Bank, dated September 30, 2016.~~

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.

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.

November 9, 2017	By:	/S/ Steven Humphreys
		Steven Humphreys
		Chief Executive Officer
		(Principal Executive Officer)

November 9, 2017	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 small reporting company)

~~Non-accelerated filer~~ ☐Small reporting company

~~Smaller reporting~~☒

Emerging growth company☑