Quarterly report pursuant to Section 13 or 15(d)

Systat Licensing Agreement

v3.21.2
Systat Licensing Agreement
6 Months Ended
Jun. 30, 2021
Business Combination And Asset Acquisition [Abstract]  
Systat Licensing Agreement Systat Licensing Agreement
On June 19, 2020, the Company entered into an exclusive license with Cranes Software International Ltd. and Systat Software, Inc. (together the “Systat Parties”) to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (the “License Grant”) pursuant to the terms and conditions of that certain Exclusive Software License and Distribution Agreement, deemed effective as of June 1, 2020 (the “Effective Date”), and amended on June 30, 2020 (as amended, the “License Agreement”). In accordance with Rule 11-01(d) and ASC 805 - Business Combinations ("ASC 805"), the transaction was deemed to be the acquisition of a business and accounted for as a business combination with an acquisition date of June 30, 2020 (the “Closing Date”). In accordance with the terms of the License Agreement, on the Closing Date, we partitioned a portion of that certain promissory note (the “Sysorex Note”) issued to us by Sysorex, Inc. (“Sysorex”), into a new note in an amount equal to $3.0 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat Software, Inc. in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement. An additional $3.3 million of the principal balance underlying the Sysorex Note was partitioned and assigned to Systat Software, Inc. as consideration payable for the rights granted under the license as follows: (i) $1.3 million on the three month anniversary of the Closing Date; (ii) $1.0 million on the six month anniversary of the Closing Date; and (iii) $1.0 million on March 19, 2021. In addition, the cash consideration of $2.2 million was delivered on July 8, 2020.
In connection with the License Grant, the Systat Parties provided Inpixon with equipment to use at no additional cost for a minimum period of six months following the Closing Date. The Company is also entitled to any customer maintenance revenue, new license fees, or license renewal fees, received by any of the Systat Parties after June 1, 2020 in connection with the Systat Customer Contracts and/or Systat Distribution Agreements (as such terms are defined in the License Agreement) assigned to and assumed by us in connection with the License Agreement. The net amount owed to the Company for this period is included in the Other Receivable line item listed in the assets acquired below. The License Grant will remain in effect for a period of 15 years following the Closing Date, unless terminated sooner upon mutual written consent of Systat Software, Inc. and us or upon termination by either for the other party’s specified breach.
In connection with the License Grant, the Company expanded its operations into the United Kingdom and Germany. As a result of such expansion, the Company formed Inpixon Limited, a new wholly owned subsidiary in the United Kingdom, and established Inpixon GmbH, a wholly owned subsidiary incorporated under the laws of Germany.
The total recorded purchase price for the transaction was $2.2 million, which consisted of the $2.2 million cash consideration as a full valuation allowance was retained against the Sysorex Note.
The purchase price is allocated as follows (in thousands):
Fair Value Allocation
Assets Acquired:
Other receivable $ 44 
Developed technology 1,200 
Customer relationships 395 
Tradename & Trademarks 279 
Non-compete agreements 495 
Goodwill 520 
$ 2,933 
Liabilities Assumed:
Deferred Revenue $ 733 
733 
Total Purchase Price $ 2,200 
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The deferred revenue included in the condensed consolidated financial statements is the expected liability to service the projects. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not deductible for tax purposes. The financial data of the License Grant is included in the Company’s financial statements as of deemed acquisition date of June 30, 2020.
On February 22, 2021, the Company entered into a Second Amendment to the License Agreement to allow for the exercise of the purchase option in whole or in part anytime during the Purchase Option Period and to provide for cash consideration in lieu of an assignment of the Note at its option. In addition, the Company exercised its option to purchase a portion of the underlying assets, including certain software, trademarks, solutions, domain names and websites from Systat in exchange for consideration in an amount equal to $900,000.
The Second Amendment was accounted for as a business combination in accordance with ASC 805 Business Combinations. The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. A final valuation of the assets and purchase price allocation has not been completed as of the end of this reporting period as the third party valuation as not been finalized. Consequently, the purchase price was preliminarily allocated based on the Company's best estimates at the time of this filing. These amounts are subject of revision upon completion of the valuation.
The preliminary purchase price is allocated as follows (in thousands):

Fair Value Allocation
Intangible assets:
Trademarks $ 296 
Webstores & Websites 404 
Goodwill 200 
Total net assets acquired $ 900 
Proforma information has not been presented as it has been deemed immaterial.