Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11 — Commitments and Contingencies

Operating Leases 

Our principal executive offices were located at 2355 Dulles Corner Blvd., Suite 600, Herndon, Virginia 20171. We leased these premises, which consisted of approximately 11,000 square feet, pursuant to a 29-month lease that expired on September 30, 2018. Our gross monthly rent was approximately $30,000 through December 31, 2018.

On October 1, 2018, the Company's principal executive offices moved to 13880 Dulles Corner Lane, Suite 175, Herndon, Virginia 20171. We lease these premises, which consists of approximately 5,800 square feet, pursuant to a lease that expires on November 30, 2021. Provided that there is no event of default under this lease, rent will be abated for the last 8 calendar months of the term prior to the expiration date. The total amount of rent expense under the leases is recognized on a straight-line basis over the term of the leases. As of December 31, 2019 and 2018, prepaid rent was $22,590 and $5,300, respectively. Rent expense under the operating leases for the years ended December 31, 2019 and 2018 was approximately $100,000 and $288,000, respectively.

Future minimum lease payments under the above operating lease commitments at December 31, 2019 are as follows (in thousands of dollars):

For the Years Ending December 31,	Operating Lease Amounts
2020	$	122
2021		116
Total	$	238

Litigation

Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company's business, financial position, and results of operations or cash flows.

On February 20, 2019, Inpixon, the Company and Atlas Technology Group, LLC ("Atlas") entered into a settlement agreement (the "Settlement Agreement") in connection with the satisfaction of an arbitration award in an aggregate amount of $1,156,840 plus pre-judgment interest equal to an aggregate of $59,955 (the "Award") granted to Atlas following arbitration proceedings arising out of an engagement agreement, dated September 8, 2016, by and between Atlas and Inpixon as well as its subsidiaries, including the predecessor to the Company (the "Engagement Agreement").

Pursuant to the Settlement Agreement, Atlas agreed to (a) reduce the Award by $275,000 resulting in a net award of $941,795 (the "Net Award") and (b) accept an aggregate of 749,440 shares of freely-tradable common stock of Inpixon (the "Settlement Shares"), in satisfaction of the Award, which was determined by dividing 120% of the Net Award by $1.508, which was the "minimum price," as defined under Nasdaq Listing Rule 5635(d), of Inpixon's common stock. The closing occurred on February 21, 2019.

The Award is deemed satisfied in full and the parties are deemed to have released each other from any claims arising out of the Engagement Agreement.

In connection with the Spin-off, the Company and Inpixon each agreed pursuant to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018, as amended, that 50% of the costs and liabilities related to the arbitration action arising from the Engagement Agreement would be shared by each party following the spin-off. As a result, the Company is obligated to indemnify Inpixon for half of the total amount paid by Inpixon to satisfy the Award.

In the event that the total net proceeds received by Atlas or its designees from the sale of the Settlement Shares (exclusive of brokerage fees) exceeds the amount of the Net Award, Atlas agreed to deliver an amount equal to the difference between the sale proceeds and the Net Award to the legal counsel for Inpixon and the Company to be applied against fees incurred in connection with the arbitration and the Settlement Agreement.

The Company has reclassified its obligation of $565,081 in its financial statements from Accounts Payable at December 31, 2018 to Payable to related party. The balance of this obligation as of December 31, 2019 including interest is $616,000.

Gain on Earnout

Under the terms of the asset purchase agreement between Integrio and Emtec Federal, LLC (its wholly owned subsidiary) (collectively, the "Seller") and Inpixon and SGS (collectively, the "Buyer"), the Seller was eligible for an earnout that was included as part of the purchase consideration. During 2019 the Company determined that the Seller was ineligible for a portion of the earnout as the Seller did not meet the terms of the earnout provisions under the agreement and therefore recorded a gain on earnout of $62,000 which is included in the operating expenses section of the consolidated statement of operations.