Annual report pursuant to Section 13 and 15(d)

12. Obligations Under Asset Purchase Agreements

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12. Obligations Under Asset Purchase Agreements
12 Months Ended
Dec. 31, 2016
Obligations Under Asset Purchase Agreements  
12. Obligations Under Asset Purchase Agreements

In connection with the purchase of assets ofRootAxcess, the Company held back $0.7 million of the purchase price against potential claims arising from breaches of representation and warranties. Of such amount, $0.4 million is to be paid to the seller in six equal monthly installments of $66,667 on the three, six, nine, twelve, fifteen and eighteen month anniversary of the closing date.  In addition, the Company held back $0.3 million to be paid in three equal installments of $100,000 on each of the twelve, fifteen, and eighteen month anniversary of the closing date.  To the extent there is an unresolved claim notice pending (as defined in the asset purchase agreement), the monthly installment payable to seller immediately following the delivery of such claim notice may at the Company’s reasonable discretion be reduced by the amount in dispute under the claim notice and such amount will continue to be held by the Company until the claim is resolved, at which point, the Company will disburse the withheld amount in accordance with such resolution. During the years ended December 31, 2016 and 2015, the Company made payments of $466,665 and $66,667, respectively, to the sellers in connection with the terms of the holdback agreement.

 

In connection with the purchase of the assets of TFB in March 2016, the Company recorded a contingent liability of $1,111,606 (see Note 5). The contingent liability was based on a royalty fee equal to ten percent of the collected monthly recurring revenues to be derived from the sale of the cloud version of the proprietary call center software and maintenance services. In accordance with the terms of the asset purchase agreement, the royalty fees will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of this acquisition or March 31, 2018, and will continue for a period of 31 calendar quarters. In addition, a portion of the salary paid to the sellers for a period of two years following the acquisition date constitutes an advance against any royalty fee owed to the sellers.At December 31, 2016, the outstanding balance of the royalty fee is $936,606. There were no changes to the contingent liability based on our evaluation of the factors used to determine the fair value of the purchase price.

 

In connection with the purchase of TOG in November of 2016, the Company recognized a liability in the amount $0.4 million as of December 31, 2016.