Document and Entity Information
Document and Entity Information - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 15, 2017 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | Marathon Patent Group, Inc. | ||
Entity Central Index Key | 1,507,605 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 37.6 | ||
Entity Common Stock, Shares Outstanding | 19,302,472 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash | $ 4,998,314 | $ 2,555,151 |
Accounts receivable - net of allowance for bad debt of $387,976 and $375,750 for December 31, 2016 and December 31, 2015 | 95,069 | 136,842 |
Bonds posted with courts | 1,748,311 | |
Prepaid expenses and other current assets, net of discounts of $3,724 for December 31, 2016 and $3,414 for December 31, 2015 | 428,049 | 338,598 |
Total current assets | 5,521,432 | 4,778,902 |
Other assets: | ||
Property and equipment, net of accumulated depreciation of $108,407 and $67,052 for December 31, 2016 and December 31, 2015 | 28,329 | 61,297 |
Intangible assets, net | 12,314,628 | 25,457,639 |
Deferred tax assets | 12,437,741 | |
Other non current assets, net of discounts of $797 and $4,831 for December 31, 2016 and December 31, 2015 | 201,203 | 9,169 |
Goodwill | 222,843 | 4,482,845 |
Total other assets | 12,767,003 | 42,448,691 |
Total Assets | 18,288,435 | 47,227,593 |
Current liabilities: | ||
Accounts payable and accrued expenses | 7,217,078 | 6,534,825 |
Clouding IP earn out - current portion | 81,930 | 33,646 |
Notes payable, net of discounts of $852,404 and $730,945 for December 31, 2016 and December 31, 2015 | 13,162,007 | 10,383,177 |
Total current liabilities | 20,461,015 | 16,951,648 |
Long-term liabilities | ||
Notes Payable, net of discounts of $572,763 and $1,425,167 for December 31, 2016 and December 31, 2015 | 4,670,502 | 12,223,884 |
Clouding IP earn out | 1,400,082 | 3,281,238 |
Deferred tax liability | 1,044,997 | |
Revenue share liability | 1,000,000 | 1,000,000 |
Other long term liability | 43,978 | 50,084 |
Total long-term liabilities | 7,114,562 | 17,600,203 |
Total liabilities | 27,575,577 | 34,551,851 |
Stockholders' Equity (Deficit): | ||
Common stock, $.0001 par value; 200,000,000 shares authorized: 18,552,472 and 14,867,141 at December 31, 2016 and December 31, 2015 | 1,877 | 1,487 |
Additional paid-in capital | 49,877,689 | 43,217,513 |
Accumulated other comprehensive loss | (1,060,390) | (1,265,812) |
Accumulated deficit | (57,942,548) | (29,277,524) |
Total Marathon Patent Group stockholders' equity (deficit) | (9,123,294) | 12,675,742 |
Non-controlling Interests | (163,848) | |
Total Equity (Deficit) | (9,287,142) | 12,675,742 |
Total liabilities and stockholders' equity (deficit) | 18,288,435 | 47,227,593 |
Series B preferred stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock Series B, $.0001 par value, 100,000,000 shares authorized: 782,004 issued and outstanding at December 31, 2016 and December 31, 2015 | $ 78 | $ 78 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Allowance for bad debt | $ 387,976 | $ 375,750 |
Discounts on prepaid expenses and other current assets | 3,724 | 3,414 |
Other assets: | ||
Accumulated depreciation of property and equipment | 108,407 | 67,052 |
Discount on other noncurrent assets | 797 | 4,831 |
Current liabilities: | ||
Discount on notes payable, current | 852,404 | 730,945 |
Long-term liabilities | ||
Discount on notes payable, long-term | $ 572,763 | $ 1,425,167 |
Stockholders' Equity (Deficit): | ||
Preferred stock, par value | $ 0.0001 | |
Preferred stock, shares authorized | 100,000,000 | |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 18,552,472 | 14,867,141 |
Common stock, shares outstanding | 18,552,472 | 14,867,141 |
Series B preferred stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
Preferred stock, shares issued | 782,004 | 782,004 |
Preferred stock, shares outstanding | 782,004 | 782,004 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | ||
Revenues | $ 36,629,276 | $ 18,977,794 |
Expenses | ||
Cost of revenues | 19,064,473 | 16,603,792 |
Amortization of patents and website | 7,453,004 | 10,825,164 |
Compensation and related taxes | 5,483,031 | 5,419,252 |
Consulting fees | 1,279,092 | 2,324,248 |
Professional fees | 1,797,922 | 2,548,492 |
General and administrative | 840,179 | 1,143,869 |
Goodwill impairment | 4,336,307 | 0 |
Patent impairment | 11,958,882 | 5,793,409 |
Total operating expenses | 52,212,890 | 44,658,226 |
Operating loss from continuing operations | (15,583,614) | (25,680,432) |
Other income (expenses) | ||
Other income (expense) | (57,454) | 170,706 |
Foreign exchange gain (loss) | (367,847) | (61,868) |
Change in fair value adjustment of Clouding IP earn out | 1,832,872 | 6,137,116 |
Interest income | 4,353 | 1,068 |
Interest expense | (3,140,375) | (4,245,982) |
Loss on debt extinguishment | (1,416,915) | |
Total other income (expenses) | (1,728,451) | 584,125 |
Loss before benefit for income taxes | (17,312,065) | (25,096,307) |
Income tax benefit (expense) | (11,516,807) | 8,156,448 |
Net loss | (28,828,872) | (16,939,859) |
Net loss attributable to non-controlling interests | 163,848 | |
Net loss attributable to common shareholders | $ (28,665,024) | $ (16,939,859) |
Loss per common share: | ||
Basic and fully diluted (in dollars per share) | $ (1.89) | $ (1.19) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||
Basic and diluted (in shares) | 15,178,056 | 14,208,787 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||
Net loss | $ (28,828,872) | $ (16,939,859) |
Other Comprehensive Loss: | ||
Unrealized gain (loss) on foreign currency translation | 205,422 | (877,455) |
Comprehensive loss | (28,623,450) | (17,817,314) |
Net loss attributable to noncontrolling interest | 163,848 | |
Comprehensive loss attributable to Marathon Patent Group, Inc. | $ (28,459,602) | $ (17,817,314) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) | Preferred StockSeries B preferred stock | Preferred Stock | Common StockSeries B preferred stock | Common Stock | Add'l Paid in CapitalSeries B preferred stock | Add'l Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Non-Controlling Interest | Series B preferred stock | Total |
Beginning balance at Dec. 31, 2014 | $ 93 | $ 1,379 | $ 36,977,169 | $ (12,337,665) | $ (388,357) | $ 24,252,619 | |||||
Beginning balance (in shares) at Dec. 31, 2014 | 932,000 | 13,791,460 | |||||||||
Increase (decrease) in Stockholders' Equity | |||||||||||
Equity compensation expense | 2,490,175 | 2,490,175 | |||||||||
Issue common stock for services | $ 21 | 900,479 | 900,500 | ||||||||
Issue common stock for services (in shares) | 210,000 | ||||||||||
Exercise of stock option and warrants | $ 4 | 18,745 | 18,749 | ||||||||
Exercise of stock option and warrants (in shares) | 31,276 | ||||||||||
Warrant issued in conjunction with debt financing | 318,679 | 318,679 | |||||||||
Common stock issued in conjunction with debt restructuring | $ 20 | 653,980 | 654,000 | ||||||||
Common stock issued in conjunction with debt restructuring (in shares) | 200,000 | ||||||||||
Common stock issued in conjunction with debt financing | $ 13 | 999,987 | 1,000,000 | ||||||||
Common stock issued in conjunction with debt financing (in shares) | 134,409 | ||||||||||
Common stock issued upon conversion of preferred stock | $ (20) | $ 20 | |||||||||
Common stock issued upon conversion of preferred stock (in shares) | (199,996) | 199,996 | |||||||||
Preferred stock compensation | $ 5 | $ 345,329 | $ 345,334 | ||||||||
Preferred stock compensation (in shares) | 50,000 | ||||||||||
Issue common stock in litigation settlement | $ 30 | 512,970 | 513,000 | ||||||||
Issue common stock in litigation settlement (in shares) | 300,000 | ||||||||||
Currency translation loss | (877,455) | (877,455) | |||||||||
Net Loss | (16,939,859) | (16,939,859) | |||||||||
Ending balance at Dec. 31, 2015 | $ 78 | $ 1,487 | 43,217,513 | (29,277,524) | (1,265,812) | 12,675,742 | |||||
Ending balance (in shares) at Dec. 31, 2015 | 782,004 | 14,867,141 | |||||||||
Increase (decrease) in Stockholders' Equity | |||||||||||
Equity compensation expense | 1,817,344 | 1,817,344 | |||||||||
Issue common stock for services | $ 18 | 135,982 | 136,000 | ||||||||
Issue common stock for services (in shares) | 180,000 | ||||||||||
Issue common stock | $ 349 | 4,653,731 | 4,654,080 | ||||||||
Issue common stock (in shares) | 3,481,997 | ||||||||||
Warrant issued in conjunction with debt financing | 50 | 50 | |||||||||
Warrant exercise to purchase common stock (in shares) | 23,334 | ||||||||||
Warrant exercise to purchase common stock | $ 23 | 46,644 | 46,667 | ||||||||
Convertible debt warrant repricing | 6,425 | 6,425 | |||||||||
Currency translation loss | 205,422 | 205,422 | |||||||||
Net Loss | (28,665,024) | $ (163,848) | (28,828,872) | ||||||||
Ending balance at Dec. 31, 2016 | $ 78 | $ 1,877 | $ 49,877,689 | $ (57,942,548) | $ (1,060,390) | $ (163,848) | $ (9,287,142) | ||||
Ending balance (in shares) at Dec. 31, 2016 | 782,004 | 18,552,472 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (28,828,872) | $ (16,939,859) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation | 4,262 | 7,578 |
Amortization of patents and website | 7,453,004 | 10,825,164 |
Provision for allowance for doubtful accounts | 12,226 | 375,750 |
Deferred tax asset | 12,437,741 | (7,618,580) |
Deferred tax liability | (1,044,998) | (660,455) |
Impairment of intangible assets | 11,958,882 | 5,793,409 |
Impairment of goodwill | 4,336,307 | 0 |
Stock based compensation | 1,817,344 | 2,490,175 |
Stock issued for services | 136,000 | 1,245,834 |
Loss on debt extinguishment | 1,416,915 | |
Non-cash interest, discount, and financing costs | 1,223,341 | 2,220,992 |
Change in fair value of Clouding earnout | (1,832,872) | (6,137,116) |
Other non-cash adjustments | 121,617 | 260,938 |
Changes in operating assets and liabilities | ||
Accounts receivable | 29,547 | (295,608) |
Prepaid expenses and other assets | (81,486) | (116,791) |
Bonds posted with courts | 1,748,311 | (45,915) |
Accounts payable and accrued expenses | 682,253 | 4,216,331 |
Net cash provided by (used in) operating activities | 10,172,607 | (2,961,238) |
Cash flows from investing activities: | ||
Acquisition of patents | (3,681,358) | |
Purchase of property, equipment, and other intangible assets | (8,388) | (58,386) |
Net cash used in investing activities | (3,689,746) | (58,386) |
Cash flows from financing activities: | ||
Repayment of notes payable | (5,379,103) | |
Payment on MdR Escrow TLI | (50,000) | |
Cash received upon issuance of notes payable (net of issuance costs) | 19,600,000 | |
Cash received upon issuance of common stock (net of issuance costs) | 4,654,130 | |
Cash received upon exercise of warrants | 46,667 | 18,751 |
Repayment of convertible notes payable | (5,050,000) | |
Payments on note payable, net | (375,805) | (181,626) |
Net cash provided (used in) by financing activities | (4,007,890) | 508,838 |
Effect of exchange rate changes on cash | (31,808) | (16,632) |
Net increase (decrease) in cash | 2,443,163 | (2,527,418) |
Cash at beginning of period | 2,555,151 | 5,082,569 |
Cash at end of period | 4,998,314 | 2,555,151 |
Cash paid for: | ||
Interest expense | 1,917,304 | 1,982,140 |
Taxes paid | 43,052 | 168,378 |
Loan fees | 400,000 | |
Cash invested in 3DNano | 788,097 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Common stock issued in conjunction with note payable | 1,000,000 | |
Warrant issued in conjunction with note payable | 318,679 | |
Revenue share liability incurred in conjunction with note payable | 1,000,000 | |
Common stock issued in conjunction with debt extinguishment | 654,000 | |
Includes officer loan | 944,296 | |
Conversion of AP to notes payable | 705,093 | |
Medtech And Orthophoenix | ||
Cash flows from financing activities: | ||
Repayment of notes payable | (2,953,779) | (4,318,287) |
Orthophoenix, LLC | ||
Cash flows from financing activities: | ||
Repayment of notes payable | (5,500,000) | |
Sarif Biomedical, LLC | ||
Cash flows from financing activities: | ||
Repayment of notes payable | (276,250) | |
IP Liquidity | ||
Cash flows from financing activities: | ||
Repayment of notes payable | (1,109,375) | |
Dynamic Advances, LLC | ||
Cash flows from financing activities: | ||
Payment on MdR Escrow TLI | (2,624,375) | |
Orthophoenix, LLC | ||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Non-cash interest increase in debt assumed in an acquisition | $ 750,000 | |
License | 3D Nano | ||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Note payable issuance in conjunction with the acquisition | 100,000 | |
GE | Patents | ||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Note payable issuance in conjunction with the acquisition | 944,296 | |
Seimens | Patents | ||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Note payable issuance in conjunction with the acquisition | $ 1,672,294 |
ORGANIZATION AND DESCRIPTION OF
ORGANIZATION AND DESCRIPTION OF BUSINESS | 12 Months Ended |
Dec. 31, 2016 | |
ORGANIZATION AND DESCRIPTION OF BUSINESS | |
ORGANIZATION AND DESCRIPTION OF BUSINESS | NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Organization Our business is to acquire patents and patent rights and to monetize the value of those assets to generate revenue and profit for the Company. We acquire patents and patent rights from their owners, who range from individual inventors to Fortune 500 companies. Part of our acquisition strategy is to acquire or invest in patents and patent rights that cover a wide-range of subject matter, which allows us to achieve the benefits of a growing diversified portfolio of assets. Generally, the patents and patent rights that we acquire are characterized by having large identifiable companies who are or have been using technology that infringes our patents and patent rights. We generally monetize our portfolio of patents and patent rights by entering into license discussions, and if that is unsuccessful, initiating enforcement activities against any infringing parties with the objective of entering into a standard form of comprehensive settlement and license agreement that may include the granting of non-exclusive retroactive and future rights to use the patented technology, a covenant not to sue, a release of the party from certain claims, the dismissal of any pending litigation and other terms that are appropriate in the circumstances. Our strategy has been developed with the expectation that it will result in a long-term, diversified revenue stream for the Company. Marathon Patent Group, Inc. (the “Company”), formerly American Strategic Minerals Corporation, was incorporated under the laws of the State of Nevada on February 23, 2010. On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation from Verve Ventures, Inc., and increased the Company’s authorized capital to 200,000,000 shares of Common Stock, par value $0.0001 per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share. In June 2012, the Company discontinued its exploration and potential development of uranium and vanadium minerals business. In October 2012, we discontinued our real estate business when our CEO joined the firm and we commenced our current business, at which time the Company’s name was changed to Marathon Patent Group, Inc. On August 1, 2012, the shareholders holding a majority of the Company’s voting capital voted in favor of (i) changing the name of the Company to Fidelity Property Group, Inc. and (ii) the adoption the 2012 Equity Incentive Plan and reserving 20,000,000 shares of Common Stock for issuance thereunder (the “2012 Plan”). The board of directors of the Company (the “Board of Directors”) approved the name change and the adoption of the 2012 Plan on August 1, 2012. The Company did not file an amendment to its Articles of Incorporation with the Secretary of State of Nevada and subsequently abandoned the decision to adopt the Fidelity Property Group, Inc. name. On October 1, 2012, the shareholders holding a majority of the Company’s voting capital had voted and authorized the Company to (i) change the name of the Company to Marathon Patent Group, Inc. and (ii) effectuate a reverse stock split of the Company’s Common Stock by a ratio of 3-for-2 (the “Reverse Split”) within one year from the date of approval of the stockholders of the Company. The Board of Directors approved the name change and the Reverse Split on October 1, 2012. The Board of Directors determined the name Marathon Patent Group, Inc. better reflects the long-term strategy in exploring other opportunities and the identity of the Company going forward. On February 15, 2013, the Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada in order to effectuate the name change. On May 1, 2014, the Company issued 2,047,158 shares of Series A Convertible Preferred Stock and two-year warrants to purchase an aggregate of 511,790 shares of Common Stock in a private placement to accredited investors. All of the Series A Convertible Preferred Stock was automatically converted pursuant to the terms of the Series A Convertible Preferred Stock Certificate of Designation during the year ended December 31, 2014. The exercise price of the warrants is $3.75, after giving effect to the two-for-one stock dividend issued on December 22, 2014. The warrants expired on May 1, 2016. On May 2, 2014, the Company issued an aggregate of 782,000 shares of Series B Convertible Preferred Stock valued at $2,807,380 to acquire IP Liquidity Ventures, LLC, Dynamic Advances, LLC and Sarif Biomedical, LLC. On August 29, 2014, the Company entered into a patent purchase agreement to acquire a portfolio of patents from Clouding IP, LLC for an aggregate purchase price of $2.4 million, of which $1.4 million was paid in cash and $1.0 million was paid in the form of a promissory note issued by the Company that matured on October 31, 2014 and paid on October 1, 2014. The Company also issued 25,000 shares of its restricted common stock valued at $281,000 in connection with the acquisition. Clouding IP, LLC is also entitled to certain possible future cash payments. On September 17, 2014, the Company entered into a six-month consulting agreement (the “Consulting Agreement”) with GRQ Consultants, Inc. (“GRQ”), pursuant to which GRQ shall provide certain consulting services including, but not limited to, advertising, marketing, business development, strategic and business planning, channel partner development and other functions intended to advance the business of the Company. As consideration, GRQ shall be entitled to 200,000 shares of the Company’s Series B Convertible Preferred Stock, 50% of which vested upon execution of the Consulting Agreement, and 50% of which shall vest in six (6) equal monthly installments commencing on October 17, 2014. The first tranche of 100,000 shares of Series B Convertible Preferred Stock was issued to GRQ on October 6, 2014. In 2014, the Company issued 150,000 shares of Series B Convertible Preferred Stock for a value of $1,103,581, and in 2015, the Company issued 50,000 shares of Series B Convertible Preferred Stock for a value of $345,334. In addition, the Consulting Agreement allows for GRQ to receive additional shares of Series B Convertible Preferred Stock upon the achievement of certain performance benchmarks. No milestones were met and no additional shares were issued in 2015. The Consulting Agreement contained an acknowledgement that the conversion of the preferred stock into shares of the Company’s common stock is precluded by the beneficial ownership blockers set forth in the Series B Convertible Preferred Stock Certificate of Designation and in Section 17 of the 2014 Plan to ensure compliance with NASDAQ Listing Rule 5635(d). Every share of Series B Convertible Preferred Stock was convertible into two shares of Common Stock, after giving effect to the two-for-one stock dividend issued on December 22, 2014 and four shares of the Series B pursuant to this agreement remain outstanding. On October 10, 2014, the Company entered into an interest sale agreement with MedTech Development, LLC (“MedTech”) to acquire from MedTech 100% of the limited liability membership interests of OrthoPhoenix and TLIF as well as 100% of the shares of MedTech GmbH. In connection with the transaction, the Company paid MedTech $1 million at closing and is obligated to pay $1 million on each of the following nine (9) month anniversary dates of the closing. On July 16, 2015, the Company entered into a forbearance agreement (the “Agreement”) with MedTech Development, the holder of a Promissory Note issued by the Company, dated October 10, 2014. Pursuant to the Agreement, the term of the Note was extended to October 1, 2015 and the Note began accruing interest starting from May 13, 2015. In addition, the Company agreed to make certain mandatory prepayments under certain circumstances and issue to MedTech Development 200,000 shares of restricted common stock of the Company. In accordance with ASC 470-50, the Company recorded this agreement as debt extinguishment and $654,000 was recorded as loss on debt extinguishment during the year ended December 31, 2015. On October 23, 2015, the Company entered into Amendment No. 1 to the Forbearance Agreement (the “Amendment”) entered into with MedTech Development on July 16, 2015. Pursuant to the Amendment, the due date of the Promissory Note was extended to October 23, 2016 in return for which the Company made a payment of $100,000 on October 23, 2015 and modified the terms under which the Company agreed to make mandatory prepayments under certain circumstances. The acquired subsidiaries are also obligated to make certain additional payments to MedTech from recoveries following the receipt by the acquired subsidiaries of 200% of the purchase payments, plus recovery of out of pocket expenses in connection with patent claims. The participation payments may be paid, at the election of the Company, in common stock of the Company at the market price on the date of issuance. Enforcement activity related to the MedTech patents was completed in 2016 and no liabilities were outstanding as of December 31, 2016. On October 16, 2014, the Company sold to certain accredited investors an aggregate of $5,550,000 of principal amount of convertible notes due October 9, 2018, of which, $500,000 was outstanding as of December 31, 2016, along with two-year warrants to purchase 258,998 shares of the Company’s Common Stock, par value $0.0001 per share pursuant to a securities purchase agreement. The warrants were valued at $169,015 and were recorded as a discount to the fair value of the convertible notes. The notes and warrants are initially convertible into shares of the Company’s Common Stock at a conversion price of $7.50 per share and an exercise price of $8.25 per share, respectively. The conversion and exercise prices are subject to adjustment in the event of certain events, including stock splits and dividends. The notes bear interest at the rate of 11% per annum, payable quarterly in cash on each of the three, six, nine and twelve-month anniversary of the issuance date and on each conversion date. The Company reviewed the instruments in the context of ASC 480 and determined that the convertible notes should be recorded as a liability and analyzed the conversion feature and bifurcation pursuant to ASC 815 and ASC 470, respectively, to determine that there was no beneficial conversion feature and that the conversion feature should not be bifurcated. On January 29, 2015, the Company and certain of its subsidiaries entered into a series of agreements including a Securities Purchase Agreement (the “Fortress Purchase Agreement”) and a Subscription Agreement with DBD Credit Funding, LLC (“DBD”), an affiliate of Fortress Credit Corp., pursuant to which the Company sold to the purchasers: (i) $15,000,000 original principal amount of Senior Secured Notes (the “Fortress Notes”), (ii) a right to receive a portion of certain proceeds from monetization net revenues received by the Company (after receipt by the Company of $15,000,000 of monetization net revenues and repayment of the Fortress Notes), (iii) a five-year warrant (the “Fortress Warrant”) to purchase 100,000 shares of the Company’s Common Stock exercisable at $7.44 per share, subject to adjustment; and (iv) 134,409 shares of the Company’s Common Stock. Pursuant to the Fortress Purchase Agreement, as security for the payment and performance in full of the secured obligations, the Company and certain subsidiaries executed and delivered in favor of the purchasers a Security Agreement and a Patent Security Agreement, including a pledge of the Company’s interests in certain of its subsidiaries (together with the Fortress Purchase Agreement, the Fortress Notes and the Fortress Warrant, the “Fortress Documents”). On February 12, 2015, the Company exercised its right to require the purchasers to purchase an additional $5,000,000 of notes from the Company. On March 13, 2015, the Company settled a dispute with a former consultant whereby the Company issued the consultant 60,000 shares of Common Stock for a full release of all claims. For the three months ended March 31, 2015, certain holders of warrants exercised their warrants to purchase, in cash, 5,000 shares of the Company’s Common Stock. For the three months ended June 30, 2015, certain holders of options exercised their options to purchase, on a net exercise basis, 33,968 (net) shares of the Company’s Common Stock. On July 16, 2015, the Company entered into a forbearance agreement (the “Agreement”) with MedTech Development, the holder of a Promissory Note issued by the Company, dated October 10, 2014. Pursuant to the Agreement, among other terms, the Company issues to MedTech Development 200,000 shares of restricted common stock of the Company. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $3.27 per share or $654,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On August 14, 2015, the Company entered into a Business Combination Agreement (the “Business Combination Agreement”) with Marathon Group SA, a Luxembourg société anonyme (“Holdco”) and Uniloc Luxembourg SA, a Luxembourg société anonyme (“Uniloc”), and Uniloc Corporation Pty. Limited, an Australian corporation (“Uniloc Australia”). The Business Combination Agreement was subsequently terminated on February 23, 2016, without completion of the merger set forth in the Business Combination Agreement. On September 21, 2015, the Company issued 150,000 shares of the Company’s Common Stock to Alex Partners, LLC and Del Mar Consulting Group, Inc. pursuant to a services agreement entered into on September 21, 2015. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $2.23 per share or $334,500. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. During the year ended December 31, 2015, 199,996 shares of the Series B Convertible Preferred Stock associated with the GRQ Consulting Agreement were converted into 199,996 shares of the Company’s Common Stock, leaving four shares of the Series B Convertible Preferred Stock associated with the GRQ Consulting Agreement outstanding. On November 4, 2015, the Company issued 300,000 shares of the Company’s Common Stock to Dominion Harbor Group LLC (“Dominion”), pursuant to a settlement agreement entered into with Dominion on October 30, 2015. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.71 per share or $513,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On December 9, 2015, the Company entered into an agreement with Melechdavid, Inc. (“Melechdavid”), pursuant to which the Company agreed to issue 100,000 shares of the Company’s Common Stock. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.61 per share or $161,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On May 11, 2016, the Company entered into an agreement with the Cooper Law Firm, LLC (“Cooper”), pursuant to which the Company agreed to issue 80,000 shares of the Company’s Common Stock. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.70 per share or $136,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On December 9, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors for the sale of an aggregate of 3,481,997 shares of the Company’s common stock, at a purchase price of $1.50 per share, and warrants to purchase 1,740,995 shares of common stock for a purchase price of $0.01 per warrant. The exercise price of the warrants is $1.70. In conjunction with the offering, the Company issued a five-year warrant on December 14, 2016 to the underwriter to purchase 174,100 shares of the Company’s Common Stock at an exercise price of $1.73. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements of the Company and its wholly owned and majority owned subsidiaries as of December 31, 2016. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated. Use of Estimates and Assumptions The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets, the assumptions used to calculate fair value of warrants and options granted, goodwill and intangible assets impairment, realization of long-lived assets, valuation of Clouding IP earn out liability, deferred income taxes, unrealized tax positions and business combination accounting. Cash The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The Company’s accounts at this institution are insured, up to $250,000, by the Federal Deposit Insurance Corporation (“FDIC”). For the years ended December 31, 2016 and 2015, the Company’s bank balances exceeded the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. Accounts Receivable The Company has a policy of reserving for accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At December 31, 2016 and 2015, the Company had recorded an allowance for bad debts in the amounts of $387,976 and $375,750, respectively. Net accounts receivable at December 31, 2016 and 2015 were $95,069 and $136,842, respectively. Concentration of Revenue and Geographic Area Revenue from the Company’s patent enforcement activities is considered United States revenue as any payments for licenses included in that revenue are for United States operations irrespective of the location of the licensee’s or licensee’s parent home domicile. Revenues from the five largest licenses for the year ended December 31, 2016 accounted for approximately 97% of the Company’s total 2016 revenue and revenue from the largest five licenses in 2015 accounted for approximately 62% of the Company’s revenues for the year ended December 31, 2015. The Company derived these revenues from the one-time issuance of non-recurring, non-exclusive, non-assignable licenses. While the Company has a growing portfolio of patents, at this time, the Company expects that a significant portion of its future revenues will be based on one-time grants of similar non-recurring, non-exclusive, non-assignable licenses to a relatively small number of entities and their affiliates. Further, with the expected small number of firms with which the Company enters into license agreements, and the amount and timing of such license agreements, the Company also expects that its revenues may be highly variable from one period to the next. For the year ended December 31, 2016 the Company earned $161,000 of revenues in Germany. Amounts for the year ended December 31, 2015 were insignificant. At the current time, we define customers as firms that obtain licenses to the Company’s patents, either prior to or during enforcement litigation. These firms generally enter into non-recurring, non-exclusive, non-assignable license agreements with the Company, and these customers do not generally engage on ongoing, recurring business activity with the Company. The Company has historically had a small number of customers enter into such agreements, resulting in higher levels of revenue concentration. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured. In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These rights typically include some combination of the following: (i) the grant of a non-exclusive, perpetual license to use patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the dismissal of any pending litigation. The intellectual property rights granted typically are perpetual in nature. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectibility is reasonably assured, and when all other revenue recognition criteria have been met. The Company also considers the revenue generated from its settlement and licensing agreements as one unit of accounting under ASC 605-25, “Multiple-Element Arrangements” as the delivered items do not have value to customers on a standalone basis, there are no undelivered elements and there is no general right of return relative to the license. Under ASC 605-25, the appropriate recognition of revenue is determined for the combined deliverables as a single unit of accounting and revenue is recognized upon delivery of the final elements, including the license for past and future use and the release. Also, due to the fact that the settlement element and license element for past and future use are the Company’s major central business, the Company presents these two elements as one revenue category in its statement of operations. The Company does not expect to provide licenses that do not provide some form of settlement or release. Revenue from patent enforcement activities accounted for 100% of the Company’s revenues for the years ended December 31, 2016 and December 31, 2015. Prepaid Expenses Prepaid expenses of $428,049 and $338,598 at December 31, 2016 and 2015, respectively, consist primarily of costs paid for future services that will occur within a year. Prepaid expenses include prepayments in cash and in equity instruments for investor relations public relations services, business advisory, other consulting and prepaid insurance, all of which assets are being amortized over the terms of their respective agreements. Bonds Posted With Courts Under certain circumstances related to litigations in Germany, the Company is either required to or may decide to enter a bond with the courts. As of December 31, 2016 and December 31, 2015, the Company had outstanding bonds in the amount of $0 and $1,748,311, respectively. These bonds were entered into in Germany after the first instance of litigation of some of the Company’s patents in German courts and the difference in the balance of the litigation bonds at December 31, 2016 compared to December 31, 2015 is attributable to the repayment of all outstanding bonds. Related Party Transactions Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On May 10, 2016, the Company entered into an executive employment agreement with Erich Spangenberg pursuant to which Mr. Spangenberg became the Company’s Director of Acquisitions, Licensing and Strategy. On May 13, 2013, we entered into a six-year advisory services agreement (the “Advisory Services Agreement”) with IP Navigation Group, LLC (“IP Nav”), of which Erich Spangenberg is founder and former Chief Executive Officer. Mr. Spangenberg is an affiliate of the Company. The terms of the Advisory Services Agreement provide that, in consideration for its services as intellectual property licensing agent, the Company will pay to IP Navigation Group, LLC between 10% and 20% of the gross proceeds of certain licensing campaigns in which IP Navigation Group, LLC acts as intellectual property licensing agent. On November 18, 2013, we entered into Amendment No. 1 to the Executive Employment Agreement with our Chief Executive Officer and Chairman, Doug Croxall, pursuant to which Mr. Croxall’s base salary was raised to $480,000, subject to a 3% increase every year commencing on November 14, 2014. We also granted Mr. Croxall a bonus of $350,000 and ten-year stock options to purchase an aggregate of 100,000 shares of our Common Stock, with a strike price of $5.93 per share (representing the closing price on the date of grant), vesting in twenty-four (24) equal installments on each monthly anniversary of the date of grant. On November 18, 2013, we entered into a consulting agreement with Jeff Feinberg (“Feinberg Agreement”), pursuant to which we agreed to grant Mr. Feinberg 100,000 shares of our restricted Common Stock, 50% of which shall vest on the one-year anniversary of the Feinberg Agreement and the remaining 50% of which shall vest on the second-year anniversary of the Feinberg Agreement. Mr. Feinberg is the trustee of The Feinberg Family Trust and holds voting and dispositive power over shares held by The Feinberg Family Trust, which is a 10% beneficial owner of our Common Stock. On May 2, 2014, the Company completed the acquisition of certain ownership rights (the “Acquired Intellectual Property”) from TechDev, Granicus and SFF pursuant to the terms of three purchase agreements between: (i) the Company, TechDev, SFF and DA Acquisition LLC, a newly formed Texas limited liability company and wholly-owned subsidiary of the Company; (ii) the Company, Granicus, SFF and IP Liquidity Ventures Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company; and (iii) the Company, TechDev, SFF and Sarif Biomedical Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company. TechDev, SFF and Granicus are owned or controlled by Erich Spangenberg or family members or associates. · Pursuant to the DA Agreement, the Company acquired 100% of the limited liability company membership interests of Dynamic Advances, LLC, a Texas limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 195,500 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the DA Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the IP Liquidity Agreement, the Company acquired 100% of the limited liability company membership interests of IP Liquidity Ventures, LLC, a Delaware limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 195,500 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the IP Liquidity Agreement, Granicus and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the Sarif Agreement, the Company acquired 100% of the limited liability company membership interests of Sarif Biomedical, LLC, a Delaware limited liability company, in consideration for two cash payments of $250,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $300,000 if not made on or before June 30, 2014. The remaining cash payment was made on February 24, 2015 and is fully paid. Under the terms of the Sarif Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the Pay Proceeds Agreement, the Company may pay the sellers a percentage of the net recoveries (gross revenues minus certain defined expenses) that the Company makes with respect to the assets held by the entities that the Company acquired pursuant to the DA Agreement, the IP Liquidity Agreement and the Sarif Agreement. Under the terms of the Pay Proceeds Agreement, as amended in 2016, if the Company recovers $10,000,000 or less with regard to the IP Assets, then nothing is due to the sellers; if the Company recovers between $13,000,000 and $40,000,000 with regard to the IP Assets, then the Company shall pay 40% of the cumulative gross proceeds of such recoveries to the sellers; and if the Company recovers over $40,000,000 with regard to the IP Assets, the Company shall pay 50% of the cumulative gross proceeds of such recoveries to the sellers. Pursuant to the amendment to the Pay Proceeds Agreement, the Company paid TechDev, Granicus and SFF $2.4 million. In no event will the total payments made by the Company under the Pay Proceeds Agreement exceed $250,000,000. On May 2, 2014, we entered into an opportunity agreement (the “Marathon Opportunity Agreement”) with Erich Spangenberg, who is an affiliate of the Company. The terms of the Marathon Opportunity Agreement provide that we have ten business days after receiving notice from Mr. Spangenberg to provide up to 50% of the funding for certain opportunities relating to the licensing, intellectual property acquisitions and/or intellectual property enforcement actions in which Mr. Spangenberg, IP Nav or any entity controlled by Mr. Spangenberg, other than: (i) IP Nav or any of its affiliates, and (ii) Medtech Development, LLC or any of its affiliates. On June 17, 2014, Selene Communication Technologies Acquisition LLC (“Acquisition LLC”), a Delaware limited liability company and newly formed wholly-owned subsidiary of the Company, entered into a merger agreement with Selene Communication Technologies, LLC (“Selene”). Selene owned a patent portfolio consisting of three United States patents in the field of search and network intrusion that relate to tools for intelligent searches applied to data management systems as well as global information networks such as the internet. IP Nav provided patent monetization and support services under an existing agreement with Selene prior to the return of the patents to Stanford Research Institute (“SRI”), the original owners of the patents. On August 29, 2014, the Company entered into a patent purchase agreement to acquire a portfolio of patents from Clouding IP, LLC for an aggregate purchase price of $2.4 million, of which $1.4 million was paid in cash and $1.0 million was paid in the form of a promissory note issued by the Company that matured on October 31, 2014 and was fully paid prior to the maturation date. The Company also issued 25,000 shares of its restricted common stock in connection with the acquisition. Clouding IP, LLC is also entitled to certain possible future cash payments. Clouding IP LLC is owned or controlled by Erich Spangenberg or family members or associates. On October 10, 2014, the Company entered into an interest sale agreement with MedTech Development, LLC (“MedTech”) to acquire from MedTech 100% of the limited liability membership interests of OrthoPhoenix and TLIF as well as 100% of the shares of MedTech GmbH. In connection with the transaction, the Company is obligated to pay to MedTech $1 million at closing and $1 million on each of the following nine (9) month anniversary dates of the closing. On July 16, 2015, the Company entered into a forbearance agreement (the “Agreement”) with MedTech Development, the holder of a Promissory Note issued by the Company, dated October 10, 2014. Pursuant to the Agreement, the term of the Note was extended to October 1, 2015 and the Note began accruing interest starting from May 13, 2015. In addition, the Company agreed to make certain mandatory prepayments under certain circumstances and issue to MedTech Development 200,000 shares of restricted common stock of the Company. In accordance with ASC 470-50, the Company recorded this agreement as debt extinguishment and $654,000 was recorded as loss on debt extinguishment during the year ended September 30, 2015. On October 23, 2015, the Company entered into Amendment No. 1 to the Forbearance Agreement (the “Amendment”) entered into with MedTech Development on July 16, 2015. Pursuant to the Amendment, the due date of the Promissory Note was extended to October 23, 2016 in return for which the Company made a payment of $100,000 on October 23, 2015 and modified the terms under which the Company agreed to make mandatory prepayments under certain circumstances. The acquired subsidiaries are also obligated to make certain additional payments to MedTech from recoveries following the receipt by the acquired subsidiaries of 200% of the purchase payments, plus recovery of out of pocket expenses in connection with patent claims. The participation payments may be paid, at the election of the Company, in common stock of Marathon at the market price on the date of issuance. In connection with the transaction, the Company entered into a promissory note, common interest agreement and in the event of issuance of common stock to MedTech, will enter into a lockup and registration rights agreement. Approximately forty-five percent (45%) of MedTech is owned or controlled by Erich Spangenberg or family members or associates. On October 1, 2016, one of the Company’s subsidiaries, PG Technologies S.a.r.l. entered into an advisory services agreement with Granicus IP, LLC, an entity owned or controlled by one of the Company’s employees, whereby Granicus receives a percentage of pre-tax return from PG Technologies after certain revenue thresholds have been met. During 2016, certain officers and directors of the Company received restricted common stock in the Company’s 3D Nano subsidiary. Fair Value of Financial Instruments The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company. The Clouding IP earn out liability was determined to be a Level 3 liability, which requires fair assessment of fair value at each period end by using a discounted cash flow model as the valuation methodology, using unobservable inputs, such as revenue and expenses forecasts, timing of proceeds, and discount rates. Based on the reassessment of fair value as of December 31, 2016, the Company determined the Clouding IP earn out liability to be $81,930 (current portion) and $1,400,082 (long-term portion), which resulted in a gain from exchange in fair value adjustment of $1,832,872 for the year ended December 31, 2016. Further, the periodic reassessment resulted in a non-routine impairment of the Clouding patent intangible assets of $3,089,983 for the year ended December 31, 2016. Under certain circumstances related to litigations in Germany, the Company is either required to or may decide to enter a bond with the courts. As of December 31, 2016 and December 31, 2015, the Company had outstanding bonds in the amount of $0 and $1,748,311, respectively. These bonds were entered into in Germany after the first instance of litigation of some of the Company’s patents in German courts and the difference in the balance of the litigation bonds at December 31, 2016 compared to December 31, 2015 is attributable to the repayment of all outstanding bonds. The Company adjusts the value of the bonds at the end of each reporting period to reflect changes to the exchange rate between the Euro and the US Dollar. Accounting for Acquisitions In the normal course of its business, the Company makes acquisitions of patent assets and may also make acquisitions of businesses. With respect to each such transaction, the Company evaluates facts of the transaction and follows the guidelines prescribed in accordance with ASC 805 — Business Combinations to determine the proper accounting treatment for each such transaction and then records the transaction in accordance with the conclusions reached in such analysis. The Company performs such analysis with respect to each material acquisition within the consolidated group of entities. Income Taxes The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed. The Company is in the process of filing the 2016 tax returns. After review of the prior year financial statements and the results of operations through December 31, 2016, the Company has recorded a full valuation allowance on its deferred tax asset. Basic and Diluted Net Loss per Share Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. The computation of diluted net loss per share does not include dilutive Common Stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. As of December 31, 2016, the Company has warrants to purchase 466,078 shares of Common Stock outstanding, options to purchase 3,516,136 shares of Common Stock outstanding, convertible notes convertible into 66,667 shares of Common Stock outstanding and 782,004 shares of Series B Convertible Preferred Stock convertible into 782,004 shares of Common Stock outstanding, all of which were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss per share computation. The following table sets forth the computation of basic and diluted loss per share on a GAAP basis: For the Year Ended For the Year Ended Net loss attributable to Common Shareholders $ ) $ ) Denominator Weighted Average Common Shares - Basic Weighted Average Common Shares - Diluted Earnings (Loss) per common share: Earnings (Loss) - Basic $ ) $ ) Earnings (Loss) - Diluted $ ) $ ) Intangible Assets - Patents Intangible assets include patents purchased and patents acquired in lieu of cash in licensing transactions. The patents purchased are recorded based on the cost to acquire them and patents acquired in lieu of cash are recorded at their fair market value. The costs of these assets are amortized over their remaining useful lives. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. The Company recorded impairment charges to its intangible assets during the year ended December 31, 2016 in the amount of $11,958,882, associated with the end of life of a number of the Company’s portfolios, compared to an impairment charge in the amount of $5,793,409 during the year ended December 31, 2015 associated with the reduction in the carrying value of one the Company’s portfolios. Goodwill Goodwill is tested for impairment at the reporting unit level at least annually in accordance with ASC 350, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit’s goodwill and if the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated statement of operations. The Company performs the annual testing for impairment of goodwill at the reporting unit level during the quarter ended September 30. For the year ended December 31, 2016, the Company recorded an impairment charge to its goodwill in the amount of $4,336,307, and for the year ended December 31, 2015, the Company recorded no impairment charge to its goodwill. Other Intangible Assets In accordance with ASC 350-30, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of use of the acquired assets or the strategy for the overall business; and (3) significant negative industry or economic trends. When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Impairment of Long-lived Assets The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360 “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows that the Company expects to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The Company did not record any impairment charges on its long-lived assets during the years ended December 31, 2016 and 2015. Stock-based Compensation Stock-b |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended |
Dec. 31, 2016 | |
ACQUISITIONS | |
ACQUISITIONS | NOTE 3 — ACQUISITIONS Dynamic Advances, IP Liquidity and Sarif Biomedical On May 2, 2014, the Company completed the acquisition of certain ownership rights (the “Acquired Intellectual Property”) from TechDev, Granicus IP, LLC (“Granicus”) and SFF pursuant to the terms of three purchase agreements between: (i) the Company, TechDev, SFF and DA Acquisition LLC, a newly formed Texas limited liability company and wholly-owned subsidiary of the Company; (ii) the Company, Granicus, SFF and IP Liquidity Ventures Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company; and (iii) the Company, TechDev, SFF and Sarif Biomedical Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (the “DA Agreement,” the “IP Liquidity Agreement” and the “Sarif Agreement,” respectively and the collective transactions, the “Acquisitions”). Dynamic Advances Pursuant to the DA Agreement, the Company acquired 100% of the limited liability company membership interests of Dynamic Advances, LLC, a Texas limited liability company, in consideration for: (i) two cash payments totaling $5,225,000; and (ii) 391,000 shares of the Company’s Series B Convertible Preferred Stock. Under the terms of the DA Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. Dynamic Advances, LLC holds exclusive license to monetize certain patents owned by a third party. On May 2, 2014, the Company issued TechDev and SFF a promissory note in order to evidence the second cash payment due under the terms of the DA Agreement in the amount of $2,375,000 due on or before September 30, 2014, with such amount due under the terms of the promissory note being subject to increase to $2,850,000 if the Company’s payment pursuant to the terms of the DA Agreement are not made on or before June 30, 2014. The Company did not make the payment prior to June 30, 2014 and the promissory note matured on September 30, 2014. Effective September 30, 2014, TechDev and SFF extended the maturity to March 31, 2015 in return for a payment of $249,375, payable within thirty days. The payment for this extension of the maturity date was made on October 10, 2014 and the loan was paid off on April 1, 2015. The promissory note did not otherwise include any interest payable by the Company. Since the Company did not make the payment on the promissory note prior to June 30, 2014, the Company included in the consideration paid for Dynamic Advances the promissory note balance of $2,850,000. Further, the Company had the Series B Convertible Preferred Stock valued by a third party firm that determined, based on the rights and privileges of the Series B Convertible Preferred Stock, that it was on par with the value of the Company’s Common Stock. The total amount of consideration paid by the Company for Dynamic Advances, including capitalized costs associated with the purchase, was $6,653,078. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licenses, revenues, and any other assets other than the IP Assets. Further, as there are no assumed licensees or historical revenues, the Company is not certain that it will be able to obtain access to customers pursuant to AC 805-10-55-7. IP Liquidity Pursuant to the IP Liquidity Agreement, the Company acquired 100% of the limited liability company membership interests of IP Liquidity Ventures, LLC, a Delaware limited liability company, in consideration for: (i) two cash payments totaling $5,225,000; and (ii) 391,000 shares of the Company’s Series B Convertible Preferred Stock. Under the terms of the IP Liquidity Agreement, Granicus and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. IP Liquidity Ventures, LLC holds contract rights to the proceeds from the monetization of certain patents owned by a number of third parties. On May 2, 2014, the Company issued Granicus and SFF a promissory note in order to evidence the second cash payment due under the terms of the IP Liquidity Agreement in the amount of $2,375,000 due on or before September 30, 2014, with such amount due under the terms of the promissory note being subject to increase to $2,850,000 if the Company’s payment pursuant to the terms of the IP Liquidity Agreement are not made on or before June 30, 2014. The Company did not make the payment prior to June 30, 2014 and the promissory note matured on September 30, 2014. Effective September 30, 2014, Granicus and SFF extended the maturity to March 31, 2015 in return for a payment of $249,375, payable within thirty days. The payment for this extension of the maturity date was made on October 10, 2014 and the loan was paid off on April 1, 2015. The promissory note did not otherwise include any interest payable by the Company. Since the Company did not make the payment on the promissory note prior to June 30, 2014, the Company included in the consideration paid for IP Liquidity the promissory note balance of $2,850,000. Further, the Company had the Series B Convertible Preferred Stock valued by a third party firm that determined, based on the rights and privileges of the Series B Convertible Preferred Stock that it was on par with the value of the Company’s Common Stock. The total amount of consideration paid by the Company for IP Liquidity, including capitalized costs associated with the purchase, was $6,653,078. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licenses, revenues, and any other assets other than the IP Assets. Further, as there are no assumed licensees or historical revenues, the Company is not certain that it will be able to obtain access to customers pursuant to AC 805-10-55-7. Sarif Biomedical Pursuant to the Sarif Agreement, the Company acquired 100% of the limited liability company membership interests of Sarif Biomedical, LLC, a Delaware limited liability company, in consideration for two cash payments totaling $550,000. Under the terms of the Sarif Agreement, TechDev is entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. Sarif Biomedical, LLC holds ownership rights to certain patents. On May 2, 2014, the Company issued TechDev a promissory note in order to evidence the second cash payment due under the terms of the Sarif Agreement in the amount of $250,000 due on or before September 30, 2014, with such amount due under the terms of the promissory note being subject to increase to $300,000 if the Company’s payment pursuant to the terms of the Sarif Agreement are not made on or before September 30, 2014. The Company did not make the payment prior to June 30, 2014 and the promissory note matured on September 30, 2014. Effective September 30, 2014, TechDev extended the maturity to March 31, 2015 in return for a payment of $26,250, payable within thirty days. The payment for this extension of the maturity date was made on October 10, 2014 and the loan was paid off on February 24, 2015. The promissory note did not otherwise include any interest payable by the Company. Since the Company did not make the payment on the promissory note prior to June 30, 2014, the Company included in the consideration paid for Dynamic Advances the higher principal amount of the promissory note. The total amount of consideration paid by the Company for Sarif Biomedical, including capitalized costs associated with the purchase, was $552,024. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licenses, revenues, and any other assets other than the IP Assets. Further, as there are no assumed licensees or historical revenues, the Company is not certain that it will be able to obtain access to customers pursuant to AC 805-10-55-7. Dynamic Advances, IP Liquidity and Sarif Biomedical Pursuant to the Pay Proceeds Agreement, the Company may pay the sellers a percentage of the net recoveries (gross revenues minus certain defined expenses) that the Company makes with respect to the assets held by the entities that the Company acquired pursuant to the DA Agreement, the IP Liquidity Agreement and the Sarif Agreement (the “IP Assets”). Under the terms of the Pay Proceeds Agreement, if the Company recovers $10,000,000 or less with regard to the IP Assets, then nothing is due to the sellers; if the Company recovers between $10,000,000 and $40,000,000 with regard to the IP Assets, then the Company shall pay 40% of the net proceeds of such recoveries to the sellers; and if the Company recovers over $40,000,000 with regard to the IP Assets, the Company shall pay 50% of the net proceeds of such recoveries to the sellers. In no event will the total payments made by the Company under the Pay Proceeds Agreement exceed $250,000,000. Pursuant to a Registration Rights Agreement with the sellers (the “Acquisition Registration Rights Agreement”), the Company agreed to file a “resale” registration statement with the SEC covering at least 10% of the registrable shares of the Company’s Series B Convertible Preferred Stock issued to the sellers under the terms of the DA Agreement and the IP Liquidity Agreement, at any time on or after November 2, 2014 upon receipt of a written demand from the sellers which describes the amount and type of securities to be included in the registration and the intended method of distribution thereof. The Company shall not be required to file more than three such registration statements not more than sixty days after the receipt of each such written demand from the sellers. TechDev and Mr. Erich Spangenberg (the founder of IP Nav) and his spouse Audrey Spangenberg have jointly filed a Schedule 13G and are deemed to be affiliates of the Company. Clouding Corp. On August 29, 2014, the Company entered into a patent purchase agreement (the “Clouding Agreement”) between Clouding Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Clouding”) and Clouding IP, LLC, a Delaware limited liability company (“Clouding IP”), pursuant to which Clouding acquired a portfolio of patents from Clouding IP. Clouding owns patents related to network and data management technology. The Company paid Clouding IP (i) $1.4 million in cash, (ii) $1.0 million in the form of a promissory note issued by the Company that matures on October 31, 2014, (iii) 50,000 shares of its restricted Common Stock valued at $281,000 and (iv) fifty percent (50%) of the net recoveries (gross revenues minus certain defined expenses) in excess of $4.0 million in net revenues that the Company makes with respect to the patents purchased from Clouding IP. The Company valued the Common Stock at the fair market value on the date of the Interests Sale Agreement at $5.62 per share or $281,000 and the promissory note was paid in full prior to October 31, 2014. The revenue share under item (iv) above was booked as an earn out liability on the balance sheet in accordance with the appraisal of the consideration and intangible value. The Company booked a payable to the sellers pursuant to the earn out liability in the amount of $2,148,000 at September 30, 2014, based on license agreements entered into during the quarter. No further amount is owed until the Company generates additional revenue, if any, from the Clouding patents. The Company accounted for the acquisition as a business combination in accordance with ASC 805 “Business Combinations”. The Company engaged a third party valuation firm to determine the fair value of the assets purchases, and the net purchase price paid by the Company was subsequently allocated to assets acquired and liabilities assumed on the records of the Company as follows: Intangible assets $ Goodwill Net purchase price $ Total consideration paid of the following: Cash $ Promissory Note Common Stock Earn-Out Liability Net purchase price $ Upon further evaluation, the total value of the earn-out liability was reduced, measured as of the acquisition date, to reflect certain underlying changes in the litigation schedule. Historical financial statements of Clouding and the pro forma condensed combined consolidated financial statements can be found on the Form 8-K/A filed with the SEC on November 12, 2014. The unaudited pro forma condensed combined consolidated financial statements are not necessarily indicative of the results that actually would have been attained if the merger had been in effect on the dates indicated or which may be attained in the future. Such statements should be read in conjunction with the historical financial statements of the Company. The Clouding IP earn out liability was determined to be a Level 3 liability, which requires fair assessment of fair value at each period end by using a discounted cash flow model as the valuation methodology, using unobservable inputs, such as revenue and expenses forecasts, timing of proceeds, and discount rates. Based on the reassessment of fair value as of December 31, 2016, the Company determined the Clouding IP earn out liability to be $81,930 (current portion) and $1,400,082 (long-term portion), which resulted in a gain from exchange in fair value adjustment of $1,832,872 for the year ended December 31, 2016. Further, the periodic reassessment resulted in a non-routine impairment of the Clouding patent intangible assets of $3,089,983 for the year ended December 31, 2016. Medtech Group On October 13, 2014, Medtech Group Acquisition Corp (“Medtech Corp.”), a Texas corporation and newly formed wholly-owned subsidiary of the Company, entered into an interest sale agreement to purchase 100% of the equity or membership interests of OrthoPhoenix, LLC (“OrthoPhoenix”), a Delaware limited liability company, TLIF, LLC (“TLIF”) and MedTech Development Deutschland GmbH (“MedTech GmbH” and along with OrthoPhoenix and TLIF, the “Medtech Entities”) from MedTech Development, LLC (“MedTech Development”). The Medtech Group own patents in the medical technology field. Pursuant to the terms of the Interest Sale Agreement between MedTech Development, Medtech Corp. and the Medtech Entities, the Company (i) paid MedTech Development $1,000,000 cash and (ii) issue a Promissory Note to MedTech Development in the amount of $9,000,000 and (iii) assumed existing debt payable to Medtronics, Inc. The assumed debt payable to Medtronics was renegotiated, as a result of which, the outstanding amount was $6.25 million prior to any repayment by the Company. The debt is due in installments through July 20, 2015; in the event that the Company paid the total amount due by June 30, 2015, the Company would have received a reduction in the remaining principal owed by the Company in the amount of $750,000. Since the Company expected to make the payment by that time when it entered into the agreement, the Company took a discount to the principal amount during the fourth quarter of 2014 when it made the acquisition. However, since the Company did not actually make the payment of the final principal amount by June 30, 2015, the Company reversed the earlier discount as of June 30, 2015. The transaction resulted in a business combination and caused the Medtech Entities to become wholly-owned subsidiaries of the Company. The Company accounted for the acquisition as a business combination in accordance with ASC 805 “Business Combinations”. The Company is the acquirer for accounting purposes and TLIC is the acquired company. The Company engaged a third party valuation firm to determine the fair value of the assets purchases, and the net purchase price paid by the Company was subsequently allocated to assets acquired and liabilities assumed on the records of the Company as follows: Intangible assets $ Goodwill Net purchase price $ Historical financial statements of the Medtech Entities and the pro forma condensed combined consolidated financial statements can be found on the Form 8-K/A filed with the SEC on December 24, 2014. The unaudited pro forma condensed combined consolidated financial statements are not necessarily indicative of the results that actually would have been attained if the merger had been in effect on the dates indicated or which may be attained in the future. Such statements should be read in conjunction with the historical financial statements of the Company. Bridgestone Americas Tire Operations, LLC (“BATO”) On April 23, 2015, IP Liquidity entered into a Patent Purchase Agreement (“BATO PPA”), as amended, whereby IP Liquidity purchased 43 patents from Bridgestone Americas Tire Operations LLC (“BATO”). Pursuant to the terms of the BATO PPA, the Company agreed to pay BATO (i) $3.5 million in two increments shortly after the execution of the document and (ii) an additional $7.5 million in the event that the Company funds the German court bond requirement to put an injunction in place. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805-50 “Business Combinations”. The Company engaged a third party valuation firm to determine the fair value of the assets purchased, which determined that the fair value of the assets was in excess of the purchase consideration, so the Company booked the assets at the purchase consideration of $11 million. On November 15, 2015, the Company and its wholly-owned subsidiary, IP Liquidity, entered into a Memorandum of Understanding with BATO and IP Nav pursuant to which BATO acknowledged that IP Liquidity was entitled to certain fees under an Advisory Services Agreement (“ASA”) dated December 3, 2012. In addition, (i) the parties further agreed to terminate the Advisory Services Agreement and (ii) rescind the BATO PPA entered into between Bridgestone and the Company on April 23, 2015, as amended. In connection with the termination of the ASA and the rescission of the BATO PPA, as of November 15, 2015, the Company removed notes payable in the amount of $10,000,000, $9,068,504 in patent assets from the Company’s books and records associated with the rescission of the BATO PPA, and in connection with the termination of the ASA, the Company removed $2,451,550 in patents assets from the Company’s books and records. Munitech IP S.a.r.l. (“Munitech”) On June 27, 2016, Munitech S.a.r.l. (“Munitech”), a Luxembourg limited liability company and newly formed wholly-owned subsidiary of the Company, entered into two Patent Purchase Agreements (the “PPA” or together, the “PPAs”) to purchase 221 patents from Siemens Aktiengesellschaft. The patents purchased by Munitech relate to W-CDMA and GSM cellular technology and cover all the major global economies including China, France, Germany, the United Kingdom and the United States. Significantly, many of the patent families have been declared to be Standard Essential Patents (“SEPs”) with the European Telecommunications Standard Institute (“ETSI”) and/or the Association of Radio Industries and Businesses (“ARIB”) related to Long Term Evolution (“LTE”), Universal Mobile Telecommunications System (“UMTS”), and/or General Packet Radio Service (“GPRS”). Pursuant to the terms of the PPAs, Munitech (i) paid Siemens Aktiengesellschaft $1,150,000 in cash upon closing and (ii) agreed to two future payments, one in the amount of $1,000,000 payable on December 31, 2016 and the second in the amount of $750,000 payable on September 30, 2017. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents. Magnus IP GmbH (“Magnus”) On July 5, 2016, Marathon IP GmbH (“Marathon IP”), a German corporate entity and newly formed wholly-owned subsidiary of the Company, entered into a Patent Purchase Agreements (the “PPA”) to purchase 86 patents from Siemens Switzerland Ltd and Siemens Industry Inc., (together, “Siemens”). On September 15, 2016, the patents were assigned by Marathon IP to Magnus, both of which are wholly-owned subsidiaries of the Company. The patents purchased by Marathon IP relate to Internet-of-Things (IOT) technology. Generally, the portfolio’s subject matter is directed toward self-healing control networks for automation systems. The patents are relevant to wireless mesh or home area networks for use in IOT, or connected home devices and enable simple commissioning, application level security, simplified bridging, and end-to-end IP security. The technology can support a wide variety of IOT enabled devices including lighting, sensors, appliances, security, and more. Pursuant to the terms of the PPA, Marathon IP paid Siemens $250,000 in cash upon closing. Pursuant to the terms of the PPAs, Munitech (i) paid Siemens $250,000 in cash upon closing and (ii) will pay a percentage of gross proceeds in excess of a reserve threshold on behalf of Marathon IP. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents. Traverse Technologies Corp. (“Traverse”) On August 3, 2016, Traverse Technologies Corp. (“Traverse”), a United States corporation and newly formed wholly-owned subsidiary of the Company, entered into a Patent Purchase Agreement (the “PPA”) to purchase 12 patents from CPT IP Holdings (“CPT”). The patents purchased by Traverse relate to batteries and principally cover various Asian and the United States markets. Pursuant to the terms of the PPAs, Traverse (i) paid CPT $1,300,000 in cash upon closing and (ii) will pay a percentage of net recoveries in excess of a reserve threshold on behalf of Traverse. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents. PG Technologies S.a.r.l. (“PG Tech”) On August 11, 2016, PG Technologies S.a.r.l. (“PG Tech”), a Luxembourg limited liability company jointly owned with a large litigation financing fund, entered into a Patent Funding and Exclusive License Agreement (the “ELA”) to manage the monetization of greater than 10,000 patents in a single industry vertical with a Fortune 50 company. The patents cover all the major global economies including China, France, Germany, the United Kingdom and the United States. The Company determined that its ownership in PG Tech constitutes a VIE and that the Company is the primary beneficiary, as a result of which, the Company consolidated PG Tech in its financial statements. Pursuant to the terms of the ELA, PG Tech agreed with the Fortune 50 company to pay (i) $1,000,000 in cash upon closing, (ii) a future payment in the amount of $1,000,000 payable on or before December 31, 2016, (iii) minimum quarterly payments of $250,000 starting on April 1, 2017 and (iv) split 50% of the net licensing revenues. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents. Motheye Technologies LLC (“Motheye”) On September 13, 2016, Motheye Technologies, LLC (“Motheye”), a United States corporation and newly formed wholly-owned subsidiary of the Company, entered into a Patent Purchase Agreements (the “PPA”) to purchase 1 patent from Cirrex Systems, LLC (“Cirrex”). The patent purchased by Motheye relates to LED lighting and is issued in the United States. Pursuant to the terms of the PPA, Motheye pays no determined cash consideration, but is required to pay a percentage of net recoveries in excess of a reserve threshold on behalf of Motheye. After evaluating the facts and circumstances of the purchase, the Company determined that this was an asset purchase. In coming to its conclusion, the Company reviewed the status of the assets, the historical activity and the absence of any employees, licensing activity, vendors associated with the patents, any royalties, and any other assets other than the patents. |
INTANGIBLE ASSETS, NET
INTANGIBLE ASSETS, NET | 12 Months Ended |
Dec. 31, 2016 | |
INTANGIBLE ASSETS, NET | |
INTANGIBLE ASSETS, NET | NOTE 4 — INTANGIBLE ASSETS, NET Intangible assets include patents purchased and patents acquired in lieu of cash in licensing transactions. Patents purchased are recorded based at their acquisition cost and patents acquired in lieu of cash are recorded at their fair market value. Intangible assets consisted of the following: December 31, 2016 December 31, 2015 Intangible Assets $ $ Accumulated Amortization & Impairment ) ) Intangible assets, net $ $ Intangible assets are comprised of patents with estimated useful lives between approximately 1 to 13 years. Once placed in service, the Company amortizes the costs of intangible assets over their estimated useful lives on a straight-line basis. During the years ended December 31, 2016 and 2015, respectively, the Company capitalized a total of $6,450,000 and $252,946 in patent acquisition costs. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. Amortization of patents is included as an operating expense as reflected in the accompanying consolidated statements of operations. The Company assesses fair market value for any impairment to the carrying values. Management concluded that there was an impairment to the carrying value in the amount of $11,958,882 for the year ended December 31, 2016 compared to an impairment to the carrying value in the amount of $5,793,409 for the year ended December 31, 2015. The Company determined the fair value using a Level 3 fair value category of unobservable inputs and concluded that the fair value on these intangibles was zero. Amortization expense for the years ended December 31, 2016 and 2015 was $7,453,004 and $10,825,164, respectively. Future amortization of current intangible assets, net is as follows: 2017 $ 2018 2019 2020 2021 2022 and thereafter Total $ Since November 2012, the Company has continued to add to its intangible assets, through either the purchase of intangible asset directly or purchasing entities holding intangible assets. During the years ended December 31, 2016 and December 31, 2015, the Company made the following intangible asset acquisitions: · In April 2015, we purchased 43 patents from Bridgestone Americas Tire Operations LLC (“BATO”), with such patents related to automobile tire pressure monitoring systems, with such purchase terminated and reversed on November 15, 2015. · In June 2016, we acquired two patent portfolios from Siemens covering W-CDMA and GSM cellular technology; · In July 2016, we acquired a patent portfolio from Siemens covering internet-of-things technology; · In August 2016, we acquired a patent portfolio from CPT IP Holdings, LLC covering battery technology; · In August 2016, we entered into a Patent Funding and Exclusive License Agreement with a Fortune 50 company to monetize more than 10,000 patents in a single industry vertical; and · In September 2016, we acquired a patent from Cirrex Systems, LLC covering LED technology. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2016 | |
STOCKHOLDERS' EQUITY | |
STOCKHOLDERS' EQUITY | NOTE 5 - STOCKHOLDERS’ EQUITY The Company has authorized capital to 200,000,000 shares of Common Stock with par value to $0.0001 per share, and has authorized capital of 100,000,000 shares of preferred stock, par value $0.0001 per share. Preferred Stock The terms of the Series B Convertible Preferred Stock are summarized below: Dividend . The holders of Series B Convertible Preferred Stock will be entitled to receive such dividends paid and distributions made to the holders of Common Stock, pro rata to the same extent as if such holders had converted the Series B Convertible Preferred Stock into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Liquidation Preference . In the event of a liquidation, dissolution or winding up of the Company, after provision for payment of all debts and liabilities of the Company, any remaining assets of the Company shall be distributed pro rata to the holders of Common Stock and the holders of Series B Convertible Preferred Stock as if the Series B Convertible Preferred Stock had been converted into shares of Common Stock on the date of such liquidation, dissolution or winding up of the Company. Voting Rights . The Series B Convertible Preferred Stock have no voting rights except with regard to certain customary protective provisions set forth in the Series B Convertible Preferred Stock Certificate of Designations and as otherwise provided by applicable law. Conversion . Each share of Series B Convertible Preferred Stock may be converted at the holder’s option at any time after issuance into one share of Common Stock, provided that the number of shares of Common Stock to be issued pursuant to such conversion does not exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time, unless otherwise waived in writing by the Company with sixty-one (61) days’notice. On May 2, 2014, the Company issued an aggregate of 782,000 shares of Series B Convertible Preferred Stock valued at $2,807,380 to acquire IP Liquidity Ventures, LLC, Dynamic Advances, LLC and Sarif Biomedical, LLC. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On September 17, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with GRQ Consultants, Inc. (“GRQ”), pursuant to which GRQ shall provide certain consulting services including, but not limited to, advertising, marketing, business development, strategic and business planning, channel partner development and other functions intended to advance the business of the Company. As consideration, GRQ shall be entitled to 200,000 shares of the Company’s Series B Convertible Preferred Stock, 50% of which vested upon execution of the Consulting Agreement, and 50% of which shall vest in six (6) equal monthly installments of commencing on October 17, 2014. The first tranche of 100,000 shares of Series B Convertible Preferred Stock was issued to GRQ on October 6, 2014. An aggregate of 150,000 shares of Series B Convertible Preferred Stock for a value of $1,103,581 was issued in 2014 and 50,000 shares of Series B Convertible Preferred Stock for a value of $345,334 was issued in 2015. In addition, the Consulting Agreement allows for GRQ to receive additional shares of Series B Convertible Preferred Stock upon the achievement of certain performance benchmarks. No milestones were met and no additional shares were issued in 2015 prior to the termination of the Consulting Agreement. All shares of Series B Convertible Preferred Stock issuable to GRQ shall be pursuant to the 2014 Plan (as defined below) . The Consulting Agreement contains an acknowledgement that the conversion of the preferred stock into shares of the Company’s Common Stock is precluded by the beneficial ownership blockers set forth in the Series B Convertible Preferred Stock Certificate of Designation and in Section 17 of the 2014 Plan to ensure compliance with NASDAQ Listing Rule 5635(d). Common Stock On January 29, 2015, the Company issued 134,409 shares of the Company’s Common Stock to DBD Credit Funding, LLC (“DBD”), an affiliate of Fortress Credit Corp., pursuant to the Fortress transaction. On March 13, 2015, the Company settled a dispute with a former consultant whereby the Company issued the consultant 60,000 shares of Common Stock for a full release of all claims. For the three months ended March 31, 2015, certain holders of warrants exercised their warrants to purchase, in cash, 5,000 shares of the Company’s Common Stock. For the three months ended June 30, 2015, certain holders of options exercised their options to purchase, on a net exercise basis, 33,968 (net) shares of the Company’s Common Stock. In a series of transactions, the Series B Convertible Preferred Stock associated with the GRQ Consulting Agreement was converted into shares of the Company’s Common Stock, with 183,330 shares of Series B Convertible Preferred Stock converted into Common Stock prior to September 30, 2015. On September 21, 2015, the Company issued 150,000 shares of the Company’s Common Stock to Alex Partners, LLC and Del Mar Consulting Group, Inc., pursuant to a services agreement entered into on September 21, 2015. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $2.23 per share or $334,500. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On October 20, 2015, 16,666 shares of Series B Convertible Preferred Stock associated with the GRQ Consulting Agreement was converted into 16,666 shares of the Company’s Common Stock. On November 4, 2015, the Company issued 300,000 shares of the Company’s Common Stock to Dominion Harbor Group LLC (“Dominion”), pursuant to a settlement agreement entered into with Dominion on October 30, 2015. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.71 per share or $513,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. On December 9, 2015, the Company entered into an agreement with Melechdavid, Inc. (“Melechdavid”), pursuant to which the Company agreed to issue 100,000 shares of the Company’s Common Stock. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.61 per share or $161,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. The shares were issued pursuant to this transaction on January 25, 2016. On May 11, 2016, the Company entered into a consulting agreement with the Cooper Law Firm, LLC (“Cooper”), pursuant to which the Company agreed to issue 80,000 shares of the Company’s Common Stock. In connection with this transaction, the Company valued the shares at the quoted market price on the date of grant at $1.70 per share or $136,000. On December 9, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors for the sale of an aggregate of 3,481,997 shares of the Company’s common stock, at a purchase price of $1.50 per share, and warrants to purchase 1,740,995 shares of common stock for a purchase price of $0.01 per warrant, or $17,019.95 in total. None of the warrants were purchased prior to December 31, 2016, and all were subsequently purchased prior to the date of this report. Common Stock Warrants During the year ended December 31, 2016, the Company issued a warrant to purchase 174,100 shares of Common Stock in connection with financings and warrants for 23,334 shares of Common Stock were exercised. Warrants to purchase 1,705,996 shares of Common Stock were cancelled as they reached the end of their lives without being exercised in accordance with the terms of the underlying agreements. During the years ended December 31, 2016 and December 31, 2015, the Company recorded stock based compensation expense of $0 and $3,465,respectively, in connection with the vested warrants associated with one warrant-based compensatory grant. At December 31, 2016, there was a total of $0 of unrecognized compensation expense related to future recognition of warrant-based compensation arrangements. As of December 31, 2016, the Company had warrants outstanding to purchase 466,078 shares of Common Stock with a weighted average remaining life of 3.25 years. A summary of the status of the Company’s outstanding stock warrants and changes during the period then ended is as follows: Number of Warrants Weighted Average Weighted Average Balance at December 31, 2015 $ Granted $ Cancelled — Forfeited — — — Exercised $ — Balance at December 31, 2016 Warrants exercisable at December 31, 2016 Weighted average fair value of warrants granted during the period $ The warrants pursuant to the Purchase Agreement entered into on December 9, 2016, as described above, were purchased and issued in January and February 2017 and are not included in the table set forth above. Common Stock Options On November 14, 2012, the Company entered into an employment agreement with Doug Croxall (the “Croxall Employment Agreement”), whereby Mr. Croxall agreed to serve as Company’s Chief Executive Officer for a period of two years. Mr. Croxall received a ten-year option award to purchase an aggregate of 307,692 shares of the Company’s Common Stock with an exercise price of $3.25 per share, subject to adjustment, which shall vest in 24 equal monthly installments on each monthly anniversary of the date of the Croxall Employment Agreement. The options were valued on the grant date at approximately $3.12 per option or a total of $968,600 using a Black-Scholes option pricing model with the following assumptions: stock price of $3.25 per share (based on the recent selling price of the Company’s Common Stock at private placements), volatility of 192%, expected term of 5 years, and a risk free interest rate of 0.61%. On March 1, 2013, Mr. James Crawford was appointed as the Company’s Chief Operating Officer. Pursuant to the employment agreement between the Company and Mr. Crawford dated March 1, 2013 (“Crawford Employment Agreement”), Mr. Crawford shall serve as the Company’s Chief Operating Officer for two (2) years. Mr. Crawford was awarded a five-year stock option to purchase an aggregate of 76,924 shares of the Company’s Common Stock, with a strike price based on the closing price of the Company’s Common Stock on March 1, 2013 as reported by the OTC Bulletin Board or an exercise price of $5.525 per share, vesting in twenty-four (24) equal installments on each monthly anniversary of March 1, 2013, provided Mr. Crawford is still employed by the Company on each such date. On June 19, 2013, the Company granted Mr. Crawford an option to purchase 76,924 shares of Common Stock. The stock options granted have an exercise price equal to the fair market value per share on the option grant date, which was $2.47 per share. The options issued to Mr. Crawford are conditioned upon the cancellation of the stock options granted to him on March 1, 2013 under his employment agreement with the Company and will vest in twenty-four (24) equal installments on each monthly anniversary of the date of grant. On June 11, 2013, the Company granted five-year options to purchase an aggregate of 353,846 shares of Common Stock exercisable at $2.625 per share to the Chief Executive Officer and two directors of the Company. The stock options shall vest pro rata monthly over the following 24-month period. On November 18, 2013, we entered into Amendment No. 1 to the Croxall Employment Agreement with our Chief Executive Officer and Chairman, Doug Croxall. As part of Amendment No. 1, we granted Mr. Croxall a ten-year stock options to purchase an aggregate of 200,000 shares of our Common Stock, with an exercise price of $2.965 per share, reflecting the closing price of our Common Stock on the date of grant, and vesting in twenty-four (24) equal installments on each monthly anniversary date of the grant. The Company has valued the option grant at $442,692 using the Black-Scholes option pricing model with the following assumptions: an expected life of five years; volatility of 100%; and a risk-free rate of 1.33%. On April 15, 2014, the Company issued a new board member, Edward Kovalik, a five (5) year option to purchase an aggregate of 20,000 shares of the Company’s Common Stock with an exercise price of $3.295 per share, subject to adjustment, which shall vest in twelve (12) monthly installments commencing on the date of grant. The option was valued based on the Black-Scholes model, using the strike and market prices of $3.295 per share, life of three years, volatility of 51% based on the closing price of the 50 trading sessions immediately preceding the grant and a discount rate as published by the Federal Reserve of 0.84%. On May 15, 2014, the Company entered into an executive employment agreement with Francis Knuettel II (“Knuettel Agreement”) pursuant to which Mr. Knuettel would serve as the Company’s Chief Financial Officer. As part of the consideration, the Company agreed to grant Mr. Knuettel a ten-year stock option to purchase an aggregate of 290,000 shares of Common Stock, with a strike price of $4.165 per share, vesting in thirty-six (36) equal installments on each monthly anniversary of the date of the Knuettel Agreement. The option was valued based on the Black-Scholes model, using the strike and market prices of $4.165 per share, life of 6.5 years, volatility of 63% based on the closing price of the 50 trading sessions immediately preceding the grant and a discount rate as published by the Federal Reserve of 1.97%. On February 5, 2015 the Company issued to a consultant, a five-year option to purchase an aggregate of 25,000 shares of the Company’s Common Stock with an exercise price of $6.80 per share, subject to adjustment, which shall vest in twenty-four (24) equal installments on each monthly anniversary of the grant. On March 6, 2015 the Company issued to a new board member a five-year option to purchase an aggregate of 20,000 shares of the Company’s Common Stock with an exercise price of $7.37 per share, subject to adjustment, which shall vest in twelve (12) equal installments on each monthly anniversary of the grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $7.37 per share, an expected term of 3.0 years, volatility of 41% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.16%. On March 18, 2015 the Company issued to a new board member a five-year option to purchase an aggregate of 20,000 shares of the Company’s Common Stock with an exercise price of $6.61 per share, subject to adjustment, which shall vest in twelve (12) equal installments on each monthly anniversary of the grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $6.61 per share, an expected term of 3.0 years, volatility of 41% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 0.92%. On April 7, 2015 (the “Effective Date”), the Company entered into a consulting agreement (the “Consulting Agreement”) with Richard Chernicoff, a member of the Company’s Board of Directors, pursuant to which Mr. Chernicoff shall provide certain services to the Company, including serving as the interim General Counsel and interim General Manager of commercial product commercialization development. Pursuant to the terms of the Consulting Agreement, Mr. Chernicoff shall receive a monthly retainer of $27,000 and a ten-year stock option to purchase 280,000 shares of the Company’s Common Stock pursuant to the Company’s 2014 Equity Incentive Plan (the “2014 Plan). The stock options shall have an exercise price of $6.76 per share, the closing price of the Company’s common stock on the date immediately prior to the Board of Directors approval of such stock options and the options shall vest as follows: 25% of the option shall vest on the 12 month anniversary of the Effective Date and thereafter 2.083% on the 21st day of each succeeding calendar month for the following twelve months, provided Mr. Chernicoff continues to provide services (in addition to as a member of the Company’s Board of Directors) at the time of vesting. The option shall be subject in all respects to the terms of the 2014 Plan. Notwithstanding anything herein to the contrary, the remainder of the option shall be subject to the following as an additional condition of vesting: (A) options to purchase 70,000 shares of the Company’s common stock under the option shall not vest at all unless the price of the Company’s common stock while Mr. Chernicoff continues as an officer and/or director reaches $8.99 and (B) options to purchase 70,000 shares of the Company’s common stock under the option shall not vest at all unless the price of the Company’s common stock while Mr. Chernicoff continues as an officer and/or director reaches $10.14. On September 16, 2015, the Company issued its independent board members ten-year options to purchase an aggregate of 80,000 shares of the Company’s Common Stock with an exercise price of $2.03 per share, subject to adjustment, which shall vest monthly over twelve (12) months commencing on the date of grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $2.03 per share, an expected term of 5.5 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.72%. On October 14, 2015, the Company issued certain of its employees ten-year options to purchase an aggregate of 385,000 shares of the Company’s Common Stock with an exercise price of $1.86 per share, subject to adjustment, which shall vest monthly over twenty-four (24) months commencing on the date of grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $1.86 per share, an expected term of 6.5 years, volatility of 49% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.57%. On October 14, 2015, the Company issued certain of its consultants ten (10) year options to purchase an aggregate of 70,000 shares of the Company’s Common Stock with an exercise price of $1.86 per share, subject to adjustment, which shall vest monthly over twenty-four (24) months commencing on the date of grant. On May 10, 2016, the Company entered into an executive employment agreement with Erich Spangenberg (“Spangenberg Agreement”) pursuant to which Mr. Spangenberg would serve as the Company’s Director of Acquisitions, Licensing and Strategy. As part of the consideration, the Company agreed to grant Mr. Spangenberg a ten-year stock option to purchase an aggregate of 500,000 shares of Common Stock, with a strike price of $1.87 per share, vesting in twenty-four (24) equal installments on each monthly anniversary of the date of the Spangenberg Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $1.87 per share, an expected term of 5.75 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.32%. On May 20, 2016, the Company entered into an employment agreement with Kathy Grubbs (“Grubbs Agreement”) pursuant to which Ms. Grubbs would serve as an analyst. As part of the consideration, the Company agreed to grant Ms. Grubbs a ten-year stock option to purchase an aggregate of 50,000 shares of Common Stock, with a strike price of $2.25 per share, vesting in thirty-six (36) equal installments on each monthly anniversary of the date of the Grubbs Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $2.25 per share, an expected term of 6.50 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.88%. On July 1, 2016, in conjunction with an executive employment agreement with David Liu (“Liu Agreement”) pursuant to which Mr. Liu would serve as the Company’s CTO, entered into on June 29, 2016, the Company granted Mr. Liu a ten-year stock option to purchase an aggregate of 150,000 shares of Common Stock, with a strike price of $2.79 per share, vesting in thirty-six (36) equal installments on each monthly anniversary of the date of the Liu Agreement. The options were valued based on the Black-Scholes model, using the strike and market prices of $2.79 per share, an expected term of 6.50 years, volatility of 47% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.20%. On October 13, 2016, the Company issued its independent board members ten-year options to purchase an aggregate of 80,000 shares of the Company’s Common Stock with an exercise price of $2.41 per share, subject to adjustment, which shall vest monthly over twelve (12) months commencing on the date of grant. The options were valued based on the Black-Scholes model, using the strike and market prices of $2.41 per share, an expected term of 5.5 years, volatility of 46% based on the average volatility of comparable companies over the comparable prior period and a discount rate as published by the Federal Reserve of 1.21%. As there were not sufficient shares in the Company’s equity incentive plans to accommodate these grants, Mr. Croxall forfeited a portion of one of his options to purchase 80,000 shares. At December 31, 2016, there was a total of $1,371,382 of unrecognized compensation expense related to non-vested option-based compensation arrangements entered into during the year. A summary of the stock options as of December 31, 2016 and changes during the period are presented below: Number of Options Weighted Average Weighted Average Balance at December 31, 2015 $ Granted $ Cancelled $ — Forfeited $ — Exercised — $ — — Balance at December 31, 2016 $ Options Exercisable at December 31, 2016 $ Options expected to vest $ Weighted average fair value of options granted during the period $ Stock options outstanding at December 31, 2016 as disclosed in the above table have $0 in intrinsic value at the end of the period. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2016 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 6 — COMMITMENTS AND CONTINGENCIES Debt consists of the following: Maturity Interest December 31, Date Rate 2016 2015 Senior secured term notes 29-Jul-18 LIBOR + 9.75% $ $ Less: debt discount ) ) Total senior-term notes, net of discount $ $ Maturity Interest December 31, Date Rate 2016 2015 Convertible Note 10-Oct-18 % $ $ Less: debt discount — ) Total convertible note $ $ Maturity Late December 31, Date Fee 2016 2015 iRunway trade payable On Demand 1.5% per month $ $ Maturity Interest December 31, Date Rate 2016 2015 Note payable 31-Jan-17 NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 Sichenzia trade payable On Demand NA $ — $ Maturity Interest December 31, Date Rate 2016 2015 Medtech LLC note payable On Demand % $ — $ Maturity Interest December 31, Date Rate 2016 2015 Afco financing On Demand % $ — $ Maturity Interest December 31, Date Rate 2016 2015 Siemens 30-Sep-17 NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 Dominion Harbor 15-Oct-17 NA $ $ Maturity Interest December 31, Date Rate 2016 2015 Oil & Gas On Demand NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 3dnano Liscense Fee 31-Jan-17 NA $ $ — 2016 2015 Total $ $ Less: current portion ) ) Total, net of current portion $ $ Senior Secured Term Notes: On January 29, 2015, the Company and certain of its subsidiaries entered into a series of Agreements including a Securities Purchase Agreement with DBD Credit Funding LLC, (“DBD”) an affiliate of Fortress Credit Corp., under which the terms of the notes were: (i) $15,000,000 original principal amount of Fortress Notes (the “Initial Note”); (ii) a right to receive a portion of certain proceeds from monetization net revenues received by the Company (the “Revenue Stream”, after receipt by the Company of $15,000,000 of monetization net revenues and repayment of the Fortress Notes); (iii) a five-year Fortress Warrant to purchase 100,000 shares of the Company’s Common Stock exercisable at $7.44 per share, subject to adjustment; and (iv) 134,409 shares of the Issuer’s Common Stock (the “Fortress Shares”). On February 12, 2015, the Company issued an additional $5,000,000 of Notes (which increase proportionately the Revenue Stream). The Initial Note matures on July 29, 2018. Additional Notes issued pursuant to the Fortress Purchase Agreement mature 42 months after issuance. The unpaid principal amount of the Initial Note plus the additional $5,000,000 note (including any PIK Interest, as defined below) bear cash interest at a rate equal to LIBOR plus 9.75% per annum payable on the last business day of each month. Interest is paid in cash except that 2.75% per annum of the interest due on each Interest Payment Date shall be paid-in-kind, by increasing the principal amount of the Notes by the amount of such interest. Monthly principal payments are due commencing one year after the anniversary dates of the loans. The terms of the Fortress Warrant provide that until January 29, 2020, the Warrant may be exercised for cash or on a cashless basis. Exercisability of the Fortress Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% of the Company’s Common Stock. The exercise price of the warrant is $7.44 and the warrant fair value was determined to be $318,679 utilizing the Black-Scholes model, with the fair value of the warrants recorded as additional paid-in capital and reducing the carrying value of the Notes. As of December 31, 2016, and 2015 the unamortized discount on the Notes was $1,425,167 and $2,150,263; respectively. Senior Secured Term Note Amendment On January 10, 2017 the Company and certain of its subsidiaries entered into the Amended and Restated Revenue Sharing and Securities Purchase Agreement (“ARRSSPA”) with DBD Credit Funding LLC, under which the Company and DBD amended and restated the Revenue Sharing and Securities Purchase Agreement dated January 29, 2015 (the “Original Agreement”) pursuant to which (i) Fortress purchased $20,000,000 in promissory notes, of which $15,620,759 is currently outstanding (less $4,500,000 that is currently held in a cash collateral account), (ii) an interest in the Company’s revenues from certain activities and warrants to purchase 100,000 shares of the Company’s common stock. The ARRSSPA amends and restates the Original Agreement to provide for (i) the sale by the Company of a $4,500,000 promissory note (the “New Note”) and (ii) the insurance of additional warrants to purchase 187,500 shares of common stock (the “New Warrant”). Pursuant to the ARRSSPA, Fortress acquired an increased revenue stream right to certain revenues generated by the Company through monetization of our patent portfolio (“Monetization Revenues”). The ARRSSPA increases the revenue stream basis to $1,225,000. The ARRSSPA provides for the potential issuance of up to $7,500,000 of additional notes (the “Additional Notes”), of which not more than $3,750,000 shall be made prior to June 30, 2017 and of which not more than $3,750,000 shall be made available during the period following June 30, 2017 and on or prior to December 31, 2017 and not more than two such issuances shall occur under the ARRSSPA. The unpaid principal amount of the New Note (including any PIK Interest, as defined below) shall bear cash interest at a rate equal to LIBOR plus 9.75% per annum; provided that upon and during the continuance of an Event of Default (as defined in the Initial Note), the interest rate shall increase by an additional 2% per annum. Interest on the Initial Note shall be paid on the last business day of each calendar month (the “Interest Payment Date”), commencing January 31, 2017. Interest shall be paid in cash except that 2.75% per annum of the interest due on each Interest Payment Date shall be paid-in-kind, by increasing the principal amount of the Notes by the amount of such interest, effective as of the applicable Interest Payment Date (“PIK Interest”). PIK Interest shall be treated as added principal of the New Note for all purposes, including interest accrual and the calculation of any prepayment premium. The Company paid a structuring fee of 2.0% of the New Note and would pay a 2.0% fee upon the issuance of any Additional Notes. The proceeds of the New Note and any Additional Notes may be used for working capital purposes, portfolio acquisitions, growth capital and other general corporate purposes. The ARRSSPA contains certain customary events of default, and also contains certain covenants including a requirement that the Company maintain minimum liquidity of $1,250,000 in unrestricted cash and cash equivalents. The terms of the New Warrants provide that from July 10, 2017 until January 10, 2022, the Warrant may be exercised for cash or on a cashless basis. Exercisability of the Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% of the Issuer’s Common Stock. Pursuant to the ARSSPA, as security for the payment and performance in full of the Secured Obligations (as defined in the Security Agreement entered in favor of the Note purchasers (the “Security Agreement”) the Company and certain subsidiaries executed and delivered in favor of the purchasers a Security Agreement and a Patent Security Agreement, including a pledge of the Company’s interests in certain of its subsidiaries. As further set forth in the Security Agreement, repayment of the Note Obligations (as defined in the Notes) is secured by a first priority lien and security interest in all the assets of the Company, subject to certain permitted liens. Certain subsidiaries of the Company also executed guarantees in favor of the purchasers (each, a “Guaranty”), guaranteeing the Note Obligations. Convertible Note In two transactions, on October 9, 2014 and October 16, 2014, the Company sold an aggregate $5,550,000 of principal amount of convertible notes (“Convertible Notes”) along with two-year warrants to purchase 129,499 shares of the Company’s Common Stock. The Convertible Notes are convertible into shares of the Company’s Common Stock at $7.50 per share and the Warrants have an exercise price of $8.25 per share. The Notes mature on October 10, 2018 and bear interest at the rate of 11% per annum, payable quarterly in cash on each of the three, six, nine and twelve month anniversaries of the issuance date and on each conversion date. The Notes may become secured by a security interest granted to the holder in certain future assets under certain circumstances. In the event the Company’s Common Stock trades at a price of at least $27.00 per share for four out of eight trading days, the Notes will be mandatorily converted into Common Stock of the Company at the then applicable conversion price per share. The Company repaid the Convertible Notes for all but one holder in early 2015. iRunway The Company converted a set of outstanding invoices related to work performed by one of the Company’s vendors to a short-term payable whereby the Company agreed to pay iRunway over time for the open invoices, subject to a payment schedule as defined. To the extent that the Company does not make payments according to that schedule, the remaining balance accrues interest at 1.5% per month. As of December 31, 2016 and 2015, principal in the amount of $191,697 and $494,244 remained outstanding and the Company expects to repay the open balance during the year ended December 31, 2017. Note Payable The Company entered into a short term advance with an officer related to funds the Company was transferring from its European subsidiaries. The advance carried no interest and as of December 31, 2016, principal in the amount of $103,000 was outstanding, which was subsequently repaid by the Company in January 2017. Sichenzia Trade Payable The Company converted a set of outstanding invoices related to work performed by Company’s primary outside law firms to a trade payable whereby the Company agreed to pay Sichenzia over time for the open invoices, subject to a payment schedule as defined. There was no interest payable associated with the Sichenzia Trade Payable, and as of the December 31, 2016, all balances had been repaid. Medtech Note Payable The Company entered into a purchase agreement to acquire ownership of or monetization rights to certain patents. As part of the purchase agreement, the Company agreed to certain future payments of cash consideration. The Medtech Note Payable carried an interest rate of up to 28%, and as of December 31, 2016, the Company had repaid all amounts outstanding relative to this purchase obligation. AFCO Financing The Company financed its Directors and Officers (“D&O”) insurance through AFCO, whereby the Company agreed to make nine (9) monthly payments commencing one month after binding of the insurance. The AFCO Financings carried an interest rate of 4.82% per annum and as of December 31, 2016, the Company had repaid all amounts outstanding relative to the D&O financing. Siemens Purchase Payment The Company entered into a purchase agreement to acquire ownership of certain patents. As part of the purchase agreement, the Company agreed to certain future payments of cash consideration. The payment obligation bears no interest and as of December 31, 2016, the Company had an outstanding obligation for purchase of certain Siemens patents in the net amount of $1,672,924, with such payments expected to be made by the September 30, 2017. Dominion Harbor Settlement Note The Company entered into a settlement agreement with Dominion Harbor, a former licensing agent for some of the Company’s subsidiaries, on October 29, 2015 whereby the Company agreed to issue 300,000 shares of the Company’s Common Stock to Dominion Harbor and make eight (8) payments of $25,000 each ending on October 15, 2017. The shares issued to Dominion Harbor were valued at the quoted market price on the date of the grant of $1.71 per share or $513,000. As of December 31, 2016, $125,000 remained outstanding and the Company and Dominion Harbor subsequently agreed to make one payment of $25,000 and issue 125,000 shares of the Company’s Common Stock, which has not yet occurred as of the date of this report. Oil & Gas Purchase Payment The Company entered into a purchase agreement to acquire monetization rights to certain patents. As part of the purchase agreement, the Company agreed to certain future payments of cash consideration. The payment obligation bears no interest and as of December 31, 2016, the Company had an outstanding obligation for purchase of certain Siemens patents in the net amount of $944,296, with such payments expected to be made by December 31, 2017. 3D Nano Purchase Payment 3D Nano entered into a license and purchase agreement with HP Inc. to acquire the rights to use if 3D Nano chooses, the right to exercise an option to acquire, ownership of certain patents, trade secrets and other intellectual property (the “Technology”). As part of the purchase agreement, the Company agreed to license the Technology for two payments of $100,000 each, with the first payment made in April 2016 and the second payment due by January 31, 2017. The payment obligation bears no interest and as of December 31, 2016, the Company had an outstanding obligation in the amount of $100,000, which was subsequently paid to HP in January 2017. Future minimum principal payments are as follows: 2017 $ 2018 Total $ Office Lease In October 2013, the Company entered into a net-lease for its current office space in Los Angeles, California. The lease commenced on May 1, 2014 and has a term of seven years, which term expires on April 30, 2021, with monthly lease payments escalating each year of the lease. In addition, to paying a deposit of $7,564 and the monthly base lease cost, the Company is required to pay its pro rata share of operating expenses and real estate taxes. Under the terms of the lease, the Company will not be required to pay rent for the first five months but must remain in compliance with the terms of the lease to continue to maintain that benefit. In addition, the Company has a one-time option to terminate the lease in the 42nd month of the lease. Minimum future lease payments under this lease at December 31, 2016, net of the rent abatement, for the next five years are as follows: 2017 $ 2018 2019 2020 2021 Total $ The lease for the property maintained in Longview, Texas is month-to-month and can be cancelled upon thirty days’ notice. Legal Proceedings In the normal course of our business of patent monetization, it is generally necessary for us to initiate litigation in order to commence the process of protecting our patent rights. Such litigation is expected to lead to a monetization event. Accordingly, we are, and in the future, expect to become, a party to ongoing patent enforcement related litigation alleging infringement by various third parties of certain patented technologies owned and/or controlled by us. Litigation is commenced by and managed through the subsidiary that owns the related portfolio of patents or patent rights. In connection with our enforcement activities, we are currently involved in multiple patent infringement cases. As of December 31, 2016, the Company is involved into a total of 7 lawsuits against defendants in the following jurisdictions: United States District of Delaware 5 Central District of California 1 Eastern District of Michigan 1 On November 14, 2016, Symantec Corporation filed a complaint against Clouding Corp., a wholly-owned subsidiary of the Company, the Company and other unaffiliated parties in the Superior Court of the State of California for the County of Los Angeles, Unlimited Jurisdiction. Symantec Corporation asserted claims against Clouding Corp. and the Company of negligent misrepresentation, fraudulent misrepresentation, intentional interference with contractual relations, violation of Business & Professions Code Section 17200, and for an accounting. The Court has sustained in its entirety Clouding Corp.’s demurrer to Symantec Corporation’s complaint. Neither Clouding Corp. nor the Company were parties to the agreement on which the claims are based. Clouding Corp. plans to vigorously defend against such claims and is exploring counter-claims and repayment of the Company’s legal fees. On October 13, 2016, Liner LLP (“Liner”), a law firm, filed an arbitration request seeking payment of outstanding legal fees invoiced by Liner to Signal IP, Inc., a wholly-owned subsidiary of the Company. The Company is preparing counter-claims against Liner for its breach of the engagement agreement and abject failure in its representation of Signal IP, Inc. The Company plans to vigorously defend against such claims and is preparing counter-claims and will seek repayment of the Company’s legal fees. Other than as disclosed herein, we know of no other material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation other than in the normal course of business. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2016 | |
INCOME TAXES | |
INCOME TAXES | NOTE 7 - INCOME TAXES The Company accounts for income taxes under ASC Topic 740: Income Taxes, which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The following table presents the current and deferred provision (benefit) for income taxes for the years ended December 31, 2016: 2016 2015 US Net Income/(loss) ) ) Foreign Net Income (loss) ) ) ) ) 2016 2015 Current: Federal $ $ ) State Foreign — $ $ Deferred: Federal $ $ ) State ) Foreign ) ) $ $ ) Total provision (benefit) $ $ ) The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate for the years ended December 31, 2016 and 2015. 2016 2015 Tax benefit computed at “expected” statutory rate $ ) $ ) State income taxes, net of benefit ) ) Permanent differences : Deemed Dividend — — Stock based compensation and consulting Transaction Cost Other permanent differences ) Foreign rate Differential — Amortization of patents and other — — Change in valuation allowance — Net income tax benefit $ $ ) The table below summarizes the differences between the Companies’ effective tax rate and the statutory federal rate as follows for the years ended December 31, 2016 and 2015: 2016 2015 Computed “expected” tax expense (benefit) )% )% State income taxes )% )% Permanent differences % % Timing differences — % — % Change in valuation allowance % — % Effective tax rate % )% The Company has a deferred tax asset, which is summarized as follows at December 31: 2016 2015 Deferred tax assets: Total deferred tax assets $ $ Total deferred tax liabilities — ) Less: valuation allowance ) — Net deferred tax asset $ — $ The details of the deferred tax asset and deferred tax liability are as follows: 2016 2015 Accruals $ $ Reserves — — Fixed Assets ) ) Intangible Assets Inventory — — State Taxes — Other Charitable Contributions — Net Operating Loss AMT Credit — Valuation Allowance ) — Net Deferred Asset/(Liability) $ — $ The Company does not have any taxable income in carryback years in which net operating losses (“NOLs”) can be carried back to. At December 31, 2016, the Company did not have any taxable temporary differences that will reverse and generate taxable income and was still in a cumulative loss position. Based on all the available information, including tax planning strategies and future forecast, the Company does not believe that it is more likely than not that the net deferred tax assets will be realized; therefore, a full valuation allowance has been recorded against its net deferred tax assets. As of December 31, 2016, the Company had NOL carry-forwards for federal and state purposes of approximately $18.0 million and $12.9 million, respectively, which will begin to expire in 2032. The utilization of NOL and credit carry-forwards may be limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. IRC Section 382 generally imposes an annual limitation on the amount of NOL carry-forwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. As of December 31, 2016 and 2015, the Company has not recorded liability for unrecognized tax benefit. As of December 31, 2016 and 2015 the Company did not increase or decrease penalties or interest in connection with liability for unrecognized tax benefit. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company files U.S. and state income tax returns with varying statutes of limitations. The 2012 through 2015 tax years generally remain subject to examination by federal and state tax authorities. The Company has not recognized a deferred tax liability on foreign earnings that it has declared as indefinitely reinvested. This amount may become taxable upon repatriation of assets from the subsidiaries or a sale or liquidation of the subsidiaries. The amount of earnings designated as indefinitely reinvested offshore is based upon our expectations of the future cash needs of the Company’s foreign entities. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2016 | |
SUBSEQUENT EVENTS. | |
SUBSEQUENT EVENTS | NOTE 8 — SUBSEQUENT EVENTS On January 10, 2017, the Company and certain of its subsidiaries (each a “Subsidiary” and collectively with the Issuer, the “Company”) entered into an amended and restated revenue sharing and securities purchase agreement (the “ARRSSPA”) with DBD Credit Funding, LLC (“DBD”), an affiliate of Fortress Credit Corp. (“Fortress”), under which the Company and DBD amended and restated the Revenue Sharing and Securities Purchase Agreement dated January 29, 2015 (the “Original Agreement”) pursuant to which (i) Fortress purchased $20,000,000 in promissory notes, (ii) an interest in the Company’s revenues from certain activities and (iii) warrants to purchase 100,000 shares of the Company’s common stock. As of the close of the restructuring on January 10, 2017, there was $20,131,158 in outstanding principal and PIK interest accrued. Under the terms of the ARRSSPA, the Company pays interest only through January 2018, after which the principal amortizes over thirty (30) months. On January 27, 2017, the Company entered into a sales agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time through Northland, up to 750,000 shares (the “Shares”) of the Company’s common stock in an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. As of January 31, 2017, the Company sold all 750,000 shares of common stock under the Sales Agreement for gross proceeds of approximately $1,301,923 and no further shares are available under the terms of the Sales Agreement as filed on January 27, 2017. The warrants pursuant to the Purchase Agreement entered into on December 9, 2016, as described above in Note 6, were purchased and issued in January and February 2017. On March 15, 2017, the Company terminated four of its employees and all six employees employed at the Company’s subsidiary, 3D Nano. |
SUMMARY OF SIGNIFICANT ACCOUN16
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements of the Company and its wholly owned and majority owned subsidiaries as of December 31, 2016. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated. |
Use of Estimates and Assumptions | Use of Estimates and Assumptions The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, estimating the useful lives of patent assets, the assumptions used to calculate fair value of warrants and options granted, goodwill and intangible assets impairment, realization of long-lived assets, valuation of Clouding IP earn out liability, deferred income taxes, unrealized tax positions and business combination accounting. |
Cash | Cash The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The Company’s accounts at this institution are insured, up to $250,000, by the Federal Deposit Insurance Corporation (“FDIC”). For the years ended December 31, 2016 and 2015, the Company’s bank balances exceeded the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. |
Accounts Receivable | Accounts Receivable The Company has a policy of reserving for accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At December 31, 2016 and 2015, the Company had recorded an allowance for bad debts in the amounts of $387,976 and $375,750, respectively. Net accounts receivable at December 31, 2016 and 2015 were $95,069 and $136,842, respectively. |
Concentration of Revenue and Geographic Area | Concentration of Revenue and Geographic Area Revenue from the Company’s patent enforcement activities is considered United States revenue as any payments for licenses included in that revenue are for United States operations irrespective of the location of the licensee’s or licensee’s parent home domicile. Revenues from the five largest licenses for the year ended December 31, 2016 accounted for approximately 97% of the Company’s total 2016 revenue and revenue from the largest five licenses in 2015 accounted for approximately 62% of the Company’s revenues for the year ended December 31, 2015. The Company derived these revenues from the one-time issuance of non-recurring, non-exclusive, non-assignable licenses. While the Company has a growing portfolio of patents, at this time, the Company expects that a significant portion of its future revenues will be based on one-time grants of similar non-recurring, non-exclusive, non-assignable licenses to a relatively small number of entities and their affiliates. Further, with the expected small number of firms with which the Company enters into license agreements, and the amount and timing of such license agreements, the Company also expects that its revenues may be highly variable from one period to the next. For the year ended December 31, 2016 the Company earned $161,000 of revenues in Germany. At the current time, we define customers as firms that obtain licenses to the Company’s patents, either prior to or during enforcement litigation. These firms generally enter into non-recurring, non-exclusive, non-assignable license agreements with the Company, and these customers do not generally engage on ongoing, recurring business activity with the Company. The Company has historically had a small number of customers enter into such agreements, resulting in higher levels of revenue concentration. |
Revenue Recognition | Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured. In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These rights typically include some combination of the following: (i) the grant of a non-exclusive, perpetual license to use patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the dismissal of any pending litigation. The intellectual property rights granted typically are perpetual in nature. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectibility is reasonably assured, and when all other revenue recognition criteria have been met. The Company also considers the revenue generated from its settlement and licensing agreements as one unit of accounting under ASC 605-25, “Multiple-Element Arrangements” as the delivered items do not have value to customers on a standalone basis, there are no undelivered elements and there is no general right of return relative to the license. Under ASC 605-25, the appropriate recognition of revenue is determined for the combined deliverables as a single unit of accounting and revenue is recognized upon delivery of the final elements, including the license for past and future use and the release. Also, due to the fact that the settlement element and license element for past and future use are the Company’s major central business, the Company presents these two elements as one revenue category in its statement of operations. The Company does not expect to provide licenses that do not provide some form of settlement or release. Revenue from patent enforcement activities accounted for 100% of the Company’s revenues for the years ended December 31, 2016 and December 31, 2015. |
Prepaid Expenses | Prepaid Expenses Prepaid expenses of $428,049 and $338,598 at December 31, 2016 and 2015, respectively, consist primarily of costs paid for future services that will occur within a year. Prepaid expenses include prepayments in cash and in equity instruments for investor relations public relations services, business advisory, other consulting and prepaid insurance, all of which assets are being amortized over the terms of their respective agreements. |
Bonds Posted With Courts | Bonds Posted With Courts Under certain circumstances related to litigations in Germany, the Company is either required to or may decide to enter a bond with the courts. As of December 31, 2016 and December 31, 2015, the Company had outstanding bonds in the amount of $0 and $1,748,311, respectively. These bonds were entered into in Germany after the first instance of litigation of some of the Company’s patents in German courts and the difference in the balance of the litigation bonds at December 31, 2016 compared to December 31, 2015 is attributable to the repayment of all outstanding bonds. |
Related Party Transactions | Related Party Transactions Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On May 10, 2016, the Company entered into an executive employment agreement with Erich Spangenberg pursuant to which Mr. Spangenberg became the Company’s Director of Acquisitions, Licensing and Strategy. On May 13, 2013, we entered into a six-year advisory services agreement (the “Advisory Services Agreement”) with IP Navigation Group, LLC (“IP Nav”), of which Erich Spangenberg is founder and former Chief Executive Officer. Mr. Spangenberg is an affiliate of the Company. The terms of the Advisory Services Agreement provide that, in consideration for its services as intellectual property licensing agent, the Company will pay to IP Navigation Group, LLC between 10% and 20% of the gross proceeds of certain licensing campaigns in which IP Navigation Group, LLC acts as intellectual property licensing agent. On November 18, 2013, we entered into Amendment No. 1 to the Executive Employment Agreement with our Chief Executive Officer and Chairman, Doug Croxall, pursuant to which Mr. Croxall’s base salary was raised to $480,000, subject to a 3% increase every year commencing on November 14, 2014. We also granted Mr. Croxall a bonus of $350,000 and ten-year stock options to purchase an aggregate of 100,000 shares of our Common Stock, with a strike price of $5.93 per share (representing the closing price on the date of grant), vesting in twenty-four (24) equal installments on each monthly anniversary of the date of grant. On November 18, 2013, we entered into a consulting agreement with Jeff Feinberg (“Feinberg Agreement”), pursuant to which we agreed to grant Mr. Feinberg 100,000 shares of our restricted Common Stock, 50% of which shall vest on the one-year anniversary of the Feinberg Agreement and the remaining 50% of which shall vest on the second-year anniversary of the Feinberg Agreement. Mr. Feinberg is the trustee of The Feinberg Family Trust and holds voting and dispositive power over shares held by The Feinberg Family Trust, which is a 10% beneficial owner of our Common Stock. On May 2, 2014, the Company completed the acquisition of certain ownership rights (the “Acquired Intellectual Property”) from TechDev, Granicus and SFF pursuant to the terms of three purchase agreements between: (i) the Company, TechDev, SFF and DA Acquisition LLC, a newly formed Texas limited liability company and wholly-owned subsidiary of the Company; (ii) the Company, Granicus, SFF and IP Liquidity Ventures Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company; and (iii) the Company, TechDev, SFF and Sarif Biomedical Acquisition LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company. TechDev, SFF and Granicus are owned or controlled by Erich Spangenberg or family members or associates. · Pursuant to the DA Agreement, the Company acquired 100% of the limited liability company membership interests of Dynamic Advances, LLC, a Texas limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 195,500 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the DA Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the IP Liquidity Agreement, the Company acquired 100% of the limited liability company membership interests of IP Liquidity Ventures, LLC, a Delaware limited liability company, in consideration for: (i) two cash payments of $2,375,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $2,850,000 if not made on or before June 30, 2014; and (ii) 195,500 shares of the Company’s Series B Convertible Preferred Stock. The remaining cash payment was made on April 1, 2015 and is fully paid. Under the terms of the IP Liquidity Agreement, Granicus and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the Sarif Agreement, the Company acquired 100% of the limited liability company membership interests of Sarif Biomedical, LLC, a Delaware limited liability company, in consideration for two cash payments of $250,000, one payment due at closing and the other payment was due on or before June 30, 2014, with such second payment being subject to increase to $300,000 if not made on or before June 30, 2014. The remaining cash payment was made on February 24, 2015 and is fully paid. Under the terms of the Sarif Agreement, TechDev and SFF are entitled to possible future payments for a maximum consideration of $250,000,000 pursuant to the Pay Proceeds Agreement described below. · Pursuant to the Pay Proceeds Agreement, the Company may pay the sellers a percentage of the net recoveries (gross revenues minus certain defined expenses) that the Company makes with respect to the assets held by the entities that the Company acquired pursuant to the DA Agreement, the IP Liquidity Agreement and the Sarif Agreement. Under the terms of the Pay Proceeds Agreement, as amended in 2016, if the Company recovers $10,000,000 or less with regard to the IP Assets, then nothing is due to the sellers; if the Company recovers between $13,000,000 and $40,000,000 with regard to the IP Assets, then the Company shall pay 40% of the cumulative gross proceeds of such recoveries to the sellers; and if the Company recovers over $40,000,000 with regard to the IP Assets, the Company shall pay 50% of the cumulative gross proceeds of such recoveries to the sellers. Pursuant to the amendment to the Pay Proceeds Agreement, the Company paid TechDev, Granicus and SFF $2.4 million. In no event will the total payments made by the Company under the Pay Proceeds Agreement exceed $250,000,000. On May 2, 2014, we entered into an opportunity agreement (the “Marathon Opportunity Agreement”) with Erich Spangenberg, who is an affiliate of the Company. The terms of the Marathon Opportunity Agreement provide that we have ten business days after receiving notice from Mr. Spangenberg to provide up to 50% of the funding for certain opportunities relating to the licensing, intellectual property acquisitions and/or intellectual property enforcement actions in which Mr. Spangenberg, IP Nav or any entity controlled by Mr. Spangenberg, other than: (i) IP Nav or any of its affiliates, and (ii) Medtech Development, LLC or any of its affiliates. On June 17, 2014, Selene Communication Technologies Acquisition LLC (“Acquisition LLC”), a Delaware limited liability company and newly formed wholly-owned subsidiary of the Company, entered into a merger agreement with Selene Communication Technologies, LLC (“Selene”). Selene owned a patent portfolio consisting of three United States patents in the field of search and network intrusion that relate to tools for intelligent searches applied to data management systems as well as global information networks such as the internet. IP Nav provided patent monetization and support services under an existing agreement with Selene prior to the return of the patents to Stanford Research Institute (“SRI”), the original owners of the patents. On August 29, 2014, the Company entered into a patent purchase agreement to acquire a portfolio of patents from Clouding IP, LLC for an aggregate purchase price of $2.4 million, of which $1.4 million was paid in cash and $1.0 million was paid in the form of a promissory note issued by the Company that matured on October 31, 2014 and was fully paid prior to the maturation date. The Company also issued 25,000 shares of its restricted common stock in connection with the acquisition. Clouding IP, LLC is also entitled to certain possible future cash payments. Clouding IP LLC is owned or controlled by Erich Spangenberg or family members or associates. On October 10, 2014, the Company entered into an interest sale agreement with MedTech Development, LLC (“MedTech”) to acquire from MedTech 100% of the limited liability membership interests of OrthoPhoenix and TLIF as well as 100% of the shares of MedTech GmbH. In connection with the transaction, the Company is obligated to pay to MedTech $1 million at closing and $1 million on each of the following nine (9) month anniversary dates of the closing. On July 16, 2015, the Company entered into a forbearance agreement (the “Agreement”) with MedTech Development, the holder of a Promissory Note issued by the Company, dated October 10, 2014. Pursuant to the Agreement, the term of the Note was extended to October 1, 2015 and the Note began accruing interest starting from May 13, 2015. In addition, the Company agreed to make certain mandatory prepayments under certain circumstances and issue to MedTech Development 200,000 shares of restricted common stock of the Company. In accordance with ASC 470-50, the Company recorded this agreement as debt extinguishment and $654,000 was recorded as loss on debt extinguishment during the year ended September 30, 2015. On October 23, 2015, the Company entered into Amendment No. 1 to the Forbearance Agreement (the “Amendment”) entered into with MedTech Development on July 16, 2015. Pursuant to the Amendment, the due date of the Promissory Note was extended to October 23, 2016 in return for which the Company made a payment of $100,000 on October 23, 2015 and modified the terms under which the Company agreed to make mandatory prepayments under certain circumstances. The acquired subsidiaries are also obligated to make certain additional payments to MedTech from recoveries following the receipt by the acquired subsidiaries of 200% of the purchase payments, plus recovery of out of pocket expenses in connection with patent claims. The participation payments may be paid, at the election of the Company, in common stock of Marathon at the market price on the date of issuance. In connection with the transaction, the Company entered into a promissory note, common interest agreement and in the event of issuance of common stock to MedTech, will enter into a lockup and registration rights agreement. Approximately forty-five percent (45%) of MedTech is owned or controlled by Erich Spangenberg or family members or associates. On October 1, 2016, one of the Company’s subsidiaries, PG Technologies S.a.r.l. entered into an advisory services agreement with Granicus IP, LLC, an entity owned or controlled by one of the Company’s employees, whereby Granicus receives a percentage of pre-tax return from PG Technologies after certain revenue thresholds have been met. During 2016, certain officers and directors of the Company received restricted common stock in the Company’s 3D Nano subsidiary. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying value of notes payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company. The Clouding IP earn out liability was determined to be a Level 3 liability, which requires fair assessment of fair value at each period end by using a discounted cash flow model as the valuation methodology, using unobservable inputs, such as revenue and expenses forecasts, timing of proceeds, and discount rates. Based on the reassessment of fair value as of December 31, 2016, the Company determined the Clouding IP earn out liability to be $81,930 (current portion) and $1,400,082 (long-term portion), which resulted in a gain from exchange in fair value adjustment of $1,832,872 for the year ended December 31, 2016. Further, the periodic reassessment resulted in a non-routine impairment of the Clouding patent intangible assets of $3,089,983 for the year ended December 31, 2016. Under certain circumstances related to litigations in Germany, the Company is either required to or may decide to enter a bond with the courts. As of December 31, 2016 and December 31, 2015, the Company had outstanding bonds in the amount of $0 and $1,748,311, respectively. These bonds were entered into in Germany after the first instance of litigation of some of the Company’s patents in German courts and the difference in the balance of the litigation bonds at December 31, 2016 compared to December 31, 2015 is attributable to the repayment of all outstanding bonds. The Company adjusts the value of the bonds at the end of each reporting period to reflect changes to the exchange rate between the Euro and the US Dollar. |
Accounting for Acquisitions | Accounting for Acquisitions In the normal course of its business, the Company makes acquisitions of patent assets and may also make acquisitions of businesses. With respect to each such transaction, the Company evaluates facts of the transaction and follows the guidelines prescribed in accordance with ASC 805 — Business Combinations to determine the proper accounting treatment for each such transaction and then records the transaction in accordance with the conclusions reached in such analysis. The Company performs such analysis with respect to each material acquisition within the consolidated group of entities. |
Income Taxes | Income Taxes The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed. The Company is in the process of filing the 2016 tax returns. After review of the prior year financial statements and the results of operations through December 31, 2016, the Company has recorded a full valuation allowance on its deferred tax asset. |
Basic and Diluted Net Loss per Share | Basic and Diluted Net Loss per Share Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. The computation of diluted net loss per share does not include dilutive Common Stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. As of December 31, 2016, the Company has warrants to purchase 466,078 shares of Common Stock outstanding, options to purchase 3,516,136 shares of Common Stock outstanding, convertible notes convertible into 66,667 shares of Common Stock outstanding and 782,004 shares of Series B Convertible Preferred Stock convertible into 782,004 shares of Common Stock outstanding, all of which were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss per share computation. The following table sets forth the computation of basic and diluted loss per share on a GAAP basis: For the Year Ended For the Year Ended Net loss attributable to Common Shareholders $ ) $ ) Denominator Weighted Average Common Shares - Basic Weighted Average Common Shares - Diluted Earnings (Loss) per common share: Earnings (Loss) - Basic $ ) $ ) Earnings (Loss) - Diluted $ ) $ ) |
Intangible Assets - Patents | Intangible Assets - Patents Intangible assets include patents purchased and patents acquired in lieu of cash in licensing transactions. The patents purchased are recorded based on the cost to acquire them and patents acquired in lieu of cash are recorded at their fair market value. The costs of these assets are amortized over their remaining useful lives. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. The Company recorded impairment charges to its intangible assets during the year ended December 31, 2016 in the amount of $11,958,882, associated with the end of life of a number of the Company’s portfolios, compared to an impairment charge in the amount of $5,793,409 during the year ended December 31, 2015 associated with the reduction in the carrying value of one the Company’s portfolios. |
Goodwill | Goodwill Goodwill is tested for impairment at the reporting unit level at least annually in accordance with ASC 350, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit’s goodwill and if the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated statement of operations. The Company performs the annual testing for impairment of goodwill at the reporting unit level during the quarter ended September 30. For the year ended December 31, 2016, the Company recorded an impairment charge to its goodwill in the amount of $4,336,307, and for the year ended December 31, 2015, the Company recorded no impairment charge to its goodwill. |
Other Intangible Assets | Other Intangible Assets In accordance with ASC 350-30, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of use of the acquired assets or the strategy for the overall business; and (3) significant negative industry or economic trends. When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. |
Impairment of Long-lived Assets | Impairment of Long-lived Assets The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360 “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows that the Company expects to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The Company did not record any impairment charges on its long-lived assets during the years ended December 31, 2016 and 2015. |
Stock-based Compensation | Stock-based Compensation Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. As stock-based compensation expense is recognized based on awards expected to vest, forfeitures are also estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the year ended December 31, 2016, the expected forfeiture rate was 2.4%, which resulted in a decrease in expense of $44,146, recognized in the Company’s compensation expenses and for the year ended December 31, 2015, the expected forfeiture rate was 10.40%, which resulted in a decrease in expense of $28,663, recognized in the Company’s compensation expenses. The Company will continue to re-assess the impact of forfeitures if actual forfeitures increase in future quarters. Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. |
Reclassification | Reclassification Certain prior year reported amounts have been reclassified to conform to the current year presentation. The reclassification did not have an impact on previously issued net income (loss) or Total Shareholders’ Equity. |
Liquidity and Capital Resources | Liquidity and Capital Resources At December 31, 2016, we had approximately $5.0 million in cash and cash equivalents and a working capital deficit of approximately $14.9 million. Based on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash and accounts receivables will be sufficient to fund its operations through at least the next twelve months from the issuance date of the financial statements, raising substantial doubt regarding the Company’s ability to continue operating as a going concern. If we do not meet our revenue and profit projections or the business climate turns negative, then we will need to: · raise additional funds to support the Company’s operations; provided, however, there is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted; and · review strategic alternatives. If adequate funds are not available, we may be required to curtail our operations or other business activities or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain technologies or potential markets. The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlements of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual period beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. In October 2016, the FASB issued ASU 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which eliminates the exception in existing guidance which defers the recognition of the tax effects of intra-entity asset transfers other than inventory until the transferred asset is sold to a third party. Rather, the amended guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted as of the beginning of an annual reporting period. The Company is currently assessing the impact of this guidance on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The standard is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In May 2014, the FASB Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as a new Topic, (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. This ASU must be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are considering the alternatives of adoption of this ASU and we are conducting our review of the likely impact to the existing portfolio of customer contracts entered into prior to adoption. After completing our review, we will continue to evaluate the effect of adopting this guidance upon our results of operations, cash flows and financial position. In March 2016, the FASB issued ASU No. 2016-09, “ Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Accordingly, the standard is effective for us on January 1, 2017 and we are currently evaluating the impact that the standard will have on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting . The amendments in the ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and should be applied prospectively upon the effective date. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance. In February 2016, the FASB issued ASU No. 2016-02, “ Leases (Topic 842) ” (“ASU 2016-02”). The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Accordingly, the standard is effective for us on September 1, 2019 using a modified retrospective approach. We are currently evaluating the impact that the standard will have on our consolidated financial statements. There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. |
SUMMARY OF SIGNIFICANT ACCOUN17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of computation of basic and diluted loss per share | For the Year Ended For the Year Ended Net loss attributable to Common Shareholders $ ) $ ) Denominator Weighted Average Common Shares - Basic Weighted Average Common Shares - Diluted Earnings (Loss) per common share: Earnings (Loss) - Basic $ ) $ ) Earnings (Loss) - Diluted $ ) $ ) |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Clouding Corp | |
Summary of net purchase price paid, assets and liabilities | Intangible assets $ Goodwill Net purchase price $ Total consideration paid of the following: Cash $ Promissory Note Common Stock Earn-Out Liability Net purchase price $ |
Medtech Group | |
Summary of net purchase price paid, assets and liabilities | Intangible assets $ Goodwill Net purchase price $ |
INTANGIBLE ASSETS, NET (Tables)
INTANGIBLE ASSETS, NET (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
INTANGIBLE ASSETS, NET | |
Schedule of intangible assets, net | December 31, 2016 December 31, 2015 Intangible Assets $ $ Accumulated Amortization & Impairment ) ) Intangible assets, net $ $ |
Schedule of future amortization of current intangible assets, net | 2017 $ 2018 2019 2020 2021 2022 and thereafter Total $ |
STOCKHOLDERS' EQUITY (Tables)
STOCKHOLDERS' EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
STOCKHOLDERS' EQUITY | |
Summary of the Company's outstanding stock warrants and changes during the period | Number of Warrants Weighted Average Weighted Average Balance at December 31, 2015 $ Granted $ Cancelled — Forfeited — — — Exercised $ — Balance at December 31, 2016 Warrants exercisable at December 31, 2016 Weighted average fair value of warrants granted during the period $ |
Summary of stock options and changes during the period | Number of Options Weighted Average Weighted Average Balance at December 31, 2015 $ Granted $ Cancelled $ — Forfeited $ — Exercised — $ — — Balance at December 31, 2016 $ Options Exercisable at December 31, 2016 $ Options expected to vest $ Weighted average fair value of options granted during the period $ |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
COMMITMENTS AND CONTINGENCIES | |
Schedule of debt and obligations | Maturity Interest December 31, Date Rate 2016 2015 Senior secured term notes 29-Jul-18 LIBOR + 9.75% $ $ Less: debt discount ) ) Total senior-term notes, net of discount $ $ Maturity Interest December 31, Date Rate 2016 2015 Convertible Note 10-Oct-18 % $ $ Less: debt discount — ) Total convertible note $ $ Maturity Late December 31, Date Fee 2016 2015 iRunway trade payable On Demand 1.5% per month $ $ Maturity Interest December 31, Date Rate 2016 2015 Note payable 31-Jan-17 NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 Sichenzia trade payable On Demand NA $ — $ Maturity Interest December 31, Date Rate 2016 2015 Medtech LLC note payable On Demand % $ — $ Maturity Interest December 31, Date Rate 2016 2015 Afco financing On Demand % $ — $ Maturity Interest December 31, Date Rate 2016 2015 Siemens 30-Sep-17 NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 Dominion Harbor 15-Oct-17 NA $ $ Maturity Interest December 31, Date Rate 2016 2015 Oil & Gas On Demand NA $ $ — Maturity Interest December 31, Date Rate 2016 2015 3dnano Liscense Fee 31-Jan-17 NA $ $ — |
Schedule of notes payable | 2016 2015 Total $ $ Less: current portion ) ) Total, net of current portion $ $ |
Schedule of maturities of senior and sub combined debt | 2017 $ 2018 Total $ |
Schedule of future minimum lease payments | Minimum future lease payments under this lease at December 31, 2016, net of the rent abatement, for the next five years are as follows: 2017 $ 2018 2019 2020 2021 Total $ |
Schedule of pending lawsuits against defendants | As of December 31, 2016, the Company is involved into a total of 7 lawsuits against defendants in the following jurisdictions: United States District of Delaware 5 Central District of California 1 Eastern District of Michigan 1 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
INCOME TAXES | |
Schedule of current and deferred provision (benefit) for income taxes | 2016 2015 US Net Income/(loss) ) ) Foreign Net Income (loss) ) ) ) ) 2016 2015 Current: Federal $ $ ) State Foreign — $ $ Deferred: Federal $ $ ) State ) Foreign ) ) $ $ ) Total provision (benefit) $ $ ) |
Schedule of differences between the Company's effective tax rate and the statutory federal rate (in dollars) | 2016 2015 Tax benefit computed at “expected” statutory rate $ ) $ ) State income taxes, net of benefit ) ) Permanent differences : Deemed Dividend — — Stock based compensation and consulting Transaction Cost Other permanent differences ) Foreign rate Differential — Amortization of patents and other — — Change in valuation allowance — Net income tax benefit $ $ ) |
Schedule of differences between the Company's effective tax rate and the statutory federal rate (as a percent) | 2016 2015 Computed “expected” tax expense (benefit) )% )% State income taxes )% )% Permanent differences % % Timing differences — % — % Change in valuation allowance % — % Effective tax rate % )% |
Schedule of deferred tax assets | 2016 2015 Deferred tax assets: Total deferred tax assets $ $ Total deferred tax liabilities — ) Less: valuation allowance ) — Net deferred tax asset $ — $ |
Schedule of deferred tax asset and deferred tax liability | 2016 2015 Accruals $ $ Reserves — — Fixed Assets ) ) Intangible Assets Inventory — — State Taxes — Other Charitable Contributions — Net Operating Loss AMT Credit — Valuation Allowance ) — Net Deferred Asset/(Liability) $ — $ |
ORGANIZATION AND DESCRIPTION 23
ORGANIZATION AND DESCRIPTION OF BUSINESS - Organization (Details) | Oct. 01, 2012 | Dec. 31, 2016$ / sharesshares | Dec. 31, 2015$ / sharesshares | Aug. 01, 2012shares | Dec. 07, 2011$ / sharesshares |
Organization and Description of Business | |||||
Common stock, shares authorized | 200,000,000 | 200,000,000 | |||
Common stock, par value | $ / shares | $ 0.0001 | $ 0.0001 | |||
Preferred stock, shares authorized | 100,000,000 | ||||
Preferred stock, par value | $ / shares | $ 0.0001 | ||||
Common Stock | |||||
Organization and Description of Business | |||||
Reverse stock split ratio | 1.5 | ||||
Reverse stock split time to effectuate | 1 year | ||||
2012 Plan | Common Stock | |||||
Organization and Description of Business | |||||
Shares reserved for issuance under plan | 20,000,000 | ||||
American Strategic Minerals Corporation | |||||
Organization and Description of Business | |||||
Common stock, shares authorized | 200,000,000 | ||||
Common stock, par value | $ / shares | $ 0.0001 | ||||
Preferred stock, shares authorized | 100,000,000 | ||||
Preferred stock, par value | $ / shares | $ 0.0001 |
ORGANIZATION AND DESCRIPTION 24
ORGANIZATION AND DESCRIPTION OF BUSINESS - Operations (Details) | Dec. 14, 2016$ / sharesshares | Dec. 09, 2016$ / sharesshares | May 11, 2016USD ($)$ / sharesshares | Dec. 09, 2015USD ($)$ / sharesshares | Nov. 04, 2015USD ($)$ / sharesshares | Oct. 23, 2015USD ($) | Oct. 20, 2015shares | Sep. 21, 2015USD ($)$ / sharesshares | Jul. 16, 2015USD ($)$ / sharesshares | Mar. 13, 2015shares | Jan. 29, 2015USD ($)$ / sharesshares | Dec. 22, 2014 | Oct. 17, 2014installment | Oct. 16, 2014USD ($)$ / sharesshares | Oct. 10, 2014USD ($)payment | Oct. 06, 2014shares | Aug. 29, 2014USD ($)shares | May 02, 2014USD ($)shares | May 01, 2014$ / sharesshares | Sep. 30, 2015shares | Jun. 30, 2015shares | Mar. 31, 2015shares | Dec. 31, 2016USD ($)$ / sharesshares | Dec. 31, 2015USD ($)$ / sharesshares | Dec. 31, 2014USD ($)shares | Feb. 12, 2015USD ($) | Sep. 17, 2014shares |
Organization and Description of Business | |||||||||||||||||||||||||||
Value of stock issued for services | $ | $ 136,000 | $ 900,500 | |||||||||||||||||||||||||
Value of shares issued | $ | $ 4,654,080 | ||||||||||||||||||||||||||
Loss on debt extinguishment | $ | $ (1,416,915) | ||||||||||||||||||||||||||
Common stock, par value | $ / shares | $ 0.0001 | $ 0.0001 | |||||||||||||||||||||||||
Series B Convertible Preferred Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock Dividend (as a percent) | 200.00% | ||||||||||||||||||||||||||
Conversion of Stock, Shares Converted | 1 | ||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Number of shares issued upon exercise of warrants | 5,000 | 23,334 | |||||||||||||||||||||||||
Stock issued for services (in shares) | 180,000 | 210,000 | |||||||||||||||||||||||||
Value of stock issued for services | $ | $ 18 | $ 21 | |||||||||||||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||||||||||||||
Value of shares issued | $ | $ 349 | ||||||||||||||||||||||||||
Exercise stock options (in shares) | 33,968 | ||||||||||||||||||||||||||
Common Stock | Former Consultant | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Shares issued | 60,000 | ||||||||||||||||||||||||||
Accredited Investors | Series A Convertible Preferred Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Preferred stock, shares issued | 2,047,158 | ||||||||||||||||||||||||||
Accredited Investors | Common Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Term of warrants | 2 years | ||||||||||||||||||||||||||
Number of warrants to purchase common stock | 511,790 | ||||||||||||||||||||||||||
Exercise price of warrants | $ / shares | $ 3.75 | ||||||||||||||||||||||||||
Clouding IP, LLC | Common Stock | Restricted Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued in acquisition (in shares) | 25,000 | ||||||||||||||||||||||||||
Fair value of restricted common stock | $ | $ 281,000 | ||||||||||||||||||||||||||
MedTech | Promissory Notes | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Number of cash payments made | payment | 9 | ||||||||||||||||||||||||||
Cooper Law Firm., LLC | Common Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued for services (in shares) | 80,000 | ||||||||||||||||||||||||||
Value of stock issued for services | $ | $ 136,000 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.70 | ||||||||||||||||||||||||||
Melechdavid, Inc | Common Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued for services (in shares) | 100,000 | ||||||||||||||||||||||||||
Value of stock issued for services | $ | $ 161,000 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.61 | ||||||||||||||||||||||||||
Consulting and services agreement | GRQ | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Term of consulting agreement | 6 months | ||||||||||||||||||||||||||
Number of equal monthly installments | installment | 6 | ||||||||||||||||||||||||||
Consulting and services agreement | GRQ | Series B Convertible Preferred Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Preferred stock consideration (in shares) | 200,000 | ||||||||||||||||||||||||||
Vest upon execution (percentage) | 50.00% | ||||||||||||||||||||||||||
Vest after execution (percentage) | 50.00% | ||||||||||||||||||||||||||
Stock issued for services (in shares) | 50,000 | 150,000 | |||||||||||||||||||||||||
Value of stock issued for services | $ | $ 345,334 | $ 1,103,581 | |||||||||||||||||||||||||
Number of shares of common stock issued upon conversion of preferred stock | 2 | ||||||||||||||||||||||||||
Preferred stock, shares outstanding | 4 | ||||||||||||||||||||||||||
Conversion of Stock, Shares Converted | 16,666 | 183,330 | 199,996 | ||||||||||||||||||||||||
Consulting and services agreement | GRQ | Series B Convertible Preferred Stock, Tranche One | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued for services (in shares) | 100,000 | ||||||||||||||||||||||||||
Consulting and services agreement | GRQ | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Number of shares of common stock issued upon conversion of preferred stock | 16,666 | 199,996 | |||||||||||||||||||||||||
Consulting and services agreement | Alex Partners LLC and Del Mar Consulting Group | Common Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued for services (in shares) | 150,000 | ||||||||||||||||||||||||||
Value of stock issued for services | $ | $ 334,500 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 2.23 | ||||||||||||||||||||||||||
Consulting and services agreement | Cooper Law Firm., LLC | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued for services (in shares) | 80,000 | ||||||||||||||||||||||||||
Value of stock issued for services | $ | $ 136,000 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.70 | ||||||||||||||||||||||||||
Interest Sale Agreement | MedTech | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ | $ 1,000,000 | ||||||||||||||||||||||||||
Loss on debt extinguishment | $ | $ 654,000 | ||||||||||||||||||||||||||
Recovery threshold (as a percent) | 200.00% | ||||||||||||||||||||||||||
Patent enforcement liabilities | $ | $ 0 | ||||||||||||||||||||||||||
Interest Sale Agreement | MedTech | Promissory Notes | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Cash | $ | $ 100,000 | ||||||||||||||||||||||||||
Monthly payment obligation | $ | $ 1,000,000 | ||||||||||||||||||||||||||
Interest Sale Agreement | MedTech | Common Stock | Restricted Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Restricted common stock issued (in shares) | 200,000 | ||||||||||||||||||||||||||
Fortress Purchase Agreement | DBD Credit Funding, LLC | Senior Lien | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Licenses Revenue | $ | $ 15,000,000 | ||||||||||||||||||||||||||
Fortress Purchase Agreement | DBD Credit Funding, LLC | Convertible Notes | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Principal amount of debt | $ | $ 5,000,000 | ||||||||||||||||||||||||||
Fortress Purchase Agreement | DBD Credit Funding, LLC | Senior Notes | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Principal amount of debt | $ | $ 15,000,000 | ||||||||||||||||||||||||||
Fortress Purchase Agreement | DBD Credit Funding, LLC | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Term of warrants | 5 years | ||||||||||||||||||||||||||
Number of warrants to purchase common stock | 100,000 | ||||||||||||||||||||||||||
Exercise price of warrants | $ / shares | $ 7.44 | ||||||||||||||||||||||||||
Shares issued | 134,409 | ||||||||||||||||||||||||||
Settlement and license agreement | Dominion Harbor Group, LLC | Common Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.71 | ||||||||||||||||||||||||||
Shares issued | 300,000 | ||||||||||||||||||||||||||
Value of shares issued | $ | $ 513,000 | ||||||||||||||||||||||||||
Securities Purchase Agreement | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Number of warrants to purchase common stock | 0 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.50 | ||||||||||||||||||||||||||
Purchase price per warrant | $ / shares | 0.01 | ||||||||||||||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||||||||||||||
Securities Purchase Agreement | Accredited Investors | Convertible Notes | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Principal amount of debt | $ | $ 5,550,000 | ||||||||||||||||||||||||||
Long-term debt outstanding | $ | $ 500,000 | ||||||||||||||||||||||||||
Conversion price (in dollars per share) | $ / shares | $ 7.50 | ||||||||||||||||||||||||||
Interest rate of loan (as a percent) | 11.00% | ||||||||||||||||||||||||||
Beneficial conversion feature | $ | $ 0 | ||||||||||||||||||||||||||
Securities Purchase Agreement | Accredited Investors | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Term of warrants | 2 years | ||||||||||||||||||||||||||
Number of warrants to purchase common stock | 258,998 | ||||||||||||||||||||||||||
Exercise price of warrants | $ / shares | $ 8.25 | ||||||||||||||||||||||||||
Common stock, par value | $ / shares | $ 0.0001 | ||||||||||||||||||||||||||
Warrants value | $ | $ 169,015 | ||||||||||||||||||||||||||
Securities Purchase Agreement | Institutional investors | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Number of warrants to purchase common stock | 1,740,995 | ||||||||||||||||||||||||||
Exercise price of warrants | $ / shares | $ 1.70 | ||||||||||||||||||||||||||
Price per share | $ / shares | $ 1.50 | ||||||||||||||||||||||||||
Purchase price per warrant | $ / shares | 0.01 | ||||||||||||||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||||||||||||||
Securities Purchase Agreement | Underwriters | Common Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Term of warrants | 5 years | ||||||||||||||||||||||||||
Number of warrants to purchase common stock | 174,100 | ||||||||||||||||||||||||||
Exercise price of warrants | $ / shares | $ 1.73 | ||||||||||||||||||||||||||
Forbearance Agreement | MedTech | Common Stock | Restricted Stock | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Fair value of restricted common stock | $ | $ 654,000 | ||||||||||||||||||||||||||
Restricted common stock issued (in shares) | 200,000 | ||||||||||||||||||||||||||
Fair value on grant date (in dollars per share) | $ / shares | $ 3.27 | ||||||||||||||||||||||||||
Patent purchase agreement | Clouding IP, LLC | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ | 2,400,000 | ||||||||||||||||||||||||||
Cash | $ | 1,400,000 | ||||||||||||||||||||||||||
Promissory note issued | $ | $ 1,000,000 | ||||||||||||||||||||||||||
Orthophoenix, LLC | Interest Sale Agreement | MedTech | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Ownership interest held (as a percent) | 100.00% | ||||||||||||||||||||||||||
TLIF, LLC | Interest Sale Agreement | MedTech | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Ownership interest held (as a percent) | 100.00% | ||||||||||||||||||||||||||
MedTech GmbH | Interest Sale Agreement | MedTech | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Percentage of shares (as a percent) | 100.00% | ||||||||||||||||||||||||||
IP Liquidity Ventures, LLC, Dynamic Advances, LLC and Sarif Biomedical, LLC | Series B Convertible Preferred Stock | Private Placement | |||||||||||||||||||||||||||
Organization and Description of Business | |||||||||||||||||||||||||||
Stock issued in acquisition (in shares) | 782,000 | ||||||||||||||||||||||||||
Stock issued in acquisition, value | $ | $ 2,807,380 |
SUMMARY OF SIGNIFICANT ACCOUN25
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash, Accounts Receivable, Concentration of Revenue, Revenue Recognition (Details) | 12 Months Ended | |
Dec. 31, 2016USD ($)agreementitem | Dec. 31, 2015USD ($)agreement | |
Cash | ||
Number of financial institution for maintaining balances of cash and cash equivalents | item | 1 | |
Accounts Receivable | ||
Allowance for bad debts | $ 387,976 | $ 375,750 |
Net accounts receivable | 95,069 | 136,842 |
Concentration of Revenue and Geographic Area | ||
Revenues | 36,629,276 | 18,977,794 |
Prepaid Expenses | ||
Prepaid Expense, Current | 428,049 | 338,598 |
Bonds Posted With Courts | ||
Estimated Litigation Liability | $ 0 | $ 1,748,311 |
Patent Enforcement | ||
Concentration of Revenue and Geographic Area | ||
Number of largest licenses | agreement | 5 | 5 |
Revenues from licenses (as a percent) | 97.00% | 62.00% |
Geographic concentration risk | Germany | ||
Concentration of Revenue and Geographic Area | ||
Revenues | $ 108,000 | |
Revenue | Patent Enforcement | ||
Concentration of Revenue and Geographic Area | ||
Revenues from licenses (as a percent) | 100.00% | 100.00% |
Maximum | ||
Cash | ||
Insured by FDIC | $ 250,000 | $ 250,000 |
SUMMARY OF SIGNIFICANT ACCOUN26
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Related Party Transactions Consulting and Share Agreements (Details) | Nov. 18, 2013USD ($)installment$ / sharesshares | May 13, 2013 | Dec. 31, 2016USD ($)shares | Dec. 31, 2015shares |
Related Party Transactions | ||||
Issue common stock | $ 4,654,080 | |||
Common Stock | ||||
Related Party Transactions | ||||
Issue common stock | $ 349 | |||
Issue common stock for services (in shares) | shares | 180,000 | 210,000 | ||
IP Navigation Group, LLC | Advisory Services Agreement | Founder and Former Chief Executive Officer | ||||
Related Party Transactions | ||||
Length of agreement | 6 years | |||
IP Navigation Group, LLC | Advisory Services Agreement | Founder and Former Chief Executive Officer | Minimum | ||||
Related Party Transactions | ||||
Percent of gross proceeds (as a percent) | 10.00% | |||
IP Navigation Group, LLC | Advisory Services Agreement | Founder and Former Chief Executive Officer | Maximum | ||||
Related Party Transactions | ||||
Percent of gross proceeds (as a percent) | 20.00% | |||
Chief Executive Officer | Croxall Employment Agreement, Amendment One | ||||
Related Party Transactions | ||||
Base salary | $ 480,000 | |||
Increase in salary (as a percent) | 3.00% | |||
Bonus amount | $ 350,000 | |||
Chief Executive Officer | Croxall Employment Agreement, Amendment One | Common Stock | ||||
Related Party Transactions | ||||
Common stock issued (in shares) | shares | 100,000 | |||
Option term | 10 years | |||
Option price (in dollars per share) | $ / shares | $ 5.93 | |||
Number of monthly installments | installment | 24 | |||
Feinberg Family Trust | Feinberg Agreement | Trustee | Common Stock | Restricted Stock | ||||
Related Party Transactions | ||||
Common stock issued (in shares) | shares | 100,000 | |||
Vesting on first anniversary (as a percent) | 50 | |||
Vesting on second anniversary (as a percent) | 50 |
SUMMARY OF SIGNIFICANT ACCOUN27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Related Party Transactions Acquisitions (Details) | Jun. 30, 2014USD ($) | May 02, 2014USD ($)installmentpaymentshares | May 02, 2013USD ($) | Dec. 31, 2016USD ($) |
Dynamic Advances, IP Liquidity and Sarif Biomedical | ||||
Related Party Transactions | ||||
Number of purchase agreements | 3 | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | Maximum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 250,000,000 | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 or less | Maximum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 10,000,000 | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | ||||
Related Party Transactions | ||||
Net recovery proceeds due to sellers (as a percent) | 40.00% | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Minimum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 10,000,000 | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Maximum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 40,000,000 | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | Over $40,000,000 | ||||
Related Party Transactions | ||||
Net recovery proceeds due to sellers (as a percent) | 50.00% | |||
Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | Over $40,000,000 | Minimum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 40,000,000 | |||
Dynamic Advances, LLC | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | payment | 2 | |||
Payments to Acquire Businesses, Net of Cash Acquired | $ 5,225,000 | $ 6,653,078 | ||
Maximum possible amount of future payments | $ 250,000,000 | |||
IP Liquidity | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | payment | 2 | |||
Payments to Acquire Businesses, Net of Cash Acquired | $ 2,850,000 | $ 5,225,000 | ||
Maximum possible amount of future payments | $ 250,000,000 | |||
Sarif Biomedical, LLC | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | payment | 2 | |||
Payments to Acquire Businesses, Net of Cash Acquired | $ 550,000 | $ 552,024 | ||
Maximum possible amount of future payments | $ 250,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | ||||
Related Party Transactions | ||||
Number of purchase agreements | 3 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | Maximum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 250,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 or less | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 10,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | ||||
Related Party Transactions | ||||
Net recovery proceeds due to sellers (as a percent) | 40.00% | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Minimum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | $ 13,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Maximum | ||||
Related Party Transactions | ||||
Reimbursement Revenue | 40,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, IP Liquidity and Sarif Biomedical | Pay Proceeds Agreement Member | Over $40,000,000 | ||||
Related Party Transactions | ||||
Reimbursement Revenue | 40,000,000 | |||
Payments of Reimbursement Revenue | $ 2,400,000 | |||
Net recovery proceeds due to sellers (as a percent) | 50.00% | |||
Acquired Intellectual Property | Erich Spangenberg | Dynamic Advances, LLC | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | installment | 2 | |||
Second payment amount after June 30, 2014 | $ 2,850,000 | |||
Preferred stock, shares issued | shares | 195,500 | |||
Maximum possible amount of future payments | $ 250,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | IP Liquidity | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | installment | 2 | |||
Second payment amount after June 30, 2014 | $ 2,850,000 | |||
Preferred stock, shares issued | shares | 195,500 | |||
Maximum possible amount of future payments | $ 250,000,000 | |||
Acquired Intellectual Property | Erich Spangenberg | Sarif Biomedical, LLC | ||||
Related Party Transactions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | installment | 2 | |||
Payments to Acquire Businesses, Net of Cash Acquired | $ 250,000 | |||
Second payment amount after June 30, 2014 | 300,000 | |||
Maximum possible amount of future payments | $ 250,000,000 |
SUMMARY OF SIGNIFICANT ACCOUN28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Related Party Transactions Other Items (Details) | Oct. 23, 2015USD ($) | Oct. 10, 2014USD ($)installmentpaymentshares | Aug. 29, 2014USD ($)shares | Jun. 30, 2014USD ($) | Jun. 17, 2014patent | May 02, 2014USD ($)installmentpayment | May 02, 2013USD ($) | Dec. 31, 2016USD ($) |
Clouding IP, LLC | Common Stock | Restricted Stock | ||||||||
Related Party Transactions | ||||||||
Stock issued in acquisition (in shares) | shares | 25,000 | |||||||
MedTech | Promissory Notes | ||||||||
Related Party Transactions | ||||||||
Business Acquisition Cash Payments | payment | 9 | |||||||
Erich Spangenberg | Marathon Opportunity Agreement | ||||||||
Related Party Transactions | ||||||||
Funding percentage | 50.00% | |||||||
Erich Spangenberg | Patent purchase agreement | Clouding IP, LLC | ||||||||
Related Party Transactions | ||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ 2,400,000 | |||||||
Cash | $ 1,400,000 | |||||||
Erich Spangenberg | Patent purchase agreement | Clouding IP, LLC | Common Stock | Restricted Stock | ||||||||
Related Party Transactions | ||||||||
Stock issued in acquisition (in shares) | shares | 25,000 | |||||||
Erich Spangenberg | Patent purchase agreement | Clouding IP, LLC | Promissory Notes | ||||||||
Related Party Transactions | ||||||||
Promissory note issued | $ 1,000,000 | |||||||
Erich Spangenberg | Interest Sale Agreement | MedTech | ||||||||
Related Party Transactions | ||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ 100,000 | $ 1,000,000 | ||||||
Recovery threshold (as a percent) | 200.00% | |||||||
Ownership interest held (as a percent) | 45.00% | |||||||
Debt extinguishment | $ 654,000 | |||||||
Erich Spangenberg | Interest Sale Agreement | MedTech | Common Stock | Restricted Stock | ||||||||
Related Party Transactions | ||||||||
Restricted shares granted (in shares) | shares | 200,000 | |||||||
Erich Spangenberg | Interest Sale Agreement | MedTech | Promissory Notes | ||||||||
Related Party Transactions | ||||||||
Monthly payment obligation | $ 1,000,000 | |||||||
Business Acquisition Cash Payments | installment | 9 | |||||||
Selene Communication Technologies, LLC | Merger Agreement | ||||||||
Related Party Transactions | ||||||||
Number of patents | patent | 3 | |||||||
OrthoPhoenix and TLIF | Erich Spangenberg | Interest Sale Agreement | MedTech | ||||||||
Related Party Transactions | ||||||||
Percentage of shares (as a percent) | 100.00% | |||||||
MedTech GmbH | Erich Spangenberg | Interest Sale Agreement | MedTech | ||||||||
Related Party Transactions | ||||||||
Percentage of shares (as a percent) | 100.00% | |||||||
Dynamic Advances, LLC | ||||||||
Related Party Transactions | ||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ 5,225,000 | $ 6,653,078 | ||||||
Promissory note issued | $ 2,375,000 | |||||||
Business Acquisition Cash Payments | payment | 2 | |||||||
Ownership interest held (as a percent) | 100.00% | |||||||
Dynamic Advances, LLC | Erich Spangenberg | Acquired Intellectual Property | ||||||||
Related Party Transactions | ||||||||
Cash | $ 2,375,000 | |||||||
Business Acquisition Cash Payments | installment | 2 | |||||||
Ownership interest held (as a percent) | 100.00% | |||||||
IP Liquidity | ||||||||
Related Party Transactions | ||||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ 2,850,000 | $ 5,225,000 | ||||||
Promissory note issued | $ 2,375,000 | |||||||
Business Acquisition Cash Payments | payment | 2 | |||||||
Ownership interest held (as a percent) | 100.00% | |||||||
IP Liquidity | Erich Spangenberg | Acquired Intellectual Property | ||||||||
Related Party Transactions | ||||||||
Cash | $ 2,375,000 | |||||||
Business Acquisition Cash Payments | installment | 2 | |||||||
Ownership interest held (as a percent) | 100.00% |
SUMMARY OF SIGNIFICANT ACCOUN29
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments, Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Fair Value of Financial Instruments | ||
Earnout liability, short-term | $ 81,930 | $ 33,646 |
Earnout liability, long-term | 1,400,082 | 3,281,238 |
Impairment of intangible assets | 11,958,882 | 5,793,409 |
Outstanding litigation bonds in Germany | 0 | $ 1,748,311 |
Clouding IP, LLC | ||
Fair Value of Financial Instruments | ||
Earnout liability, short-term | 81,930 | |
Earnout liability, long-term | 1,400,082 | |
Gain on exchange in fair value adjustment | 1,832,872 | |
Impairment of intangible assets | $ 3,089,983 |
SUMMARY OF SIGNIFICANT ACCOUN30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basic and Diluted Net Earnings (Loss) per Share (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Computation of basic and diluted loss per share | ||
Net loss attributable to Common Shareholders | $ (28,665,024) | $ (16,939,859) |
Denominator | ||
Weighted Average Common Shares - Basic | 15,178,056 | 14,208,787 |
Weighted Average Common Shares - Diluted | 15,178,056 | 14,208,787 |
Earnings (Loss) per common share: | ||
Earnings (Loss) - Basic | $ (1.89) | $ (1.19) |
Earnings (Loss) - Diluted | $ (1.89) | $ (1.19) |
Warrants | ||
Computation of basic and diluted loss per share | ||
Anti-dilutive securities excluded from computation of diluted shares outstanding (in shares) | 466,078 | |
Options | ||
Computation of basic and diluted loss per share | ||
Anti-dilutive securities excluded from computation of diluted shares outstanding (in shares) | 3,516,136 | |
Convertible Notes | ||
Computation of basic and diluted loss per share | ||
Anti-dilutive securities excluded from computation of diluted shares outstanding (in shares) | 66,667 | |
Series B preferred stock | ||
Computation of basic and diluted loss per share | ||
Anti-dilutive securities excluded from computation of diluted shares outstanding (in shares) | 782,004 |
SUMMARY OF SIGNIFICANT ACCOUN31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Intangible Assets, Goodwill and Stock-based Compensation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Intangible Assets | ||
Impairment of intangible assets | $ 11,958,882 | $ 5,793,409 |
Goodwill | ||
Impairment of goodwill | $ 4,336,307 | $ 0 |
Stock-based Compensation | ||
Expected forfeiture rate (as a percent) | 2.40% | 10.40% |
Compensation expenses | $ 44,146 | $ 28,663 |
Liquidity and Capital Resources | ||
Cash and cash equivalents | 5,000,000 | |
Working capital | $ (14,900,000) |
ACQUISITIONS - Dynamic Advances
ACQUISITIONS - Dynamic Advances (Details) | May 02, 2014USD ($)paymentshares | May 02, 2013USD ($) | Sep. 30, 2014USD ($) | Dec. 31, 2016USD ($) |
Dynamic Advances, IP Liquidity and Sarif Biomedical | ||||
Acquisitions | ||||
Number of purchase agreements | 3 | |||
Dynamic Advances, LLC | ||||
Acquisitions | ||||
Ownership interest held (as a percent) | 100.00% | |||
Number of cash payments made | payment | 2 | |||
Consideration paid | $ 5,225,000 | $ 6,653,078 | ||
Maximum possible amount of future payments | $ 250,000,000 | |||
Promissory note issued | 2,375,000 | |||
Promissory note amount upon late payment | $ 2,850,000 | |||
Payment agreement to extend maturity date | $ 249,375 | |||
Note term | 30 days | |||
Dynamic Advances, LLC | Series B Convertible Preferred Stock | ||||
Acquisitions | ||||
Preferred stock shares issued | shares | 391,000 |
ACQUISITIONS - IP Liquidity (De
ACQUISITIONS - IP Liquidity (Details) - IP Liquidity | Jun. 30, 2014USD ($) | May 02, 2014USD ($)paymentshares | Sep. 30, 2014USD ($) | Dec. 31, 2016USD ($) |
Acquisitions | ||||
Ownership Interest Controlling Owners | 100.00% | |||
Number of cash payments made | payment | 2 | |||
Consideration paid | $ 2,850,000 | $ 5,225,000 | ||
Maximum possible amount of future payments | 250,000,000 | |||
Promissory note issued | 2,375,000 | |||
Promissory note amount upon late payment | $ 2,850,000 | |||
Payment agreement to extend maturity date | $ 249,375 | |||
Note term | 30 days | |||
Aggregate purchase price | $ 6,653,078 | |||
Series B Convertible Preferred Stock | ||||
Acquisitions | ||||
Preferred stock shares issued | shares | 391,000 |
ACQUISITIONS - Sarif Biomedical
ACQUISITIONS - Sarif Biomedical (Details) - Sarif Biomedical, LLC | May 02, 2014USD ($)payment | Sep. 30, 2014USD ($) | Dec. 31, 2016USD ($) |
Acquisitions | |||
Ownership Interest Controlling Owners | 100.00% | ||
Number of cash payments made | payment | 2 | ||
Consideration paid | $ 550,000 | $ 552,024 | |
Maximum possible amount of future payments | 250,000,000 | ||
Promissory note issued | 250,000 | ||
Promissory note amount upon late payment | $ 300,000 | ||
Payment agreement to extend maturity date | $ 26,250 | ||
Note term | 30 days |
ACQUISITIONS - Dynamic Advanc35
ACQUISITIONS - Dynamic Advances, IP Liquidity and Sarif Biomedical (Details) - Dynamic Advances, IP Liquidity and Sarif Biomedical | Nov. 02, 2014 | May 02, 2014USD ($) |
Pay Proceeds Agreement Member | Maximum | ||
Acquisitions | ||
Recovery of licensing or enforcement activities on patents | $ 250,000,000 | |
Pay Proceeds Agreement Member | $10,000,000 or less | Maximum | ||
Acquisitions | ||
Recovery of licensing or enforcement activities on patents | $ 10,000,000 | |
Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | ||
Acquisitions | ||
Net recovery proceeds due to sellers (as a percent) | 40.00% | |
Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Minimum | ||
Acquisitions | ||
Recovery of licensing or enforcement activities on patents | $ 10,000,000 | |
Pay Proceeds Agreement Member | $10,000,000 to $40,000,000 | Maximum | ||
Acquisitions | ||
Recovery of licensing or enforcement activities on patents | $ 40,000,000 | |
Pay Proceeds Agreement Member | Over $40,000,000 | ||
Acquisitions | ||
Net recovery proceeds due to sellers (as a percent) | 50.00% | |
Pay Proceeds Agreement Member | Over $40,000,000 | Minimum | ||
Acquisitions | ||
Recovery of licensing or enforcement activities on patents | $ 40,000,000 | |
Registration Rights Agreement Member | Maximum | ||
Acquisitions | ||
Registration statements required to be filed (in statements) | 3 | |
Filing period | 60 days | |
Series B Convertible Preferred Stock | Registration Rights Agreement Member | Minimum | ||
Acquisitions | ||
Percentage of registrable shares covered in resale registration statement (as a percent) | 10.00% |
ACQUISITIONS - Clouding Corp (D
ACQUISITIONS - Clouding Corp (Details) - USD ($) | Aug. 29, 2014 | Dec. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2014 |
Acquisitions | ||||
Earnout liability, short-term | $ 81,930 | $ 33,646 | ||
Earnout liability, long-term | 1,400,082 | 3,281,238 | ||
Impairment of intangible assets | 11,958,882 | 5,793,409 | ||
Allocation of net purchase price to assets acquired and liabilities assumed | ||||
Goodwill | 222,843 | $ 4,482,845 | ||
Clouding Corp | ||||
Acquisitions | ||||
Earnout liability, short-term | 81,930 | |||
Earnout liability, long-term | 1,400,082 | |||
Gain on exchange in fair value adjustment | 1,832,872 | |||
Impairment of intangible assets | $ 3,089,983 | |||
Allocation of net purchase price to assets acquired and liabilities assumed | ||||
Intangible assets | $ 14,500,000 | |||
Goodwill | 1,296,000 | |||
Net purchase price | 15,796,000 | |||
Total consideration paid of the following: | ||||
Cash | 1,400,000 | |||
Promissory Note | 1,000,000 | |||
Common Stock | 281,000 | |||
Earn-Out Liability | 13,115,000 | |||
Net purchase price | 15,796,000 | |||
Clouding Corp | Patent purchase agreement | ||||
Acquisitions | ||||
Consideration paid | 1,400,000 | |||
Promissory note issued | $ 1,000,000 | |||
Restricted shares granted (in shares) | 50,000 | |||
Fair value of restricted common stock | $ 281,000 | |||
Net recovery proceeds due to sellers (as a percent) | 50.00% | |||
Net revenues | $ 4,000,000 | |||
Fair value on grant date (in dollars per share) | $ 5.62 | |||
Stock issued in acquisition, value | $ 281,000 | |||
Earnout liability, short-term | $ 2,148,000 |
ACQUISITIONS - MedTech Group (D
ACQUISITIONS - MedTech Group (Details) - USD ($) | Oct. 13, 2014 | Dec. 31, 2016 | Dec. 31, 2015 |
Allocation of net purchase price to assets acquired and liabilities assumed | |||
Goodwill | $ 222,843 | $ 4,482,845 | |
Medtech Group | |||
Allocation of net purchase price to assets acquired and liabilities assumed | |||
Intangible assets | $ 12,800,000 | ||
Goodwill | 2,700,000 | ||
Net purchase price | $ 15,500,000 | ||
Medtech Group | Interest Sale Agreement | |||
Acquisitions | |||
Ownership interest held (as a percent) | 100.00% | ||
Consideration paid | $ 1,000,000 | ||
Promissory note issued | 9,000,000 | ||
Outstanding amount after renegotiation | 6,250,000 | ||
Debt reduction available upon early repayment | $ 750,000 |
ACQUISITIONS - Bridgestone Amer
ACQUISITIONS - Bridgestone Americas Tire Operations (Details) | Nov. 15, 2015USD ($) | Apr. 23, 2015USD ($)patent | Apr. 30, 2015patent | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) |
Acquisitions | |||||
Acquisition of patents | $ 3,681,358 | ||||
Patent impairment | $ 11,958,882 | $ 5,793,409 | |||
Bridgestone Americas Tire Operations, LLC | |||||
Acquisitions | |||||
Number of patents | patent | 43 | ||||
Patent purchase agreement | Bridgestone Americas Tire Operations, LLC | |||||
Acquisitions | |||||
Fair value of patent assets acquired | $ 11,000,000 | ||||
Advisory Services Agreement | Bridgestone Americas Tire Operations, LLC | |||||
Acquisitions | |||||
Debt extinguishment | $ 10,000,000 | ||||
Patent impairment | 2,451,550 | ||||
Advisory Services Agreement | Bridgestone Americas Tire Operations, LLC | Adjustment | |||||
Acquisitions | |||||
Fair value of patent assets acquired | $ (9,068,504) | ||||
IP Liquidity | Patent purchase agreement | Bridgestone Americas Tire Operations, LLC | |||||
Acquisitions | |||||
Number of patents | patent | 43 | ||||
Acquisition of patents | $ 3,500,000 | ||||
Number of installments (in payments) | 2 | ||||
Maximum possible amount of future payments | $ 7,500,000 |
ACQUISITIONS - Additional Acqui
ACQUISITIONS - Additional Acquisitions (Details) | Sep. 13, 2016USD ($)patent | Aug. 11, 2016USD ($)patent | Aug. 03, 2016USD ($)patent | Jul. 05, 2016USD ($)patent | Jun. 27, 2016USD ($)patent |
Munitech | Patent purchase agreement | Siemens | |||||
Acquisitions | |||||
Number of patents | patent | 221 | ||||
Consideration paid | $ 1,150,000 | ||||
Number of installments (in payments) | 2 | ||||
Munitech | Patent purchase agreement | Siemens | Payment due on December 31, 2016 | |||||
Acquisitions | |||||
Consideration paid | $ 1,000,000 | ||||
Munitech | Patent purchase agreement | Siemens | Payment due on September 30, 2017 | |||||
Acquisitions | |||||
Consideration paid | $ 750,000 | ||||
Magnus | Patent purchase agreement | Siemens | |||||
Acquisitions | |||||
Number of patents | patent | 86 | ||||
Consideration paid | $ 250,000 | ||||
Traverse | Patent purchase agreement | CPT IP Holdings | |||||
Acquisitions | |||||
Number of patents | patent | 12 | ||||
Consideration paid | $ 1,300,000 | ||||
PG Tech | Patent Funding and Exclusive License Agreement | |||||
Acquisitions | |||||
Number of patents | patent | 10,000 | ||||
Consideration paid | $ 1,000,000 | ||||
Net licensing revenue (as a percent) | 50.00% | ||||
PG Tech | Patent Funding and Exclusive License Agreement | Payment due on December 31, 2016 | |||||
Acquisitions | |||||
Consideration paid | $ 1,000,000 | ||||
PG Tech | Patent Funding and Exclusive License Agreement | Payment start on April 1, 2017 | |||||
Acquisitions | |||||
Consideration paid | $ 250,000 | ||||
Motheye | Patent purchase agreement | Cirrex | |||||
Acquisitions | |||||
Number of patents | patent | 1 | ||||
Consideration paid | $ 0 |
INTANGIBLE ASSETS, NET (Details
INTANGIBLE ASSETS, NET (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Intangible Assets | $ 30,214,116 | $ 41,014,992 |
Accumulated Amortization & Impairment | (17,899,488) | (15,557,353) |
Intangible assets, net | 12,314,628 | 25,457,639 |
Impairment of intangible assets | 11,958,882 | 5,793,409 |
Fair value of intangible assets | $ 0 | |
Minimum | ||
Weighted average useful life, intangibles | 1 year | |
Maximum | ||
Weighted average useful life, intangibles | 13 years | |
Patents | ||
Intangible assets capitalized | $ 6,450,000 | 252,946 |
Impairment of intangible assets | $ 11,958,882 | $ 5,793,409 |
INTANGIBLE ASSETS, NET - Future
INTANGIBLE ASSETS, NET - Future amortization of current intangible assets (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
INTANGIBLE ASSETS, NET | ||
Amortization expense | $ 7,453,004 | $ 10,825,164 |
Future amortization of intangible assets, net | ||
2,017 | 2,317,258 | |
2,018 | 1,885,345 | |
2,019 | 1,801,910 | |
2,020 | 1,492,503 | |
2,021 | 1,324,119 | |
2022 and thereafter | 3,493,493 | |
Total | $ 12,314,628 |
INTANGIBLE ASSETS, NET - Intang
INTANGIBLE ASSETS, NET - Intangible Asset Acquisitions (Details) - patent | 1 Months Ended | ||
Aug. 31, 2016 | Jun. 30, 2016 | Apr. 30, 2015 | |
Bridgestone Americas Tire Operations, LLC | |||
Number of patents | 43 | ||
Siemens | |||
Number of patents | 2 | ||
Minimum | Patent Funding and Exclusive License Agreement | |||
Number of patents | 10,000 |
STOCKHOLDERS' EQUITY - Summary
STOCKHOLDERS' EQUITY - Summary of Stock and Preferred Stock (Details) | Oct. 20, 2015shares | Oct. 06, 2014shares | May 02, 2014USD ($)shares | Sep. 30, 2015shares | Dec. 31, 2016USD ($)$ / sharesshares | Dec. 31, 2015USD ($)$ / sharesshares | Dec. 31, 2014USD ($)shares | Sep. 17, 2014paymentshares | Dec. 07, 2011$ / sharesshares |
Stockholders' Equity | |||||||||
Common stock, shares authorized | 200,000,000 | 200,000,000 | |||||||
Common stock, par value | $ / shares | $ 0.0001 | $ 0.0001 | |||||||
Preferred stock, shares authorized | 100,000,000 | ||||||||
Preferred stock, par value | $ / shares | $ 0.0001 | ||||||||
Preferred Stock | |||||||||
Value of stock issued for services | $ | $ 136,000 | $ 900,500 | |||||||
Series B Convertible Preferred Stock | |||||||||
Preferred Stock | |||||||||
Preferred Stock converted to Common Stock | 1 | ||||||||
Series B Convertible Preferred Stock | Consulting and services agreement | GRQ | |||||||||
Preferred Stock | |||||||||
Preferred Stock converted to Common Stock | 16,666 | 183,330 | 199,996 | ||||||
Preferred stock consideration (in shares) | 200,000 | ||||||||
Vest upon execution (percentage) | 50.00% | ||||||||
Vest after execution (percentage) | 50.00% | ||||||||
Number of monthly installments | payment | 6 | ||||||||
Stock issued for services (in shares) | 50,000 | 150,000 | |||||||
Value of stock issued for services | $ | $ 345,334 | $ 1,103,581 | |||||||
Series B Convertible Preferred Stock | IP Liquidity Ventures, LLC, Dynamic Advances, LLC and Sarif Biomedical, LLC | Private Placement | |||||||||
Preferred Stock | |||||||||
Stock issued in acquisition (in shares) | 782,000 | ||||||||
Stock issued in acquisition, value | $ | $ 2,807,380 | ||||||||
Series B Convertible Preferred Stock, Tranche One | Consulting and services agreement | GRQ | |||||||||
Preferred Stock | |||||||||
Stock issued for services (in shares) | 100,000 | ||||||||
American Strategic Minerals Corporation | |||||||||
Stockholders' Equity | |||||||||
Common stock, shares authorized | 200,000,000 | ||||||||
Common stock, par value | $ / shares | $ 0.0001 | ||||||||
Preferred stock, shares authorized | 100,000,000 | ||||||||
Preferred stock, par value | $ / shares | $ 0.0001 |
STOCKHOLDERS' EQUITY - Common S
STOCKHOLDERS' EQUITY - Common Stock (Details) | Dec. 31, 2016shares | Dec. 09, 2016USD ($)$ / sharesshares | May 11, 2016USD ($)$ / sharesshares | Dec. 09, 2015USD ($)$ / sharesshares | Nov. 04, 2015USD ($)$ / sharesshares | Oct. 29, 2015USD ($)$ / sharesshares | Oct. 20, 2015shares | Sep. 21, 2015USD ($)$ / sharesshares | Mar. 13, 2015shares | Jan. 29, 2015shares | Sep. 30, 2015shares | Jun. 30, 2015shares | Dec. 31, 2016USD ($)shares | Dec. 31, 2015USD ($)shares | Dec. 31, 2014USD ($)shares |
Stockholders' Equity | |||||||||||||||
Value of stock issued for services | $ | $ 136,000 | $ 900,500 | |||||||||||||
Series B Convertible Preferred Stock | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Preferred Stock converted to Common Stock | 1 | ||||||||||||||
Series B Convertible Preferred Stock | Consulting and services agreement | GRQ | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Preferred Stock converted to Common Stock | 16,666 | 183,330 | 199,996 | ||||||||||||
Stock issued for services (in shares) | 50,000 | 150,000 | |||||||||||||
Value of stock issued for services | $ | $ 345,334 | $ 1,103,581 | |||||||||||||
Number of shares of common stock issued upon conversion of preferred stock | 2 | 2 | |||||||||||||
Common Stock | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||
Exercise stock options (in shares) | 33,968 | ||||||||||||||
Stock issued for services (in shares) | 180,000 | 210,000 | |||||||||||||
Value of stock issued for services | $ | $ 18 | $ 21 | |||||||||||||
Common Stock | Former Consultant | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 60,000 | ||||||||||||||
Common Stock | Dominion Harbor Group LLC | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 125,000 | 300,000 | |||||||||||||
Price per share | $ / shares | $ 1.71 | ||||||||||||||
Value of stock issued for services | $ | $ 513,000 | ||||||||||||||
Common Stock | Fortress Purchase Agreement | DBD Credit Funding, LLC | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 134,409 | ||||||||||||||
Number of warrants to purchase common stock | 100,000 | ||||||||||||||
Common Stock | Consulting and services agreement | GRQ | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Number of shares of common stock issued upon conversion of preferred stock | 16,666 | 199,996 | |||||||||||||
Common Stock | Consulting and services agreement | Alex Partners, LLC and Del Mar Consulting Group, Inc | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Stock issued for services (in shares) | 150,000 | ||||||||||||||
Price per share | $ / shares | $ 2.23 | ||||||||||||||
Value of stock issued for services | $ | $ 334,500 | ||||||||||||||
Common Stock | Consulting and services agreement | Cooper Law Firm., LLC | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Stock issued for services (in shares) | 80,000 | ||||||||||||||
Price per share | $ / shares | $ 1.70 | ||||||||||||||
Value of stock issued for services | $ | $ 136,000 | ||||||||||||||
Common Stock | Settlement and license agreement | Dominion Harbor Group LLC | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Stock issued for services (in shares) | 300,000 | ||||||||||||||
Price per share | $ / shares | $ 1.71 | ||||||||||||||
Value of stock issued for services | $ | $ 513,000 | ||||||||||||||
Common Stock | Securities Purchase Agreement | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||
Price per share | $ / shares | $ 1.50 | ||||||||||||||
Number of warrants to purchase common stock | 0 | 0 | |||||||||||||
Purchase price per warrant | $ / shares | 0.01 | ||||||||||||||
Warrants issued, total value | $ | $ 17,019.95 | ||||||||||||||
Common Stock | Securities Purchase Agreement | Institutional investors | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Shares issued | 3,481,997 | ||||||||||||||
Price per share | $ / shares | $ 1.50 | ||||||||||||||
Number of warrants to purchase common stock | 1,740,995 | ||||||||||||||
Purchase price per warrant | $ / shares | 0.01 | ||||||||||||||
Common Stock | Private Placement | Melechdavid, Inc | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Stock issued for services (in shares) | 100,000 | ||||||||||||||
Price per share | $ / shares | $ 1.61 | ||||||||||||||
Value of stock issued for services | $ | $ 161,000 | ||||||||||||||
Common Stock | Private Placement | Cooper Law Firm., LLC | |||||||||||||||
Stockholders' Equity | |||||||||||||||
Stock issued for services (in shares) | 80,000 | ||||||||||||||
Price per share | $ / shares | $ 1.70 | ||||||||||||||
Value of stock issued for services | $ | $ 136,000 |
STOCKHOLDERS' EQUITY - Common45
STOCKHOLDERS' EQUITY - Common Stock Warrants (Details) - Warrants - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Common Stock Warrants | ||
Stock compensation expense | $ 0 | $ 3,465 |
Unrecognized compensation expense, warrants | $ 0 | |
Number of Warrants | ||
Warrants, beginning balance | 2,021,308 | |
Granted | 174,100 | |
Cancelled | 1,705,996 | |
Exercised | 23,334 | |
Warrants, ending balance | 466,078 | 2,021,308 |
Warrants Exercisable | 466,078 | |
Warrants, Weighted Average Exercise Price | ||
Weighted Average Exercise Price, Beginning Balance | $ 4.27 | |
Weighted Average Exercise Price, Granted | $ 1.73 | |
Weighted Average Exercise Price, Cancelled | 3.22 | |
Weighted Average Exercise Price, Exercised | $ 2 | |
Weighted Average Exercise Price, Ending Balance | 3.79 | $ 4.27 |
Weighted average fair value of warrants granted during the period | $ 0.37 | |
Weighted Average Remaining Life | ||
Weighted Average Remaining Life | 3 years 3 months | 10 months 13 days |
Weighted Average Remaining Life, Granted | 4 years 11 months 9 days |
STOCKHOLDERS' EQUITY - Common46
STOCKHOLDERS' EQUITY - Common Stock Options (Details) | Oct. 13, 2016period$ / sharesshares | Jul. 01, 2016installment$ / sharesshares | May 20, 2016installment$ / sharesshares | May 10, 2016installment$ / sharesshares | Oct. 14, 2015periodinstallment$ / sharesshares | Sep. 16, 2015period$ / sharesshares | Apr. 07, 2015USD ($)period$ / sharesshares | Mar. 18, 2015installment$ / sharesshares | Mar. 06, 2015installment$ / sharesshares | Feb. 05, 2015period$ / sharesshares | May 15, 2014USD ($)period$ / sharesshares | Apr. 15, 2014period$ / sharesshares | Nov. 18, 2013USD ($)installment$ / sharesshares | Jun. 19, 2013period$ / sharesshares | Jun. 11, 2013perioddirector$ / sharesshares | Mar. 01, 2013period$ / sharesshares | Nov. 14, 2012USD ($)period$ / sharesshares | Dec. 31, 2016USD ($)$ / sharesshares | Dec. 31, 2015USD ($) |
Value of stock issued for services | $ | $ 136,000 | $ 900,500 | |||||||||||||||||
Options | |||||||||||||||||||
Option term | 8 years 10 months 24 days | ||||||||||||||||||
Granted | shares | 780,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 2.13 | ||||||||||||||||||
Fair value of options at grant date (in dollars per share) | $ 0.89 | ||||||||||||||||||
Cancelled | shares | 373,856 | ||||||||||||||||||
Unrecognized compensation expense, options | $ | $ 1,371,382 | ||||||||||||||||||
Options | Chief Executive Officer And Two Directors | |||||||||||||||||||
Option term | 5 years | ||||||||||||||||||
Granted | shares | 353,846 | ||||||||||||||||||
Option price (in dollars per share) | $ 2.625 | ||||||||||||||||||
Number of monthly installments | period | 24 | ||||||||||||||||||
Number of directors | director | 2 | ||||||||||||||||||
Options | Board of Directors Member | |||||||||||||||||||
Option term | 5 years | 5 years | 5 years | ||||||||||||||||
Granted | shares | 20,000 | 20,000 | 20,000 | ||||||||||||||||
Option price (in dollars per share) | $ 6.61 | $ 7.37 | $ 3.295 | ||||||||||||||||
Number of monthly installments | 12 | 12 | 12 | ||||||||||||||||
Expected term | 3 years | 3 years | 3 years | ||||||||||||||||
Volatility | 41.00% | 41.00% | 51.00% | ||||||||||||||||
Discount rate | 0.92% | 1.16% | 0.84% | ||||||||||||||||
Options | Independent Board Members | |||||||||||||||||||
Option term | 10 years | 10 years | |||||||||||||||||
Granted | shares | 80,000 | 80,000 | |||||||||||||||||
Option price (in dollars per share) | $ 2.41 | $ 2.03 | |||||||||||||||||
Number of monthly installments | period | 12 | ||||||||||||||||||
Number of annual installments | period | 12 | ||||||||||||||||||
Expected term | 5 years 6 months | 5 years 6 months | |||||||||||||||||
Volatility | 46.00% | 47.00% | |||||||||||||||||
Discount rate | 1.21% | 1.72% | |||||||||||||||||
Options | Consultants | |||||||||||||||||||
Option term | 10 years | 5 years | |||||||||||||||||
Granted | shares | 70,000 | 25,000 | |||||||||||||||||
Option price (in dollars per share) | $ 1.86 | $ 6.80 | |||||||||||||||||
Number of monthly installments | 24 | 24 | |||||||||||||||||
Options | Employees | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Option price (in dollars per share) | $ 1.86 | ||||||||||||||||||
Number of monthly installments | period | 24 | ||||||||||||||||||
Expected term | 6 years 6 months | ||||||||||||||||||
Volatility | 49.00% | ||||||||||||||||||
Discount rate | 1.57% | ||||||||||||||||||
Granted | shares | 385,000 | ||||||||||||||||||
Options | Croxall Employment Agreement | Chief Executive Officer | |||||||||||||||||||
Employment Agreement Term | 2 years | ||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 307,692 | ||||||||||||||||||
Option price (in dollars per share) | $ 3.25 | ||||||||||||||||||
Number of monthly installments | period | 24 | ||||||||||||||||||
Fair value of options at grant date (in dollars per share) | $ 3.12 | ||||||||||||||||||
Aggregate fair value of options at grant date | $ | $ 968,600 | ||||||||||||||||||
Share Price | $ 3.25 | ||||||||||||||||||
Expected term | 5 years | ||||||||||||||||||
Volatility | 192.00% | ||||||||||||||||||
Risk free interest rate | 0.61% | ||||||||||||||||||
Options | Croxall Employment Agreement, Amendment One | Chief Executive Officer | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 200,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 2.965 | ||||||||||||||||||
Number of monthly installments | installment | 24 | ||||||||||||||||||
Value of stock issued for services | $ | $ 442,692 | ||||||||||||||||||
Expected term | 5 years | ||||||||||||||||||
Volatility | 100.00% | ||||||||||||||||||
Risk free interest rate | 1.33% | ||||||||||||||||||
Options | Crawford Employment Agreement | Chief Operating Officer | |||||||||||||||||||
Employment Agreement Term | 2 years | ||||||||||||||||||
Option term | 5 years | ||||||||||||||||||
Granted | shares | 76,924 | 76,924 | |||||||||||||||||
Option price (in dollars per share) | $ 2.47 | $ 5.525 | |||||||||||||||||
Number of monthly installments | period | 24 | 24 | |||||||||||||||||
Options | Knuettel Agreement | Chief Financial Officer | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 290,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 4.165 | ||||||||||||||||||
Number of monthly installments | period | 36 | ||||||||||||||||||
Aggregate fair value of options at grant date | $ | $ 4.165 | ||||||||||||||||||
Expected term | 6 years 6 months | ||||||||||||||||||
Volatility | 63.00% | ||||||||||||||||||
Discount rate | 1.97% | ||||||||||||||||||
Options | Chernicoff Consulting Agreement | Board of Directors Member | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 280,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 6.76 | ||||||||||||||||||
Number of monthly installments | period | 12 | ||||||||||||||||||
Percent vested upon execution of the GRQ Consulting Agreement | 25.00% | ||||||||||||||||||
Percent vested after execution | 2.083% | ||||||||||||||||||
Monthly retainer | $ | $ 27,000 | ||||||||||||||||||
Options | Spangenberg Agreement | Director Of Acquisitions, Licensing And Strategy | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 500,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 1.87 | ||||||||||||||||||
Number of monthly installments | installment | 24 | ||||||||||||||||||
Expected term | 5 years 9 months | ||||||||||||||||||
Volatility | 47.00% | ||||||||||||||||||
Discount rate | 1.32% | ||||||||||||||||||
Options | Grubbs Agreement | Analyst | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 50,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 2.25 | ||||||||||||||||||
Number of monthly installments | installment | 36 | ||||||||||||||||||
Expected term | 6 years 6 months | ||||||||||||||||||
Volatility | 47.00% | ||||||||||||||||||
Discount rate | 1.88% | ||||||||||||||||||
Options | Liu Agreement | CTO | |||||||||||||||||||
Option term | 10 years | ||||||||||||||||||
Granted | shares | 150,000 | ||||||||||||||||||
Option price (in dollars per share) | $ 2.79 | ||||||||||||||||||
Number of monthly installments | installment | 36 | ||||||||||||||||||
Expected term | 6 years 6 months | ||||||||||||||||||
Volatility | 47.00% | ||||||||||||||||||
Discount rate | 1.20% | ||||||||||||||||||
Time Based Shares | Chernicoff Consulting Agreement | Board of Directors Member | |||||||||||||||||||
Granted | shares | 70,000 | ||||||||||||||||||
Time Based Shares | Chernicoff Consulting Agreement | Minimum | Board of Directors Member | |||||||||||||||||||
Option price (in dollars per share) | $ 8.99 | ||||||||||||||||||
Performance Shares | Chernicoff Consulting Agreement | Board of Directors Member | |||||||||||||||||||
Granted | shares | 70,000 | ||||||||||||||||||
Performance Shares | Chernicoff Consulting Agreement | Minimum | Board of Directors Member | |||||||||||||||||||
Option price (in dollars per share) | $ 10.14 |
STOCKHOLDERS' EQUITY - Changes
STOCKHOLDERS' EQUITY - Changes in Stock Options (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Intrinsic value of stock options outstanding | $ 0 | |
Options | ||
Number of Options | ||
Options outstanding, beginning | 3,383,267 | |
Granted | 780,000 | |
Cancelled | 373,856 | |
Forfeited | 273,275 | |
Options outstanding, ending | 3,516,316 | 3,383,267 |
Options Exercisable | 2,574,703 | |
Options expected to vest | 941,433 | |
Weighted Average Exercise Price | ||
Weighted average exercise price, beginning balance | $ 4.25 | |
Granted | 2.13 | |
Cancelled | 5.80 | |
Forfeited | $ 5.24 | |
Weighted average exercise price, ending balance | 4.46 | $ 4.25 |
Options Exercisable | 4.67 | |
Options expected to vest | 3.65 | |
Weighted average fair value of options granted during the period | $ 0.89 | |
Weighted Average Remaining Life | ||
Weighted Average Remaining Life | 6 years 9 months 18 days | 7 years 1 month 10 days |
Weighted Average Remaining Life, Granted | 9 years 5 months 9 days | |
Weighted Average Remaining Life, Options Exercisable | 6 years 11 days | |
Weighted Average Remaining Life, Options expected to vest | 8 years 10 months 24 days |
COMMITMENTS AND CONTINGENCIES -
COMMITMENTS AND CONTINGENCIES - Debt and Obligations (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Senior Secured Notes | ||
Debt and obligations | ||
Long-term debt, gross | $ 15,620,759 | $ 20,513,892 |
Less: debt discount | (1,425,167) | (2,150,263) |
Total debt | $ 14,195,592 | $ 18,363,629 |
Senior Secured Notes | LIBOR | ||
Debt and obligations | ||
Spread (as a percent) | 9.75% | 9.75% |
Convertible Notes | ||
Debt and obligations | ||
Long-term debt, gross | $ 500,000 | $ 500,000 |
Less: debt discount | (5,849) | |
Total debt | $ 500,000 | $ 494,151 |
Interest rate (as a percent) | 11.00% | 11.00% |
Promissory Notes | ||
Debt and obligations | ||
Short-term payable | $ 103,000 | |
iRunway | ||
Debt and obligations | ||
Short-term payable | $ 191,697 | $ 494,244 |
Late Fee (as a percent) | 1.50% | |
Monthly interest rate | 1.50% | |
Sichenzia | ||
Debt and obligations | ||
Interest rate (as a percent) | 0.00% | |
Sichenzia | Promissory Notes | ||
Debt and obligations | ||
Short-term payable | 45,000 | |
Medtech | Promissory Notes | ||
Debt and obligations | ||
Short-term payable | 2,953,779 | |
Interest rate (as a percent) | 28.00% | |
Dominion Harbor Group LLC | ||
Debt and obligations | ||
Outstanding amount | $ 125,000 | 200,000 |
AFCO Financing | ||
Debt and obligations | ||
Short-term payable | $ 56,258 | |
Interest rate (as a percent) | 4.82% | |
Siemens Purchase Payment | ||
Debt and obligations | ||
Purchase obligation for patents | $ 1,672,924 | |
Oil & Gas Purchase Payment | ||
Debt and obligations | ||
Purchase obligation for patents | 944,296 | |
3D Nano Purchase Payment | ||
Debt and obligations | ||
Purchase obligation | $ 100,000 |
COMMITMENTS AND CONTINGENCIES49
COMMITMENTS AND CONTINGENCIES - Schedule of Notes Payable (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
COMMITMENTS AND CONTINGENCIES | ||
Total | $ 17,832,509 | $ 22,607,061 |
Less: current portion | (13,162,007) | (10,383,177) |
Total, net of current portion | $ 4,670,502 | $ 12,223,884 |
COMMITMENTS AND CONTINGENCIES50
COMMITMENTS AND CONTINGENCIES - Senior Secured Term Notes (Details) - USD ($) | Feb. 12, 2015 | Jan. 29, 2015 | Dec. 31, 2016 | Dec. 31, 2015 |
Debt | ||||
Warrant issued in conjunction with debt financing | $ 50 | $ 318,679 | ||
Fortress | ||||
Debt | ||||
Warrant term | 5 years | |||
Warrant to purchase (in shares) | 100,000 | |||
Exercise price (in dollars per share) | $ 7.44 | |||
Issue common stock (in shares) | 134,409 | |||
Additional amount | $ 5,000,000 | |||
Fortress | Warrants | ||||
Debt | ||||
Common Stock Percentage to trigger warrant exercise | 4.99 | |||
Warrant issued in conjunction with debt financing | $ 318,679 | |||
Senior Secured Notes | Fortress | ||||
Debt | ||||
Principal amount of debt | 15,000,000 | |||
Monetization net revenues | $ 15,000,000 | |||
Unamortized discount | $ 1,425,167 | $ 2,150,263 | ||
Initial Note | Fortress | ||||
Debt | ||||
Note term | 42 months | |||
Interest rate on paid-in-kind interest (as a percent) | 2.75% | |||
LIBOR | Initial Note | Fortress | ||||
Debt | ||||
Interest rate | LIBOR | |||
Spread (as a percent) | 9.75% |
COMMITMENTS AND CONTINGENCIES51
COMMITMENTS AND CONTINGENCIES - Senior Secured Term Note Amendment (Details) - DBD Credit Funding, LLC - USD ($) | Jan. 10, 2017 | Dec. 31, 2017 | Jun. 30, 2017 | Jan. 29, 2015 |
Warrants | ||||
Debt | ||||
Common Stock Percentage to trigger warrant exercise | 4.99 | |||
Fortress Purchase Agreement, Amended And Restated | ||||
Debt | ||||
Number of warrants to purchase common stock | 187,500 | |||
Increase in revenue stream basis | $ 1,225,000 | |||
Debt covenant to maintain minimum liquidity in unrestricted cash and cash equivalents | $ 1,250,000 | |||
Promissory Notes | ||||
Debt | ||||
Structuring fees (as a percent) | 2.00% | |||
Promissory Notes | Fortress Purchase Agreement | ||||
Debt | ||||
Principal amount of debt | $ 20,000,000 | |||
Outstanding amount | 15,620,759 | |||
Cash collateral account | $ 4,500,000 | |||
Number of warrants to purchase common stock | 100,000 | |||
Promissory Notes | Fortress Purchase Agreement, Amended And Restated | ||||
Debt | ||||
Principal amount of debt | $ 4,500,000 | |||
Increase in rate of interest (as a percent) | 2.00% | |||
Interest rate on paid-in-kind interest (as a percent) | 2.75% | |||
Promissory Notes | Fortress Purchase Agreement, Amended And Restated | LIBOR | ||||
Debt | ||||
Spread (as a percent) | 9.75% | |||
Additional Notes | Maximum | ||||
Debt | ||||
Principal amount of debt | $ 7,500,000 | |||
Additional Notes | Fortress Purchase Agreement, Amended And Restated | ||||
Debt | ||||
Structuring fees (as a percent) | 2.00% | |||
Additional Notes | Fortress Purchase Agreement, Amended And Restated | Maximum | ||||
Debt | ||||
Principal amount of debt | $ 3,750,000 | $ 3,750,000 |
COMMITMENTS AND CONTINGENCIES52
COMMITMENTS AND CONTINGENCIES - Convertible Note (Details) - Convertible Notes | Oct. 16, 2014USD ($)item$ / sharesshares | Dec. 31, 2016 | Dec. 31, 2015 |
Debt | |||
Issuance of Convertible Debt | $ | $ 5,550,000 | ||
Warrant term | 2 years | ||
Warrant to purchase (in shares) | shares | 129,499 | ||
Conversion price (in dollars per share) | $ 7.50 | ||
Exercise price (in dollars per share) | $ 8.25 | ||
Interest rate (as a percent) | 11.00% | 11.00% | |
Trading days for conversion feature | 4 days | ||
Trading days | 8 days | ||
Number of convertible note holder to whom repayment happened | item | 1 | ||
Minimum | |||
Debt | |||
Minimum common stock trade price for convertible debt conversion | $ 27 |
COMMITMENTS AND CONTINGENCIES53
COMMITMENTS AND CONTINGENCIES - iRunway, Note Payable, Sichenzia Trade Payable and Medtech Note Payable (Details) | 12 Months Ended | |
Dec. 31, 2016USD ($)item | Dec. 31, 2015USD ($) | |
Officer | ||
Short-term payable | ||
Interest rate (as a percent) | 0.00% | |
Short-term payable | $ 103,000 | |
iRunway | ||
Short-term payable | ||
Number of vendors for whom invoices converted to short term payable | item | 1 | |
Short-term payable | $ 191,697 | $ 494,244 |
Sichenzia | ||
Short-term payable | ||
Interest rate (as a percent) | 0.00% | |
Medtech | Maximum | ||
Short-term payable | ||
Interest rate (as a percent) | 28.00% |
COMMITMENTS AND CONTINGENCIES54
COMMITMENTS AND CONTINGENCIES - AFCO Financing and Siemens Purchase Payment (Details) | 12 Months Ended |
Dec. 31, 2016USD ($)item | |
Siemens Purchase Payment | |
Siemens Purchase Payment | |
Interest rate (as a percent) | 0.00% |
Purchase obligation for patents | $ | $ 1,672,924 |
Directors and Officers | |
AFCO Financing | |
Number of agreed to make monthly payments | item | 9 |
Interest rate (as a percent) | 4.82% |
COMMITMENTS AND CONTINGENCIES55
COMMITMENTS AND CONTINGENCIES - Dominion Harbor Settlement Note, Oil & Gas Purchase Payment and 3D Nano Purchase Payment (Details) | Dec. 31, 2016USD ($)shares | Oct. 29, 2015USD ($)item$ / sharesshares | Dec. 31, 2016USD ($)itemshares | Dec. 31, 2015USD ($) |
Dominion Harbor Settlement Note | ||||
Value of stock issued for services | $ 136,000 | $ 900,500 | ||
Oil & Gas Purchase Payment | ||||
Oil & Gas Purchase Payment | ||||
Interest rate (as a percent) | 0.00% | |||
Purchase obligation for patents | $ 944,296 | $ 944,296 | ||
3D Nano Purchase Payment | ||||
Interest rate (as a percent) | 0.00% | |||
3D Nano Purchase Payment | ||||
Oil & Gas Purchase Payment | ||||
Interest rate (as a percent) | 0.00% | |||
3D Nano Purchase Payment | ||||
Number of monthly payments to make under purchase agreement | item | 2 | |||
Monthly agreed amount under purchase agreement | $ 100,000 | |||
Interest rate (as a percent) | 0.00% | |||
Purchase obligation | 100,000 | $ 100,000 | ||
Common Stock | ||||
Dominion Harbor Settlement Note | ||||
Issue common stock (in shares) | shares | 3,481,997 | |||
Value of stock issued for services | $ 18 | 21 | ||
Dominion Harbor Group LLC | ||||
Dominion Harbor Settlement Note | ||||
Number of agreed monthly payments to make under settlement agreement | item | 8 | |||
Monthly agreed amount | $ 25,000 | |||
Outstanding amount | $ 125,000 | $ 125,000 | $ 200,000 | |
Dominion Harbor Group LLC | Common Stock | ||||
Dominion Harbor Settlement Note | ||||
Issue common stock (in shares) | shares | 125,000 | 300,000 | ||
Shares issued, value per share | $ / shares | $ 1.71 | |||
Value of stock issued for services | $ 513,000 |
COMMITMENTS AND CONTINGENCIES56
COMMITMENTS AND CONTINGENCIES - Future Minimum Principal Payments (Details) - Senior and Junior Debt | Dec. 31, 2016USD ($) |
Debt | |
2,017 | $ 14,014,411 |
2,018 | 5,243,265 |
Total debt | $ 19,257,676 |
COMMITMENTS AND CONTINGENCIES57
COMMITMENTS AND CONTINGENCIES - Office Lease and Legal Proceedings (Details) | May 01, 2014USD ($) | Dec. 31, 2016USD ($)lawsuit |
Lease term | 7 years | |
Security deposit | $ 7,564 | |
Rent payment grace period | 5 months | |
Lease termination option available | 42nd month of the lease | |
Minimum future lease payments, net of rent abatement | ||
2,017 | $ 71,288 | |
2,018 | 74,540 | |
2,019 | 77,872 | |
2,020 | 81,336 | |
2,021 | 27,504 | |
Total | $ 332,540 | |
Period of notice for cancellation | 30 days | |
District of Delaware | ||
Legal Proceedings | ||
Number of lawsuits | lawsuit | 5 | |
Central District of California | ||
Legal Proceedings | ||
Number of lawsuits | lawsuit | 1 | |
Eastern District of Michigan | ||
Legal Proceedings | ||
Number of lawsuits | lawsuit | 1 |
INCOME TAXES - Current and defe
INCOME TAXES - Current and deferred provision (benefit) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Taxes [Line Items] | ||
Net loss | $ (28,828,872) | $ (16,939,859) |
Current: | ||
Federal | 53,634 | (28,000) |
State | 101,969 | 48,188 |
Foreign | 4,077 | |
Total | 159,680 | 20,188 |
Deferred: | ||
Federal | 10,182,479 | (6,046,674) |
State | 1,996,064 | (1,171,260) |
Foreign | (821,416) | (958,702) |
Total | 11,357,127 | (8,176,636) |
Total provision (benefit) | 11,516,807 | (8,156,448) |
US | ||
Income Taxes [Line Items] | ||
Net loss | (21,151,022) | (15,246,302) |
Foreign | ||
Income Taxes [Line Items] | ||
Net loss | $ (7,677,850) | $ (1,693,557) |
INCOME TAXES - Effective tax ra
INCOME TAXES - Effective tax rate and statutory federal rate (in dollars) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Reconciliation of effective tax rate and statutory federal rate (in dollars) | ||
Tax benefit computed at "expected" statutory rate | $ (6,018,384) | $ (8,533,296) |
State income taxes, net of benefit | (406,978) | (818,432) |
Permanent differences : | ||
Stock based compensation and consulting | 525,774 | 738,904 |
Transaction Cost | 208,481 | |
Other permanent differences | (345,981) | 247,895 |
Foreign rate Differential | 350,180 | |
Change in valuation allowance | 17,412,196 | |
Total provision (benefit) | $ 11,516,807 | $ (8,156,448) |
INCOME TAXES - Effective tax 60
INCOME TAXES - Effective tax rate and statutory federal rate (in percent) (Details) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Reconciliation of effective tax rate and statutory federal rate (as a percent) | ||
Computed "expected" tax expense (benefit) | 34.00% | 34.00% |
State income taxes | 2.30% | 3.26% |
Permanent differences | (2.97%) | (4.75%) |
Change in valuation allowance | (98.37%) | |
Effective tax rate | 65.04% | 32.51% |
INCOME TAXES - Deferred tax ass
INCOME TAXES - Deferred tax assets (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Deferred tax assets: | ||
Total deferred tax assets | $ 17,412,196 | $ 12,437,741 |
Total deferred tax liabilities | 1,044,997 | |
Less: valuation allowance | $ (17,412,196) | |
Net deferred tax asset | $ 11,392,744 |
INCOME TAXES - Deferred tax a62
INCOME TAXES - Deferred tax assets and deferred tax liabilities (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Deferred tax asset and liability | ||
Accruals | $ 89,649 | $ 95,356 |
Fixed Assets | (6,968) | (8,634) |
Intangible Assets | 7,005,648 | 1,094,758 |
State Taxes | 19,961 | |
Other | 1,839,980 | 1,490,489 |
Charitable Contributions | 4,410 | |
Net Operating Loss | 8,425,843 | 8,700,814 |
AMT Credit | 53,634 | |
Valuation Allowance | $ (17,412,196) | |
Net deferred tax asset | $ 11,392,744 |
INCOME TAXES - Net operating lo
INCOME TAXES - Net operating loss carryforward (Details) $ in Millions | Dec. 31, 2016USD ($) |
INCOME TAXES | |
Net operating loss carryforward, federal | $ 18 |
Net operating loss carryforward, state | $ 12.9 |
SUBSEQUENT EVENTS - Amended and
SUBSEQUENT EVENTS - Amended and Restated Revenue Sharing and Securities Purchase and Sales Agreement (Details) | Mar. 15, 2017employee | Jan. 31, 2017USD ($)shares | Jan. 27, 2017shares | Jan. 10, 2017USD ($)shares | Dec. 31, 2016USD ($)shares |
SUBSEQUENT EVENTS | |||||
Proceeds from sales of stock | $ | $ 4,654,130 | ||||
Common Stock | |||||
SUBSEQUENT EVENTS | |||||
Shares issued | 3,481,997 | ||||
DBD Credit Funding, LLC | Fortress Purchase Agreement, Amended And Restated | |||||
SUBSEQUENT EVENTS | |||||
Number of warrants to purchase common stock | 187,500 | ||||
Subsequent Events | |||||
SUBSEQUENT EVENTS | |||||
Number of employees terminated | employee | 4 | ||||
Subsequent Events | DBD Credit Funding, LLC | Fortress Purchase Agreement, Amended And Restated | Common Stock | |||||
SUBSEQUENT EVENTS | |||||
Number of warrants to purchase common stock | 100,000 | ||||
Subsequent Events | Northland | Sales Agreement | At The Market Offering | Common Stock | |||||
SUBSEQUENT EVENTS | |||||
Maximum Number of Shares authorized to sale | 750,000 | ||||
Shares issued | 750,000 | ||||
Proceeds from sales of stock | $ | $ 1,301,923 | ||||
Subsequent Events | Promissory Notes | DBD Credit Funding, LLC | Fortress Purchase Agreement, Amended And Restated | |||||
SUBSEQUENT EVENTS | |||||
Principal amount of debt | $ | $ 20,000,000 | ||||
Outstanding amount | $ | $ 20,131,158 | ||||
Amortization period | 30 months | ||||
Subsequent Events | 3D Nano | |||||
SUBSEQUENT EVENTS | |||||
Number of employees terminated | employee | 6 |