| SHORT-TERM DEBT AND LONG-TERM LIABILITIES | 3. SHORT-TERM DEBT AND LONG-TERM LIABILITIES Short-Term Debt Loans Payable The loans payable represents demand loans made
by former officers and directors, who are third parties and stockholders, whose holdings were insignificant at June 30, 2023 and December
31, 2022, in the amount of $138,000. The loans are payable on demand plus accrued interest at 10% per annum. Accrued interest on these
loans at June 30, 2023 and December 31, 2022 was approximately $303,000 and $296,000, respectively. Funding Liabilities The following table shows the Company’s
funding liabilities to QFL and QF3 at June 30, 2023 and December 31, 2022:
June 30, December 31,
Funding liability – QFL $ 5,589,094 $ 5,453,204
Funding liability – QF3 4,300,000 —
Net funding liabilities $ 9,889,094 $ 5,453,204 Funding Liabilities - QFL The QFL funding liabilities at June 30, 2023
and December 31, 2022 of $5,589,094 and $5,453,204, respectively, represents the principal amount of the Company’s obligations
to QFL pursuant to a purchase agreement (“Purchase Agreement”) dated February 22, 2021 between the Company and QFL, as
described below. As of June 30, 2023, the Company had made total repayments in the amount of approximately $814,000 since
February 22, 2021. Approximately $64,000 was repaid during the six months ended June 30, 2023. The obligation to QFL has no
repayment term since payment is due solely from a portion of net proceeds generated from the monetization of the Company’s
intellectual property and has been classified as a current liability as of June 30, 2023 and December 31, 2022. Accrued interest
related to this funding liability as of June 30, 2023 and December 31, 2022, was approximately $844,000 and $600,000,
respectively. On February 22, 2021, the Company entered into
a series of agreements, all dated February 19, 2021, with QFL, a non-affiliated party, including the Purchase Agreement, a security agreement
(the “Security Agreement”), a subsidiary security agreement (the “Subsidiary Security Agreement”), a subsidiary
guaranty (the “Subsidiary Guaranty”), a warrant issue agreement (the “Warrant Issue Agreement”), a registration
rights agreement (the “Registration Rights Agreement”) and a board observation rights agreement (the “Board Observation
Rights Agreement” together with the Security Agreement, the Subsidiary Guaranty, the Subsidiary Security Agreement, Warrant Issuance
Agreement, Registration Rights Agreement and the Purchase Agreement, the “QFL Investment Documents”) pursuant to which, at
the closing on February 22, 2021 held contemporaneously with the execution of the agreements: (i) Pursuant to the Purchase Agreement,
QFL agreed to make available to the Company a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent
rights that the Company intends to monetize, of which $2,653,000 has been advanced as of June 30, 2023; (b) up to $2,000,000 for
operating expenses, of which the Company has requested and received $2,000,000 as of June 30, 2023; and (iii) $1,750,000 to fund
the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners. In return the Company transferred
to QFL a right to receive a portion of net proceeds generated from the monetization of those patents. (ii) The Company used $1,750,000 of
proceeds from the QFL financing as the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners
pursuant to the Restructure Agreement executed contemporaneously with the closing of the Investment Documents. The payment was made directly
from QFL to Intelligent Partners. (iii) Pursuant to the Security Agreement,
the Company’s obligations under the Purchase Agreement with QFL are secured by: (a) the proceeds (as defined in the Purchase Agreement);
(b) the patents (as defined in the Purchase Agreement; (c) all general intangibles now or hereafter arising from or related to the foregoing
(a) and (b); and (d) proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c). (iv) Pursuant to the Subsidiary Guaranty,
eight of the Company’s subsidiaries – QLC, NetTech, Mariner, Semcon, IC, CXT, M-Red, and AMI, collectively, the “Subsidiary
Guarantors”) guaranteed the Company’s obligations to QFL under the Purchase Agreement. (v) Pursuant to the Subsidiary Security
Agreement, the Subsidiary Guarantors granted QFL a security interest in the proceeds from the future monetization of their respective
patent portfolios. (vi) Pursuant to the Warrant Issue Agreement,
the Company granted QFL ten-year warrants to purchase a total of up to 962,463 shares of the Company’s common stock, at an exercise
price of $0.54 per share which may be exercised from the grant date through February 18, 2031 on a cash or cashless basis. Exercisability
of the warrant is limited if, upon exercise, the holder or any of holder’s affiliates would beneficially own more than 4.99% (the
“Maximum Percentage”) of the Company’s common stock, except that by written notice to the Company, the holder may change
the Maximum Percentage to any other percentage not in excess of 9.99% provided any such change will not be effective until the 61st day
following notice to the Company. The warrant also contains certain minimum ownership percentage antidilution rights pursuant to which
the aggregate number of shares of common stock purchasable upon the initial exercise of the warrant shall not be less than 10% of the
aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis). Because the facility with
QFL has no term the fair value of the warrants was expensed at the grant date. A portion of any gain from sale of the shares, net of taxes
and costs of exercise, realized prior to the completion of all monetization activities shall be credited against the total return due
to QFL pursuant to the Purchase Agreement. See Notes 4 and 5 for information on the warrant issue and associated liability. (vii) The Company regained compliance
with the OTCQB Eligibility Requirements on May 7, 2021, at which time the common stock recommenced trading on the OTCQB. (viii) The Company granted QFL certain
registration rights with respect to the 962,463 shares of common stock issuable upon exercise of the warrant. See Note 5 for information
on the warrant issue. (ix) Pursuant to the Board Observation
Rights Agreement, until the later of the date on which QFL or its affiliates (i) have received the entirety of their Investment Return
(as defined in Purchase Agreement), and (ii) no longer hold any Securities (the “Observation Period”), the Company granted
QFL the right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings (including, without
limitation, telephonic or other electronic meetings) of the Board or any committee thereof, including executive sessions, in an observer
capacity. On January 27, 2022, the Company acquired, via
assignment from Intellectual Ventures Assets 181 LLC and Intellectual Ventures Assets 174 LLC, all right title and interest to fifteen
United States patents and three foreign patents for a purchase price of $1,060,000. The Company requested and received a capital advance
in the amount of the $1,060,000 purchase price from QFL. Two of the patents were assigned to Tyche and the balance of the patents were
assigned to DIP. In June 2022, MML and AI agreed to amend the Purchase
Agreement to add two additional patent families for an additional $92,000. The Company requested and received a capital advance from QFL
in the amount of $92,000, which was used to make payment to AI in August 2022 pursuant to the amendment to the Purchase Agreement. In July 2022, EDI acquired, via assignment from
Edward D. Ioli Trust, all right title and interest to a portfolio of five United States patents relating to a system and method for controlling
vehicles and for providing assistance to operated vehicles (“EDI Portfolio”) for a purchase price consisting of 50% of the
net proceeds resulting from monetization of the EDI Portfolio. In July 2022, the Company entered into a
purchase agreement with Hewlett Packard Enterprise Development LP and Hewlett Packard Enterprise Company for the purchase of eight
United States Patents for a purchase price of $350,000. The Company paid $35,000 upon execution of the agreement with the balance
payable within 30 days. The Company requested and received a capital advance from QFL in the amount of $350,000, which was used to
make payment of the balance in August 2022 pursuant to the terms of the purchase agreement. The Company requested and received an operating
capital advance in the amount of $200,000 from QFL pursuant to the Purchase Agreement during the three and six months ended June 30,
2023. During the three and six months ended June 30, 2022, the Company requested and received operating capital advances in the amount
of $200,000 and $400,000, respectively. Funding Liabilities - QF3 The QF3 funding liabilities at June 30, 2023
of $4,300,000 represents the principal amount of the Company’s obligations to QF3 pursuant to a purchase agreement (“QF3 Purchase
Agreement”) dated March 12, 2023 between the Company and QF3, as described below. As of June 30, 2023, the Company has made
no repayments on this funding liability. The obligation to QF3 has no repayment term since the payment is due from net proceeds generated
from the monetization of the Company’s intellectual property and has been classified as a current liability as of June 30, 2023.
Accrued interest related to this funding liability as of June 30, 2023, was approximately $95,000. On March 12, 2023, the Company and HID, entered
into a series of agreements, all dated March 12, 2023, with QF3, a non-affiliated party, including a prepaid forward purchase agreement
(the “Purchase Agreement QF3”), a security agreement (the “QF3 Security Agreement”), a patent security agreement
(the “QF3 Patent Security Agreement” together with the QF3 Security Agreement, the QF3 Patent Security Agreement, and the
QF3 Purchase Agreement, the “QF3 Investment Documents”) pursuant to which, at the closing held contemporaneously with the
execution of the agreements on March 12, 2023: (i) Pursuant to the QF3 Purchase
Agreement, QF3 agreed to make available to the Company a financing facility of: (a) up to $4,000,000 for operating expenses, of
which the Company has requested and received $1,000,000 as of June 30, 2023; (b) $3,300,000 to fund the cash payment portion of
the purchase of a patent portfolio from Tower Semiconductor Ltd. (“Tower”); and (c) up to an additional $25,000,000 for
the acquisition of mutually agreed patent rights that the Company intends to monetize, of which no amounts have been requested or
received as of June 30, 2023. In return, the Company transferred to QF3 a right to receive a portion of net proceeds generated
from the monetization of those patents. (ii) On March 17, 2023, the Company
used $3,300,000 of proceeds from the QF3 financing as the cash payment portion of the purchase of a ten-patent portfolio from Tower (the
“HID Portfolio”). (iii) Pursuant to the QF3 Security Agreement
and QF3 Patent Security Agreement, payment of our obligations under the QF3 Purchase Agreement with QF3 are secured by (a) the value of
anything received from the monetization of the intellectual property rights covered by the Security Agreement; (b) the patents (as defined
in the Security Agreement); (c) all general intangibles now or hereafter arising from or related to the foregoing (a) and (b); and (d)
proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c). In connection with the agreements with QF3, the
Company, HID and the Subsidiary Guarantors entered into an intercreditor agreement with QF3 and Intelligent Partners which sets forth
the priority of QF3 in the collateral under the Investment Documents. Loan Payable Related Party The loan payable – related party at June
30, 2023 and December 31, 2022 represents the current amount of a non-interest bearing total monetization proceeds obligation (the “TMPO”)
due to Intelligent Partners, LLC (“Intelligent Partners”) of $2,796,500 and $2,796,500, respectively, pursuant to a restructure
agreement (“Restructure Agreement”) dated February 22, 2021 whereby the Company and Intelligent Partners, extinguished the
Company’s 10% Note to Intelligent Partners as transferee of the notes issued to United Wireless Holdings, Inc. (“United Wireless”),
in the amount of $4,672,810 pursuant to securities purchase agreement dated October 22, 2015 between the Company and United Wireless.
The notes became due by their terms on September 30, 2020, and the Company did not make any payment on account of principal of and interest
on the notes. Subsequent to September 30, 2020, the Company engaged in negotiations with Intelligent Partners in parallel with the Company’s
negotiations with QFL, with a view to restructuring the Company’s obligations under the United Wireless agreements, including the
notes, so that the Company no longer had any obligations under the notes or the SPA. These negotiations resulted in the Restructure Agreement,
described below, which provided for the payment to Intelligent Partners of $1,750,000 from the proceeds from the Company’s agreements
with QFL. As part of the restructure of the Company’s agreements with Intelligent Partners, the Company amended the existing MPAs
and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property the Company acquires,
as described below. Under these MPAs, Intelligent Partners participates in the monetization proceeds the Company receives with respect
to new patents after QFL has received its negotiated rate of return. On or prior to the date of the Restructure Agreement,
Intelligent Partners transferred to Andrew Fitton (“Fitton”) and Michael Carper (“Carper”) $250,000 of the notes
(the “Transferred Note”), thereby reducing the principal amount of the notes held by Intelligent Partners to $4,422,810. On February 22, 2021, the Company and Intelligent
Partners agreed to extinguish the notes and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents, pursuant
to a series of agreements including: the Restructure Agreement, a Stock Purchase Agreement (the “Stock Purchase Agreement”),
an Option Grant (the “Option Grant”), an Amended and Restated Pledge Agreement (the “Pledge Agreement”), an Amended
and Restated Registration Rights Agreement (the “Registration Rights Agreement”), a Board Observation Agreement (the “Board
Observation Agreement”), a MPA-NA Security Interest Agreement (the “MPA-NA Security Interest Agreement”), an Amended
and Restated Patent Proceeds Security Agreement (the “Patent Proceeds Security Agreement”, an Amended and Restated MPA-CP
(the “MPA-CP”), an Amended and Restated MPA-CXT (the “MPA-CXT”), a MPA-MR (the “MPA-MR”), a MPA-AMI
(the “MPA-AMI,” and together with the MPA-CP, MPA-CXT and MPA-MR, each a Restructure MPA and together the Restructure MPAs)
and a MPA-NA (the “MPA-NA”). (i) Pursuant to the Restructure Agreement,
the Company paid Intelligent Partners $1,750,000 at closing, which the Company received from QFL and which QFL paid directly to Intelligent
Partners, and recognized the TMPO, which shall, from and after the Restructure Date, be reduced on a dollar for dollar basis by (a) payments
to Intelligent Partners pursuant to the Restructure Agreement, the Restructure MPAs and the MPA-NA and (b) any election by the Intelligent
Partners to pay the Exercise Price of the Restructure Option, in whole or part, by means of a reduction in the then outstanding TMPO.
The TMPO has been classified as a current liability as of June 30, 2023. (ii) Pursuant to the Stock Purchase
Agreement, the Company issued to Fitton and Carper, as holders of the Transferred Note, a total of 462,963 shares of common stock at a
purchase price of $0.54 per share, which purchase price was paid by the conversion and in full satisfaction of the Transferred Note (the
“Conversion Shares”). For purposes of extinguishment, the issuance of the Conversion Shares in full satisfaction of the Transferred
Note balance of $250,000 is included in the reacquisition price of the debt. The Company recognized a loss on debt conversion of $305,556
which is the difference between the agreed conversion price and the fair value of the Conversion Shares at the date of conversion. See
Note 5 for information on the share issue. (iii) Pursuant to the Option Grant,
the Company granted Intelligent Partners an option to purchase a total of 500,000 shares of common stock, with an exercise price of $0.54
per share which vests immediately and may be exercised through September 30, 2025. The Company valued the option at approximately $598,000
using the Black-Scholes pricing model. The proceeds were allocated to the repurchase price of the debt extinguishment based on its fair
value. See Note 5 for information on the option grant. (iv) Pursuant to the restructured monetization
proceeds agreement, Intelligent Partners has a right to receive 60% of the net monetization proceeds from the patents currently owned
by the Subsidiary Guarantors. The agreement has no termination provisions, so Intelligent Partners will be entitled to its percentage
interest as long as revenue is generated from the intellectual property covered by the agreement. (v) Pursuant to the MPA-NA, until the
TMPO has been paid in full, Intelligent Partners is entitled to receive 10% of the net proceeds realized from new assets acquired by the
Company. If, in any calendar quarter, net proceeds realized exceed $1,000,000, Intelligent Partners’ entitlement for that quarter
only shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000. If in the same calendar quarter,
net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 50% on the portion of
net proceeds in excess of $3,000,000. After satisfaction of the TMPO, the MPA-NA and Intelligent Partners’ interest in new asset
proceeds shall terminate. (vi) The Company granted Intelligent
Partners, Fitton and Carper certain registration rights with respect to (i) the 500,000 shares currently owned by Fitton and Carper; (ii)
the 462,963 Conversion Shares issued to Fitton and Carper, and (iii) the 500,000 shares of common stock issuable upon exercise of the
option. See Note 5. (vii) Pursuant to the Subsidiary Security
Agreement, the Company’s obligations under its agreements with Intelligent Partners, including its obligations under the Restructure
Agreement and the Restructure MPAs are secured by a security interest in the net proceeds realized from the future monetization of the
patents currently owned by the eight subsidiaries named above. (viii) Pursuant to the MPA-NA-Security
Interest Agreement, our obligations under the MPA-NA are secured by a security interest in net proceeds realized from the future monetization
of new patents acquired until the TMPO is satisfied, provided Intelligent Partners’ secured interest shall be limited to its entitlement
in Net Proceeds under the MPA-NA. After satisfaction of the TMPO the security interest in proceeds from new assets shall terminate. (ix) Pursuant to the Board Observation
Rights Agreement, until the Total Monetization Proceeds Obligation has been satisfied (the “Observation Period”), the Company
granted Intelligent Partners the option and right, exercisable at any time during the Observation Period, to appoint a representative
to attend meetings of the Board or any committee thereof, including executive sessions, in an observer capacity. Intelligent Partners
has no right to appoint a director to the board. Events of Default include (i) a Change of Control
of the Company (ii) any uncured default on payment due to Intelligent Partners in an amount totaling in excess of $275,000, which is not
the subject of a Dispute or other formal dispute resolution proceeding initiated in good faith pursuant to this Agreement or other Restructure
Documents (iii) the filing of a voluntary petition for relief under the United States Bankruptcy Code by Company or any of its material
subsidiaries, (iv) the filing of an involuntary petition for relief under the United States Bankruptcy Code against the Company, which
is not stayed or dismissed within sixty (60) days of such filing, except for an involuntary petition for relief filed solely by Intelligent
Partners, or any Affiliate or member of Intelligent Partners, or (v) acceleration of an obligation in excess of $1,000,000 to another
provider of financing following a final determination by arbitration or other judicial proceeding that such obligation is due and owing. Because of the beneficial ownership percentage
of its principals, Intelligent Partners is treated as a related party. Long-Term Liabilities Loan Payable – SBA The loans payable – SBA balance at June
30, 2023 and December 31, 2022 of $150,000 represents the total amount due under a secured Economic Injury Disaster Loan from the U.S.
Small Business Association (“SBA”) in the aggregate amount of $150,000, pursuant to Section 7(b) of the Small Business Act
as part of the COVID-19 relief effort. The Company’s obligations on the loan are set forth in the Company’s note dated May
14, 2020 which matures on May 14, 2050 and bears interest at a rate of 3.75% per annum, payable monthly commencing on November 14, 2022.
The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the Loan may be used solely
as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter
and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which were deducted from the loan
amount stated above. In addition to the loan, as part of the COVID-19 relief effort, the Company obtained an Emergency EIDL Grant from
the SBA in the amount of $1,000. The Company is not required to repay the grant. Purchase Price of Patents The purchase price of patents balance at June
30, 2023 and December 31, 2022 of $53,665 represents: The non-current portion of our obligations under
the unsecured non-recourse funding agreement with a third-party funder entered into in May 2020 whereby the third-party agreed to provide
acquisition funding in the amount of $95,000 for the Company’s acquisition of the audio messaging portfolio. Under the funding agreement,
the third-party funder is entitled to a priority return of funds advanced from net proceeds, as defined, recovered until the funder has
received $53,665. The Company has not paid anything against the obligation in 2023. The Company has no other obligation to the third-party
and has no liability to the funder in the event that the Company does not generate net proceeds. Pursuant to ASC 470, the Company recorded
this monetization obligation as debt and the difference between the purchase price and total obligation as a discount to the debt and
fully expensed to interest during the period. |
