Long-Term Debt | 9. Long-term debt Notes Payable Notes payable at March 31, 2019 and December 31, 2018, consisted of the following (in thousands): March 31, December 31, Description 2019 2018 Note payable to a related party $ 853 $ 836 Secured note payable 1,600 2,400 Total notes payable 2,453 3,236 Less current maturities 1,677 2,437 Long-term note payable $ 776 $ 799 Note Payable to a Related Party We have an unsecured promissory note payable to Sterne, Kessler, Goldstein, & Fox, PLLC (“SKGF”), a related party, for outstanding unpaid fees for legal services (the “SGKF Note”). The SKGF Note, as amended in 2018, accrued interest at a rate of 8% per annum and provided for payments of principal and interest of approximately $48,500 per month commencing October 31, 2018 through March 31, 2020 . At December 31, 2018, we were in default on the payment terms of the SKGF Note. In March 2019, we amended the SKGF Note to provide for a waiver of past payment defaults, a decrease in the interest rate from 8% per annum to 4% per annum, an extension of the maturity date from March 2020 to April 2022 , and a modification of payment terms. This amendment constitutes a troubled debt restructuring and will be accounted for on a prospective basis from the date of the amendment. At March 31, 2019, we are in compliance with all the terms of the amended SKGF Note. Secured Note Payable We have a note payable to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“Mintz”) for outstanding, unpaid attorney’s fees and costs associated with our patent enforcement program (the “Mintz Note”). The Mintz Note is non-interest bearing, except in the event of a default, and is secured by certain of our U.S. and foreign patents. The Mintz Note accelerates and becomes immediately due and payable in the case of standard events of default and/or in the event of a sale or other transfer of substantially all of our assets or a transfer of more than 50% of our capital stock in one or a series of transactions or through a merger or other similar transaction. In an event of default, the Mintz Note will accrue interest at a rate of 12% per annum on any outstanding balance until such time that the note is paid in full. As of December 31, 2018, we were in default on the payment terms of the Mintz Note. The payment default was cured in January 2019. On April 1, 2019, Mintz waived past and future payment defaults under the note through at least May 31, 2019, provided that no other event of default occurs. Mintz also waived acceleration of unpaid principal and interest as well as an increase in the interest rate to the default rate of 12% . As of March 31, 2019, we are in compliance with all the terms of the Mintz Note. Convertible Notes Our convertible notes represent five-year promissory notes that are convertible, at the holders’ option, into shares of our common stock at fixed conversion prices. The convertible notes bear interest at a stated rate of 8% per annum and interest payments are made on a quarterly basis. Interest is payable, at our option and subject to certain equity conditions, in either cash, shares of our common stock, or a combination thereof. We have the option to prepay the notes any time following the one-year anniversary of the issuance of the notes, subject to a premium on the outstanding principal prepayment amount of 25% prior to the two-year anniversary of the note issuance date, 20% prior to the three-year anniversary of the note issuance date, 15% prior to the four-year anniversary of the note issuance date, or 10% thereafter. The notes provide for events of default that include failure to pay principal or interest when due, breach of any of the representations, warranties, covenants or agreements made by us, events of liquidation or bankruptcy, and a change in control. In the event of default, the interest rate increases to 12% per annum and the outstanding principal balance of the notes plus all accrued interest due may be declared immediately payable by the holders of a majority of the then outstanding principal balance of the convertible notes. Convertible notes payable at March 31, 2019 and December 31, 2018 consist of the following (in thousands): Fixed Effective Conversion Interest March 31, December 31, Description Rate Rate Maturity Date 2019 2018 Convertible notes dated September 10, 2018 $0.40 8.3% September 7, 2023 $ 700 $ 800 Convertible note dated September 19, 2018 $0.57 8.3% September 19, 2023 425 425 Convertible notes dated February/March 2019 $0.25 8.3% February 28, 2024 to March 13, 2024 1,300 - Total principal balance 2,425 1,225 Less Unamortized discount 332 388 $ 2,093 $ 837 Secured Contingent Payment Obligation The following table provides a reconciliation of our secured contingent payment obligation, measured at estimated fair market value, for the three months ended March 31, 2019 and the year ended December 31, 2018 (in thousands) : Three Months Ended March 31, 2019 Year Ended December 31, 2018 Secured contingent payment obligation, beginning of period $ 25,557 $ 15,896 Proceeds from contingent payment obligation - 4,000 Repayment - - Change in fair value (458) 5,661 Secured contingent payment obligation, end of period $ 25,099 $ 25,557 Our secured contingent payment obligation represents the estimated fair value of our repayment obligation to Brickell under a February 2016 funding agreement, as amended in May 2016, December 2017, April 2018, September 2018 and December 2018. Under the agreement, as of March 31, 2019, we have received aggregate proceeds of $18.0 million in exchange for Brickell’s right to reimbursement and compensation from gross proceeds resulting from patent enforcement and other patent monetization actions. To date, we have repaid an aggregate of $3.3 million to Brickell from patent enforcement proceeds. Brickell is entitled to priority payment of 100% of proceeds received from all patent-related actions until such time that Brickell has been repaid in full. After repayment of the funded amount, Brickell is entitled to a portion of remaining proceeds up to a specified minimum return which is determined as a percentage of the funded amount and varies based on the timing of repayment. In addition, Brickell is entitled to a pro rata portion of proceeds from specified legal actions to the extent aggregate proceeds from those actions exceed the specified minimum return. Brickell holds a senior security interest in the majority of our assets until such time as the specified minimum return is paid, in which case, the security interest will be released except with respect to the patents and proceeds related to specific legal actions. The security interest is enforceable by Brickell in the event that we are in default under the agreement which would occur if (i) we fail, after notice, to pay proceeds to Brickell, (ii) we become insolvent or insolvency proceedings are commenced (and not subsequently discharged) with respect to us, (iii) our creditors commence actions against us (which are not subsequently discharged) that affect our material assets, (iv) we, without Brickell’s consent, incur indebtedness other than immaterial ordinary course indebtedness, or (v) there is an uncured non-compliance of our obligations or misrepresentations under the agreement. As of March 31, 2019, we are in compliance with our obligations under this agreement. We have elected to measure our secured contingent payment obligation at fair value based on probability-weighted estimated cash outflows, discounted back to present value using a discount rate determined in accordance with accepted valuation methods. The secured contingent payment obligation is remeasured to fair value at each reporting period with changes recorded in the condensed consolidated statements of comprehensive loss until the contingency is resolved. As of March 31, 2019, the fair value of the obligation is estimated to be approximately $25.1 million (see Note 10). |