| Long-term Debt | Notes
Payable Notes
payable at June 30, 2019 and December 31, 2018, consisted of the following (in thousands):
June
30, December
31,
Description 2019 2018
Note
payable to a related party $ 862 $ 836
Unsecured
short term notes payable 225 -
Secured
note payable 1,600 2,400
Total
notes payable 2,687 3,236
Less
current maturities 1,933 2,437
Long-term
note payable $ 754 $ 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
constituted a troubled debt restructuring and has been accounted for on a prospective basis from the date of the amendment.
As of June 29, 2019, we amended the note to provide for a postponement of past payment defaults and future payments until October
2019. As of June 30, 2019, we were in compliance of all terms of the agreement. Unsecured
Short Term Notes Payable During
the three months ended June 30, 2019, we entered into short-term promissory notes with accredited investors for aggregate proceeds
of approximately $0.23 million. The notes are unsecured and bear interest at a rate of 18% per annum. The notes mature at the
earlier of ninety (90) days following the issuance date or upon our receipt of additional litigation financing.
In the event of default, the outstanding balance of the notes and any other obligation from the Company to the lenders shall become
due immediately without demand or notice. If the payment obligations under the notes are not paid when due, the interest rate
increases to 20% per annum and we are obligated to pay all costs of collection, including reasonable attorney fees. 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 and again on June 29, 2019, Mintz waived past and
future payment defaults under the note through at least August 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 June 30, 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. To date, all interest payments on the convertible notes have been made in
shares of our common stock. 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 June 30, 2019 and December 31, 2018 consist of the following (in thousands):
Fixed Effective
Conversion Interest June
30, 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 -
Convertible
notes dated June 2019 $ 0.10 8.3% June
7, 2024 to June 19, 2024 340 -
Total
principal balance 2,765 1,225
Less
Unamortized discount 321 388
$ 2,444 $ 837
We
have an obligation to file a registration statement for the shares underlying the June 2019 notes by the 75th calendar day following
the issuance date of the notes and to cause the registration statement to become effective by the 150th calendar day following
the issuance dates. The registration rights agreements provide for liquidated damages upon the occurrence of certain events including
failure by us to file the registration statement or cause it to become effective by the deadlines set forth above. The amount
of the liquidated damages is 1.0% of the aggregate subscription amount paid by holders for the notes upon the occurrence of the
event, and monthly thereafter, up to a maximum of 6%. Registration statements have previously been filed and declared effective
for the September 2018 and February/March 2019 notes. Secured
Contingent Payment Obligation The
following table provides a reconciliation of our secured contingent payment obligation, measured at estimated fair market value,
for the six months ended June 30, 2019 and the year ended December 31, 2018 (in thousands):
Six
Months Ended June 30, 2019 Year
Ended December 31, 2018
Secured
contingent payment obligation, beginning of period $ 25,557 $ 15,896
Proceeds
from contingent payment obligation - 4,000
Change
in fair value (823 ) 5,661
Secured
contingent payment obligation, end of period $ 24,734 $ 25,557 Our
secured contingent payment obligation represents the estimated fair value of our repayment obligation to Brickell Key Investments,
LP ("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 June 30, 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 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 June 30, 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 June 30, 2019, the fair value of the obligation is estimated to
be approximately $24.7 million (see Note 10). |
