Quarterly report pursuant to Section 13 or 15(d)

Debt, Commitments and Contingencies

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Debt, Commitments and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Debt, Commitments and Contingencies

NOTE 6 - DEBT, COMMITMENTS AND CONTINGENCIES

 

Debt consists of the following:

 

    Maturity   Interest              
    Date   Rate     March 31, 2018     December 31, 2017  
Convertible Note   5/10/2018     5 %   $ 1,959,105     $ 4,053,948  
Less: debt discount   and 5/31/2018             (345,256 )     (2,290,028 )
Total Convertible notes, net of discount               $ 1,613,849     $ 1,763,920  
                             
Total               $ 1,613,849     $ 1,763,920  
Less: current portion                 (1,613,849 )     (1,763,920 )
Total, net of current portion               $ -     $ -  

 

On August 14, 2017, the Company entered into a unit purchase agreement (the “Unit Purchase Agreement”) with certain accredited investors providing for the sale of up to $5,500,000 of 5% secured convertible promissory notes (the “Convertible Notes”), which are convertible into shares of the Corporation’s common stock, and the issuance of warrants to purchase 6,875,000 shares of the Company’s Common Stock (the “Warrants”). The Convertible Notes are convertible into shares of the Company’s Common Stock at the lesser of (i) $0.80 per share or (ii) the closing bid price of the Company’s common stock on the day prior to conversion of the Convertible Note; provided that such conversion price may not be less than $0.40 per share. The Warrants have an exercise price of $1.20 per share. The Convertible Notes mature on May 31, 2018 and bear interest at the rate of 5% per annum. In two closings of the Unit Purchase Agreement, the Company issued all $5,500,000 in Convertible Notes to the investors. As of March 31, 2018, the Company had an outstanding obligation pursuant to the Convertible Notes in the amount of $1,959,105. Accrued interest as of March 31, 2018 was $103,794.

 

Office Lease

 

In October 2013, the Company entered into a net-lease for its current office space in Los Angeles, California. The lease will commence on May 1, 2014 and runs for seven years through April 30, 2021, with monthly lease payment 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 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 42th month of the lease. Minimum future lease payments under this lease at March 31, 2018, for the next five years are as follows:

 

2018 (Nine Months)   $ 55,905  
2019     77,872  
2020     81,336  
2021     27,504  
Total   $ 242,617  

 

Legal Proceedings

 

Marathon Patent Group, Inc., Doug Croxall and Francis Knuettel II are currently defendants in a lawsuit, filed on March 27, 2018, captioned as Jeffrey Feinberg, Jeffrey L. Feinberg Personal Trust, and Jeffrey L. Feinberg Family Trust v. Marathon Patent Group, Inc., Doug Croxall, and Francis Knuettel II, in the Supreme Court of the State of New York, County of New York, Index No.: 651463/2018. Mr. Feinberg purports to allege causes of action against Marathon, Doug Croxall and Francis Knuettel II under Sections 11, 12(a)(2) and 15 of the Securities Act, brought in relation to a December 2016 private placement, and under common law theories of fraud and fraudulent concealment, constructive fraud, and negligent misrepresentation. Mr. Feinberg previously alleged the same claims in a now-dismissed lawsuit that was filed in the California Superior Court in Los Angeles. The Company intends to vigorously defend itself against these claims. However, there can be no assurance that the outcome of these uncertainties will be favorable to the Company.

 

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 March 31, 2018, the Company is involved into a total of 5 lawsuits against defendants in the following jurisdictions:

 

United States      
District of Delaware     5  
         

 

Symantec

 

On March 8, 2018, the Company and its subsidiary, Clouding Corp., a California corporation (“Clouding”) entered into a Settlement Agreement and Release of Claims (the “Settlement Agreement”) with Symantec Corporation (“Symantec”). Pursuant to the Settlement Agreement, in consideration for an undisclosed amount, Symantec agreed to settle its disputes and dismiss the actions brought against the Company, Clouding, IP Navigation Group, LLC, Clouding IP, LLC, William J. Carter, and Erich Spangenberg, each with prejudice. The first case commenced in the Superior Court of California for the County of Los Angeles (the “Los Angeles Action”) and Symantec thereafter filed a second case in the United States District Court for the District of Delaware (the “Delaware Action”) naming IP Navigation Group, LLC and Erich Spangenberg as defendants.

 

Under the terms of the Settlement Agreement, the Marathon Releasees, Clouding Releasees and the Other Defendant Releasees (as such terms are defined in the Settlement Agreement) will be released from claims from any and all claims or causes of action based upon, related to, or arising from the allegations that were made, or could have been made, with respect to the subject matter of the pleadings filed in the Los Angeles Action and the Delaware Action, and as further set forth in the Settlement Agreement. The Settlement Agreement contains no admission of wrongdoing, liability or obligation to any of the other parties, except as otherwise set forth therein.

 

Feinberg Litigation

 

On March 30, 2018, the Company became aware that a summons and complaint (collectively, the “Summons and Complaint”) were filed by Jeffrey Feinberg, Jeffrey L. Feinberg Personal Trust, and Jeffrey L. Feinberg Family Trust against the Company and certain of its officers and directors. The Summons and Complaint were filed with the Supreme Court of the State of New York, County of New York on March 27, 2018. The Company intends to vigorously defend itself against these claims. However, there can be no assurance that the outcome of these uncertainties will be favorable to the Company.