Annual report pursuant to Section 13 and 15(d)

Debt, Commitments and Contingencies

v3.19.1
Debt, Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Debt, Commitments and Contingencies

NOTE 6 - DEBT, COMMITMENTS AND CONTINGENCIES

 

Debt consists of the following:

 

    Maturity     Interest     December 31,     December 31,  
    Date     Rate     2018     2017  
Convertible Note     4/30/2019       5 %   $ 999,106     $ 4,053,948  
Less: debt discount     and 4/30/2019               -       (2,290,028 )
Total Convertible notes, net of discount                   $ 999,106     $ 1,763,920  
                                 
Total                   $ 999,106     $ 1,763,920  
Less: current portion                     (999,106 )     (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 a price equal to 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 a Convertible Note; provided that such conversion price may not be less than $0.40 per share. The Convertible Notes contain “blocker” provisions which state that the holder may not initiate any conversion that would result in the holder and its affiliates owning above 4.99% of the issued and outstanding stock of the Company upon effecting the conversion. The holder may increase this limitation with 61 days’ prior notice, but in no case, may a conversion be effected if it would result in the holder and affiliates owning more than 9.9% of the issued and outstanding stock of the Company upon completion of the conversion. The Warrants have an exercise price of $1.20 per share. The Convertible Notes originally matured 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. The investor has agreed to an extension of the maturity date of the note to April 30, 2019. As of December 31, 2018, the Company had an outstanding obligation pursuant to the Convertible Notes in the amount of $999,106. Accrued interest as of December 31, 2018 was $144,981. During the year ended December 31, 2018 the interest expense was $72,104, and $73,622 for the year ended December 31, 2017, respectively.

 

During the year ended December 31, 2018, the amortization of debt discount was $2,290,028 million, and $3,561,109 for the year ended December 31, 2017, respectively.

 

Office Lease

 

Effective June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on a month to month basis. The monthly rent is $1,907. A security deposit of $3,815 has been paid.

 

Legal Proceedings

 

Feinberg Litigation

 

On March 27, 2018, Jeffrey Feinberg, purportedly joined by the Jeffrey L. Feinberg Personal Trust and the Jeffrey L. Feinberg Family Trust, filed a complaint against the Company and certain of its former officers and directors. The complaint was filed in the Supreme Court of the State of New York, County of New York. The plaintiffs purported to state claims under Sections 11, 12(a)(2) and 15 of the federal Securities Act of 1933 and common law claims for “actual fraud and fraudulent concealment,” constructive fraud, and negligent misrepresentation, seeking unspecified money damages (including punitive damages), as well as costs and attorneys’ fees, and equitable or injunctive relief. On June 15, 2018, the defendants filed a motion to dismiss all claims asserted in the complaint and, on July 27, 2018, the plaintiffs filed an opposition to that motion. The court heard argument on the motion and, on January 15, 2019, the court granted the motion to dismiss, allowing 30 days for the filing of an amended complaint. On February 15, 2019, Jeffrey Feinberg, individually and as trustee of the Jeffrey L. Feinberg Personal Trust, and Terrence K. Ankner, as trustee of the Jeffrey L. Feinberg Family Trust, filed an amended complaint that purports to state the same claims and seeks the same relief sought in the original complaint. Defendants have not yet responded to the amended complaint.

 

Ramirez Litigation

 

On July 20, 2018, Tony Ramirez filed a complaint against the Company and certain of its former directors. The complaint was filed in the United States District Court for the Central District of California. Mr. Ramirez alleged that he was a shareholder of the Company and purported to assert a single claim under Section 14(a) of the Securities and Exchange Act of 1934 and SEC Rule 14a-9 promulgated thereunder. The parties entered into a “Settlement Agreement and Mutual Release” and the case was voluntarily dismissed with prejudice on December 17, 2018.

 

Amazon Litigation

 

As part of the cancellation of certain indebtedness owed to Fortress Investment Group, LLC, we transferred ownership of various patents, including U.S. Patent No. 7,177,798, commonly referred to as “Patent 798.” Fortress created a new Special Purpose Entity, CF Dynamic Advances LLC, in which we own a 30% interest. In May 2018, Rensselaer Polytechnic Institute and CF Dynamic Advances LLC filed a complaint against Amazon.com, Inc. in the United States District Court for the Northern District of New York, which alleges, among other things, that “Alexa Voice Software and Alexa enabled devices” infringe U.S. Patent No. 7,177,798, entitled “Natural Language Interface Using Constrained Intermediate Dictionary of Results.” The complaint seeks an injunction, monetary damages, an ongoing royalty, pre- and post-judgment interest, attorneys’ fees, and costs. If plaintiffs are successful, and if the recoveries or settlement proceeds are sufficient following litigation expenses and recovery of amounts due in connection with the cancelled loan, the special purpose entity could be entitled to a portion of the net proceeds. There can be no assurance that the plaintiff will be successful or that any recoveries will exceed amounts due under the debt settlement arrangements or that our 30% interest in the special purpose entity will have any value even if the plaintiffs are successful in their case against Amazon.