Annual report pursuant to Section 13 and 15(d)

Debt, Commitments and Contingencies

Debt, Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Debt, Commitments and Contingencies



Debt consists of the following:


    Maturity     Interest     December 31,     December 31,  
    Date     Rate     2019     2018  
Convertible Note     9/1/2021       5 %   $ 999,106     $ 999,106  
Less: debt discount                     -       -  
Total Convertible notes, net of discount                   $ 999,106     $ 999,106  
Total                   $ 999,106     $ 999,106  
Less: current portion                     -       (999,106 )
Long term                   $ 999,106     $ -  


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 1,718,750 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 $4.80 per share. In two closings of the Unit Purchase Agreement, the Company issued $5,500,000 in Convertible Notes to the investors. The remaining balance of the Convertible Notes were due to mature on May 31, 2018. On February 10, 2020, the investor agreed to extend the maturity date to September 1, 2021, and the conversion price will be changed to the lower of, the closing price on the previous days close prior to the conversion request or a maximum conversion price of $1.00 and a floor of $0.80. The note bears interest at the rate of 5% per annum and accrues but is not paid in cash. As of December 31, 2019, the Company had an outstanding obligation pursuant to the Convertible Notes in the amount of $999,106.


Accrued interest as of December 31, 2019 and 2018 were $194,935 and $144,981. During the year ended December 31, 2019 the interest expense was $49,954 and $72,104 for the year ended December 31, 2018, respectively. During the years ended December 31, 2019 and 2018, the amortization of debt discount was $0 and $2,290,028, respectively.




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 $1,997. A security deposit of $3,815 has been paid.


The Company also assumed a lease in connection with the mining operations in Quebec, Canada. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and noncurrent operating lease liabilities on the balance sheets.


Operation lease costs are recorded on a straight-line basis within operating expenses. The Company’s total lease expense is comprised of the following:


    For the Year Ended
December 31, 2019
Operating leases        
Operating lease cost   $ 106,847  
Operating lease expense     106,847  
Short-term lease rent expense     22,594  
Total rent expense   $ 129,441  


Additional information regarding the Company’s leasing activities as a lessee is as follow:


    For the Year Ended
December 31, 2019
Operating cash flows from operating leases   $ 97,079  
Weighted-average remaining lease term – operating leases     1.8  
Weighted-average discount rate – operating leases     6.5 %


As of December 31, 2019, contractual minimal lease payments are as follows:


2020   $ 98,701  
2021     98,701  
2022     26,918  
Total     224,320  
Less present value discount     (15,882 )
Lease current portion of operating lease liabilities     (87,959 )
Non-current operating lease liabilities   $ 120,479  


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. On March 7 and 22, 2019, defendants filed motions to dismiss the amended complaint and on April 5, 2019, plaintiffs filed an opposition to those motions. The court heard oral argument on the motions to dismiss on July 9, 2019, and at the conclusion of the argument the court took the motions under submission. The parties are waiting for the court’s rulings on the motions to dismiss and, while the motions have been under submission, no discovery has been taken and there have been no other significant developments in the case.


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, 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.