Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

14.  Related Party Transactions

ipCapital Group, Inc.

On October 11, 2011, the Company engaged ipCapital Group, Inc., an affiliate of John Cronin, who is one of the Company's directors, to provide assistance in the execution of the Company's strategic decision to significantly strengthen, grow and commercially exploit its intellectual property assets. On November 7, 2011 and November 14, 2011, the Company entered into two separate addendums to the initial agreement to provide additional services not contained within the initial agreement.

The engagement agreement with ipCapital, as amended, affords the Company the right to request ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate the Company's ability to identify and extract from its current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities. The Company will decide in its sole discretion how many of these services, whose cost will range from $5,000 to $60,000 per service, to request. Should the Company request ipCapital to perform all of the services contained within the engagement agreement, as amended, the cost will aggregate $440,000 (see Note 15), which the Company expects would be expended throughout 2012. Based on services performed under the terms of the engagement agreement, as amended, the Company paid $150,000 to ipCapital for services performed during 2011 and reported such costs as a component of general and administrative expense and within the Company's patent segment. As of December 31, 2011 no amount was due to ipCapital.

In addition to the fees the Company agreed to pay ipCapital for its services, the Company issued ipCapital a five-year warrant to purchase up to 400,000 shares of its common stock at an initial price of $0.26 per share. The warrant will vest and become exercisable to the extent of 200,000 of these shares in three equal annual installments commencing on October 11, 2012, and to the extent of the remaining 200,000 shares, upon the completion to the Company's satisfaction of all services that it has requested ipCapital to perform on its behalf under the engagement agreement, prior to the signing of any amendments. The Company believes that these fees, together with the issuance of the warrant, constitute no greater compensation than would be required to pay to an unaffiliated person for substantially similar services.

The exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, the Company has concluded that such warrant is not indexed to the Company's common stock and it will accrete the fair value of the warrant as a liability over the anticipated service period. The Company recognized $18,600 as a component of general and administrative expense during the year ended December 31, 2011 resulting from such accretion. Additionally, in accordance with the liability method of accounting, the Company will remeasure the fair value of the then-outstanding warrant at each future balance sheet date and recognize the change in fair value as general and administrative compensation expense. (See Note 6)