XML 26 R15.htm IDEA: XBRL DOCUMENT

Note 9 - Debt

9 Months Ended

Sep. 30, 2022

9. Debt

Notes Payable

Related Party Note Payable

We have an unsecured promissory note of approximately $0.6 million payable to Sterne, Kessler, Goldstein, & Fox, PLLC (“SKGF”), a related party, for outstanding unpaid fees for legal services. As of September 30, 2022, SKGF agreed to amend the note in order to change and extend the final balloon payment due under the note from April 2023 to April 2027. The SKGF note, as amended, will continue to accrue interest at a rate of 4% per annum, requires monthly payments of principal and interest of $12,500 with a final balloon payment of approximately $0.02 million in April 2027. We are currently in compliance with all the terms of the note.

Convertible Notes

Our convertible notes represent 5-year promissory notes that are convertible, at the holders’ option, into shares of our common stock at fixed conversion prices. Interest payments are made on a quarterly basis and are payable, at our option, subject to certain equity conditions, in either cash, shares of our common stock, or a combination thereof. The number of shares issued for interest is determined by dividing the interest payment amount by the closing price of our common stock on the trading day immediately prior to the scheduled interest payment date. To date, all interest payments on the convertible notes have been made in shares of our common stock. We have recognized the convertible notes as debt in our condensed consolidated financial statements.

We have the option to prepay the majority 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 notes.

For the nine months ended September 30, 2022, convertible notes with a face value of $0.03 million were converted, at the option of the holders, into 250,000 shares of our common stock, and we recognized interest expense of approximately $0.21 million related to the contractual interest which we elected to pay in shares of our common stock. For the nine months ended September 30, 2022, we issued approximately 713,000 shares of our common stock as interest-in-kind payments on our convertible notes.

Between May 10, 2022 and August 3, 2022, we issued 5-year convertible notes with an aggregate face value of $1.7 million to accredited investors. The notes have a conversion price of $0.13 per share. The shares underlying the notes, as well as shares reserved for future in-kind interest payments on the notes, were registered on a registration statement that was declared effective on August 22, 2022 (File No. 333-266777).

Convertible notes payable at September 30, 2022 and December 31, 2021 consist of the following (in thousands):

							Principal Outstanding as of
							September 30,		December 31,
Description	Fixed Conversion Rate		Interest Rate			Maturity Date	2022		2021
Convertible notes dated September 10, 2018	$	0.40		8.0	%	September 7, 2023	$	200	$	200
Convertible note dated September 19, 2018	$	0.57		8.0	%	September 19, 2023		425		425
Convertible notes dated February/March 2019	$	0.25		8.0	%	February 28, 2024 to March 13, 2024		750		750
Convertible notes dated June/July 2019	$	0.10		8.0	%	June 7, 2024 to July 15, 2024		295		320
Convertible notes dated July 18, 2019	$	0.08		7.5	%	July 18, 2024		700		700
Convertible notes dated September 13, 2019	$	0.10		8.0	%	September 13, 2024		50		50
Convertible notes dated January 8, 2020	$	0.13		8.0	%	January 8, 2025 1		450		450
Convertible notes dated May-August 2022	$	0.13		8.0	%	May 10, 2027 to August 3, 2027		1,668		-
Total principal balance								4,538		2,895
Less current portion								625		-
							$	3,913	$	2,895

¹	The maturity date may be extended by one-year increments for up to an additional five years at the holders’ option at a reduced interest rate of 2%.

At September 30, 2022, we estimate our convertible notes have an aggregate fair value of approximately $3.3 million and would be categorized within Level 2 of the fair value hierarchy.

Secured Contingent Payment Obligation

The following table provides a reconciliation of our secured contingent payment obligation, measured at estimated fair market value, for the nine months ended September 30, 2022 and the year ended December 31, 2021 (in thousands):

	Nine Months Ended September 30, 2022		Year Ended December 31, 2021
Secured contingent payment obligation, beginning of period	$	37,372	$	33,057
Change in fair value		63		4,315
Secured contingent payment obligation, end of period	$	37,435	$	37,372

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. Brickell is entitled to priority payments of 100% of proceeds received by us from all patent-related actions, after deduction of legal contingent fees, until such time that Brickell has been repaid its remaining principal of approximately $14.7 million. Thereafter, Brickell is entitled to a significant portion of remaining proceeds received from all patent-related actions until such time that Brickell has been repaid its minimum return. The minimum return is determined as a multiple of the funded amount that increases over time. The estimated minimum return due to Brickell was approximately $54.7 million and $48.8 million as of September 30, 2022 and December 31, 2021, respectively. In addition, Brickell may be entitled to a pro rata portion of proceeds from specified legal actions to the extent aggregate proceeds from those actions exceed the minimum return. The range of potential proceeds payable to Brickell is discussed more fully in Note 10. As of September 30, 2022, we are in compliance with our obligations under this agreement.

We have elected to measure our secured contingent payment obligation at its estimated 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 (see Note 10). 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.

Unsecured Contingent Payment Obligations

The following table provides a reconciliation of our unsecured contingent payment obligations, measured at estimated fair market value, for the nine months ended September 30, 2022 and the year ended December 31, 2021 (in thousands):

	Nine Months Ended September 30, 2022			Year Ended December 31, 2021
Unsecured contingent payment obligations, beginning of period	$	5,691		$	5,222
Issuance of contingent payment rights		-			412
Change in fair value		(1,011	)		57
Unsecured contingent payment obligations, end of period	$	4,680		$	5,691

Our unsecured contingent payment obligations represent amounts payable to others from future patent-related proceeds including (i) a termination fee due to a litigation funder and (ii) contingent payment rights issued to accredited investors in connection with equity financings (“CPRs”). We have elected to measure these unsecured contingent payment obligations at their estimated 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 unsecured contingent payment obligations will be remeasured to fair value at each reporting period with changes recorded in the condensed consolidated statements of comprehensive loss until the contingency is resolved (see Note 10).