Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions [Text Block]

16.  Related Party Transactions

Tamalpais Partners LLC

Steven Ledger, the Chairman of our Board of Directors, is the founder and managing partner of Tamalpais Partners LLC, (“Tamalpais”) a business consulting firm. On August 1, 2013, we amended our consulting agreement with Tamalpais. Under the consulting agreement, as amended, Tamalpais will provide us with advisory services focused on capital and business issues, including assistance on raising capital, mergers, acquisitions, business development and investor relations/positioning. We paid Tamalpais $54,000 and $18,000 during the three-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  We paid Tamalpais $92,000 and $48,000 during the nine-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  No amounts were due to Tamalpais at September 30, 2013.

ipCapital Group, Inc.

On October 11, 2011, we engaged ipCapital Group, Inc. (“ipCapital”), an affiliate of John Cronin, who is one of our directors, to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual property assets.  Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities.

For the three and nine-month periods ended September 30, 2013 we paid ipCapital an aggregate of $0 and $31,200, respectively, for services performed under the engagement agreement, as amended. No amounts were due ipCapital at September 30, 2013. For the three and nine-month periods ended September 30, 2012 we paid ipCapital an aggregate $30,000 and $130,000, respectively for services performed under the engagement agreement, as amended. As of September 30, 2012, we owed ipCapital $37,300.

Prior to entering into the engagement agreement with ipCapital in 2011, ipCapital performed an analysis of our intellectual property and the potential methods we could employ to strengthen our intellectual property on a consulting basis.  We paid ipCapital $50,000 for this analysis in the nine-month period ended September 30, 2012.  All amounts paid to ipCapital in 2013 and 2012 have been reported within general and administrative expense.

In addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 400,000 shares of our common stock at an initial price of $0.26 per share.  Half of the warrant (200,000 shares) has a time-based vesting condition, with such vesting to occur in three equal annual installments. The first two vesting installments occurred on October 11, 2012 and October 11, 2013, respectively, with the remaining vesting installment to occur on October 11, 2014.  The remaining 200,000 shares became fully vested upon the completion to our satisfaction of all services that we requested from ipCapital under the engagement agreement, prior to the signing of the amendments.  Such performance was deemed satisfactory during 2012.  We believe that these fees, together with the issuance of the warrant, constitute no greater compensation than we would be required to pay an unaffiliated person for performing substantially similar services.

The exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, we have concluded that such warrant is not indexed to our common stock and should be recorded as a liability. We recognize the warrants liability over their vesting period, and in accordance with the liability method of accounting, we re-measure the fair value of the accrued warrants at each balance sheet date and recognize the change in fair value as general and administrative compensation expense. (See Note 4) We recognized $49,500 and $38,200 as a component of general and administrative expense during the three-month periods ended September, 2013 and 2012, respectively, and $35,700 and $52,700 during the nine-month periods ended September 30, 2013 and 2012, respectively, resulting from the change in fair value.

ipCapital Licensing Company I, LLC

On February 4, 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”).  John Cronin is a partner at ipCLC.  Pursuant to the agreement, we have engaged ipCLC, on a no-retainer basis, to identify and present us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy. If during the applicable term we enter into an agreement with any candidate presented by ipCLC to acquire or otherwise exploit the covered patents, we will pay ipCLC a fee of ten percent (10%) of the royalties, fees, and other consideration paid over the life of the agreement.

The agreement is effective as of February 4, 2013, and will end 18 months after we or ipCLC serve 60 days written notice of termination to the other party (with earlier termination possible in the event of a material breach).  The agreement provides for customary confidentiality undertakings, limitations on ipCLC’s total liability and mutual indemnification provisions.

We believe the terms of the agreement are fair and reasonable to us and are at least as favorable as those that could be obtained on an arms’ length basis.