UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2013
or
☐ TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________
to ___________________________
Commission file number 33-18099-NY
QUEST PATENT RESEARCH CORPORATION
(Exact name of registrant as specified
in its charter)
Delaware |
|
11-2873662 |
(State or other jurisdiction of
Incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
411 Theodore Fremd Ave., Suite 206S, Rye, NY |
|
10580-1411 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number,
including area code: (888) 743-7577
Securities registered under Section 12(g)
of the Exchange Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Act. ☐
Note - Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark if disclosure of delinquent filers
in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this From 10-K. ☒
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
Smaller reporting company |
☒ |
(Do not check if a smaller reporting company) |
|
|
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid
and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal
quarter. $1,517,285 as of June 30, 2014.
As of April 9, 2015, the registrant had 263,038,334 shares
of common stock outstanding.
TABLE
OF CONTENTS
|
Page |
|
|
PART
I |
|
Item
1. |
Business |
3 |
Item
1A. |
Risk
Factors |
9 |
Item
2. |
Properties |
17 |
Item
3. |
Legal
Proceedings |
17 |
Item
4. |
Mine
Safety Disclosures |
17 |
|
|
|
PART
II |
|
Item
5. |
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
18 |
Item
6. |
Selected
Financial Data |
19 |
Item
7. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
22 |
Item
8. |
Financial
Statements and Supplementary Data |
23 |
Item
9. |
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure |
23 |
Item
9A. |
Controls
and Procedures |
23 |
Item
9B. |
Other
Information |
24 |
|
|
|
PART
III |
|
Item
10. |
Directors,
Executive Officers and Corporate Governance |
24 |
Item
11. |
Executive
Compensation |
26 |
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
28 |
Item
13. |
Certain
Relationships and Related Transactions, and Director Independence |
29 |
Item
14. |
Principal
Accounting Fees and Services |
29 |
|
|
|
PART
IV |
|
Item
15. |
Exhibits
and Financial Statement Schedules |
30 |
As used
in this annual report, the terms “we,” “us,” “our,” and words of like import, and the “Company”
refers to Quest Patent Research Corporation and its subsidiaries, unless the context indicates otherwise.
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K contain “forward-looking statements,” within the meaning of the Private Securities Litigation
Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use
of words such as “expects,” “plans,” “will,” “forecasts,” “projects,”
“intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they
do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results
and product and development programs. One must carefully consider any such statement and should understand that many factors could
cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad
variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can
be guaranteed and actual future results may vary materially.
These
risks and uncertainties, many of which are beyond our control, include, and are not limited to:
|
●
|
Our
ability to generate revenue from our intellectual property rights, including our ability to license our intellectual property
rights and our ability to be successful in any litigation which we may commence in order to seek to monetize our intellectual
property rights; |
|
|
|
|
●
|
Our
ability to acquire intellectual property rights for innovative technologies for which there is a significant potential market; |
|
|
|
|
●
|
Our
ability to recoup any investment which we may make to acquire or generate revenue from intellectual property rights; |
|
|
|
|
●
|
Our
ability to identify new intellectual property and obtain rights to that property; |
|
|
|
|
●
|
The
effect of legislation and court decisions on the ability to generate revenue from patent and other intellectual property rights; |
|
|
|
|
●
|
Our
ability to obtain the funding that we require in order to develop our business; |
|
|
|
|
●
|
Our
ability to reduce the cost of litigation through contingent fees with counsel or to obtain third-party financing to enable
us to enforce our intellectual property rights through litigation or otherwise; |
|
|
|
|
●
|
The
development of a market for our common stock; and |
|
|
|
|
●
|
Our
ability to retain our key executive officers and identify, hire and retain additional key employees. |
In addition,
factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report
on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in other documents
we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking
statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.
Information
regarding market and industry statistics contained in this Annual Report on Form 10-K is included based on information available
to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes
of securities offerings or economic analysis. We have not reviewed or included data from all sources. Forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any
estimates of future market size, revenue and market acceptance of products and services. We do not assume any obligation to update
any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.
Item
1. Business
Overview
We are
an intellectual property asset management company. Our principal operations include the development, acquisition, licensing and
enforcement of intellectual property rights that are either owned or controlled by us or one of our wholly owned subsidiaries.
We currently own, control or manage five intellectual property portfolios, which principally consist of patent rights. As part
of our intellectual property asset management activities and in the ordinary course of our business, it has been necessary for
us or the intellectual property owner who we represent to initiate, and it is likely to continue to be necessary to initiate,
patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our primary source of revenue will
come from the grant of licenses to use our intellectual property, including licenses granted as part of the settlement of patent
infringement lawsuits. We also generate revenue from management fees from managing intellectual property portfolios.
Intellectual
property monetization includes the generation of revenue and proceeds from the licensing of patents, patented technologies and
other intellectual property rights. Patent litigation is often a necessary element of intellectual property monetization where
a patent owner, or a representative of the patent owner, seeks to protect its patent rights against the unlicensed manufacture,
sale, and use of the owner’s patent rights or products which incorporate the owner’s patent rights. In general, we
seek to monetize the bundle of rights granted by the patents through structured licensing and when necessary enforcement of those
rights through litigation.
We intend
to develop our business by acquiring intellectual property rights, either in the form of ownership or an exclusive license to
the underlying intellectual property. Our goal is to enter into agreements with inventors of innovative technologies for which
there may be a significant market for products which use or incorporate the intellectual property. We seek to purchase all of,
or interests in, intellectual property in exchange for cash, securities of our company, the formation or a joint venture or separate
subsidiary in which the owner has an equity interest, and/or interests in the monetization of those assets. Our revenue from this
aspect of our business can be generated through licensing and, when necessary, litigation efforts as well as intellectual property
management fees. We engage in due diligence and a principled risk underwriting process to evaluate the merits and potential value
of any acquisition, partnership or joint venture. We seek to structure the terms of our acquisitions, partnerships and joint ventures
in a manner that will achieve the highest risk-adjusted returns possible.
We employ
a due diligence process before completing the acquisition of an intellectual property interest. We begin with an investment thesis
supporting the potential transaction and then proceed to test the thesis through an examination of the critical drivers of the
value of the underlying intellectual property asset. Such an examination focuses on areas such as title and inventor issues, the
quality of the drafting and prosecution of the intellectual property assets, legal risks inherent in licensing programs generally,
the applicability of the invention to the relevant marketplace and other issues such as the effects of venue and other procedural
issues. However, our financial position may affect our ability to conduct due diligence with respect to intellectual property
rights.
It is
frequently necessary to commence litigation in order to obtain a recovery for past infringement of, or to license the use of,
our intellectual property rights. Intellectual property litigation is very expensive, with no certainty of any recovery. To the
extent possible we seek to engage counsel on a contingent fee or partial contingent fee basis, which would significantly reduce
our litigation cost, but which would reduce the value of the recovery to us. We do not have the resources for us to fund the cost
of litigation. To the extent that we cannot fund litigation ourselves, we may enter into an agreement with a third party, which
may be the patent owner or the former patent owner who transferred the patent rights to us, or an independent third party. In
these cases, if a third party funds the cost of the litigation, that party would be entitled to participate in the recovery.
Our
Organization
We were
incorporated in Delaware on July 17, 1987 under the name Phase Out of America Inc. On September 24, 1997, we changed our name
to Quest Products Corporation and, on June 6, 2007, we changed our name to Quest Patent Research Corporation. During 2003, 2004,
2005, 2006 and 2007 there were no significant operations. We have been engaged in the intellectual property monetization business
since 2008. Our executive principal office is located at 411 Theodore Fremd Ave., Suite 206S, Rye, New York 10580-1411, telephone
number is (888) 743-7577. Our website is www.qprc.com. Information contained on our website does not constitute a part
of this annual report.
Our
Intellectual Property Portfolios
Mobile
Data
The real-time
mobile data portfolio relates to the automatic update of information delivered to a mobile device without the need for a manual
refreshing. The portfolio is comprised of U.S. Patent No. 7,194,468 “Apparatus and Method for Supplying Information”
and all related patents, patent applications, and all continuations, continuations-in-part, divisions, extensions, renewals, reissues
and re-examinations relating to all inventions thereof (the “Mobile Data Portfolio”). We initially entered into an
agreement with the patent owner, Worldlink Information Technology Systems Limited, whereby we received the exclusive license to
license and enforce the Mobile Data Portfolio. Under the agreement we received a monthly management fee and a percentage of licensing
revenues. Subsequently Worldlink transferred its remaining interest in the Mobile Data Portfolio to Allied Standard Limited. In
October 2012, we entered into an agreement with Allied pursuant to which Allied transferred its entire right title and interest
in the Mobile Data Portfolio to Quest Licensing Corporation, which was at the time, a wholly-owned subsidiary. Under the agreement
Allied was entitled to receive a 50% interest in Quest Licensing. Quest Licensing’s only intellectual property is the Mobile
Data Portfolio. Our agreement with Allied provides that we and Allied will each receive 50% of the net licensing revenues, as
defined by the agreement. In June 2013, we entered into an agreement with The Betting Service Limited, an entity controlled by
a former director of Worldlink. Pursuant to the agreement, we granted The Betting Service an interest in licensing proceeds from
the Mobile Data Portfolio in return for The Betting Service’s assistance in developing certain Mobile Data Portfolio assets.
In April 2014, we entered into a further agreement with Allied whereby Allied relinquished certain rights under the October 2012
agreement, including its entitlement to a 50% interest in Quest Licensing, in exchange for our commitment to fund a structured
licensing program for the Mobile Data Portfolio.
Financial
Data
The invention
describes a universal financial data system which allows its holder to use the device to access one or more accounts stored in
the memory of the device as a cash payment substitute as well as to keep track of financial and transaction records and data,
such as transaction receipts, in a highly portable package, such as a cellular device (the “Financial Data Portfolio”).
The inventive universal data system is capable of supporting multiple accounts of various types, including but not limited to
credit card accounts, checking/debit accounts, and loyalty accounts. Our wholly-owned subsidiary, Wynn Technologies Inc., acquired
US Patent No. 5,859,419, from the owner, Sol Wynn. In January 2001, we filed a reissue application for the patent, and the United
States Patent and Trademark Office issued patent RE38,137. This reissued patent, which contains 35 separate claims, replaces the
original patent, which had seven claims. In February 2011, we entered into a new agreement with Sol Li (formerly Sol Wynn), pursuant
to which we issued to Mr. Li a 35% interest in Wynn Technologies and warrants to purchase up to 5,000,000 shares of our common
stock at an exercise price of $0.001 per share. We also agreed that Mr. Li would receive 40% of the net licensing revenues generated
by Wynn Technologies with respect to this patent, which is the only patent owned by Wynn Technologies.
Rich
Media
The rich
media portfolio is directed to methods, systems, and processes that permit typical Internet users to design rich-media production
content (i.e., rich-media applications), such as websites. The portfolio consists of U.S. Patent No. 7,000,180, “Methods,
Systems, and Processes for the Design and Creation of Rich Media Applications via the Internet” and all related patents,
patent applications, corresponding foreign patents and foreign patent applications and foreign counterparts, and all continuations,
continuations-in-part, divisions, extensions, renewals, reissues and re-examinations relating to all inventions thereof (the “Rich
Media Portfolio”). In July 2008, we entered into a consulting and licensing program management agreement with Balthaser
Online, Inc., the patent owner, pursuant to which we performed services related to the establishment and management of a licensing
program to evaluate and analyze the relevant market and to obtain licenses for the Rich Media Portfolio in exchange for management
fees as well as an irrevocable entitlement to a distribution of 15% of all proceeds generated by the Rich Media Portfolio for
the remaining life of the portfolio regardless of whether those proceeds are derived from litigation, settlement, licensing or
otherwise. Our 15% distribution right is subject to reduction to 7.5% in the event that we refuse or are unable to perform the
services detailed in the agreement.
Online
Marketing, Sweepstakes, Promotions & Rewards (VonKohorn Portfolio)
The portfolio
consists of nine United States Patents that include patent claims related to, among other areas, online couponing, print-at-home
boarding passes and tickets, online sweepstakes; including the promotion by television networks of online sweepstakes (the “Von
Kohorn Portfolio”). In December 2009, we entered into an agreement with Intertech Holdings, LLC pursuant to which our wholly-owned
subsidiary, Quest NetTech Corporation, acquired by assignment all right, title, and interest in the Von Kohorn Portfolio. Under
the agreement, we will receive 20% of adjusted gross recoveries, as defined. In August 2013, we and Intertech Holdings amended
the December 2009 agreement to provide that Intertech Holdings will receive 33% of the adjusted gross recoveries and Quest NetTech
will receive 67% of adjusted gross recoveries.
Flexible
Packaging - Turtle PakTM
In March
2008, we entered into an agreement with Emerging Technologies Trust whereby our wholly-owned subsidiary, Quest Packaging Solutions
Corporation, acquired the exclusive license to make, use, sell, offer for sale or sublicense the intellectual property of Emerging
Technologies Trust (the “Turtle Pak™ Portfolio”). The Turtle Pak portfolio relates to a cost effective, high-protection
packaging system recommended for fragile items weighing less than ten pounds. The intellectual property consists of two U.S. patents,
U.S. Patent No. RE36,412 and U.S. Patent No.6,490,844, and the Turtle PakTM trademark. Turtle Pak™ brand packaging
is suited for such uses as electrical and electronic components, medical, dental, and diagnostic equipment, instrumentation products,
and control components. Turtle Pak™ brand packaging materials are 100% curbside recyclable.
Monetization
Activities for our Intellectual Property Portfolios
Mobile
Data
Through
December 31, 2013, we did not generate any licensing revenues from the Mobile Data Portfolio.
In March
2014, we entered into a funding agreement whereby a third party agreed to provide funds to us to enable us to implement a structured
licensing program, including litigation if necessary, for the Mobile Data Portfolio and engaged counsel on a partial contingency
basis in connection with a proposed patent infringement action relating to the Mobile Data Portfolio. Under the funding agreement,
the third party receives an interest in the proceeds from the program, and we have no other obligation to the third party. In
April 2014, as part of a structured licensing program, Quest Licensing Corporation brought several patent infringement suits against
various entities in the U.S. District for the District of Delaware. These actions are pending. Through April 9, 2015 the third
party has provided funds in the amount of approximately $1,018,000 of which approximately $625,000 has been paid to litigation
counsel and other third parties and $392,500 has been paid to us in conjunction with the litigation against parties which we believe
are infringing on our intellectual property.
Universal
Financial Data System
In August
2010, we entered into a five-year consulting agreement with Alex W. Hart pursuant to which he agreed to serve as a special consultant
to us on the development and commercialization of the Data System Patent. Pursuant to this agreement, we issued Mr. Hart an option
to purchase 5,000,000 shares common stock at a price of $0.001 per share, through December 31, 2015. Through December 31, 2013,
we did not generate any revenue from the Data System Patent.
Rich
Media
During
the years ended December 31, 2012 and 2013, we did not generate any revenue from the rich media patents.
Online
Marketing, Sweepstakes, Promotions & Rewards
In September
2011, Quest NetTech brought a patent infringement action in the U.S. District Court for the Middle District of Florida against
Valassis Communications, Inc. et al. There were several other defendants in this action, and they settled the action during 2012
and 2013. With respect to each defendant in the action, the parties entered into a mutually agreeable resolution of all claims.
In September
and October 2013, Quest NetTech brought several patent infringement actions against various entities in the U.S. District for
the Eastern District of Texas. These actions were settled.
In July
2014, Quest NetTech brought several patent infringement suits against various entities in the U.S. District for the Eastern District
of Texas. These actions were settled.
In February
2015, Quest NetTech brought several patent infringement suits against various entities in the U.S. District for the Eastern District
of Texas. These actions are pending.
Through
December 31, 2012, we generated revenues of approximately $467,500 from the Von Kohorn Portfolio. For the year ended December
31, 2013, we generated license fees of approximately $45,000 from this portfolio. During 2014, we generated license fees of approximately
$460,000.
Flexible
Packaging - Turtle PakTM
As the
exclusive licensee and manager of the manufacture and sale of licensed product, we sell products to end users and we outsource
the manufacture and assembly of the product components and coordinate order receipt, fulfillment and invoicing. Revenues from
the TurtlePakTM product sales were approximately $252,000 through December 31, 2012 and approximately $31,000 for the
year ended December 31, 2013. We continue to generate modest revenue from this product.
Competition
We encounter
and expect to continue to encounter competition in the areas of intellectual property acquisitions for the sake of licensure from
both private and publicly traded companies that engage in intellectual property monetization activities. Such competitors and
potential competitors include companies seeking to acquire the same intellectual property assets and intellectual property rights
that we may seek to acquire. Entities such as Acacia Research Corporation, ITUS Corporation, Document Security Systems, Inc.,
Intellectual Ventures, Wi-LAN, Conversant IP, VirnetX Holding Corp., Marathon Patent Group, Inc., Network-1 Security Solutions,
Round Rock Research LLC, IPvalue Management Inc., Vringo Inc., Pendrell Corporation and others derive all or a substantial portion
of their revenue from patent monetization activities, and we expect more entities to enter the market. Most of our competitors
have longer operating histories and significantly greater financial resources and personnel than we have.
We also
compete with venture capital firms, strategic corporate buyers and various industry leaders for intellectual property and technology
acquisitions and licensing opportunities. Many of these competitors have more financial and human resources than our company.
In seeking to obtain intellectual property assets or intellectual property rights, we seek to both demonstrate our understanding
of the intellectual property that we are seeking to acquire or license and our ability to monetize their intellectual property
rights. Our weak cash position may impair our ability to negotiate successfully with the intellectual property owners.
Other
companies may develop competing technologies that offer better or less expensive alternatives to intellectual property rights
that we may acquire and/or out-license. Many potential competitors may have significantly greater resources than we do. The development
of technological advances or entirely different approaches could render certain of the technologies owned or controlled by our
operating subsidiaries obsolete and/or uneconomical.
Intellectual
Property Rights
We have
five intellectual property portfolios: mobile data, financial data, rich media, Von Kohorn and Turtle Pak. The following table
sets forth information concerning our patents and other intellectual property. Each patent
or other intellectual property right listed in the table below that has been granted is publicly accessible on the Internet website
of the U.S. Patent and Trademark Office at www.uspto.gov.
Segment |
|
Type |
|
Number |
|
Title |
|
File
Date |
|
Issue
/ Publication Date |
|
Expiration |
Financial
Data |
|
US
Patent |
|
RE38,137 |
|
Programmable
Multiple Company Credit Card System |
|
01/11/2001 |
|
06/10/2003 |
|
09/28/2015 |
Mobile
Data |
|
US
Patent |
|
7,194,468 |
|
Apparatus
and Method for Supplying Information |
|
02/09/2001 |
|
03/20/2007 |
|
02/09/2021 |
Mobile
Data |
|
US
Application |
|
12/617,373(1) |
|
Apparatus
and Method for Supplying Information |
|
11/12/2009 |
|
05/20/2010 |
|
N/A |
Mobile
Data |
|
US
Application |
|
13/832,012 |
|
Apparatus
and Method for Supplying Information |
|
03/15/2013 |
|
09/05/2013 |
|
N/A |
Von
Kohorn |
|
US
Patent |
|
5,128,752 |
|
System
and method for generating and redeeming tokens |
|
10/25/1990 |
|
07/07/1992 |
|
07/17/2009 |
Von
Kohorn |
|
US
Patent |
|
5,227,874 |
|
Method
for measuring the effectiveness of stimuli on decisions of shoppers |
|
10/15/1991 |
|
07/13/1993 |
|
07/13/2010 |
Von
Kohorn |
|
US
Patent |
|
5,249,044 |
|
Product
information storage, display, and coupon dispensing system |
|
07/11/1991 |
|
05/11/1993 |
|
07/07/2009 |
Von
Kohorn |
|
US
Patent |
|
5,283,734 |
|
System
and method of communication with authenticated wagering participation |
|
09/19/1991 |
|
02/01/1994 |
|
09/19/2011 |
Von
Kohorn |
|
US
Patent |
|
5,368,129 |
|
Retail
facility with couponing |
|
07/23/1992 |
|
11/29/1994 |
|
07/23/2012 |
Von
Kohorn |
|
US
Patent |
|
5,508,731 |
|
Generation
of enlarged participatory broadcast audience |
|
02/25/1993 |
|
04/16/1996 |
|
04/16/2013 |
Von
Kohorn |
|
US
Patent |
|
5,697,844 |
|
System
and method for generating and redeeming tokens |
|
10/25/1990 |
|
07/07/1992 |
|
07/17/2009 |
Von
Kohorn |
|
US
Patent |
|
5,713,795 |
|
System
and method for generating and redeeming tokens |
|
10/25/1990 |
|
07/07/1992 |
|
07/17/2009 |
Von
Kohorn |
|
US
Patent |
|
5,759,101 |
|
System
and method for generating and redeeming tokens |
|
10/25/1990 |
|
07/07/1992 |
|
07/17/2009 |
Turtle
Pak |
|
US
Patent |
|
RE36,412 |
|
Article
Packaging Kit, System, and Method |
|
06/18/1996 |
|
11/30/1999 |
|
06/24/2013 |
Turtle
Pak |
|
US
Patent |
|
6,490,844 |
|
Film
Wrap Packaging Apparatus and Method |
|
06/21/2001 |
|
12/10/2002 |
|
07/10/2021 |
Turtle
Pak |
|
US
Trademark |
|
74709827 |
|
Turtle
Pak - design plus words, letters, and/or numbers |
|
08/01/1995 |
|
06/04/1996 |
|
N/A |
Rich
Media |
|
Patent
Proceeds Interest |
|
7,000,180 |
|
Methods,
Systems, And Processes For The Design And Creation Of Rich Media Applications Via The Internet |
|
02/09/2001 |
|
02/14/2006 |
|
10/16/2023 |
Rich
Media |
|
US
Application Proceeds Interest |
|
13/314977 |
|
Methods,
Systems, And Processes For The Design And Creation Of Rich Media Applications Via The Internet |
|
12/08/2011 |
|
04/12/2012 |
|
N/A |
| (1) | On
November 21, 2014, the United States Patent and Trademark Office issued a Notice of Allowance
on this application. |
Research
and Development
Research
and development expense are incurred by us in connection with the evaluation of patents and in the development of a marketing
program. We did not incur research and development expenses during 2012 or 2013.
Employees
As of
April 9, 2015, we have no employees other than our two officers, only one of whom, Mr. Jon Scahill, our chief executive officer
and president, is full time. Our employees are not represented by a labor union, and we consider our employee relations to be
good.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together
with all of the other information included in this report, before making an investment decision, and you should only consider
an investment in our common stock if you can afford to sustain the loss of your entire investment. If any of the following risks
occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Risks
Relating to our Financial Conditions and Operations
We
have a history of losses and are continuing to incur losses. During the period from 2008, when we changed our business to
become an intellectual property management company, through 2013, we generated a cumulative loss of approximately $13,900,000
on cumulative revenues of approximately $1,538,000. Our total assets were approximately $21,000 at December 31, 2013. At December
31, 2013, we had a working capital deficiency of approximately $4,350,000. We had negative working capital from our operations
for both 2013 and 2012, and our continuing losses are generating an increase in our negative working capital. We used approximately
$7,900 in our operations for the year ended 2013. We are continuing to generate losses and negative cash flows from our operations,
and we cannot give assurance that we can or will ever operate profitably.
We
require significant funding in order to develop our business. Our business requires substantial funding to evaluate and acquire
intellectual property rights and to develop and implement programs to monetize our intellectual property rights. Our failure to
develop and implement these programs could both jeopardize our relationships under our existing agreements and could inhibit our
ability to generate new business, either through the acquisition of intellectual property rights or through exclusive management
agreements. We cannot be profitable unless we are able to obtain the funding necessary to develop our business. We cannot assure
you that we will be able to obtain necessary funding or to develop our business.
Because
of our lack of funds, we may not be able to conduct adequate due diligence on any new intellectual property which we may seek
to acquire. We currently have nominal current assets and are operating at a loss. In order to evaluate any intellectual property
rights which we may seek to acquire, we need to conduct due diligence on the intellectual property and underlying technology.
To the extent that we are unable to perform the necessary due diligence, we will not be able to value any asset which we acquire,
which may impair our ability to generate revenue from the intellectual property rights. If any conditions occur, such as defects
in the ownership of the intellectual property, infringement on intellectual property rights of others, the existence of better
technology which does not require our intellectual property, or other conditions that affect the value of the patents or marketability
of the underlying intellectual property rights, we may not be able to monetize the patents and we may be subject to liability
to a third party who has rights in the intellectual property.
Any
funding we obtain may result in significant dilution to our shareholders. Because of our financial position, our continuing
losses and our negative working capital from operations, we do not expect that we will be able to obtain any debt financing for
our operations. Our stock price has generally been trading at a price which is less than $0.01 per share for more than the past
two years. As a result, it will be very difficult for us to raise funds in the equity markets. However, in the event that we are
able to raise funds in the equity market, the sale of shares would result in significant dilution to the present shareholders,
and even a modest equity investment could result in the issuance of a very significant number of shares.
We
are dependent upon our chief executive officer. We are dependent upon Jon Scahill, our chief executive officer and president
and sole full-time employee, for all aspects of our business including locating, evaluating and negotiating for intellectual property
rights from the owners, managing our intellectual property portfolios, engaging in licensing activities and monetizing the rights
through licensing and managing and monitoring any litigation with respect to our intellectual property as well as defending any
actions by potential licensees seeking a declaratory judgment that they do not infringe. The loss of Mr. Scahill would materially
impair our ability to conduct our business. Although we have an employment agreement with Mr. Scahill, the employment agreement
does not insure that Mr. Scahill will remain with us.
Risks
Relating to Monetizing our Intellectual Property Rights
We
may not be able to monetize our intellectual property portfolios. Although our business plan is to generate revenue from our
intellectual property portfolios, we have not been successful in generating any significant revenue from our portfolios and we
have not generated any revenues from two of our intellectual property portfolios. We cannot assure you that we will be able to
generate any significant revenue from our existing portfolios or that we will be able to acquire new intellectual property rights
that will generate significant revenue.
If
we are not successful in monetizing our portfolios, we may not be able to continue in business. Although we have ownership
of some of our intellectual property, we also license the rights pursuant to agreements with the owners of the intellectual property.
If we are not successful in generating revenue for those parties who have an interest in the results of our efforts, those parties
may seek to renegotiate the terms of our agreements with them, which could both impair our ability to generate revenue from our
intellectual property and make it more difficult for us to obtain rights to new intellectual property rights. If we continue to
be unable to generate revenue from our existing intellectual property portfolios and any new portfolios we may acquire, we may
be unable to continue in business.
Our
inability to acquire intellectual property portfolios will impair our ability to generate revenue and develop our business.
We do not have the personnel to develop patentable technology by ourselves. Thus, we need to depend on acquiring rights to intellectual
property and intellectual property portfolios from third parties. In acquiring intellectual property rights, there are delays
in (i) identifying the intellectual property which we may want to acquire, (ii) negotiating an agreement with the owner or holder
of the intellectual property rights, and (iii) generating revenue from those intellectual property rights which we acquire. During
these periods, we will continue to incur expenses with no assurance that we will generate revenue. We currently hold intellectual
property portfolios from which we have not generated any revenue to date, and we cannot assure you that we will generate revenue
from our existing intellectual property portfolios or any additional intellectual properties which we may acquire.
Because
of our financial condition and our failure to have generated revenues from our existing portfolios, we may not be able to obtain
intellectual property rights to the most advanced technologies. In order to generate meaningful revenues from intellectual
property rights, we need to be able to identify, negotiate rights to and offer technologies for which there is a developing market.
Because of our financial condition and our lack of the generation of any significant revenue from our existing intellectual property
portfolios, we may be unable to negotiate rights to technology for which there which will be a strong developing market, or, if
we are able to negotiate agreements for such intellectual property, the terms of our purchase or license may not be favorable
to us. Accordingly, we cannot assure you that we will be able to acquire intellectual property rights to the technology for which
there is a strong market demand.
Potential
acquisitions may present risks, and we may be unable to achieve the financial or other goals intended at the time of any potential
acquisition. Our ability to grow depends, in large part, on our ability to acquire interests in intellectual property, including
patented technologies, patent portfolios, or companies holding such patented technologies and patent portfolios. Accordingly,
we intend to engage in acquisitions to expand our intellectual property portfolios and we intend to continue to explore such acquisitions.
Such acquisitions are subject to numerous risks, including the following:
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our failure
to have sufficient funding to enable us to make the acquisition; |
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our failure
to have sufficient personal to satisfy the seller that we have the personnel to monetize the assets we propose to acquire; |
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dilution to
our stockholders to the extent that we use equity in connection with any acquisition; |
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our inability
to enter into a definitive agreement with respect to any potential acquisition, or if we are able to enter into such agreement,
our inability to consummate the potential acquisition; |
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difficulty integrating
the operations, technology and personnel of the acquired entity; |
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our inability
to achieve the anticipated financial and other benefits of the specific acquisition; |
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difficulty in
maintaining controls, procedures and policies during the transition and monetization process; |
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diversion of
our management’s attention from other business concerns, especially considering that we have only one full-time employee/officer;
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failure of our
due diligence process to identify significant issues, including issues with respect to patented technologies and intellectual
property portfolios, and other legal and financial contingencies. |
If we
are unable to manage these risks effectively as part of any acquisition, our business could be adversely affected.
Our
acquisition of intellectual property rights may be time consuming, complex and costly, which could adversely affect our operating
results. Acquisitions of patent or other intellectual property assets, which are and will be critical to the development of
our business, are often time consuming, complex and costly to consummate. We may utilize many different transaction structures
in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated. As a result, we expect to incur
significant operating expenses and may be required to raise capital during the negotiations even if the acquisition is ultimately
not consummated. Even if we are able to acquire particular intellectual property assets, there is no guarantee that we will generate
sufficient revenue related to those intellectual property assets to offset the acquisition costs. We may also identify intellectual
property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to
organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any intellectual property
assets or, if consummated, proves to be unprofitable for us. These higher costs could adversely affect our operating results.
If
we acquire technologies that are in the early stages of market development, we may be unable to monetize the rights we acquire.
We may acquire patents, technologies and other intellectual property rights that are in the early stages of adoption in the commercial,
industrial and consumer markets. Demand for some of these technologies will likely be untested and may be subject to fluctuation
based upon the rate at which companies may adopt our intellectual property in their products and services. As a result, there
can be no assurance as to whether technologies we acquire or develop will have value that we can monetize. It may also be necessary
for us to develop additional intellectual property and file new patent applications as the underlying commercial market evolves,
as a result of which we may incur substantial costs with no assurance that we will ever be able to monetize our intellectual property.
Our
intellectual property monetization cycle is lengthy and costly, and our marketing, legal and sales efforts may be unsuccessful.
We expect to incur significant marketing, legal and sales expenses prior to entering into monetization events that generate revenue
for us. We will also spend considerable resources educating potential licensees on the benefits of entering into an agreement
with us that may include a non-exclusive license for future use of our intellectual property rights. Thus, we may incur significant
losses in any particular period before any associated revenue stream begins. If our efforts to convince potential licensees of
the benefits of a settlement arrangement are unsuccessful, we may need to continue with the litigation process or other enforcement
action to protect our intellectual property rights and to realize revenue from those rights. We may also need to litigate to enforce
the terms of existing agreements, protect our trade secrets, or determine the validity and scope of the proprietary rights of
others. Enforcement proceedings are typically protracted and complex. The costs are typically substantial, and the outcomes are
unpredictable. Enforcement actions will divert our managerial, technical, legal and financial resources from business operations.
We
may not be successful in obtaining judgments in our favor. We have commenced litigation seeking to monetize our intellectual
property portfolios and it may be necessary for us to commence ligation in the future. All litigation is uncertain, and we cannot
assure you that any litigation will be decided in our favor or that, if damages are awarded or a license is negotiated, that we
will generate any significant revenue from the litigation.
Our
financial condition may cause both intellectual property rights owners and potential licensees to believe that we do not have
the financial resources to commence and prosecute litigation for infringement. Because of our financial condition, both intellectual
property rights owners and potential licensees may believe that we do not have the ability to commence and prosecute sustained
and expensive litigation to protect our intellection rights with the effect that (i) intellectual property rights owners may be
reluctant to grant us rights to their intellectual property and (ii) potential licensees may be less inclined to pay for license
rights from us.
Any
patents which may be issued to us pursuant to patent applications which we filed or may file may fail to give us necessary protection.
We cannot be certain that patents will be issued as a result of any pending or future patent applications, or that any of our
patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented
or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific
or patent literature often lags behind actual discoveries, we cannot be certain that we will be the first to make additional new
inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued
patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant
fees or royalties in order to enable us to conduct our business. As to those patents that we may acquire, our continued rights
will depend on meeting any obligations to the seller and we may be unable to do so. Our failure to obtain or maintain intellectual
property rights for our inventions would lead to the loss of our investments in such activities, which would have a material adverse
effect on us.
The
provisions of Federal Declaratory Judgment Act may affect our ability to monetize our intellectual property. Under the Federal
Declaratory Judgment Act, it is possible for a party who we consider to be infringing upon our intellectual property to commence
an action against us seeking a declaratory judgment that such party is not infringing upon our intellectual property rights. In
such a case, the plaintiff could choose the court in which to bring the action and we would be the defendant in the action. Common
claims for declaratory judgment in patent cases are claims of non-infringement, patent invalidity and unenforceability. Although
the commencement of an action requires a claim or controversy, a court may find a letter from us to the alleged infringer seeking
a royalty for the use of our intellectual property rights to form the basis of a controversy. In such a case, the plaintiff, rather
than we, would choose the court in which to bring the action and the timing of the action. In addition, when we commence an action
as plaintiff, we may be able to enter into a contingent fee arrangement with counsel, it is possible that counsel may be less
willing to accept such an arrangement if we are the defendant. Further, we would not have the opportunity of choosing against
which party to bring the action. An adverse decision in a declaratory judgment action could significantly impair our ability to
monetize the intellectual property rights which are the subject of the litigation. We have been a defendant in one declaratory
judgment action, which resulted in a settlement. We cannot assure you that potential infringers will not be able to use the Declaratory
Judgment Act to reduce our ability to monetize the patents that are the subject of the action.
A recent
Supreme Court decision could significantly impair business method and software patents. In June 2014, the United States Supreme
Court, in Alice v. CLS Bank, struck down patents covering a computer-implemented scheme for mitigating “settlement
risk” by using a third party intermediary, holding the patent claims to be ineligible as being drawn to a patent-ineligible
abstract idea. The courts have been dealing for many years over what business methods are patentable. We cannot predict the extent
to which the decision in Alice as well as prior Supreme Court decisions dealing with patents, will be interpreted by courts.
To the extent that the Supreme Court decision in Alice gives businesses reason to believe that business model and software
patents are not enforceable, it may become more difficult for us to monetize patents which are held to be within the ambit of
the patents before the Supreme Court in Alice and for us to obtain counsel willing to represent us on a contingency basis.
As a result, the decision in Alice could materially impair our ability to obtain patent rights and monetize those which
we do obtain.
Legislation,
regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease
our revenue. We may apply for patents and may spend a significant amount of resources to enforce those patents. If legislation,
regulations or rules are implemented either by Congress, the United States Patent and Trademark Office, or the courts that impact
the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively
affect our expenses and revenue. For example, new rules regarding the burden of proof in patent enforcement actions could significantly
both increase the cost of our enforcement actions and make it more difficult to sign licenses without litigation, changes in standards
or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions,
and any rules requiring that the losing party pay legal fees of the prevailing party could also significantly increase the cost
of our enforcement actions. United States patent laws were recently amended with the enactment of the Leahy-Smith America Invents
Act, or the America Invents Act, which took effect on March 16, 2013. The America Invents Act includes a number of significant
changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and
the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the
America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that
such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or
activities. The America Invents Act and its implementation increases the uncertainties and costs surrounding the enforcement of
our patented technologies, which could have a material adverse effect on our business and financial condition. In addition, the
U.S. Department of Justice has conducted reviews of the patent system to evaluate the impact of patent assertion entities on industries
in which those patents relate. It is possible that the findings and recommendations of the Department of Justice could impact
the ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding
the enforcement of any such patented technologies.
Proposed
legislation may affect our ability to conduct our business. There are presently pending or proposed a number of laws which,
if enacted, may affect the ability of companies such as us to generate revenue from our intellectual property rights. Typically,
these proposed laws cover legal actions brought by companies which do not manufacture products or supply services but seek to
collect licensing fees based on their intellectual property rights and, if they are not able to enter into a license, to commence
litigation. Although a number of such bills have been proposed in Congress, we do not know which, if any, bills will be enacted
into law or what the provisions will be and, therefore, we cannot predict the effect, if any, that such laws, if passed by Congress
and signed by the president, would provide. However, we cannot assure you that legislation will not be enacted which would impair
our ability to operate by making it more difficult for us to commence litigation against a potential licensee or infringer. To
the extent that an alleged infringer believes that we will not prevail in litigation, it would be more difficult to negotiate
a license agreement without litigation.
The
unpredictability of our revenues may harm our financial condition. Our revenues from licensing have typically been lump sum
payments entered into at the time of the license, which may be in connection with the settlement of litigation, and not from licenses
that pay an ongoing royalty. Due to the nature of the licensing business and uncertainties regarding the amount and timing of
the receipt of license and other fees from potential infringers, stemming primarily from uncertainties regarding the outcome of
enforcement actions, rates of adoption of our patented technologies, the growth rates of potential licensees and certain other
factors, our revenues, if any, may vary significantly from quarter to quarter, which could make our business difficult to manage,
adversely affect our business and operating results, cause our quarterly results to fall below market expectations and adversely
affect the market price of our common stock.
Our
success depends in part upon our ability to retain the qualified legal counsel to represent us in patent enforcement litigation.
The success of our licensing business may depend upon our ability to retain the qualified legal counsel to prosecute patent infringement
litigation. As our patent enforcement actions increase, it will become more difficult to find the preferred choice for legal counsel
to handle all of our cases because many of these firms may have a conflict of interest that prevents their representation of us
or because they are not willing to represent us on a contingent or partial contingent fee basis.
Our
reliance on representations, warranties and opinions of third parties may expose us to certain material liabilities. From
time to time, we may rely upon the representations and warranties of third parties, including persons claiming ownership of intellectual
property rights, and opinions of purported experts. In certain instances, we may not have the opportunity to independently investigate
and verify the facts upon which such representations, warranties and opinions are made. By relying on these representation, warranties
and opinions, we may be exposed to liability in connection with the licensing and enforcement of intellectual property and intellectual
property rights which could have a material adverse effect on our operating results and financial condition.
In
connection with patent enforcement actions, counterclaims may be brought against us and a court may rule against us in counterclaims
which may expose us and our operating subsidiaries to material liabilities. In connection with patent enforcement actions,
it is possible that a defendant may file counterclaims against us or a court may rule that we have violated statutory authority,
regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects
of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award
attorney’s fees and/or expenses to the counterclaiming defendant, which could be material, and if we or our operating subsidiaries
are required to pay such monetary sanctions, attorneys’ fees and/or expenses, such payment could materially harm our operating
results, our financial position and our ability to continue in business.
Trial
judges and juries may find it difficult to understand complex patent enforcement litigation, and as a result, we may need to appeal
adverse decisions by lower courts in order to successfully enforce our patents. It is difficult to predict the outcome of
patent enforcement litigation at the trial level. It is often difficult for juries and trial judges to understand complex, patented
technologies, and, as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard
business litigation. Regardless of whether we prevail in the trial court, appeals are expensive and time consuming, resulting
in increased costs and delayed revenue, and attorneys may be less likely to represent us in an appeal on a contingency basis especially
if we are seeking to appeal an adverse decision. Although we may diligently pursue enforcement litigation, we cannot predict the
decisions made by juries and trial courts.
More
patent applications are filed each year resulting in longer delays in getting patents issued by the United States Patent and Trademark
Office. We hold a number of pending patents and may file or acquire rights to additional patent applications. We have identified
a trend of increasing patent applications each year, which we believe is resulting in longer delays in obtaining approval of pending
patent applications. The application delays could cause delays in recognizing revenue, if any, from these patents and could cause
us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
U.S.
Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer. Patent enforcement
actions are almost exclusively prosecuted in federal district courts. Federal trial courts that hear patent enforcement actions
also hear criminal and other civil cases. Criminal cases always take priority over patent enforcement actions. As a result, it
is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend
in increasing numbers of civil lawsuits and criminal proceedings, and, as a result, we believe that the risk of delays in patent
enforcement actions will have a significant effect on our business in the future unless this trend changes.
Any
reductions in the funding of the United States Patent and Trademark Office could have an adverse impact on the cost of processing
pending patent applications and the value of those pending patent applications. Our primary assets are our patent portfolios,
including pending patent applications before the United States Patent and Trademark Office. The value of our patent portfolios
is dependent upon the issuance of patents in a timely manner, and any reductions in the funding of the United States Patent and
Trademark Office could negatively impact the value of our assets. Further, reductions in funding from Congress could result in
higher patent application filing and maintenance fees charged by the United States Patent and Trademark Office, causing an unexpected
increase in our expenses.
The
rapid development of technology may impair our ability to monetize intellectual property that we own. In order for us to generate
revenue from our intellectual property, we need to offer intellectual property that is used in the manufacture or development
of products. Rapid technological developments have reduced the market for products using less advanced technology. To the extent
that technology develops in a manner in which our intellectual property is not a necessary element or to the extent that others
design around our intellectual property, our ability to license our intellectual property portfolios or successfully prosecute
litigation will be impaired. We cannot assure you that we will have rights to intellectual property for most advanced technology
or that there will be a market for products which require our technology.
The
intellectual property management business is highly competitive. A large number of other companies seek to obtain rights to
new intellectual property and to market existing intellectual property. Most of these companies have significantly both greater
resources that we have and industry contacts which place them in a better position to generate new business. Further, our financial
position, our lack of executive personnel and our inability to generate revenue from our portfolio can be used against us by our
competitors. We cannot assure you that we will be successful in obtaining intellectual property rights to new developing technologies.
As
intellectual property enforcement litigation becomes more prevalent, it may become more difficult for us to voluntarily license
our intellectual property. We believe that the more prevalent intellectual property enforcement actions become, the
more difficult it will be for us to voluntarily license our intellectual property rights. As a result, we may need to increase
the number of our intellectual property enforcement actions to cause infringing companies to license the intellectual property
or pay damages for lost royalties.
Weak
global economic conditions may cause potential licensees to delay entering into licensing agreements, which could prolong our
litigation and adversely affect our financial condition and operating results. Our business depends significantly on strong
economic conditions that would encourage potential licensees to enter into license agreements for our intellectual property
rights. The United States and world economies have recently experienced weak economic conditions. Uncertainty about global economic
conditions poses a risk as businesses may postpone spending in response to tighter credit, negative financial news and declines
in income or asset values. This response could have a material adverse effect on the willingness of parties infringing on our
assets to enter into settlements or other revenue generating agreements voluntarily.
If
we are unable to adequately protect our intellectual property, we may not be able to compete effectively. Our ability
to compete depends in part upon the strength of the intellectual property and intellectual property rights that we own or may
hereafter acquire in our technologies, brands and content and our ability to protect such intellectual property rights. We rely
on a combination of patent and intellectual property laws and agreements to establish and protect our patent, intellectual property
and other proprietary rights. The efforts we take to protect our patents, intellectual property and other proprietary rights may
not be sufficient or effective at stopping unauthorized use of our patents, intellectual property and other proprietary rights.
In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every
country in which we have rights. There may be instances where we are not able to protect or utilize our patent and other intellectual
property in a manner that maximizes competitive advantage. If we are unable to protect our patent assets and intellectual property
and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our
business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our
markets and produce or sell the same or similar products as those covered by our intellectual property rights. In addition, protecting
our intellectual property and intellectual property rights is expensive and diverts our critical and limited managerial resources.
If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights,
our business and financial results could be impaired. If it becomes necessary for us to commence legal proceedings to enforce
our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our intellectual property rights
could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. We also rely on trade secrets and contract
law to protect some of our intellectual property rights. We will enter into confidentiality and invention agreements with our
employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect our right to
our un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets and know-how.
Risks
Concerning our Common Stock
There
is a limited market for our common stock, which may make it difficult for you to sell your stock. Our common stock trades
on the OTCPink marketplace under the symbol “QPRC.” There is a limited trading market for our common stock and there
are frequently days on which there is no trading in our common stock. As of April 9, 2015, the last reported sale price was less
than $0.01, and, with few exceptions, the price per share has been less than $0.01 for more than the past two years. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of
our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.
Because
our common stock is a penny stock, you may have difficulty selling our common stock in the secondary trading market. Our common
stock fits the definition of a penny stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices
in connection with transactions in penny stocks. The SEC rules may have the effect of reducing trading activity in our common
stock making it more difficult for investors to purchase and sell their shares. The SEC’s rules require a broker or dealer
proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information
prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market. The broker or dealer
must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction
prior to consummating the transaction. In addition, the SEC’s rules also require a broker or dealer to make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement
to the transaction before completion of the transaction. The existence of the SEC’s rules may result in a lower trading
volume of our common stock and lower trading prices. Further, some broker-dealers will not process transactions in penny stocks.
Our
lack on internal controls over financial reporting may affect the market for and price of our common stock. Our disclosure
controls and our internal controls over financial reporting are not effective. Since we became engaged in the intellectual property
management business in 2008 we have not had the financial resources to develop or implement systems that would provide us with
the necessary information on a timely basis so as to be able to implement financial controls. Our continued financial condition
together with the fact that we have one full time employee makes it difficult for us to implement a system of internal controls
over financial reporting, and we cannot assure you that we will be able to develop and implement the necessary controls. The absence
of internal controls over financial reporting may inhibit investors from purchasing our shares and may make it more difficult
for us to raise debt or equity financing.
Our
lack of a full-time chief financial officer could affect our ability to develop financial controls, which could affect the market
price for our common stock. We do not have a full-time chief financial officer. At present, our chief executive officer, who
does not have an accounting background, is also acting as our chief financial officer. We do not anticipate that we will be able
to hire a qualified chief financial officer until our financial condition has improved significantly. The lack of an experienced
chief financial officer, together with our lack of internal controls, may impair our ability to raise money through a debt or
equity financing, the market for our common stock and our ability to enter into agreements with owners of intellectual property
rights.
Our
stock price may be volatile and your investment in our common stock could suffer a decline in value. As of April 9, 2015,
there has only been limited trading activity in our common stock. There can be no assurance that any significant market will ever
develop in our common stock in the future. The price may fluctuate significantly in response to a number of factors, many of which
are beyond our control. These factors include, but are not limited to, the following, in addition to general market and economic
conditions:
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our low stock
price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large effect on
the stock price; |
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the market’s
perception as to our ability to generate positive cash flow or earnings from our intellectual property portfolios; |
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changes in our
or securities analysts’ estimate of our financial performance; |
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our ability
or perceived ability to obtain necessary financing for operations; |
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the market’s
perception of the effects of legislation or court decisions on our business; |
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the anticipated
or actual results of our operations; |
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the results
or anticipated results of litigation by or against us; |
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changes in market
valuations of other intellectual property marketing companies; |
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any discrepancy
between anticipated or projected results and actual results of our operations; |
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the market’s
perception or our ability to continue to make our filings with the SEC in a timely manner; |
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events or conditions
relating to the enforcement of intellectual property rights; |
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actions by third
parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and |
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other matters
not within our control. |
Legislation,
court decisions and other factors affecting enforcement of intellectual property rights may affect the price of our stock.
Court rulings in intellectual property enforcement actions and new legislation or proposed legislation are often difficult to
understand, even when favorable or neutral to the value of our intellectual property rights and our overall business. Investors
and market analysts may react without a full understanding of these matters, causing fluctuations in our stock prices that may
not accurately reflect the impact of court rulings, legislation, proposed legislation or other developments on our business operations
and assets.
Raising
funds by issuing equity or debt securities could dilute the value of the common stock and impose restrictions on our working capital.
If we were to raise additional capital by issuing equity securities, the value of the then outstanding common stock could decline.
If the additional equity securities were issued at a per share price less than the per share value of the outstanding shares,
which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer a dilution
in value with the issuance of such additional shares. Because of the low price of our stock and our working capital deficiency,
the dilution to our stockholders could be significant. We may have difficulty in raising funds through the sale of debt securities
because of both our financial position, the lack of any collateral on which a lender may place a value, and the absence of any
history of significant monetizing of our intellectual property rights. If we are able to raise funds from the sale of debt securities,
the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.
Our
failure to have filed reports with the SEC may impair the market for and the value of our common stock. We did not file reports
with the SEC from 2003 until December 2014. We filed our Form 10-K for the year ended December 31, 2012 on December 15, 2014.
Our failure to have made such filings may affect both the market for our common stock and the value of our common stock as well
as the willingness of investors to purchase our stock. Further, as a result of our failure to file reports, the OTC Markets, Inc.,
which operates the OTC Pink marketplace, includes a warning notice with respect to us, advising readers that we may not be making
material information publicly available.
We
do not intend to pay any cash dividends in the foreseeable future. We have not paid any cash dividends on our common stock
and do not intend to pay cash dividends on our common stock in the foreseeable future.
ITEM
2. PROPERTIES
We do
not own or lease any real property.
ITEM
3. LEGAL PROCEEDINGS
In the
ordinary course of our business, we pursue legal remedies to enforce our intellectual property rights and to stop unauthorized
use of our technology as described under “Item 1. Business.” We are not a defendant in any legal proceeding.
ITEM
4. MINE SAFETY DISCLOSURES.
Not Applicable
PART
II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market
Information
Our common
stock is quoted on OTC Markets, Inc. OTCPink marketplace under the trading symbol QPRC. Because we are quoted on the OTCPink marketplace,
our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might
otherwise be obtained if they were listed on a national securities exchange or another over the counter market.
The following
table sets forth the high and low bid quotations of our common stock as reported as composite transactions on the OTCPink marketplace
for each of the quarters during the three most recent fiscal years. The bid quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual transactions.
| |
High
Bid | | |
Low
Bid | |
Fiscal 2014 | |
| | |
| |
| |
| | |
| |
First
Quarter | |
$ | 0.0047 | | |
$ | 0.001 | |
Second
Quarter | |
$ | 0.007 | | |
$ | 0.0023 | |
Third
Quarter | |
$ | 0.0064 | | |
$ | 0.0028 | |
Fourth
Quarter | |
$ | 0.0075 | | |
$ | 0.001 | |
| |
| | | |
| | |
Fiscal 2013 | |
| | | |
| | |
| |
| | | |
| | |
First
Quarter | |
$ | 0.0025 | | |
$ | 0.001 | |
Second
Quarter | |
$ | 0.0023 | | |
$ | 0.0009 | |
Third
Quarter | |
$ | 0.0097 | | |
$ | 0.0011 | |
Fourth
Quarter | |
$ | 0.0035 | | |
$ | 0.001 | |
| |
| | | |
| | |
Fiscal 2012 | |
| | | |
| | |
| |
| | | |
| | |
First
Quarter | |
$ | 0.003 | | |
$ | 0.001 | |
Second
Quarter | |
$ | 0.002 | | |
$ | 0.001 | |
Third
Quarter | |
$ | 0.002 | | |
$ | 0.001 | |
Fourth
Quarter | |
$ | 0.002 | | |
$ | 0.001 | |
As of
April 9, 2015, the closing bid quote for our common stock was $0.003 per share.
Stockholders
of Record
As of
April 9, we had 456 record holders of our common stock. Continental Stock Transfer & Trust Company, 17 Battery Place, New
York, NY 10004 is the transfer agent for our common stock.
Dividends
We have
not paid any cash dividends to date and do not anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the development of our business.
Securities
Authorized for Issuance under Equity Compensation Agreements
The following
table gives information concerning common stock that may be issued upon the exercise of options granted to certain officers, directors
and consultants under their respective individual compensation agreements with us as of December 31, 2013.
Equity
Compensation Agreements Information |
Plan category | |
Number of
securities to be issued upon exercise of outstanding options, warrants and
rights (#) | | |
Weighted-
average exercise price of outstanding options, warrants and rights ($) | | |
Number of
securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a) (#) | |
As of
December 31, 2013 | |
| | |
| | |
| |
Equity
compensation plans approved by security holders | |
| - | | |
$ | - | | |
| - | |
Equity
compensation plans not approved by security holders | |
| 80,000,000 | | |
$ | 0.0036 | | |
| - | |
Total | |
| 80,000,000 | | |
$ | 0.0036 | | |
| - | |
A summary
of the status of the Company's equity grants and changes is set forth below:
All of
the equity compensation plans are agreements with officers and directors and other persons with which we conduct business.
In March
2008, we granted to Burton Goldstein, who was then chairman and a director, warrants to purchase 5,000,000 share of common stock
at $0.004. The warrants expired unexercised on March 1, 2015.
During,
2013, we issued five-year warrants to purchase 15,000,000 shares of common stock at $0.004 per share, to Mr. Jon Scahill, our
president, chief operating officer and director, pursuant to his executive employment agreement.
No warrants
or options were exercised in 2013.
Recent
sales of unregistered securities.
During
the reporting period, the only issuances of equity securities were issuances of options or warrants pursuant to employment agreements
with officers. All issuances were made pursuant to Section 4(2) (now, Section 4(a)(2)) of the Securities Act as issuances not
involving a public offering. All of these issuances are described under “Securities Authorized for Issuance under Equity
Compensation Agreements.”
ITEM
6. SELECTED FINANCIAL DATA
We are
a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the
information under this item.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results
could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk
Factors” and elsewhere in this report.
Overview
We have
been engaged in the intellectual property monetization business since 2008. Our principal operations include the development,
acquisition, licensing and enforcement of intellectual property rights that are either owned or controlled by us or one of our
wholly owned subsidiaries. We currently own, control or manage five intellectual property portfolios, which principally consist
of patent rights. As part of our intellectual property asset management activities and in the ordinary course of our business,
it has been necessary for either us or the intellectual property owner who we represent to initiate, and it is likely to continue
to be necessary to initiate patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our
primary source of revenue will come from the grant of licenses to use our intellectual property, including licenses granted as
part of the settlement of patent infringement lawsuits. We also generate revenue from management fees for managing intellectual
property portfolios.
We seek
to generate revenue from two sources. Our primary source of revenue is license fees pursuant to license agreements, which may
be negotiated with the licensee or may be the result of the settlement of legal action commenced by us to enforce our intellectual
property rights. Because of the nature of our business transactions to date, our license revenues are not distributed over the
life of the patent, with the result that we do not have a continuing stream of revenue from our licensees. Our revenue typically
reflects one-time license fees and payments in settlement of litigation. Thus, we would recognize revenue when we receive the
license fee or settlement payment. Although we intend to seek to develop portfolios of intellectual property rights that provide
us for a continuing stream of revenue, to date we have not been successful in doing so, and we cannot give you any assurance that
we will be able to generate any significant revenue from licenses that provide a continuing stream of revenue. Thus, to the extent
that we continue to generate cash from single payment licenses, our revenue can, and is likely to, vary significantly from quarter
to quarter and year to year. Our gross profit from license fees reflects any royalties which we pay in connection with our license.
Through December 31, 2013, we did not generate any revenues from our Mobile Data Portfolio or our Data Systems Portfolio. All
revenue from our Rich Media Portfolio was generated prior to 2013, and we did not generate any revenue from this portfolio during
2013. We did not generate any revenue from these portfolios in 2014.
To a lesser
extent, we generate revenue from sale of packaging materials based on our TurtlePakTM technology. Our gross profit
from sales reflects the cost of contract manufacturing and labor. We did not generate any revenue from the TurtlePakTM Portfolio
other than from the sale of products using our technology.
Our principal
operating expense has been executive compensation, which, for the years ended December 31, 2013 and 2012, represented cash and
equity compensation payable to our three executive officers and amounted to a total of $771,000 for 2013 and $750,000 for 2012.
Two of these officers are no longer employed by us. Pursuant to agreements with our officers, as described under “Item 11.
Executive Compensation”, compensation to two of these officers ceased in 2014. In addition, the three officers waived the
right to receive a total of $4,178,598 during 2014, which represented accrued compensation and indebtedness owed by us to the
three officers. The cancellation of indebtedness will be reflected as other income during the year ended December 31, 2014.
Liquidity
and Capital Resources
At December
31, 2013, we had current assets of approximately $20,000, current liabilities of approximately $4,370,000, and a working capital
deficiency of approximately $4,350,000. We have no credit facilities. Other than salary under the three officers’ employment
agreements, we do not contemplate any other material operations in the near future. Our liabilities consist of accrued compensation
to officers of approximately $3,815,000, loans from officers and stockholders of approximately $217,000 and accrued interest due
to officers and shareholders of approximately $261,000. The accrued liabilities to our present and former officers and directors
reflected on our balance sheet at December 31, 2013, were cancelled during 2014.
Our only
source of financing, which we will continue to rely on, is borrowing from officers and shareholders. We believe that, because
of our financial condition, our history of losses and negative cash flow from operations, our low stock price and the absence
of SEC disclosure relating to us since 2003 make it difficult for us to raise funds in the debt or equity markets.
Results
of Operations
Years
Ended December 31, 2013 and 2012
Revenues
for the year ended December 31, 2013 were approximately $74,555, a decrease of approximately $186,000, or 71%, compared to the
year ended December 31, 2012, which were approximately $261,000. Gross profit for 2013 was approximately $52,000, a decrease of
approximately $131,000, or 71%, compared to 2012. The decrease in both revenues and gross profit reflected a decrease in patent
service fees resulting from the timing of revenue from licenses which we have entered into with respect to our intellectual property.
Our license fees are typically lump sum payments and not periodic payments, so our flow of revenue is dependent upon the timing
of our entering into license agreement, including agreements resulting from the settlement of litigation.
Operating
expenses for the 2013 increased by approximately $102,000, or 13%, from approximately $800,000 in 2012 to approximately $902,000
in 2013. Our principal operating expense for 2013 and 2012 was executive compensation, which was approximately $771,000 for 2013
and approximately $750,000 for $2012. Executive compensation included $21,000 of stock-based compensation in 2013. We did not
incur stock-based compensation in 2012.
As a result
of the foregoing, we had a net loss of approximately $ 871,000, or $0.003 per share (basic and diluted) for 2013 compared to net
loss of approximately $642,000, or $0.003 per share (basic and diluted), for 2012.
Critical
Accounting Estimates
The discussion
and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared
in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going
basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of our products,
income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be
reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Going
Concern
As shown
in the accompanying consolidated financial statements, we have incurred recurring losses and have an accumulated deficit as of
approximately $13,900,000 as of December 31, 2013 and a negative working capital of approximately $4,350,000 as of the same date.
Accrued compensation and obligations in the amount of approximately of $4,178,598 to present and former officers and directors
included in liabilities at December 31, 2013 were cancelled by the officers and directors during 2014, and that amount will be
reflected as income from cancellation of indebtedness. For 2013, we generated minimal revenues in our operations and a negative
cash flow from operations. We continue to be dependent on our ability to generate revenues, positive cash flows and additional
financing. We cannot assure you that we will be successful in generating future revenues, in obtaining additional debt or equity
financing or that such additional debt or equity financing will be available on terms acceptable to us, if at all. Our audit report
for the year ended December 31, 2013, does not include a going concern qualification since we have continued in operation for
more than twelve months from the date of the financial statements. Unless we take steps to remedy these conditions, these factors
will raise substantial doubt about our ability to continue as a going concern, and our auditor’s report for years subsequent
to 2013 may include a going concern qualification.
Accounts
Receivable
Accounts
receivable, which generally relate to sales of our TurtlePakTM packaging materials, are recorded at the invoiced amount.
Any allowance for doubtful accounts is our best estimate of the amount of probable losses to us from existing accounts receivable.
No allowance for doubtful accounts was recorded for the years ended December 31, 2013 and 2012.
Intangible
Assets
Intangible
assets consist of patents which are amortized using the straight-line method over their estimated useful lives or statutory lives
whichever is shorter and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability
as prescribed under the guidance related to impairment of long-lived assets.
Impairment
of long-lived assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the
assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value
exceeds the fair value.
Revenue
Recognition
Revenue
is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant
to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonable
assured.
License
Service Fees
In general,
revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual
property rights for patented technologies owned or controlled by us. The intellectual property rights granted may be perpetual
in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of
time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum
upfront payment. Pursuant to the terms of these agreements, we have no further obligation with respect to the grant of the non-exclusive
retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation
on our part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for
the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement,
or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue
is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront
fee for the term agreement renewals, and when all other revenue recognition criteria have been met.
Certain
of our revenue arrangements provide for future royalties or additional required payments based on future licensee activities.
Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition
criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot
be reasonably estimated by management. Amounts related to revenue arrangements that do not meet the revenue recognition criteria
described above are deferred until the revenue recognition criteria are met.
We assess
the collectability of fees receivable based on a number of factors, including past transaction history and credit-worthiness of
licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectability becomes reasonably
assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash.
Sales
Our packaging
operation customers are end users. Revenue, less reserves for returns, is recognized upon shipment to the customer.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the
information under this item.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial
statements start on Page F-1
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Management’s
Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
We conducted
an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”),
as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
as of December 31, 2013, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation
was done under the supervision and with the participation of management, including our chief executive officer and chief financial
officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to our limited internal
audit function, our disclosure controls were not effective as of December 31, 2013, such that the information required to be disclosed
by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the president and treasurer, as appropriate
to allow timely decisions regarding disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of
our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In
making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial
reporting as of December 31, 2013, management identified material weaknesses related to (i) our internal audit functions and (ii)
a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not
effective as of December 31, 2013.
Management
has determined that our internal audit function is significantly deficient due to insufficient segregation of duties within accounting
functions as well as lack of qualified accounting personnel and excessive reliance on third party consultants for accounting,
financial reporting and related activities.
Due to
our size and nature, segregation of all conflicting duties is not possible. However, to the extent possible, we plan to implement
procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed
by separate individuals. Since we became engaged in the intellectual property management business in 2008 we have not had the
financial resources to develop or implement systems that would provide us with the necessary information on a timely basis so
as to be able to implement financial controls. Our financial condition makes it difficult for us to implement a system of internal
controls over financial reporting.
We believe
that the foregoing steps will remediate the significant deficiency identified above, and we will continue to monitor the effectiveness
of these steps and make any changes that our management deems appropriate. However, until we can generate significantly greater
revenues and employ additional accounting personnel, it is doubtful that we will be able implement any system which provides us
with any degree of internal controls over financial reporting. Due to the nature of this material weaknesses in our internal control
over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim
financial statements could not be prevented or detected.
A material
weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination
of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough
to merit attention by those responsible for oversight of the company’s financial reporting.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes
in Internal Control over Financial Reporting.
During
the period ended December 31, 2013, there was no change in our internal control over financial reporting (as such term is defined
in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
ITEM
9B. OTHER INFORMATION
On April
8, 2015, our board of directors approved amended and restated bylaws. The restated bylaws change quorum requirements from a majority
of the outstanding shares to one-third of the outstanding shares.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following
table presents information with respect to our officers, directors:
Name
|
|
Age |
|
Position(s) |
Jon C. Scahill |
|
38 |
|
Chief executive
officer, president, acting chief financial officer, secretary and director |
Timothy J. Scahill |
|
47 |
|
Chief technology
officer and director |
Dr. William
Ryall Carroll |
|
39 |
|
Director |
Each director
serves until our next annual meeting of the stockholders or unless they resign earlier. The board of directors elects officers,
who serve at the discretion of the board of directors.
Jon C.
Scahill has been president and chief executive officer since January 2014 and a director since 2007. He was appointed secretary
in April 2014. He also served as president and chief operating officer from May 2007 to December 2013. From December 2006 to May
2007, Mr. Scahill was founder and managing director of the Urban-Rigney Group, LLC, a private consultancy specializing in new
business/new venture development, operations optimization, and strategic analysis. Prior to launching his consultancy business,
Mr. Scahill held numerous positions in sales and marketing, technical management, and product development in the consumer products/flexible
packaging arena. Mr. Scahill holds a B.S. in chemical engineering from the University of Rochester, an MBA in finance, strategy
and operations from Rochester's Simon Graduate School of Business and a JD from Pace Law School. Mr. Scahill is a registered patent
agent admitted to practice before the United States Patent and Trademark Office.
Timothy
J. Scahill has a director since October 2014 and our chief technology officer since 2007. Mr. Scahill is also currently a managing
partner of Managed Services Team LLC, an IT services provider. Prior to Managed Services Team, he was president of Layer 8 Group,
Inc. from August 2005 to December 2012, at which time Layer 8 merged with Structured Technologies Inc. to form Managed Services
Team LLC. In his roles he has taken the responsibility for business strategy, acquisition, execution, as well as financial
management. His entrepreneurial acumen and proven record of successful management with sole discretionary responsibility, demonstrate
the scope of his capability and his value to delivering results. He serves on the boards of the Upstate New York Technology Council,
is an investor in Greater Rochester Enterprise, Pariemus Rochester and also serves on the Corporate Advisory Board for Habitat
for Humanity. He is a member of Greater Rochester Enterprise and CEO Roundtable Chair.
Dr. William
Ryall Carroll has been a director since October 2014. Dr. Carroll has been associate professor and chairman of the marketing department,
St. John’s University College of Business since July 2014. From September 2008 until June 2014, Dr. Carroll was an assistant
professor in the marketing department of St. John’s University College of Business. Dr. Carroll is founder, chief executive
officer and owner of Raiserve Inc., a web-based platform for monetizing non-profit programmatic work in the area of service formed
in October 2014. Dr. Carroll’s research focuses on consumer behavior and behavioral decision theory. Dr. Carroll's work
has been published in top academic journals including the Journal of Advertising, Marketing Letters, as well in books such as
Psycholinguistic Phenomena in Marketing Communications. In addition to his research Dr. Carroll has taught Marketing at the executive,
graduate and undergraduate level across in the United States, Europe and Asia. Prior to pursuing his academic career, Dr. Carroll
held various marketing positions at NOP Worldwide Marketing Research Company and Ralston Purina Company. Dr. Carroll earned his
BA in Economics from the University of Rochester, his MS in Marketing Research from the University of Texas in Arlington, and
his PhD from City University of New York – Baruch College.
Timothy
J. Scahill and Jon C. Scahill are first cousins.
Our
directors are appointed for a one-year term to hold office until the next annual meeting of stockholders or until removed from
office in accordance with our bylaws.
Director
Independence
Dr.
Carroll is an “independent” director based on the definition of independence in the listing standards of the NYSE.
Code
of Ethics
We have
not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, since we have been focusing our efforts on developing our business.
We expect to adopt a code as we develop our business.
Committees
of the Board of Directors
We do
not have any committees of our board of directors.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more
than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements
of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock
and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders
are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports
they file.
Based
solely on our review of the copies of such reports received by us, and on written representations by our officers and directors
regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that,
with respect to the period ended December 31, 2013, our officers and directors, and all of the persons known to us to own more
than 10% of our common stock, filed all required reports on a timely basis, except that Jon Scahill was late in filing his Form
3 and Form 4. Other individuals who were directors but are no longer directors either failed to file Form 3 or were late in filing.
ITEM
11: EXECUTIVE COMPENSATION
The following
summary compensation table sets forth information concerning compensation for services rendered in all capacities during the years
ended December 31, 2013 and 2012, earned by or paid to our executive officers.
Name and Principal Position | |
Year | | |
Salary | | |
Bonus Awards | | |
Stock Awards | | |
Options/ Warrant Awards (1) | | |
Non-Equity Plan Compensation | | |
Nonqualified Deferred Earnings | | |
All Other Compensation | | |
Total | |
| |
| | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | |
Burton Goldstein, Chairman and Secretary | |
| 2013 2012 | | |
| 200,000 200,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 200,000 200,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Herbert Reichlin, CEO, CFO, Treasurer | |
| 2013 2012 | | |
| 250,000 250,000 | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 250,000 250,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Jon Scahill, COO and President | |
| 2013 2012 | | |
| 300,000 300,000 | | |
| - | | |
| - | | |
| 21,000 | | |
| - | | |
| - | | |
| - | | |
| 321,000 300,000 | |
Employment
Agreements
On March
1, 2008, we entered into an employment agreement with Jon C. Scahill, pursuant to which we employed Mr. Scahill as our president
and chief operating officer for a period of ten years, subject to renewal, for an annual salary of $300,000. Pursuant to the agreement,
we issued Mr. Scahill ten-year warrants to purchase 15,000,000 shares common stock at an exercise price of $0.004 per share, which
vested upon execution of the employment agreement, and agreed to issue to Mr. Scahill on the third anniversary of the date of
execution of his employment agreement, seven-year warrants to purchase 30,000,000 shares of common stock at an exercise price
of $0.004 per share, which we issued in 2011 and which vested on issuance, and we agreed to issue to Mr. Scahill on the fifth
anniversary of the execution of his employment agreement, five-year warrants to purchase 15,000,000 shares of common stock at
an exercise price of $0.004 per share, which we issued in 2013, and which vested on issuance.
On October
30, 2014, we entered into a restated employment agreement with Mr. Jon Scahill, which was superseded by a restated employment
agreement dated as of November 30, 2014. Pursuant to the restated employment agreement, which we agreed to employ Mr. Scahill
as president and chief executive officer for a term of three years, commencing January 1, 2014, and continuing on a year-to-year
basis unless terminated by either party on not less than 90 days’ notice prior to the expiration of the initial term or
any one-year extension. The agreement provides for an annual salary of $252,000, which may be increased, but not decreased, by
the board or the compensation committee. Mr. Scahill is entitled to a bonus if we meet or exceed performance criteria established
by the compensation committee. Mr. Scahill is also eligible to participate in any executive incentive plans which we may adopt.
Pursuant to the agreement, we issued to Mr. Scahill warrants to purchase 60,000,000 shares, representing the warrants that had
been previously covered in his prior employment agreement but which had never been issued, and we issued to Mr. Scahill a restricted
stock grant for 30,000,000 shares which vested on January 15, 2015. Prior to the vesting of the shares, Mr. Scahill held the rights
of a stockholder with respect to these shares, including the right to vote, subject to forfeiture in the event that the shares
did not vest. In the event that we terminate Mr. Scahill’s employment other than for cause or as a result of his death or
disability, we will pay him severance equal to his salary for the balance of the term and, if he received a bonus for the previous
year, an amount equal to that bonus, as well as continuation of his insurance benefits. Mr. Scahill also waived accrued compensation
of $1,167,705, representing his accrued salary for periods prior to January 1, 2014. The restated employment agreement also includes
mutual general releases between Mr. Scahill and us.
On March
1, 2008, we entered into an employment agreement with Burton Goldstein, pursuant to which we employed Mr. Goldstein as our chairman
and secretary for a period of seven years, at an annual salary of $200,000. Pursuant to the employment agreement, we issued Mr.
Goldstein seven-year warrants to purchase an aggregate of 5,000,000 shares of common stock at an exercise price of $0.004 per
share. The warrants vested upon the date of the execution of the employment agreement. On October 10, 2014, we entered into a
separation agreement and mutual general release with Mr. Goldstein whereby Mr. Goldstein forgave all loans, accrued interest,
accrued salary and accrued benefits and released us from any claim to any compensation and benefits, accrued or otherwise, under
any agreement or purported agreement, including the employment agreement dated March 1, 2008. Mr. Goldstein resigned as a director.
We agreed that Mr. Goldstein would retain the warrants granted under the employment agreement dated March 1, 2008 and that we
would pay Mr. Goldstein 3.25% of our net revenues, provided that our net revenues exceed $1,500,000, up to the aggregate amount
of $250,000 with payments in any year not to exceed $125,000. The total accrued compensation and other obligations waived by Mr.
Goldstein was $1,343,543.
On March
1, 2008, we entered into an employment agreement with Herbert Reichlin, pursuant to which we employed Mr. Reichlin as our chief
executive officer, chief financial officer and treasurer for a period of ten years for an annual salary of $250,000. Pursuant
to the employment agreement, we issued Mr. Reichlin ten-year warrants to purchase 5,000,000 shares of common stock at $0.004 per
share. The warrants vested upon the date of the execution of the employment agreement. In June 2014 Mr. Reichlin’s employment
with us was terminated. On October 10, 2014, we entered into a separation agreement and mutual general release with Mr. Reichlin
whereby Mr. Reichlin forgave all loans, accrued interest, accrued salary, accrued benefits and released us from any claim to any
compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including the employment agreement
dated March 1, 2008, at any time between Mr. Reichlin and us. Mr. Reichlin resigned as a director and agreed not seek re-election
for a period of 36 months. We agreed that Mr. Reichlin would retain the warrants granted under the employment agreement dated
March 1, 2008 and that we would pay Mr. Reichlin 3.25% of our net revenues, provided that our net revenues exceed $1,500,000,
up to the aggregate amount of $700,000 with payments in any year not to exceed $300,000. The total accrued compensation and other
obligations waived by Mr. Reichlin was $1,667,350.
Outstanding
Equity Awards at Fiscal Year-End
The following
table sets forth information as to the outstanding equity awards granted to and held by the officers named in the Summary Compensation
Table as of December 31, 2013.
Name |
|
Option
awards |
|
Stock
awards |
|
|
Number
of securities underlying unexercised options
(#) exercisable |
|
|
Number
of securities
underlying
unexercised
options
(#) unexercisable |
|
|
Equity
incentive
plan awards: Number of
securities
underlying unexercised unearned options
(#) |
|
|
Option
exercise price
($) |
|
|
Option
expiration
date |
|
Number
of shares or units of stock that have not vested
(#) |
|
|
Market
value of shares of units of stock that have not vested
($) |
|
|
Equity incentive plan
awards: Number of unearned shares, units or other rights that have not vested (#) |
|
|
Equity
incentive plan
awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burton
Goldstein |
|
|
5,000,000 |
(1) |
|
|
|
|
|
|
|
|
|
|
0.004 |
|
|
March 1, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert
Reichlin |
|
|
5,000,000 |
(2) |
|
|
|
|
|
|
|
|
|
|
0.004 |
|
|
March
1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon
Scahill |
|
|
15,000,000
30,000,000
15,000,000 |
(3)
(4)
(5) |
|
|
|
|
|
|
|
|
|
|
0.004 |
|
|
March
1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
On March 1,
2008, we issued to Mr. Goldstein seven-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share pursuant
to his employment agreement. The warrants vested upon issuance. The warrants expired unexercised on March 1, 2015. |
(2) |
On March 1,
2008, we issued to Mr. Reichlin ten-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share. The warrants
vested on issuance. |
(3) |
On March 1,
2008, we issued to Mr. Scahill ten-year warrants to purchase 15,000,000 shares of common stock at $0.004 per share. The warrants
vested on issuance. |
(4) |
On March 1,
2011, we issued to Mr. Scahill seven-year warrants to purchase 30,000,000 shares of common stock at $0.004 per share. The
warrants vested on issuance. |
(5) |
On March 1,
2013, we issued to Mr. Scahill five-year warrants to purchase 15,000,000 shares of common stock at $0.004 per share. The warrants
vested on issuance. |
The warrants
described above with respect to Mr. Scahill had not been issued at the time of his restated employment agreement. Pursuant to
that agreement, we issued Mr. Scahill a warrant to purchase 60,000,000 shares on October 30, 2014.
Directors’
Compensation
No director
not named in the Summary Compensation Table received any compensation during 2013.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following
table provides information as to shares of common stock beneficially owned as of April 9, 2015, by:
|
● |
Each
director; |
|
|
|
|
● |
Each
current officer named in the summary compensation table; |
|
|
|
|
● |
Each
person owning of record or known by us, based on information provided to us by the persons named below, at least 5% of our
common stock; and |
|
|
|
|
● |
All
directors and officers as a group |
For purposes
of the following table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of,
a security, or sole or shared investment power with respect to a security, or any combination thereof, and the right to acquire
such power (for example, through the exercise of warrants granted by us) within 60 days of April 9, 2015.
Name and Address(1) of Beneficial Owner | |
Amount and Nature of Beneficial Ownership | | |
% of Class | |
| |
| | |
| |
Jon C. Scahill (2) | |
| 91,000,000 | | |
| 28.2 | % |
Herbert Reichlin (3) 19 Fortune Lane Jericho, New York 11573 | |
| 16,316,000 | | |
| 6.1 | % |
Burton Goldstein 22 Herb Hill Rd. Glen Cove, New York 11547 | |
| 9,283,333 | | |
| 3.5 | % |
Dr. William Ryall Carroll | |
| 484,633 | | |
| * | |
Timothy J. Scahill | |
| 5,000 | | |
| * | |
All officers and directors as a group (three individuals) | |
| 91,489,633 | | |
| 28.3 | % |
* less
than 1%.
(1) |
The
address of Mr. Jon C. Scahill, Dr. Carroll and Mr. Timothy J. Scahill is c/o Quest Patent Research Corporation, 411 Theodore
Fremd Ave., Suite 206S, Rye, New York 10580-1411. |
(2) |
The shares beneficially
owned by Mr. Jon Scahill represent (a) 1,000,000 shares of common stock owned by him, (b) 30,000,000 shares of common stock
issued pursuant to the restricted stock grant pursuant to his restated employment agreement, and (c) 60,000,000 shares of
common stock issuable upon exercise of a warrant at an exercise price of $0.004 per share through March 1, 2018. The 30,000,000
shares issued pursuant to the restricted stock grant vested January 15, 2015. |
(3) |
The shares beneficially
owned by Mr. Reichlin include 5,000,000 shares issuable upon the exercise of warrants. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related
Transactions
Managed
Services Team LLC, an entity for which by Timothy Scahill, our chief technology officer and a director, is a managing partner,
provides information technology services to us. We are obligated to pay for these services at usual and customary rates. In 2013,
the cost of these services was approximately $1,500.
Director
Independence
Dr.
Carroll is an “independent” directors based on the definition of independence in the listing standards of the NYSE.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following
table sets forth the fees billed by our independent accountants, Malone Bailey, LLP, for each of our last two fiscal years for
the categories of services indicated.
| |
Fiscal Year Ended
December 31 | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Audit fees | |
$ | 14,000 | | |
$ | 28,000 | |
Audit – related fees | |
| 0 | | |
| 0 | |
Tax fees | |
| 0 | | |
| 0 | |
All other fees | |
| 0 | | |
| 0 | |
Audit
fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements.
All other fees relate to professional services rendered in connection with the review of the quarterly financial statements.
Our policy
is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include
audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval
is generally provided for particular services or categories of services, including planned services, project based services and
routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our
audit committee approved all services that our independent accountants provided to us in the past two fiscal years.
PART
IV
ITEM
15. EXHIBITS
EXHIBIT
Exhibit
No. |
|
Description |
3.1 |
|
Amended and
Restated Articles of Incorporation of the Company.(1) |
3.2 |
|
Bylaws of the
Company. |
10.1 |
|
Employment Agreement
dated March 1, 2008 between the issuer and between the Company and Burton Goldstein. (1) |
10.2 |
|
Separation Agreement
and Mutual General Release dated October 10, 2014 between the Company and Burton Goldstein. (1) |
10.3 |
|
Employment Agreement
dated March 1, 2008 between the issuer and between the Company and Herbert Reichlin. (1) |
10.4 |
|
Separation Agreement
and Mutual General Release dated October 10, 2014 between the Company and Herbert Reichlin. (1) |
10.5 |
|
Restated Employment
Agreement dated as of November 30, 2014 between the issuer and between the Company and Jon C. Scahill. (1) |
10.6 |
|
Restricted Stock
Grant dated October 30, 2014 between the Company and Jon C. Scahill. (1) |
10.7 |
|
License Agreement
dated March 26, 2008 between the Company and Emerging Technologies Trust. (1) |
10.8 |
|
Licensing Services
Agreement dated July10, 2008 between the Company and Balthaser Online, Inc. (1) |
10.9 |
|
Patent Purchase
Agreement dated December 21, 2009 between Company and Intertech Holdings, LLC. (1) |
10.10 |
|
Consulting Agreement
dated August 11, 2010 between the Company and Alex W. Hart.(1) |
10.11 |
|
Agreement dated
February 8, 2011 between the Company and Sol Li. (1) |
10.12 |
|
Agreement dated
June 26, 2013 between the Company and The Betting Service Ltd. and Neil Riches.(1) |
10.13 |
|
Funding Agreement
dated March 13, 2014 between the Company and Longford Capital Fund I, LP, (subject to order granting confidential treatment
(1))# |
10.14 |
|
Agreement dated
April 1, 2014 between the Company and Allied Standard Limited. (1) |
10.15 |
|
Form of warrant
issued to Messrs. Goldstein and Reichlin .(1) |
10.16 |
|
Form of warrant
issued to Mr. Jon C. Scahill. (1) |
10.17 |
|
Form of indemnification
agreement. (1) |
31.1 |
|
Certification
of Chief Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
32.1 |
|
Section 1350
Certification of the Chief Executive Officer and Chief Financial Officer. |
101.INS |
|
XBRL Instance
Document* |
101.SCH |
|
XBRL Taxonomy
Schema Document* |
101.CAL |
|
XBRL Taxonomy
Calculation Document* |
101.DEF |
|
XBRL Taxonomy
Linkbase Document* |
101.LAB |
|
XBRL Taxonomy
Label Linkbase Document* |
101.PRE |
|
XBRL Taxonomy
Presentation Linkbase Document* |
(1) | Incorporated
by reference to the Form 10-K for the year ended December 31, 2012, which was filed by
the Company on December 15, 2014. |
# Certain
portions of this exhibit are omitted pursuant to an order granting confidential treatment. The omitted information has been filed
separately with the SEC.
* In accordance
with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 shall not be deemed to be “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated
by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange
Act, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date April
9, 2015
|
QUEST
PATENT RESEARCH CORPORATION |
|
|
|
|
By: |
/s/
Jon C. Scahill |
|
|
Name:
Jon C. Scahill |
|
|
Title:
Chief Executive Officer and President |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes
Jon C. Scahill as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or
her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file
the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Jon C. Scahill |
|
Director, chief
executive officer, |
|
April
9, 2015 |
Jon C. Scahill |
|
acting chief financial officer and president (principal executive, financial and accounting officer) |
|
|
|
|
|
|
|
/s/
Timothy J. Scahill |
|
Director |
|
April
9, 2015 |
Timothy J. Scahill |
|
|
|
|
|
|
|
|
|
/s/
Dr. William Ryall Carroll |
|
Director |
|
April
9, 2015 |
Dr. William
Ryall Carroll |
|
|
|
|
QUEST
PATENT RESEARCH CORPORATION
DECEMBER
31, 2013
Index
to Financial Statements
|
|
|
Page |
|
Report
of Independent Registered Public Accounting Firm |
|
|
F-2 |
|
|
|
|
|
|
Consolidated
Balance Sheets for the years ended December 31, 2013 and 2012 |
|
|
F-3 |
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2013 and 2012 |
|
|
F-4 |
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2013 and 2012 |
|
|
F-5 |
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2013 and 2012 |
|
|
F-6 |
|
|
|
|
|
|
Notes
to Consolidated Financial Statements |
|
|
F-7 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Quest
Patent Research Corporation
(Formerly
Quest Products Corporation)
Jericho,
New York
We have
audited the accompanying consolidated balance sheets of Quest Patent Research Corporation (a Delaware Corporation) and its subsidiaries
(collectively, the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations,
shareholders’ deficit, and cash flows for each of the years then ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quest
Patent Research Corporation, Inc. and its subsidiaries as of December 31, 2013 and 2012, and the results of their operations
and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ MaloneBailey,
LLP
www.malonebailey.com
Houston,
Texas
April
9, 2015
Quest
Patent Research Corporation and Subsidiaries
Consolidated
Balance Sheets |
| |
December 31, | |
| |
2013 | | |
2012 | |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 159 | | |
$ | 18,579 | |
Investment in unconsolidated subsidiary | |
| 10,516 | | |
| - | |
Accounts receivable | |
| 4,218 | | |
| 5,816 | |
Accounts receivable - affiliates | |
| 5,295 | | |
| - | |
Total current assets | |
| 20,188 | | |
| 24,395 | |
| |
| | | |
| | |
Total assets | |
$ | 20,188 | | |
$ | 24,395 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 75,407 | | |
$ | - | |
Accrued officers’ compensation | |
| 3,815,103 | | |
| 3,071,205 | |
10% Loans payable – Officers/Directors | |
| 79,490 | | |
| 79,490 | |
10% Loans payable – third party | |
| 138,000 | | |
| 138,000 | |
Accrued interest | |
| 261,331 | | |
| 239,581 | |
Total current liabilities | |
| 4,369,331 | | |
| 3,528,276 | |
| |
| | | |
| | |
Total liabilities | |
| 4,369,331 | | |
| 3,528,276 | |
Stockholders' Deficit | |
| | | |
| | |
Preferred Stock – Par Value $.00003 – authorized 10,000,000 Shares – no shares issued and outstanding | |
| | | |
| | |
Common stock, par value $.00003; authorized 390,000,000 shares; shares issued and outstanding 233,038,334, for the years ended 2012, 2011, 2010, 2009 and 2008, respectively | |
| 6,991 | | |
| 6,991 | |
Additional paid-in capital | |
| 9,572,279 | | |
| 9,551,279 | |
Accumulated deficit | |
| (13,931,134 | ) | |
| (13,064,810 | ) |
Total Quest
Patent Research Corporation deficit | |
| (4,351,864 | ) | |
| (3,506,540 | ) |
| |
| | | |
| | |
Non-controlling interest in subsidiaries | |
| 2,721 | | |
| 2,659 | |
| |
| | | |
| | |
Total stockholders’ deficit | |
| (4,349,143 | ) | |
| (3,503,881 | ) |
| |
| | | |
| | |
Total liabilities and stockholders’ deficit | |
$ | 20,188 | | |
$ | 24,395 | |
See
accompanying notes to consolidated financial statements
Quest
Patent Research Corporation and Subsidiaries
Consolidated
Statements of Operations
| |
Year Ended
December 31, | |
| |
2013 | | |
2012 | |
Revenues | |
| | |
| |
Sales | |
$ | 29,555 | | |
$ | 43,475 | |
Patent service fees | |
| 45,000 | | |
| 217,500 | |
| |
| 74,555 | | |
| 260,975 | |
Cost of goods sold: | |
| | | |
| | |
Cost of sales | |
| 10,449 | | |
| 15,975 | |
Royalties | |
| 11,617 | | |
| 61,564 | |
| |
| 22,066 | | |
| 77,539 | |
Gross profit | |
| 52,489 | | |
| 183,436 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling, general and administrative expenses | |
| 901,838 | | |
| 800,158 | |
| |
| | | |
| | |
Total operating expenses | |
| 901,838 | | |
| 800,158 | |
| |
| | | |
| | |
Loss from operations | |
| (849,349 | ) | |
| (616,722 | ) |
| |
| | | |
| | |
Other expense | |
| | | |
| | |
Interest expense | |
| (21,750 | ) | |
| (21,750 | ) |
| |
| (21,750 | ) | |
| (21,750 | ) |
| |
| | | |
| | |
Net loss | |
| (871,099 | ) | |
| (638,472 | ) |
Net loss attributable to non-controlling interest in subsidiaries | |
| (62 | ) | |
| (2,672 | ) |
Net Loss Attributable to Quest Patent Research Corporation | |
$ | (871,161 | ) | |
$ | (641,144 | ) |
| |
| | | |
| | |
Earnings (loss) per share Basic and Diluted | |
$ | (0.003 | ) | |
$ | (0.003 | ) |
| |
| | | |
| | |
Weighted average shares outstanding – Basic and Diluted | |
| 233,038,334 | | |
| 233,038,334 | |
See
accompanying notes to consolidated financial statements
Quest
Patent Research Corporation and Subsidiaries
Consolidated
Statements of Changes in Stockholders' Deficit
| |
Common Stock | | |
Additional Paid-in | | |
| | |
Non-controlling Interest in | | |
Total Stockholders' | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Subsidiaries | | |
Deficit | |
Balances as of December 31, 2011 | |
| 233,038,334 | | |
$ | 6,991 | | |
$ | 9,551,279 | | |
$ | (12,423,666 | ) | |
$ | (13 | ) | |
$ | (3,503,881 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
| | | |
| | | |
| | | |
| (641,144 | ) | |
| 2,672 | | |
| (638,472 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances as of December 31, 2012 | |
| 233,038,334 | | |
$ | 6,991 | | |
$ | 9,551,279 | | |
$ | (13,064,810 | ) | |
$ | 2,659 | | |
$ | (3,503,881 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deconsolidation of subsidiary | |
| | | |
| | | |
| | | |
| 4,837 | | |
| | | |
| 4,837 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Compensation expense relating to warrants/options | |
| - | | |
| - | | |
| 21,000 | | |
| - | | |
| - | | |
| 21,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (871,161 | ) | |
| 62 | | |
| (871,099 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances as of December 31, 2013 | |
| 233,038,334 | | |
| 6,991 | | |
| 9,572,279 | | |
| (13,931,134 | ) | |
| 2,721 | | |
| (4,349,143 | ) |
See
accompanying notes to consolidated financial statements
Quest
Patent Research Corporation and Subsidiaries
Consolidated
Statements of Cash Flows
| |
Year Ended
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (871,161 | ) | |
$ | (641,144 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
| | | |
| | |
Deconsolidation of subsidiary | |
| 4,837 | | |
| | |
Earnings Attributable to Non-Controlling Interest | |
| 62 | | |
| 2,672 | |
Share-based compensation | |
| 21,000 | | |
| | |
| |
| | | |
| | |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| 1,598 | | |
| (4,341 | ) |
Accounts receivable - affiliates | |
| (5,295 | ) | |
| | |
Accrued officers compensation | |
| 743,898 | | |
| | |
Accounts payable and accrued expenses | |
| 97,157 | | |
| 619,150 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (7,904 | ) | |
| (23,663 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Cash sent to fund unconsolidated subsidiary | |
| (10,516 | ) | |
| - | |
Net cash used in investing activities | |
| (10,516 | ) | |
| - | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (18,420 | ) | |
| (23,663 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of year | |
| 18,579 | | |
| 42,242 | |
| |
| | | |
| | |
Cash and cash equivalents at end of year | |
$ | 159 | | |
$ | 18,579 | |
| |
| | | |
| | |
Non Cash Financing Activities | |
| | | |
| | |
Accrued salary capital contribution | |
| - | | |
| - | |
See
accompanying notes to consolidated financial statements
Quest Patent Research Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – DESCRIPTION OF BUSINESS
The Company is a Delaware corporation, incorporated on July
17, 1987 under the name Phase Out of America Inc. On September 24, 1997, the Company changed its name to Quest Products Corporation
and on June 6, 2007, the Company changed its name to Quest Patent Research Corporation. During 2003, 2004, 2005, 2006 and 2007
the Company did not have any significant operations. The Company has been engaged in the intellectual property monetization business
since 2008.
As used herein, the “Company” refers to Quest
Patent Research Corporation and its wholly and majority-owned and controlled operating subsidiaries unless the context indicates
otherwise. All intellectual property acquisition, development, licensing and enforcement activities are conducted by the Company’s
wholly and majority-owned and controlled operating subsidiaries.
The Company is an intellectual property asset management
company. Its principal operations include the development, acquisition, licensing and enforcement of intellectual property rights
that are either owned or controlled by the Company. The Company currently owns, controls or manages five intellectual property
portfolios, which principally consist of patent rights. As part of its intellectual property asset management activities and in
the ordinary course of our business, it has been necessary for the Company or the intellectual property owner who the Company represents
to initiate, and it is likely to continue to be necessary to initiate, patent infringement lawsuits and engage in patent infringement
litigation. The Company anticipates that its primary source of revenue will come from the grant of licenses to use its intellectual
property, including licenses granted as part of the settlement of patent infringement lawsuits. The Company also generates revenue
from management fees for managing intellectual property portfolios.
Intellectual property monetization includes the generation
of revenue and proceeds from patents and patented technologies and other intellectual property rights. Patent litigation is often
a necessary element of intellectual property monetization where a patent owner, or a representative of the patent owner, seeks
to protect its patent rights against the unlicensed manufacture, sale, and use of the owner’s patent rights or products which
incorporate the owner’s patent rights. In general, the Company seeks to monetize the bundle of rights granted by the patents
through structured licensing and when necessary enforcement of those rights through litigation.
The Company has rights to the following five intellectual
property portfolios:
|
● |
Mobile Data, which relates to the automatic update of information delivered to a mobile device without the need for manual refreshing. |
|
● |
Financial Data, which relates to universal financial data system which allows its holder to use the device to access one or more accounts stored in the memory of the device as a cash payment substitute as well as to keep track of financial and transaction records and data. |
|
● |
Rich Media, which relates to methods, systems, and processes that permit typical Internet users to design rich-media production content (i.e., rich-media applications), such as websites. |
|
● |
Von Kohorn, which relates to online couponing, print-at-home boarding passes and tickets, online sweepstakes; including the promotion by television networks of online sweepstakes. |
|
● |
TurtlePakTM, which relates to a cost effective, high-protection packaging system recommended for fragile items weighing less than ten pounds. |
Through December 31, 2013, the Company did not generate any
revenue from the Mobile Data and Financial Data portfolios. The revenues from the TurtlePakTM intellectual property
are from the sale of products utilizing the technology.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and financial statement presentation
The consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements of
the Company and its wholly owned and majority owned subsidiaries as of December 31, 2013.
The consolidated financial statements include the accounts
and operations of:
Quest Patent Research Corporation
(“The Company”)
Quest Licensing Corporation
(1)
Quest Packaging Solutions Corporation
(90% owned)
Quest Nettech Corporation (wholly
owned)
|
(1) |
Quest Licensing Corporation was a wholly owned subsidiary of the Company through October 31, 2012 when 50% of its issued and outstanding shares were transferred to Allied Standard Limited (see NOTE 1). Subsequent to October 31, 2012, the Company did not include Quest Licensing Corporation in its consolidated financial statements since there are significant contingencies related to the control of Quest Licensing Corporation. |
The operations of Wynn Technologies Inc. are not included
in the Company’s consolidated financial statements as there are significant contingencies related to its control of Wynn
Technologies Inc.
The Company accounts for Quest Licensing Corporation and
Wynn Technologies, Inc. under the equity method whereby the investment accounts are increased for contributions by the Company
plus its 50% and 60% shares of income, respectively, and reduced for distributions and its 50% and 60% shares of loses incurred,
respectively, with the restriction whereby the account balances cannot go below zero.
Significant intercompany transaction and balances have been
eliminated in consolidation.
Pro Forma Financial Information (unaudited)
The pro forma financial information set forth below is based
upon our historical consolidated statements of operations for the years ended December 31, 2013 and 2012, adjusted to give effect
to the deconsolidation of Quest Licensing as if it had occurred on January 1, 2012.
The pro forma financial information is presented for informational
purposes only and may not be indicative of what actual results of operations would have been had the deconsolidation occurred on
January 1, 2012, nor does it purport to represent the results of future operations (in thousands):
| |
Year Ended | |
| |
December 31 2013 | | |
December 31 2012 | |
| |
| | |
| |
Statement of operations: | |
| | |
| |
Revenue | |
$ | 74,555 | | |
$ | 260,975 | |
Cost of goods sold | |
| 22,066 | | |
| 77,539 | |
Gross profit | |
| 52,489 | | |
| 183,436 | |
| |
| | | |
| | |
Selling, general and administrative expenses | |
| (901,838 | ) | |
| (789,342 | ) |
| |
| | | |
| | |
Other expenses | |
| (21,750 | ) | |
| (21,750 | ) |
| |
| | | |
| | |
Net loss | |
| (871,099 | ) | |
| (627,656 | ) |
Net loss attributable to non-controlling interest in subsidiaries | |
| (62 | ) | |
| (2,672 | ) |
Net loss attributable to Quest Patent Research Corporation | |
$ | (871,161 | ) | |
$ | (630,328 | ) |
Use of Estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturity dates of three months or less when purchased, to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount.
Any allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses to the Company’s
existing accounts receivable. No allowance for doubtful accounts was recorded for the year ended December 31, 2013.
Intangible Assets
Intangible assets consist of patents which are amortized
using the straight-line method over their estimated useful lives or statutory lives whichever is shorter and are reviewed for impairment
upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to
impairment of long-lived assets.
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value exceeds the fair value.
Fair value of financial instruments
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The fair value hierarchy based on the three levels of inputs
that may be used to measure fair value are as follows:
Level 1 – Quoted prices in active markets for
identical assets or liabilities.
Level 2 – Observable inputs other than Level
1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported
by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted
cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant
judgment or estimation.
The carrying value reflected in the consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term borrowings approximate
fair value due to the short-term nature of these items.
Revenue Recognition
Revenue is recognized when (i) persuasive evidence of an
arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts
are fixed or determinable and, (iv) the collectability of amounts is reasonable assured.
License Service Fees
In general, revenue arrangements provide for the payment
of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies
owned or controlled by the Company. The intellectual property rights granted may be perpetual in nature, extending until the expiration
of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right
to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of
these agreements, the Company has no further obligation with respect to the grant of the non-exclusive retroactive and future licenses,
covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part
to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of
the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt
of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized
upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for
the term agreement renewals, and when all other revenue recognition criteria have been met.
Certain of the Company’s revenue arrangements provide
for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in
revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been
met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management.
Amounts related to revenue arrangements that do not meet
the revenue recognition criteria described above are deferred until the revenue recognition criteria are met.
The Company assesses the collectability of fees receivable
based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection
is not reasonably assured, the fee is recognized when collectability becomes reasonably assured, assuming all other revenue recognition
criteria have been met, which is generally upon receipt of cash.
Packaging Sales
The Company’s packaging operation customers are end
users. Revenues from packaging sales, less reserves for returns, are recognized upon shipment to the customer.
Research and development
Research and development costs are expensed as incurred.
Income Taxes
Deferred income tax assets and liabilities are recognized
for the expected future income tax consequences of events that have been included in the consolidated financial statements or income
tax returns. Deferred income tax assets and liabilities are determined based on differences between the financial statement and
tax bases of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse.
In evaluating the ultimate realization of deferred income
tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management
establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not
be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which
must occur prior to the expiration of the net operating loss carryforwards.
The Company also follows the guidance related to accounting
for income tax uncertainties effective November 1, 2007. In accounting for uncertainty in income taxes, the Company recognizes
the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized
in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of December 31, 2013 and
in the interim periods.
Share-based compensation
The Company accounts for share-based awards issued to employees
and non-employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”
effective February 1, 2006. Accordingly, employee share-based payment compensation is measured at the grant date, based on the
fair value of the award, and is recognized as an expense over the requisite service period , which is normally the vesting period.
Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their
fair value.
Prior to February 1, 2006 and as permitted by ASC 718, the
Company accounted for their stock options in accordance with APB 25, “Accounting for Stock Issued to Employees.” Employee
stock options are granted at or above the market price at dates of grant which does not require the Company to recognize any compensation
expense.
The Company adopted ASC 718 (then SFAS123R) on February 1,
2006 using the modified prospective method. In accordance with such method, the consolidated financial statements for prior periods
have not been restated to reflect, and do not include, the impact of ASC 718.
Earnings (loss) per share
Basic earnings per share is calculated by dividing net income
available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during
the period. Diluted earnings per share reflects the potential dilution that could occur if our share-based awards and convertible
securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury
stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase
common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued
versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share
calculation. Because the Company incurred losses in all period covered by the financial statements, the diluted earnings per shares
is the same as the basic earnings per share.
Concentration of credit risk
We maintain our cash in bank deposit accounts, which at times,
may exceed federally insured limits. We have not experienced any such losses in these accounts.
Recently adopted accounting standards
Management does not anticipate that the recently issued but
not yet effective accounting pronouncements will materially impact the Company’s financial condition.
NOTE 3 – WARRANTS AND STOCK OPTIONS
Warrants
During March 2013, pursuant to the president’s employment
agreement (see Note 7), the Company issued the president warrants to purchases 15,000,000 shares of common stock. The warrants
vested immediately, have an exercise price of $0.004 and expire on March 1, 2018.
The Company valued the warrants at $21,000 using the Black-Scholes
pricing model. Variables used in the valuation include (1) discount rate of 0.77%; (2) warrant life of 5 years; (3) expected volatility
of 548% and (4) zero expected dividends.
During March 2010, the Company granted to its then chairman
warrants to purchase 5,000,000 shares at a price of $0.004 per share, through March 1, 2015. The warrants expired unexercised.
A summary of the status of the Company's stock warrants and
changes is set forth below:
| |
Number of Warrants (#) | | |
Weighted Average Exercise Price ($) | | |
Weighted Average Remaining Contractual Life (Years) | |
Balance - December 31, 2011 | |
| 60,000,000 | | |
| 0.0038 | | |
| 5.8 | |
Granted | |
| -- | | |
| | | |
| | |
Cancelled | |
| -- | | |
| | | |
| | |
Expired | |
| -- | | |
| | | |
| | |
Exercised | |
| -- | | |
| | | |
| | |
Balance - December 31, 2012 | |
| 60,000,000 | | |
| 0.0038 | | |
| 4.8 | |
Granted | |
| 15,000,000 | | |
| 0.004 | | |
| 5.0 | |
Cancelled | |
| -- | | |
| | | |
| | |
Expired | |
| -- | | |
| | | |
| | |
Exercised | |
| -- | | |
| | | |
| | |
Balance - December 31, 2013 | |
| 75,000,000 | | |
| 0.0038 | | |
| 3.9 | |
| |
| | | |
| | | |
| | |
Warrants exercisable at end of year | |
| 75,000,000 | | |
| | | |
| | |
Weighted average fair value of warrants granted during period | |
| | | |
| 0.0014 | | |
| | |
Stock Options
A summary of the status of the Company's stock options and
changes is set forth below:
| |
Number of Options (#) | | |
Weighted Average Exercise
Price ($) | | |
Weighted Average Remaining Contractual Life (Years) | |
Balance - December 31, 2011 | |
| 15,000,000 | | |
| 0.0045 | | |
| 2.33 | |
Granted | |
| -- | | |
| | | |
| | |
Cancelled | |
| -- | | |
| | | |
| | |
Expired | |
| 5,000,000 | | |
| | | |
| | |
Exercised | |
| -- | | |
| | | |
| | |
Balance - December 31, 2012 | |
| 10,000,000 | | |
| 0.00175 | | |
| 1.5 | |
Granted | |
| -- | | |
| | | |
| | |
Cancelled | |
| -- | | |
| | | |
| | |
Expired | |
| 5,000,000 | | |
| 0.0025 | | |
| 0.25 | |
Exercised | |
| -- | | |
| | | |
| | |
Balance - December 31, 2013 | |
| 5,000,000 | | |
| 0.001 | | |
| 1.75 | |
No warrants or options were exercised in 2013.
NOTE 4 – NON-CONTROLLING INTEREST
The following table reconciles equity attributable to the
non-controlling interest related to Quest Packaging Solutions Corporation.
| |
December 31, | |
| |
2013 | | |
2012 | |
Balance, beginning of year | |
$ | 2,659 | | |
$ | (13 | ) |
Net income (loss) attributable to non-controlling interest | |
$ | 62 | | |
$ | 2,672 | |
Balance, end of year | |
$ | 2,721 | | |
$ | 2,659 | |
NOTE 5 – INCOME TAXES
The Company uses the liability method, where deferred tax
assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying
amounts of assets and liabilities for financial and income tax reporting purposes. As of December 31, 2013, the Company has generated
approximately $7,568,737 of net operating loss (“NOL”) carry forwards which will expire in the years 2019 through 2034.
Internal Revenue Code section 382 (“Section 382”) restricts the use of these net operating losses in future periods
if the Company has a “substantial change in ownership” as defined by Section 382. The Company has had significant equity
transactions in both the current and prior periods. Due to this equity activity and the restrictions resulting under Section 382,
most of the Company’s NOLs may not be available to offset future taxable income. The Company has fully reserved the deferred
tax asset resulting from the net operating loss carry forwards.
Deferred tax asset consisted primarily of the following:
| |
December 31, | |
| |
2013 | |
Net operating loss carry forward | |
$ | 3,027,200 | |
Valuation allowance | |
$ | (3,027,200 | ) |
Total | |
$ | - | |
NOTE 6 – RELATED PARTY TRANSACTIONS
Parties are considered to be related to the Company if the
parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of
principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can
significantly influence the management or operating policies of the other to an extent that one of the transacting parties might
be prevented from fully pursuing its own separate interests.
The Company has at various times entered into transactions
with related parties, including officers, directors and major shareholders, wherein these parties have provided services, advanced
or loaned money, or both, to the Company needed to support its daily operations. The Company discloses all related party transactions.
During 2003, the Company received loans from Officers and
Directors in the amount of $79,490. The loans are payable on demand plus accrued interest at 10% per annum.
As of fiscal year ended December 31, 2013, the balance of
Notes Payable to Related Parties was $79,490, and accrued interest on those notes was $89,594.
See Notes 7 and 8 with respect to employment and termination
agreements with officers and directors and the cancellation of debt to officers and directors.
During 2013, the Company contracted with an entity owned
by the chief technology officer for the provision of information technology services to the Company. In 2013, the cost of these
services was approximately $1,500.
NOTE 7 – COMMITMENTS
On March 1, 2008, the Company entered into an employment
agreement with its then chairman, pursuant to which the Company employed the chairman for a period of seven years, at an annual
salary of $200,000. Pursuant to the employment agreement, the Company issued the chairman seven-year warrants to purchase an aggregate
of 5,000,000 shares of common stock at an exercise price of $0.004 per share. The warrants vested upon the date of the execution
of the employment agreement. See Note 8 with respect to the termination of the former chairman’s employment agreement.
On March 1, 2008, the Company entered into an employment
agreement with its then chief executive officer, who was also chief financial officer and treasurer, for a period of ten years
for an annual salary of $250,000. The chief executive officer is eligible for an annual bonus of 10% of the Company’s consolidated
income before taxes. Pursuant to the employment agreement, the Company issued him ten-year warrants to purchase 5,000,000 shares
of common stock at $0.004 per share. The warrants vested upon the date of the execution of the employment agreement. The agreement
provides that the Company will provide the chief executive officer with a full-size vehicle when it is financially able to do so,
and a laptop computer and phone. The agreement also includes a severance provision whereby, if the Company terminates chief executive
officer’s employment other than for cause, the Company is to pay the chairman severance compensation equal to three times
his average annual compensation for the five years prior to termination and reimbursement of his COBRA expenses. See Note 8 with
respect to the termination of the former chief executive officer’s employment agreement.
On March 1, 2008, the Company entered into an employment
agreement with our current president and chief executive officer who, at the time of the agreement, was its president and chief
operating officer, for a period of ten years, subject to renewal, for an annual salary of $300,000. He is eligible for an annual
bonus of 15% of consolidated income before taxes, as well as a contingent bonus of 20% of net income before taxes on the occurrence
of certain events related to the Company’s assets, as established in the agreement. Pursuant to the agreement, the Company
issued the president ten-year warrants to purchase 15,000,000 shares of common stock at an exercise price of $0.004 per share,
which vested upon execution of the employment agreement, and agreed to issue to the president on the third anniversary of the date
of execution of his employment agreement, seven-year warrants to purchase 30,000,000 shares of common stock at an exercise price
of $0.004 per share, which the Company issued in 2011 and which vested on issuance, and the Company agreed to issue to the president
on the fifth anniversary of the execution of his employment agreement, five-year warrants to purchase 15,000,000 shares of common
stock at an exercise price of $0.004 per share, which the Company issued in 2013 and which vested on issuance. The agreement provides
that the Company will provide the president with a full-size vehicle when it is financially able to do so, and a laptop computer
and phone. The agreement also includes a severance provision whereby, if the Company terminates the president’s employment
other than for cause, the Company is to pay severance compensation equal to three times his average annual compensation for the
three years prior to termination and reimbursement of his COBRA expenses. See Note 8 with respect to an amendment and restatement
of the president’s employment agreement.
NOTE 8 – SUBSEQUENT EVENTS
In March 2014, the Company entered in to contingent representation
agreement with a law firm for representation on a structured licensing program, including litigation if necessary, for the Mobile
Data Portfolio. Under the terms of the agreement, the law firm receives an agreed upon percentage of net recoveries as defined
in the agreement. Through April 9, 2015, the Company did not realize any net recoveries from the Mobile Data Portfolio.
In March 2014, the Company entered into a funding agreement
whereby a third party agreed to provide funds to the Company to enable the Company to implement a structured licensing program,
including litigation if necessary, for the Mobile Data Portfolio. Under the agreement, the third party receives an interest in
the proceeds from the program, and the Company has no other obligation to the third party. Through March 8, 2015 the third party
has provided funds in the amount of approximately $970,000 of which approximately $590,000 has been paid to litigation counsel
and other third parties and $380,000 has been paid to the Company in conjunction with the litigation against parties which the
Company believes are infringing on its intellectual property.
In April 2014, the Company entered into an agreement with
Allied Standard Limited, which holds an interest in the Quest Licensing Corporation, whereby Allied relinquished certain rights
under the existing agreement, including its entitlement to a 50% interest in our Quest Licensing subsidiary, in exchange for the
Company’s commitment to fund a structured licensing program for the Mobile Data Portfolio.
On October 10, 2014, the Company entered into a separation
agreement and mutual general release with its former chairmen whereby the former chairman forgave all loans, accrued interest,
accrued salary, accrued benefits and released us from any claim to any compensation and benefits, accrued or otherwise, under any
agreement or purported agreement, including his employment agreement dated March 1, 2008. The Company agreed that the former chairman
would retain the warrants granted under the employment agreement dated March 1, 2008 and that the Company would pay the former
chairman 3.25% of our net revenues, provided net revenues of the Company exceed $1,500,000, up to the aggregate amount of $250,000
with payments in any year not to exceed $125,000. All amounts owed to the former chairman under this agreement will be recorded
as expense in the period in which they are earned. The total accrued compensation and other obligations waived by the former chairman
was approximately $1,343,543. The warrants granted under the employment agreement dated March 1, 2008 expired unexercised on March
1, 2015.
On October 10, 2014, the Company entered into a separation
agreement and mutual general release with its former chief executive officer, who was chief financial officer and treasurer, whereby
the former chief executive officer forgave all loans, accrued interest, accrued salary, accrued benefits and released the Company
from any claim to any compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including the
employment agreement dated March 1, 2008, at any time between the former chief executive officer and the Company. The Company agreed
that the former chief executive officer would retain the warrants granted under the employment agreement dated March 1, 2008 and
that the Company would pay the former chief executive officer 3.25% of the Company’s net revenues, provided that its net
revenues exceed $1,500,000, up to the aggregate amount of $700,000 with payments in any year not to exceed $300,000. All amounts
owed to the former CEO under this agreement will be recorded as expense in the period in which they are earned. The total accrued
compensation and other obligations waived by the former chief executive officer was approximately $1,667,350.
On October 30, 2014, the Company entered into a restated
employment agreement with its president and chief executive officer (who was formerly its president and chief operating officer),
which was superseded by a restated employment agreement dated as of November 30, 2014. Pursuant to the restated employment agreement,
the Company agreed to employ him as president and chief executive officer for a term of three years, commencing January 1, 2014,
and continuing on a year-to-year basis unless terminated by either party on not less than 90 days’ notice prior to the expiration
of the initial term or any one-year extension. The agreement provides for an annual salary of $252,000, which may be increased,
but not decreased, by the board or the compensation committee. The chief executive officer is entitled to a bonus if the Company
meets or exceeds performance criteria established by the compensation committee. The chief executive officer is also eligible to
participate in any executive incentive plans which the Company may adopt. The Company also agreed to issue to the chief executive
officer warrants to purchase 60,000,000 shares, representing the warrants that had been previously covered in his prior employment
agreement but which had never been issued, and the Company issued to the chief executive officer a restricted stock grant for 30,000,000
shares which vested on January 15, 2015. As the 60,000,000 warrants were previously expensed when vested and still outstanding
according to the old terms, this new issuance was deemed to have been a modification and any incremental expense in value will
be expensed on the date of modification. The chief executive officer held the rights of a stockholder with respect to these shares,
including the right to vote, subject to forfeiture in the event that the shares did not vest. In the event that the Company terminates
the chief executive officer’s employment other than for cause or as a result of his death or disability, the Company will
pay him severance equal to his salary for the balance of the term and, if he received a bonus for the previous year, an amount
equal to that bonus, as well as continuation of his insurance benefits. The chief executive officer also waived accrued compensation
of $1,167,705, representing his accrued salary for periods prior to January 1, 2014. The restated agreement also includes mutual
releases between the chief executive officer and the Company.
On November 21, 2014 the Company received a notice of allowance
from the United States Patent and Trademark Office on US Patent Application 12/617,373, a continuation application in the Mobile
Data Portfolio.
In December 2014, settlements were reached with several defendants
named by Quest NetTech in patent infringement suits brought against various entities in July 2014 in the U.S. District for the
Eastern District of Texas. With respect to each defendant with whom settlement was reached, the parties entered into a mutual release.
F-16
Exhibit 3.2
AMENDED
AND RESTATED BYLAWS OF
QUEST
PATENT RESEARCH CORPORATION
(a
Delaware Corporation)
(adopted
effective as of April 8, 2015)
ARTICLE
1
OFFICES
SECTION
1.1. Principal Office. The principal offices of the Quest Patent Research Corporation, a Delaware corporation (the “Corporation”)
shall be in such location as the Board of Directors of the Corporation (the “Board of Directors”) may determine.
SECTION
1.2. Other Offices. The Corporation may also have offices at such other places both within and without the
State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE
2
MEETINGS
OF STOCKHOLDERS
SECTION
2.1. Place of Meeting; Chairman. All meetings of stockholders shall be held at such place, either within or without
the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.
The Chairman of the Board of the Corporation (the “Chairman of the Board”) or any other person specifically
designated by the Board of Directors shall act as the Chairman for any meeting of stockholders of the Corporation. The Chairman
of the Board (or his or her designee) shall have full authority to control the process of any stockholder meeting, including,
without limitation, determining whether any proposals or nominations were properly brought before such meeting, establishing an
agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, limitations on participation
in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other
persons as the Chairman of the Board (or his or her designee) shall permit, restrictions on entry to the meeting after the time
fixed for the commencement thereof, requiring ballots by written consent (except as limited by the Certificate of Incorporation
of the Corporation, as amended (the “Certificate of Incorporation”), or by the Delaware General Corporation
Law (the “DGCL”), limitations on the time allotted to questions or comments by participants and regulation
of the opening and closing of the polls for balloting on matters which are to be voted on by ballot.
SECTION
2.2. Annual Meetings. The annual meeting of stockholders of the Corporation shall be held at such date and time as shall
be designated from time to time by the Board of Directors and stated in the notice of the meeting, subject to any postponement
in the Board of Directors’ sole discretion, upon notice of such postponement given in any manner deeded reasonable by the
Board of Directors.
SECTION
2.3. Special Meetings. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless
otherwise proscribed by the DGCL or by the Certificate of Incorporation, may be called exclusively by: (i) the Chairman of the
Board or the Chief Executive Officer, President or other executive officer of the Corporation, (ii) an action of the Board of
Directors or (iii) request in writing of the stockholders of record, and only of record, owning not less than sixty-six and two-thirds
percent (66 2/3%) of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. The officers or directors shall fix the time and any place, either within
or without the State of Delaware, as the place for holding such meeting.
SECTION
2.4. Notice of Meeting. Written notice of the annual and each special meeting of stockholders of the Corporation, stating
the time, place and purpose or purposes thereof, and the means of remote communications, if any, by which stockholders or proxy
holders may be deemed to be present in person and able to vote at such meeting, shall be given to each stockholder entitled to
vote thereat, not less than ten (10) nor more than sixty (60) days before the meeting and shall be signed by the Chairman of the
Board, the President or the Secretary of the Corporation (the “Secretary”). The Board of Directors may postpone
a special meeting in its sole discretion in any manner it deems reasonable.
SECTION
2.5. Business Conducted at Meetings.
Section
2.5.1 (a) At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before a meeting, business must be:
(i) specified in the notice of meeting (or any supplement thereto provided within the notice period specified in Section 2.4)
given by or at the direction of the Chairman of the Board, the President or the Board of Directors;
(ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or
(iii) otherwise properly brought before the meeting by any stockholder of the Corporation (subject to Section 2.3 and 2.5.1(b) of
these Bylaws) who (A) is a stockholder of record on the date of the giving of the notice provided for in this Section 2.5
and on the record date for the determination of stockholders entitled to notice of and to vote at the meeting and (B) complies
with the advance notice procedures set forth in this Section 2.5.
(b) Except
for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and included in the Corporation’s notice of meeting, the foregoing clause 2.5.1(a)(iii) shall be the exclusive
means for a stockholder to propose business to be brought before an annual or special meeting of stockholders, provided that in
the case of a special meeting of stockholders, the item of business is presented by the requisite number of stockholders of the
Corporation in accordance with Section 2.3 of these Bylaws. Stockholders seeking to nominate persons for election to the
Board of Directors must comply with Section 2.6.2 hereof and this Section 2.5.1 shall not be applicable to director
nominations.
(c) In
addition to any other applicable requirements set forth in these Bylaws, the U.S. federal securities laws or otherwise, for business
to be properly brought before a meeting called by stockholders, such stockholder(s) must have given timely notice thereof in writing
to the Secretary. Any special meeting of the Corporation proposed to be called by a stockholder or stockholders in such capacity
shall not be required to be held: (i) with respect to any matter, within 12 months after any annual or special meeting of stockholders
at which the same matter was included on the agenda, or if the same matter will be included on the agenda at an annual meeting
to be held within 90 days after the receipt by the Corporation of such request (the election or removal of directors to be deemed
the same matter with respect to all matters involving the election or removal of directors) or (ii) if the purpose of the special
meeting is not a lawful purpose or if such request violates applicable law. A stockholder may revoke a request for a special meeting
at any time by written revocation delivered to the Secretary, and if, following such revocation, there are un-revoked requests
from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders to request the
calling of a special meeting, the Board of Directors, in its discretion, may cancel the special meeting. If none of the stockholders
who submitted the request for a special meeting appears or sends a qualified representative to present the nominations proposed
to be presented or other business proposed to be conducted at the special meeting, the Corporation need not present such nominations
or other business for a vote at such meeting.
Section
2.5.2 To be timely, a stockholder’s notice of a proposal to be included at an annual meeting must be delivered to or
mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred
twenty (120) days prior to the annual meeting of stockholders; provided, however, that if the date of the annual meeting
is advanced more than thirty (30) days prior to or delayed by more than sixty (60) days after the anniversary of the
preceding year’s annual meeting, to be timely, notice by the stockholder must be so received not later than the close of
business on the tenth (10th) day following the day on which public disclosure of the date of the annual meeting is first given
or made (which shall include the making of any and all filings of the Corporation made on the EDGAR system of the U.S. Securities
and Exchange Commission (“SEC”) or any similar public database maintained by the SEC, whichever first occurs).
In the case of a special meeting of stockholders, notice must be provided not later than the close of business on the tenth (10th)
day following the day on which public disclosure of the date of the special meeting is first given or made.
Section
2.5.3 A record stockholders’ notice to the Secretary shall set forth in writing as to each matter the stockholder(s)
propose to bring before the meeting: (a) a detailed description of the business desired to be brought before the meeting and the
reasons for proposing such business, including the complete text of any resolutions, bylaws or certificate of incorporation amendments
proposed for consideration, (b) the name and address, as they appear on the Corporation’s books, of the stockholders proposing
such business, (c) the class and number of shares of the Corporation which are owned directly or indirectly of record and directly
or indirectly beneficially owned by the stockholders and each of its affiliates (within the meaning of Rule 144 promulgated under
the Securities Act of 1933, as amended, or any successor rule thereto (“Rule 144”)), including any shares of
the Corporation owned or controlled via derivatives, synthetic securities, hedged positions and other economic and voting mechanisms,
(d) any material interest of the stockholders in such proposed business and any agreements or understandings to which such stockholders
are a party which relate in any way, directly or indirectly, to the proposed business to be conducted, including a description
of all arrangements or understandings between such stockholder and any other person or persons (including their names), (e) a
representation as to whether or not such stockholder intends to solicit proxies; (f) a representation as to whether or not such
stockholder intends to appear in person or by proxy at the applicable meeting, (g) any pending or threatened litigation in which
such stockholder is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate
of the Corporation, and (g) such other information regarding the stockholder in his, her or its capacity as a proponent of a stockholder
proposal that would be required to be disclosed in a proxy statement or other filing with the SEC required to be made in connection
with the contested solicitation of proxies pursuant to the SEC’s proxy rules.
Section
2.5.4 Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance
with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, in his or her sole discretion, determine
and declare to the meeting whether or not any business was properly brought before the meeting. Any such business not properly
brought before the meeting shall not be transacted. If and to the extent that shares of the Corporation’s capital stock
is registered under or the Corporation is otherwise subject to the reporting requirements of the Exchange Act, nothing in this
Section 2.5 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement
to the extent that such right is provided by an applicable rule of the SEC. Notwithstanding the foregoing, the advance notice
provisions of these Bylaws shall apply to all stockholder proposals regardless of whether such proposal is sought to be included
in the Corporation’s proxy statement or in a separate proxy statement.
SECTION
2.6. Nomination of Directors. Nomination of candidates for election as directors of the Corporation at any meeting of
stockholders called for the election of directors, in whole or in part (an “Election Meeting”), must be made
by the Board of Directors or by any stockholder entitled to vote at such Election Meeting, in accordance with the following procedures.
Section
2.6.1. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors or by written consent
of the directors in lieu of a meeting prior to the date of the Election Meeting. At the request of the Secretary, and if and to
the extent that shares of the Corporation’s capital stock is registered under or the Corporation is otherwise subject to
the reporting requirements of the Exchange Act, each proposed nominee nominated by the Board of Directors shall provide the Corporation
with such information concerning himself or herself as is required, under the rules of the SEC and any applicable securities exchange,
to be included in the Corporation’s proxy statement soliciting proxies for his or her election as a director.
Section
2.6.2. The exclusive means by which a stockholder may nominate a director shall be by delivery of a notice to the Secretary,
not less than sixty (60) days prior to the date of an Election Meeting, setting forth: (a) the name, age, business address and
the primary legal residence address of each nominee proposed in such notice, (b) the principal occupation or employment of such
nominee, (c) the number of shares of capital stock of the Corporation which are owned directly or indirectly of record and directly
or indirectly beneficially owned by the nominee and each of its affiliates (within the meaning of Rule 144), including any shares
of the Corporation owned or controlled via derivatives, hedged positions and other economic and voting mechanisms, (d) any material
agreements, understandings or relationships, including financial transactions and compensation, between the nominating stockholder
and the proposed nominees; (e) such other information concerning each such nominee as would be required, under the rules of the
SEC, in a proxy statement soliciting proxies in a contested election of such nominees, and (f) confirming, under penalty of perjury,
that such nominee (i) does not meet the definition of a bad actor, as defined in Rule 506(d) of the SEC pursuant to the Securities
Act and (ii) the nominee does not have any matters which would have triggered disqualification pursuant to Rule 506(d)(1) of the
SEC but for the fact that the event occurred prior to September 23, 2013. Such notice shall include a signed consent of each such
nominee to serve as a director of the Corporation, if elected. In addition, any stockholder nominee, to be validly nominated,
shall submit to the Secretary the questionnaire required pursuant to Section 2.6.3 of these Bylaws. A stockholder intending to
nominate one or more candidates for election as directors must comply with the advance notice bylaw provisions specifically applicable
to the nomination of candidates for election as directors for such nomination to be properly brought before the meeting.
Section
2.6.3 To be eligible to be a director nominee nominated by a stockholder or stockholders for election or reelection as a director
of the Corporation, such nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section
2.6.2 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire (the “Questionnaire”)
with respect to the background, qualification and experience of such person and the background of any other person or entity on
whose behalf the nomination is being made (which questionnaire shall be in the form approved by the Corporation and provided by
the Secretary or such Secretary’s designee) and a written representation and agreement that such person: (a) will abide
by the requirements of these Bylaws and the Certificate of Incorporation as in effect at the time of their nomination and as validly
amended, (b) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not
given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation,
will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation
or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director
of the Corporation, with such person’s fiduciary duties under applicable law, (c) is not and will not become a party
to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct
or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been
disclosed therein, and (d) in such person’s individual capacity and on behalf of any person or entity on whose behalf
the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable
publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines
of the Corporation. If, prior to the Election Meeting, there is a change in any information set forth on the Questionnaire, then
such director candidate shall promptly notify the Secretary by submitting a revised Questionnaire.
Section
2.6.4. In the event that a person is validly designated by the Board of Directors as a nominee in accordance with this Section
2.6 and shall thereafter become unable or willing to stand for election to the Board of Directors, the Board of Directors may
designate a substitute nominee who meets all applicable standards under these Bylaws.
Section
2.6.5. If the Chairman of the Election Meeting determines that a nomination was not made in accordance with the foregoing procedures,
such nomination shall be void.
SECTION
2.7. Quorum; Adjournment.
Section
2.7.1 The holders of one-third of the shares of capital stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy (provided the proxy has authority to vote on at least one matter at such meeting), shall constitute
a quorum at any meeting of stockholders for the transaction of business, except when stockholders are required to vote by class,
in which event one-third of the issued and outstanding shares of the appropriate class shall be present in person or by proxy
(provided the proxy has authority to vote on at least one matter at such meeting) in order to constitute a quorum as to such class
vote, and except as otherwise provided by the DGCL or by the Certificate of Incorporation. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal
of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum.
Section
2.7.2 Notwithstanding any other provision of the Certificate of Incorporation or these Bylaws, at any annual or special meeting
of stockholders of the Corporation, whether or not a quorum is present, the Chairman of the Board or the person presiding as Chairman
of the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting,
whether or not a quorum shall be present or represented. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting in accordance with Section 2.4 of these Bylaws. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally
notified.
SECTION
2.8. Voting; Proxies.
Section
2.8.1 Except as provided for below or by applicable law, rule or regulation, when a quorum is present at any meeting of the
stockholders, any action by the stockholders on a matter except the election of directors shall be approved if approved by the
majority of the votes cast. Directors shall be elected by a plurality of the votes cast. In determining the number of votes cast
abstentions and broker non-votes, if any, will not be treated as votes cast. The provisions of this paragraph will govern with
respect to all votes of stockholders except as otherwise provided for in the Certificate of Incorporation or by a specific statutory
provision superseding the provisions of these Bylaws.
Section
2.8.2 Every stockholder having the right to vote shall be entitled to vote in person, or by proxy: (a) appointed by an instrument
in writing subscribed by such stockholder or by his or her duly authorized attorney or (b) authorized by the transmission of an
electronic record by the stockholder to the person who will be the holder of the proxy or to a firm which solicits proxies or
like agent who is authorized by the person who will be the holder of the proxy to receive the transmission subject to any procedures
the Board of Directors may adopt from time to time to determine that the electronic record is authorized by the stockholder; provided,
however, that no such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled
with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force,
which in no case shall exceed seven (7) years from the date of its execution. If such instrument or record shall designate two
(2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at
any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving
consents thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1). Unless required
by the DGCL or determined by the Chairman of the meeting to be advisable, the vote on any matter need not be by written ballot.
No stockholder shall have cumulative voting rights.
SECTION
2.9. Consent of Stockholders. Whenever the vote of the stockholders at a meeting thereof is required or permitted to
be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with if stockholders,
having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, consent in writing to such corporate action being taken; provided,
that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required
by the DGCL. If the common stock of the Corporation is registered pursuant to the Exchange Act, the effectiveness of such action
shall be subject to the provision of the Exchange Act. Notice of any action taken by consent shall be given to stockholders as
required by the DGCL.
SECTION
2.10. Voting of Stock of Certain Holders. Shares standing in the name of another entity, domestic or foreign, may be voted
by such officer, agent or proxy as the governing documents of such entity may prescribe, or in the absence of such provision,
as the Board of Directors or governing body of such entity may determine. Shares standing in the name of a deceased person may
be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of
a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares
outstanding in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled
to vote such shares, unless in the transfer by the pledgor on the books of the Corporation, he or she has expressly empowered
the pledgee to vote thereon, in which case only the pledgee, or his or her proxy, may represent the stock and vote thereon.
SECTION
2.11. Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and
such shares shall not be counted in determining the total number of outstanding shares.
SECTION
2.12. Fixing Record Date. The Board of Directors may fix in advance a date for any meeting of stockholders (which date
shall not be more than sixty (60) nor less than ten (10) days preceding the date of any such meeting of stockholders), a date
for payment of any dividend or distribution, a date for the allotment of rights, a date when any change or conversion or exchange
of capital stock shall go into effect, or a date in connection with obtaining a consent of stockholders (which date shall not
precede or be more than ten (10) days after the date the resolution setting such record date is adopted by the Board of Directors),
in each case as a record date (the “Record Date”) for the determination of the stockholders entitled to notice
of, and to vote at, any such meeting and any adjournment thereof, to receive payment of any such dividend or distribution, to
receive any such allotment of rights, to exercise the rights in respect of any such change, conversion or exchange of capital
stock, or to give such consent, as the case may be. In any such case such stockholders and only such stockholders as shall be
stockholders of record on the Record Date shall be entitled to such notice of and to vote at any such meeting and any adjournment
thereof, to receive payment of such dividend or distribution, to receive such allotment of rights, to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any
such Record Date.
SECTION
2.13. Inspectors. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more inspectors
of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding
at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best
of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each,
the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate
of any fact found by such inspector or inspectors.
ARTICLE
3
BOARD
OF DIRECTORS
SECTION
3.1. Powers. The business, properties and affairs of the Corporation shall be managed by, or under the direction of,
its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
Subject to compliance with the provisions of the DGCL, the powers of the Board of Directors shall include the power to make a
liquidating distribution of the assets, and wind up the affairs of, the Corporation.
SECTION
3.2. Number, Qualifications Term.
Section
3.2.1 The number of directors which shall constitute the whole Board of Directors shall be not less than one (1) and not more
than nine (9). Within the limits above specified, the number of the directors of the Corporation shall be determined solely
in the discretion of the Board of Directors. Directors need not be residents of Delaware or stockholders of the Corporation. Each
director shall be at least eighteen (18) years of age. The Board of Directors shall be divided into classes as provided for
in the Certificate of Incorporation.
Section
3.2.2 Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies
and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are
elected and qualified or until their earlier death, incapacity, resignation or removal. No decrease in the number of directors
shall shorten the term of any incumbent director.
SECTION
3.3. Vacancies, Additional Directors; Removal From Office; Resignation.
Section
3.3.1 If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, removal from
office or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of
the directors then in office, though less than a quorum, or a sole remaining director may choose a successor or fill the newly
created directorship. Any director so chosen shall hold office for the unexpired term of his or her predecessor in his or her
office and until his or her successor shall be elected and qualified, unless sooner displaced. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent director.
Section
3.3.2 Any director, or the entire Board of Directors, may be removed, with or without Cause
(as defined below), by the holders of a majority of the shares then entitled to vote at an election of directors, provided such
action is taken in accordance with the provisions of Article 2 hereof. Whenever the holders of any class or series are entitled
to elect one or more directors by the certificate of incorporation, the removal without cause of a director or directors so elected
shall require the vote of the holders of a majority of the outstanding shares of that class or series and not the vote of the
outstanding shares as a whole.
Section
3.3.3 Any director may resign or voluntarily retire upon giving written notice to the Chairman of the Board or the Board of Directors.
Any retirement or resignation of a director shall be effective upon the giving of the notice, unless the notice specifies a later
time for its effectiveness. If such retirement or resignation is effective at a future time, the Board of Directors may elect
a successor to take office when the retirement or resignation becomes effective.
Section
3.3.4 For purposes of this Section 3.3, “Cause” shall mean: (i) the director’s conviction
or plea of nolo contendere of a felony involving (a) moral turpitude or (b) a violation of federal or state securities laws, but
excluding any conviction based entirely on vicarious liability, (ii) the director’s commission of any material act of dishonesty
resulting or intended to result in material personal gain or enrichment of such director at the expense of the Corporation or
any of its subsidiaries and which act, if made the subject of criminal charges, would be reasonably likely to be charged as a
felony, (iii) the willful failure by such director to perform, or the gross negligence of such director in performing, the duties
of a director, or (iv) the director being adjudged legally incompetent by a court of competent jurisdiction; provided, however,
that if the director is a party to an employment or other agreement that was approved by the Board of Directors or a committee
of the Board of Directors that provides for termination based on cause, as defined in such agreement, Cause shall have the meaning
set forth in such agreement and not as defined in this Section 3.3.4..
SECTION
3.4. Regular Meetings. A regular meeting of the Board of Directors shall be held each year, without notice other than
this Bylaw provision, at the place of, and immediately prior to and/or following, the annual meeting of stockholders; and other
regular meetings of the Board of Directors shall be held during each year, at such time and place as the Board of Directors may
from time to time provide by resolution, either within or without the State of Delaware, without other notice than such resolution.
SECTION
3.5. Special Meeting. A special meeting of the Board of Directors may be called by the Chairman of the Board or by the
President and shall be called by the Secretary on the written request of a two directors. The Chairman of the Board or President
so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State
of Delaware, as the place for holding such meeting.
SECTION
3.6. Notice of Special Meeting. Written notice (including via email or other electronic delivery) of special meetings
of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to the time of a special meeting.
Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice
of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall
be given with respect to any matter when notice is required by the DGCL.
SECTION
3.7. Quorum. A majority of the Board of Directors then serving shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is
quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the DGCL, by the Certificate
of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved of by at least a majority of the required quorum for that meeting.
SECTION
3.8. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article
4 of these Bylaws, may be taken without a meeting, if a written consent thereto is signed by all of the members of the Board of
Directors or of such committee, as the case may be. Evidence of any consent to action under this Section 3.8 may be provided in
writing, including electronically via email or facsimile.
SECTION
3.9. Meeting by Telephone. Any action required or permitted to be taken by the Board of Directors or any committee thereof
may be taken by means of a meeting by telephone conference or similar communications method (including by means of the Internet)
so long as all persons participating in the meeting can hear each other. Any person participating in such meeting shall be deemed
to be present in person at such meeting.
SECTION
3.10. Compensation. Directors, as such, may receive reasonable compensation for their services, which shall be set
by the Board of Directors, and reimbursement of expenses of attendance at each regular or special meeting of the Board of Directors;
provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation
in any other capacity and receiving additional compensation therefor. Members of special or standing committees may be allowed
like compensation for their services on committees.
SECTION
3.11. Rights of Inspection. Every director shall have the absolute right at any reasonable time to inspect and copy
all books, records and documents of every kind and to inspect the physical properties of the Corporation and also of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the
right to copy and obtain extracts.
ARTICLE
4
COMMITTEES
OF DIRECTORS
SECTION
4.1. Generally. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate
one or more additional special or standing committees, each such additional committee to consist of one or more of the directors
of the Corporation. Each such committee shall have and may exercise such of the powers of the Board of Directors in the management
of the business and affairs of the Corporation as may be provided in such resolution, except as delegated by these Bylaws or by
the Board of Directors to another standing or special committee or as may be prohibited by law.
SECTION
4.2. Committee Operations. A majority of a committee shall constitute a quorum for the transaction of any committee
business. Such committee or committees shall have such name or names and such limitations of authority as provided in these Bylaws
or as may be determined from time to time by resolution adopted by the Board of Directors. The Corporation shall pay all expenses
of committee operations. The Board of Directors may designate one or more appropriate directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any
members of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting,
whether or not he, she or they constitute a quorum, may unanimously appoint another appropriate member of the Board of Directors
to act at the meeting in the place of any absent or disqualified member.
SECTION
4.3. Minutes. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board
of Directors when required. The Corporation’s Secretary, any Assistant Secretary or any other designated person shall (a) serve
as the Secretary of the special or standing committees of the Board of Directors of the Corporation, (b) keep regular minutes
of standing or special committee proceedings, (c) make available to the Board of Directors, as required, copies of all resolutions
adopted or minutes or reports of other actions recommended or taken by any such standing or special committee and (d) otherwise
as requested keep the members of the Board of Directors apprised of the actions taken by such standing or special committees.
ARTICLE
5
NOTICE
SECTION
5.1. Methods of Giving Notice.
SECTION
5.1.1. Notice to Directors or Committee Members. Whenever under the provisions of the DGCL, the Certificate of Incorporation
or these Bylaws, notice is required to be given to any director or member of any committee of the Board of Directors, personal
notice is not required but such notice may be: (a) given in writing and mailed to such director or committee member, (b) sent
by electronic transmission (including via e-mail) to such director or committee member, or (c) given orally or by telephone; provided,
however, that any notice from a stockholder to any director or member of any committee of the Board of Directors must be given
in writing and mailed to such director or member and shall be deemed to be given upon receipt by such director or member. If mailed,
notice to a director or member of a committee of the Board of Directors shall be deemed to be given when deposited in the United
States mail first class, or by overnight courier, in a sealed envelope, with postage or delivery charges thereon prepaid, addressed,
to such person at his or her business address. If sent by electronic transmission, notice to a director or member of a committee
of the Board of Directors shall be deemed to be given if by (i) facsimile transmission, when receipt of the fax is confirmed electronically,
(ii) electronic mail, when delivered to an electronic mail address of the director or member, (iii) a posting on an electronic
network together with a separate notice to the director or member of the specific posting, upon the later of (1) such posting
and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other
form of electronic transmission, when delivered to the director or member.
SECTION
5.1.2. Notices to Stockholders. Whenever under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws,
notice is required to be given to any stockholder, personal notice is not required but such notice may be given: (a) in writing
and mailed to such stockholder, (b) by a form of electronic transmission consented to by the stockholder to whom the notice is
given or (c) as otherwise permitted by the SEC. If mailed, notice to a stockholder shall be deemed to be given when deposited
in the United States mail in a sealed envelope, with postage thereon prepaid, addressed to the stockholder at the stockholder’s
address as it appears on the records of the Corporation. If sent by electronic transmission, notice to a stockholder shall be
deemed to be given if by (i) facsimile transmission, when directed to a number at which the stockholder has consented to receive
notice, (ii) electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice,
(iii) a posting on an electronic network together with a separate notice to the stockholder of the specific posting, upon the
later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided
above), or (iv) any other form of electronic transmission, when directed to the stockholder in the manner approved by the stockholder.
SECTION
5.2. Written Waiver. Whenever any notice is required to be given by the DGCL, the Certificate of Incorporation or these
Bylaws, a waiver thereof in a signed writing or sent by the transmission of an electronic record attributed to the person or persons
entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE
6
OFFICERS
SECTION
6.1. Officers. The officers of the Corporation may include the Chairman of the Board, the President, the Treasurer and
the Secretary. The officers of the Corporation may also include a Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer and such other officers and agents with such titles as the Board of Directors may prescribe, including, without limitation,
one or more Vice Presidents of any class or designation, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers.
All officers of the Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties
as prescribed by these Bylaws, the Board of Directors or President, as applicable. Any two or more offices may be held by the
same person. The Chairman of the Board shall be elected from among the directors. No officer need be a director or a stockholder
of the Corporation. The Board of Directors may delegate to the Chief Executive Officer, President, Chief Operating Officer and
Chief Financial Officer the power to appoint other officers who report, directly or indirectly, to such officer and to prescribe
their respective duties and powers; provided, however, that only the Board of Directors shall have the authority to appoint officers
who are required to be named pursuant to Item 401(b) of Regulation S-K (“Executive Officers”).
SECTION
6.2. Election and Term of Office. The President, Chairman of the Board, Treasurer, Secretary and other Executive Officers
shall be appointed only by, and shall serve only at the pleasure of, the Board of Directors. All other officers of the Corporation
may be appointed as the Board of Directors or the Chairman of the Board or President deem necessary and elect or appoint. Each
officer shall hold office until his or her successor shall have been chosen and shall have qualified or until his or her death
or the effective date of his or her resignation or removal, or until he or she shall cease to be a director in the case of the
Chairman of the Board.
SECTION
6.3. Removal and Resignation. Any officer or agent of the Corporation may be removed, either with or without Cause,
by the affirmative vote of a majority of the Board of Directors and, other than the Chairman of the Board, the Chief Executive
Officer (should one be serving) and the President, may also be removed, either with or without cause, by action of the Chairman
of the Board, the Chief Executive Officer or the President of the Executive Officer who, pursuant to Section 6.1, appointed such
officer, whenever, in his, her or their judgment, as applicable, the best interests of the Corporation shall be served thereby,
but such right of removal and any purported removal shall be without prejudice to the contractual rights, if any, of the person
so removed. Any Executive Officer or other officer or agent may resign at any time by giving written notice to the Corporation.
Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION
6.4. Vacancies. Any vacancy occurring in any required office of the Corporation by death, resignation, removal or otherwise,
shall be filled by the Board of Directors for the unexpired portion of the term. Any vacancy in any other office may be filled
as the Board of Directors, the Chairman of the Board or President deem necessary or as otherwise provided in this Article 6.
SECTION
6.5. Compensation. The compensation of the Executive Officers shall be determined by the Board of Directors or a designated
committee thereof. No officer who is also a director shall be prevented from receiving such compensation by reason of his or her
also being a director.
SECTION
6.6. Chairman of the Board. The Chairman of the Board (who may also be designated as Executive Chairman if serving as
an employee of the Corporation), if such an officer be elected, shall preside at all meetings of the Board of Directors and of
the stockholders of the Corporation. In the Chairman of the Board’s absence, such duties shall be attended to by any vice
chairman of the Board of Directors, or if there is no vice chairman, or such vice chairman is absent, then by the President. The
Chairman of the Board shall act as liaison between the Board of Directors and the executive officers of the Corporation and shall
be responsible for general oversight of such executive officers. The Chairman of the Board may also, but shall not be required
to, hold the position of Chief Executive Officer of the Corporation, if so elected or appointed by the Board of Directors. The
Chairman of the Board shall formulate and submit to the Board of Directors matters of general policy for the Corporation and shall
perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors. He or she may
sign with the President or any other officer of the Corporation thereunto authorized by the Board of Directors certificates for
shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds
or bonds, which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof
has been expressly delegated or reserved by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation,
or shall be required by law to be otherwise executed.
SECTION
6.7. Chief Executive Officer. The Chief Executive Officer shall, in general, perform such duties as usually pertain to
the position of chief executive officer of a public company and such duties, not inconsistent therewith, as may be prescribed
by the Board of Directors.
SECTION
6.8. President. The President shall, subject to the oversight by and control of the Board of Directors and the Chief
Executive Officer, have general and active management of the business of the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect.
SECTION
6.9. Chief Financial Officer. The Chief Financial Officer shall, in general, perform such duties as usually pertain to
the position of chief financial officer of a public company and such duties, not inconsistent therewith, as may be prescribed
by the Board of Directors.
SECTION
6.10. Chief Operating Officer. The Chief Operating Officer shall perform such duties, not inconsistent with such position,
as may be prescribed by the Board of Directors.
SECTION
6.11. Treasurer. The Treasurer shall perform such duties, not inconsistent with such position, as may be prescribed by
the Board of Directors.
SECTION
6.12. Secretary. The Secretary, who may or may not be an Executive Officer, as the Board of Directors shall determine,
shall keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors and shall perform
such other duties, not inconsistent with such position, as may be prescribed by the Board of Directors.
ARTICLE
7
CORPORATE
INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION
7.1. Contracts, etc. Subject to the provisions of Section 6.1 of these Bylaws, the Board of Directors may authorize
any officer, officers, agent or agents to enter into and/or execute any and all agreements, deeds, bonds, mortgages, contracts
and other obligations or instruments in the name of and on behalf of the Corporation, and such authority may be general or confined
to specific instances.
SECTION
7.2. Checks, etc. All checks, demands, drafts or other orders for the payment of money, and notes or other evidences
of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such agent or agents of the
Corporation, and in such manner, as shall be determined by the Board of Directors, the Chief Executive Officer or the Chief Financial
Officer.
SECTION
7.3. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board of Directors, the
primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation,
may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem
necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance
with the written instructions of said primary financial officer, or other person so designated by such primary financial officer.
SECTION
7.4. Voting of Securities Owned by Corporation. All stock and other securities of any other corporation owned or held
by the Corporation for itself, or for other parties in any capacity, and all proxies with respect thereto shall be executed by
the person authorized to do so by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman
of the Board, the Chief Executive Officer, the President or any Vice President.
ARTICLE
8
SHARES
OF STOCK
SECTION
8.1. Issuance. Each stockholder of the Corporation shall be entitled to a certificate or certificates showing the number
of shares of stock registered in his or her name on the books of the Corporation; provided, however, that the Corporation may
provide for stock to be issued in uncertificated form, including book entry, in which event physical certificates need not be
issued. If uncertificated stock ownership is maintained, the Board of Directors may permit the issuance of physical certificates
at the request of stockholders. Stock certificates shall be in such form as may be determined by the Board of Directors or the
Chief Executive Officer. Any or all the signatures on the certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate
is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such officer had not ceased
to be such officer at the date of its issue. If the Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designation, preferences and relative participating, option or other special rights of each
class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set
forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of
stock; provided that except as otherwise provided by the DGCL, in lieu of the foregoing requirements there may be set forth on
the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish to each stockholder who so requests the designations, preferences and relative participating,
option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of
such preferences and rights. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate
shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that
in the case of a lost, stolen, destroyed or mutilated certificate a new certificate (or uncertificated shares in lieu of a new
certificate) may be issued therefor upon such terms and with such indemnity, if any, to the Corporation as the Board of Directors
may prescribe. In addition to the above, all certificates (or uncertificated shares in lieu of a new certificate) evidencing shares
of the Corporation’s stock or other securities issued by the Corporation shall contain such legend or legends as may from
time to time be required by the DGCL.
SECTION
8.2. Lost Certificates. The Board of Directors may direct that a new certificate or certificates (or uncertificated
shares in lieu of a new certificate) be issued in place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates (or uncertificated
shares in lieu of a new certificate), the Board of Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative to
give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both and otherwise comply with
the regulations of any transfer agent may require.
SECTION
8.3. Transfers. In the case of shares of stock represented by a certificate, upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation
by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney and filed with the Secretary
and the Corporation’s transfer agent, if any. The Corporation’s transfer agent may require payment of a transfer fee,
and any transfer may be subject to payment by the transferring stockholder of the transfer fee.
SECTION
8.4. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares
of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except
as otherwise provided by the laws of the State of Delaware.
SECTION
8.5. Uncertificated Shares. The Board of Directors may approve the issuance of uncertificated shares of some or all
of the shares of any or all of its classes or series of capital stock.
ARTICLE
9
DIVIDENDS
SECTION
9.1. Declaration. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate
of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation
and the DGCL.
ARTICLE 10
INDEMNIFICATION
SECTION
10.1. Power to Indemnify in Actions, Suits, or Proceedings Other Than Those by or in the Right of the Corporation. Subject
to Section 10.3, the Corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect,
any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason
of the fact that such person (or the legal representative of such person) is or was a director or officer of the Corporation or
any predecessor of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that such person’s conduct was unlawful.
SECTION
10.2. Power to Indemnify in Actions, Suits or Proceedings By or in the Right of the Corporation. Subject to Section 10.3,
the Corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was
or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that such person (or the legal representative of such
person) is or was a director or officer of the Corporation or any predecessor of the Corporation, or is or was a director or officer
of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION
10.3. Authorization of Indemnification. Any indemnification under this Article 10 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer
is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 10.1 or Section
10.2 of this Article 10, as the case may be. Such determination shall be made, with respect to a person who is a director or officer
at the time of such determination: (i) by a majority vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even
though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel
in a written opinion or (iv) by the stockholders (but only if a majority of the directors who are not parties to such action,
suit or proceeding, if they constitute a quorum of the Board of Directors, presents the issue of entitlement to indemnification
to the stockholders for their determination). Such determination shall be made, with respect to former directors and officers,
by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that
a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
SECTION
10.4. Advances for Expenses. To the extent that a present or former director or officer of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person
in connection therewith. The payment of expenses incurred by a director or officer in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the
final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Article 10 or otherwise.
SECTION
10.5. Good Faith Defined. To the fullest extent permitted by applicable law, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was
unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise,
or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties,
or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made
to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected
with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section
10.5 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which
such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this
Section 10.5 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 10.1 or Section 10.2.
SECTION
10.6. Indemnification by a Court. Any director or officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 10.1 and Section 10.2. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in Section 10.1 or Section 10.2, as the case may be.
The absence of any determination thereunder shall not be a defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 10.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION
10.7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided
by or granted pursuant to this Article 10 shall not be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under the Certificate of Incorporation, any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another
capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections
10.1 and 10.2 of this Article 10 shall be made to the fullest extent permitted by law. The provisions of this Article 10 shall
not be deemed to preclude the indemnification of any person who is not specified in Section 10.1 or 10.2 of this Article 10 but
whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. The Corporation
is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents
respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
SECTION
10.8. Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the Corporation may purchase
and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is
or was a director, officer, employee or agent of the Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against
any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s
status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability
under the provisions of this Article 10.
SECTION
10.9. Certain Definitions. For purposes of this Article 10, references to “fines” shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation”
shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services
by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation”
as referred to in this Article 10.
SECTION
10.10. Survival of Indemnification and Advancement of Expenses. The rights to indemnification and advancement of expenses
conferred by this Article 10 shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors, administrators and other personal and legal representatives of such a person.
SECTION
10.11. Limitation on Indemnification. Notwithstanding anything contained in this Article 10 to the contrary, the Corporation
shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
10.11.1 for
which payment has actually been made to or on behalf of the party seeking indemnification under any insurance policy or other
indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision;
or
10.11.2 for
an accounting of profits made from the purchase and sale (or sale and purchase) by the director or officer of securities of the
Corporation within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law;
or
10.11.3 in
connection with any proceeding (or any part of any proceeding) initiated by person seeking indemnification, including any proceeding
(or any part of any proceeding) initiated by the person seeking indemnification against the Corporation or its directors, officers,
employees or other indemnitees, unless (i) the Board authorized the proceeding (or any part of any proceeding) prior to its initiation,
or (ii) the Corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the Corporation
under applicable law; or
10.11.4 for
conduct that is determined to be in violation of federal or state insider trading laws; or
10.11.5 conduct
that is determined to be knowingly fraudulent or deliberately dishonest or to constitute willful misconduct.
SECTION
10.12. Indemnification of Employees and Agents. The Corporation may, but shall not be required to, to the extent authorized
from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees
and agents of the Corporation similar to those conferred in this Article 10 to directors and officers of the Corporation.
SECTION
10.13. Effect of Amendment or Repeal. Neither any amendment or repeal of any Section of this Article 10, nor the adoption
of any provision of the Certificate of Incorporation or the Bylaws inconsistent with this Article 10, shall adversely affect any
right or protection of any director, officer, employee or other agent established pursuant to this Article 10 existing at the
time of such amendment, repeal or adoption of an inconsistent provision, including without limitation by eliminating or reducing
the effect of this Article 10, for or in respect of any act, omission or other matter occurring, or any action or proceeding accruing
or arising (or that, but for this Article 10, would accrue or arise), prior to such amendment, repeal or adoption of an inconsistent
provision.
SECTION
10.14. Lawsuit for Expenses. The Corporation shall be entitled to bring a lawsuit against any stockholder that shall sue
or otherwise commence an action against the Corporation for reimbursement of the litigation expenses of the Corporation in the
event that such stockholder is not successful in proving a substantial portion of the material claims filed against the Corporation.
In the event that the Corporation and the Stockholder shall settle the litigation, the Stockholder shall not be responsible for
the litigation expenses of the Corporation.
ARTICLE
11
MISCELLANEOUS
SECTION
11.1. Books. The books of the Corporation may be kept within or without the State of Delaware (subject to any provisions
contained in the DGCL) at such place or places as may be designated from time to time by the Board of Directors.
SECTION
11.2. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as may be designated by the Board of Directors.
SECTION
11.3. Ratification. Any transaction, questioned in any lawsuit on the ground of lack of authority, defective or irregular
execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation or the application of improper
principles or practices of accounting, may be ratified before or after judgment, by the Board of Directors or by the stockholders,
and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized.
Such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution
of any judgment in respect of such questioned transaction.
ARTICLE
12
AMENDMENTS
These
Bylaws may be amended, altered or repealed by the vote of a majority of the Board of Directors; provided, however, that the holders
of two-thirds of the outstanding stock of the Corporation entitled to vote in respect thereof, may, by their vote given at an
annual meeting or at any special meeting, amend or repeal any Bylaw made by the Board of Directors; provided, however,
that no such change to any Bylaw shall alter, modify, waive, abrogate or diminish the Corporation’s obligation to provide
the indemnity called for by Article 10 of these Bylaws, the Certificate of Incorporation or applicable law.
#
# #
16
Exhibit 31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Jon C. Scahill, certify that:
1. I
have reviewed this annual report on Form 10-K of Quest Patent Research Corporation;
2. Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
3. Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this annual report is being prepared; |
|
|
|
|
b) |
designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; |
|
|
|
|
d) |
disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; |
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
|
a) |
all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified
for the registrant’s auditors any material weaknesses in internal controls; and |
|
|
|
|
b) |
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: April
9, 2015 |
By: |
/s/
Jon C. Scahill |
|
|
Chief Executive Officer and
Acting Chief Financial Officer) |
|
|
(Principal Executive, Financial and
Accounting Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Quest Patent Research Corporation (the “Company”) on Form 10-K for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon C.
Scahill, chief executive officer of the Company, and acting chief financial officer of the Company, certify, pursuant to 18 U.S.C.
section 1350 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| (2) | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
Date:
April 9, 2015 |
By: |
/s/Jon
C. Scahill |
|
|
Jon
C. Scahill |
|
|
Chief
Executive Officer and
Acting Chief Financial Officer
(Principal
Executive, Financial and
Accounting Officer) |
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