QPRC Quest Patent Research Corporation (QB)

As filed with the Securities and Exchange Commission on June 21, 2022

Registration No. 333-256197

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Post Effective Amendment No. 2

TO

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

QUEST PATENT RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		6794		11-2873662
(State or jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer  Identification No.)

 

411 Theodore Fremd Ave. Suite 206S

Rye, NY 10580-1411

(888) 743-7577

(Address and telephone number of principal executive offices)

 

COPIES TO:

 

Asher S. Levitsky P.C.

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas, Suite 1100

New York, New York 10105-0302

Telephone: (646) 895-7152

Fax: (646) 895-7238

E-mail: alevitsky@egsllp.com

(Name, address and telephone number of agent for service)

 

APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:

As soon as practicable after this registration statement becomes effective.

 

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non- accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED JUNE       , 2022

 

100,000,000 Shares

 

Quest Product Research Corporation

 

OTCQB trading symbol: QPRC

 

This prospectus relates to the public offering of an aggregate of 100,000,000 shares of common stock which may be sold from time to time by the selling stockholders named in this prospectus.

 

We will not receive any proceeds from the sale by the selling stockholders of their shares of common stock. We will pay the cost of the preparation of this prospectus, which is estimated at $25,000.

 

On June 15, 2022, the last reported sales price for our common stock on the OTCQB, as reported by OTC Markets, was $[    ] per share. On May 23, 2022, we received notice from OTC Markets Group, that, because the bid price for our common stock had closed below $0.01 per share for more than 30 consecutive days, we no longer meet the Standards for Continued Eligibility under the OTC listing standards and, if this deficiency is not met by August 21, 2022, we will be removed from the OTCQB marketplace, in which event our common stock will be traded on the OTC Pink market. If our stock is not traded on the OTCQB, the selling stockholders will not be able to sell shares of our common stock pursuant to the prospectus and we will be in breach of our covenants under our agreements with one of the selling shareholders. On June 2, 2022, our board of directors approved a one-for-100 reverse split, which our board of directors believe would enable us to become in compliance with the bid price requirements of the OTCQB. The reverse split is subject to stockholder approval at our 2022 annual meeting, which will be held in July 2022. See “Market for Common Stock and Related Stockholder Matters.”

 

Investing in shares of our common stock involves a high degree of risk. You should purchase our common stock only if you can afford to lose your entire investment. See “Risk Factors,” which begins on page 4.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The selling stockholders have not engaged any underwriter in connection with the sale of their shares of common stock. The selling stockholders may sell shares of common stock in the public market based on the market price at the time of sale or at negotiated prices or in transactions that are not in the public market. The selling stockholder may also sell their shares in transaction that are not in the public market in the manner set forth under “Plan of Distribution.”

 

The date of this Prospectus is _____________, 2022

 

 

TABLE OF CONTENTS

 

	Page
Prospectus Summary	1
Risk Factors	4
Cautionary Note Regarding Forward-Looking Statements	14
Use of Proceeds	16
Selling Stockholders	17
Plan of Distribution	19
Market for Common Stock and Related Stockholder Matters	21
Business	23
Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
Management	64
Executive Compensation	66
Principal Stockholders	69
Certain Relationships and Related Transactions	70
Description of Capital Stock	71
Legal Matters	74
Experts	74
Where You Can Find More Information	74
Index to Consolidated Financial Statements	F-1

 

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

 

 

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 prospectus before making an investment decision with regard to our securities. The statements contained in this prospectus include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. The risks set forth below are not the only risks facing us. Additional risks and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually 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 a significant 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 March 31, 2022, we generated a cumulative loss of approximately $25.6 million on cumulative revenues of less than $23.5 million, and our losses are continuing. We did not generate any revenue during the fourth quarter of 2020 or during the first three quarters of 2021. Our total assets were approximately $1.6 million at March 31, 2022, of which approximately $1.3 million represented the book value of patents we acquired from Intellectual Ventures Assets 181 LLC and Intellectual Ventures Assets 174 LLC in January 2022 and Aawaaz Inc. (“AI”) in October of 2021. At March 31, 2022, we had a working capital deficiency of approximately $8 million.

 

We did not generate any revenue during the fourth quarter of 2020 or the first three quarters of 2021. During the fourth quarter of 2020 and the first three quarters of 2021, we did not generate any revenue. For the three months ended March 31, 2022, we sustained a loss of $163,000 on revenues of $122,000, and for the years ended December 31, 2021 and 2020, we sustained a net loss of $4.2 million on revenues of $2.1 million and a net loss of $1.3 million on revenues of $5.5 million, respectively. Because we were in default under our loans to Intelligent Partners (as successor to United Wireless), with Intelligent Partners having the ability to declare a default on our notes in the principal amount of $4,672,810, and the possibility of our seeking protection under the Bankruptcy Act if Intelligent Partners sought to exercise any of its rights as a result of our default, we ceased our monetization activities, since no counsel would represent us on a contingent basis in view of the default and possible bankruptcy, and we devoted our efforts in negotiating the agreements with QFL and Intelligent Partners. We resumed our monetization activities following in February 2021 after we entered into our agreements with QFL and Intelligent Partners. However, the intellectual property monetization cycle is lengthy and may be unsuccessful. Monetization activities initiated may take several quarters to generate revenues if ever.

 

Our independent auditors have included a going concern qualification in their report on our financial statements for the year ended December 31, 2021. Because of our history of losses, deficiency in stockholders’ equity, working capital deficiency and the uncertainty of generating revenues in the future, our independent auditors have included a going concern qualification in their report on our financial statements for the year ended December 31, 2021, and our unaudited financial statements for the three months ended March 31, 2022 have a going concern footnote.

 

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, including the prosecution of any litigation necessary to enable us 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 continue to obtain the funding necessary to develop our business, including litigation to monetize our intellectual property. Although we have an agreement with QFL which provides a funding line to acquire and monetize intellectual property rights, QFL must approve any intellectual property we acquire and, if QFL does not fund an intellectual property acquisition, we may not be able to acquire and monetize the intellectual property. We cannot assure you that we will be able to continue to obtain necessary funding or to develop our business. 

 

 

The terms of our agreements with QFL and Intelligent Partners may make it difficult for us to generate cash flow from our operations. Although we have an agreement with QFL pursuant to which QFL agreed to make available to us a financing facility of (i) up to $25,000,000 for the acquisition of mutually agreed patent rights that we intend to monetize, of which we have received $2,210,000 as of June 15, 2022; (ii) up to $2,000,000 for operating expenses from which we may, at our discretion, draw up to $200,000 per calendar quarter, of which we have drawn down $1,400,000 as of June 15, 2022, and (iii) $1,750,000 which was used to fund the cash payment portion of the restructure of our obligations to Intelligent Partners. Pursuant to the QFL agreement, QFL receive all proceeds payable to us from the monetization of those patents which have been financed by QFL until QFL has received its negotiated rate of return, then we and QFL share equally in the proceeds from monetization until QFL has received its investment return and thereafter we receive all of the net proceeds. Pursuant to our restructure agreement with Intelligent Partners, we have an obligation to pay a non-interest bearing total monetization proceeds obligation (the “TMPO”) totaling $2,805,000. Under our amended monetization proceeds agreements with Intelligent Partners, we pay Intelligent Partners 60% of the net monetization proceeds from associated intellectual property portfolios. Further, until we have paid Intelligent Partners a total of $2,805,000 under all of the monetization proceeds agreements, for net proceeds between $0 and $1,000,000 we are to pay Intelligent Partners 10% of the net proceeds realized from new assets acquired by us, provided, that, if, in any calendar quarter, our net proceeds realized exceed $1,000,000, Intelligent Partner’s entitlement for that quarter shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000, and if in the same calendar quarter, net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter shall increase to 50% on the portion of net proceeds in excess of $3,000,000. These payments come from our share of the proceeds after QFL has recovered its negotiated rate of return. In these agreements, the monetization proceeds is determined after payment of contingent legal fees and certain other expenses, including payments due by us to as part of the purchase price for intellectual property rights. We cannot assure you that, as a result of these provisions, that we will generate any meaningful cash flow from the intellectual property we acquire. If we do not generate sufficient cash flow from our monetization activities, we may not be able to fund our operations or continue in business.

 

If our common stock is removed from the OTCQB we will be in violation of our covenants under our registration rights agreement with QFL which could result of our being required to pay damages which we do not have the funds to pay which may result in our seeking protection under the Bankruptcy Act. On May 23, 2022, we received notice from OTC Markets Group, that, because the bid price for our common stock had closed below $0.01 per share for more than 30 consecutive days, we no longer meet the Standards for Continued Eligibility under the OTC listing standards and, if this deficiency is not met by August 21, 2022, we will be removed from the OTCQB marketplace, in which event our common stock will be traded on the OTC Pink market. Our registration rights agreement with QFL provides that, in the event of a failure to comply with certain covenants, which includes the failure of our common stock to be traded on the OTCQB, in additional to any other remedies available to QFL, we are to pay to QFL an amount in cash equal to 2.0% of the aggregate value of QFL’s Registrable Securities, as defined in the Registration Rights Agreement, whether or not included in such registration statement, on each of the following dates: (i) the initial day of a maintenance failure; (ii) on the 30th day after the date of such a failure and (iii) every 30th day thereafter (prorated for periods totaling less than thirty (30) days) until such failure is cured. We may not have the funds to make the payment pursuant to the registration rights agreement, and, if QFL seeks to enforce its rights to the damages, we may seek protection under the Bankruptcy Act. Further, even if QFL does not seek to enforce it right to damages, it may not make advances to us until and unless our common stock meets the OTCQB trading requirements.

 

Our business may be impaired by the effects of the COVID-19 pandemic and the effects of the response to the pandemic. Although we do not manufacture or sell products, the COVID-19 pandemic and the work shutdown imposed in the United States and other countries to limit the spread of the virus can have a negative impact on our business. Our revenue is generated almost exclusively from license fees generated from litigation seeking damages for infringement of our intellectual property rights. The work shutdown affected the court system courts operating on a reduced schedule. As a result, even though many court are operating on a near normal schedule, patent infringement actions are likely to be lower priority items in allocation of court resources, with the effect that deadlines are likely to be postponed which delays may give defendants an incentive to delay negotiations or offer a lower amount than they might otherwise accept. In addition, the effect of the COVID-19 and new variants and subvariants the public response may adversely affect the financial condition and prospects of defendants and potential defendants, which would make it less likely that they would be willing to settle our claim.

 

The COVID-19 pandemic and the response to limit the spread of the infection may affect the financial condition of financing sources and the willingness of potential financing sources to provide funding for our litigation. In addition, these factors may affect a law firms’ ability and willingness to provide us with legal services on a contingent or partial contingent and may result in the impairment or discontinuation of business of or the filing of a petition under the Bankruptcy Act by or against any defendant or potential defendant.

 

Further, to the extent that holders of intellectual property rights see these factors impacting our ability to generate revenue from their intellectual property, they may be reluctant to sell intellectual property to us on terms which are acceptable to us. 

 

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 and performing due diligence with respect to 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 ensure that Mr. Scahill will remain with us.

 

Any equity funding we obtain may result in significant dilution to our stockholders. Because of our financial position and our low stock price, our continuing losses and our negative working capital from operations and the possibility that we may cease to be traded on the OTCQB, 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 $0.02 per share for more than the past two years, and recently the closing bid price for our stock has been below $0.01 for a period of more than 30 days, as a result of which we do not currently meet the OTCQB trading requirements. 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 stockholders, and even a modest equity investment could result in the issuance of a very significant number of shares.

 

 

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 positive cash flow from our portfolios, we have not generated any revenues from several of our intellectual property portfolios and we have ceased allocating resources toward the monetization of several of our 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.

 

If we are not successful in patent litigation, the defendants may seek to have the court award attorneys’ fees to them against us which could result in the bankruptcy of the plaintiff subsidiary and may result in a default under our agreement QFL. The United States patent laws provide that “the court in exceptional cases may award reasonable attorney fees to the prevailing party.” Although the patents are owned by our subsidiaries and any judgment would be awarded against the subsidiaries, the subsidiaries have no assets other than the patent rights. Our funding sources for our patent litigation do not provide for the funding source to pay any judgment against us. Thus, if any defendants obtain a judgment against one of our subsidiaries, they may seek to enforce their judgment against the patents owned by the subsidiary or seek to put the subsidiary into bankruptcy and acquire the patents in the bankruptcy proceeding. As a result, it is possible that an adverse verdict in a petition for legal fees could result in the loss of the patents owned by the subsidiary and a default under our agreement with QFL.

 

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 on an ongoing basis. 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.

 

We may be unable to enforce our intellectual property rights unless we obtain third party funding. Because of the expense of litigation and our lack of working capital, we may be unable to enforce our intellectual property rights unless we obtain the agreement of a third party to provide funding in support of our litigation. We cannot assure you that QFL or any other funding source provide us the any necessary funding, and the failure to obtain such funding may impair our ability to monetize our intellectual property portfolio or continue in business. 

 

Because we need to rely on third-party funding sources to provide us with funds to enforce our intellectual property rights we are dependent upon the perception by potential funding sources of the value of our intellectual property. Because we do not have funds to pursue litigation to enforce our intellectual property rights, we are dependent upon the valuation which potential funding sources, which currently is QFL, give to our intellectual property or any intellectual property we may acquire. In determining whether to provide funding for intellectual property litigation, the funding sources need to make an evaluation of the strength of our patents, the likelihood of success, the nature of the potential defendants and a determination as to whether there is a sufficient potential recovery to justify a significant investment in intellectual property litigation. Typically, such funding sources receive a percentage of the recovery after litigation expenses, and seek to generate a sufficient return on investment to justify the investment. Under our agreement with QFL, QFL is allocated all of the net proceeds (after allowable expenses) until it has received a negotiated return. Unless QFL or any other funding source believes that it will generate a sufficient return on investment, it will not fund litigation. If QFL does not fund our acquisition or monetization of intellectual property we propose to acquire, we cannot assure you that we will be able to negotiate funding agreements with third party funding sources on terms reasonably acceptable to us, if at all. Because of our financial condition, we may only be able to obtain funding on terms which are less favorable to us than we would otherwise be able to obtain. 

  

 

Although we have a funding agreement with QFL, there is no assurance that QFL will provide funding for portfolios we are looking to acquire or that we will generate revenue from any funded litigation. Although the funding source makes its evaluation as to the likelihood of success, patent litigation is very uncertain, and we cannot assure you that, we will obtain litigation funding or that, if we obtain litigation funding, we will be successful or that any recovery we may obtain will generate any significant positive cash flow from operations for us.

 

Because of our financial condition and our having generated a loss from operations in 2021 and 2020 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 the terms under which we obtain financing for our litigation, we may be unable to negotiate rights to technology for which there 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, together with the terms on which such funding is available, if at all;

 

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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 who is responsible for performing due diligence, negotiating agreements, negotiating funding and implementing a monetization program; and

 

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our failure, in 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 and other 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 may be unsuccessful. We expect to incur significant marketing, legal and sales expenses prior to entering into monetization events that generate revenue and cash flow from operations 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 will be necessary for us to commence ligation in the future. All litigation is uncertain, and a number of the actions we commenced have been dismissed by the trial court. 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 or that any recovery may be allocated to counsel and third party funding source which may result in little if any revenue to us.

 

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 or settle any litigation we may commence on terms which generate any meaningful monetization. 

 

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 2014 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 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 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. In May 2017, the United States Supreme Court, in TC Heartland v. Kraft Foods Groups Brands, held that a corporate defendant may be sued either in its state of incorporation, or where it has committed acts of infringement and has a regular and established place of business. To the extent that the Supreme Court decision in TC Heartland concentrates patent litigation in districts within states popular for business incorporation, such as the Federal District Court for the District of Delaware, such courts may become increasingly crowded. 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 any 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, and we generally have not been successful in negotiating licenses without litigation. 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 and the recent Russian invasion in Ukraine has exacerbated these conditions, including those resulting from inflation and supply line issues. 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. Commencing legal proceedings to enforce our intellectual property rights is 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 OTCQB market under the symbol “QPRC.” The OTCQB market is not a national securities exchange and does not provide the benefits to stockholders which a national exchange provides. Furthermore, according to the OTC Markets website, the OTCQB “is for early-stage and developing U.S. and international companies. To be eligible, companies must be current in their reporting and undergo an annual verification and management certification process. Companies must meet $0.01 bid test and may not be in bankruptcy.” There is a limited trading market for our common stock and our common stock has frequently traded for less than $0.02. From August 28, 2020 to May 7, 2021 our common stock was delisted from the OTCQB and traded on the OTC Pink because our stock price fell below $0.01 per share for more than 30 consecutive trading days. On May 23, 2022, we received notice from OTC Markets Group, that, because the bid price for our common stock had closed below $0.01 per share for more than 30 consecutive days, we no longer meet the Standards for Continued Eligibility under the OTC listing standards and, if this deficiency is not met by August 21, 2022, we will be removed from the OTCQB marketplace, in which event our common stock will be traded on the OTC Pink market. See “Market for Common Stock and Related Stockholder Matters.” 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. Further, because of the thin float, the reported bid and asked prices may have little relationship to the price you would pay if you wanted to buy shares or the price you would receive if you wanted to sell shares.

 

Our board of directors has approved a one-for-100 reverse split, which is intended to enable us to retain the listing of our stock on the OTCQB. Although we believe that the one-for-100 reverse split will enable us to maintain our listing on the OTCQB, we cannot assure you that we will obtain stockholder approval or that, even if stockholder approval is obtained, that the stock price will not decline following the effectiveness of the reverse split or that such reduction will not be significant or that our stock will meet the requirements for continuing to trade on the OTCQB.

 

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. Many brokers do not trade in penny stocks and stock that are not listed on a stock exchange. 

 

Our lack of 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 or personnel 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 poor financial condition together with the fact that we have one full time employee, who is both our chief executive officer and chief financial officer, 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 unless our financial condition improves 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 the date of this prospectus, 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. Because of the low public float and the absence of any significant trading volume, the reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy share. Further, stocks with a low public float may be more subject to manipulation than a stock that has a significant public float. 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 the risks described above and general market and economic conditions:

 

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the possibility that our stock will cease to be traded on the OTCQB and will instead be traded on the OTC Pink market.

 

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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 effect of the COVID-19 pandemic and the response to the pandemic on the market both generally and on penny stocks;

 

 

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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 and for the monetization of our intellectual property rights;

 

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the market’s perception of the effects of legislation or court decisions on our business;

 

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the market’s perception that a defendant may obtain a judgement against one of our subsidiaries and foreclose on the intellectual property of such subsidiary, which may result in a default under our agreement with QFL and, even if a default is not claimed, QFL may not provide financing for us;

 

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the effects or perceived effects of the potential convertibility of convertible notes issued by us;

 

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the results or anticipated results of litigation by or against us;

 

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the anticipated or actual results of our operations;

 

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events or conditions relating to the enforcement of intellectual property rights generally;

 

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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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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.

 

Raising funds by issuing equity or convertible 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, either alone or in connection with a non-equity financing, 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, the fact that our stock may cease to be traded on the OTCQB 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 and may result in liability to us. 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 Form 10-K for the year ended December 31, 2013 on April 10, 2015; and our Form 10-K for the year ended December 31, 2014 on August 18, 2015. 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, because we did not have current information concerning our business and operations available, we have potential liability resulting from our failure to have been current in our SEC filings, and the SEC has broad power to take action against us for our failure to have been in compliance with the reporting requirement of the Securities Exchange Act of 1934. Although the SEC permits an issuer to file an omnibus 10-K covering the periods for which filings were not made, the SEC is not foreclosed from seeking enforcement action for our filing delinquencies. Any such action could have a material adverse effect upon us and the market for and price of our common stock. 

 

Because we have a classified board of directors, it may be more difficult for a third party to obtain control of us. As a result of the approval by our stockholders of our amended and restated certificate of incorporation, our board of directors is a classified board, which means that at each annual meeting, the stockholder will vote for only one-third of the board. A classified board of directors may make it more difficult for a third party to gain control of us which may affect the opportunity of our stockholders to receive any potential benefit which could be available from a third party seeking to obtain control over us. 

 

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. 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “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. You 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. You must carefully consider any such statements 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: 

 

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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;

 

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Our ability or perceived ability to obtain necessary financing for operations and for the monetization of our intellectual property rights;

 

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The possibility that our stock may cease to be traded on the OTCQB, with the result that we will be in breach of our obligations under our registration rights agreement with QLF which could result in our being required to pay damages which we may not have the money to pay, which may result in a filling under the Bankruptcy Act if QFL seeks to enforce its rights.

 

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Our ability to remain current with respect to our obligations under patent purchase agreements, the failure of which could result in a default under our agreement with QFL or, even if the failure does not result in a default, it may affect the willingness of QFL to make advances to us under the funding agreement;

 

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The effect of the COVID-19 pandemic, including the recent Omicron variant, a subvariant of Omicron or any other variants or other outbreak of infections on our ability to generate revenue from our intellectual property; including reduced court schedules which give a lower priority to legal action such as those we file and the ability or willingness of defendants to reach a settlement on our claims, and impairment in the financial condition or bankruptcy of defendants and potential defendants in action which we commenced or may commence;

 

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Our ability to generate sufficient proceeds from our intellectual property rights to enable us to realize any cash flow after payments to our funding sources, including QFL under our financing agreement with QFL, our restructured agreement with Intelligent Partners, and payments due to counsel;

 

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Our ability to identify intellectual property which QFL is willing to fund and to find other funding sources if QFL is not willing to fund the acquisition of the intellectual property;

 

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Our ability or perceived ability to obtain necessary financing for operations;

 

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Our ability to identify and negotiate purchase terms of intellectual property that QFL is willing to fund the litigation pursuant to our agreements with QFL;

 

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Our ability to identify and acquire intellectual property rights for innovative technologies for which there is a significant potential market, including our ability to negotiate to obtain such rights in view of the economic effects COVID-19 pandemic and the resulting business closures;

 

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The effect of any adverse decision in any action one of our subsidiaries may commence, including the award of legal fees in favor of a defendant, which may result in the bankruptcy of the subsidiary;

 

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The effects on our business, financial conditions and ownership of proprietary rights in the event of any default under our agreements with QFL or Intelligent Partners;

  

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The effect of legislation and court decisions on the ability to generate revenue from patent and other intellectual property rights as well as the market’s perception of the effects of such legislation or court decisions on our business;

  

 

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The effect of Russian invasion of Ukraine or any other international conflicts and the sanctions which have been imposed and which may be imposed and the resulting economic conditions may affect our ability to acquire and monetize intellectual property;

 

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Our ability to obtain the funding either from QFL or other sources in order for us to acquire intellectual property and otherwise develop our business;

 

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Our ability to reduce the cost of litigation through contingent fees with counsel or to obtain third-party financing from QFL or other sources if QFL does not provide the funding necessary for us to acquire the intellectual property or enforce our intellectual property rights through litigation;

 

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The results or anticipated results of litigation by or against us, including any actions or motions by defendants seeking legal fees or any other recovery from us in the event that a court decision is against us or otherwise does not uphold our intellectual property rights;

 

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The effects on us in the event that any party against which we commence litigation obtains a judgement against one of our subsidiaries and seeks to foreclose on the intellectual property owned by the subsidiary which may result in a default under our loan agreement with United Wireless.

 

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The anticipated or actual results of our operations;

 

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Events or conditions relating to the enforcement of intellectual property rights generally;

 

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The development of a market for our common stock;

 

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Our ability to retain our key executive officers and identify, hire and retain additional key employees;

 

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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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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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The sale or the market’s perception of the possible sale by QFL or Intelligent Partners of the shares of common stock which we have registered pursuant to the Securities Act;

 

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Any damages we may be required to pay in the event that we do not keep the registration statement covering shares to be sold by owned by Intelligent Partners or issuable upon warrants held by QFL current and effective without their ability to sell pursuant to Rule 144; and

 

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Other matters not within our control.

 

In addition, factors that could cause or contribute to such differences include, but are not limited to, those discussed in this prospectus, 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, you are cautioned not to place undue reliance on such forward-looking statements. 

 

Information regarding market and industry statistics contained in this prospectus 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, you should not place undue reliance on these forward-looking statements.  

 

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale by the selling stockholder of their common stock.

 

 

SELLING STOCKHOLDERS

 

The following table sets forth the names of the selling stockholders, the number of shares of common stock owned beneficially by the selling stockholders as of June 15, 2022, and the number of shares of our common stock that may be offered by the selling stockholders pursuant to this prospectus. The table and the other information contained under the captions “Selling Stockholders” and “Plan of Distribution” has been prepared based upon information furnished to us by or on behalf of the selling stockholders. The following table sets forth, as to the selling stockholders, the number of shares beneficially owned, the number of shares being sold, the number of shares beneficially owned upon completion of the offering and the percentage beneficial ownership upon completion of the offering.

 

										After Sale of Shares in Offering
Name		Shares Beneficially Owned				Shares Being Sold				Shares Beneficially Owned				Percent of Outstanding
QPRC Finance LLC1			96,246,246				50,000,000				46,246,246				4.99	%
Andrew C. Fitton2			117,407,407				35,000,000				82,407,407				14.13	%
Michael Carper3			78,888,889				15,000,000				63,888,889				10.95	%

 

1

The shares beneficially owned by QFL represent shares of common stock issuable upon exercise of a warrant to purchase 96,246,246 shares of common stock, which is subject to increase as provided in the warrant.  The holder of warrant, together with the affiliates of the holder, cannot exercise the warrant to the extent that the number of shares owned by the holder and its affiliates, after giving effect to the issuance upon exercise do not exceed 4.99% of the outstanding common stock.  As of the date of this prospectus, based upon 533,334,630 shares of common stock outstanding, QFL will not be able to exercise the warrant for more than 28,011,154 shares of common stock.  QFL may exercise the warrant for more than that number of shares to the extent that we issue additional shares of common stock or QFL sells shares issued upon such exercise.

 

2

Represents 67,407,407 shares owned by Mr. Fitton and 50,000,000 shares of common stock issuable pursuant to an option grant held by Intelligent Partners at an exercise price of $0.0054 per share.  Mr. Fitton and Mr. Carper, as the members of Intelligent Partners have the right to vote and dispose of shares owned by Intelligent Partners.

 

3

Represents 28,888,889 shares owned by Mr. Carper and 50,000,000 shares of common stock issuable pursuant to an option grant held by Intelligent Partners, at an exercise price of $0.0054 per share. Mr. Fitton and Mr. Carper, as the members of Intelligent Partners have the right to vote and dispose of shares owned by Intelligent Partners.

 

The selling stockholders do not have, and within the past three years have not had, any position, office or material relationship with us or with any of our predecessors or affiliates except as described below.

 

Issuances of Shares to Selling Stockholders

 

Issuance of Warrant to QFL

 

On February 22, 2021, we entered into a series of agreements, all dated February 19, 2021,with QFL, including a Prepaid Forward Purchase Agreement pursuant to which QFL agreed to make available to us a financing facility of: (i) up to $25,000,000 for the acquisition of mutually agreed patent rights that the Company intends to monetize; (ii) up to $2,000,000 for operating expenses; and (iii) $1,750,000 to fund the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners. These agreements are described under “Business – Agreements with QPRC Finance LLC.” In connection with these agreements, we granted QFL ten-year warrants to purchase a total of up to 96,246,246 shares of our common stock, with an exercise price of $0.0054 per share which may be exercised from February 19, 2021 through February 18, 2031 on a cash or cashless basis. Exercisability of the Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% (the “Maximum Percentage”) of our common stock, except that by written notice to us, the holder may change the Maximum Percentage to any other percentage not in excess of 9.99% provided any such change will not be effective until the 61^st day following notice to us. The warrant also contains certain minimum ownership percentage anti-dilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the warrant shall not be less than 10% of the aggregate number of outstanding shares of our capital stock (determined on a fully diluted basis).

 

Pursuant to the QFL Board Observation Rights Agreement, until the later of the date on which QFL or its affiliates (i) have received the entirety of their Investment Return (as defined in Purchase Agreement), and (ii) no longer hold any Securities, we granted QFL the right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings (including, without limitation, telephonic or other electronic meetings) of our board of directors and any committee thereof, including executive sessions, in an observer capacity.

 

 

Issuance of shares to Andrew Fitton and Michael Carper

 

Pursuant to a securities purchase agreement dated October 22, 2015, between United Wireless and us and certain of our subsidiaries, we sold 50,000,000 shares of common stock to United Wireless at $0.005 per share, or an aggregate of $250,000. The shares were issued in connection a financing to provide us with funds to purchase intellectual property rights, and United Wireless subsequently made additional advances to us for the purchase intellectual property rights. At September 30, 2020, promissory notes in the principal amount of $4,672,810 were outstanding. United Wireless assigned the shares to Mr. Fitton (35,000,000 shares) and Mr. Carper (15,000,000 shares), and these shares are being sold by Mr. Fitton and Mr. Carper pursuant to this prospectus. United Wireless assigned the promissory notes to Intelligent Partners, LLC, which is an affiliate of United Wireless and is owned by Mr. Fitton and Mr. Carper. The notes became due by their terms on September 30, 2020, and we did not make any payment on account of principal of and interest on the notes at that date. As a result, Intelligent Partners had the right to declare a default under the notes, and, if Intelligent Partners had taken such action, it would have been necessary for us to seek protection under the Bankruptcy Act. Subsequent to September 30, 2020, we engaged in negotiations with Intelligent Partners in parallel with our negotiations with QFL, with a view to restructuring our obligations under the United Wireless agreements, including the notes, so that we no longer had any obligations under the notes or the securities purchase agreement. These negotiations resulted in a Restructure Agreement dated February 22, 2021 pursuant to which we paid Intelligent Partners $1,750,000 from the proceeds from our agreements with QFL. The Restructure Agreement and the related agreements are described under “Business- Restructure Agreement with Intelligent Partners. Pursuant to the Restructure Agreement, Intelligent Partners assigned $250,000 of the note to Mr. Fitton and Mr. Carper, who converted the note into 46,296,296 shares of common stock, of which 32,407,407 shares were issued to Mr. Fitton and 13,888,889 shares issued to Mr. Carper, and we granted to Intellectual Partners an option, expiring at September 30, 2025, to purchase 50,000,000 shares at $0.0054 per share. Pursuant to the Intelligent Partners Board Observation Rights Agreement, we granted Intelligent Partners the right until we have made payments pursuant to restructure agreement and the monetization agreements totaling $2,805,000 to appoint a representative to attend meetings of the board of directors and any committee thereof, including executive sessions, in an observer capacity.

 

 

PLAN OF DISTRIBUTION

 

The selling stockholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions or by gift. The shares offered by this prospectus may be sold by the selling stockholders at market prices prevailing at the time of sale or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling or otherwise transferring shares:

 

●

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

●

block trades in which a broker-dealer will attempt to sell the shares as agent but may purchase a position and resell a portion of the block as principal to facilitate the transaction;

 

●

sales to a broker-dealer as principal and the resale by the broker-dealer of the shares for its account;

 

●

an exchange distribution in accordance with the rules of the applicable exchange if we are listed on an exchange at the time of sale;

 

●

privately negotiated transactions, including gifts;

 

●

covering short sales made after the date of this prospectus;

 

●

pursuant to an arrangement or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share;

 

●

a combination of any such methods of sale; and

 

●

any other method of sale permitted pursuant to applicable law.

 

To the extent permitted under Rule 144, the selling stockholders may also sell the shares owned by them pursuant to Rule 144 rather than pursuant to this prospectus.

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. None of the selling stockholders is an affiliate of any broker-dealer.

 

 

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if the selling stockholders default in the performance of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus.

 

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling stockholders may, after the date of this prospectus, also sell shares of our common stock short and deliver these securities to close out their short positions, or lend or pledge their common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, they will be subject to the prospectus delivery requirements of the Securities Act, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act, and federal securities laws, including Regulation M, may restrict the timing of purchases and sales of our common stock by the selling stockholders and any other persons who are involved in the distribution of the shares of common stock pursuant to this prospectus. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

 

We may be required to amend or supplement this prospectus in the event that (a) a selling stockholder transfers securities under conditions which require the purchaser or transferee to be named in the prospectus as a selling stockholder, in which case we will be required to amend or supplement this prospectus to name the selling stockholder, or (b) any one or more selling stockholders sells stock to an underwriter, in which case we will be required to amend or supplement this prospectus to name the underwriter and the method of sale.

 

We are paying all fees and expenses incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

 

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Our common stock trades on the OTCQB Market under the symbol QPRC.  Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

On May 23, 2022, we received notice from OTC Markets Group, that, because the bid price for our common stock has closed below $0.01 per share for more than 30 consecutive days, we no longer meet the Standards for Continued Eligibility under the OTC listing standards and, if this deficiency is not met by August 21, 2022, we will be removed from the OTCQB marketplace, in which event our common stock will be traded on the OTC Pink market. If our stock is not traded on the OTCQB, the selling stockholders will not be able to sell shares of our common stock pursuant to the prospectus and we will be in breach of our covenants under our agreements with QFL, one of the selling shareholders. Our board of directors approved a one-for-100 reverse split, which we believe would enable us to become in compliance with the bid price requirements of the OTCQB. The reverse split is subject to stockholder approval at our 2022 annual meeting, which we expect will be held in July 2022.

 

Stockholders of Record

 

As of May 15, 2022, we had 413 holders of record of our common stock.

 

Transfer Agent

 

Continental Stock Transfer & Trust Company, One State Street, 30th floor, New York, New York 10004-1561 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 March 31, 2022.

 

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 March 31, 2022
Equity compensation plans approved by security holders			—			$	—				—
Equity compensation plans not approved by security holders (1)			150,000,000			$	0.03				176,000,000
Total			150,000,000			$	0.03				176,000,000

 

 

A summary of the status of our equity grants and changes is set forth below:

 

(1)

On November 10, 2017, the board of directors adopted the 2017 Equity Incentive Plan (the “Plan”) pursuant to which we can issue up to 150,000,000 shares of common stock pursuant to non-qualified stock options, restricted stock grants and other equity-based incentives. On February 19, 2021, the board of directors amended the Plan increasing the number of shares we can issue under the plan to 500,000,000.  At March 31, 2022, 176,000,000 shares are available under the Plan.

 

On February 19, 2021, the board of directors amended the 2017 Equity Incentive Plan (the “Plan”) increasing the shares the Company can issue under the plan to 500,000,000 shares of common stock pursuant to non-qualified stock options, restricted stock grants and other equity-based incentives, and the amendment to the Plan became effective upon the closing of the agreements with QFL, which was February 22, 2021. In connection with the increase in the shares of common stock issuable pursuant to the plan, the board;

 

●

granted restricted stock grants for 10,000,000 shares, which vested immediately, to each of three consultants pursuant to agreements with the consultants;

 

●

granted restricted stock grants for a total of 69,000,000 shares to our directors, Jon C. Scahill (49,000,000 shares), Timothy J. Scahill (10,000,000 shares) and Dr. William R. Carroll (10,000,000 shares) as compensation for services rendered;

 

●

granted a restricted stock grant to Ryan T. Logue for 5,000,000 shares upon his acceptance of his appointment as a director;

 

●

granted ten-year non-qualified stock options to purchase 30,000,000 shares to each of three consultants pursuant to agreements with the consultants, the options to vest as provided in their agreements;

 

●

granted a ten-year non-qualified stock option to purchase 60,000,000 shares to Jon C. Scahill, which vest in installments as described under “Management -- 2017 Equity Incentive Plan.”

 

Recent sales of unregistered securities.

 

We did not sell any unregistered securities since January 1, 2021 other than issuances that were reported in our SEC filings.

 

 

BUSINESS

 

Overview

 

We are an intellectual property asset management company. Our principal operations include the 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 eighteen 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 primarily licenses granted as part of the settlement of patent infringement lawsuits.  

 

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, and for us has been, 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, although to date all of our patent license revenues have resulted from litigation. To date all of our revenue from the licensing of our patents has resulted from litigation commenced by us.

 

We intend to develop our business by acquiring intellectual property rights, either in the form of ownership of 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, which is typically the case, litigation. 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 in a manner that will achieve the highest risk-adjusted returns possible, in the context of our financial condition. In connection with the acquisition of intellectual property portfolios, we have granted the party providing the financing an interest in any recovery we have with respect to the intellectual property purchased with the financing, and we expect that we will have to continue to grant such interests until and unless we have generated sufficient cash from licensing our intellectual property to enable us to acquire additional intellectual property portfolios without outside financing. However, we cannot assure you that we will ever generate sufficient revenues to enable us to purchase additional intellectual property without third-party financing.

 

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 inventorship 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. If we require financing to acquire intellectual property, we will have to satisfy our financing source, which may by QFL, that we have the ability to monetize the intellectual property. However, our financial position may affect our ability to conduct adequate due diligence with respect to intellectual property rights or to acquire valuable intellectual property. This due diligence effort is conducted by our chief executive officer, who is our only full-time employee.  

 

 

It has been 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 significantly reduces our litigation cost, but which also reduces the value of the recovery to us. We do not have the resources to enable us to fund the cost of litigation. To the extent that we cannot secure counsel on a contingent basis and cannot fund litigation ourselves, which, considering our financial position, is likely to be the case, we may enter into an agreement with a third party, such as QFL, to finance the cost of litigation. In view of our limited cash and our working capital deficiency, we are not able to institute any monetization program that may require litigation unless we engage counsel on a fully contingent basis or we obtain funding from third party funding sources. In these cases, counsel may be afforded a greater participation in the recovery and the third party that funds the litigation would be entitled to participate in any recovery.

 

Agreements with QFL and Intelligent Partners

 

Set forth below is a discussion of agreements which we entered into in February 2021 with QFL to provide us with a financing facility, funds to make a payment due to Intelligent Partners and for working capital and an agreement with Intelligent Partners to restructure our loan agreement and related agreements. The agreement with Intelligent Partners restated our agreements with United Wireless which had been assigned to Intelligent Partners, an affiliate of United Wireless. The descriptions below and elsewhere in this prospectus relating to our agreements with QFL and Intelligent Partners are summaries only and are qualified in their entirety by reference to those agreements which were filed as exhibits to the registration statement of which this prospectus is a part.

 

Summary of Agreements with QFL

 

On February 22, 2021, we entered into a series of agreements which we entered into in February 2021 with QFL, including a prepaid forward purchase agreement (the “Purchase Agreement”), a security agreement (the “Security Agreement”), a subsidiary security agreement (the “Subsidiary Security Agreement”), a subsidiary guaranty (the “Subsidiary Guarantee”), a warrant issue agreement (the “Warrant Issue Agreement”), a registration rights agreement (the “Registration Rights Agreement”) and a board observation rights agreement (the “Board Observation Rights Agreement” together with the Security Agreement, the Subsidiary Guaranty, the Subsidiary Security Agreement, Warrant Issuance Agreement, Registration Rights Agreement and the Purchase Agreement, the “Investment Documents”) pursuant to which, at the closing held contemporaneously with the execution of the agreements:

 

(i)

Pursuant to the Purchase Agreement, QFL agreed to make available to us a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent rights that we intend to monetize; (b) up to $2,000,000 for operating expenses; and (iii) $1,750,000 to fund the cash payment portion of the restructure of our obligations to Intelligent Partners. In return we transferred to QFL a right to receive a portion of net proceeds generated from the monetization of those patents. As of June 15, 2022, we have drawn down $1,400,000 for working capital.  The terms of the Purchase Agreement are described under “Purchase Agreement.”

 

(ii)

We used $1,750,000 of proceeds from the QFL financing as the cash payment portion of the restructure of our obligations to Intelligent Partners as transferee of United Wireless pursuant to a restructure agreement (the “Restructure Agreement”) between us and Intelligent Partners executed contemporaneously with the closing of the Investment Documents with QFL. The payment was made directly from QFL to Intelligent Partners. The terms of the Restructure Agreement are described under “Restructure Agreement.”

 

 

(iii)

Pursuant to the Security Agreement, our obligations under the Purchase Agreement with QFL are secured by: (a) the proceeds (as defined in the Purchase Agreement); (b) the patents (as defined in the Purchase Agreement; (c) all general intangibles now or hereafter arising from or related to the foregoing (a) and (b); and (d) proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c).

 

(iv)

Pursuant to the Subsidiary Guaranty, eight of our subsidiaries – Quest Licensing Corporation (“QLC”), Quest NetTech Corporation (“NetTech”), Mariner IC Inc. (“Mariner”), Semcon IP Inc. (“Semcon”), IC Kinetics Inc. (“IC”), CXT Systems Inc. (“CXT”), M-Red Inc. (“MRED”), and Audio Messaging Inc.(“AMI”), collectively, the “Subsidiary Guarantors”) guaranteed our obligations to QFL under the Purchase Agreement.

  

(v)

Pursuant to the Subsidiary Security Agreement, the Subsidiary Guarantors grant QFL a security interest in the proceeds from the future monetization of their respective patent portfolios.

 

(vi)

Pursuant to the Warrant Issue Agreement, we granted QFL ten-year warrants to purchase a total of up to 96,246,246 shares of our common stock, with an exercise price of $0.0054 per share which may be exercised from February 19, 2021 through February 18, 2031 on a cash or cashless basis. Exercisability of the Warrant is limited if, upon exercise, the holder would beneficially own more than 4.99% (the “Maximum Percentage”) of our common stock, except that by written notice to us, the holder may change the Maximum Percentage to any other percentage not in excess of 9.99% provided any such change will not be effective until the 61st day following notice to us. The Warrant also contains certain minimum ownership percentage antidilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the Warrant shall not be less than 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis). A portion of any gain from sale of the shares, net of taxes and costs of exercise, realized prior to the completion of all monetization activities shall be credited against the total return due to QFL pursuant to the Purchase Agreement.

 

(vii)

Pursuant to the registration right agreement, we agreed to take all commercially reasonable steps necessary to regain compliance with the OTCQB eligibility standards as soon as practicable, but in no event later than 12 months from the closing date. We regained such compliance on May 7, 2021, at which time the common stock recommenced trading on the OTCQB. We are also required to maintain the listing of our common stock on the QTCQB, and the failure of which is a maintenance failure and to maintain the effectiveness of the registration statement of which this prospectus forms a part.  In the event of any such failure, in additional to any other remedies available to QFL, we are to pay to QFL an amount in cash equal to 2.0% of the aggregate value of QFL’s Registrable Securities, as defined in the Registration Rights Agreement (such value being determined by multiplying the number of such holder’s Registerable Securities by the Closing Sale Price (as defined) of one share of Common Stock on the Trading Day immediately preceding the date of determination), whether or not included in such Registration Statement, on each of the following dates: (i) the initial day of such failure; (ii) on the 30th day after the date of failure and (iii) every 30th day thereafter (prorated for periods totaling less than thirty (30) days) until such failure is cured.

 

(viii)

We granted QFL certain registration rights with respect to the 96,246,246 shares of common stock issuable upon exercise of the warrant.

 

(ix)

Commencing six months from the closing date, if the shares owned by QFL cannot be sold pursuant to a registration statement and cannot be sold pursuant to Rule 144 without the Company being in compliance with the current public information requirements of Rule 144, if the Company is not in compliance with the current public information requirements, the Company is required to pay damages to QFL.

 

(x)

Pursuant to the Board Observation Rights Agreement, until the later of the date on which QFL or its affiliates (i) have received the entirety of their Investment Return (as defined in Purchase Agreement), and (ii) no longer hold any Securities (the “Observation Period”), we granted QFL the right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings (including, without limitation, telephonic or other electronic meetings) of the Board or any committee thereof, including executive sessions, in an observer capacity.

 

 

Purchase Agreement

 

Pursuant to the Purchase Agreement, QFL agreed to make available to us a financing facility of: (i) up to $25,000,000 for the acquisition of mutually agreed patent rights that we intend to monetize; (ii) up to $2,000,000 for operating expenses from which we may, at our discretion, draw up to $200,000 per calendar quarter; and (iii) $1,750,000 to fund the cash payment portion of the restructure of our obligations to Intelligent Partners. In return we transferred to QFL the right to receive a portion of net proceeds generated from the monetization of those patents. After QFL has a negotiated rate of return, we and QFL shall share net proceeds equally until QFL shall have achieved its Investment Return (as defined therein). Thereafter, we shall retain 100% of all net proceeds. Except in an Event of Default, as defined therein, all payments by the Company to QFL pursuant to the Purchase Agreement are non-recourse and shall be paid only if and after net proceeds from monetization of the patent rights owned or acquire by the Company are received, or to be received.

 

Events of Default include any breach of the Investment Documents, including non-payment, material misrepresentation, security interest compromise, criminal indictment or felony conviction of one or our officers or directors, our current chief executive no longer serving as our chief executive or as a director, the occurrence of any Event of Default under the Restructure Agreement with Intelligent Partners, as defined therein, and our insolvency. In addition to all rights and remedies available under law and the Investment Documents, upon and Event of Default, QFL may: (i) declare the Investment Return immediately due and payable, (ii) except in the event of our insolvency, declare an amount equal to the aggregate amount of the capital provided pursuant to the Purchase Agreement, plus a late charge, immediately due and payable, or (iii) cease making capital available to us.

 

Under the agreement, QFL may terminate capital advances other than in an Event of Default by giving written notice to us in which case QFL’s interest in Net Proceeds shall be an amount equal to the greater of (i) the capital advanced to the Company plus interest at the prime rate, on the one hand, and (ii) Net Proceeds received by the QFL prior to the date of such termination.

 

Grant of Security Interests

 

Pursuant to the Security Agreement and Subsidiary Security Agreement, payment of the obligations of the Company under the Purchase Agreement with QFL are secured by (i) the Proceeds (as defined in the Purchase Agreement); (ii) the Patents; (iii) all General Intangibles now or hereafter arising from or related to the foregoing; (iv) Proceeds (including, without limitation, Cash Proceeds and insurance proceeds) and products of the foregoing and (v) the proceeds realized by the relative patent portfolios of the Subsidiary Guarantors. The security interest in proceeds from the CXT and M-RED patents granted to QFL is junior to the security interest held by the affiliates of Intellectual Ventures Management, LLC (collectively “Intellectual Ventures”) granted to secure the obligations of CXT and MRED pursuant to their patent purchase agreements relating to the purchase of intellectual property from Intellectual Ventures.

 

Registration Rights Agreement

 

Pursuant to the Registration Rights Agreement, we filed a registration statement with the SEC covering 50,000,000 of the 96,246,246 shares of common stock issuable upon exercise of the Warrant. We are also required to file additional Registration Statements (as defined in the Registration Rights Agreement) on the date 60 days after the date that we receive written notice from any Investor (as defined in the Registration Rights Agreement) that 60% of the Registrable Securities held by all Investors registered under the immediately preceding registration statement have been sold. The Registration Rights Agreement provides for us to pay damages in the event that we do not meet the required deadlines.

 

Intercreditor Agreement

 

In connection with the agreements with QFL and the agreements with Intelligent Partners described below, we and our Subsidiaries entered into an intercreditor agreement with QFL and Intelligent Partners which sets forth the priority of QFL in the collateral under the Investment Documents.

 

 

Summary of Agreements with Intelligent Partners

 

Securities Purchase Agreement and Related Agreements with United Wireless

 

We, together with certain of our subsidiaries, and United Wireless, entered into a Securities Purchase Agreement dated October 22, 2015 (the “SPA”) and related Transaction Documents, as defined therein, pursuant to which the Company sold 50,000,000 shares (the “Shares”) of our common stock, par value $0.00003 per share (the “Common Stock”) at $0.05 per share, or an aggregate of $250,000; we issued our 10% secured convertible promissory notes due September 30, 2020 to United, and granted United an option (the “2015 Purchase Option”) to purchase up to an additional 50,000,000 shares of Common Stock in three tranches at the prices as set forth therein. The 2015 Purchase Option expired unexercised on September 30, 2020. The Shares are currently owned by Andrew C. Fitton (“Fitton”) and Michael Carper (“Carper”) and United Wireless subsequently transferred its note and assigned all of its remaining rights under the agreements to Intelligent Partners, which is an affiliate of United Wireless and is owned by Fitton and Carper. Our agreements with United Wireless, also included various monetization proceeds agreements, which we refer to as MPAs, pursuant to which we granted to Intelligent Partners, as the assignee of United Wireless, rights to the monetization proceeds from revenue generated from certain of our intellectual property, a security agreement and a registration rights agreement. 

 

At September 30, 2020, promissory notes in the aggregate principal amount of $4,672,810 were outstanding. The notes became due by their terms on September 30, 2020, and we did not make any payment on account of principal of and interest on the notes. As a result, Intelligent Partners had the right to declare a default under the Notes, and, if Intelligent Partners had taken such action, it would have been necessary for us to seek protection under the Bankruptcy Act. Subsequent to September 30, 2020, we engaged in negotiations with Intelligent Partners in parallel with our negotiations with QFL, with a view to restructuring our obligations under the United Wireless agreements, including the Notes, so that we no longer had any obligations under the Notes or the SPA. These negotiations resulted in the Restructure Agreement, described below, which provided for the payment to Intelligent Partners of $1,750,000 from the proceeds from our agreements with QFL. We also made interest payments totaling $117,780 between September 30, 2020 and February 22, 2021, the date we signed the Restructure Agreement with Intelligent Partners. One of QFL’s requirements to provide us with a funding facility was the restructure of our obligations to Intelligent Partners so that we no longer had any debt obligations to Intelligent Partners. Neither QFL nor any other financing source, would provide us with funding while Intelligent Partners had a right to call a default under our notes to Intelligent Partners. As part of the restructure of our agreements with Intelligent Partners, we amended the existing MPAs and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property we acquire, as describe below. Under these MPAs, Intelligent Partners participates in the monetization proceeds we receive with respect to new patents after QFL has received its negotiated rate of return.

 

On or prior to the date of the Restructure Agreement, Intelligent Partners transferred to Fitton and Carper $250,000 of the Notes (the “Transferred Note”), thereby reducing the principal amount of the Notes held by Intelligent Partners to $4,422,810.

 

On February 22, 2021, we and Intelligent Partners agreed to extinguish the Note and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents, pursuant to a series of agreements including: a Restructure Agreement (the “Restructure Agreement”), a Stock Purchase Agreement (the “Stock Purchase Agreement”), an Option Grant (the “Option Grant”), an Amended and Restated Pledge Agreement (the “Pledge Agreement”), an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), a Board Observation Agreement (the “Board Observation Agreement”), a MPA-NA Security Interest Agreement (the “MPA-NA Security Interest Agreement”), an Amended and Restated Patent Proceeds Security Agreement (the “Patent Proceeds Security Agreement”, an Amended and Restated MPA-CP (the “MPA-CP”), an Amended and Restated MPA-CXT (the “MPA-CXT”), a MPA-MR (the “MPA-MR”), a MPA-AMI (the “MPA-AMI,” and together with the MPA-CP, MPA-CXT and MPA-MR, each a Restructure MPA and together the Restructure MPAs) and a MPA-NA (the “MPA-NA”).

 

(i)

Pursuant to the Restructure Agreement, we paid Intelligent Partners $1,750,000 at closing, which we received from QFL and which QFL paid directly to Intelligent Partners, and recognized the TMPO of $2,805,000, which shall, from and after the Restructure Date, be reduced on a dollar for dollar basis by (a) payments to Intelligent Partners pursuant to the restructure agreement, the Restructure MPAs and the MPA-NA and (b) any election by the Intelligent Partners to pay the Exercise Price of the Restructure Option, in whole or part, by means of a reduction in the then outstanding TMPO. Further details regarding the TMPO are provided under “TMPO”;

 

(ii)

Pursuant to the Stock Purchase Agreement, we issued to Fitton and Carper, as holders of the Transferred Note, a total of 46,296,296 shares of common stock at a purchase price of $0.0054 per share, which purchase price was paid by the conversion and in full satisfaction of the Transferred Note (the “Conversion Shares”).

 

(iii)

Pursuant to the Option Grant, we granted Intelligent Partners an option to purchase a total of 50,000,000 shares of common stock, with an exercise price of $0.0054 per share which vests immediately and may be exercised through February 9, 2026.

 

(iv)

Pursuant to the restructured monetization proceeds agreement, Intelligent Partners has a right to receive 60% of the net monetization proceeds from the patents currently owned by the Subsidiary Guarantors. The agreement has no termination provisions, so Intelligent Partners will be entitled to its percentage interest as long as revenue is generated from the intellectual property covered by the agreement.

 

(v)

Pursuant to the Subsidiary Security Agreement, our obligations under our agreements with Intelligent Partners, including its obligations under the Restructure Agreement and the Restructure MPAs are secured by a security interest in the net proceeds realized from the future monetization of the patents currently owned by the eight subsidiaries named above.

  

(vi)

Pursuant to the MPA-NA-Security Interest Agreement, our obligations under the MPA-NA are secured by a security interest in net proceeds realized from the future monetization of new patents acquired until the TMPO is satisfied, provided Intelligent Partners’ secured interest shall be limited to its entitlement in Net Proceeds under the MPA-NA. After satisfaction of the TMPO the security interest in proceeds from new assets shall terminate.

 

(vii)

We granted Intelligent Partners, Andrew Fitton and Michael Carper certain registration rights with respect to (i) the 50,000,000 Shares currently owned by Fitton and Carper, which shares are included in the registration statement that we filed; (ii) the 46,296,296 Conversion Shares being issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the Restructure Option;

 

(viii)

Commencing six months from the closing date, if the shares owned by Intelligent Partners cannot be sold pursuant to a registration statement and cannot be sold pursuant to Rule 144 without the Company being in compliance with the current public information requirements of Rule 144, if the Company is not in compliance with the current public information requirements, the Company is required to pay damages to Intelligent Partners.

 

(ix)

Pursuant to the Board Observation Rights Agreement, until the TMPO has been satisfied (the “Observation Period”), we granted Intelligent Partners the option and right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings of the Board or any committee thereof, including executive sessions, in an observer capacity.

 

Events of Default include (i) a Change of Control of the Company (ii) any uncured default on payment due to Intelligent Partners in an amount totaling in excess of $275,000, which is not the subject of a Dispute or other formal dispute resolution proceeding initiated in good faith pursuant to this Agreement or other Restructure Documents (iii) the filing of a voluntary petition for relief under the United States Bankruptcy Code by Company or any of its material subsidiaries, (iv) the filing of an involuntary petition for relief under the United States Bankruptcy Code against the Company, which is not stayed or dismissed within sixty (60) days of such filing, except for an involuntary petition for relief filed solely by Intelligent Partners, or any Affiliate or member of Intelligent Partners, or (v) acceleration of an obligation in excess of $1 million dollars to another provider of financing following a final determination by arbitration or other judicial proceeding that such obligation is due and owing. 

 

 

Registration Rights Agreement

 

Pursuant to a registration rights agreement, we granted Intelligent Partners, Andrew Fitton and Michael Carper certain registration rights with respect to (i) the 50,000,000 Shares currently owned by Fitton and Carper; (ii) the 46,296,296 Conversion Shares issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the Restructure Option. We filed the registration statement with the SEC covering the 50,000,000 Shares owned by Fitton and Carper, and the registration statement was declared effective by the SEC.

 

Effects of the COVID-19 Pandemic on our Business

 

Although we do not manufacture or sell products, the COVID-19 pandemic and the work shutdown imposed in the United States and other countries to limit the spread of the virus can have a negative impact on our business. Our revenue is generated almost exclusively from license fees generated from litigation seeking damages for infringement of our intellectual property rights. The work shutdown has affected the court system, and during much of 2020 and part of 2021 courts operating on a reduced schedule, and some courts may still not be operating on a full in-person schedule and, even if operating on a full schedule, have a backlog as a result of the pandemic. As a result, we believe patent infringement actions are treated as a lower priority items in allocation of court resources with the effect that deadlines are likely to be postponed which delays may give defendants an incentive to delay negotiations or offer a lower amount than they might otherwise accept. In addition, the effect of the COVID-19 and the public response may adversely affect the financial condition and prospects of defendants and potential defendants, which would make it less likely that they would be willing to settle our claim or which may result in a defendant or potential defendant reducing or discontinuing its operations or taking advantage of the Bankruptcy Act. 

 

The COVID-19 pandemic and the response to limit the spread of the infection may affect the financial condition of financing sources and the willingness of potential financing sources to provide funding for our litigation. In addition, these factors may affect a law firms’ ability and willingness to provide us with legal services on a contingent or partial contingent.

 

Further, to the extent that holders of intellectual property rights see these factors impacting our ability to generate revenue from their intellectual property, they may be reluctant to sell intellectual property to us on terms which are acceptable to us, if at all.

 

Purchase of Intellectual Property from Intellectual Ventures Entities

 

On October 22, 2015, pursuant to an agreement with an effective date of July 8, 2015, as amended, between us and Intellectual Ventures Assets 16, LLC (“IV16”), we purchased three groups of patents from IV16 for a purchase price of $3,000,000, which was paid in three annual installments of $1,000,000 from the proceeds of our loans from United Wireless. The patent portfolios which we acquired from IV16 are the anchor structure portfolio, the power management/bus control portfolio and the diode on chip portfolio, which are described under “Business – Our Intellectual Property Portfolios.”

 

On January 26, 2018, Photonic Imaging Solutions Inc. (“PIS”), a wholly-owned subsidiary, entered into an agreement with Intellectual Ventures Assets 64 LLC (“IV 64”) pursuant to which PIS advanced $10,000 to IV 64 at closing and IV 64 assigned to PIS all right, title, and interest in a portfolio of eleven United States patents and sixteen foreign patents (the “CMOS Portfolio”). Under the agreement, PIS will distribute 70% of the first $1,500,000 of revenue, as defined in the agreement, 30% of the next $1,500,000 of revenue and 50% of revenue over $3,000,000 to IV 64; with the $10,000 advance being treated as an advance against the first distributions of net proceeds payable to IV 64. PIS’ obligations under the monetization proceeds agreement are secured by a security interest in the proceeds (from litigation or otherwise) from the portfolio. The patent portfolio which we acquired from IV 64 is the CMOS portfolio which is described under “Business – Our Intellectual Property Portfolios.”

 

 

On July 28, 2017, CXT, a wholly-owned subsidiary, entered into an agreement with Intellectual Ventures Assets 34 LLC and Intellectual Ventures Assets 37 LLC (“IV 34/37”) pursuant to which CTX paid IV 34/37 $25,000 and IV34/37 transferred to CXT all right, title and interest in a portfolio of thirteen United States patents (the “CXT Portfolio”). Under the agreement, CXT will distribute 50% of net proceeds, as defined, to IV 34/37, as long as we generate revenue from the CXT Portfolio. The $25,000 payment to IV 34/37 was made from a loan from United Wireless and was paid by United Wireless directly to IV 34/37. The agreement with IV 34/37, as amended on January 26, 2018, provides that if, on December 31, 2018, December 31, 2019 and December 31, 2020, cumulative distributions to IV 34/37 total less than $100,000, $375,000 and $975,000, respectively, CXT shall pay the difference between such cumulative amounts and the amount paid to IV 34/37 within ten days after the applicable date. The $25,000 advance is treated as an advance against distributions of net proceeds payable to IV 34/37. The useful lives of the patents, at the date of acquisition, was 5-6 years. Neither we nor any affiliate of CXT has guaranteed the minimum payments. On December 31, 2021 the parties amended the agreement to provide that CXT will distribute 65% of net proceeds, as defined, to IV 34/37, as long as we generate revenue from the CXT Portfolio and that if, on December 31, 2018 and December 31, 2019, cumulative distributions to IV 34/37 total less than $100,000 and $375,000, respectively, CXT shall pay the difference between such cumulative amounts and the amount paid to IV 34/37 within ten days after the applicable date. As of December 31, 2021 cumulative distributions to IV 34/37 totaled $375,000. CXT’s obligations under the agreement with IV 34/37 are secured by a security interest in the proceeds (from litigation or otherwise) from the CXT Portfolio. The patent portfolio which we acquired from IV 34/37 is the CXT portfolio which is described under “Business – Our Intellectual Property Portfolios.”

 

On January 26, 2018, CXT entered into an agreement with Intellectual Ventures Assets 62 LLC and Intellectual Ventures Assets 71 LLC “(IV 62/71”) pursuant to which CXT advanced IV 62/71 $10,000 at closing and IV 62/71 assigned to CXT all right, title, and interest in a portfolio of sixteen United States patents and three pending applications. Under the agreement, as amended on December 31, 2021, CXT will distribute 65% of net proceeds, as defined, to IV 62/71, as long as we generate net proceeds from this portfolio. The initial $10,000 advance is treated as an advance toward our future distributions of net proceeds payable to IV 62/71. CXT’s obligations under the agreement are secured by a security interest in the proceeds (from litigation or otherwise) from the CXT Portfolio. In March 2021, we made a payment to IV 62/71 in the amount of $64,238. We agreed to modify the monetization proceeds agreement between CXT and United Wireless to include the patents acquired from IV 62/71. The monetization proceeds amendment was further amended by the MPA-CXT Agreement in connection with the restructure of our agreements with Intelligent Partners. 

 

On March 15, 2019, M-RED Inc., a wholly-owned subsidiary, entered into an agreement with Intellectual Ventures Assets 113 LLC and Intellectual Ventures Assets 108 LLC (“IV 113/108”) pursuant to which M-RED paid IV 113/108 $75,000 and IV 113/108 transferred to M-RED all right, title and interest in a portfolio of sixty United States patents and eight foreign patents (the “M-RED Portfolio”). Under the agreement, M-RED will distribute 50% of net proceeds, as defined, to IV 113/108, as long as we generate revenue from the M-RED Portfolio. The agreement with IV 113/108 provides that if, on September 30, 2020, September 30, 2021 and September 30, 2022, cumulative distributions to IV 113/108 total less than $450,000, $975,000 and $1,575,000, respectively, M-RED shall pay the difference between such cumulative amounts and the amount paid to IV 113/108 within ten days after the applicable date. The $75,000 advance is treated as an advance against the first distributions of net proceeds payable to IV 113/108. On September 30, 2020 cumulative distributions to IV 113/108 totaled less than $450,000 and M-RED did not pay the difference to IV 113/108 within ten days. On December 31, 2021 the parties amended the agreement to provide that M-RED will distribute 100% of undistributed net proceeds, as defined, resulting from agreements signed prior to December 31, 2021 and 65% of net proceeds thereafter to IV 113/108, as long as we generate revenue from the M-RED Portfolio and that if, on December 31, 2021 cumulative distributions to IV 113/108 total less than $302,113.89, M-RED shall pay the difference between such cumulative amounts and the amount paid to IV 113/108 within ten days after the applicable date. As of December 31, 2021 cumulative distributions to IV 113/108 totaled $302,113.89. The useful lives of the patents, at the date of acquisition, was approximately nine years. Neither we nor any affiliate of M-RED has guaranteed the minimum payments. M-RED’s obligations under the agreement with IV 113/108 are secured by a security interest in the proceeds (from litigation or otherwise) from the M-RED Portfolio. The patent portfolio which we acquired from IV 113/108 is the M-RED portfolio which is described under “Business – Our Intellectual Property Portfolios.” Pursuant to the MPA-MR, Intelligent Partners is entitled to receive 60% of the net proceeds as defined in the agreement.

 

 

On January 27, 2022, the Company acquired, via assignment from Intellectual Ventures Assets 181 LLC and Intellectual Ventures Assets 174 LLC, all right title and interest to four patent portfolios consisting of fifteen United States patents and three foreign patents for a purchase price of $1,060,000. The Company requested and received a capital advance in the amount of the $1,060,000 purchase price from the facility with QFL. The patents were assigned to our wholly owned subsidiaries Tyche Licensing LLC and Deepwell IP LLC.

 

A default under the agreements with the Intellectual Ventures affiliates could result in a default under our agreements with QFL, and, even if QFL does not declare a default, QFL may be reluctant to finance our intellectual property acquisition if we are in default under any of our patent acquisition agreements with Intellectual Venture affiliates. Further, it may be necessary for any defaulting subsidiary to seek protection under the Bankruptcy Act if we are not able to enter into modification agreements with the Intellectual Ventures affiliates.

 

Our Organization

 

We were incorporated in Delaware on July 17, 1987 under the name Phase Out of America. On September 21, 1997, we changed our name to Quest Products Corporation, and, on June 6, 2007, we changed our name to Quest Patent Research Corporation. 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 (888) 743-7577. Our website is www.qprc.com. Information contained on or derived from our website or any other website does not constitute a part of this prospectus.

 

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”).

 

Through December 31, 2021, we did not receive any proceeds from the Mobile Data Portfolio.

 

Flexible Packaging - Turtle Pak^TM

 

In March 2008, we entered into an agreement with Emerging Technologies Trust whereby our majority-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 Pak^TM 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. 

 

As the exclusive licensee and manager of the manufacture and sale of licensed product, we coordinate the manufacture and sale of licensed products to end users; we contract for the manufacture and assembly of the product components, and we coordinate order receipt, fulfillment and invoicing. We did not generate revenues from the TurtlePak^TM product for the years ended December 31, 2021 and 2020.

 

 

Universal Financial Data System

 

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. These warrants expired unexercised. 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. On December 17, 2018, Wynn Technologies, Inc. granted an exclusive license to the Financial Data Portfolio, including the right to enforce, to our wholly owned subsidiary, Quest NetTech. Under the agreement, Quest NetTech receives 100% of the net proceeds, as defined by the agreement. On April 11, 2019 Quest NetTech Corporation merged with Wynn Technologies, Inc. with Quest NetTech Corporation being the surviving entity with Mr. Li having a 35% interest. On April 12, 2019, Quest NetTech brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Apple, Inc. The case was dismissed in May 2020.

 

We did not generate revenue from the Financial Data Portfolio in 2021. Our revenue for the year ended December 31, 2020 includes revenue from the Financial Data Portfolio. 

 

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. 

 

Through December 31, 2021, we did not generate any revenue from the rich media patents.

 

Anchor Structure Portfolio

 

This portfolio, which we acquired from IV16 in October 2015 and transferred to our subsidiary, Mariner IC Inc., consists of two United States patents which relate to technology for incorporating metal structures in the corners and edges of semiconductor dies to prevent cracking from stresses. 

 

In March 2016, 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 Anchor Structure Portfolio and engaged counsel on a partial contingency basis in connection with a proposed patent infringement action relating to the Anchor Structure Portfolio. Under the funding agreement, the third party received an interest in the proceeds from the settlements relating to this portfolio in 2019. The funding agreement was terminated in 2021.

 

We did not generate license fees from the Anchor Structure Portfolio in 2021 or 2020 and we do not anticipate allocating further resources to monetization of the Anchor Structure Portfolio. 

 

 

Power Management/Bus Control Portfolio

 

This portfolio, which is the second portfolio which we acquired from IV16 and transferred to a newly-formed subsidiary, Semcon IP Inc., consists of four United States patents that cover fundamental technology for adjusting the processor clock and voltage to save power based on the operating characteristics of the processor and one United States patent that relates to coordinating direct bus communications between subsystems in an assigned channel.

 

In March 2016, 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 Power Management/Bus Control Portfolio and engaged counsel on a partial contingency basis in connection with a proposed patent infringement action relating to the Power Management/Bus Control. Under the funding agreement, the third party received an interest in the proceeds from the program. The funding agreement was terminated in 2022.

 

Following the execution of the funding agreement and partial contingency agreement with counsel, in April 2016, Semcon IP Inc. brought patent infringement suits in the United States District Court for the Eastern District of Texas against Huawei Technologies, MediaTek Inc., STMicroelectronics Inc., Texas Instruments Incorporated and ZTE Corporation. As of December 31, 2018, these actions had been settled and dismissed.

 

In May 2018, Semcon brought patent infringement actions in the United States District Court for the Eastern District of Texas against AsusTeK Computer Inc., TCT Mobile International Limited et. al., LVMH Moet Hennessy Louis Vuitton, SE, and Shenzhen OnePlus Science & Technology Co., Ltd.

 

The AsusTeK Computer Inc., TCT Mobile International Limited et. al., LVMH Moet Hennessy Louis Vuitton, SE, and Shenzhen OnePlus Science & Technology Co., Ltd., actions were settled in 2020 and our revenue for 2020 includes revenue from these settlements. We did not generate revenue from the Power Management/Bus Control Portfolio in 2021 and we do not anticipate allocating further resources to its monetization.

 

Diode on Chip Portfolio

 

This portfolio, which is the third portfolio which we acquired from IV16 and transferred to a newly-formed subsidiary, IC Kinetics Inc., consists of three United States patents and one pending continuation application which cover technology relating to on-chip temperature measurement for semiconductors. As of December 31, 2021, we did not generate any revenue from this portfolio.

 

CXT Portfolio

 

This portfolio consists of thirty United States patents which cover technology relating to systems and methods of operating an accessible information database which provides for inventory evaluation, filtering according to preferences, alternative product recommendations, and access to a database of consumer feedback/evaluation. 

 

In April 2018 CXT brought a patent infringement suit in the United States District Court for the Eastern District of Texas against Academy Ltd., In May 2018 CXT brought patent infringement suits in the United States District Court for the Eastern District of Texas against Conn’s, Inc., Fossil Group, Inc., JC Penney Company, Inc., and Tailored Brands, Inc. In May 2019, CXT brought patent infringement actions in the United States District Court for the Eastern District of Texas against Harbor Freight Tools USA, Inc., Hallmark.com, LLC, Retail Concepts, Inc. and CC Filson Co. In August 2019, CXT brought patent infringement suits in the United States District Court for the Eastern District of Texas against Neiman Marcus Group Ltd., General Nutrition Corporation and Steve Madden, Ltd.

 

In March 2021 CXT brought patent infringement suits in the United States District Court for the Eastern District of Texas against Advanced Auto Parts, Inc., Costco Wholesale Corporation, The Sherwin-Williams Company, V.F. Corporation and IKEA North America Services, LLC. In July 2021, HCL Technologies Limited (“HCL”), as the world’ supplier of WebSphere Commerce products and citing CXT’s patent infringement suits against users of HCL’s WebSphere Commerce products, brought an action in the United States District Court for the Eastern District of Texas seeking a declaratory judgment that HCL’s WebSphere Commerce products do not infringe CXT’s patents and that CXT’s patents are invalid.

 

The actions against Conn’s, Inc., Academy Ltd., Fossil Group, Inc., JC Penney Company, Inc., Tailored Brands, Inc., Harbor Freight Tools USA, Inc., Hallmark, Retail Concepts, CC Filson, General Nutrition, Steve Madden, Ltd. and Neiman Marcus Group Ltd. were resolved in 2020 and revenue for 2020 includes revenue from any related settlements.

 

 

In 2021, the HCL matter was settled and dismissed by mutual agreement pursuant to which HCL took a license to the CXT Portfolio and the actions against Advanced Auto Parts, Inc., Costco Wholesale Corporation, The Sherwin-Williams Company, V.F. Corporation and IKEA North America Services, LLC were resolved. Revenue for the year ended December 31, 2021 includes revenue from the resolution of these matters.

 

CMOS Portfolio

 

This portfolio consists of eleven United States patents and sixteen foreign patents which cover technology relating to digital image sensor technology systems and methods which PIS acquired on January 26, 2018.

 

We did not generate revenue from the CMOS Portfolio in 2021 or 2020.

 

M-RED Portfolio

 

This portfolio consists of sixty United States patents and eight foreign patents which cover technology relating to processor and power management which M-RED acquired on March 15, 2019.

 

On April 29, 2019, M-RED brought patent infringement suits in the U.S. District for the Eastern District of Texas against MediaTek Inc. and Acer Inc. On July 16, 2019, M-Red Inc. brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Panasonic Corporation. As of December 31, 2020, all actions were settled and dismissed and revenue for the year ended December 31, 2020 incudes revenue from settlements.

 

In March 2021, M-RED brought patent infringement suits in the U.S. District for the Eastern District of Texas against Nintendo Co., Ltd., Mitsubishi Electric Corporation and Xiaomi Corporation et. al. In April 2021, the case against Nintendo Co., Ltd. was dismissed without prejudice. In August 2021, M-Red Inc. brought a patent infringement suit in the U.S. District for the Eastern District of Texas against OnePlus Technology (Shenzhen) Co., Ltd. In September 2021, M-RED Inc. brought patent infringement suits in the U.S. District for the Eastern District of Texas against ASRock Inc., Biostar Microtech International Corp., Giga-Byte Technology Co., Ltd. and Micro-Star International Co. Ltd.

 

The actions against Mitsubishi Electric Corporation, ASRock Inc., and Micro-Star International Co. Ltd. were resolved in 2021 and our revenue for the year ended December 31, 2021 includes revenue from any related settlements. As of March 31, 2022, the actions against Biostar Microtech International Corp. and Giga-Byte Technology Co., Ltd. were resolved and our revenue for the three months ended March 31, 2022 includes revenue from any related settlements.

 

Audio Messaging Portfolio

 

This portfolio consists of five issued United States patents and one pending application which generally relate to systems and methods for associating an audio clip with an object which our wholly-owned subsidiary, Audio Messaging Inc. (“AMI”), acquired in May of 2020. Pursuant to an unsecured non-recourse funding agreement, a third-party agreed to provide acquisition funding in the amount of $95,000 for the acquisition. Under the funding agreement, the third party funder is entitled to a priority return of funds advanced from net proceeds, as defined, recovered until the funder has received $190,000. The Company has no other obligation to the third party and has no liability to the funder in the event that the Company does not generate net proceeds.

 

On October 8, 2021, AMI brought patent infringement suits in the U.S. District for the Eastern District of Texas against ZTE Corporation, Guangdong OPPO Mobile Telecommunications Corp., Ltd. and Beijing Xiaomi Software Co., Ltd.

 

Peregrin Portfolio

 

Acquired in February 2021 by our wholly owned subsidiary, Peregrin Licensing LLC (“PLL”), this portfolio consists of eight issued United States patents which generally relate to systems and methods for processing inbound and outbound communications, such as, for example, determining the location of a caller and routing the inbound communication to an entity in the caller’s location (the “Peregrin Portfolio”). PLL acquired the portfolio pursuant to an agreement with Peter K. Trzyna (“PKT”) whereby PKT assigned us all right, title, and interest in a portfolio of eight United States patents, we paid PKT $350,000 at closing and agreed that upon the realization of gross proceeds from the Peregrin Portfolio we shall make subsequent installment payment or payments in the aggregate amount of $93,900. Thereafter, PKT is entitled to a percentage of any gross proceeds realized.

 

 

In July 2021, PLL brought patent infringement suits in the U.S. District for the Eastern District of Texas against Bank of America Corporation, Discover Financial Services, U.S. Bank N.A. and Wells Fargo & Co. All actions were resolved in 2021 and our revenue for the year ended December 31, 2021 includes revenue from any related settlements.

  

Taasera Portfolio

 

Acquired by our wholly-owned subsidiary, Taasera Licensing LLC (“TLL”), this portfolio consists of 29 United States patents and 2 foreign patents which generally relate to the field of network security (the “Taasera Portfolio”). In June 2021 seven patents were acquired via assignment from Taasera, Inc. for the purchase price of $250,000. In August 2021 TLL acquired a portfolio of network security patents from Daedalus Blue LLC (“DBL”) consisting of 22 United States patents and 2 foreign patents. Original assignees of the patents acquired from DBL include International Business Machines Corporation, Internet Security Systems, Inc. and Fiberlink Communications Corporation (“Fiberlink”). ISS and Fiberlink were acquired by IBM in 2006 and 2013, respectively. In September 2019, IBM divested over 500 United States patent assets, as well as a number of foreign counterparts in Asia, Europe, and elsewhere, to Daedalus Group, and affiliate of DBL. Pursuant to the acquisition agreement, DBL is entitled to a portion of the net proceeds from monetization of the TLL portfolio.

 

In November 2021, TLL brought patent infringement suits in the U.S. District for the Eastern District of Texas against Trend Micro Incorporated. In March 2022, Trend Micro, Inc. filed a complaint against TLL in the U.S. District for the Western District of Texas seeking declaratory judgement of non-infringement of the patents in suit. In February 2022, TLL brought patent infringement suits in the U.S. District for the Eastern District of Texas against Checkpoint Software Technologies Ltd. and Palo Alto Networks, Inc. In March 2022, TLL voluntarily dismissed, without prejudice, the action against Palo Alto Networks, Inc. In March 2022, Palo Alto Networks, Inc. filed a complaint against TLL and Quest in the U.S. District for the Southern District of New York seeking declaratory judgement of non-infringement of the patents in suit. In May 2022, Trend Micro Inc. filed a motion with the Panel on Multidistrict Litigation seeking to have the pending actions consolidated into a centralized multidistrict litigation for pretrial proceedings.

 

Soundstreak Portfolio

 

Acquired through our acquisition of all of the issued and outstanding equity interests of Soundstreak Texas LLC (“STX”) in August 2021 for a purchase price consisting of 50% of the net proceeds resulting from monetization of the patent portfolio, this patent portfolio consists of three United States patents and one pending patent application which generally relate to streaming data (including audio or video) while also storing higher quality versions of the same data locally. The patented technology has applications in the professional recording industry, digital audio/video industries, the drone/remote capture industry, the teleconferencing industry, and more.

 

In August 2021, STX brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Yamaha Corporation and Steinberg Media Technologies GMBH. In September 2021, STX brought patent infringement suits in the U.S. District for the Eastern District of Texas against Sony Group Corporation, Panasonic Corporation, Olympus Corporation and Nikon Corporation.

 

During 2021, the actions against Sony Group Corporation, Panasonic Corporation, Olympus Corporation and Nikon Corporation were resolved and our revenue for the year ended December 31, 2021 includes revenue from any related settlements. As of March 31, 2022, the actions against Yamaha Corporation and Steinberg Media Technologies GMBH have been resolved and revenue for the three months ended March 31, 2022 includes revenue from the settlement.

 

In March 2022, STX brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Parrot SA, Delair SAS, Drone Volt, SA, EHang Holdings Limited and Flyability SA.

 

Multimodal Media Portfolio

 

Acquired by the our wholly owned subsidiary, Multimodal Media LLC (“MML”) in October 2021, the Multimodal Media portfolio consists of ten United States patents and one pending application which generally relate to systems and methods of recording and sending interactive messages and voice messages using mobile devices, as well as completing a communication after an incomplete call (the “Multimodal Media Portfolio”). MML advanced $550,000 at closing pursuant to an agreement with Aawaaz Inc. (“AI”). Under the agreement, MML retains an amount equal to the purchase price plus any fees incurred out of net proceeds, as defined in the agreement, after which AI is entitled to a percentage of further net proceeds realized, if any.

 

 

The Multimodal Media Portfolio was originally developed by Kirusa, Inc., a communications software development company founded in 2001 by Inderpal Mumick together with other technocrats with a dream of connecting people through the power of voice. Heralded by the invention of Voice SMS, Kirusa, Inc. was born with a vision to revolutionize the experiences users derived from their mobile phones.

 

In November 2021, MML brought patent infringement suits in the U.S. District for the Eastern District of Texas against ZTE Corporation and Guangdong OPPO Mobile Telecommunications Corp., Ltd.

 

LS Cloud Storage Portfolio

 

We acquired this portfolio through our acquisition of all of the issued and outstanding equity interests of LS Cloud Storage Technologies LLC (“LSC”) in November 2021, the LS Cloud Portfolio consists of four United States patents which generally relate to data sharing using distributed cache.

 

In March 2022, LSC brought patent infringement suits in the U.S. District for the Eastern District of Texas against Microsoft Corporation, Google LLC, Cisco Systems, Inc. and Amazon.com, Inc. et.al.

 

Tyche Portfolio

 

Acquired in January 2022 and assigned to our wholly-owned subsidiary Tyche Licensing LLC (“Tyche”), the Tyche Portfolio consists of two United States patents which relate generally to symmetric inducting devices incorporated in integrated circuits and in particular to an integrated circuit having symmetric inducting device with a ground shield.

 

In May 2022, Tyche brought patent infringement suits in the U.S. District for the Eastern District of Texas against MediaTek Inc., Realtek Semiconductor Corporation, Texas Instruments Incorporated, Infineon Technologies AG and STMicroelectronics NV et. al. In May 2022, Tyche voluntarily dismissed, without prejudice, the action against STMicroelectronics NV et .al. In May 2022, STMicroelectronics, Inc. filed an action for declaratory judgement of non-infringement in the U.S. District for the Northern District of Texas.

 

Deepwell Portfolio

 

Acquired in January 2022 and assigned to our wholly-owned subsidiary Deepwell IP LLC (“DIP”) the Deepwell Portfolio consists of twelve United States patents and 3 foreign patents. Certain of the patents relate generally to the manufacture and operation of integrated circuits. More particularly, embodiments of the present invention relate to: 1) selectively coupling Voltage feeds to body bias Voltage in an integrated circuit device; 2) routing body-bias voltage to the MOSFETS (metal oxide semiconductor field effect transistors).

 

Certain other patents in the portfolio relate generally to method and system for conservatively managing store capacity available to a processor issuing stores including but not limited to the utilization of a counter mechanism, whereas the counter mechanism is incremented or decremented based on the occurrence of particular events.

 

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, Document Security Systems, Inc., Intellectual Ventures, Quarterhill Inc., Conversant Intellectual Property Management Inc., VirnetX Holding Corporation, Network-1 Security Solutions, Interdigital, Inc., IPValue Management Inc., Pendrell Corporation, Inventergy Global, Inc., Netlist Inc., Parkervision Inc., Walker Innovation, Inc., Daedalus Group LLC and others derive all or a substantial portion of their revenue from intellectual property 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 and history of losses, together with our low stock price, 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 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 eighteen intellectual property portfolios: financial data, mobile data, Turtle Pak, anchor structure, power management/bus control, diode on chip, rich media, CXT, CMOS, M-RED, Audio Messaging, Peregrin, Taasera, Soundstreak, Multmodal Media, LS Cloud, Tyche and Deepwell. 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. In the table below, the anchor structure portfolio is referred to as Mariner, the power management/bus control portfolio is referred to as Semcom, the diode on chip portfolio is referred to as IC, the Audio Messaging portfolio is referred to as AMI, the Peregrin portfolio is referred to as PLL, the Taasera portfolio is referred to as TLL, the Soundstreak portfolio is referred to as STX, the Multimodal Media portfolio is referred to as MML,the LS Cloud portfolio is referred to as LSC, the Tyche portfolio is referred to as Tyche and the Deepwell IP portfolio is referred to as DIP.

 

Segment

Type

Number

Title

File Date

Issue / Publication Date

Expiration

Financial Data

US Patent

RE38,137

Programmable multiple company credit card system

1/11/2001

6/10/2003

9/28/2015

Mobile Data

US Patent

7,194,468

Apparatus and method for supplying information

4/13/2000

3/20/2007

4/13/2020

Mobile Data

US Patent

9,288,605

Apparatus and method for supplying information

11/12/2009

3/15/2016

4/13/2020

Mobile Data

US Patent

9,913,068

Apparatus and method for supplying information

3/15/2013

3/6/2018

7/20/2021

Mobile Data

US Application

15/877,820

Apparatus and method for supplying information

1/23/2018

5/31/2018

N/A

Turtle Pak

US Patent

6,490,844

Film wrap packaging apparatus and method

6/21/2001

12/10/2002

7/10/2021

Turtle Pak

US Trademark

74709827

Turtle pak - design plus words, letters, and/or numbers

8/1/1995

6/4/1996

N/A

 

 

Mariner

US Patent

5,650,666

Method and apparatus for preventing cracks in semiconductor die

11/22/1995

7/22/1997

11/22/2015

Mariner

US Patent

5,846,874

Method and apparatus for preventing cracks in semiconductor die

2/28/1997

12/8/1998

11/22/2015

Semcon

US Patent

7,100,061

Adaptive power control

1/18/2000

8/29/2006

1/18/2020

Semcon

US Patent

7,596,708

Adaptive power control

4/25/2006

9/29/2009

1/18/2020

Semcon

US Patent

8,566,627

Adaptive power control

7/14/2009

10/22/2013

1/18/2020

Semcon

US Patent

8,806,247

Adaptive power control

12/21/2012

8/12/2014

1/18/2020

Semcon

PCT Application

PCT/US2001/001684

Adaptive power control

1/16/2001

7/26/2001

N/A

Semcon

Reexam Certificate

7,100,061C1

Adaptive power control

6/13/2007

8/4/2009

N/A

Semcon

US Patent

5,978,876

System and method for controlling communications between subsystems

4/14/1997

11/2/1999

4/14/2017

IC

US Patent

7,118,273

System for on-chip temperature measurement in integrated circuits

4/10/2003

10/10/2006

4/10/2023

IC

US Patent

7,108,420

System for on-chip temperature measurement in integrated circuits

10/7/2004

9/19/2006

4/10/2023

IC

US Patent

9,222,843

System for on-chip temperature measurement in integrated circuits

9/23/2011

12/29/2015

4/10/2023

IC

US Application

16/537,200

System for on-chip temperature measurement in integrated circuits

8/9/2019

11/28/2019

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

 

 

CXT

US Patent

7,103,568

Online product exchange system

2/23/2004

9/5/2006

8/8/2015

CXT

US Patent

7,933,806

Online product exchange system with price-sorted matching products

9/11/2006

4/26/2011

8/8/2015

CXT

US Patent

8,024,226

Product exchange system

11/6/2006

4/26/2011

8/8/2015

CXT

US Patent

5,983,220

Supporting intuitive decision in complex multi-attributive domains using fuzzy, hierarchial expert models

11/14/1996

11/9/1999

11/14/2016

CXT

US Patent

6,463,431

Database evaluation system supporting intuitive decision in complex multi-attributive domains using fuzzy, hierarchial expert models

6/25/1999

10/8/2002

11/14/2016

CXT

US Patent

5,940,807

Automated and independently accessible inventory information exchange system

5/28/1997

8/17/1999

5/23/17

CXT

US Patent

6,081,789

Automated and independently accessible inventory information exchange system

1/8/1999

6/27/2000

5/23/17

CXT

US Patent

6,601,043

Automated and independently accessible inventory information exchange system

6/26/2000

7/29/2003

5/23/17

CXT

US Patent

6,011,537

System for delivering and simultaneously displaying primary and secondary information, and for displaying only the secondary information during interstitial space

1/27/1998

1/4/2000

1/27/2018

CXT

US Patent

7,133,835

Online exchange market system with a buyer auction and a seller auction

10/30/1995

11/7/2006

5/27/2018

 

 

CXT

US Patent

6,412,012

System, method, and article of manufacture for making a compatibility aware recommendation to a user

12/23/1998

6/25/2002

12/23/2018

CXT

US Patent

6,493,703

System and method for implementing intelligent online community message board

5/11/1999

12/10/2002

5/11/2019

CXT

US Patent

6,571,234

System and method for managing online message board

5/11/1999

5/27/2003

5/11/2019

CXT

US Patent

6,721,748

Online content provider system and method

5/13/2002

4/13/2004

5/11/2019

CXT

US Patent

6,778,982

Online content provider system and method

2/20/2003

8/17/2004

5/11/2019

CXT

US Patent

6,804,675

Online content provider system and method

3/17/2003

10/12/2004

5/11/2019

CXT

US Patent

7,159,011

System and method for managing an online messaging board

8/16/2004

1/2/2007

5/11/2019

CXT

US Patent

7,162,471

Content query system and method

8/16/2004

1/9/2007

5/11/2019

CXT

US Patent

RE43,835

Online content tabulating system and method

2/22/2007

11/27/2012

5/11/2019

CXT

US Patent

RE45,661

Online content tabulating system and method

11/20/2012

9/1/2015

5/11/2019

CXT

US Patent

7,065,494

Electronic customer service and rating system and method

6/25/1999

6/20/2006

6/25/2019

CXT

US Patent

7,340,411

System and method for generating, capturing, and managing customer lead information over a computer network

10/20/2003

3/4/2008

8/2/2021

CXT

US Patent

8,260,806

Storage, management and distribution of consumer information

6/29/2007

9/4/2012

10/17/2021

 

 

CXT

US Patent

7,487,130

Consumer-controlled limited and constrained access to a centrally stored information account

1/6/2006

2/3/2009

11/7/2021

CXT

US Patent

7,016,877

Consumer-controlled limited and constrained access to a centrally stored information account

11/7/2001

3/21/2006

2/22/2023

CXT

US Patent

7,257,581

Storage, management and distribution of consumer information

8/6/2001

8/14/2007

6/2/2023

CXT

US Patent

7,467,141

Branding and revenue sharing models for facilitating storage, management and distribution of consumer information

8/20/2001

12/16/2008

8/11/2023

CXT

US Patent

7,016,875

Single sign-on for access to a central data repository

10/9/2001

3/21/2006

8/19/2023

CXT

US Patent

8,566,248

Initiation of an information transaction over a network via a wireless device

11/20/2001

10/22/2013

6/17/2026

CXT

US Patent

9,928,508

Single sign-on for access to a central data repository

1/6/2006

3/27/18

5/22/2027

CMOS

US Patent

6,624,404

CMOS image sensor having enhanced photosensitivity and method for fabricating the same

11/26/2001

9/23/2003

12/30/2019

CMOS

Korean Patent

KR10-0303774

Method for fabricating cmos image sensor

12/30/1998

7/13/2001

12/30/2018

CMOS

US Patent

6,348,361

CMOS image sensor having enhanced photosensitivity and method for fabricating the same

12/30/1999

2/19/2002

12/30/2019

 

 

CMOS

US Patent

6,184,055

CMOS image sensor with equivalent potential diode and method for fabricating the same

2/26/1999

2/6/2001

2/26/2019

CMOS

Chinese Patent

CNZL99105588.8

Complementary mos image sensor and making method thereof

2/28/1999

10/13/2004

2/27/2019

CMOS

Chinese Patent

CNZL200310104488.4

Image sensing device and its manufacturing method

2/28/1999

3/26/2008

2/27/2019

CMOS

German Patent

DE19908457.2

Photodiode used in cmos image sensing device

2/26/1999

11/28/2013

2/26/2019

CMOS

French Patent

FR2775541

Photodiode for use in a cmos image sensor and method for fabricating the same

3/1/1999

8/2/2002

3/1/2019

CMOS

French Patent

FR2779870

Photodiodes for image sensors

3/1/1999

5/13/2005

3/1/2019

CMOS

United Kingdom Patent

GB2334817

Photodiode for use in a cmos image sensor and method for fabricating the same

3/1/1999

7/1/2003

3/1/2019

CMOS

United Kingdom Patent

GB2383900

CMOS image sensor and method for fabricating the same

3/1/1999

8/20/2003

3/1/2019

CMOS

Japanese Patent

JP4390896

CMOS image sensor and manufacture thereof

3/1/1999

10/16/2009

3/1/2019

CMOS

Korean Patent

KR10-0278285

CMOS image sensor and manufacturing method thereof

2/24/1999

10/18/2000

2/24/2019

CMOS

Taiwanese Patent

TWI141677

CMOS image sensor with equivalent potential diode

3/22/1999

10/1/2001

3/21/2019

CMOS

US Patent

6,180,969

CMOS image sensor with equivalent potential diode

2/26/1999

1/30/2001

2/26/2019

CMOS

US Patent

6,563,187

CMOS image sensor integrated together with memory device

6/29/1999

5/13/2003

6/29/2019

CMOS

US Patent

6,949,388

CMOS image sensor integrated together with memory device

5/12/2003

9/27/2005

11/9/2019

CMOS

Korean Patent

KR10-0464955

CMOS image sensor integrated with memory device

6/29/1998

12/24/2004

6/29/2018

 

 

CMOS

US Patent

6,627,929

Solid state ccd image sensor having a light shielding layer

6/13/2001

9/30/2003

10/13/2018

CMOS

Korean Patent

KR10-0263473

Solid state image device and fabrication method thereof

2/16/1998

5/17/2000

2/16/2018

CMOS

US Patent

6,300,157

Solid state image sensor and method for fabricating the same

10/13/1998

10/9/2001

10/13/2018

CMOS

US Patent

7,113,203

Method and system for single-chip camera

5/7/2002

9/26/2006

5/13/2022

CMOS

US Patent

6,706,550

Photodiode having a plurality of PN junctions and image sensor having the same

10/16/2002

3/16/2004

2/26/2019

CMOS

Japanese Patent

JP4139931

Pinned photodiode of image sensor, and its manufacture

6/28/1999

6/20/2008

6/28/2019

CMOS

Korean Patent

KR10-0275123

Pinned photodiode of image sensor and manufacturing method thereof

6/29/1998

9/19/2000

6/29/2018

CMOS

Taiwanese Patent

TWI133257

Photodiode having a plurality of PN junctions and image sensor having the same

6/30/1999

5/28/2001

6/29/2019

CMOS

US Patent

6,489,643

Photodiode having a plurality of PN junctions and image sensor having the same

6/28/1999

12/3/2002

6/28/2019

M-RED

US Patent

6,853,259

Ring oscillator dynamic adjustments for auto calibration

8/15/2001

2/8/2005

8/15/2021

M-RED

US Patent

7,068,557

Ring oscillator dynamic adjustments for auto calibration

1/25/2005

6/27/2006

8/15/2021

M-RED

US Patent

7,209,401

Ring oscillator dynamic adjustments for auto calibration

5/2/2006

4/24/2007

8/15/2021

M-RED

US Patent

6,221,682

Method and apparatus for evaluating a known good die using both wire bond and flip-chip interconnects

5/28/1999

4/24/2001

5/28/2019

M-RED

US Patent

RE43,607

Method and apparatus for evaluating a known good die using both wire bond and flip-chip interconnects

5/31/2007

8/28/2012

12/31/2019

M-RED

US Patent

6,177,843

Oscillator circuit controlled by programmable logic

5/26/1999

1/23/2001

5/26/2019

M-RED

US Patent

6,628,171

Method, architecture and circuit for controlling and/or operating an oscillator

1/23/2001

9/30/2003

5/26/2019

M-RED

US Patent

6,831,690

Electrical sensing apparatus and method utilizing an array of transducer elements

12/7/1999

12/14/2004

12/7/2019

M-RED

US Patent

7,511,754

Electrical sensing apparatus and method utilizing an array of transducer elements

10/26/2004

3/31/2009

2/7/2022

M-RED

US Patent

6,498,399

Low dielectric-constant dielectric for etchstop in dual damascene backend of integrated circuits

9/8/1999

12/24/2002

9/8/2019

M-RED

US Patent

6,744,311

Switching amplifier with voltage-multiplying output stage

4/23/2002

6/1/2004

4/23/2022

 

 

M-RED

US Patent

6,646,465

Programmable Logic Device Including Bi-Directional Shift Register

2/7/2002

11/11/2003

2/7/2022

M-RED

US Patent

6,721,310

Multiport non-blocking high capacity atm and packet switch

11/2/2001

4/13/2004

11/2/2021

M-RED

US Patent

6,456,183

Inductor for Integrated Circuit

2/24/2000

9/24/2002

2/24/2020

M-RED

US Patent

6,838,970

Inductor for Integrated Circuit

7/26/2002

1/4/2005

9/30/2020

M-RED

US Patent

6,459,135

Monolithic Integrated Circuit Incorporating An Inductive Component And Process For Fabricating Such An Integrated Circuit

3/15/2000

10/1/2002

3/15/2020

M-RED

US Patent

6,388,322

Article comprising a mechanically compliant bump

1/17/2001

5/14/2002

1/17/2021

M-RED

US Patent

6,458,411

Method of making a mechanically compliant bump

10/5/2001

10/1/2002

1/17/2021

M-RED

US Patent

6,506,648

Method of fabricating a high power RF field effect transistor with reduced hot electron injection and resulting structure

9/2/1998

1/14/2003

6/27/2019

M-RED

US Patent

6,735,422

Calibrated DC compensation system for a wireless communication device configured in a zero intermediate frequency architecture

10/2/2000

5/11/2004

10/2/2020

M-RED

US Patent

6,674,998

System and method for detecting and correcting phase error between differential signals

12/21/2000

1/6/2004

10/2/2020

M-RED

US Patent

6,891,440

Quadrature oscillator with phase error correction

12/21/2000

1/6/2004

8/8/2022

M-RED

US Patent

6,763,228

Precision automatic gain control circuit

12/21/2001

7/13/2004

10/3/2021

M-RED

US Patent

6,748,200

Automatic gain control system and method for a ZIF architecture

4/4/2003

6/8/2004

10/2/2020

M-RED

US Patent

RE42,799

Packet acquisition and channel tracking for a wireless communication device configured in a zero intermediate frequency architecture

6/27/2008

10/4/2011

1/22/2023

 

 

M-RED

US Patent

6,560,448

DC compensation system for a wireless communication device configured in a zero intermediate frequency architecture

10/2/2000

5/6/2003

8/29/2021

M-RED

US Patent

6,448,910

Method and apparatus for convolution encoding and viterbi decoding of data that utilize a configurable processor to configure a plurality of re-configurable processing elements

3/26/2001

9/10/2002

3/26/2021

M-RED

US Patent

7,127,588

Apparatus and method for an improved performance VLIW processor

12/5/2000

10/24/2006

3/17/2022

M-RED

US Patent

6,757,752

Micro Controller Development System

1/14/2002

6/29/2004

1/14/2022

M-RED

US Patent

6,509,646

Apparatus For Reducing An Electrical Noise Inside A Ball Grid Array Package

5/22/2000

1/21/2003

5/22/2020

M-RED

US Patent

6,365,970

Bond Pad Structure And Its Method Of Fabricating

12/10/1999

4/2/2002

12/10/2019

M-RED

US Patent

6,912,601

Method of programming PLDs using a wireless link

6/28/2000

6/28/2005

5/11/2022

M-RED

US Patent

6,496,054

Control signal generator for an overvoltage-tolerant interface circuit on a low voltage process

5/9/2001

12/17/2002

5/9/2021

M-RED

US Patent

6,194,279

Fabrication method for gate spacer

6/28/1999

2/27/2001

6/28/2019

M-RED

US Patent

6,281,554

Electrostatic discharge protection circuit

3/20/2000

8/28/2001

3/20/2020

M-RED

US Patent

6,657,263

MOS transistors having dual gates and self-aligned interconnect contact windows

6/28/2001

12/2/2003

3/24/2020

M-RED

US Patent

6,461,908

Method of manufacturing a semiconductor device

4/10/2001

10/8/2002

4/10/2021

M-RED

US Patent

6,737,995

Clock and data recovery with a feedback loop to adjust the slice level of an input sampling circuit

4/10/2002

5/18/2004

4/18/2022

M-RED

US Patent

6,747,522

Digitally controlled crystal oscillator with integrated coarse and fine control

5/3/2002

6/8/2004

5/17/2022

M-RED

US Patent

6,275,116

Method, circuit and/or architecture to improve the frequency range of a voltage controlled oscillator

6/8/1999

8/14/2001

6/8/2019

M-RED

US Patent

6,608,763

Stacking system and method

9/15/2000

8/19/2003

5/24/2021

 

 

M-RED

US Patent

6,404,043

Panel stacking of BGA devices to form three-dimensional modules

6/21/2000

6/11/2002

6/21/2020

M-RED

US Patent

6,472,735

Three-dimensional memory stacking using anisotropic epoxy interconnections

4/5/2001

10/29/2002

6/27/2020

M-RED

US Patent

6,544,815

Panel stacking of BGA devices to form three-dimensional modules

8/6/2001

4/8/2003

6/21/2020

M-RED

US Patent

6,566,746

Panel stacking of BGA devices to form three-dimensional modules

12/14/2001

5/20/2003

6/21/2020

M-RED

US Patent

6,878,571

Panel stacking of BGA devices to form three-dimensional modules

12/11/2002

4/12/2005

4/30/2021

M-RED

US Patent

6,627,984

Chip stack with differing chip package types

7/24/2001

9/30/2003

7/24/2021

M-RED

US Patent

6,908,792

Chip stack with differing chip package types

10/3/2002

6/21/2005

2/21/2022

M-RED

US Patent

6,205,524

Multimedia arbiter and method using fixed round-robin slots for real-time agents and a timed priority slot for non-real-time agents

9/16/1998

3/20/2001

9/16/2018

M-RED

US Patent

6,157,978

Multimedia round-robin arbitration with phantom slots for super-priority real-time agent

1/6/1999

12/5/2000

9/16/2018

M-RED

US Patent

6,117,750

Process for obtaining a layer of single-crystal germanium or silicon on a substrate of single-crystal silicon or germanium, respectively

12/21/1998

9/12/2000

12/21/2018

M-RED

US Patent

6,429,098

Process for obtaining a layer of single-crystal germanium or silicon on a substrate of single-crystal silicon or germanium, respectively, and multilayer products obtained

9/11/2000

8/6/2002

12/21/2018

M-RED

US Patent

6,134,176

Disabling a defective element in an integrated circuit device having redundant elements

11/24/1998

10/17/2000

11/24/2018

M-RED

US Patent

6,366,998

Reconfigurable functional units for implementing a hybrid vliw-simd programming model

10/14/1998

4/2/2002

10/14/2018

 

 

M-RED

US Patent

6,401,217

Method For Error Recognition In A Processor System

7/22/1998

6/4/2002

7/22/2018

M-RED

US Patent

6,169,028

Method for fabricating metal interconnected structure

1/26/1999

1/2/2001

1/26/2019

M-RED

US Patent

6,190,981

Method for fabricating metal oxide semiconductor

2/3/1999

2/20/2001

2/3/2019

M-RED

US Patent

6,130,823

Stackable ball grid array module and method

2/1/1999

10/10/2000

2/1/2019

M-RED

US Patent

6,208,004

Semiconductor device with high-temperature-stable gate electrode for sub-micron applications and fabrication thereof

8/19/1998

3/27/2001

8/19/2018

M-RED

US Patent

6,479,362

Semiconductor device with high-temperature-stable gate electrode for sub-micron applications and fabrication thereof

2/14/2001

11/12/2002

8/19/2018

M-RED

Korean Patent

KR10-0796825

Method of manufacturing a semiconductor device

4/3/2001

6/24/2009

4/3/2021

M-RED

British Patent

GB0930382

Process for obtaining a layer of single crystal germanium or silicon on single crystal silicon or germanium substrate respectively, and multilayer products thus obtained

12/9/1998

8/21/2002

12/9/2018

M-RED

Italian Patent

IT0930382

Process for obtaining a layer of single crystal germanium or silicon on single crystal silicon or germanium substrate respectively, and multilayer products thus obtained

12/9/1998

8/21/2002

12/9/2018

M-RED

Korean Patent

KR10-0633947

Method of fabricating a high power rf field effect transistor with reduced hot electron injection and resulting structure

8/17/1999

10/4/2006

8/17/2019

M-RED

French Patent

FR2791470

Monolithic Integrated Circuit Comprising An Inductor And A Method Of Fabricating The Same

3/23/1999

6/1/2001

3/23/2019

M-RED

French Patent

FR2790328

Inductive Component, Integrated Transformer, In Particular For A Radio Frequency Circuit, And Associated Integrated Circuit With Such Inductive Component Or Integrated Transformer

2/26/1999

4/20/2001

2/26/2019

 

 

M-RED

Japanese Patent

JP4846167

Method of manufacturing a semiconductor device

4/3/2001

10/21/2011

4/3/2021

M-RED

Japanese Patent

JP5051939

Electric sensor device, method for generating electric signal from array of converter element

12/5/2000

8/3/2012

12/5/2020

AMI

US Patent

8,280,014

System and method for associating audio clips with objects

11/29/2006

10/02/2012

11/08/2030

AMI

US Patent

9,088,667

System and method for associating audio clips with objects

09/06/2012

07/21/2015

06/30/2027

AMI

US Patent

10,033,876

System and method for associating audio clips with objects

06/02/2015

07/24/2018

11/29/2026

AMI

US Patent

10,348,909

System and method for associating audio clips with objects

06/18/2018

07/09/2019

11/29/2026

AMI

US Patent

10,938,995

System and method for associating audio clips with objects

05/23/2019

03/02/2021

11/29/2026

AMI

US Patent Application

17/162,354

System and method for associating audio clips with objects

01/29/2021

n/a

n/a

PLL

US Patent

7,761,371

Analyzing a credit counseling agency

07/19/2007

07/20/2010

10/19/2020

PLL

US Patent

7,827,097

System for transferring an inbound communication to one of a plurality of credit-counseling agencies

10/19/2000

11/02/2010

10/23/2024

PLL

US Patent

7,860,785

Communication system to automatically refer an inbound communication

07/19/2007

12/28/2010

10/19/2020

PLL

US Patent

8,209,257

System for transferring an inbound communication to one of a plurality of credit-counseling agencies

11/01/2010

06/26/2012

11/27/2020

PLL

US Patent

8,725,630

Method of processing a phone call

06/25/2012

05/13/2014

10/19/2020

PLL

US Patent

9,948,771

Using an interactive voice response apparatus

05/12/2014

04/17/2018

12/23/2022

PLL

US Patent

10,230,840

Method of using an apparatus processing phone call routing

05/12/2014

03/12/2019

01/05/2022

PLL

US Patent

10,735,582

Apparatus processing phone calls

03/11/2019

08/04/2020

10/19/2020

 

 

TLL

US Patent

8,327,441

System and method for application attestation

2/17/2012

12/4/2012

2/17/2032

TLL

US Patent

8,776,180

Systems and methods for using reputation scores in network services and transactions to calculate security risks to computer systems and platforms

7/27/2012

7/8/2014

7/27/2032

TLL

US Patent

8,850,517

Runtime risk detection based on user, application, and system action sequence correlation

1/15/2013

9/30/2014

1/15/2033

TLL

US Patent

8,850,588

Systems and methods for providing Mobile security based on dynamic Attestation

7/27/2012

9/30/2014

7/27/2032

TLL

US Patent

8,990,948

Systems and methods for orchestrating runtime operational integrity

7/27/2012

3/24/2015

7/27/2032

TLL

US Patent

9,027,125

Systems and methods for network flow remediation based on risk correlation

7/27/2012

5/5/2015

7/27/2032

TLL

US Patent

9,092,616

Systems and methods for threat identification and remediation

7/27/2012

7/28/2015

7/27/2032

TLL

US Patent

7,565,549

System and method for the managed security control of processes on a computer system

7/3/2007

7/21/2009

1/3/2023

TLL

US Patent

7,673,137

System and method for the managed security control of processes on a computer system

1/3/2003

3/2/2010

6/12/2028

TLL

US Patent

8,150,958

Methods, systems and computer program products for disseminating status information to users of computer resources

5/5/2004

4/3/2012

9/6/2031

TLL

US Patent

8,955,038

Methods and systems for controlling access to computing resources based on known security vulnerabilities

8/16/2012

2/10/2015

6/13/2026

TLL

US Patent

9,608,997

Methods and systems for controlling access to computing resources based on known security vulnerabilities

2/10/2015

3/28/2017

6/13/2026

TLL

US Patent

9,923,918

Methods and systems for controlling access to computing resources based on known security vulnerabilities

3/27/2017

3/20/2018

6/13/2006

TLL

US Patent

8,572,738

On demand virus scan

12/7/2006

10/29/2013

11/8/2030

TLL

US Patent

6,842,796

Information extraction from documents with regular expression matching

7/3/2001

1/11/2005

5/28/2022

 

 

TLL

US Patent

6,928,549

Dynamic intrusion detection for computer systems

7/9/2001

8/9/2005

8/29/2023

TLL

US Patent

8,180,941

Mechanisms for priority control in resource allocation

12/4/2009

5/15/2012

10/27/2025

TLL

US Patent

8,055,996

Lightweight form pattern validation

11/13/2003

11/8/2011

10/6/2027

TLL

US Patent

8,086,835

Rootkit detection

6/4/2007

12/27/2011

6/19/2030

TLL

US Patent

8,127,356

System, method and program product for detecting unknown computer attacks

8/27/2003

2/28/2012

12/11/2028

TLL

US Patent

8,135,958

Method, system, and apparatus for dynamically validating a data encryption operation

11/22/2005

3/13/2012

9/5/2030

TLL

US Patent

8,140,835

Mutually excluded security managers

7/1/2008

3/20/2012

12/31/2030

TLL

US Patent

8,171,533

Managing web single sign-on applications

9/29/2008

5/1/2012

3/2/2031

TLL

US Patent

8,819,419

Method and system for dynamic encryption of a URL

4/3/2003

8/26/2014

10/22/2032

TLL

US Patent

9,118,634

Dynamic encryption of a universal resource locator

7/2/2014

8/25/2015

7/2/2034

TLL

US Patent

9,628,453

Dynamic encryption of a universal resource locator

6/10/2015

4/18/2017

4/3/2023

TLL

US Patent

9,860,251

Dynamic encryption of a universal resource locator

1/30/2017

1/2/2018

4/3/2023

TLL

US Patent

8,769,126

Expanded membership access control in a collaborative environment

6/24/2004

7/1/2014

7/3/2028

TLL

European Patent

EP2727042

Rules based actions for mobile device management

7/2/2012

4/6/2016

7/2/2032

TLL

US Patent

9,071,518

Rules based actions for mobile device management

7/2/2012

6/30/2015

7/2/2032

STX

US Patent

7,592,532

Method and Apparatus for Remote Voice-over or Music Production and Management

9/27/2005

9/22/2009

4/25/2026

STX

US Patent

9,635,312

Method and Apparatus for Remote Voice-over or Music Production and Management

12/11/2015

4/25/2017

9/27/2025

STX

US Patent

10,726,822

Method and Apparatus for Remote Digital Content Monitoring and Management

4/24/2017

7/28/2020

9/27/2025

STX

US Application

16/940,157

Method and Apparatus for Remote Digital Content Monitoring and Management

7/27/2020

n/a

 

 

MML

US Patent

7,725,116

Techniques for combining voice with wireless text short message services

11/25/2006

5/25/2010

9/17/2026

MML

US Patent

7,929,949

Interactive multimodal messaging

2/3/2009

4/19/2011

2/3/2029

MML

US Patent

8,107,978

Addressing voice SMS messages

3/27/2008

1/31/2012

3/27/2028

MML

US Patent

8,688,150

Methods for identifying messages and communicating with users of a multimodal message service

8/12/2005

4/1/2014

2/16/2029

MML

US Patent

9,185,227

Sender driven call completion system

12/12/2013

11/10/2015

12/12/2033

MML

US Patent

9,520,851

Predictive automatic gain control in a media processing system

3/12/2015

12/13/2016

6/9/2035

MML

US Patent

9,532,191

Multi-modal transmission of early media notifications

5/17/2013

12/27/2016

5/17/2033

MML

US Patent

9,686,324

System and method for establishing communication links between mobile devices

2/27/2014

6/20/2017

5/1/2034

MML

US Patent

10,552,030

Multi-Gesture Media Recording System

10/11/2013

2/4/2020

7/5/2035

MML

US Patent

10,884,609

Multi-Gesture Media Recording System

1/7/2020

1/5/2021

10/11/2033

MML

US Application

17/117,114

Multi-Gesture Media Recording System

12/10/2020

4/1/2021

n/a

LSC

US Patent

6,549,988

Data storage system comprising a network of PCs and method using same

1/22/1999

4/15/2013

1/22/2019

LSC

US Patent

8,225,002

Data storage and data sharing in a network of heterogeneous computers

3/5/2003

7/17/2012

1/22/2019

LSC

US Patent

9,811,463

Apparatus Including an I/O Interface and a Network Interface and Related Method of Use

2/23/2017

11/7/2017

1/22/2019

LSC

US Patent

10,154,092

Data Sharing Using Distributed Cache in a Network of Heterogeneous Computers

1/15/2016

12/11/2018

1/15/2016

 

 

Tyche

US Patent

6,900,087

Symmetric inducting device for an integrated circuit having a ground shield

8/21/2003

5/31/2005

10/14/2022

Tyche

US Patent

7,084,481

Symmetric inducting device for an integrated circuit having a ground shield

5/28/2004

8/1/2006

7/13/2022

DIP

US Patent

6,936,898

Diagonal deep well region for routing body-bias voltage for MOSFETS in surface well regions

12/31/2002

8/30/2005

3/3/2023

DIP

US Patent

7,098,512

Layout patterns for deep well region to facilitate routing body-bias voltage

10/10/2003

8/29/2006

3/14/2023

DIP

US Patent

7,332,763

Selective coupling of voltage feeds for body bias voltage in an integrated circuit device

1/26/2004

2/19/2008

7/5/2023

DIP

US Patent

7,211,478

Diagonal deep well region for routing body-bias voltage for MOSFETS in surface well regions

8/8/2005

5/1/2007

12/31/2022

DIP

US Patent

7,645,664

Layout pattern for deep well region to facilitate routing body-bias voltage

6/8/2006

1/12/2010

12/21/2023

DIP

US Patent

7,323,367

Diagonal deep well region for routing body-bias voltage for MOSFETS in surface well regions

5/1/2007

1/29/2008

12/31/2022

DIP

US Patent

7,608,897

Sub-surface region with diagonal gap regions

1/28/2008

10/27/2009

12/31/2022

DIP

US Patent

9,251,865

Selective coupling of voltage feeds for body bias voltage in an integrated circuit device

2/11/2008

2/2/2016

7/5/2023

DIP

US Patent

8,415,730

Selective coupling of voltage feeds for body bias voltage in an integrated circuit device

2/19/2008

4/9/2013

7/5/2023

DIP

US Patent

7,149,851

Method and system for conservatively managing store capacity available to a processor issuing stores

8/21/2003

12/12/2006

10/17/2024

DIP

US Patent

7,606,979

Method and system for conservatively managing store capacity available to a processor issuing stores

12/12/2006

10/20/2009

8/21/2023

DIP

US Patent

RE44,025

Apparatus and method for integrated circuit power management

7/18/2008

2/19/2013

9/9/2024

 

*

Subject to any terminal disclaimer or patent term extension.

 

 

Research and Development

 

Research and development expense are incurred by us in connection with the evaluation of patents. We did not incur research and development expenses during the period ended March 31, 2022 or December 31, 2021, respectively.

 

Consulting Contracts

 

On February 22, 2021, we entered into advisory service agreement with three consultants – William Gates, Crystal Nicolson and Jeff Toler pursuant to which they will provide services to us in connection with the development of our business. The agreements have a term of ten years and may be terminated by us for cause or upon the death or disability of the consultants.

 

Pursuant to the agreements with Mr. Gates and Ms. Nicolson, the compensation payable to each of them consists of a restricted stock grant of 10,000,000 shares of Common Stock which immediately vests in full and a ten-year option to purchase a total of 30,000,000 shares of Common Stock, which become exercisable cumulatively as follows:

 

●

10,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of our common stock on the OTCQB which occurred on May 7, 2021.

 

●

10,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which we file with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

 

●

10,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

Pursuant to the agreement with Mr. Toler, the compensation payable to him consists of a restricted stock grant of 10,000,000 shares of Common Stock which immediately vests in full and a ten-year option to purchase 30,000,000 shares of Common Stock, which becomes exercisable cumulatively as follows:

 

●

10,000,000 shares at an exercise price of $0.01 per share upon the first anniversary of the agreement;

 

●

10,000,000 shares at an exercise price of $0.03 per share upon the second anniversary of the agreement; and

 

●

10,000,000 shares at an exercise price of $0.05 per share upon the third anniversary of the agreement.

 

Employees

 

As of May 15, 2022, 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.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS 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 prospectus.

 

Overview

 

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 eighteen 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.

 

Because of the nature of our business transactions to date, we recognize revenues from licensing upon execution of a license agreement following settlement of litigation and not over the life of the patent. Thus, we recognize revenue when we enter into the agreement pursuant to which we are to 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 revenues can, and are 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, including contingent legal fees and the portion of the recovery payable to QFL and Intelligent Partners. 

 

Our agreements with our funding sources have typically provided that the funding source pay the litigation costs and receive a percentage of the recovery, thus reducing our recovery in connection with any settlement of the litigation. To the extent that our counsel represents us on a contingent fee basis, our recovery would also be reduced by the percentage of the settlement payable to counsel. From September 2015 until December 2021, under our agreements with QFL and Intelligent Partners, as the assignee of United Wireless, and under the terms of our agreements to purchase certain intellectual property portfolios, a portion of our recovery may be payable to Intelligent Partners or the seller of the intellectual property rights. All of these payments, which are reflected as cost of revenues, significantly reduce the net payment to us.

 

Agreements with QFL and Intelligent Partners

 

On February 22, 2021, we entered into a funding agreement with QFL and a restructure agreement with Intelligent Partners.

 

Pursuant to the Purchase Agreement with QFL, QFL agreed to make available to us a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent rights that we intend to monetize, of which $1,150,000 had been advanced at December 31, 2021 and $2,210,000 has been advanced at March 31, 2022; (b) up to $2,000,000 for operating expenses, of which $1,000,000 had been advanced at December 31, 2021 and $1,200,000 has been advanced at March 31, 2022; and (iii) $1,750,000 to fund the cash payment portion of the restructure of our obligations to Intelligent Partners, which was paid to Intelligent Partners at the closing. In return we transferred to QFL a right to receive a portion of net proceeds generated from the monetization of those patents. Our obligations to QFL are secured by the proceeds from the patents acquired with their funding, the patents and all general intangibles now or hereafter arising from or related to the foregoing and the proceeds and products of the foregoing. We also granted QFL a ten-year warrant to purchase a total of up to 96,246,246 shares of our common stock, with an exercise price of $0.0054 per share which may be exercised from February 19, 2021 through February 18, 2031 on a cash or cashless basis, subject to certain limitations on exercisability. The warrant also contains certain minimum ownership percentage antidilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the Warrant shall not be less than 10% of the aggregate number of outstanding shares of our capital stock (determined on a fully diluted basis) at the date of such exercise. A portion of any gain from the sale of the shares, net of taxes and costs of exercise, realized prior to the completion of all monetization activities shall be credited against the total return due to QFL pursuant to the Purchase Agreement. We also granted QFL registration rights with respect to the common stock issuable upon exercise of the warrants and certain board observation rights. Pursuant to the Purchase Agreement, the all of the net proceeds from the monetization of the intellectual property acquired with funds from QFL are paid directly to QFL. After QFL has received a negotiated rate of return, we and QFL share net proceeds equally until QFL achieves its investment return, as defined in the agreement. Thereafter, we retain 100% of all net proceeds. Except in an Event of Default, as defined therein, all payments by us to QFL pursuant to the Purchase Agreement are non-recourse and shall be paid only if and after net proceeds from monetization of the patent rights owned or acquire by us are received, or to be received.

 

 

Contemporaneously with the execution of the agreement with QFL, we entered into a restructure agreement with Intelligent Partners to eliminate any obligations we had with respect to the outstanding notes and the securities purchase agreement. As part of the restructure of our agreements with Intelligent Partners, we amended the existing MPAs and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property we acquire. Under these MPAs, Intelligent Partners receives a 60% interest in the proceeds from our intellectual property owned by the eight Subsidiary Guarantors. Intelligent Partners also participates in the monetization proceeds from new intellectual property that we acquire until the total payments under all the monetization participation agreements equal $2,805,000, as follows: for net proceeds between $0 and $1,000,000, Intelligent Partners receives 10% of the net proceeds realized from new patents, except that if, in any calendar quarter, net proceeds realized by us exceed $1,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000. If in the same calendar quarter, net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 50% on the portion of net proceeds in excess of $3,000,000. The payments with respect to the new patents terminate once total payments to Intelligent Partners under all monetization participation agreements reach $2,805,000. The payments to Intelligent Partners with respect new patents are payable from the proceeds which are allocated to us under the QFL agreements, which start after QFL has received a negotiated rate of return.

 

Inventor Royalties, Contingent Litigation Funding Fees and Contingent Legal Expenses

 

In connection with the investment in certain patents and patent rights, certain of our operating subsidiaries executed agreements which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

 

Our operating subsidiaries may engage third party funding sources to provide funding for patent licensing and enforcement. The agreements with the third party funding sources may provide that the funding source receives a portion of any negotiated fees, settlements or judgments. In certain instances, these third party funding sources are entitled to receive a significant percentage of any proceeds realized until the third party funder has recouped agreed upon amounts based on formulas set forth in the underlying funding agreement, which may reduce or delay and proceeds due to us. 

 

Our operating subsidiaries may retain the services of law firms in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby the law firms are paid by the funding source on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained. Depending on the amount of any recovery, it is possible that all the proceeds from a specific settlement may be paid to the funding source and legal counsel.

 

The economic terms of the inventor agreements, funding agreements and contingent legal fee arrangements associated with the patent portfolios owned or controlled by our operating subsidiaries, if any, including royalty rates, proceeds sharing rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by the operating subsidiaries. Inventor royalties, payments to non-controlling interests, payments to third party funding providers and contingent legal fees expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms and obligations generating revenues each period. Inventor royalties, payments to third party funding sources and contingent legal fees expenses will continue to fluctuate and may continue to vary significantly period to period, based primarily on these factors.

 

In December 2018, we entered into a funding agreement whereby a third party agreed to provide funds to us to enable us to support our structured licensing programs for the CMOS and M-RED portfolios. Under the funding agreement, the third party receives an interest in the proceeds from the programs, and we have no other obligation to the third party. As of December 31, 2021, the third-party funding source advanced $150,000 for costs and expenses, and has no further obligation to provide additional funds. Under the terms of the funding agreement, the third-party funder is entitled to a priority return of funds advanced from net proceeds recovered. There are no pending actions.

 

In connection with any litigation seeking to enforce our intellectual property rights, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has 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 its operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by us or its operating subsidiaries, could materially harm our operating results and financial position. Since the operating subsidiaries do not have any assets other than the patents, and the Company does not have any available financial resources to pay any judgment which a defendant may obtain against a subsidiary, such a judgement may result in the bankruptcy of the subsidiary and/or the loss of the patents, which are the subsidiaries’ only assets. 

 

 

At present, we are pursuing litigation with respect to several of our intellectual property portfolios. The actions are described in Item 1. Business. We cannot estimate when or whether we will receive any revenue from these litigations, or whether, in the event we do not prevail, the defendant will not obtain an award of legal fees against our plaintiff subsidiary which could result in the bankruptcy of the subsidiary and a default under our agreements with QFL and Intelligent Partners.

 

Restricted Stock Grants and Options

 

In February 2021, we issued restricted stock grants to consultants (30,000,000 shares) and to our officers and directors (74,000,000 shares) all of which vested immediately. The value of the shares is be reflected as non-cash compensation in 2021. Also in February 2021, we granted restricted stock options to consultants (90,000,000 shares) and to our chief executive officer (60,000,000 shares). With respect to two of the consultants and the chief executive officer the options become cumulatively exercisable as follows: 1/3^rd at an exercise price of $0.01 per share, becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB; 1/3^rd at an exercise price of $0.03 per share becoming exercisable on the first day on which we file with the SEC a Form 10-K or Form 10-Q with stockholders’ equity of at least $5,000,000; and 1/3^rd at an exercise price of $0.05 per share on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange. We will incur non-cash compensation with respect to the value of the options, based of Black-Scholes valuation, as the options become exercisable. 

 

Results of Operations

 

Three months ended March 31, 2022 and 2021

 

		Three months ended March 31,
		2022				2021
Revenues (patent licensing fees)		$	122,000			$	-
Cost of revenue (litigation and licensing expenses)			110,105				64,238
Selling, general and administrative expenses			547,647				2,229,092
Total operating expenses			657,752				2,229,092
Loss from operations			(535,752	)			(2,293,330	)

 

We generated revenues of $122,000 for the three months ended March 31, 2022, as compared with no revenues for the three months ended March 31, 2021. Our revenue for the quarter was generated from settlements in the M-RED and STX portfolios. The failure to generate revenue for the three months ended March 31, 2021 resulted from our inability to engage counsel or secure financing for licensing programs on our intellectual property as a result of our default under the notes to Intelligent Partners. Our revenue, in the near future if not longer, is likely to be affected by factors relating to the COVID-19 pandemic as described under “Overview”. The total settlement recovery is included in revenue and the associated costs are deducted as cost of revenue. As discussed above, the timing and amount of our revenue is dependent upon the results of litigation seeking to enforce our intellectual property rights, and we cannot predict when or whether we will have a recovery and how much of the recovery will be received by us after payments to legal counsel, to our funding sources, to inventors/former patent owners and to Intelligent Partners who have an interest in our share of the recovery from certain patent portfolios after deducting payments due to counsel and the litigation funding source. 

 

Operating expenses for the three months ended March 31, 2022 decreased by approximately $1,636,000, or approximately 71%, compared to the three months ended March 31, 2021. Our principal operating expense for the three months ended March 31, 2022 was amortization of intangible assets of approximately $308,000 compared to approximately $488,000 for the three months ended March 31, 2021, which is included in our selling, general and administrative expenses. Our principal operating expense for the three months ended March 31, 2021 was stock based compensation of approximately $1,510,000 to officers, directors and consultants. We had stock-based compensation costs of approximately $42,000 for the three months ended March 31, 2022. As discussed above, the timing and amount of revenue is dependent upon the results of litigation seeking to enforce our intellectual property rights. Depending on the terms of the engagement with counsel, total fees payable across all our portfolio enforcement actions may exceed total settlement recoveries as of a specific date as the settlements do not occur simultaneously.

 

Other expense for the three months ended March 31, 2022 included a gain on change in fair value of warrant liability of approximately $472,000. We realized a loss on change in fair value of warrant liability of approximately $664,000 in the comparable period of 2021. Other expense for the three months ended March 31, 2021 also included an approximately $730,000 loss on the extinguishment of our obligation to Intelligent Partners, an approximately $306,000 loss on conversion of debt, warrant expense of approximately $1,819,000 and income of approximately $21,000 on the forgiveness of our Paycheck Protection Program loan from the SBA. Other expense reflects interest expense of approximately $86,000 for the three months ended March 31, 2022 and approximately $29,000 for the three months ended March 31, 2021. The increase in interest expense reflects the accrued interest payable on the principal amount of QFL facility.

 

 

During the period we incurred income tax expense of approximately $13,000 and $225 for the three months March 31, 2022 and 2021. The increase in income tax expense primarily reflects foreign income taxes related to foreign source patent licensing fees. We did not incur foreign income tax expenses in the three months ended March 31, 2021.

 

As a result of the foregoing, we realized net loss of approximately $163,000, or $0.00 per share (basic and diluted), for the three months ended March 31, 2022, compared to net loss of approximately $5,157,000, or $0.01 per share (basic and diluted), for the three months ended March 31, 2021.

 

Years Ended December 31, 2021 and 2020

 

The following table shows the revenue and operating expenses for the years ended December 31, 2021 and 2020:

 

		Year ended December 31,
		2021				2020
Revenues (patent licensing fees)		$	2,050,000			$	5,488,088
Cost of revenue (litigation and licensing expenses)			1,314,928				4,692,969
Selling, general and administrative expenses			3,848,611				1,513,822
Total operating expenses			5,163,539				6,206,791
Loss from operations			(3,113,539	)			(718,703	)

 

Revenues for the year ended December 31, 2021 were $2,050,000, as compared with $5,488,088 in 2020, a decrease of $3,438,088, or approximately 63%. The decrease in 2021 principally reflects a decrease in patent licensing fees of $3,438,088, or 63%. Our licensing fees reflect the settlement of litigation for infringement of our patent rights. These fees are one-time fees, with the result that there is no continuity of revenues from period to period, and any revenue we generate in future periods will be solely dependent upon the results of pending and future litigation. We did not generate any revenue during the fourth quarter of 2020 or the first three quarters of 2021. We cannot assure you that we will generate any revenue from patent licensing fees in the future. The patent licensing fees of $2,050,000 in 2021 resulted from the licensing and settlements of the CXT Portfolio, the M-RED Portfolio, the Peregrin Portfolio and the Soundstreak Portfolio litigations. The patent licensing fees for 2020 resulted from licensing and settlements of Power Management/Bus Control Portfolio, the CXT Portfolio, the MRED Portfolio and the Financial Data Portfolio. Because we were in default under our loans to Intelligent Partners (as successor to United Wireless), with Intelligent Partners having the ability to declare a default on our notes in the principal amount of $4,672,810, with the possibility of our seeking protection under the Bankruptcy Act, we ceased our monetization activities, since no counsel would represent us on a contingent basis in view of the default and possible bankruptcy, and devoted our efforts in negotiating the agreements with QFL and Intelligent Partners. We resumed our efforts to monetize our intellectual property when we signed the agreements with QFL and Intelligent Partners in February 2021. Our revenue, at least in the near future if not longer, may be affected by factors relating to the COVID-19 pandemic and other domestic and international issues, including the Russian invasion of Ukraine.

 

Cost of revenues for 2021 was $1,314,928 which we incurred in connection with our pending litigations and fees we pay to litigation funding sources, legal counsel, prior owners and pursuant to monetization proceeds agreements in connection with CXT Portfolio, M-RED Portfolio, Peregrin Portfolio and Soundstreak Portfolio licenses. Cost of revenue for 2021 decreased approximately 72% from cost of revenue for 2020, reflecting the decline in revenue and the difference in the components of cost of revenue. Cost of revenue for 2020 was $4,692,969 of litigation and licensing fees paid to litigation funding sources and legal counsel in connection with the Power Management/Bus Control, the CXT Portfolio, the M-RED Portfolio and the Financial Data Portfolio licensing programs.

 

 

Selling, general, and administrative expenses for 2021 increased by approximately $2,335,000, or by approximately 154%, from approximately $1,514,000 in 2020 to approximately $3,849,000 in 2021. Our principal selling, general and administrative expense for 2021 was stock-based compensation of approximately $1,916,000 resulting from stock and options granted to officers, directors and consultants. We did not incur stock-based compensation in 2020. Our principal selling, general and administrative expense for 2020 was amortization expense of approximately $648,000 relating to amortization of our patent portfolios. Amortization expense for 2021 was approximately $1,160,000

 

Other income (expense) for 2021 included an approximately $730,000 loss on the extinguishment of debt, an approximately $306,000 loss on conversion of debt and warrant expense of approximately $1,155,000. The warrants issued to QFL were accounted for as liabilities and the warrant liability is fair valued at each reporting period. The change in fair market value between reporting periods is recorded as other income. Other income (expense) for 2021 included an increase in the fair value of the warrant liability of approximately $481,000. We realized a gain of approximately $275,000 on derivative liability in the comparable period of 2020, which related to our obligations under our agreements with Intellectual Partners as transferee of United Wireless. In connection with the termination of our obligations under the United Wireless notes, the associated derivative liability was settled and written off to additional paid in capital and commencing in 2021, we no longer have a derivative liability. See Note 4 of Notes to Consolidated Financial Statements.

 

Other income also reflects a gain on forgiveness of debt of approximately $3,593,000 for the year ended December 31, 2021 which represents the gain on resolution of the disputed and unpaid legal services performed our former legal counsel for services relating to the monetization of our intellectual property rights and the gain on forgiveness of debt resulting from amendment to our agreements with IV. The gain on forgiveness was offset by a loss on impairment of assets of approximately $1,652,000 associated with the write down of the Power Management/Bus Controller, CXT and M-RED portfolios resulting from our decision to no longer allocate resources to their monetization.

 

Other income also reflects interest expense of approximately $292,000 for the year ended December 31, 2021 which reflects the accrued interest payable on the principal amount of QFL facility. Interest expense for the year ended December 31, 2020 was approximately $804,000 which reflects the interest accrued on our note to Intelligent Partners. The decrease in interest expense reflects the termination of accrued interest upon maturity on our note to Intelligent Partners.

 

We had an income tax expense of approximately $2,000 for 2021 as compared with approximately $65,000 in 2020. The income tax expense in 2020 results primarily from foreign taxes paid with respect to certain of our settlement agreements.

 

As a result of the foregoing, we had a net loss of approximately $4,155,000, or $0.01 per share (basic and diluted) for 2021 compared to net loss of approximately $1,313,000, or $0.00 per share (basic and diluted), for 2020.

 

Liquidity and Capital Resources

 

At March 31, 2022, we had current assets of approximately $297,000, and current liabilities of approximately $9,296,000. Our current liabilities include funding liabilities of approximately $4,463,000 payable to QFL, a non-interest bearing total monetization proceeds obligation (the “TMPO”) to Intelligent Partners in the amount of $2,805,000 under the Restructure Agreement, both of which are only payable from money generated from the monetization of intellectual property, and loans payable of $138,000 and accrued interest of approximately $578,000. As of March 31, 2022, we have an accumulated deficit of approximately $25,599,000 and a negative working capital of approximately $8,899,000. Other than salary and pension benefits to our chief executive officer, we do not contemplate any other material operating expense in the near future other than normal general and administrative expenses, including expenses relating to our status as a public company filing reports with the SEC.

 

 

As a result of our restructure of our agreement with Intelligent Partners, the outstanding notes to Intelligent Partners were cancelled and replaced with agreements that provide for payments if we receive proceeds from our intellectual property as described above under “Agreements for QFL and Intelligent Partners.”

 

The following table shows the summary cash flows for the years ended March 31, 2022 and 2021:

 

		Three months ended March 31,
		2022				2021
Cash flows from operating activities		$	(210,166	)		$	(305,896	)
Cash flows from investing activities			(1,060,000	)			(350,000	)
Cash flows from financing activities			1,260,000				635,049
Net decrease in cash			(10,166	)			(20,847	)
Cash at beginning of year			264,840				247,862
Cash at end of year			254,674				227,015

 

For the three months ended March 31, 2022, we used approximately $210,000 in operations. Our cash flow used in operations for the three months ended March 31, 2022 reflected our loss of approximately $163,000, which was offset principally by a gain on warrant liability of approximately $471,000, amortization of intangible assets of approximately $308,000, stock based compensation of approximately $42,000, a decrease in accrued interest of approximately 86,000, an increase in accounts payable and accrued expenses of approximately $18,000 and in increase in accounts payable of approximately $15,000.

 

Cash flow from financing activities for the three months ended March 31, 2022 include proceeds from a third-party loan of approximately $1,260,000 offset by the cash flows from investing activities relating to the payment of the purchase price of patents of approximately $1,060,000.

 

The following table shows the summary cash flows for the years ended December 31, 2021 and 2020:

 

		Year ended December 31,
		2021				2020
Cash flows from operating activities		$	(49,673	)		$	(246,304	)
Cash flows from investing activities			(1,150,000	)			(95,000	)
Cash flows from financing activities			1,216,651				51,968
Net increase (decrease) in cash			16,978				(289,336	)
Cash at beginning of year			247,862				537,198
Cash at end of year			264,840				247,862

 

 

For 2021, we used approximately $50,000 in operations. Our cash flow used in operations for 2021 reflected our loss of approximately $4,155,000, which was offset principally by a loss on impairment of assets of approximately $1,652,000, stock based compensation of approximately $1,916,000, amortization of intangible assets of approximately $1,160,000, warrant expense of approximately $1,155,000, a decrease in accounts receivable of approximately $1,032,000, a decrease in accounts payable and accrued expenses of approximately $1,037,000, a loss on debt extinguishment of approximately $730,000, a loss on warrant liability of approximately $481,000 and a loss on conversion of debt of approximately $306,000, and increased by a gain on forgiveness of debt of approximately $1,850,000 and a gain on settlement of accounts payable of approximately $1,726,000.

 

For 2020, we used approximately $246,000 in operations. Our cash flow used in operations for 2020 reflected our loss of approximately $1,300,000, and the amount used in operations increased primarily by a decrease in accounts payable and accrued expenses of approximately $471,000, and the gain on derivative liability of $275,000 offset by a decrease in accounts receivable of approximately $750,000, depreciation and amortization of approximately $648,000, amortization of debt discount of approximately $435,000 and bad debt expense of $66,000.

 

Cash flow from financing activities in 2021 included proceeds from a third-party loan of approximately $3,900,000 offset by the payment of the purchase price of patents of approximately $924,000, payment of $1,750,000 of a loan from a related party from the proceeds of the third-party loan and the payment of $9,000 of a loan from a third party.

 

Cash flow from financing activities for 2020 reflected the proceeds of an SBA loan of approximately $172,000, the payment of the purchase price of patents of approximately $194,000 and proceeds from the sale of future revenues of approximately $95,000 offset by payment made on the sale of future revenues of approximately $20,000. Under the agreement with the litigation funder, the third-party lender receives an interest in the proceeds.

 

In 2021 and 2020, cash flow from investing activities included $1,150,000 and $95,000, respectively for the purchase of patents from third parties.

 

In 2021, non-cash investing and financing activities consisted of shares issued for conversion of debt of approximately $556,000, interest added to principal of approximately $6,000 and options granted for settlement of debt of approximately $598,000. In 2020, non-cash investing and financing activities consisted of resolution of derivative liability of $320,000 and interest added to principal of approximately $3,000.

 

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, or that we will be able to obtain any third party funding in connection with any of our intellectual property portfolios. We have no credit facilities.

 

We cannot predict the success of any pending or future litigation seeking to enforce our intellectual property rights.

 

In February 2021, we signed a funding agreement with QFL, as described in “Agreements with QFL and Intelligent Partners” above and in “Summary of Agreements with QFL” in Item 1. Business.

 

As noted below, there is a substantial doubt about our ability to continue as a going concern. 

 

Critical Accounting Policies

 

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.

 

Principles of Consolidation

 

Our consolidated financial statements are prepared in accordance with US GAAP and present the financial statements of us and our wholly-owned subsidiaries. In the preparation of our consolidated financial statements, intercompany transactions and balances are eliminated.

 

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

Patent Licensing Fees

 

Revenue is recognized upon transfer of control of promised bundled intellectual property rights and other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange for those intellectual property rights. Revenue contracts that provide promises to grant “the right” to use intellectual property rights as they exist at the point in time at which the intellectual property rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition criteria have been met. 

 

For the periods presented, revenue contracts executed by the Company primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company’s operating subsidiaries. Intellectual property rights granted included the following, as applicable: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted were perpetual in nature, extending until the legal expiration date of the related patents. The individual intellectual property rights are not accounted for as separate performance obligations, as (a) the nature of the promise, within the context of the contract, is to transfer combined items to which the promised intellectual property rights are inputs and (b) the Company’s promise to transfer each individual intellectual property right described above to the customer is not separately identifiable from other promises to transfer intellectual property rights in the contract.

 

Since the promised intellectual property rights are not individually distinct, the Company combined each individual IP right in the contract into a bundle of IP rights that is distinct, and accounted for all of the intellectual property rights promised in the contract as a single performance obligation. The intellectual property rights granted were “functional IP rights” that have significant standalone functionality. The Company’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. The Company’s subsidiaries have no further obligation with respect to the grant of intellectual property rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant (i.e. transfer of control) of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the intellectual property rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 30-90 days of execution of the contract. Contractual payments made by licensees are generally non-refundable. We do not have any significant payment terms, as payment is received shortly after goods are delivered or services are provided, therefore there is no significant financing component or consideration payable to the customer in these transactions.

 

Cost of Revenues

 

Cost of revenues include the costs and expenses incurred in connection with our patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent litigation funding fees, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties and the amortization of patent-related investment costs. These costs are included under the caption “Cost of revenues” in the accompanying consolidated statements of operations. No such fees are recognized as a cost of revenue to the extent that we have no obligation with respect to fees prior to a settlement or license.

 

Inventor Royalties, Contingent Litigation Funding Fees and Contingent Legal Expenses.

 

Inventor royalties are expensed in the consolidated statements of operations in the period that the related revenues are recognized. Contingent litigation funding and legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent litigation funding fees are due. 

 

 

Accounts Receivable

 

Accounts receivable, which generally relate to licensed sales, are presented on the balance sheet net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. We recorded an allowance for doubtful accounts of $0 and $66,000 as of December 31, 2021 and December 31, 2020, respectively.

 

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. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.  

 

Patents include the cost of patents or patent rights (collectively “patents”) acquired from third-parties or acquired in connection with business combinations. Patent acquisition costs are amortized utilizing the straight-line method over their remaining economic useful lives, ranging from one to twenty years. Certain patent application and prosecution costs incurred to secure additional patent claims, that based on management’s estimates are deemed to be recoverable, are capitalized and amortized over the remaining estimated economic useful life of the related patent portfolio. 

 

Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” 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. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. For the year ended December 31, 2021, the we recorded non-cash impairment charges of approximately $1,652,000 to write down finite lived intangible assets in the Power Management/Bus Controller, CXT and M-RED portfolios. See Note 6 of Notes to Consolidated Financial Statements.

 

Warrant liability

 

We reflect a warrant liability with respect to warrants for which number of shares underlying the warrants is not fixed until the date of the initial exercise. The amount of the liability is determined at the end of each fiscal period and the period to period change in the amount of warrant liability is reflected as a gain or loss in warrant liability and is include under other income (expense). See Note 4 of Notes to Consolidated Financial Statements. 

 

Fair Value of Financial Instruments

 

We adopted Financial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.  

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

In addition, FASB ASC 825-10-25 “Fair Value Option” was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

 

 

Income Tax

 

We incurred foreign income tax expenses of approximately $13,000 and $0 for the three-months ended March 31, 2022 and 2021, respectively. 

 

Stock-based Compensation

 

We account for stock-based compensation pursuant to ASC 718, “Compensation — Stock Compensation,” which prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Stock-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

Business Combinations

 

The acquisition of STX and LS Cloud Storage Technologies, LLC (“LSC”) were accounted for in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 provides, among other things, that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition which are accounted for using a cost accumulation and allocation model under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed. The STX and LSC were recorded as asset acquisitions. See Note 9 of Notes to Consolidated Financial Statements.

 

Gain from Cancelation of Indebtedness

 

We recognized a gain from the elimination of liability for minimum cumulative net proceeds distributions constituting a portion of the purchase price due to the seller of two of our patent portfolios and the reduction of liability for legal services resulting from the settlement of our recorded obligation for unpaid legal services. See Note 3 of Notes to Consolidated Financial Statements.

 

Recent Accounting Pronouncements

 

Management does not believe that there are any recently issued, but not effective, accounting standards which, if currently adopted, would have a material effect on the Company’s financial statements.

 

Going Concern

 

We have an accumulated deficit of approximately $25,599,000 million and negative working capital of approximately $8,999,000 million as of March 31, 2022. Because of our continuing losses, our working capital deficiency, the uncertainty of future revenue, our obligations to QFL, Intelligent Partners, our low stock price and the absence of a trading market in our common stock and the possibility of our common stock being removed from the OTCQB and being traded on the OTC Pink market, our ability to raise funds in equity market or from lenders is severely impaired. These conditions, together with the effects of the COVID-19 pandemic and the steps taken by the states to slow the spread of the virus and its effect on our business raise substantial doubt as to our ability to continue as a going concern. Although we may seek to raise funds and to obtain third-party funding for litigation to enforce our intellectual property rights, the availability of such funds, particularly in view of the COVID-19 pandemic, is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Off-balance Sheet Arrangements

 

We have no off-balance sheet arrangements. 

 

 

MANAGEMENT

 

Executive Officers and Directors

 

The following table presents information with respect to our officers and directors:

 

Name		Age		Position(s)
Jon C. Scahill		45		Chief executive officer, president, acting chief financial officer, secretary and director
Timothy J. Scahill		54		Chief technology officer and director
Dr. William Ryall Carroll		47		Director
Ryan T. Logue		41		Director

 

Prior to January 2016, our directors were elected to serve for a term of one year until our next annual meeting of the stockholders or unless he resigns earlier. On January 22, 2016, following approval by the stockholders, we amended and restated our certificate of incorporation. Our amended and restated certificate of incorporation provides for a classified board of directors. Our classified board of directors has three classes of directors – Class I directors, Class II directors and Class III directors. The Class I director has a term of which expired in 2020, the Class II director has a term which expired in 2018, and the Class III director has a term which expired in 2019. Directors are elected for a term of three years. Since we did not have an annual meeting of stockholders in 2018, 2019 and 2020, the Class I, Class II and Class III directors continue in office until the next meeting of stockholders, at which all directors will be elected.

 

Jon C. Scahill, a Class I director, 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 admitted to practice in New York, Florida and the District of Columbia, and he is a registered patent attorney admitted to practice before the United States Patent and Trademark Office.

 

Timothy J. Scahill, a Class II director, 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, a Class III director, has been a director since October 2014. Dr. Carroll has been associate professor and chairman of the marketing department at 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. 

 

Ryan T. Logue, a Class I director, is an investment advisory representative Lincoln Investment, a position he has held since 2019. Prior to joining Lincoln Investment, he spent 16 years with Morgan Stanley in the private wealth management department. Mr. Logue has spent the majority of his career focused on investing in both public and private opportunities department. Mr. Logue graduated with a BA from Colgate University and an MBA from Columbia University and has previously served on the board of the Columbia Alumni Association of Fairfield County.

 

Timothy J. Scahill and Jon C. Scahill are first cousins.

 

 

Director Independence

 

Dr. Carroll and Mr. Logue are “independent” directors 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 executive officers and directors of issuers whose securities are registered pursuant to the Securities Exchange Act and persons who own more than 10% of a registered class of our equity securities to file with the SEC 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. Because our common stock is not registered pursuant to the Securities Exchange Act, our officers, directors and 10% stockholders are not required to make such filings.

 

 

EXECUTIVE COMPENSATION

 

The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during the years ended December 31, 2021 and 2020, earned by or paid to our executive officers.

 

Name and Principal Position		Year				Salary				Bonus Awards				Stock Awards		Options/ Warrant Awards				Non-Equity Plan Compensation		Nonqualified Deferred Earnings				All Other Compensation (3)		Total
						($)				($)				($)		($)				($)		($)				($)		($)
Jon Scahill,			2021			$	300,000				-			588,000(1)			240,000	(2)		-			-			58,000		$	1,186,000
CEO and President			2020				300,000				-			-			-			-			-			57,000			357,000

 

(1)	Represents the value of 49,000,000 shares granted Mr. Scahill in 2021
(2)	Represents the value of an option to purchase 20,000,000 shares of common stock
(3)	Represents the payments made by the Company under the SEP IRA adopted in March 2020

 

Employment Agreements

 

Pursuant to the restated employment agreement, dated November 30, 2014, we agreed to employ Jon C. 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. In March 2016, the board of directors increased Mr. Scahill’s annual salary to $300,000, effective January 1, 2016. Mr. Scahill is entitled to a bonus if we meet or exceed performance criteria established by the compensation committee. In August 2016, the board of directors approved annual bonus compensation to Mr. Scahill equal to 30% of the amount by which our consolidated income before income taxes exceeds $500,000, but, if we are subject to the limitation on deductibility of executive compensation pursuant to Section 162(m) of the Internal Revenue Code, the bonus cannot exceed the amount which would be deductible pursuant to Section 162(m). 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. 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. In March 2020, the Company adopted a SEP IRA plan for its employees. Mr. Scahill is our only employee covered by the plan.

 

Pension Benefits

 

In March 2020, we adopted a SEP IRA plan for our employees pursuant to which we deposit into a SEP IRA account of each of our participating employees a percentage of the employee’s compensation, subject to statutory limitations on the amount of the contribution all as set forth in the IRS Form 5305-SEP presented to and reviewed by the directors of this Corporation. For the year ending December 31, 2021 the percentage was set at 19%. Mr. Scahill is our only employee covered by the plan.

 

2017 Equity Incentive Plan

 

On November 10, 2017, the board of directors adopted the 2017 Equity Incentive Plan (the “Plan”) pursuant to which 150,000,000 shares of common stock may be issued. In February 2021, the board amended the Plan to increase the number of shares subject to the plan to 500,000,000. Set forth below is a summary of the plan, as amended, but this summary is qualified in its entirety by reference to the full text of the plan, a copy of which is included as an exhibit to our annual report on Form 10-K for the year ended December 31, 2021 filed on April 1, 2022.

 

 

The plan provides for the grant of non-qualified options, stock grants and other equity-based incentives to employees, including officers, directors and consultants.

 

 On February 19, 2021, the board of directors:

 

●

granted restricted stock grants for 10,000,000 shares, which vested in full immediately upon issuance, to each of three consultants pursuant to agreements with the consultants;

 

●

granted restricted stock grants for a total of 69,000,000 shares, which vested in full immediately upon issuance, to our directors, Jon C. Scahill (49,000,000 shares), Timothy J. Scahill (10,000,000 shares) and Dr. William R. Carroll (10,000,000 shares) as compensation for services rendered;

 

●

granted a restricted stock grant to Ryan T. Logue for 5,000,000 shares upon his acceptance of his appointment as a director;

 

●

granted non-qualified ten-year stock options to purchase 30,000,000 shares to each of three consultants pursuant to agreements with the consultants, the options to vest as provided in their agreements.

  

●

granted a non-qualified ten-year stock option to purchase 60,000,000 shares to Jon C. Scahill, which vest in installments as described under Item 11. Executive Compensation.

 

The options granted to two of the consultants become exercisable as follows:

 

●

10,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB which occurred on May 7, 2021.

 

●

10,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

 

●

10,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

The options granted the third consultant become exercisable as follows:

 

●

10,000,000 shares at an exercise price of $0.01 per share became exercisable on February 22, 2022, which was the first anniversary of the date of the agreement.

 

●

10,000,000 shares at an exercise price of $0.03 per share upon the second anniversary of the date of the agreement; and

 

●

10,000,000 shares at an exercise price of $0.05 per share upon the third anniversary of the date of the agreement.

 

The options granted to Jon C. Scahill become exercisable as follows:

 

●

20,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB, which occurred on May 7, 2021.

 

●

20,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

 

●

20,000,000 shares at an exercise price of $0.05/share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

 

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, 2021.

 

Option awards

Stock awards

Name

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 ($)

Jon Scahill

20,000,0000

(1)

0.01

2/22/2031

20,000,000

(2)

0.03

20,000,000

(3)

0.05

  

(1)	Represents 20,000,000 shares granted to Mr. Scahill on February 22, 2021 at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB. The Company regained such compliance on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.
(2)	Represents 20,000,000 shares granted to Mr. Scahill on February 22, 2021 at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders” equity of at least $5,000,000
(3)	Represents 20,000,000 shares granted to Mr. Scahill on February 22, 2021 at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

Directors’ Compensation

 

We do not have any agreements or formal plan for compensating our directors for their service in their capacity as directors, although our board has, and may in the future, award stock grants or options to purchase shares of common stock to our directors. 

 

The following table provides information concerning the compensation of each member of our board of directors whose compensation is not included in the Summary Compensation Table for his services as a director for 2020.

 

Name		Fees Earned or Paid in Cash				Stock Awards				Total
Timothy J. Scahill		$	-			$	120,000			$	120,000
Dr. William Ryall Carroll			-				120,000				120,000
Ryan T. Logue			-				60,000				60,000

 

The amount under Stock Awards reflects the value of the stock issued to the named directors.

Start here 

 

 

PRINCIPAL STOCKHOLDERS

 

The following table provides information as to shares of common stock beneficially owned as of June 15, 2022, 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 June 15, 2022.

 

Name and Address (1) of Beneficial Owner		Amount and Nature of Beneficial Ownership				% of Class
Jon C. Scahill			160,000,000				28.9	%
Andrew C. Fitton (2) 300 Bowie St., Apt. 2803 Austin, TX 78703			117,407,407				22.0	%
Intelligent Partners, LLC (3) 300 Bowie St., Apt. 2803 Austin, TX 78703			50,000,000				8.6	%
Michael R. Carper (4) 13218 Tamayo Drive Austin, TX 78729			78,888,889				14.8	%
Dr. William Ryall Carroll			15,484,633				2.9	%
Timothy J. Scahill			15,105,000				2.8	%
Ryan T. Logue			5,497,624				1.0	%
All officers and directors as a group (four individuals)			196,087,257				35.4	%

 

(1)	The address of Jon C. Scahill, Dr. Carroll, Timothy J. Scahill and Ryan T. Logue is c/o Quest Patent Research Corporation, 411 Theodore Fremd Ave., Suite 206S, Rye, New York 10580-1411.

(2)	Represents (a) 67,407,407 shares owned by Mr. Fitton and (b) 50,000,000 shares issuable upon exercise of an option held by Intelligent Partners.

(3)	Represents 50,000,000 shares of common stock issuable upon exercise of options held by Intelligent Partners. Andrew C. Fitton and Michael R. Carper, as the members of Intelligent Partners, have the right to vote and dispose of the shares owned by Intelligent Partners.

(4)	Represents (a) 28,888,889 shares of common stock owned by Mr. Carper and (b) 50,000,000 shares issuable upon exercise of an option held by Intelligent Partners.

  

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Related Transactions

 

In prior periods, we incurred interest expense on our 10% notes issued to United Wireless pursuant to the securities purchase agreement dated October 22, 2015 more fully described in our annual report on Form 10-K for the year ended December 31, 2020. The notes were extinguished in February 2021 and we did not incur interest expense on the notes for the year ended December 31, 2021. The interest expense was approximately $351,000 for the year ended December 31, 2020.

 

Reference is made to the discussion of our agreements with Intelligent Partners, Mr. Fitton and Mr. Carper under “Business – Summary of Agreements with Intelligent Partners” and “Agreements with QFL and Intelligent Partners.”

 

Managed Services Team LLC, an entity for which 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. The cost of these services was approximately $434 and $464 for the year ended December 31, 2021 and 2020, respectively. 

 

During 2021, we contracted with a law firm more than 10% owned, but not controlled, by the father-in-law of the chief executive officer. The firm is engaged on a contingent fee basis and serves as escrow agent in connection with monetization of our patents in matters where the firm is serving as counsel to us. In connection with the engagement, we recorded patent service costs of approximately $763,000 and $909,000 for the years ended December 31, 2021 and 2020 respectively. The amount recorded in 2020 includes approximately $407,000 in accrued expenses and outstanding as of December 31, 2020. The accrued liability is recorded in “accounts payable and accrued liabilities.” The accrued liability was resolved as part of a resolution with the firm at which the father-in-law of the chief executive was formerly a partner. For the three months ended March 31, 2022 and 2021, the cost of these services was approximately $28,000 and $0, respectively. In prior periods, we engaged a firm at which the father-in-law of the chief executive was formerly a partner. Because his interest in the prior firm was less than 10%, the prior firm was not considered a related party in prior periods. 

 

Director Independence

 

Dr. Carroll and Mr. Logue are “independent” directors based on the definition of independence in the listing standards of the NYSE.

 

RESIGNATION OF INDEPENDENT AUDITOR

 

On June 7, 2021, MaloneBailey, LLP (“MaloneBailey”) advised us that it was resigning, effective June 7, 2021, as our independent registered public accounting firm. MaloneBailey issued an auditor’s report for the years ended December 31, 2020 and 2019, which report did not contain any adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles, except that the report contained an explanatory paragraph indicating that there was substantial doubt as to the Company’s ability to continue as a going concern. 

 

During our two most recent fiscal years and any subsequent interim period through the date of such resignation, there were no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MaloneBailey, would have caused them to make reference thereto in connection with their report on the financial statements for the years ended December 31, 2020 and 2019. Further, during such period, there were no reportable events of the type described in Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses described in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

 

DESCRIPTION OF CAPITAL STOCK

 

Our authorized capital stock consists of 10,000,000,000 shares of common stock, par value $0.00003 per share, and 10,000,000 shares of preferred stock, par value $0.00003 per share. Holders of our common stock are entitled to equal voting rights, consisting of one vote per share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. The presence, in person or by proxy duly authorized, of the holders of one-third of the outstanding shares of stock entitled to vote are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of incorporation. In the event of liquidation, dissolution or winding up of our company, either voluntarily or involuntarily, each outstanding share of the common stock is entitled to share equally in our assets.

 

Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock. They are entitled to receive dividends when and as declared by our board of directors, out of funds legally available therefore. We have not paid cash dividends in the past and do not expect to pay any within the foreseeable future.

 

Preferred Stock

 

Our articles of incorporation give our board of directors the power to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock. The rights granted to the holders of a series of preferred stock could restrict payment of dividends on the common stock, dilute the voting power of the common stock, impair the liquidation rights of the holders of the common stock and delay or prevent a change in control without further action by stockholders. We have no present plans to issue any shares of preferred stock.

 

Other Provisions of Our Certificate of Incorporation

 

As described under “Management – Executive Officers and Directors” our board of directors is a classified board, with three classes of directors and directors being elected for a term of three years.

 

Our certificate of incorporation provides that we shall indemnify our officers and directors and others whom we are permitted to indemnify to the maximum extent permitted by Delaware law. Section 145 of the Delaware General Corporation Law gives a corporation broad power to indemnify directors, officers and other persons. Our by-laws include a provision which provides that we will indemnify our officers and directors to the maximum extent permitted by law, and have authorization provisions which conform with the provisions of Section 145. We also have indemnification agreements with our directors which are consistent with our certificate of incorporation and bylaws.

 

Our certificate of incorporation provides that no director shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty subject to certain exceptions as provided in the Delaware General Corporation Law, and, if the General Corporation Law is amended to authorize further elimination or limitation of the liability of directors, these additional provisions shall apply to our directors.

 

Our certificate of incorporation provides that where, in connection with a compromise or arrangement between us and any class of creditors or stockholders, if a majority in number and three-fourth in value of the creditors or stockholders or class of creditors or stockholders, as the case may be, approve a compromise or arrangement which is sanctioned by the court, it is binding on all of the creditors or class of creditors or stockholders or class of stockholders.

 

 

Delaware Law Provisions Relating to Business Combinations with Related Persons

 

We are subject to the provisions of Section 203 of the Delaware General Corporation Law statute. Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of the corporation’s voting stock.

 

SEC Policy on Indemnification for Securities Act liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Penny-Stock Rules

 

The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions, and is not listed on the a registered stock exchange or the Nasdaq Stock Market (although the $5.00 per share requirement may apply to Nasdaq listed securities) or has net tangible assets in excess of $2,000,000, if the issuer has been in continuous operation for at least three years, or $5,000,000, if the issuer has been in continuous operation for less than three years, or has average revenue of at least $6,000,000 for the last three years.

 

As a result, our common stock may be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may affect your ability to sell our securities in the secondary market and the price at which you can sell our common stock.

 

According to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:

 

●

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

 

●

Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

 

 

●

“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

 

●

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

 

●

The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent losses to investors.

 

Purchasers of penny stocks may have certain legal remedies available to them in the event the obligations of the broker-dealer from whom the penny stock was purchased violates or fails to comply with the above obligations or in the event that other state or federal securities laws are violated in connection with the purchase and sale of such securities. Such rights include the right to rescind the purchase of such securities and recover the purchase price paid for them.

 

Since our stock is a “penny stock” we do not have the safe harbor protection under federal securities laws with respect to forward-looking statement.

 

Transfer Agent

 

The transfer agent for the common stock is Continental Stock Transfer & Trust Company, One State St., 30^th Fl., New York, NY 10004, telephone (212) 509-4000.

 

 

LEGAL MATTERS  

 

The validity of the common stock offered hereby will be passed upon for us by Ellenoff Grossman & Schole LLP, New York, New York.

 

EXPERTS  

 

Our consolidated financial statements included in this prospectus as of March 31, 2022 and for the year ended December 31, 2021 have been included in reliance on the report of Rosenberg Rich Baker Berman P.A., an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing.

 

Our consolidated financial statements included in this prospectus as of December 31, 2020 and for the year then ended have been included in reliance on the report of MaloneBailey, LLP, an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION  

 

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered by this prospectus.  This prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration statement.  For further information with respect to our company and our common stock offered hereby, reference is made to the registration statement and the exhibits filed as part of the registration statement.  We file periodic reports with the Securities and Exchange Commission, including annual reports which include our audited financial statements and quarterly reports although we are not currently required to make such filings pursuant to the Securities Exchange Act.  We also plan to include our SEC filings on our website. The registration statement, including exhibits thereto, and all of our periodic reports may be inspected without charge at the Securities and Exchange Commission’s principal office in Washington, DC, and copies of all or any part thereof may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549.  You may obtain additional information regarding the operation of the Public Reference Section by calling the Securities and Exchange Commission at 1-800-SEC-0330.  The Securities and Exchange Commission also maintains a website which provides online access to reports, registration statements and other information regarding registrants that file electronically with the Securities and Exchange Commission at the address: http://www.sec.gov.

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

 

QUEST PATENT RESEARCH CORPORATION

 

 

 

	Page
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	F-2
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021	F-3
Unaudited Condensed Consolidated Statements of Change in Stockholders’ Deficit for the three months ended March 31, 2022 and 2021	F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	F-5
Notes to Unaudited Condensed Consolidated Financial Statements	F-6
Report of Independent Registered Public Accounting Firm (Rosenberg Rich Baker Berman P.A. – PCAOB ID: 89)	F-22
Report of Independent Registered Public Accounting Firm (MaloneBailey, LLP - PCAOB ID: 206)	F-23
Consolidated Balance Sheets for the years ended December 31, 2021 and 2020	F-25
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020	F-26
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2021 and 2020	F-27
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020	F-28
Notes to Consolidated Financial Statements	F-29

 

  

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31, 2022				December 31, 2021
ASSETS
Current assets
Cash		$	254,674			$	264,840
Accounts receivable			15,412				-
Other current assets			26,688				12,305
Total current assets			296,774				277,145
Patents, net of accumulated amortization of $1,023,744 and $715,519, respectively			1,291,256				539,481
Total assets		$	1,588,030			$	816,626
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	147,387			$	129,426
Loans payable			138,000				138,000
Funding liability			4,462,765				3,202,765
Loan payable – related party			2,805,000				2,805,000
Loan payable – SBA - current portion			808				-
Warrant liability			1,164,580				1,636,187
Accrued interest			577,582				491,971
Total current liabilities			9,296,120				8,403,349
Non-current liabilities
Loan Payable - SBA			149,192				150,000
Purchase price of patents			190,000				190,000
Total liabilities			9,635,314				8,743,349
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, par value $.00003 per share, authorized 10,000,000 shares, no shares issued and outstanding			-				-
Common stock, par value $0.00003 per share; authorized 10,000,000,000 shares at March 31, 2022 and December 31, 2021; shares issued and outstanding 533,334,630 at March 31, 2022 and December 31, 2021			16,000				16,000
Additional paid-in capital			17,535,106				17,493,027
Accumulated deficit			(25,598,618	)			(25,435,978	)
Total Quest Patent Research Corporation deficit			(8,047,512	)			(7,926,951	)
Non-controlling interest in subsidiary			228				228
Total stockholders’ deficit			(8,047,284	)			(7,926,723	)
Total liabilities and stockholders’ deficit		$	1,588,030			$	816,626

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the
		Three Months Ended
		March 31,
		2022				2021
Revenues
Patent licensing fees		$	122,000			$	-
Operating expenses
Cost of revenue:
Litigation and licensing expenses			110,105				64,238
Selling, general and administrative expenses			547,647				2,229,092
Total operating expenses			657,752				2,293,330
Loss from operations			(535,752	)			(2,293,330	)
Other income/(expense)
Other income			-				20,832
Warrant expense			-				(1,154,905	)
Change in fair market value of warrant liability			471,607				(664,149	)
Loss on conversion of debt			-				(305,556	)
Loss on debt extinguishment			-				(730,378	)
Interest expense			(85,611	)			(29,081	)
Total other income/(expense)			385,996				(2,863,237	)
Net loss before income tax			(149,756	)			(5,156,567	)
Income tax			(12,884	)			(225	)
Net loss		$	(162,640	)		$	(5,156,792	)
Net loss per share – basic and diluted		$	(0.00	)		$	(0.01	)
Weighted average shares outstanding – basic and diluted			533,334,630				446,370,021

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

		Common Stock								Additional Paid-in				Accumulated				Non- controlling Interest in				Total Stockholders’
		Shares				Amount				Capital				Deficit				Subsidiary				Deficit
Balances as of December 31, 2020			383,038,334			$	11,491			$	14,427,782			$	(21,281,179	)		$	228			$	(6,841,678	)
Restricted shares issued for services			104,000,000				3,120				1,244,880				-				-				1,248,000
Shares issued for conversion of debt			46,296,296				1,389				554,167				-				-				555,556
Option issued for debt extinguishment			-				-				598,188				-				-				598,188
Stock based compensation			-				-				262,285				-				-				262,285
Net loss			-				-				-				(5,156,792	)			-				(5,156,792	)
Balances as of March 31, 2021			533,334,630			$	16,000			$	17,087,302			$	(26,437,971	)		$	228			$	(9,334,441	)

 

		Common Stock								Additional Paid-in				Accumulated				Non- controlling Interest in				Total Stockholders’
		Shares				Amount				Capital				Deficit				Subsidiary				Deficit
Balances as of December 31, 2021			533,334,630			$	16,000			$	17,493,027			$	(25,435,978	)		$	-			$	(7,926,723	)
Stock based compensation											42,079												42,079
Net loss			-				-				-				(162,640	)			-				(162,640	)
Balances as of March 31, 2022			533,334,630			$	16,000			$	17,535,106			$	(25,598,618	)		$	228			$	(8,047,284	)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the
		Three Months Ended
		March 31,
		2022				2021
Cash flows from operating activities:
Net loss		$	(162,640	)		$	(5,156,792	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount			-				24,019
Change in fair market value of warrant liability			(471,607	)			664,149
Stock based compensation			42,079				1,510,285
Warrant expense			-				1,154,905
(Gain) on forgiveness of SBA loan			-				(20,832	)
Amortization of intangible assets			308,226				487,888
Loss on conversion of debt			-				305,556
Loss on debt extinguishment			-				730,378
Changes in operating assets and liabilities:
Accounts receivable			(15,412	)			379,296
Accrued interest			85,611				5,063
Other current assets			(14,383	)			3,509
Accounts payable and accrued expenses			17,960				(393,320	)
Net cash used by operating activities			(210,166	)			(305,896	)
Cash used from investing activities:
Purchase of patents			(1,060,000	)			(350,000	)
Net cash used in investing activities			(1,060,000	)			(350,000	)
Cash used from financing activities:
Payment on loans – related party			-				(1,750,000	)
Proceeds from third party loan			1,260,000				2,500,000
Repayment of purchase price of patents			-				(114,951	)
Net cash provided by financing activities			1,260,000				635,049
Net decrease in cash and cash equivalents			(10,166	)			(20,847	)
Cash and cash equivalents at beginning of period			264,840				247,862
Cash and cash equivalents at end of period		$	254,674			$	227,015
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes			12,884				225
Interest			-				-
Non-cash investing and financing activities
Shares issued for conversion of debt			-				250,000
Interest added to principal			1,387				1,387

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

QUEST PATENT RESEARCH CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022

  

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

The Company is a Delaware corporation, incorporated on July 17, 1987 and has been engaged in the intellectual property monetization business since 2008.

 

As used herein, “we”, “us”, “our”, the “Company” refer 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 accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and notes required by GAAP for complete financial statements. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s consolidated financial position have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2021. Operating results for the interim periods presented herein are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. Reclassifications have been made to conform with the current year presentation.

 

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 March 31, 2022. 

 

The consolidated financial statements include the accounts and operations of:

 

	Quest Patent Research Corporation (“The Company”)
	Digital IP Advisors Inc. (“DIPA”) (wholly owned) (formerly Quest Licensing Corporation (NY))
	Quest Licensing Corporation (DE) (“QLC”) (wholly owned)
	Quest Packaging Solutions Corporation (90% owned)
	Quest Nettech Corporation (“NetTech”) (65% owned)
	Semcon IP, Inc. (“Semcon”) (wholly owned)
	Mariner IC, Inc. (“Mariner”) (wholly owned)
	IC Kinetics, Inc. (“IC”) (wholly owned)
	CXT Systems, Inc. (“CXT”) (wholly owned)
	Photonic Imaging Solutions Inc. (“PIS”) (wholly owned)
	M-Red Inc. (“M-Red”) (wholly owned)
	Audio Messaging Inc. (“AMI”) (wholly owned)
	Peregrin Licensing LLC (“PLL”) (wholly owned)
	Taasera Licensing LLC (“TLL”) (wholly owned)
	Soundstreak Texas LLC (“STX”) (wholly owned)
	Multimodal Media LLC (“MML”) (wholly owned)
	LS Cloud Storage Technologies, LLC (“LSC”) (wholly owned)
	Tyche Licensing LLC (“Tyche”) (wholly owned) (formed April 14, 2022)
	Deepwell IP LLC (“DIP”) (wholly owned) (formed April 14, 2022)

 

 

In February 2022, the Company changed the name of Quest Licensing Corporation to Digital IP Advisors Incorporated.

 

Significant intercompany transaction and balances have been eliminated in consolidation. 

 

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. 

 

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. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.  

 

Patents include the cost of patents or patent rights (hereinafter, collectively “patents”) acquired from third-parties or acquired in connection with business combinations.  Patent acquisition costs are amortized utilizing the straight-line method over their remaining economic useful lives, ranging from one to ten years. Certain patent application and prosecution costs incurred to secure additional patent claims that, based on management’s estimates are deemed to be recoverable, are capitalized and amortized over the remaining estimated economic useful life of the related patent portfolio.

 

Warrant liability

 

The Company reflects a warrant liability with respect to warrants for which the number of shares underlying the warrants is not fixed until the date of the initial exercise. The amount of the liability is determined at the end of each fiscal period and the period to period change in the amount of warrant liability is reflected as a gain or loss in warrant liability and is include under other income (expense).

 

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. See Note 4 for information about our warrant liability.

 

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. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

 

Income Tax

 

The Company incurred foreign income tax expenses of approximately $13,000 and $0 for the three months ended March 31, 2022 and the three months ended March 31, 2021, respectively.

 

Inventor/Former Owner Royalties and Contingent Legal/Litigation Finance Expenses

 

In connection with the investment in certain patents and patent rights, certain of the Company’s operating subsidiaries may execute related agreements which grant to the inventors and/or former owners of the respective patents or patent rights, the right to receive a percentage of future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

 

The Company’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of any negotiated fees, settlements or judgments awarded.

 

The Company’s operating subsidiaries may engage with funding sources that provide financing for patent licensing and enforcement. These litigation finance firms may be engaged on a non-recourse basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements or judgments awarded in exchange for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing and enforcement activities.

 

The economic terms of the inventor agreements, operating agreements, contingent legal fee arrangements and litigation financing agreements associated with the patent portfolios owned or controlled by the Company’s operating subsidiaries, if any, including royalty rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by such operating subsidiaries and are included in cost of revenues as litigation and licensing expenses. Inventor/former owner royalties, payments to non-controlling interests, contingent legal fees expenses and litigation finance expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms and obligations generating revenues each period. Inventor/former owner royalties, contingent legal fees expenses and litigation finance expenses will continue to fluctuate and may continue to vary significantly period to period, based primarily on these factors.

 

Revenue Recognition

 

Patent Licensing Fees

 

The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Under Topic 606, revenue is recognized when there is a contract which has commercial substance which is approved by both parties and identifies the rights of the parties and the payment terms. 

 

 

For the periods presented, revenue contracts executed by the Company primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company’s operating subsidiaries as part of the settlement of litigation commenced by the Company’s subsidiaries. Intellectual property rights granted included the following, as applicable: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted were perpetual in nature, extending until the legal expiration date of the related patents. The individual intellectual property rights are not accounted for as separate performance obligations, as (a) the nature of the promise, within the context of the contract, is to transfer combined items to which the promised intellectual property rights are inputs and (b) the Company’s promise to transfer each individual intellectual property right described above to the customer is not separately identifiable from other promises to transfer intellectual property rights in the contract.

 

Since the promised intellectual property rights are not individually distinct, the Company combined each individual IP right in the contract into a bundle of IP rights that is distinct, and accounted for all of the intellectual property rights promised in the contract as a single performance obligation. The intellectual property rights granted were “functional IP rights” that have significant standalone functionality. The Company’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. The Company’s subsidiaries have no further obligation with respect to the grant of intellectual property rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant (i.e. transfer of control) of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the intellectual property rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 30 to 90 days of execution of the contract. Contractual payments made by licensees are generally non-refundable. The Company does not have any significant payment terms, as payment is received shortly after goods are delivered or services are provided, therefore there is no significant financing component or consideration payable to the customer in these transactions. 

 

Cost of Revenue

 

Cost of revenues mainly includes expenses incurred in connection with our patent enforcement activities, such as legal fees, consulting costs, patent maintenance, royalty fees for acquired patents and other related expenses. Cost of revenue does not include expenses related to product development, patent amortization, integration or support, as these are included in general and administrative expenses.

 

Stock-based compensation

 

The Company recognizes stock-based compensation pursuant to ASC 718, “Compensation — Stock Compensation,” which prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Stock-based payments to employees and non-employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee or non-employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). 

 

Net Loss Per Share

 

The Company calculates net losses per share by dividing losses allocated to the Company’s stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Because the Company incurred losses in all periods covered by the financial statements the inclusion of diluted weighted average shares would be anti-dilutive, the diluted net loss per share is the same as the basic net loss per share. Potentially dilutive securities are excluded from the computation of dilutive earnings per share for the three months ended March 31, 2022 and 2021 since the effect would be antidilutive. The Company’s potentially dilutive securities include potential common shares related to 96,246,246 warrants granted to QFL in connection with the Purchase Agreement, 50,000,000 stock options granted to Intelligent Partners in connection with the Restructure Agreement and 60,000,000 stock options granted to officers and consultants.  See Notes 3, 4 and 5.

 

Recent Accounting Pronouncements

 

Management does not believe that there are any recently issued, but not effective, accounting standards which, if currently adopted, would have a material effect on the Company’s financial statements. 

 

 

Going Concern

 

As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $26,363,000 and negative working capital of approximately $8,999,000 as of March 31, 2022. Because of the Company’s continuing losses, its working capital deficiency, the uncertainty of future revenue, the Company’s obligations to Intelligent Partners, QPRC Finance LLC (“QFL”), the Company’s low stock price and the absence of an active trading market in its common stock, the ability of the Company to raise funds in the equity market or from lenders is severely impaired. These conditions, together with the effects of the COVID-19 pandemic and the steps taken by the states to slow the spread of the virus and its effect on its business raise substantial doubt as to the Company’s ability to continue as a going concern. Although the Company may seek to raise funds and to obtain third party funding for litigation to enforce its intellectual property rights, the availability of such funds, particularly in view of the COVID-19 pandemic, is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

NOTE 3 – SHORT-TERM DEBT AND LONG-TERM LIABILITIES

 

The following table shows the Company’s short-term and long-term debt at March 31, 2022 and December 31, 2021.

 

		March 31,				December 31,
		2022				2021
Short-term debt:
Loans payable		$	138,000			$	138,000
Funding liability			4,462,765				3,202,765
Loan payable – related party			2,805,000				2,805,000
Loan payable – SBA - current portion			808				-
Net short-term debt		$	7,406,573			$	6,145,765
Long-term liabilities:
Loans payable - SBA
Gross		$	149,192			$	150,000
Net loans payable - SBA			149,192				150,000
Purchase price of patents
Gross			190,000				190,000
Net purchase price of patents – long-term		$	190,000			$	190,000

 

Loans Payable

 

The loans payable represents demand loans made by former officers and directors, who are unrelated third parties at March 31, 2022, and December 31, 2021, in the amount of $138,000. The loans are payable on demand plus accrued interest at 10% per annum. These third parties are also stockholders, but their stockholdings are not significant.

 

Funding Liability

 

The funding liability at March 31, 2022 represents the principal amount of the Company’s obligations to QFL pursuant to a purchase agreement (“Purchase Agreement”) dated February 22, 2021 between the Company and QFL, as described below. As of March 31, 2021, the Company had made repayments in the amount of approximately $697,000. The obligation to QFL has no repayment term and has been classified as a current liability as of March 31, 2022.

 

On February 22, 2021, the Company entered into a series of agreements, all dated February 19, 2021,with QFL, a non-affiliated party, including the “Purchase Agreement, a security agreement (the “Security Agreement”), a subsidiary security agreement (the “Subsidiary Security Agreement”), a subsidiary guaranty (the “Subsidiary Guarantee”), a warrant issue agreement (the “Warrant Issue Agreement”), a registration rights agreement (the “Registration Rights Agreement”) and a board observation rights agreement (the “Board Observation Rights Agreement” together with the Security Agreement, the Subsidiary Guaranty, the Subsidiary Security Agreement, Warrant Issuance Agreement, Registration Rights Agreement and the Purchase Agreement, the “Investment Documents”) pursuant to which, at the closing held contemporaneously with the execution of the agreements:

 

(i)

Pursuant to the Purchase Agreement, QFL agreed to make available to the Company a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent rights that the Company intends to monetize, of which $2,210,000 has been advanced as of March 31, 2022; (b) up to $2,000,000 for operating expenses, of which the Company has requested and received $1,200,000 as of March 31, 2022; and (iii) $1,750,000 to fund the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners. In return the Company transferred to QFL a right to receive a portion of net proceeds generated from the monetization of those patents.

 

 

(ii)

The Company used $1,750,000 of proceeds from the QFL financing as the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners pursuant to the Restructure Agreement executed contemporaneously with the closing of the Investment Documents. The payment was made directly from QFL to Intelligent Partners.

  

(iii)

Pursuant to the Security Agreement, the Company’s obligations under the Purchase Agreement with QFL are secured by: (a) the proceeds (as defined in the Purchase Agreement); (b) the patents (as defined in the Purchase Agreement; (c) all general intangibles now or hereafter arising from or related to the foregoing (a) and (b); and (d) proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c).

 

(iv)

Pursuant to the Subsidiary Guaranty, eight of the Company’s subsidiaries – QLC, NetTech, Mariner, Semcon, IC, CXT, M-Red, and AMI, collectively, the “Subsidiary Guarantors”) guaranteed the Company’s obligations to QFL under the Purchase Agreement.

 

(v)

Pursuant to the Subsidiary Security Agreement, the Subsidiary Guarantors granted QFL a security interest in the proceeds from the future monetization of their respective patent portfolios.

 

(vi)

Pursuant to the Warrant Issue Agreement, the Company granted QFL ten-year warrants to purchase a total of up to 96,246,246 shares of the Company’s common stock, at an exercise price of $0.0054 per share which may be exercised from the date of exercise through February 18, 2031 on a cash or cashless basis. Exercisability of the warrant is limited if, upon exercise, the holder or any of holder’s affiliates would beneficially own more than 4.99% (the “Maximum Percentage”) of the Company’s common stock, except that by written notice to the Company, the holder may change the Maximum Percentage to any other percentage not in excess of 9.99% provided any such change will not be effective until the 61st day following notice to the Company. The warrant also contains certain minimum ownership percentage antidilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the warrant shall not be less than 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis). Because the facility with QFL has no term the fair value of the warrants was expensed at the grant date.  A portion of any gain from sale of the shares, net of taxes and costs of exercise, realized prior to the completion of all monetization activities shall be credited against the total return due to QFL pursuant to the Purchase Agreement. See Notes 4 and 5 for information on the warrant issue and associated liability.

 

(vii)

The Company regained compliance with the OTCQB Eligibility Requirements on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.

 

(viii)

The Company granted QFL certain registration rights with respect to the 96,246,246 shares of common stock issuable upon exercise of the warrant.  See Note 5 for information on the warrant issue.

  

(ix)

Pursuant to the Board Observation Rights Agreement, until the later of the date on which QFL or its affiliates (i) have received the entirety of their Investment Return (as defined in Purchase Agreement), and (ii) no longer hold any Securities (the “Observation Period”), the Company granted QFL the right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings (including, without limitation, telephonic or other electronic meetings) of the Board or any committee thereof, including executive sessions, in an observer capacity.

 

 

On February 26, 2021, the Company entered into an agreement with Peter K. Trzyna (“PKT”) pursuant to which PKT assigned to the Company all right, title, and interest in a portfolio of eight United States patents (the “Peregrin Portfolio”). Under the agreement, the Company paid PKT $350,000 at closing and agreed that upon the realization of gross proceeds, if any, the Company shall make a second installment payment or payments in the aggregate amount of $93,900 representing reimbursement to PKT, as the prosecuting attorney, for legal fees associated with prosecution of the portfolio, such reimbursement shall be due and payable to PKT from time to time as gross proceeds are realized, and paid to PKT along with and in proportion to reimbursement to other third parties of costs incurred in realizing gross proceeds from the Peregrin Portfolio. Thereafter, PKT is entitled to a percentage of gross proceeds realized, if any, from the Peregrin Portfolio. The Company requested and received a capital advance from QFL in the amount of $350,000 pursuant to the Purchase Agreement, which was used to make payment to PKT.

 

On May 20, 2021, TLL, entered into an agreement with Taasera, Inc. to acquire all right, title, and interest in a portfolio of seven United States patents (the “Taasera Portfolio”) for $250,000. The Company requested and received a capital advance from QFL in the amount of $250,000 pursuant to the Purchase Agreement, which was used to make payment to Taasera, Inc.

 

On October 15, 2021, MML, acquired all right, title, and interest in a portfolio of nine United States patents (the “MML Portfolio”) for a purchase price of $550,000 pursuant to an agreement with Aawaaz Inc. (“AI”), pursuant to which MML retains an amount equal to the purchase price plus any fees incurred out of net proceeds, as defined in the agreement, after which AI is entitled to a percentage of further net proceeds realized, if any. The Company requested and received a capital advance from QFL in the amount of $550,000 pursuant to the Purchase Agreement, which was used to make payment to AI.

 

On January 27, 2022, the Company acquired, via assignment from Intellectual Ventures Assets 181 LLC and Intellectual Ventures Assets 174 LLC, all right title and interest to fifteen United States patents and three foreign patents for a purchase price of $1,060,000. The Company requested and received a capital advance in the amount of the $1,060,000 purchase price from the facility with QFL. Two of the patents were assigned to Tyche and the balance of the patents were assigned to DIP.

 

The Company requested and received an operating capital advances in the amount of $200,000 and $400,000 from QFL pursuant to the Purchase Agreement for the three months ended March 31, 2022 and 2021, respectively.

 

Loan Payable Related Party

 

The loan payable – related party at March 31, 2022 represents the current amount of a non-interest bearing total monetization proceeds obligation (the “TMPO”) to Intelligent Partners, LLC (“Intelligent Partners”) of $2,805,000, pursuant to a restructure agreement (“Restructure Agreement”) dated February 22, 2021 whereby the Company and Intelligent Partners, extinguished the Company’s 10% Note to Intelligent Partners as transferee of the notes issued to United Wireless Holdings, Inc. (“United Wireless”), in the amount of $4,672,810 pursuant to securities purchase agreement dated October 22, 2015 between the Company and United Wireless. The notes became due by their terms on September 30, 2020, and the Company did not make any payment on account of principal of and interest on the notes. Subsequent to September 30, 2020, the Company engaged in negotiations with Intelligent Partners in parallel with the Company’s negotiations with QFL, with a view to restructuring the Company’s obligations under the United Wireless agreements, including the notes, so that the Company no longer had any obligations under the notes or the SPA. These negotiations resulted in the Restructure Agreement, described below, which provided for the payment to Intelligent Partners of $1,750,000 from the proceeds from the Company’s agreements with QFL. As part of the restructure of the Company’s agreements with Intelligent Partners, the Company amended the existing MPAs and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property the Company acquires, as describe below. Under these MPAs, Intelligent Partners participates in the monetization proceeds the Company receives with respect to new patents after QFL has received its negotiated rate of return.

 

On or prior to the date of the Restructure Agreement, Intelligent Partners transferred to Andrew Fitton (“Fitton”) and Michael Carper (“Carper”)$250,000 of the notes (the “Transferred Note”), thereby reducing the principal amount of the notes held by Intelligent Partners to $4,422,810. 

 

 

On February 22, 2021, the Company and Intelligent Partners agreed to extinguish the notes and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents, pursuant to a series of agreements including: the Restructure Agreement, a Stock Purchase Agreement (the “Stock Purchase Agreement”), an Option Grant (the “Option Grant”), an Amended and Restated Pledge Agreement (the “Pledge Agreement”), an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), a Board Observation Agreement (the “Board Observation Agreement”), a MPA-NA Security Interest Agreement (the “MPA-NA Security Interest Agreement”), an Amended and Restated Patent Proceeds Security Agreement (the “Patent Proceeds Security Agreement”, an Amended and Restated MPA-CP (the “MPA-CP”), an Amended and Restated MPA-CXT (the “MPA-CXT”), a MPA-MR (the “MPA-MR”), a MPA-AMI (the “MPA-AMI,” and together with the MPA-CP, MPA-CXT and MPA-MR, each a Restructure MPA and together the Restructure MPAs) and a MPA-NA (the “MPA-NA”).

 

(i)

Pursuant to the Restructure Agreement, the Company paid Intelligent Partners $1,750,000 at closing, which the Company received from QFL and which QFL paid directly to Intelligent Partners, and recognized the TMPO, which shall, from and after the Restructure Date, be reduced on a dollar for dollar basis by (a) payments to Intelligent Partners pursuant to the Restructure Agreement, the Restructure MPAs and the MPA-NA and (b) any election by the Intelligent Partners to pay the Exercise Price of the Restructure Option, in whole or part, by means of a reduction in the then outstanding TMPO. The TMPO has been classified as a current liability as of March 31, 2021.

 

(ii)

Pursuant to the Stock Purchase Agreement, the Company issued to Fitton and Carper, as holders of the Transferred Note, a total of 46,296,296 shares of common stock at a purchase price of $0.0054 per share, which purchase price was paid by the conversion and in full satisfaction of the Transferred Note (the “Conversion Shares”).  For purposes of extinguishment, the issuance of the Conversion Shares in full satisfaction of the Transferred Note balance of $250,000 is included in the reacquisition price of the debt.  The Company recognized a loss on debt conversion of $305,556 which is the difference between the agreed conversion price and the fair value of the Conversion Shares at the date of conversion. See Note 5 for information on the share issue.

 

(iii)

Pursuant to the Option Grant, the Company granted Intelligent Partners an option to purchase a total of 50,000,000 shares of common stock, with an exercise price of $0.0054 per share which vests immediately and may be exercised through September 30, 2025.  The Company valued the option at approximately $598,000 using the Black-Scholes pricing model. The proceeds were allocated to the repurchase price of the debt extinguishment based on its fair value. See Note 5 for information on the option grant.

 

(iv)

Pursuant to the restructured monetization proceeds agreement, Intelligent Partners has a right to receive 60% of the net monetization proceeds from the patents currently owned by the Subsidiary Guarantors. The agreement has no termination provisions, so Intelligent Partners will be entitled to its percentage interest as long as revenue is generated from the intellectual property covered by the agreement.

 

(v)

Pursuant to the MPA-NA, until the TMPO has been paid in full, Intelligent Partners is entitled to receive 10% of the net proceeds realized from new assets acquired by the Company. If, in any calendar quarter, net proceeds realized exceed $1,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000. If in the same calendar quarter, net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 50% on the portion of net proceeds in excess of $3,000,000. After satisfaction of the TMPO, the MPA-NA and Intelligent Partners’ interest in new asset proceeds shall terminate.

 

(vi)

The Company granted Intelligent Partners, Fitton and Carper certain registration rights with respect to (i) the 50,000,000 shares currently owned by Fitton and Carper; (ii) the 46,296,296 Conversion Shares issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the option. See Note 5

 

 

(vii)

Pursuant to the Subsidiary Security Agreement, the Company’s obligations under its agreements with Intelligent Partners, including its obligations under the Restructure Agreement and the Restructure MPAs are secured by a security interest in the net proceeds realized from the future monetization of the patents currently owned by the eight subsidiaries named above.

 

(viii)

Pursuant to the MPA-NA-Security Interest Agreement, our obligations under the MPA-NA are secured by a security interest in net proceeds realized from the future monetization of new patents acquired until the TMPO is satisfied, provided Intelligent Partners’ secured interest shall be limited to its entitlement in Net Proceeds under the MPA-NA. After satisfaction of the TMPO the security interest in proceeds from new assets shall terminate.

 

(ix)

Pursuant to the Board Observation Rights Agreement, until the Total Monetization Proceeds Obligation has been satisfied (the “Observation Period”), the Company granted Intelligent Partners the option and right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings of the Board or any committee thereof, including executive sessions, in an observer capacity. Intelligent Partners has no right to appoint a director to the board.

 

Events of Default include (i) a Change of Control of the Company (ii) any uncured default on payment due to Intelligent Partners in an amount totaling in excess of $275,000, which is not the subject of a Dispute or other formal dispute resolution proceeding initiated in good faith pursuant to this Agreement or other Restructure Documents (iii) the filing of a voluntary petition for relief under the United States Bankruptcy Code by Company or any of its material subsidiaries, (iv) the filing of an involuntary petition for relief under the United States Bankruptcy Code against the Company, which is not stayed or dismissed within sixty (60) days of such filing, except for an involuntary petition for relief filed solely by Intelligent Partners, or any Affiliate or member of Intelligent Partners, or (v) acceleration of an obligation in excess of $1 million dollars to another provider of financing following a final determination by arbitration or other judicial proceeding that such obligation is due and owing. 

 

The Company recognized a loss on extinguishment of the note of $730,378 reflected as follows:

 

Carrying amount as of the restructure date		$	4,672,810
Less unamortized debt discount and issuance costs			-
Net carrying amount			4,672,810
Reacquisition Price
Cash payment via QFL			(1,750,000	)
Conversion of transferred note			(250,000	)
Fair value of option grant			(598,188	)
TMPO undiscounted future cash flows			(2,805,000	)
Loss on debt extinguishment		$	(730,378	)

 

Because of its ownership percentage, Intelligent Partners is treated as a related party.

 

Loan Payable – SBA – current portion

 

The loans payable-SBA – current portion at March 31, 2022 represents the current portion of installment payments due under: 

 

●

A secured Economic Injury Disaster Loan from the U.S. Small Business Association (“SBA”) in the aggregate amount of $150,000, pursuant to Section 7(b) of the Small Business Act as part of the COVID-19 relief effort. The Company’s obligations on the loan are set forth in the Company’s note dated May 14, 2020 which matures on May 14, 2050 and bears interest at a rate of 3.75% per annum, payable monthly commencing on November 14, 2022. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the Loan may be used solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which were deducted from the loan amount stated above. In addition to the loan, as part of the COVID-19 relief effort, the Company obtained an Emergency EIDL Grant from the SBA in the amount of $1,000. The Company is not required to repay the grant.

 

 

Long term liabilities

 

The purchase price of patents at March 31, 2022 represents:

 

The non-current portion of our obligations under the unsecured non-recourse funding agreement with a third-party funder entered into in May 2020 whereby the third-party agreed to provide acquisition funding in the amount of $95,000 for the Company’s acquisition of the audio messaging portfolio. Under the funding agreement, the third party funder is entitled to a priority return of funds advanced from net proceeds, as defined, recovered until the funder has received $190,000. The Company has no other obligation to the third party and has no liability to the funder in the event that the Company does not generate net proceeds. Pursuant to ASC 470, the company recorded this monetization obligation as debt and the difference between the purchase price and total obligation as a discount to the debt and fully expensed to interest during the period. 

 

NOTE 4 – WARRANT LIABILITY

 

The Company issued warrants to purchase 96,246,246 shares of common stock to QFL (see Note 3) in connection with its funding agreement. If on the date of initial exercise the aggregate number of warrant shares purchasable upon exercise of the warrant would yield less than an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), then the number of warrant shares shall be increased to an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), the number of shares underlying the warrants is not fixed until the date of the initial exercise. As such, the warrant issued to QFL requires classification as a liability pursuant to ASC Topic 480, Distinguishing Liabilities from Equity and is valued at its fair value as of the grant date and re-measured at each balance sheet date with the period-to-period change in the fair market value of the warrant liability reflected as a gain or loss in warrant liability and included under other income (expense). 

 

As of March 31, 2022, and December 31, 2021, the aggregate fair value of the outstanding warrant liability was approximately $1,164,580 and $1,636,187, respectively.

 

The Company estimated the fair value of the warrant liability using the Black-Scholes option pricing model using the following key assumptions as of March 31, 2022 and December 31, 2021:

 

		As of
		March 31,				December 31,
		2022				2021
Volatility			370	%			373	%
Exercise price			0.0054				0.0054
Risk-free interest rate			1.37	%			1.37	%
Expected dividends			-				-	%
Expected term			8.9				9.4

 

The following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of March 31, 2022 and December 31, 2021:

 

		Fair Value Measurements as of
		March 31, 2022												December 31, 2021
		Level 1				Level 2				Level 3				Level 1				Level 2				Level 3
Assets
None		$	-			$	-			$	-			$	-			$	-			$	-
Total assets			-				-				-				-				-				-
Liabilities
Warrant liability			-				-				1,164,580				-				-				1,636,187
Total liabilities		$	-			$	-			$	1,164,580			$	-			$	-			$	1,636,187

 

 

 

The following table sets forth a reconciliation of changes in the fair value of warrant liabilities classified as Level 3 in the fair value hierarchy:

 

		Significant Unobservable Inputs (Level 3) as of March 31, 2022
Fair value at beginning of period		$	1,636,187
Change in fair value			(471,607	)
Ending balance		$	1,164,580

 

See Notes 3 and 5 for information on the warrant issuance.

  

NOTE 5 – STOCKHOLDERS’ EQUITY

 

Amendment to the 2017 Equity Incentive Plan

 

On February 19, 2021 the board of directors amended the 2017 Equity Incentive Plan (the “Plan”) increasing the shares the Company can issue under the Plan to 500,000,000 shares of common stock pursuant to non-qualified stock options, restricted stock grants and other equity-based incentives, the amendment to the Plan and the grants of awards pursuant to the Plan, to be effective upon the closing of the agreements with QFL.

 

Issuance of Common Stock and Options

 

Issuances to Intelligent Partners

 

On February 22, 2021, pursuant to the Restructure Agreement, Intelligent Partners and its controlling members (Fitton and Carper) agreed to extinguish the notes and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents and the Company: (i) issued to Fitton and Carper, as holders of the Transferred Note, pursuant to the Stock Purchase Agreement a total of 46,296,296 shares of common stock at a purchase price of $0.0054 per share, which purchase price was paid by the conversion and in full satisfaction of the Company’s obligation under the Transferred Note and is included in the calculation of the repurchase price of the debt; and (ii) granted Intelligent Partners, pursuant to the Option Grant, an option to purchase a total of 50,000,000 shares of common stock, with an exercise price of $0.0054 per share which vested immediately and may be exercised through September 30, 2025. The Company valued the purchase option at approximately $598,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) option life of 5 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company granted Intelligent Partners, Fitton and Carper certain registration rights with respect to (i) the 50,000,000 shares currently owned by Fitton and Carper; (ii) the 46,296,296 Conversion Shares issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the option. Commencing six months from the closing date, if the shares owned by Fitton, Carper and Intelligent Partners cannot be sold pursuant to a registration statement and cannot be sold pursuant to Rule 144 without the Company being in compliance with the current public information requirements of Rule 144, if the Company is not in compliance with the current public information requirements, the Company is required to pay damages to Intelligent Partners.

 

 

Consulting Agreements

 

On February 22, 2021, the Company entered into advisory service agreement with three consultants pursuant to which they will provide services to the Company in connection with the development of the Company’s business. The agreements have a term of ten years and may be terminated by the Company for cause or upon the death or disability of the consultants.

 

Pursuant to the agreements with two of the consultants, the compensation payable to each of them consists of a restricted stock grant of 10,000,000 shares of Common Stock which immediately vests in full and a ten-year option to purchase a total of 30,000,000 shares of Common Stock, which become exercisable cumulatively as follows:

 

a.

10,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB. The Company regained such compliance on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.

 

b.

10,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

 

c.

10,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

The Company recorded professional fees in the amount of $240,000 as a result the restricted stock grants to these two consultants. The Company determined the fair value of the options as of the grant date to be approximately $720,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company determined that the first performance condition will be met and accrued the option expense of approximately $240,000 over the period from the grant date to achievement of the performance condition. The Company recognized option expense of approximately $0 and $120,000 for the three months ended March 31, 2022 and March 31, 2021, respectively.

 

Pursuant to the agreement with the third consultant, the compensation payable to the consultant consists of a restricted stock grant of 10,000,000 shares of Common Stock which immediately vests in full and a ten-year option to purchase 30,000,000 shares of Common Stock, which becomes exercisable cumulatively as follows:

 

a.

10,000,000 shares at an exercise price of $0.01 per share became exercisable on February 22, 2022, which was the first anniversary of the date of the agreement;

 

b.

10,000,000 shares at an exercise price of $0.03 per share upon the second anniversary of the agreement; and

 

c.

10,000,000 shares at an exercise price of $0.05 per share upon the third anniversary of the agreement.

 

The Company recorded professional fees in the amount of $120,000 as a result the restricted stock grant to the third consultant. The Company determined the fair value of the options as of the grant date to be approximately $360,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company recognized option expense of approximately $42,079 and $22,300 for the three months ended March 31, 2022 and March 31, 2021, respectively.

 

Compensatory Arrangements of Officers and Directors

 

On February 22, 2021, the board of directors:

 

(i)

Granted restricted stock grants for services rendered and vesting in full upon grant, to:

 

a.

Jon C. Scahill – 49,000,000 shares

 

b.

Timothy J. Scahill – 10,000,000 shares

 

c.

Dr. William R. Carroll - 10,000,000 shares

 

 

(ii)

Granted Jon Scahill a ten-year option (the “Option”) to purchase 60,000,000 shares of Common Stock which become exercisable cumulatively as follows:

 

a.

20,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB.

 

b.

20,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

  

c.

20,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange

 

(iii)

Appointed Ryan T. Logue to the board of directors and granted Mr. Logue a restricted stock grant of 5,000,000 shares of common stock which vests upon his acceptance of his appointment as a director.

 

The Company recognized compensation expense of $888,000 in conjunction with issuance of common stock to officers and directors. The Company determined the fair value of the options to be approximately $720,000 as of the grant date using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company recognized option expense of approximately $0 and $120,000 for the three months ended March 31, 2022 and March 31, 2021, respectively.

 

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, 2021			200,000,000				0.02				7.80
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Cancelled			-				-				-
Balance - March 31, 2022			200,000,000				0.02				7.55
Options exercisable at end of period			100,000,000				0.0077				6.20

 

The intrinsic value of the outstanding options as of March 31, 2022 is $430,000.

 

As of March 31, 2022, there was approximately $1,090,000 of unrecognized compensation expense related to nonvested stock option awards that is expected to be recognized over a weighted average expected term of approximately 8 years.

 

 

Issuance of Warrants

 

A summary of the status of the Company’s warrants and changes is set forth below:

 

		Number of Warrants (#)				Weighted Average Exercise Price ($)				Weighted Average Remaining Contractual Life (Years)
Balance - December 31, 2021			96,246,246				0.0054				9.14
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Cancelled			-				-				-
Balance - March 31, 2022			96,246,246				0.0054				8.89

 

The intrinsic value of the outstanding warrants as of March 31, 2022 is $635,225.

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets include patents purchased and are recorded based at their acquisition cost. Intangible assets consisted of the following:

 

										Weighted average
		March 31,				December 31,				amortization period
		2022				2021				(years)
Patents		$	2,315,000			$	5,617,117				11.02
Disposal			-				(4,362,117	)
Subtotal			2,315,000				1,255,000
Less: accumulated amortization			(1,023,744	)			(715,519	)
Net value of intangible assets		$	1,291,256			$	539,481				2.83

 

Intangible assets are comprised of patents with estimated useful lives. The intangible assets at March 31, 2022 represent:

 

●

patents acquired in October 2015 for a purchase price of $3,000,000, the useful lives of the patents, at the date of purchase, was 6-10 years; these patents were disposed of as of December 31, 2021

 

●

patents acquired in July 2017 pursuant to an obligation to pay 50% of net revenues to IV 34/37 (see Note 3); the useful lives of the patents, at the date of acquisition, was 5-6 years; these patents were disposed of as of December 31, 2021.

 

●

patents (which were fully amortized at the date of acquisition) acquired in January 2018 pursuant to an agreement with to Intellectual Ventures Assets 62 LLC and Intellectual Ventures Assets 71 LLC “(IV 62/71”), pursuant to which CXT has an obligation to distribute 50% of net revenues to IV 62/71;

 

●

patents (which were fully amortized at the date of acquisition) acquired in January 2018 by Photonic Imaging Solutions Inc. (“PIS”) from Intellectual Ventures Assets 64 LLC (“IV 64”) pursuant to which PIS is to pay IV 64 (a) 70% of the first $1,500,000 of net revenue, (b) 30% of the next $1,500,000 of net revenue and (c) 50% of net revenue in excess of $3,000,000;

 

	●	patents acquired in March 2019 pursuant to an obligation to pay 50% of net revenues to IV 113/108 (see Note 3); the useful lives of the patents, at the date of acquisition, was approximately 9 years, these patents were disposed of as of December 31, 2021.
	●	patents (which were fully amortized at the date of acquisition) acquired in May 2020 for a purchase price of $95,000 pursuant to an agreement with Texas Technology Ventures 2, LLP (“TTV”), pursuant to which of the Company retains the first $230,000 of net proceeds, as defined in the agreement, after which the company has an obligation to distribute 50% of net proceeds to TTV.

 

 

	●	patents (which were fully amortized at the date of acquisition) acquired in February 2021 pursuant to an agreement with PKT for a purchase price of $350,000, pursuant to which $350,000 was paid at closing, and upon the realization of gross proceeds, as defined in the agreement, the Company shall make a subsequent or payments in the aggregate amount of $93,900, representing reimbursement to PKT, as the prosecuting attorney, for legal fees associated with prosecution of the portfolio, such reimbursement shall be due and payable to PKT from time to time as gross proceeds are realized, if any, and paid to PKT along with and in proportion to reimbursement to other third parties of costs incurred in realizing gross proceeds. Thereafter, PKT is entitled to a percentage of gross proceeds realized, if any.
	●	patents acquired in January 2022 for a purchase price of $1,060,000, the useful lives of the patents, at the date of purchase, was approximately 1-2 years.

 

The Company amortizes the costs of intangible assets over their estimated useful lives on a straight-line basis. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. Amortization of patents is included as a selling, general and administrative expense in the accompanying consolidated statements of operations.

 

The Company assesses intangible assets for any impairment to the carrying values.  As of March 31, 2022, management concluded that there was no impairment to the intangible assets.

 

Amortization expense for patents comprised approximately $308,000 and approximately $488,000 for the three months ended March 31, 2022 and March 31, 2021, respectively. Future amortization of intangible assets is as follows: 

 

Year ended December 31,
Remainder of 2022		$	549,998
2023			314,150
2024			98,291
2025			53,267
2026 and thereafter			275,550
Total		$	1,291,256

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

The Company has at various times entered into transactions with related parties, including officers, directors and major stockholders, wherein these parties have provided services, advanced or loaned money, or both, to the Company which was needed to support its daily operations. The Company discloses all related party transactions.

 

See Notes 3 and 5 in connection with the Restructure Agreement dated February 22, 2021 with Intelligent Partners. Because of its ownership percentage, Intelligent Partners is treated as a related party.

 

See Note 5 with respect to share based compensation to officers and directors. 

 

See Note 8 with respect to the employment agreement with the Company’s president and chief executive officer. 

 

During the three months ended March 31, 2022 and 2021, the Company contracted with an entity owned by the chief technology officer for the provision of information technology services to the Company. For the three months ended March 31, 2022 and 2021, the cost of these services was approximately $115 and $115, respectively.

 

 

During the three months ended March 31, 2022 and 2021, the Company contracted with a law firm more than 10 percent owned, but not controlled, by the father-in-law of the chief executive officer. The firm is engaged on a contingent fee basis and serves as escrow agent in connection with monetization of the Company’s patents in matters where the firm is serving as counsel to the Company. For the three months ended March 31, 2022 and 2021, the cost of these services was approximately $28,000 and $0, respectively.

  

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

Pursuant to a restated employment agreement, dated November 30, 2014, with the Company’s president and chief executive officer, 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 initial annual salary of $252,000, which may be increased, but not decreased, by the board or the compensation committee. In March 2016, the Company’s board of directors increased the chief executive officer’s annual salary to $300,000, effective January 1, 2016. The chief executive officer is entitled to a bonus if the Company meets or exceeds performance criteria established by the compensation committee. In August 2016, the Company’s board of directors approved annual bonus compensation equal to 30% of the amount by which the Company’s consolidated income before income taxes exceeds $500,000, but, if the Company is subject to the limitation on deductibility of executive compensation pursuant to Section 162(m) of the Internal Revenue Code, the bonus cannot exceed the amount which would be deductible pursuant to Section 162(m). The chief executive officer is also eligible to participate in any executive incentive plans which the Company may adopt. 

 

Pension Benefits

 

Pursuant to the SEP IRA plan adopted by the Company in March 2020, the Company deposited into a SEP IRA account of each of its participating employees a percentage of the employee’s compensation, subject to statutory limitations on the amount of the contribution all as set forth in the IRS Form 5305-SEP. For the year ending December 31, 2022, the percentage is set at 19%. The Company’s president and chief executive officer is the only participant and $14,500 and $14,500 was deposited into his SEP IRA account for the three months ended March 31, 2022 and 2021, respectively.

 

Patent Enforcement and Other Litigation

 

Certain of the Company’s operating subsidiaries are engaged in litigation to enforce their patents and patent rights. In connection with these patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has 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 the Company or its operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by the Company or its operating subsidiaries, could materially impair the Company’s operating results and financial position and could result in a default under the Company’s obligations to QFL. Since the operating subsidiaries do not have any assets other than the patents, and the Company does not have any available financial resources to pay any judgment which a defendant may obtain against a subsidiary, such a judgment may result in the bankruptcy of the subsidiary and/or the loss of the patents, which are the subsidiaries’ only assets.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

of Quest Patent Research Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Quest Patent Research Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2021, and the related consolidated statement of operations, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

Critical Audit Matters 

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

 

/s/ Rosenberg Rich Baker Berman, P.A.

 

We have served as the Company’s auditor since 2021.

 

Somerset, New Jersey

March 31, 2022

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of Quest Patent Research Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Quest Patent Research Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

 

Impairment of Intangible Assets

 

Description of the Matter

 

As discussed in Note 2 to the financial statements, the Company’s intangible assets consist of patents which are amortized using the straight-line method over the estimated useful lives and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability. We identified the impairment assessment of the intangible assets as a critical audit matter due to its materiality to the financial statements and the significant estimates involved, the audit of which required a high degree of auditor judgment.

 

How We Addressed the Matter in Our Audit

 

We tested the Company’s determination of the carrying value of the intangible assets by comparing the year-end balances to the undiscounted future cash flows and evaluated the reasonableness of the inputs of the future cash flows to verifiable data.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2013.

Houston, Texas

April 15, 2021

 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Balance Sheets

 

		December 31,
		2021				2020
ASSETS
Current assets
Cash		$	264,840			$	247,862
Accounts receivable, net of allowance for doubtful accounts of $0 and $66,000, respectively			-				1,032,886
Other current assets			12,305				5,934
Total current assets			277,145				1,286,682
Patents, net of accumulated amortization of $715,519 and $2,266,158, respectively			539,481				2,200,959
Total assets		$	816,626			$	3,487,641
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities		$	129,426			$	2,892,025
Loans payable			138,000				147,000
Purchase price of patents, current portion			-				1,500,000
Funding Liability			3,202,765
Loan payable – related party			2,805,000				4,672,810
Warrant liability			1,636,187
Accrued interest			491,971				284,885
Total current liabilities			8,403,349				9,496,720
Non-current liabilities
Loan payable - SBA			150,000				174,392
Purchase price of patents, net of unamortized discount of $0 and $131,793, respectively			190,000				658,207
Total liabilities			8,743,349				10,329,319
Stockholders’ deficit
Preferred stock, par value $0.00003 per share – authorized 10,000,000 shares – no shares issued and outstanding
Common stock, par value $0.00003 per share; authorized 10,000,000,000 at December 31, 2021 and 2020; shares issued and outstanding 533,334,630 and 383,038,334 at December 31, 2021 and 2020, respectively			16,000				11,491
Additional paid-in capital			17,493,027				14,427,782
Accumulated deficit			(25,435,978	)			(21,281,179	)
Total Quest Patent Research Corporation stockholders’ deficit			(7,926,951	)			(6,841,906	)
Non-controlling interest in subsidiary			228				228
Total stockholders’ deficit			(7,926,723	)			(6,841,678	)
Total liabilities and stockholders’ deficit		$	816,626			$	3,487,641

 

See accompanying notes to consolidated financial statements

 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Statements of Operations

 

		Year Ended December 31,
		2021				2020
Revenues
Patent licensing fees		$	2,050,000			$	5,488,088
			2,050,000				5,488,088
Operating expenses
Cost of revenues:
Litigation and licensing expenses			1,314,928				4,692,969
Selling, general and administrative expenses			3,848,611				1,513,822
Total operating expenses			5,163,539				6,206,791
Loss from operations			(3,113,539	)			(718,703	)
Other expense
Gain on forgiveness of debt			1,850,018				-
Gain on settlement of accounts payable and accrued expenses			1,725,965				-
Warrant expense			(1,154,905	)			-
Change in fair market value of warrant liability			(481,282	)			-
Change in fair market value of derivative liability			-				275,000
Loss on conversion of debt			(305,556	)			-
Loss on debt extinguishment			(730,378	)			-
Loss on impairment of assets			(1,651,614	)			-
Other Income			-				1,000
Interest expense			(291,702	)			(804,456	)
Total other expense			(1,039,454	)			(528,456	)
Net loss before income tax			(4,152,993	)			(1,247,159	)
Provision for income taxes			(1,806	)			(65,363	)
Net loss			(4,154,799	)			(1,312,522	)
Net income attributable to non-controlling interest in subsidiary			-				11
Net Loss Attributable to Quest Patent Research Corporation		$	(4,154,799	)		$	(1,312,511	)
Net loss per share – Basic and Diluted		$	(0.01	)		$	(0.00	)
Weighted average shares outstanding – basic			511,863,731				383,038,334
Weighted average shares outstanding – diluted			613,878,234				383,038,334

 

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, 2019			383,038,334				11,491				14,107,782				(19,968,668	)			239				(5,849,156	)
Resolution of derivative liability			-				-				320,000				-				-				320,000
Net loss			-				-				-				(1,312,511	)			(11	)			(1,312,522	)
Balances as of December 31, 2020			383,038,334				11,491				14,427,782				(21,281,179	)			228				(6,841,678	)
Restricted shares issued for services			104,000,000				3,120				1,244,880				-				-				1,248,000
Shares issued for conversion of debt			46,296,296				1,389				554,167				-				-				555,556
Option issued for debt extinguishment			-				-				598,188				-				-				598,188
Options granted for compensation			-				-				668,010				-				-				668,010
Net loss			-				-				-				(4,154,799	)			-				(4,154,799	)
Balances as of December 31, 2021			533,334,630			$	16,000			$	17,493,027			$	(25,435,978	)		$	228			$	(7,926,723	)

 

F-27

 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Statements of Cash Flows

 

		Year Ended December 31,
		2021				2020
Cash flows from operating activities:
Net loss			(4,154,799	)		$	(1,312,522	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount			88,094				435,415
Change in fair market value of warrant liability			481,282				-
Change in fair market value of derivative liability			-				(275,000	)
Stock based compensation			1,916,011				-
Warrant expense			1,154,905				-
Gain on settlement of accounts payable			(1,725,965	)			-
Gain on forgiveness of debt			(1,850,018	)			-
Amortization of intangible assets			1,159,865				648,395
Loss on conversion of debt			305,556				-
Loss on impairment of assets			1,651,614				-
Bad debt expense			667				66,000
Changes in operating assets and liabilities
Accounts receivable			1,032,219				751,489
Accrued interest			203,526				(100,420	)
Accounts payable and accrued expenses			(1,036,637	)			(470,907	)
Other current asses			(6,371	)			11,246
Net cash provided by/(used in) operating activities			(49,673	)			(246,304	)
Cash flows from investing activities:
Purchase of patents			(1,150,000	)			(95,000	)
Net cash used in investing activities			(1,150,000	)			(95,000	)
Cash flows from financing activities:
Proceeds from sale of future revenues			-				95,000
Proceeds from SBA loans			-				171,732
Payment on loan – related party			(1,750,000	)			-
Loan payable – third party			(9,000	)			-
Proceeds from third party loan			3,900,000				-
Repayment of purchase price of patents			(924,349	)			(194,386	)
Repayment from sale of future revenues			-				(20,378	)
Net cash from/(used in) financing activities			1,216,651				51,968
Net increase (decrease) in cash			16,978				(289,336	)
Cash at beginning of year			247,862				537,198
Cash at end of year		$	264,840			$	247,862
Non Cash Investing and Financing Activities
Shares issued for conversion of debt		$	555,556			$	-
Resolution of derivative liability			-				320,000
Options granted for settlement of debt			598,188
Accrued interest added to principal			5,626				2,660
Supplemental disclosure of cash flow information
Cash paid during the year for:
Income taxes, including foreign taxing authorities withheld taxes of $0 and $60,255 during the years ended December 31, 2021, and 2020 respectively.		$	1,806			$	65,363
Interest			-				472,121

 

See accompanying notes to consolidated financial statements

 

F-28

 

 

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 and has been engaged in the intellectual property monetization business since 2008.

 

As used herein, the “Company”, “we”, “us” or “our” 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.

 

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, 2021 and 2020. 

 

The consolidated financial statements include the accounts and operations of:

 

Quest Patent Research Corporation (“The Company”)

Quest Licensing Corporation (NY) (wholly owned)

Quest Licensing Corporation (DE) (wholly owned)

Quest Packaging Solutions Corporation (90% owned)

Quest Nettech Corporation (65% owned)

Semcon IP, Inc. (wholly owned)

Mariner IC, Inc. (wholly owned)

IC Kinetics, Inc. (wholly owned)

CXT Systems, Inc. (wholly owned)

Photonic Imaging Solutions Inc. (wholly owned)

M-RED Inc. (wholly owned)

Audio Messaging Inc. (wholly owned)

Peregrin Licensing LLC (wholly owned)

Taasera Licensing LLC (wholly owned)

Soundstreak Texas, LLC (wholly owned)

Multimodal Media LLC (wholly owned)

LS Cloud Storage Technologies, LLC (wholly owned)

 

Significant intercompany transaction and balances have been eliminated in consolidation. 

 

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. On an on-going basis, management evaluates estimates including the allowance for doubtful accounts, income taxes and contingencies. The Company bases its estimates on historical experience and on other assumptions that management believes to be reasonable under the circumstances, the results of which form its basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 

 

F-29

 

 

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. Cash equivalents were $0 as of December 31, 2021 and 2020.

 

Accounts Receivable

 

Accounts receivable, which generally relate to licensed sales, are presented on the balance sheet net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. The Company recorded an allowance for doubtful accounts of approximately $0 and $66,000 at December 31, 2021 and 2020, respectively.

 

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. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.

 

Patents include the cost of patents or patent rights (hereinafter, collectively “patents”) acquired from third-parties or acquired in connection with business combinations. Patent acquisition costs are amortized utilizing the straight-line method over their remaining economic useful lives, ranging from one to twenty years from the date of filing. Certain patent application and prosecution costs incurred to secure additional patent claims, that based on management’s estimates are deemed to be recoverable, are capitalized and amortized over the remaining estimated economic useful life of the related patent portfolio.

 

Impairment of long-lived assets

 

Long-lived assets, including intangible assets with a finite life, are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” 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. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. The Company recorded non-cash impairment charges of approximately $1,652,000 and $0 at December 31, 2021 and 2020, respectively, to write down finite lived intangible assets in the Power Management/Bus Controller, CXT and M-RED portfolios. See Note 6.

 

Warrant liability

 

The Company reflects a warrant liability with respect to warrants for which number of shares underlying the warrants is not fixed until the date of the initial exercise. The amount of the liability is determined at the end of each fiscal period and the period to period change in the amount of warrant liability is reflected as a gain or loss in warrant liability and is include under other income (expense). See Note 4.

 

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. See Note 4 for information about warrant liabilities. 

 

F-30

 

 

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. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

 

Revenue Recognition

 

Patent Licensing Fees

 

Revenue is recognized upon transfer of control of promised bundled intellectual property rights and other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange for those intellectual property rights. Revenue contracts that provide promises to grant “the right” to use intellectual property rights as they exist at the point in time at which the intellectual property rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition criteria have been met.

 

For the periods presented, revenue contracts executed by the Company primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company’s operating subsidiaries. Intellectual property rights granted included the following, as applicable: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted were perpetual in nature, extending until the legal expiration date of the related patents. The individual intellectual property rights are not accounted for as separate performance obligations, as (i) the nature of the promise, within the context of the contract, is to transfer combined items to which the promised intellectual property rights are inputs and (ii) the Company’s promise to transfer each individual intellectual property right described above to the customer is not separately identifiable from other promises to transfer intellectual property rights in the contract. 

 

Since the promised intellectual property rights are not individually distinct, the Company combined each individual IP right in the contract into a bundle of IP rights that is distinct, and accounted for all of the intellectual property rights promised in the contract as a single performance obligation. The intellectual property rights granted were “functional IP rights” that have significant standalone functionality. The Company’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. The Company’s subsidiaries have no further obligation with respect to the grant of intellectual property rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant (i.e. transfer of control) of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the intellectual property rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 30-90 days of execution of the contract. Contractual payments made by licensees are generally non-refundable. We do not have any significant payment terms, as payment is received shortly after goods are delivered or services are provided, therefore there is no significant financing component or consideration payable to the customer in these transactions. 

 

F-31

 

 

Cost of Revenues

 

Cost of revenues include the costs and expenses incurred in connection with the Company’s patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent litigation funding fees, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties and the amortization of patent-related investment costs. These costs are included under the caption “Cost of revenues” in the accompanying consolidated statements of operations. No such fees are recognized as cost of revenue to the extent that the Company has no obligation with respect to such fees prior to a settlement or license.

 

Inventor Royalties, Litigation Funding Fees and Contingent Legal Expenses.

 

In connection with the investment in certain patents and patent rights, certain of the Company’s operating subsidiaries may execute related agreements which grant to the inventors and/or former owners of the respective patents or patent rights, the right to receive a percentage of future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

 

The Company’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of any negotiated fees, settlements or judgments awarded. 

 

The Company’s operating subsidiaries may engage with funding sources that specialize in providing financing for patent licensing and enforcement. These litigation finance firms may be engaged on a non-recourse basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements or judgments awarded in exchange for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing and enforcement activities.

 

The economic terms of the inventor agreements, operating agreements, contingent legal fee arrangements and litigation financing agreements associated with the patent portfolios owned or controlled by the Company’s operating subsidiaries, if any, including royalty rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by such operating subsidiaries and are included in cost of revenues as litigation and licensing expenses. Inventor/former owner royalties, payments to non-controlling interests, contingent legal fees expenses and litigation finance expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms and obligations generating revenues each period. Inventor/former owner royalties, contingent legal fees expenses and litigation finance expenses will continue to fluctuate and may continue to vary significantly period to period, based primarily on these factors. 

 

Research and development

 

Research and development costs are expensed as incurred. The Company did not incur any research and development costs in the years ended December 31, 2021 and 2020.

 

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. 

 

F-32

 

 

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. 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, 2021 and 2020. 

 

Stock-based compensation

 

The Company recognizes stock-based compensation pursuant to ASC 718, “Compensation — Stock Compensation,” which prescribes accounting and reporting standards for all stock-based payment transactions in which employee services, and non-employee services, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Stock-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee or non-employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. 

 

Concentration of credit risk

 

The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any such losses in these accounts. 

 

Business Acquisitions

 

The acquisition of STX and LS Cloud Storage Technologies, LLC (“LSC”) did not constitute acquisition of a business and therefore were accounted for as asset acquisitions in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 provides, among other things, that asset acquisitions be accounted for using a cost accumulation and allocation model under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed. See Note 11 with regarding the STX and LSC acquisitions.

 

Gain from Cancelation of Indebtedness

 

The Company recognized a gain from the elimination of liability for minimum cumulative net proceeds distributions constituting a portion of the purchase price due to the seller of two of the Company’s patent portfolios and the reduction of liability for legal services resulting from the settlement of the Company’s recorded obligation for unpaid legal services. See Note 3.

 

F-33

 

 

Net Loss Per Share

 

The Company calculates net losses per share by dividing losses allocated to the Company’s stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Because the Company incurred losses in all periods covered by the financial statements the inclusion of diluted weighted average shares would be anti-dilutive, the diluted net loss per share is the same as the basic net loss per share.

 

Recent Accounting Pronouncements 

 

Management does not believe that there are any recently issued, but not effective, accounting standards which, if currently adopted, would have a material effect on the Company’s financial statements. 

 

Going Concern

 

As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $25.4 million and negative working capital of approximately $8.1 million as of December 31, 2021. Because of the Company’s continuing losses, its working capital deficiency, the uncertainty of future revenue, the Company’s obligations to Intellectual Ventures, Intelligent Partners, QPRC Finance LLC (“QFL”), the Company’s low stock price and the absence of an active trading market in its common stock, the ability of the Company to raise funds in the equity market or from lenders is severely impaired. These conditions, together with the effects of the COVID-19 pandemic and the steps taken by the states to slow the spread of the virus and its effect on its business raise substantial doubt as to the Company’s ability to continue as a going concern. Although the Company may seek to raise funds and to obtain third party funding for litigation to enforce its intellectual property rights, the availability of such funds, particularly in view of the COVID-19 pandemic, is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3 – SHORT TERM DEBT AND LONG-TERM LIABILITIES

 

On July 23, 2021, the Company paid $1,150,000 in full satisfaction of the disputed and unpaid legal services performed by the Company’s former legal counsel for services relating to the monetization of the Company’s intellectual property rights. The Company recognized a gain on settlement of accounts payable of approximately $1,726,000 in conjunction with the resolution of the dispute. The Company’s obligation to its former counsel is included under accounts payable and accrued liabilities on the Company’s December 31, 2020 balance sheet.

 

The following table shows the Company’s debt at December 31, 2021 and 2020.

 

		December 31,				December 31,
		2021				2020
Short-term debt:
Loans payable		$	138,000			$	147,000
Funding liability			3,202,765				-
Loan payable – related party			2,805,000				4,672,810
Purchase price of patents – current portion			-				1,500,000
Unamortized discount			-				-
Net short-term debt		$	6,145,765			$	6,319,810
Long-term liabilities:
Loans payable - SBA
Gross		$	150,000			$	170,832
Accrued interest			-				3,560
Net loans payable - SBA			150,000				174,392
Purchase price of patents
Gross			190,000				790,000
Unamortized discount			-				(131,793	)
Net purchase price of patents – long-term		$	190,000			$	658,207

 

Short-term debt

 

The loan payable – third party are demand loans made to former officers and directors, now unrelated third parties, and shareholders in the amount of $138,000 and $147,000 as of December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020 the Company paid $9,000 and $0, respectively, against the loans. The loans are payable on demand plus accrued interest at 10% per annum. 

 

F-34

 

 

Funding Liability

 

The funding liability at December 31, 2021 represents the principal amount of the Company’s obligations to QFL, a non-affiliated party, pursuant to a purchase agreement (“Purchase Agreement”) dated February 22, 2021 between the Company and QFL, as described below. The obligation to QFL is classified as a current liability as of December 31, 2021.

 

On February 22, 2021, the Company entered into a series of agreements, all dated February 19, 2021,with QFL, including a Prepaid Forward Purchase Agreement (the “Purchase Agreement), a security agreement (the “Security Agreement”), a subsidiary security agreement (the “Subsidiary Security Agreement”), a subsidiary guaranty (the “Subsidiary Guarantee”), a warrant issue agreement (the “Warrant Issue Agreement”), a registration rights agreement (the “Registration Rights Agreement”) and a board observation rights agreement (the “Board Observation Rights Agreement” together with the Security Agreement, the Subsidiary Guaranty, the Subsidiary Security Agreement, Warrant Issuance Agreement, Registration Rights Agreement and the Purchase Agreement, the “Investment Documents”) pursuant to which, at the closing held contemporaneously with the execution of the agreements:

 

(i)

Pursuant to the Purchase Agreement, QFL agreed to make available to the Company a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent rights that the Company intends to monetize; (b) up to $2,000,000 for operating expenses; and (iii) $1,750,000 to fund the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners. In return the Company transferred to QFL a right to receive a portion of net proceeds generated from the monetization of those patents.

 

(ii)

The Company used $1,750,000 of proceeds from the QFL financing as the cash payment portion of the restructure of the Company’s obligations to Intelligent Partners pursuant to the Restructure Agreement executed contemporaneously with the closing of the Investment Documents. The payment was made directly from QFL to Intelligent Partners.

 

(iii)

Pursuant to the Security Agreement, the Company’s obligations under the Purchase Agreement with QFL are secured by: (a) the proceeds (as defined in the Purchase Agreement); (b) the patents (as defined in the Purchase Agreement; (c) all general intangibles now or hereafter arising from or related to the foregoing (a) and (b); and (d) proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c).

 

(iv)

Pursuant to the Subsidiary Guaranty, eight of the Company’s subsidiaries –QLC, NetTech, Mariner, Semcon, IC, CXT, M-Red, and AMI, collectively, the “Subsidiary Guarantors”) guaranteed the Company’s obligations to QFL under the Purchase Agreement.

 

(v)

Pursuant to the Subsidiary Security Agreement, the Subsidiary Guarantors granted QFL a security interest in the proceeds from the future monetization of their respective patent portfolios.

 

(vi)

Pursuant to the Warrant Issue Agreement, the Company granted QFL ten-year warrants to purchase a total of up to 96,246,246 shares of the Company’s common stock, at an exercise price of $0.0054 per share which may be exercised from the date of exercise through February 18, 2031 on a cash or cashless basis. Exercisability of the warrant is limited if, upon exercise, the holder or any of holder’s affiliates would beneficially own more than 4.99% (the “Maximum Percentage”) of the Company’s common stock, except that by written notice to the Company, the holder may change the Maximum Percentage to any other percentage not in excess of 9.99% provided any such change will not be effective until the 61st day following notice to the Company. The warrant also contains certain minimum ownership percentage antidilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the warrant shall not be less than 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis). A portion of any gain from sale of the shares, net of taxes and costs of exercise, realized prior to the completion of all monetization activities shall be credited against the total return due to QFL pursuant to the Purchase Agreement. See Notes 4 and 5 for information on the warrant issuance and associated liability.

 

F-35

 

 

(vii)

The Company regained compliance with the OTCQB Eligibility Requirements on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.

 

(viii)

The Company granted QFL certain registration rights with respect to the 96,246,246 shares of common stock issuable upon exercise of the warrant. See Note 5 for information on the warrant issuance.

 

(ix)

Pursuant to the Board Observation Rights Agreement, until the later of the date on which QFL or its affiliates (i) have received the entirety of their Investment Return (as defined in Purchase Agreement), and (ii) no longer hold any Securities (the “Observation Period”), the Company granted QFL the right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings (including, without limitation, telephonic or other electronic meetings) of the Board or any committee thereof, including executive sessions, in an observer capacity.

 

On February 26, 2021, the Company entered into an agreement with Peter K. Trzyna (“PKT”) pursuant to which PKT assigned to the Company all right, title, and interest in a portfolio of eight United States patents (the “Peregrin Portfolio”). Under the agreement, the Company paid PKT $350,000 at closing and agreed that upon the realization of gross proceeds, if any, the Company shall make a second installment payment or payments in the aggregate amount of $93,900 representing reimbursement to PKT, as the prosecuting attorney, for legal fees associated with prosecution of the portfolio, such reimbursement shall be due and payable to PKT from time to time as gross proceeds are realized, and paid to PKT along with and in proportion to reimbursement to other third parties of costs incurred in realizing gross proceeds from the Peregrin Portfolio. Thereafter, PKT is entitled to a percentage of gross proceeds realized, if any, from the Peregrin Portfolio. The Company requested and received a capital advance from QFL in the amount of $350,000 pursuant to the Purchase Agreement, which was used to make payment to PKT.

 

On May 20, 2021, Taasera Licensing LLC, a wholly owned subsidiary, entered into an agreement with Taasera, Inc. to acquire all right, title, and interest in a portfolio of seven United States patents (the “Taasera Portfolio”) for $250,000. The Company requested and received a capital advance from QFL in the amount of $250,000 pursuant to the Purchase Agreement, which was used to make payment to Taasera, Inc.

 

On October 15, 2021, the Company’s wholly owned subsidiary, Multimodal Media LLC (“MML”), acquired all right, title, and interest in a portfolio of nine United States patents (the “MML Portfolio”) for a purchase price of $550,000 pursuant to an agreement with AI, pursuant to which MML retains an amount equal to the purchase price plus any fees incurred out of net proceeds, as defined in the agreement, after which AI is entitled to a percentage of further net proceeds realized, if any. The Company requested and received a capital advance from QFL in the amount of $550,000 pursuant to the Purchase Agreement, which was used to make payment to AI.

 

The Company requested and received operating capital advances in the amount of $1,000,000 from QFL pursuant to the Purchase Agreement during the year ended December 31, 2021.

 

Loan Payable Related Party

 

The loan payable – related party at December 31, 2021 represents the current amount of a non-interest bearing total monetization proceeds obligation (the “TMPO”) to Intelligent Partners of $2,805,000, pursuant to a restructure agreement (“Restructure Agreement”) dated February 22, 2021 whereby the Company and Intelligent Partners, extinguished the Company’s 10% note to Intelligent Partners as transferee of the notes issued to United Wireless Holdings, Inc. (“United Wireless”), in the amount of $4,672,810 pursuant to securities purchase agreement dated October 22, 2015 between the Company and United Wireless. The notes became due by their terms on September 30, 2020, and the Company did not make any payment on account of principal and interest on the notes. Subsequent to September 30, 2020, the Company engaged in negotiations with Intelligent Partners in parallel with the Company’s negotiations with QFL, with a view to restructuring the Company’s obligations under the United Wireless agreements, including the notes, so that the Company no longer had any obligations under the notes or the SPA. These negotiations resulted in the Restructure Agreement, described below, which provided for the payment to Intelligent Partners of $1,750,000 from the proceeds from the Company’s agreements with QFL. As part of the restructure of the Company’s agreements with Intelligent Partners, the Company amended the existing monetization proceeds agreements (“MPAs”) and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property the Company acquires, as describe below. Under these MPAs, Intelligent Partners participates in the monetization proceeds the Company receives with respect to new patents after QFL has received its negotiated rate of return.

 

F-36

 

 

On or prior to the date of the Restructure Agreement, Intelligent Partners transferred to Andrew Fitton (“Fitton”) and Michael Carper (“Carper”) $250,000 of the notes (the “Transferred Note”), thereby reducing the principal amount of the notes held by Intelligent Partners to $4,422,810. 

 

On February 22, 2021, the Company and Intelligent Partners agreed to extinguish the notes and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents, pursuant to a series of agreements including: a Restructure Agreement (the “Restructure Agreement”), a Stock Purchase Agreement (the “Stock Purchase Agreement”), an Option Grant (the “Option Grant”), an Amended and Restated Pledge Agreement (the “Pledge Agreement”), an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), a Board Observation Agreement (the “Board Observation Agreement”), a MPA-NA Security Interest Agreement (the “MPA-NA Security Interest Agreement”), an Amended and Restated Patent Proceeds Security Agreement (the “Patent Proceeds Security Agreement”, an Amended and Restated MPA-CP (the “MPA-CP”), an Amended and Restated MPA-CXT (the “MPA-CXT”), a MPA-MR (the “MPA-MR”), a MPA-AMI (the “MPA-AMI,” and together with the MPA-CP, MPA-CXT and MPA-MR, each a Restructure MPA and together the Restructure MPAs) and a MPA-NA (the “MPA-NA”).

 

(i)

Pursuant to the Restructure Agreement, the Company paid Intelligent Partners $1,750,000 at closing, which the Company received from QFL and which QFL paid directly to Intelligent Partners, and recognized the TMPO, which shall, from and after the Restructure Date, be reduced on a dollar for dollar basis by (a) payments to Intelligent Partners pursuant to the restructure agreement, the Restructure MPAs and the MPA-NA and (b) any election by the Intelligent Partners to pay the Exercise Price of the Restructure Option, in whole or part, by means of a reduction in the then outstanding TMPO. The TMPO has been classified as a current liability as of September 30, 2021.

 

(ii)

Pursuant to the Stock Purchase Agreement, the Company issued to Fitton and Carper, as holders of the Transferred Note, a total of 46,296,296 shares of common stock at a purchase price of $0.0054 per share, which purchase price was paid by the conversion and in full satisfaction of the Transferred Note (the “Conversion Shares”). For purposes of extinguishment, the issuance of the Conversion Shares in full satisfaction of the Transferred Note balance of $250,000 is included in the reacquisition price of the debt. The Company recognized a loss on debt conversion of $305,556 which is the difference between the agreed conversion price and the fair value of the Conversion Shares at the date of conversion. See Note 5 for information on the share issue.

 

(iii)

Pursuant to the Option Grant, the Company granted Intelligent Partners an option to purchase a total of 50,000,000 shares of common stock, with an exercise price of $0.0054 per share which vests immediately and may be exercised through September 30, 2025. The Company valued the option at approximately $598,000 using the Black-Scholes pricing model. The proceeds were allocated to the repurchase price of the debt extinguishment based on its fair value. See Note 5 for information on the option grant.

 

(iv)

Pursuant to the restructured monetization proceeds agreement, Intelligent Partners has a right to receive 60% of the net monetization proceeds from the patents currently owned by the Subsidiary Guarantors. The agreement has no termination provisions, so Intelligent Partners will be entitled to its percentage interest as long as revenue is generated from the intellectual property covered by the agreement.

 

F-37

 

 

(v)

Pursuant to the MPA-NA, until the TMPO has been paid in full, Intelligent Partners is entitled to receive 10% of the net proceeds realized from new assets acquired by the Company. If, in any calendar quarter, net proceeds realized exceed $1,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000. If in the same calendar quarter, net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 50% on the portion of net proceeds in excess of $3,000,000. After satisfaction of the TMPO, the MPA-NA and Intelligent Partners’ interest in new asset proceeds shall terminate.

 

(vi)

The Company granted Intelligent Partners, Fitton and Carper certain registration rights with respect to (i) the 50,000,000 shares currently owned by Fitton and Carper; (ii) the 46,296,296 Conversion Shares issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the option. See Note 5

 

(vii)

Pursuant to the Subsidiary Security Agreement, the Company’s obligations under its agreements with Intelligent Partners, including its obligations under the Restructure Agreement and the Restructure MPAs are secured by a security interest in the net proceeds realized from the future monetization of the patents currently owned by the eight subsidiaries named above.

 

(viii)

Pursuant to the MPA-NA-Security Interest Agreement, our obligations under the MPA-NA are secured by a security interest in net proceeds realized from the future monetization of new patents acquired until the TMPO is satisfied, provided Intelligent Partners’ secured interest shall be limited to its entitlement in Net Proceeds under the MPA-NA. After satisfaction of the TMPO the security interest in proceeds from new assets shall terminate.

 

(ix)

Pursuant to the Board Observation Rights Agreement, until the Total Monetization Proceeds Obligation has been satisfied (the “Observation Period”), the Company granted Intelligent Partners the option and right, exercisable at any time during the Observation Period, to appoint a representative to attend meetings of the Board or any committee thereof, including executive sessions, in an observer capacity. Intelligent Partners has no right to appoint a director to the board.

 

Events of Default include (i) a Change of Control of the Company (ii) any uncured default on payment due to Intelligent Partners in an amount totaling in excess of $275,000, which is not the subject of a Dispute or other formal dispute resolution proceeding initiated in good faith pursuant to this Agreement or other Restructure Documents (iii) the filing of a voluntary petition for relief under the United States Bankruptcy Code by Company or any of its material subsidiaries, (iv) the filing of an involuntary petition for relief under the United States Bankruptcy Code against the Company, which is not stayed or dismissed within sixty (60) days of such filing, except for an involuntary petition for relief filed solely by Intelligent Partners, or any Affiliate or member of Intelligent Partners, or (v) acceleration of an obligation in excess of $1 million dollars to another provider of financing following a final determination by arbitration or other judicial proceeding that such obligation is due and owing. 

 

The Company recognized a loss on extinguishment of the note of $730,378 reflected as follows:

 

Carrying amount as of the restructure date		$	4,672,810
Net carrying amount			4,672,810
Reacquisition Price
Cash payment via QFL			(1,750,000	)
Conversion of transferred note			(250,000	)
Fair value of option grant			(598,188	)
TMPO undiscounted future cash flows			(2,805,000	)
Loss on debt extinguishment		$	(730,378	)

 

Because of its ownership percentage, Intelligent Partners is treated as a related party.

 

F-38

 

 

Purchase Price of Patents

 

The purchase price of patents – current portion at December 31, 2021 represents the current portion of minimum payments due under the agreements between:

 

●

CXT and Intellectual Ventures Assets 34, LLC and Intellectual Ventures 37, LLC (“IV 34/37”) pursuant to which at closing CXT acquired by assignment all right, title, and interest in a portfolio of thirteen United States patents (the “CXT Portfolio”). Under the agreement, CXT will distribute 50% of net recoveries, as defined, to IV 34/37. CXT advanced $25,000 to IV 34/37 at closing, and agreed, pursuant to an amendment dated January 26, 2018, that in the event that, on December 31, 2018, December 31, 2019 and December 31, 2020, cumulative distributions to IV 34/37 total less than $100,000, $375,000 and $975,000, respectively, CXT shall pay the difference necessary to achieve the applicable minimum payment amount within ten days after the applicable date; with any advances being credited toward future distributions to IV 34/36. As of December 31, 2020, cumulative distributions totaling $375,000 had been made and CXT did not pay the $600,000 difference to IV 34/37 within ten days and the remaining $600,000 of the minimum future cumulative distributions due were presented as short-term debt. On December 31, 2021 the parties amended the agreement to provide that CXT will distribute 65% of net proceeds, as defined, to IV 34/37, as long as CXT generates revenue from the CXT Portfolio and that if, on December 31, 2018 and December 31, 2019, cumulative distributions to IV 34/37 total less than $100,000 and $375,000, respectively, CXT shall pay the difference between such cumulative amounts and the amount paid to IV 34/37 within ten days after the applicable date. As of December 31, 2019 cumulative distributions to IV 34/37 totaled $375,000, no further minimum cumulative distributions are required pursuant to the agreement as amended and the Company recorded a gain on forgiveness of $600,000.  No affiliate of CXT has guaranteed the minimum payments. CXT’s obligations under the agreement are secured by a security interest in the proceeds (from litigation or otherwise) from the CXT Portfolio.

 

●

M-RED and Intellectual Ventures Assets 113 LLC and Intellectual Ventures Assets 108 LLC (“IV 113/108”) pursuant to which at closing M-RED paid IV 113/108 $75,000 and IV 113/108 transferred to M-RED all right, title and interest in a portfolio of sixty United States patents and eight foreign patents (the “M-RED Portfolio”). Under the agreement, M-RED will distribute 50% of net proceeds, as defined, to IV 113/108, as long as M_RED generates revenue from the M-RED Portfolio. The agreement with IV 113/108 provides that if, on September 30, 2020, September 30, 2021 and September 30, 2022, cumulative distributions to IV 113/108 total less than $450,000, $975,000 and $1,575,000, respectively, M-RED shall pay the difference between such cumulative amounts and the amount paid to IV 113/108 within ten days after the applicable date; with any advances being credited toward future distributions to IV 113/108. As of December 31, 2020, cumulative distributions totaling $975,000 had not been made and M-RED did not pay the $900,000 difference to IV 113/108 within ten days and the remaining $900,000 of the minimum future cumulative distributions due were presented as short-term debt.  On December 31, 2021 the parties amended the agreement to provide that M-RED will distribute 100% of undistributed net proceeds, as defined, resulting from agreements signed prior to December 31, 2021 and 65% of net proceeds thereafter to IV 113/108, as long as M-RED generates revenue from the M-RED Portfolio and that if, on December 31, 2021 cumulative distributions to IV 113/108 total less than $302,113.89, M-RED shall pay the difference between such cumulative amounts and the amount paid to IV 113/108 within ten days after the applicable date. As of December 31, 2021 cumulative distributions to IV 113/108 totaled $302,113.89, no further minimum cumulative distributions are required pursuant to the agreement as amended and the Company recorded a gain on forgiveness of approximately $1,230,000.  M-RED’s obligations under the agreement with IV 113/108 are secured by a security interest in the proceeds (from litigation or otherwise) from the M-RED Portfolio.

 

The purchase price of patents at December 31, 2021 represents:

 

The non-current portion of our obligations under the unsecured non-recourse funding agreement with a third-party funder entered into in May 2020 whereby the third-party agreed to provide acquisition funding in the amount of $95,000 for the Company’s acquisition of the audio messaging portfolio. Under the funding agreement, the third-party funder is entitled to a priority return of funds advanced from net proceeds, as defined, recovered until the funder has received $190,000. The Company has no other obligation to the third party and has no liability to the funder in the event that the Company does not generate net proceeds. Pursuant to ASC 470, the company recorded this monetization obligation as debt and the difference between the purchase price and total obligation as a discount to the debt and fully expensed to interest during the period.

 

F-39

 

 

The balance of the purchase price of the patents is reflected as follows:

 

		December 31, 2021				December 31, 2020
Current Liabilities:
Purchase price of patents, current portion		$	-			$	1,500,000
Unamortized discount			-				-
Non-current liabilities:
Purchase price of patents, long term			190,000				790,000
Unamortized discount			-				(131,793	)
Total current and non-current		$	190,000			$	2,158,207
Effective interest rate of Amortization over 2 years			-				9.4-14.5	%

 

Because the non-current minimum payment obligations were due over three years, the Company imputed interest of 10% which was recorded as a discount to the liabilities and amortized through the maturity date.

 

Long term liabilities

 

The loans payable-SBA at December 31, 2021 represents:

 

●

An unsecured loan from JPMorgan Chase Bank, N.A. in the aggregate amount of $20,832, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, which was enacted March 27, 2020. The loan, which was taken down on April 23, 2020, matures on April 23, 2022 and bears interest at a rate of 0.98% per annum, with interest payable monthly commencing on November 23, 2020. The loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company has used the entire loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. As of December 31, 2021 the loan has been forgiven and the Company recorded a gain on loan forgiveness of $20,832.

 

●

A secured Economic Injury Disaster Loan from the U.S. Small Business Association (“SBA”) in the aggregate amount of $150,000, pursuant to Section 7(b) of the Small Business Act as part of the COVID-19 relief effort. The Company’s obligations on the loan are set forth in the Company’s note dated May 14, 2020 which matures on May 14, 2050 and bears interest at a rate of 3.75% per annum, payable monthly commencing on May 14, 2022. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the Loan may be used solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which were deducted from the loan amount stated above. In addition to the loan, as part of the COVID-19 relief effort, the Company obtained an Emergency EIDL Grant from the SBA in the amount of $1,000. The Company is not required to repay the grant.

 

NOTE 4 – WARRANT LIABILITY

 

The Company issued warrants to purchase 96,246,246 shares of common stock to QFL (see Note 3) in connection with its funding agreement. If on the date of initial exercise the aggregate number of warrant shares purchasable upon exercise of the warrant would yield less than an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), then the number of warrant shares shall be increased to an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), the number of shares underlying the warrants is not fixed until the date of the initial exercise. As such, the warrant issued to QFL requires classification as a liability pursuant to ASC Topic 480, Distinguishing Liabilities from Equity and is valued at its fair value as of the grant date and re-measured at the balance sheet date.

 

F-40

 

 

As of December 31, 2021, and February 22, 2021, the aggregate fair value of the outstanding warrant liability was approximately $1,636,187 and $1,154,905, respectively.

 

The Company estimated the fair value of the warrant liability using the Black-Scholes option pricing model using the following key assumptions as of December 31, 2021 and the grant date:

 

		As of
		December 31,				February 22,
		2021				2021
Volatility			373	%			252	%
Exercise price			0.0054				0.0054
Risk-free interest rate			1.37	%			1.37	%
Expected dividends			-				-	%
Expected term			9.4				10

 

The following schedule summarizes the valuation of financial instruments that are remeasured on a recurring basis at fair value in the balance sheets as of December 31, 2021 and 2020:

 

		Fair Value Measurements as of
		December 31, 2021												December 31, 2020
		Level 1				Level 2				Level 3				Level 1				Level 2				Level 3
Assets
None		$	-			$	-			$	-			$	-			$	-			$	-
Total assets			-				-				-				-				-				-
Liabilities
Warrant liability			-				-				1,636,187				-				-				-
Total liabilities		$	-			$	-			$	1,636,187			$	-			$	-			$	-

 

The following table sets forth a reconciliation of changes in the fair value of the warrant liabilities classified as Level 3 in the fair value hierarchy:

 

		Significant Unobservable Inputs (Level 3) as of December 31, 2021
Fair value at grant date		$	1,154,905
Change in fair value			481,282
Balance - December 31, 2021		$	1,636,187

 

See Notes 3 and 5 for information on the warrant issuance.

 

F-41

 

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

Amendment to the 2017 Equity Incentive Plan

 

On February 19, 2021 the board of directors amended the 2017 Equity Incentive Plan (the “Plan”) increasing the shares the Company can issue under the Plan to 500,000,000 shares of common stock pursuant to non-qualified stock options, restricted stock grants and other equity-based incentives, the amendment to the Plan and the grants of awards pursuant to the Plan, became effective upon the closing of the agreements with QFL.

 

Issuance of Common Stock and Options

 

Issuances to Intelligent Partners

 

On February 22, 2021, pursuant to the Restructure Agreement, Intelligent Partners and its controlling members (Fitton and Carper) agreed to extinguish the notes and Transferred Note, and terminate or amend and restate the SPA and Transaction Documents and the Company: (i) issued to Fitton and Carper, as holders of the Transferred Note, pursuant to the Stock Purchase Agreement a total of 46,296,296 shares of the Company’s common stock at a purchase price of $0.0054 per share, which purchase price was paid by the conversion and in full satisfaction of the Company’s obligation under the Transferred Note and is included in the calculation of the repurchase price of the debt; and (ii) granted Intelligent Partners, pursuant to the Option Grant, an option to purchase a total of 50,000,000 shares of common stock, with an exercise price of $0.0054 per share which vested immediately and may be exercised through September 30, 2025. The Company valued the purchase option at approximately $598,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) option life of 5 years; (3) computed volatility of 252% and (4) zero expected dividends. The fair market value of the options was included in the loss on extinguishment calculation (see Note 3). The Company granted Intelligent Partners, Fitton and Carper certain registration rights with respect to (i) the 50,000,000 shares currently owned by Fitton and Carper; (ii) the 46,296,296 Conversion Shares issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the option. Commencing six months from the closing date, if the shares owned by Fitton, Carper and Intelligent Partners cannot be sold pursuant to a registration statement and cannot be sold pursuant to Rule 144 without the Company being in compliance with the current public information requirements of Rule 144, if the Company is not in compliance with the current public information requirements, the Company is required to pay damages to Intelligent Partners.

 

Consulting Agreements

 

On February 22, 2021, the Company entered into advisory service agreement with three consultants pursuant to which they will provide services to the Company in connection with the development of the Company’s business. The agreements have a term of ten years and may be terminated by the Company for cause or upon the death or disability of the consultants.

 

Pursuant to the agreements with two of the consultants, the compensation payable to each of them consists of a restricted stock grant of 10,000,000 shares of Common Stock which vested immediately upon issuance and a ten-year option to purchase a total of 30,000,000 shares of Common Stock, which become exercisable cumulatively as follows:

 

a.

10,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB. The Company regained such compliance on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.

 

b.

10,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders’ equity of at least $5,000,000, and

 

c.

10,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

The Company recorded professional fees in the amount of $240,000 as a result the restricted stock grants to these two consultants. The Company determined the fair value of the options as of the grant date to be approximately $720,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company met the first performance condition and accrued the option expense of approximately $240,000 over the period from the grant date to achievement of the performance condition. The Company recognized option expense of approximately $240,000 for the year ended December 31, 2021.

 

F-42

 

 

Pursuant to the agreement with the third consultant, the compensation payable to the consultant consists of a restricted stock grant of 10,000,000 shares of Common Stock which immediately vests in full and a ten-year option to purchase 30,000,000 shares of Common Stock, which becomes exercisable cumulatively as follows:

 

a.

10,000,000 shares at an exercise price of $0.01 per share became exercisable on February 22, 2022, which was the first anniversary of the date of the agreement;

 

b.

10,000,000 shares at an exercise price of $0.03 per share upon the second anniversary of the date of the agreement; and

 

c.

10,000,000 shares at an exercise price of $0.05 per share upon the third anniversary of the dare of the agreement.

 

The Company recorded professional fees in the amount of $120,000 as a result the restricted stock grant to the third consultant. The Company determined the fair value of the options as of the grant date to be approximately $360,000 using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company recognized option expense of approximately $188,000 for the year ended December 31, 2021.

 

Compensatory Arrangements of Officers and Directors

 

On February 22, 2021, the board of directors:

 

(i)

Granted restricted stock grants for services rendered and vesting in full upon grant, to:

 

a.

Jon C. Scahill – 49,000,000 shares

 

b.

Timothy J. Scahill – 10,000,000 shares

 

c.

Dr. William R. Carroll - 10,000,000 shares

 

(ii)

Granted Jon Scahill a ten-year option (the “Option”) to purchase 60,000,000 shares of Common Stock which become exercisable cumulatively as follows:

 

a.

20,000,000 shares at an exercise price of $0.01 per share becoming exercisable upon the commencement of trading of the Common Stock on the OTCQB. The Company regained such compliance on May 7, 2021, at which time the common stock recommenced trading on the OTCQB.

 

b.

20,000,000 shares at an exercise price of $0.03 per share, becoming exercisable on the first day on which the Company files with the SEC a Form 10-K or Form 10-Q which stockholders” equity of at least $5,000,000, and

 

c.

20,000,000 shares at an exercise price of $0.05 per share becoming exercisable on the date on which the Common Stock is listed for trading on the Nasdaq Stock Market or the New York Stock Exchange

 

(iii)

Appointed Ryan T. Logue to the board of directors and granted Mr. Logue a restricted stock grant of 5,000,000 shares of common stock which vests upon his acceptance of his appointment as a director.

 

The Company recognized compensation expense of $888,000 in conjunction with issuance of common stock to officers and directors. The Company determined the fair value of the options to be approximately $720,000 as of the grant date using the Black-Scholes pricing model. Variables used in the valuation include (1) discount rate of 1.37%; (2) term of 10 years; (3) computed volatility of 252% and (4) zero expected dividends. The Company recognized option expense of approximately $240,000 for the year ended December 31, 2021.

 

F-43

 

 

A summary of the status of the Company’s stock options and changes is set forth below:

 

		Number of Options (#)				Weighted- Average Exercise Price ($)				Weighted- Average Grant Date Fair Value ($)				Weighted- Average Remaining Contractual Life (years)
Balance - December 31, 2019			50,000,000			$	0.03			$	0.004				0.75
Granted			-				-				-				-
Exercised			-				-				-				-
Expired			50,000,000				-				-				-
Cancelled			-				-				-				-
Balance - December 31, 2020			-			$	-			$	-				-
Granted			200,000,000				0.02				0.012				8.65
Exercised			-				-				-				-
Expired			-				-				-				-
Cancelled			-				-				-				-
Balance – December 31, 2021			200,000,000			$	0.02			$	-				7.80
Options exercisable at end of period			100,000,000			$	0.0074				0.0096				6.15

 

The intrinsic value of the outstanding options as of December 31, 2021 is $930,000. 

 

As of December 31, 2021, there was approximately $1,132,000 of unrecognized compensation expense related to nonvested stock option awards that is expected to be recognized over a weighted average expected term of 8 years.  

 

Issuance of Warrants

 

A summary of the status of the Company’s warrants and changes is set forth below:

 

		Number of Warrants (#)				Weighted Average Exercise Price ($)				Weighted Average Remaining Contractual Life (Years)
Balance – December 31, 2019			-				-				-
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Cancelled			-				-				-
Balance - December 31, 2020			-				-				-
Granted			96,246,246				0.0054				9.89
Exercised			-				-				-
Expired			-				-				-
Cancelled			-				-				-
Balance – December 31, 2021			96,246,246				0.0054				9.14

 

The intrinsic value of the outstanding warrants as of December 31, 2021 is $1,116,456.

 

F-44

 

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets include patents purchased and are recorded at their acquisition cost. Intangible assets consisted of the following:

 

										Weighted average amortization
		December 31,								period
		2021				2020				(years)
Patents		$	5,617,117			$	5,690,000				4.5
Less: net monetization obligations			-				(509,811	)
Imputed interest			-				(713,073	)
Disposal			(4,362,117	)
Subtotal			1,255,000				4,467,116
Less: accumulated amortization			(715,519	)			(2,266,157	)
Net value of intangible assets		$	539,481			$	2,200,959				11.02

 

Intangible assets are comprised of patents with estimated useful lives. The intangible assets at December 31, 2021 represent:

 

●

patents acquired in October 2015 for a purchase price of $3,000,000, the useful lives of the patents, at the date of purchase, was 6-10 years;

 

●

patents acquired in July 2017 pursuant to an agreement with IV 34/37, as amended on December 31, 2021, pursuant to which CXT has an obligation to pay 65% of net revenues to IV 34/37 (see Note 3); the useful lives of the patents, at the date of acquisition, was 5-6 years;

 

●

patents (which were fully depreciated at the date of acquisition) acquired in January 2018 pursuant to an agreement with to Intellectual Ventures Assets 62 LLC and Intellectual Ventures Assets 71 LLC “(IV 62/71”), pursuant to which CXT has an obligation to distribute 50% of net revenues to IV 62/71;

 

●

patents (which were fully depreciated at the date of acquisition) acquired in January 2018 by Photonic Imaging Solutions Inc. (“PIS”) from Intellectual Ventures Assets 64 LLC (“IV 64”) pursuant to which PIS is to pay IV 64 (a) 70% of the first $1,500,000 of net revenue, (b) 30% of the next $1,500,000 of net revenue and (c) 50% of net revenue in excess of $3,000,000;

 

	●	patents acquired in March 2019 pursuant to an agreement with IV 113/108, as amended on December 31, 2021 to an obligation to pay 65% of net revenues to IV 113/108 (see Note 3); the useful lives of the patents, at the date of acquisition, was approximately 9 years.
	●	patents (which were fully depreciated at the date of acquisition) acquired in May 2020 for a purchase price of $95,000 pursuant to an agreement with Texas Technology Ventures 2, LLP (“TTV”), pursuant to which of the Company retains the first $230,000 of net proceeds, as defined in the agreement, after which the company has an obligation to distribute 50% of net proceeds to TTV;
	●	patents (which were fully amortized at the date of acquisition) acquired in February 2021 pursuant to an agreement with PKT for a purchase price of $350,000, pursuant to which $350,000 was paid at closing, and upon the realization of gross proceeds, as defined in the agreement, the Company shall make a subsequent payments in the aggregate amount of $93,900, representing reimbursement to PKT, as the prosecuting attorney, for legal fees associated with prosecution of the portfolio, such reimbursement shall be due and payable to PKT from time to time as gross proceeds are realized, if any, and paid to PKT along with and in proportion to reimbursement to other third parties of costs incurred in realizing gross proceeds. Thereafter, PKT is entitled to a percentage of gross proceeds realized, if any.

 

F-45

 

 

	●	patents (which were fully depreciated at the date of acquisition) acquired in May 2021 for a purchase price of $250,000.
	●	patents acquired in October 2021 from AI for a purchase price of $550,000 pursuant to which the Company retains an amount equal to the purchase price plus any fees incurred out of net proceeds, as defined in the agreement, after which AI is entitled to a percentage of further net proceeds realized, if any; the useful lives of the patents, at the date of acquisition, was approximately 11 years.

 

The Company amortizes the costs of patents over their estimated useful lives on a straight-line basis. Costs incurred to acquire the patents, including legal costs, are also capitalized and amortized on a straight-line basis over the life of the associated patent. Amortization of patents is included as a selling, general and administrative expense as reflected in the accompanying consolidated statements of operations. 

 

The Company assesses intangible assets for any impairment to the carrying values. For the year ended December 31, 2021, the Company recorded non-cash impairment charges of approximately $1,652,00 to write down finite lived intangible assets in the Power Management/Bus Controller, CXT and M-RED portfolios.

 

Amortization expense for patents comprised $1,159,865 and $648,395 for the years ended December 31, 2021 and 2020, respectively. Future amortization of patents is as follows:

 

Year ended December 31,
2022		$	49,899
2023			49,899
2024			49,899
2025			49,899
2026 and thereafter			339,885
Total		$	539,481

 

At December 31, 2020, the Company had debt due to Intelligent Partners pursuant to the securities purchase agreement dated October 22, 2015 between the Company and United Wireless, and the Company was to pay 15% of the net monetization proceeds from the patents acquired in October 2015 to Intelligent Partners, as transferee of United Wireless. See the caption “Loan Payable Related Party” in Note 3 in connection with the extinguishment and restructuring of the Company’s obligations to Intelligent Partners.

 

NOTE 7 – NON-CONTROLLING INTEREST

 

The following table reconciles equity attributable to the non-controlling interest related to Quest Packaging Solutions Corporation.

 

		December 31,
		2021				2020
Balance, beginning of year		$	228			$	239
Net loss attributable to non-controlling interest		$	-			$	(11	)
Balance, end of year		$	228			$	228

 

NOTE 8 – 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, 2021, the Company has generated approximately $9,965,487 and approximately $2,063,797 of federal and state net operating loss (“NOL”) carry forwards, respectively, which will begin to expire in 2024. 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 prior periods. Due to this equity activity and the restrictions resulting under Section 382, a portion of the Company’s NOLs may not be available to offset future taxable income. Therefore, the Company has fully reserved the deferred tax asset resulting from the net operating loss carry forwards.

 

F-46

 

 

Deferred tax asset consisted primarily of the following:

 

		December 31,
		2021				2020
Net operating loss carry forward		$	2,591,027			$	2,172,545
Bad debt reserves			-				17,160
Intangible assets			206,712				515,104
Valuation allowance		$	(2,797,739	)		$	(2,704,809	)
Balance, end of year		$	-			$	-

 

Tax expense consisted primarily of the following:

 

		December 31,
		2021				2020
Federal		$	-			$	-
State			1,806				5,108
Foreign			-				60,255
Deferred			-				-
Total		$	1,806			$	65,363

 

The Company’s tax expense does not reflect the statutory rate since the Company’s deferred tax asset is fully offset by a valuation allowance. Reconciliation between the effective tax rate on income from continuing operations and the statutory rate for the year ended December 31, 2021 is as follows:

 

		Tax				Percentage
Book income before taxes		$	(872,129	)			21.00	%
State taxes, net			1,427				(0.03	)
Tax exempt income – grant and/or SBA			(4,375	)			0.11
Meals and entertainment			873				(0.02	)
Warrant expense			242,530				(5.84	)
Stock based compensation			402,362				(9.69	)
Loss on conversion of debt			64,167				(1.55	)
Valuation allowance			75,059				(1.81	)
Derivative valuation adjustment			101,069				(2.43	)
Other			(9,177	)			0.22
Total		$	1,806
Effective tax rate							(0.04	)%

 

The statute of limitations is open for the tax years ending December 31, 2018 and thereafter.

 

The Company’s foreign tax expense reflects the tax withheld by the foreign jurisdiction on royalty income received by the Company and not exempt under the United States tax treaty, if any, with the respective foreign jurisdiction. In 2021, the Company was not subject to foreign source withholding tax. In 2020, the Company was subject to foreign source withholding tax of 20.4% in Japan.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

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.

 

In prior periods, the Company incurred interest expense on the Company’s 10% notes issued to United Wireless pursuant to the securities purchase agreement dated October 22, 2015. The notes were extinguished in February 2021 and the Company did not incur interest expense on the notes for the year ended December 31, 2021. The interest expense was approximately $351,000 for the year ended December 31, 2020. See Notes 3 and 5 in connection with the extinguishment of the Company’s 10% notes issued to United Wireless and held by Intelligent Partners as the transferee of United Wireless.

 

See Note 10 with respect to the employment agreement with the Company’s president and chief executive officer.

 

During 2021, the Company contracted with an entity owned by the chief technology officer for the provision of information technology services to the Company. The cost of these services was approximately $434 and $464 for the year ended December 31, 2021 and 2020, respectively. 

 

F-47

 

 

During 2021, the Company contracted with a law firm more than 10 percent owned, but not controlled, by the father-in-law of the chief executive officer. The firm is engaged on a contingent fee basis and serves as escrow agent in connection with monetization of the Company’s patents in matters where the firm is serving as counsel to the Company. In connection with the engagement, the Company recorded patent service costs of approximately $763,000 and $909,000 for the years ended December 31, 2021 and 2020 respectively. The amount recorded in 2020 includes approximately $407,000 in accrued expenses and outstanding as of December 31, 2020. The accrued liability is recorded in “accounts payable and accrued liabilities.” The accrued liability was resolved as part of a resolution with the firm at which the father-in-law of the chief executive was formerly a partner. See Note 3 with respect to the resolution of the dispute with the prior firm. In prior periods, the Company engaged a firm at which the father-in-law of the chief executive was formerly a partner. Because his interest in the prior firm was less than 10%, the prior firm was not considered a related party in prior periods.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

Pursuant to a restated employment agreement, dated November 30, 2014, with the Company’s president and chief executive officer, 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 initial annual salary of $252,000, which may be increased, but not decreased, by the board or the compensation committee. In March 2016, the Company’s board of directors increased the chief executive officer’s annual salary to $300,000, effective January 1, 2016. The chief executive officer is entitled to a bonus if the Company meets or exceeds performance criteria established by the compensation committee. In August 2016, the Company’s board of directors approved annual bonus compensation equal to 30% of the amount by which our consolidated income before income taxes exceeds $500,000, but, if the Company is subject to the limitation on deductibility of executive compensation pursuant to Section 162(m) of the Internal Revenue Code, the bonus cannot exceed the amount which would be deductible pursuant to Section 162(m). The chief executive officer is also eligible to participate in any executive incentive plans which the Company may adopt. 

 

Pension Benefits

 

Pursuant to the SEP IRA plan adopted by the Company in March 2020, the Company deposited into a SEP IRA account of each of its participating employees a percentage of the employee’s compensation, subject to statutory limitations on the amount of the contribution all as set forth in the IRS Form 5305-SEP. For the year ending December 31, 2021 and 2020 the percentage was set at 19%, respectively. For the year ended December 31, 2021 and 2020, the Company’s president and chief executive officer is the only participant and $58,000 and $57,000, respectively, was deposited his SEP IRA account.

 

Inventor Royalties, Contingent Litigation Funding Fees and Contingent Legal Expenses

 

In connection with the investment in certain patents and patent rights, certain of the Company’s operating subsidiaries executed agreements which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios. 

 

The Company’s operating subsidiaries may engage third party funding sources to provide funding for patent licensing and enforcement. The agreements with the third party funding sources may provide that the funding source receive a portion of any negotiated fees, settlements or judgments. In certain instances, these third party funding sources are entitled to receive a significant percentage of any proceeds realized until the third party funder has recouped agreed upon amounts based on formulas set forth in the underlying funding agreement, which may reduce or delay and proceeds due to the Company. 

 

The Company’s operating subsidiaries may retain the services of law firms in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby the law firms are paid on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained.

 

Depending on the amount of any recovery, it is possible that all the proceeds from a specific settlement may be paid to the funding source and legal counsel.

 

F-48

 

 

The economic terms of the inventor agreements, funding agreements and contingent legal fee arrangements associated with the patent portfolios owned or controlled by the Company’s operating subsidiaries, if any, including royalty rates, proceeds sharing rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by the operating subsidiaries. Inventor royalties, payments to noncontrolling interests, payments to third party funding providers and contingent legal fees expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms and obligations generating revenues each period. Inventor royalties, payments to third party funding sources and contingent legal fees expenses will continue to fluctuate and may continue to vary significantly period to period, based primarily on these factors. 

 

Patent Enforcement and Other Litigation

 

Certain of the Company’s operating subsidiaries are engaged in litigation to enforce their patents and patent rights. In connection with these patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has 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 the Company or its operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by the Company or its operating subsidiaries, could materially harm the Company’s operating results and financial position. Since the operating subsidiaries do not have any assets other than the patents, and the Company does not have any available financial resources to pay any judgment which a defendant may obtain against a subsidiary, such a judgement may result in the bankruptcy of the subsidiary and/or the loss of the patents, which are the subsidiaries’ only assets.

 

NOTE 11 – BUSINESS COMBINATIONS

 

On August 6, 2021 the Company acquired all of the issued and outstanding equity interests of STX from Soundstreak, LLC in exchange for an obligation to coordinate and launch a structured licensing program around the STX patent portfolio which consists of three United States patents and one United States patent application. Soundstreak LLC is entitled to 50% of the net proceeds, as defined in the agreement, if any, resulting from monetization of the STX patent portfolio.

 

On November 16, 2021 the Company acquired all of the issued and outstanding equity interests of LS Cloud Storage Technologies, LLC (“LSC”) in exchange for assuming ownership and management of the entity and bearing the transaction costs.

  

The acquisitions were accounted for in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 provides, among other things, that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition which are accounted for using a cost accumulation and allocation model under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed. The STX and LSC were recorded as asset acquisitions.

 

The cost of the LSC asset acquisition was $500 in legal fees, expensed at closing. The initial cost of the STX asset acquisition was $0 with total consideration coming in the form of contingent consideration, which will be recognized if and when it becomes payable. 

 

NOTE 12 – SUBSEQUENT EVENTS 

 

On January 27, 2022, the Company acquired, via assignment from Intellectual Ventures Assets 181 LLC and Intellectual Ventures Assets 174 LLC, all right title and interest to four patent portfolios consisting of fifteen United States patents and three foreign patents for a purchase price of $1,060,000. The Company requested and received a capital advance in the amount of the $1,060,000 purchase price from the facility with QFL.

 

On February 28, 2022, the Company filed a certificate of amendment to the certificate of incorporation of Quest Licensing Corporation, a New York corporation, changing the name of the corporation to Digital IP Advisors Incorporated.

 

In March 2022, the Company received operating capital advances in the amount of $200,000 from QFL pursuant to the Purchase Agreement.

 

F-49

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. (1)

 

Nature of Expense:		Amount
SEC Registration Fee		$	171.29
Accounting fees and expenses			3,000.00
Legal fees and expenses			25,000.00
Printing			2,000.00
Miscellaneous			4,828.71
Total		$	35,000.00

 

(1)	All expenses, except the SEC registration fee, are estimated.

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Section 145 of the Delaware General Corporation Law gives us broad authority to indemnify our officers and directors. under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorney’s fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which a person is a party by reason of being a director or officer if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such statutory provisions. Our by-laws have broad indemnification provisions for our board of directors, consistent with Section 145 of the Delaware General Corporation Law.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

(a) On February 22, 2021, in connection with the prepaid forward purchase agreement with QFL, the Company granted QFL ten-year warrants to purchase a total of up to 96,246,246 as described in “Business – Agreements with QFL.”

 

(b) On February 22, 2021, in connection with a restructure agreement with Intellectual Partners, the Company (i) issued a total of 46,296,296 shares of common stock to Andrew C. Fitton and Michael Carper at a purchase price of $0.0054 per share in exchange for the cancellation of a promissory note in the principal amount of $250,000, and (ii) granted Intellectual Partners an option to purchase 50,000,000 shares of common stock at an exercise price of $0.0054 per share, all as described in “Business – Agreements with Intellectual Partners.”

 

(c) Pursuant to the 2017 Equity Incentive Plan, amended, the Company issued to William Gates, Crystal Nicolson and Jeff Toler a total of 30,000,000 shares of Common Stock as restricted stock grants and granted them options to purchase a total of 90,000,000 shares of common stock, pursuant to consulting contracts, as described under “Executive Compensation -- 2017 Equity Incentive Plan.

 

(d) Pursuant to the 2017 Equity Incentive Plan, as amended, the Company issued to its directors, Jon C. Scahill, Timothy J. Scahill, Dr. William R. Carroll and Ryan T. Logue restricted stock grants for a total of 74,000,000 shares of Common Stock and granted to Jon C. Scahill an option to purchase 60,000,000 shares, as set forth in “Executive Compensation -- 2017 Equity Incentive Plan.”

 

The issuance of the securities described above was exempt from registration pursuant to Section 4(a)(2) as a transaction not involving a public offering. No underwriter or broker was involved in the issuance of the securities.

 

II-1

 

 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of the Company. (9)
3.2		Bylaws of the Company. (3)
5.1		Opinion of Ellenoff Grossman & Schole LLP (9)
10.1		Restated Employment Agreement dated as of November 30, 2014 between the issuer and between the Company and Jon C. Scahill. (1)
10.2		Restricted Stock Grant dated October 30, 2014 between the Company and Jon C. Scahill. (1)
10.3		License Agreement dated March 26, 2008 between the Company and Emerging Technologies Trust. (1)
10.4		Licensing Services Agreement dated July 10, 2008 between the Company and Balthaser Online, Inc. (1)
10.5		Patent Purchase Agreement dated December 21, 2009 between Company and Intertech Holdings, LLC. (1)
10.6		Consulting Agreement dated August 11, 2010 between the Company and Alex W. Hart. (1)
10.7		Agreement dated February 8, 2011 between the Company and Sol Li. (1)
10.8		Agreement dated June 26, 2013 between the Company and The Betting Service Ltd. and Neil Riches.(1)
10.9		Funding Agreement dated March 13, 2014 between the Company and Longford Capital Fund I, LP, (subject to order granting confidential treatment (1))#
10.10		Agreement dated April 1, 2014 between the Company and Allied Standard Limited. (1)
10.11		Form of warrant issued to former officers and directors. (1)
10.12		Form of warrant issued to Mr. Jon C. Scahill. (1)
10.13		Indemnification agreement, dated December 8, 2014 between the Company and Jon C. Scahill. (4)
10.14		Indemnification agreement, dated December 8, 2014 between the Company and Timothy J. Scahill. (4)
10.15		Indemnification agreement, dated December 8, 2014 between the Company and Dr. William Ryall Carroll. (4)
10.16		Patent Sale Agreement, effective July 8, 2015 between Intellectual Ventures Assets 16 LLC and the Company. (2)
10.17		2017 Equity Incentive Plan (6)
10.18		Purchase Agreement dated February 19, 2021 among the Company and QPRC Finance LLC (7)
10.19		Ex. A to Purchase Agreement – Security Agreement dated February 19, 2021 among the Company and QPRC Finance LLC. (7)†
10.20		Ex. B to Purchase Agreement – Subsidiary Continuing Guaranty Agreement dated February 19, 2021 among Quest Licensing Corporation, Mariner IC Inc., Semcon IP Inc., IC Kinetics Inc., Quest NetTech Corporation, CXT Systems, Inc., M-Red Inc., Audio Messaging Inc. and QPRC Finance LLC. (7)
10.21		Ex. C to Purchase Agreement – Subsidiary Patent Proceeds Security Agreement dated February 19, 2021 among the Company, Quest Licensing Corporation, Mariner IC Inc., Semcon IP Inc., IC Kinetics Inc., Quest NetTech Corporation, CXT Systems, Inc., M-Red Inc., Audio Messaging Inc. and QPRC Finance LLC. (7)
10.22		Ex. D to Purchase Agreement – Warrant Issuance Agreement dated February 19, 2021 among the Company and QPRC Finance LLC. (7)
10.23		Ex. E to Purchase Agreement – Board Observation Rights Agreement dated February 19, 2021 among the Company and QPRC Finance LLC. (7)
10.24		Registration Rights Agreement – dated February 19, 2021 among the Company and QPRC Finance LLC. (7)
10.25		Form of Warrant – dated February 19, 2021 among the Company and QPRC Finance LLC (7)
10.26		Restructure Agreement dated February 19, 2021 among the Company, Quest Licensing Corporation, Mariner IC Inc., Semcon IP Inc., IC Kinetics Inc., Quest NetTech Corporation, CXT Systems, Inc., M-Red Inc., Audio Messaging Inc. Intelligent Partners LLC, Andrew Fitton and Michael Carper. (7)
10.27		Ex. A to Restructure Agreement - Stock Purchase Agreement dated February 19, 2021 among the Company, Intelligent Partners LLC, Andrew Fitton and Michael Carper. (7)
10.28		Ex. B to Restructure Agreement - Option Grant dated February 19, 2021 among the Company and Intelligent Partners LLC. (7)
10.29		Ex. C to Restructure Agreement - Amended and Restated Pledge Agreement dated February 19, 2021 among the Company and Intelligent Partners LLC. (7)

 

II-2

 

 

10.24		Ex. D to Restructure Agreement - Amended and Restated Registration Rights Agreement dated February 19, 2021 among the Company, Intelligent Partners LLC, Andrew Fitton and Michael Carper. (7)
10.30		Ex. E to Restructure Agreement - Board Observation Agreement dated February 19, 2021 among the Company and Intelligent Partners LLC. (7)
10.31		Ex. F to Restructure Agreement - Amended and Restated MPA-CP dated February 19, 2021 among the Company, Quest Licensing Corporation, Mariner IC Inc., Semcon IP Inc., IC Kinetics Inc., Quest NetTech Corporation and Intelligent Partners LLC. (7)
10.32		Ex. G to Restructure Agreement - Amended and Restated MPA-CXT dated February 19, 2021 among CXT Systems, Inc. and Intelligent Partners LLC. (7)
10.33		Ex. H to Restructure Agreement - Monetization Proceeds Agreement dated February 19, 2021 among M-RED Inc. and Intelligent Partners LLC. (7)
10.34		Ex. I to Restructure Agreement - Monetization Proceeds Agreement dated February 19, 2021 among Audio Messaging Inc. and Intelligent Partners LLC. (7)
10.35		Ex. J to Restructure Agreement - Amended and Restated 2015 Patent Proceeds Security Agreement dated February 19, 2021 among the Company, Quest Licensing Corporation, Mariner IC Inc., Semcon IP Inc., IC Kinetics Inc., Quest NetTech Corporation, CXT Systems, Inc., M-Red Inc., Audio Messaging Inc. and Intelligent Partners LLC. (7)
10.36		Ex. K to Restructure Agreement - MPA-NA dated February 19, 2021 among the Company and Intelligent Partners LLC. (7)
10.37		Ex. L to Restructure Agreement - MPA-NA Security Interest Agreement dated February 19, 2021 among the Company and Intelligent Partners LLC. (7)
10.38		Form of Consulting Agreement (10)
10.39		Form of Restricted Stock Agreement (10)
10.40		Form of Option Agreement (10)
23.1		Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)
23.2		Consent of MaloneBailey, LLP (8)
23.3		Consent of Rosenberg Rich Baker Berman P.A.(8)
24.1		Power of Attorney (9)
107.1		Filing fee table (11)

 

(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.
(2)	Filed as an exhibit to the Company’s Form 8-K, which was filed with the SEC on October 28, 2015 and incorporated herein by reference.
(3)	Filed as an exhibit to the Company’s Form 10-K, for the year ended December 31, 2013, which was filed with the SEC on April 10, 2015.
(4)	Filed as exhibit to Amendment No. 1 to the Company’s registration statement on Form S-1, which was filed with the SEC on February 3, 2016, and incorporated herein by reference.
(5)	Filed as an exhibit to the Company’s Form 8-K, which was filed with the SEC on January 26, 2016 and incorporated herein by reference.
(6)	Incorporated by reference to the Form 10-K for the year ended December 31, 2017, which was filed by the Company on April 2, 2018.
(7)	Filed as an exhibit to the Company’s Form 8-K, which was filed with the SEC on February 24, 2021 and incorporated herein by reference.
(8)	Filed herewith.
(9)	Previously filed.
(10)	Incorporated by reference to the Form 10-K for the year ended December 31, 2020, which was filed by the Company on April 15, 2021.
(11)	Previously filed on the Cover Page

 

#	Certain portions of this exhibit are omitted pursuant to an order granting confidential treatment. The omitted information has been filed separately with the SEC.
†	Certain confidential information has been deleted from this Exhibit.

 

II-3

 

 

ITEM 17. UNDERTAKINGS.

 

We hereby undertake:

 

(a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, to any purchaser, each prospectus filed by the registrant pursuant to Rule 424(b)(3) and (h) of this chapter shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement:

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Company is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

II-4

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned hereunto duly authorized in Rye, New York this 21^st day of June, 2022.

 

	QUEST PATENT RESEARCH CORPORATION
	By:	/s/ Jon C. Scahill
		Jon C. Scahill, Chief Executive Officer

  

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Jon C. Scahill*		Director, chief executive officer, acting chief financial officer and president
Jon C. Scahill		(principal executive, financial and accounting officer)
/s/ Timothy J. Scahill*		Director
Timothy J. Scahill
/s/ Dr. William Ryall Carroll*		Director
Dr. William Ryall Carroll
/s/ Ryan T. Logue*		Director
Ryan T. Logue

 

*By:	/s/ Jon C. Scahill	June 21, 2022
	Jon C. Scahill
	Attorney-in-fact

 

 

II-5

 

 

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