QUEST PATENT RESEARCH CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2020, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer, who is the same person and our sole full-time employee. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to our limited internal audit function and our very limited staff, our disclosure controls were not effective as of December 31, 2020, such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the chief executive officer/chief financial officer, as appropriate to allow timely decisions regarding disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2020, management identified material weaknesses related to (i) our internal audit functions (ii) inadequate levels of review of the financial statements and (iii) a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not effective as of December 31, 2020. Management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel and excessive reliance on third party consultants for accounting, financial reporting and related activities. The lack of any separation of duties, with the same person, who is our only full time employee, serving as both chief executive officer and chief financial officer, and who does not have an accounting background, makes it unlikely that we will be able to implement effective internal controls over financial reporting in the near future. 45 Due to our size and nature, segregation of all conflicting duties is not possible. However, to the extent possible, we plan to implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals if and when we have sufficient income to enable us to hire such individuals, and we cannot give any assurance that we will be able to hire such personnel. Since we became engaged in the intellectual property management business in 2008 we have not had the financial resources to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. Our financial condition makes it difficult for us to implement a system of internal controls over financial reporting. Until we generate significantly greater revenues and employ accounting personnel, it is doubtful that we will be able implement any system which provides us with any degree of internal controls over financial reporting. Due to the nature of this material weakness in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could not be prevented or detected. A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Changes in Internal Control over Financial Reporting. During the period ended December 31, 2020, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 46 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table presents information with respect to our officers, directors: Name Age Position(s) Jon C. Scahill 44 Chief executive officer, president, acting chief financial officer, secretary and director Timothy J. Scahill 53 Chief technology officer and director Dr. William Ryall Carroll 45 Director Ryan T. Logue 40 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. 47 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. ITEM 11: EXECUTIVE COMPENSATION The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during the years ended December 31, 2020 and 2019, earned by or paid to our executive officers. Name and Principal Position Year Salary Bonus Awards Stock Awards Options/ Warrant Awards (1) Non-Equity Plan Compensation Nonqualified Deferred Earnings All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) ($) Jon Scahill, 2020 $ 300,000 - - - - - 57,000 (1) $ 357,000 CEO and President 2019 300,000 - - - - - - 300,000 (1) Represents the payments made by the Company under the SEP IRA adopted in March 2020 48 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, 2020 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 this annual report. 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 share, which vested immediately upon grant, 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 immediately upon grant, 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. 49 ● 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, William Gates and Crystal Nicolson, 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. ● 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/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, Jeff Toler, become exercisable 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. 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. ● 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 There were no outstanding equity awards granted to and held by the officers as of December 31, 2020. 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 $ - $ - $ - Dr. William Ryall Carroll - - - 50 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table provides information as to shares of common stock beneficially owned as of April 13, 2021, by: ● Each director; ● Each current officer named in the summary compensation table; ● Each person owning of record or known by us, based on information provided to us by the persons named below, at least 5% of our common stock; and ● All directors and officers as a group. For purposes of the following table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or sole or shared investment power with respect to a security, or any combination thereof, and the right to acquire such power (for example, through the exercise of warrants granted by us) within 60 days of April 13, 2021. Name and Address (1) of Beneficial Owner Amount and Nature of Beneficial Ownership % of Class Jon C. Scahill 140,000,000 26.2 % 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 % Tomas Arce 3463 State Street Suite 327 Santa Barbara, CA 93105 26,699,627 5.0 % Dr. William Ryall Carroll 15,484,633 2.9 % Timothy J. Scahill 15,105,000 2.8 % Ryan T. Logue 5,000,000 * All officers and directors as a group (four individuals) 176,087,257 33.0 % * Less than 1%. (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. 51 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Related Transactions As a result of the September 2015 sale to United Wireless of 50,000,000 shares of common stock, representing 13.0% of our common stock and its right to name a director, United Wireless is a related party as of December 31, 2020. United Wireless had no relationship with us prior to the closing of the securities purchase agreement and related agreements in October 2015. United Wireless transferred its shares to its principals, Andrew C. Fitton and Michael R. Carper, it transferred its option, the notes and its remaining rights under the agreements to Intelligent Partners LLC, of which Mr. Fitton and Mr. Carper are the members. Reference is made to the discussion of our agreements with Intelligent Partners, Mr. Fitton and Mr. Carper under “Item 1. Business – Recent Developments” and “Overview” in Item 5 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 for 2020 and 2019 was approximately $464 and $464, respectively. We 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 our intellectual property rights on matters in which the firm is serving as counsel to us. In connection with the engagement, we recorded patent service costs of approximately $909,000 and $0 for the years ended December 31, 2020 and 2019, respectively. The amount recorded in 2020 includes approximately $407,000 in accrued expenses and outstanding as of December 31, 2020. 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. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following table sets forth the fees billed by our independent accountants, Malone Bailey, LLP, for each of our last two fiscal years for the categories of services indicated. Fiscal Year Ended December 31 2020 2019 Audit fees $ 58,360 $ 55,000 Audit – related fees - - Tax fees - - All other fees - 1,500 Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements. All other fees relate to professional services rendered in connection our registration statement. Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our board approved all services that our independent accountants provided to us in the past two fiscal years. 52 PART IV ITEM 15. EXHIBITS EXHIBIT Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation of the Company.(5) 3.2 Bylaws of the Company. (3) 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) 53 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 10.39 Form of Restricted Stock Agreement 10.40 Form of Option Agreement 31.1 Certification of Chief Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Schema Document 101.CAL XBRL Taxonomy Calculation Document 101.DEF XBRL Taxonomy Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document (1) Incorporated by reference to the Form 10-K for the year ended December 31, 2012, which was filed by the Company on December 15, 2014. (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. # 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. ITEM 16. FORM 10-K SUMMARY Not applicable. 54 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 15, 2021 QUEST PATENT RESEARCH CORPORATION By: /s/ Jon C. Scahill Name: Jon C. Scahill Title: Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Jon C. Scahill as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Signature Title Date /s/ Jon C. Scahill Director, chief executive officer, acting chief financial officer and president April 15, 2021 Jon C. Scahill (principal executive, financial and accounting officer) /s/ Timothy J. Scahill Director April 15, 2021 Timothy J. Scahill /s/ Dr. William Ryall Carroll Director April 15, 2021 Dr. William Ryall Carroll /s/ Ryan T. Logue Director April 15, 2021 Ryan T. Logue 55 QUEST PATENT RESEARCH CORPORATION DECEMBER 31, 2020 Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-7 F- 1 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, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years 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 2019, and the results of their operations and their cash flows for the years 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 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 audits 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. 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 F- 2 Quest Patent Research Corporation and Subsidiaries Consolidated Balance Sheets December 31, 2020 2019 ASSETS Current assets Cash and cash equivalents $ 247,862 $ 537,198 Accounts receivable, net 1,032,886 1,850,375 Other current assets 5,934 17,180 Total current assets 1,286,682 2,404,753 Patents, net of accumulated amortization of $2,266,158 and $1,617,762, respectively 2,200,959 2,754,354 Total assets $ 3,487,641 $ 5,159,107 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities $ 2,892,025 $ 3,362,932 Loans payable – third party 147,000 147,000 Purchase price of patents, current portion 1,500,000 569,386 Loan payable – related party, net of unamortized discount and debt issuance costs of $0 and $189,705, respectively 4,672,810 4,483,105 Accrued interest – loans payable related party - 117,780 Accrued interest - loans payable third party 284,885 270,185 Derivative liability - 595,000 Total current liabilities 9,496,720 9,545,388 Non-current liabilities Contingent funding liabilities - 20,378 Loan payable - SBA 174,392 - Purchase price of patents, net of unamortized discount of $131,793 and $282,503, respectively 658,207 1,442,497 Total liabilities 10,329,319 11,008,263 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, 2020 and 2019; shares issued and outstanding 383,038,334 at December 31, 2020 and 2019 11,491 11,491 Additional paid-in capital 14,427,782 14,107,782 Accumulated deficit (21,281,179 ) (19,968,668 ) Total Quest Patent Research Corporation stockholders’ deficit (6,841,906 ) (5,849,395 ) Non-controlling interest in subsidiary 228 239 Total stockholders’ deficit (6,841,678 ) (5,849,156 ) Total liabilities and stockholders’ deficit $ 3,487,641 $ 5,159,107 See accompanying notes to consolidated financial statements F- 3 Quest Patent Research Corporation and Subsidiaries Consolidated Statements of Operations Year Ended December 31, 2020 2019 Revenues Patent licensing fees $ 5,488,088 $ 4,117,895 Licensed packaging sales - 25,274 5,488,088 4,143,169 Operating expenses Cost of revenues: Cost of sales - 4,520 Litigation and licensing expenses 4,692,969 3,383,948 Management support services - 2,093 Selling, general and administrative expenses 1,513,822 1,222,024 Total operating expenses 6,206,791 4,612,585 Income (loss) from operations (718,703 ) (469,416 ) Other expense Gain (loss) on derivative liability 275,000 (55,000 ) Gain on forgiveness of debt - 27,628 Other income 1,000 - Interest expense (804,456 ) (808,273 ) Total other expense (528,456 ) (835,645 ) Net loss before income tax (1,247,159 ) (1,305,061 ) Income tax (65,363 ) (5,234 ) Net loss (1,312,522 ) (1,310,295 ) Net income attributable to non-controlling interest in subsidiary 11 1,519 Net Loss Attributable to Quest Patent Research Corporation $ (1,312,511 ) $ (1,308,776 ) Net loss per share – Basic and Diluted $ (0.00 ) $ (0.00 ) Weighted average shares outstanding – Basic and Diluted 383,038,334 383,038,334 See accompanying notes to consolidated financial statements F- 4 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, 2018 383,038,334 11,491 14,107,782 (18,659,892 ) 1,758 (4,538,861 ) Net loss - - - (1,308,776 ) (1,519 ) (1,310,295 ) 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 ) See accompanying notes to consolidated financial statements F- 5 Quest Patent Research Corporation and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss (1,312,522 ) $ (1,310,295 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 435,415 349,691 Loss/(gain) on derivative liability (275,000 ) 55,000 Loss/(gain) on forgiveness of debt - (27,628 ) Depreciation and amortization 648,395 529,486 Bad debt expense 66,000 - Changes in operating assets and liabilities Accounts receivable 751,489 (1,850,375 ) Accrued interest – loans payable related party (117,780 ) (25,000 ) Accrued interest – loans payable third party 17,360 16,300 Other current assets 11,246 (14,837 ) Accounts payable and accrued expenses (470,907 ) 3,024,181 Net cash provided by/(used in) operating activities (246,304 ) 746,523 Cash flows from investing activities: Purchase of patents (95,000 ) (75,000 ) Net cash used in investing activities (95,000 ) (75,000 ) Cash flows from financing activities: Proceeds from SBA loans 171,732 - Repayment of purchase price of patents (194,386 ) (155,614 ) Loan payable – third party - (16,000 ) Proceeds from sale of future revenues 95,000 - Repayment from sale of future revenues (20,378 ) (129,622 ) Net cash from/(used in) financing activities 51,968 (301,236 ) Net increase (decrease) in cash and cash equivalents (289,336 ) 370,287 Cash and cash equivalents at beginning of year 537,198 166,911 Cash and cash equivalents at end of year $ 247,862 $ 537,198 Non Cash Investing and Financing Activities Accounts payable for patent purchase, net of imputed interest of $336,781 $ - $ 1,238,219 Resolution of derivative liability 320,000 - Accrued interest added to principal 2,660 - Supplemental disclosure of cash flow information Cash paid during the year for: Income taxes, including foreign taxing authorities withheld taxes of $60,255 and $5,000 during the years ended December 31, 2020, and 2019 respectively. $ 65,363 $ 5,234 Interest 472,121 467,280 See accompanying notes to consolidated financial statements F- 6 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, 2020 and 2019. 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) Prior to April 2019, the operations of Wynn Technologies, Inc. were not included in the Company’s consolidated financial statements as there were significant contingencies related to its control of Wynn Technologies, Inc. The sole asset of Wynn Technologies, Inc. was US Patent No. RE38,137E. Wynn Technologies, Inc. could not transfer, assign, sell, hypothecate or otherwise encumber US Patent No. RE38,137E without the express written consent of Sol Li, owner of 35% of Wynn Technologies, Inc., unless, as of the date of such transfer, assignment, sale, hypothecation or other encumbrance, Mr. Li had received a total of at least $250,000. US Patent No. RE38,137E expired on September 28, 2015. The Company accounted for its 65% interest in Wynn Technologies, Inc. under the equity method whereby the investment accounts were increased for contributions by the Company plus its 60% share of income pursuant to the contractual agreement which provides that Sol Li, owner of 35% of Wynn Technologies, Inc. retained 40% of the income, and reduced for distributions and its 60% share of losses incurred, respectively, with the restriction whereby the account balances cannot go below zero. On April 11, 2019, Quest NetTech Corporation merged with Wynn Technologies, Inc. with Quest NetTech Corporation being the surviving entity. Pursuant to the merger agreement, we issued to Mr. Li a 35% interest in Quest NetTech Corporation. Significant intercompany transaction and balances have been eliminated in consolidation. F- 7 Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturity dates of three months or less when purchased, to be cash equivalents. Accounts Receivable Accounts receivable, 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 $66,000 and $0 at December 31, 2020 and December 31, 2019, 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 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. Impairment of long-lived assets Long-lived assets, including intangible assets with a finite life, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. Derivative Financial Instruments The Company evaluates the embedded conversion feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion feature meets the definition of a liability and, if so, whether to bifurcate the conversion feature and account for it as a separate derivative liability. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a Black Scholes model, in accordance with ASC 815-15 “Derivative and Hedging” to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months after the balance sheet date. F- 8 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 derivative liabilities. 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 The Company adopted ASC Topic 606, Revenue from Contracts with Customers as of January 1, 2018 using the modified retrospective transition method. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the company satisfies a performance obligation A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: ● The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct). ● The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct. F- 9 The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following: ● Variable consideration ● Constraining estimates of variable consideration ● The existence of a significant financing component in the contract ● Noncash consideration ● Consideration payable to a customer Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate. In general, the Company is required to make certain judgments and estimates in connection with the accounting for revenue contracts with customers. Such areas may include identifying performance obligations in the contract, estimating the timing of satisfaction of performance obligations, determining whether a promise of consideration, whether a license to intellectual property or an entitlement to payment of a percentage of net proceeds, is distinct from other promised goods or services, evaluating whether consideration transfers to a customer at a point in time or over time, allocating the transaction price to separate performance obligations, determining whether contracts contain a significant financing component, and estimating revenues recognized at a point in time for licensed sales. 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. F- 10 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. Licensed Sales The balance of our revenue, from licensed sales, is not significant but includes sales-based revenue contracts pursuant to purchase orders. There is only one distinct performance obligation in each purchase order, transfer of the promised good to the customer, and the customer can benefit from the good together with other resources readily available to the customer. For licensed sales, the transaction price is allocated to the performance obligation on a relative standalone selling price basis per the purchase order, and the Company includes in the transaction price some or all of an amount of estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimates are generally based on historical levels of activity, if available. Notwithstanding, revenue is recognized for a licensed sale when the performance obligation has been satisfied – transfer of the good to the customer. The purchase order generally provides for payment of contractual amounts within 30 days of transfer of the goods to the customer, 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 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. F- 11 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. 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. We did not incur any research and development costs in the years ended December 31, 2020 and 2019. Income Taxes Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of events that have been included in the consolidated financial statements or income tax returns. Deferred income tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse. In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards. The Company also follows the guidance related to accounting for income tax uncertainties. 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, 2020 and 2019. The Company records revenues on a gross basis, before deduction for income taxes. The Company incurred income tax expenses of approximately $65,000 and $5,000 for the years ended December 31, 2020 and 2019, respectively. 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, since January 1, 2019, 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). F- 12 Earnings (loss) per share Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share calculation. Because the Company incurred losses in all periods covered by the financial statements and would be anti-dilutive, the diluted earnings per share is the same as the basic earnings per share. 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. The Company adopted Topic 842 as of January 1, 2019 using the modified retrospective transition method with no impact on the consolidated financial position or results of operations. 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. Segment reporting The Company reports each material operating segment in accordance with ASC 280, “Segment Reporting.” Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company operates in two operational segments; intellectual property licensing and licensed packaging sales. Licensed packaging sales segment is not reported separately as revenue constitutes less than 10% of the combined revenue of all segments, reported profit is less than the combined profit of all operating segments that did not report a loss, and assets are less than 10% of the combined assets of all operating segments. Certain corporate expenses are not allocated to segments. 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 During the period from 2008, when the Company changed its business to become an intellectual property management company, through 2020, the Company generated a cumulative loss of approximately $21.3 million. The Company’s total current assets were approximately $1.3 million at December 31, 2020. At December 31, 2020, the Company had a working capital deficiency of approximately $8.2 million. The Company requires funding for its operations. Because of the Company’s continuing losses, the working capital deficiency, the uncertainty of future revenue, the Company’s low stock price and the absence of a trading market in its common stock, the ability of the Company to raise funds in equity market or from lenders is severely impaired, and there exists substantial doubt about the ability of the Company 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 in uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F- 13 NOTE 3 – SHORT TERM DEBT AND LONG-TERM LIABILITIES The following table shows the Company’s debt at December 31, 2020 and 2019. December 31, December 31, 2020 2019 Short-term debt: Loans payable – third party  $ 147,000 $ 147,000 Purchase price of patents – current portion 1,500,000 569,386 Net short-term debt 1,647,000 716,386 Loan payable – related party Gross 4,672,810 4,672,810 Accrued Interest - 117,780 Unamortized discount - (189,705 ) Net loans payable – related party $ 4,672,810 $ 4,600,885 Long-term liabilities: Loans payable - SBA Gross $ 170,832 - Accrued Interest 3,560 - Net loans payable SBA 174,392 - Purchase price of patents Gross 790,000 1,725,000 Unamortized discount (131,793 ) (282,503 ) Net purchase price of patents – long-term $ 658,207 $ 1,442,497 Contingent funding liabilities: Gross - 20,378 Net contingent funding liabilities $ - $ 20,378 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 $147,000. During the years ended December 31, 2020 and 2019 the Company paid $0 and $16,000, respectively, against the loans. The loans are payable on demand plus accrued interest at 10% per annum. The loan payable – related party at December 31, 2020 represents the principal amount of the Company’s 10% note to Intelligent Partners, as transferee of the notes issued to United Wireless Holdings, Inc. (“United Wireless”), in the principal amount of $4,672,810 pursuant to a securities purchase agreement (“SPA”) dated October 22, 2015. The note payable to Intelligent Partners, as transferee of United Wireless, has been classified as a current liability as of December 31, 2020. Interest on all notes issued pursuant to the securities purchase agreement, accrued through September 30, 2018, with accrued interest being added to principal on September 30, 2016, 2017 and 2018. Accordingly, the accrued interest is included in loans payable, related party. Since September 30, 2018, the Company has been required to pay interest quarterly. During the year ended December 31, 2020 the Company paid approximately $468,560 in interest on the notes. At September 30, 2020, the notes in the aggregate principal amount of $4,672,810 were outstanding. 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. F- 14 Pursuant to the securities purchase agreement and the related agreements that were executed contemporaneously with the securities purchase agreement: ● The Company granted United Wireless an option to purchase 50,000,000 shares of common stock at varying exercise prices. The option expired unexercised on September 30, 2020. See Note 5. ● The Company agreed to pay United Wireless 15% of the net monetization proceeds from the patents acquired in October 2015 and the intellectual property in the Company’s mobile data and financial data portfolios. The allocation of proceeds resulted in a discount from the note payable of $188,023. In addition, the Company recognized a discount associated with the 15% interest in net monetization proceeds of $450,000. These discounts and debt issuance costs of $60,958, total $698,981, were amortized and charged to interest expense over the life of the notes using the effective interest rate method. As of December 31, 2020 and December 31, 2019, $698,981 and $509,276 of the discount and debt issuance cost have been amortized, respectively. Subsequent to December 31, 2020, the Company entered into a restructure agreement with Intelligent Partners. See Note 11-Subsequent Events for a summary of the restructured agreement with Intelligent Partners. Long term liabilities The loans payable-SBA at December 31, 2020 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. ● 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, 2021. 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. The purchase price of patents at December 31, 2020 represents the non-current portion of minimum payments due under the agreements between: ● CXT Systems, Inc. (“CXT”), a wholly owned subsidiary, 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, $600,000 of the minimum future cumulative distributions were presented as short-term debt based on payment due date. As of December 31, 2020, cumulative distributions did not total $975,000 and CXT did not pay the difference to IV 34/37 within ten days. Non-payment which is not cured within 30 days after written notice from IV 34/37 would constitute an Acceleration Event under the agreement, following which, in addition to any other remedies available under the agreement, all outstanding minimum cumulative distributions would become due and payable within thirty days. As of the date of filing, no such written notice of non-payment has been given by IV 34/37. 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. During the year ended December 31, 2020, CXT paid approximately $194,000 under the agreement. F- 15 ● M-RED Inc. (“M-RED”), a wholly-owned subsidiary, 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 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; with any advances being credited toward future distributions 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. Non-payment which is not cured within 30 days after written notice from IV 113/108 would constitute an Acceleration Event under the agreement, following which, in addition to any other remedies available under the agreement, all outstanding minimum cumulative distributions would become due and payable within thirty days. As of the date of filing, no such written notice of non-payment has been given by IV 113/108. As of December 31, 2020, $600,000 and $900,000 of the minimum future cumulative distributions were presented as long-term and short-term debt, respectively, based on payment due dates. No 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 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. The balance of the purchase price of the patents is reflected as follows: 2020 2019 Current Liabilities: Purchase price of patents, current portion 1,500,000 $ 569,386 Unamortized discount - - Non-current liabilities: Purchase price of patents, long term 790,000 $ 1,725,000 Unamortized discount (131,793 ) (282,503 ) Total current and non-current 2,158,207 2,011,883 Effective interest rate of Amortized over 2 years 9.4-14.5 % 9.6-12.5 % Because the non-current minimum payment obligations are due over the next three years, the Company imputed interest of 10% which was recorded as a discount to the liabilities and amortized through the maturity date. Amortization recorded to interest expense amounted to $245,710 and $159,450 for the years ended December 31, 2020 and 2019, respectively. In December 2018, the Company entered into a funding agreement whereby a third party agreed to provide funds in the amount of $150,000, in support of the structured licensing programs of PIS and M-RED. 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. Our relationship with the above investors meets the criteria in ASC 470-10-25 - Sales of Future Revenues or Various Other Measures of Income (“ASC 470”), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of our contingent obligation to the investor, as of the acquisition date, as long-term debt in our consolidated balance sheets. This initial fair value measurement is based on the perspective of a market participant and includes significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy and are discussed further within Note 2. Our repayment obligations are contingent upon future patent licensing fee revenues generated from the licensing programs. Under ASC 470, amounts recorded as debt shall be amortized under the interest method. The Company made an accounting policy election to utilize the prospective method when there is a change in the estimated future cash flows, whereby a new effective interest rate is determined based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize interest expense for the remaining periods. Under this method, the effective interest rate is not constant, and any change in expected cash flows is recognized prospectively as an adjustment to the effective yield. During periods ended December 31, 2020 and 2019, we paid the third party providing funds in support of the PIS and M-RED structured licensing programs approximately $130,000 and $20,000, respectively, under the funding agreement, satisfying the long-term debt balance in full. For the year ended December 31, 2020, the Company recognized amortization of $95,000. F- 16 NOTE 4 – DERIVATIVE LIABILITIES Because there is not a fixed conversion price, remaining compliant with the reserve requirement under the notes held by Intelligent Partners as transferee of United Wireless, is outside of the control of the Company. As a result of this, the Company has a potential inability to have sufficient available authorized common shares to settle certain outstanding instruments beginning with the date that the reserve requirement went into effect on January 22, 2016. There is no limit on the number of shares issuable under the note, and absent an increase in the stock price or an increase in authorized shares, there are potentially not enough authorized shares to satisfy the exercise of the Company’s options, thus these options qualify as derivative liabilities under ASC Topic 815. On January 22, 2016, the Company reclassified all non-employee warrants and options as derivative liabilities and revalued them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The option expired unexercised on September 30, 2020. Consequently, the derivative liability as of the date the options expired was credited to additional paid in capital. As of December 31, 2020, and December 31, 2019, the aggregate fair value of the outstanding derivative liability was approximately $0 and $595,000, respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model using the following key assumptions during the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 (1) 2019 Volatility 261 % 207-426 % Risk-free interest rate 0.20 % 0.24 % Expected dividends - - % Expected term - 0.75-4.70 (1) Inputs as of valuation on expiration date of September 30, 2020 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, 2020 and 2019: Fair Value Measurements as of December 31, 2020 December 31, 2019 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets None $ - $ - $ - $ - $ - $ - Total assets - - - - - - Liabilities Conversion option derivative liability - - - - - 595,000 Total liabilities $ - $ - $ - $ - $ - $ 595,000 The following table sets forth a reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the fair value hierarchy: Significant Unobservable Inputs (Level 3) as of December 31, 2020 Balance - December 31, 2018 $ 540,000 Change in fair value 55,000 Balance – December 31, 2019 595,000 Change in fair value (275,000 ) Resolution of derivative liability (320,000 ) Balance - December 31, 2020 $ - F- 17 NOTE 5 – STOCKHOLDERS’ EQUITY 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, 2018 50,000,000 0.03 1.75 Granted - - - Cancelled - - - Expired - - - Exercised - - - Balance - December 31, 2019 50,000,000 0.03 0.75 Granted - - - Cancelled - - - Expired 50,000,000 - - Exercised - - - Balance - December 31, 2020 - - - Options exercisable at end of year - - - F- 18 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 2020 2019 (years) Patents $ 5,690,000 $ 5,595,000 6.5 Less: net monetization obligations (509,811 ) (509,811 ) Imputed interest (713,073 ) (713,073 ) Subtotal 4,467,116 4,372,116 Less: accumulated amortization (2,266,157 ) (1,617,762 ) Net value of intangible assets $ 2,200,959 $ 2,754,354 4.45 Intangible assets are comprised of patents with estimated useful lives. The intangible assets at December 31, 2020 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 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; ● 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 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. ● 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. 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. F- 19 The Company assesses intangible assets for any impairment to the carrying values. As of December 31, 2020, management concluded that there was no impairment to the acquired assets. Amortization expense for patents comprised $648,395 and $529,486 for the years ended December 31, 2020 and 2019, respectively. Future amortization of patents is as follows: Year ended December 31, 2021 $ 549,345 2022 495,742 2023 323,071 2024 306,776 2025 and thereafter 526,025 Total $ 2,200,959 The Company granted IV 34/37 a security interest in the patents transferred to the Company as security for the payment of the balance of the purchase price. The security interest of IV 34/37 is senior to the security interest of United Wireless in the proceeds derived from such patents. F- 20 NOTE 7 – NON-CONTROLLING INTEREST The following table reconciles equity attributable to the non-controlling interest related to Quest Packaging Solutions Corporation. December 31, 2020 2019 Balance, beginning of year $ 239 $ 1,758 Net income (loss) attributable to non-controlling interest $ (11 ) $ (1,519 ) Balance, end of year $ 228 $ 239 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, 2020, the Company has generated approximately $8,355,942 of net operating loss (“NOL”) carry forwards 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. Deferred tax asset consisted primarily of the following: December 31, 2020 2019 Net operating loss carry forward $ 2,172,545 $ 1,960,978 Bad debt reserves 17,160 Intangible assets 515,104 331,704 Valuation allowance $ (2,704,809 ) $ (2,292,682 ) Balance, end of year $ - $ - Tax expense consisted primarily of the following: December 31, 2020 2019 Federal $ - $ - State 5,108 234 Foreign 60,255 5,000 Deferred - - Total $ 65,363 $ 5,234 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. The statute of limitations is open for the tax years ending December 31, 2017 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 2020, the Company was subject to foreign source withholding tax of 20.4% in Japan. In 2019, the Company was subject to foreign source withholding tax of 10% in the People’s Republic of China. F- 21 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. See Notes 3 and 6 in connection with transactions with United Wireless. During periods ended December 31, 2020 and 2019, the Company incurred interest expense on the Company’s 10% notes issued to United Wireless and held by Intelligent Partners, an affiliate of United Wireless and a related party, pursuant to the securities purchase agreement dated October 22, 2015. The interest expense was approximately $351,000 and $467,000 for the year ended December 31, 2020 and 2019, respectively. On each of September 30, 2017 and 2018, accrued interest was added to the principal amount of the note. Subsequent to September 30, 2018, the Company is to pay interest quarterly. See Note 10 with respect to the employment agreement with the Company’s president and chief executive officer. During 2020, 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 $464 and $464 for the year ended December 31, 2020 and 2019, respectively. During 2020, 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 $909,000 and $0 for the years ended December 31, 2020 and 2019 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.” 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 we meet or exceed 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, 2020 the percentage was set at 19%. The Company’s president and chief executive officer is the only participant and $57,000 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. F- 22 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. 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 – SUBSEQUENT EVENTS Summary of Agreements with QPRC Finance LLC (“QFL”) On February 22, 2021, we entered into a series of agreements, all dated February 19, 2021,with QFL, a non-affiliated party, 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. 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 pursuant to a restructure agreement (the “Restructure Agreement”) between the Company and Intelligent Partners executed contemporaneously with the closing of the Investment Documents. The payment was made directly from QFL to Intelligent Partners. The terms of the Restructure Agreement are described under “Restructure Agreement.” F- 23 (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, 2031on 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 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) 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. (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. F- 24 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. 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. 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. 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 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, we paid Intelligent Partners $1,750,000 at closing, which we received from QFL and which QFL paid directly to Intelligent Partners, and recognized a further non-interest bearing total monetization proceeds obligation (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”; F- 25 (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 our restricted 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 September 30, 2025. (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 can be generated from the intellectual property covered by the agreement. (v) Pursuant to the MPA-NA, until the TMPO has been paid in full, IPLLC 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, IPLLC’s 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, IPLLC’s 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 IPLLC’s interest in new asset proceeds shall terminate. (vi) 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. (vii) 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. (viii) 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 being issued to Fitton and Carper, and (iii) the 50,000,000 shares of common stock issuable upon exercise of the Restructure Option; (ix) 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. (x) Pursuant to the Board Observation Rights Agreement, until the Total Monetization Proceeds Obligation 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. 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. F- 26 Consulting Agreements On February 22, 2021, the Company entered into advisory service agreement with three consultants – William Gates, Crystal Nicolson and Jeff Toler 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 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: 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. 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/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: a. 10,000,000 shares at an exercise price of $0.01 per share upon the first anniversary 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. Compensatory Arrangements of Certain Officers (i) 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, as described in Items 1.01 and 5.02, to be effective upon the closing of the agreements with QFL. (ii) 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 (iii) 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/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 (iv) 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. Patent Portfolio Acquisition 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 the Company shall make a second installment payment or payments in the aggregate amount of $93,900, which shall be due and payable to PKT from time to time as gross proceeds are realized, paid to PKT with reimbursement to third parties of costs incurred in realizing gross proceeds. Thereafter, PKT is entitled to a percentage of gross proceeds realized, if any. The Company requested and received a capital advance in the amount of the $350,000 initial installment payment from the facility with QFL. F- 27