Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
An investment in our common stock involves
a high degree of risk. You should carefully consider the risks described below together with all of the other information included in
this annual report before making an investment decision with regard to our securities. The statements contained in this annual report
include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from
those set forth in or implied by forward-looking statements. The risks set forth below are not the only risks facing us. Additional risks
and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually
occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock
could decline, and you may lose all or a significant part of your investment.
Risks Relating to our Financial Conditions
and Operations
We have a history of losses and are continuing
to incur losses . During the period from 2008, when we changed our business to become an intellectual property management company,
through December 31, 2021, we generated a cumulative loss of approximately $25.4 million on cumulative revenues of less than $23.3 million,
and our losses are continuing. We did not generate any revenue during the fourth quarter of 2020 or during the first three quarters of
2021. Our total assets were approximately $817,000 at December 31, 2021, of which approximately $539,000 represented the book value of
patents we acquired from AI in October of 2021. At December 31, 2021, we had a working capital deficiency of approximately $8.1 million.
We did not generate any revenue during the
fourth quarter of 2020 or the first three quarters of 2021 . During the fourth quarter of 2020 and the first three quarters of 2021,
we did not generate any revenue. Because we were in default under our loans to Intelligent Partners (as successor to United Wireless),
with Intelligent Partners having the ability to declare a default on our notes in the principal amount of $4,672,810, with the possibility
of our seeking protection under the Bankruptcy Act, we ceased our monetization activities, since no counsel would represent us on a contingent
basis in view of the default and possible bankruptcy, and devoted our efforts in negotiating the agreements with QFL and Intelligent Partners.
We resumed our monetization activities following in February 2021 after we entered into our agreements with QFL and Intelligent Partners.
However, the intellectual property monetization cycle is lengthy and may be unsuccessful. Monetization activities initiated may take several
quarters to generate revenues if ever.
Our independent auditors have included a going
concern qualification in their report on our financial statements for the year ended December 31, 2021 . Because of our history of
losses, deficiency in stockholders’ equity, working capital deficiency and the uncertainty of generating revenues in the future,
our independent auditors have included a going concern qualification in their report on our financial statements for the year ended December
31, 2021.
We require significant funding in order to
develop our business . Our business requires substantial funding to evaluate and acquire intellectual property rights and to develop
and implement programs to monetize our intellectual property rights, including the prosecution of any litigation necessary to enable us
to monetize our intellectual property rights. Our failure to develop and implement these programs could both jeopardize our relationships
under our existing agreements and could inhibit our ability to generate new business, either through the acquisition of intellectual property
rights or through exclusive management agreements. We cannot be profitable unless we are able to obtain the funding necessary to develop
our business, including litigation to monetize our intellectual property. Although we have an agreement with QFL which provides a funding
line to acquire and monetize intellectual property rights, QFL must approve any intellectual property we acquire and, if QFL does not
fund an intellectual property acquisition, we may not be able to acquire and monetize the intellectual property. We cannot assure you
that we will be able to obtain necessary funding or to develop our business.
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The terms of our agreements with QFL and
Intelligent Partners may make it difficult for us to generate cash flow from our operations . Although we have an agreement with QFL
pursuant to which QFL agreed to make available to us a financing facility of (i) up to $25,000,000 for the acquisition of mutually agreed
patent rights that the Company intends to monetize, of which we have received $2,210,000 as of March 15, 2022; (ii) up to $2,000,000 for
operating expenses from which the Company may, at its discretion, draw up to $200,000 per calendar quarter, of which we have drawn down
$1,200,000 as of March 15, 2022, and (iii) $1,750,000 which was used to fund the cash payment portion of the restructure of our obligations
to Intelligent Partners. Pursuant to the QFL agreement, QFL receive all proceeds payable to us from the monetization of those patents
which have been financed by QFL until QFL has received its negotiated rate of return, then we and QFL share equally in the proceeds from
monetization until QFL has received its investment return and thereafter we receive all of the net proceeds. Pursuant to our restructure
agreement with Intelligent Partners, we have an obligation to pay TMPO totaling $2,805,000. Under our amended monetization proceeds agreements
with Intelligent Partners, we pay Intelligent Partners 60% of the net monetization proceeds from associated intellectual property portfolios.
Further, until we have paid Intelligent Partners a total of $2,805,000 under all of the monetization proceeds agreements, for net proceeds
between $0 and $1,000,000 we are to pay Intelligent Partners 10% of the net proceeds realized from new assets acquired by us, provided,
that, if, in any calendar quarter, our net proceeds realized exceed $1,000,000, Intelligent Partner’s entitlement for that quarter
shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000, and if in the same calendar quarter,
net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter shall increase to 50% on the portion of net proceeds
in excess of $3,000,000. These payments come from our share of the proceeds after QFL has recovered its negotiated rate of return. In
these agreements, the monetization proceeds is determined after payment of contingent legal fees and certain other expenses, including
payments due by us to as part of the purchase price for intellectual property rights. We cannot assure you that, as a result of these
provisions, that we will generate any meaningful cash flow from the intellectual property we acquire. If we do not generate sufficient
cash flow from our monetization activities, we may not be able to fund our operations or continue in business.
Our business may be impaired by the effects
of the COVID-19 pandemic and the effects of the response to the pandemic . Although we do not manufacture or sell products, the COVID-19
pandemic and the work shutdown imposed in the United States and other countries to limit the spread of the virus can have a negative impact
on our business. Our revenue is generated almost exclusively from license fees generated from litigation seeking damages for infringement
of our intellectual property rights. The work shutdown affected the court system courts operating on a reduced schedule. As a result,
even though many court are operating on a near normal schedule, patent infringement actions are likely to be lower priority items in allocation
of court resources, with the effect that deadlines are likely to be postponed which delays may give defendants an incentive to delay negotiations
or offer a lower amount than they might otherwise accept. In addition, the effect of the COVID-19 and new variants and subvriants the
public response may adversely affect the financial condition and prospects of defendants and potential defendants, which would make it
less likely that they would be willing to settle our claim.
The COVID-19 pandemic and the response to limit
the spread of the infection may affect the financial condition of financing sources and the willingness of potential financing sources
to provide funding for our litigation. In addition, these factors may affect a law firms’ ability and willingness to provide us
with legal services on a contingent or partial contingent and may result in the impairment or discontinuation of business of or the filing
of a petition under the Bankruptcy Act by or against any defendant or potential defendant.
Further, to the extent that holders of intellectual
property rights see these factors impacting our ability to generate revenue from their intellectual property, they may be reluctant to
sell intellectual property to us on terms which are acceptable to us.
We are dependent upon our chief executive officer .
We are dependent upon Jon Scahill, our chief executive officer and president and sole full-time employee, for all aspects of our business
including locating, evaluating and negotiating and performing due diligence with respect to intellectual property rights from the owners,
managing our intellectual property portfolios, engaging in licensing activities and monetizing the rights through licensing and managing
and monitoring any litigation with respect to our intellectual property as well as defending any actions by potential licensees seeking
a declaratory judgment that they do not infringe. The loss of Mr. Scahill would materially impair our ability to conduct our business.
Although we have an employment agreement with Mr. Scahill, the employment agreement does not ensure that Mr. Scahill will remain with
us.
Any equity funding we obtain may result in
significant dilution to our stockholders . Because of our financial position, our continuing losses and our negative working capital
from operations, we do not expect that we will be able to obtain any debt financing for our operations. Our stock price has generally
been trading at a price which is less than $0.02 per share for more than the past two years. As a result, it will be very difficult for
us to raise funds in the equity markets. However, in the event that we are able to raise funds in the equity market, the sale of shares
would result in significant dilution to the present stockholders, and even a modest equity investment could result in the issuance of
a very significant number of shares.
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Risks Relating to Monetizing our Intellectual
Property Rights
We may not be able to monetize our intellectual
property portfolios . Although our business plan is to generate revenue from our intellectual property portfolios, we have not been
successful in generating any significant positive cash flow from our portfolios, we have not generated any revenues from several of our
intellectual property portfolios and we have ceased allocating resources toward the monetization of several of our portfolios. We cannot
assure you that we will be able to generate any significant revenue from our existing portfolios or that we will be able to acquire new
intellectual property rights that will generate significant revenue.
If we are not successful in monetizing our
portfolios, we may not be able to continue in business . Although we have ownership of some of our intellectual property, we also license
the rights pursuant to agreements with the owners of the intellectual property. If we are not successful in generating revenue for those
parties who have an interest in the results of our efforts, those parties may seek to renegotiate the terms of our agreements with them,
which could both impair our ability to generate revenue from our intellectual property and make it more difficult for us to obtain rights
to new intellectual property rights. If we continue to be unable to generate revenue from our existing intellectual property portfolios
and any new portfolios we may acquire, we may be unable to continue in business.
If we are not successful in patent litigation,
the defendants may seek to have the court award attorneys’ fees to them against us which could result in the bankruptcy of the plaintiff
subsidiary and may result in a default under our agreement QFL . The United States patent laws provide that “the court in exceptional
cases may award reasonable attorney fees to the prevailing party.” Although the patents are owned by our subsidiaries and any judgment
would be awarded against the subsidiaries, the subsidiaries have no assets other than the patent rights. Our funding sources for our patent
litigation do not provide for the funding source to pay any judgment against us. Thus, if any defendants obtain a judgment against one
of our subsidiaries, they may seek to enforce their judgment against the patents owned by the subsidiary or seek to put the subsidiary
into bankruptcy and acquire the patents in the bankruptcy proceeding. As a result, it is possible that an adverse verdict in a petition
for legal fees could result in the loss of the patents owned by the subsidiary and a default under our agreement with QFL.
Our inability to acquire intellectual property
portfolios will impair our ability to generate revenue and develop our business . We do not have the personnel to develop patentable
technology by ourselves. Thus, we need to depend on acquiring rights to intellectual property and intellectual property portfolios from
third parties on an ongoing basis. In acquiring intellectual property rights, there are delays in (i) identifying the intellectual property
which we may want to acquire, (ii) negotiating an agreement with the owner or holder of the intellectual property rights, and (iii) generating
revenue from those intellectual property rights which we acquire. During these periods, we will continue to incur expenses with no assurance
that we will generate revenue. We currently hold intellectual property portfolios from which we have not generated any revenue to date,
and we cannot assure you that we will generate revenue from our existing intellectual property portfolios or any additional intellectual
properties which we may acquire.
We may be unable to enforce our intellectual
property rights unless we obtain third party funding . Because of the expense of litigation and our lack of working capital, we may
be unable to enforce our intellectual property rights unless we obtain the agreement of a third party to provide funding in support of
our litigation. We cannot assure you that QFL or any other funding source provide us the any necessary funding, and the failure to obtain
such funding may impair our ability to monetize our intellectual property portfolio or continue in business.
Because we need to rely on third-party funding
sources to provide us with funds to enforce our intellectual property rights we are dependent upon the perception by potential funding
sources of the value of our intellectual property . Because we do not have funds to pursue litigation to enforce our intellectual property
rights, we are dependent upon the valuation which potential funding sources, which currently is QFL, give to our intellectual property
or any intellectual property we may acquire. In determining whether to provide funding for intellectual property litigation, the funding
sources need to make an evaluation of the strength of our patents, the likelihood of success, the nature of the potential defendants and
a determination as to whether there is a sufficient potential recovery to justify a significant investment in intellectual property litigation.
Typically, such funding sources receive a percentage of the recovery after litigation expenses, and seek to generate a sufficient return
on investment to justify the investment. Under our agreement with QFL, QFL is allocated all of the net proceeds (after allowable expenses)
until it has received a negotiated return. Unless QFL or any other funding source believes that it will generate a sufficient return on
investment, it will not fund litigation. If QFL does not fund our acquisition or monetization of intellectual property we propose to acquire,
we cannot assure you that we will be able to negotiate funding agreements with third party funding sources on terms reasonably acceptable
to us, if at all. Because of our financial condition, we may only be able to obtain funding on terms which are less favorable to us than
we would otherwise be able to obtain.
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Although we have a funding agreement with QFL,
there is no assurance that we QFL will provide funding for portfolios we are looking to acquire or that we will generate revenue from
any funded litigation . Although the funding source makes its evaluation as to the likelihood of success, patent litigation is very
uncertain, and we cannot assure you that, we will obtain litigation funding or that, if we obtain litigation funding, we will be successful
or that any recovery we may obtain will generate any significant positive cash flow from operations for us.
Because QFL and Intelligent Partners hold a
security interest in almost all of our intellectual property and the proceeds from our intellectual property, we may not be able to raise
funds through a debt financing . Pursuant to our agreements with QFL and Intelligent Partners, we granted them a security interest
in the stock of our subsidiaries that hold the intellectual property acquired from Intellectual Ventures and in the proceeds from the
monetization of intellectual property acquired from Intellectual Ventures and our mobile data and financial data portfolios. The inability
to grant a security interest in these assets to a new lender would materially impair our ability to obtain debt financing for our operations,
and may also impair our ability to obtain financing to acquire additional intellectual property rights.
Because of our financial condition and our
having generated a loss from operations in 2021 and 2020 from our existing portfolios, we may not be able to obtain intellectual property
rights to the most advanced technologies . In order to generate meaningful revenues from intellectual property rights, we need to be
able to identify, negotiate rights to and offer technologies for which there is a developing market. Because of our financial condition
and the terms under which we obtain financing for our litigation, we may be unable to negotiate rights to technology for which there which
will be a strong developing market, or, if we are able to negotiate agreements for such intellectual property, the terms of our purchase
or license may not be favorable to us. Accordingly, we cannot assure you that we will be able to acquire intellectual property rights
to the technology for which there is a strong market demand.
Potential acquisitions may present risks, and
we may be unable to achieve the financial or other goals intended at the time of any potential acquisition . Our ability to grow depends,
in large part, on our ability to acquire interests in intellectual property, including patented technologies, patent portfolios, or companies
holding such patented technologies and patent portfolios. Accordingly, we intend to engage in acquisitions to expand our intellectual
property portfolios and we intend to continue to explore such acquisitions. Such acquisitions are subject to numerous risks, including
the following:
●
our failure to have sufficient funding to enable us to make the acquisition, together with the terms on which such funding is available, if at all;
●
our failure to have sufficient personal to satisfy the seller that we have the personnel to monetize the assets we propose to acquire;
●
dilution to our stockholders to the extent that we use equity in connection with any acquisition;
●
our inability to enter into a definitive agreement with respect to any potential acquisition, or if we are able to enter into such agreement, our inability to consummate the potential acquisition;
●
difficulty integrating the operations, technology and personnel of the acquired entity;
●
our inability to achieve the anticipated financial and other benefits of the specific acquisition;
●
difficulty in maintaining controls, procedures and policies during the transition and monetization process;
●
diversion of our management’s attention from other business concerns, especially considering that we have only one full-time employee/officer who is responsible for performing due diligence, negotiating agreements, negotiating funding and implementing a monetization program; and
●
our failure, in our due diligence process, to identify significant issues, including issues with respect to patented technologies and intellectual property portfolios, and other legal and financial contingencies.
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If we are unable to manage these risks and other
risks effectively as part of any acquisition, our business could be adversely affected.
Our acquisition of intellectual property rights
may be time consuming, complex and costly, which could adversely affect our operating results . Acquisitions of patent or other intellectual
property assets, which are and will be critical to the development of our business, are often time consuming, complex and costly to consummate.
We may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily
negotiated. As a result, we expect to incur significant operating expenses and may be required to raise capital during the negotiations
even if the acquisition is ultimately not consummated. Even if we are able to acquire particular intellectual property assets, there is
no guarantee that we will generate sufficient revenue related to those intellectual property assets to offset the acquisition costs. We
may also identify intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur
significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any intellectual
property assets or, if consummated, proves to be unprofitable for us. These higher costs could adversely affect our operating results.
If we acquire technologies that are in the
early stages of market development, we may be unable to monetize the rights we acquire . We may acquire patents, technologies and other
intellectual property rights that are in the early stages of adoption in the commercial, industrial and consumer markets. Demand for some
of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which companies may adopt our intellectual
property in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will
have value that we can monetize. It may also be necessary for us to develop additional intellectual property and file new patent applications
as the underlying commercial market evolves, as a result of which we may incur substantial costs with no assurance that we will ever be
able to monetize our intellectual property.
Our intellectual property monetization cycle
is lengthy and costly and may be unsuccessful . We expect to incur significant marketing, legal and sales expenses prior to entering
into monetization events that generate revenue and cash flow from operations for us. We will also spend considerable resources educating
potential licensees on the benefits of entering into an agreement with us that may include a non-exclusive license for future use of our
intellectual property rights. Thus, we may incur significant losses in any particular period before any associated revenue stream begins.
If our efforts to convince potential licensees of the benefits of a settlement arrangement are unsuccessful, we may need to continue with
the litigation process or other enforcement action to protect our intellectual property rights and to realize revenue from those rights.
We may also need to litigate to enforce the terms of existing agreements, protect our trade secrets, or determine the validity and scope
of the proprietary rights of others. Enforcement proceedings are typically protracted and complex. The costs are typically substantial,
and the outcomes are unpredictable. Enforcement actions will divert our managerial, technical, legal and financial resources from business
operations.
We may not be successful in obtaining judgments
in our favor . We have commenced litigation seeking to monetize our intellectual property portfolios and it will be necessary for us
to commence ligation in the future. All litigation is uncertain, and a number of the actions we commenced have been dismissed by the trial
court. We cannot assure you that any litigation will be decided in our favor or that, if damages are awarded or a license is negotiated,
that we will generate any significant revenue from the litigation or that any recovery may be allocated to counsel and third party funding
source which may result in little if any revenue to us.
Our financial condition may cause both intellectual
property rights owners and potential licensees to believe that we do not have the financial resources to commence and prosecute litigation
for infringement . Because of our financial condition, both intellectual property rights owners and potential licensees may believe
that we do not have the ability to commence and prosecute sustained and expensive litigation to protect our intellection rights with the
effect that (i) intellectual property rights owners may be reluctant to grant us rights to their intellectual property and (ii) potential
licensees may be less inclined to pay for license rights from us or settle any litigation we may commence on terms which generate any
meaningful monetization.
Any patents which may be issued to us pursuant
to patent applications which we filed or may file may fail to give us necessary protection . We cannot be certain that patents will
be issued as a result of any pending or future patent applications, or that any of our patents, once issued, will provide us with adequate
protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries,
we cannot be certain that we will be the first to make additional new inventions or to file patent applications covering those inventions.
It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require
us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those
patents that we may acquire, our continued rights will depend on meeting any obligations to the seller and we may be unable to do so.
Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss of our investments in such activities,
which would have a material adverse effect on us.
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The provisions of Federal Declaratory Judgment
Act may affect our ability to monetize our intellectual property . Under the Federal Declaratory Judgment Act, it is possible for a
party who we consider to be infringing upon our intellectual property to commence an action against us seeking a declaratory judgment
that such party is not infringing upon our intellectual property rights. In such a case, the plaintiff could choose the court in which
to bring the action and we would be the defendant in the action. Common claims for declaratory judgment in patent cases are claims of
non-infringement, patent invalidity and unenforceability. Although the commencement of an action requires a claim or controversy, a court
may find a letter from us to the alleged infringer seeking a royalty for the use of our intellectual property rights to form the basis
of a controversy. In such a case, the plaintiff, rather than we, would choose the court in which to bring the action and the timing of
the action. In addition, when we commence an action as plaintiff, we may be able to enter into a contingent fee arrangement with counsel,
it is possible that counsel may be less willing to accept such an arrangement if we are the defendant. Further, we would not have the
opportunity of choosing against which party to bring the action. An adverse decision in a declaratory judgment action could significantly
impair our ability to monetize the intellectual property rights which are the subject of the litigation. We have been a defendant in one
declaratory judgment action, which resulted in a settlement. We cannot assure you that potential infringers will not be able to use the
Declaratory Judgment Act to reduce our ability to monetize the patents that are the subject of the action.
A 2014 Supreme Court decision could significantly
impair business method and software patents . In June 2014, the United States Supreme Court, in Alice v. CLS Bank , struck down
patents covering a computer-implemented scheme for mitigating “settlement risk” by using a third party intermediary, holding
the patent claims to be ineligible as being drawn to a patent-ineligible abstract idea. The courts have been dealing for many years over
what business methods are patentable. We cannot predict the extent to which the decision in Alice as well as prior Supreme Court
decisions dealing with patents, will be interpreted by courts. To the extent that the Supreme Court decision in Alice gives businesses
reason to believe that business model and software patents are not enforceable, it may become more difficult for us to monetize patents
which are held to be within the ambit of the patents before the Supreme Court in Alice and for us to obtain counsel willing to
represent us on a contingency basis. As a result, the decision in Alice could materially impair our ability to obtain patent rights
and monetize those which we do obtain.
Legislation, regulations or rules related to
obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue . We may apply for
patents and may spend a significant amount of resources to enforce those patents. If legislation, regulations or rules are implemented
either by Congress, the United States Patent and Trademark Office, or the courts that impact the patent application process, the patent
enforcement process or the rights of patent holders, these changes could negatively affect our expenses and revenue. For example, new
rules regarding the burden of proof in patent enforcement actions could significantly both increase the cost of our enforcement actions
and make it more difficult to sign licenses without litigation, changes in standards or limitations on liability for patent infringement
could negatively impact our revenue derived from such enforcement actions, and any rules requiring that the losing party pay legal fees
of the prevailing party could also significantly increase the cost of our enforcement actions. United States patent laws were amended
with the enactment of the Leahy-Smith America Invents Act, or the America Invents Act, which took effect on March 16, 2013. The America
Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding
the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation.
For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood
that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities.
The America Invents Act and its implementation increases the uncertainties and costs surrounding the enforcement of our patented technologies,
which could have a material adverse effect on our business and financial condition. In addition, the U.S. Department of Justice has conducted
reviews of the patent system to evaluate the impact of patent assertion entities on industries in which those patents relate. It is possible
that the findings and recommendations of the Department of Justice could impact the ability to effectively license and enforce standards-essential
patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.
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Proposed legislation may affect our ability
to conduct our business . There are presently pending or proposed a number of laws which, if enacted, may affect the ability of companies
such as us to generate revenue from our intellectual property rights. Typically, these proposed laws cover legal actions brought by companies
which do not manufacture products or supply services but seek to collect licensing fees based on their intellectual property rights and,
if they are not able to enter into a license, to commence litigation. Although a number of such bills have been proposed in Congress,
we do not know which, if any, bills will be enacted into law or what the provisions will be and, therefore, we cannot predict the effect,
if any, that such laws, if passed by Congress and signed by the president, would provide. However, we cannot assure you that legislation
will not be enacted which would impair our ability to operate by making it more difficult for us to commence litigation against a potential
licensee or infringer. To the extent that an alleged infringer believes that we will not prevail in litigation, it would be more difficult
to negotiate a license agreement without litigation.
The unpredictability of our revenues may harm
our financial condition . Our revenues from licensing have typically been lump sum payments entered into at the time of the license,
which may be in connection with the settlement of litigation, and not from licenses that pay an ongoing royalty. Due to the nature of
the licensing business and uncertainties regarding the amount and timing of the receipt of license and other fees from potential infringers,
stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the
growth rates of potential licensees and certain other factors, our revenues, if any, may vary significantly from quarter to quarter, which
could make our business difficult to manage, adversely affect our business and operating results, cause our quarterly results to fall
below market expectations and adversely affect the market price of our common stock.
Our success depends in part upon our ability
to retain the qualified legal counsel to represent us in patent enforcement litigation . The success of our licensing business may
depend upon our ability to retain the qualified legal counsel to prosecute patent infringement litigation. As our patent enforcement actions
increase, it will become more difficult to find the preferred choice for legal counsel to handle all of our cases because many of these
firms may have a conflict of interest that prevents their representation of us or because they are not willing to represent us on a contingent
or partial contingent fee basis.
Our reliance on representations, warranties
and opinions of third parties may expose us to certain material liabilities . From time to time, we rely upon the representations and
warranties of third parties, including persons claiming ownership of intellectual property rights, and opinions of purported experts.
In certain instances, we may not have the opportunity to independently investigate and verify the facts upon which such representations,
warranties and opinions are made. By relying on these representation, warranties and opinions, we may be exposed to liability in connection
with the licensing and enforcement of intellectual property and intellectual property rights which could have a material adverse effect
on our operating results and financial condition.
In connection with patent enforcement actions,
counterclaims may be brought against us and a court may rule against us in counterclaims which may expose us and our operating subsidiaries
to material liabilities . In connection with patent enforcement actions, it is possible that a defendant may file counterclaims against
us or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing
standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions
against us or our operating subsidiaries or award attorney’s fees and/or expenses to the counterclaiming defendant, which could
be material, and if we or our operating subsidiaries are required to pay such monetary sanctions, attorneys’ fees and/or expenses,
such payment could materially harm our operating results, our financial position and our ability to continue in business.
Trial judges and juries may find it difficult
to understand complex patent enforcement litigation, and as a result, we may need to appeal adverse decisions by lower courts in order
to successfully enforce our patents . It is difficult to predict the outcome of patent enforcement litigation at the trial level. It
is often difficult for juries and trial judges to understand complex, patented technologies, and, as a result, there is a higher rate
of successful appeals in patent enforcement litigation than more standard business litigation. Regardless of whether we prevail in the
trial court, appeals are expensive and time consuming, resulting in increased costs and delayed revenue, and attorneys may be less likely
to represent us in an appeal on a contingency basis especially if we are seeking to appeal an adverse decision. Although we may diligently
pursue enforcement litigation, we cannot predict the decisions made by juries and trial courts.
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More patent applications are filed each year
resulting in longer delays in getting patents issued by the United States Patent and Trademark Office . We hold a number of pending
patents and may file or acquire rights to additional patent applications. We have identified a trend of increasing patent applications
each year, which we believe is resulting in longer delays in obtaining approval of pending patent applications. The application delays
could cause delays in recognizing revenue, if any, from these patents and could cause us to miss opportunities to license patents before
other competing technologies are developed or introduced into the market.
U.S. Federal courts are becoming more crowded,
and, as a result, patent enforcement litigation is taking longer . Patent enforcement actions are almost exclusively prosecuted in
federal district courts. In May 2017, the United States Supreme Court, in TC Heartland v. Kraft Foods Groups Brands , held that
a corporate defendant may be sued either in its state of incorporation, or where it has committed acts of infringement and has a regular
and established place of business. To the extent that the Supreme Court decision in TC Heartland concentrates patent litigation
in districts within states popular for business incorporation, such as the Federal District Court for the District of Delaware, such courts
may become increasingly crowded. Federal trial courts that hear patent enforcement actions also hear criminal and other civil cases. Criminal
cases always take priority over patent enforcement actions. As a result, it is difficult to predict the length of time it will take to
complete any enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings,
and, as a result, we believe that the risk of delays in patent enforcement actions will have a significant effect on our business in the
future unless this trend changes.
Any reductions in the funding of the United
States Patent and Trademark Office could have an adverse impact on the cost of processing pending patent applications and the value of
those pending patent applications . Our primary assets are our patent portfolios, including pending patent applications before the
United States Patent and Trademark Office. The value of our patent portfolios is dependent upon the issuance of patents in a timely manner,
and any reductions in the funding of the United States Patent and Trademark Office could negatively impact the value of our assets. Further,
reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the United States
Patent and Trademark Office, causing an unexpected increase in our expenses.
The rapid development of technology may impair
our ability to monetize intellectual property that we own . In order for us to generate revenue from our intellectual property, we
need to offer intellectual property that is used in the manufacture or development of products. Rapid technological developments have
reduced the market for products using less advanced technology. To the extent that technology develops in a manner in which our intellectual
property is not a necessary element or to the extent that others design around our intellectual property, our ability to license our intellectual
property portfolios or successfully prosecute litigation will be impaired. We cannot assure you that we will have rights to intellectual
property for most advanced technology or that there will be a market for products which require our technology.
The intellectual property management business
is highly competitive . A large number of other companies seek to obtain rights to new intellectual property and to market existing
intellectual property. Most of these companies have significantly both greater resources that we have and industry contacts which place
them in a better position to generate new business. Further, our financial position, our lack of executive personnel and our inability
to generate revenue from our portfolio can be used against us by our competitors. We cannot assure you that we will be successful in obtaining
intellectual property rights to new developing technologies.
As intellectual property enforcement litigation
becomes more prevalent, it may become more difficult for us to voluntarily license our intellectual property . We believe that
the more prevalent intellectual property enforcement actions become, the more difficult it will be for us to voluntarily license our
intellectual property rights, and we generally have not been successful in negotiating licenses without litigation. As a result, we may
need to increase the number of our intellectual property enforcement actions to cause infringing companies to license the intellectual
property or pay damages for lost royalties.
Weak global economic conditions may cause potential
licensees to delay entering into licensing agreements, which could prolong our litigation and adversely affect our financial condition
and operating results . Our business depends significantly on strong economic conditions that would encourage potential licensees to
enter into license agreements for our intellectual property rights. The United States and world economies have recently experienced weak
economic conditions and the recent Russian invasion in Ukraine has exacerbated these conditions, including those resulting from inflation
and supply line issues. Uncertainty about global economic conditions poses a risk as businesses may postpone spending in response to tighter
credit, negative financial news and declines in income or asset values. This response could have a material adverse effect on the willingness
of parties infringing on our assets to enter into settlements or other revenue generating agreements voluntarily.
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If we are unable to adequately protect our
intellectual property, we may not be able to compete effectively . Our ability to compete depends in part upon the strength
of the intellectual property and intellectual property rights that we own or may hereafter acquire in our technologies, brands and content
and our ability to protect such intellectual property rights. We rely on a combination of patent and intellectual property laws and agreements
to establish and protect our patent, intellectual property and other proprietary rights. The efforts we take to protect our patents, intellectual
property and other proprietary rights may not be sufficient or effective at stopping unauthorized use of our patents, intellectual property
and other proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or
cost-effective in every country in which we have rights. There may be instances where we are not able to protect or utilize our patent
and other intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our patent assets and intellectual
property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our
business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets
and produce or sell the same or similar products as those covered by our intellectual property rights. In addition, protecting our intellectual
property and intellectual property rights is expensive and diverts our critical and limited managerial resources. If any of the foregoing
were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results
could be impaired. Commencing legal proceedings to enforce our intellectual property rights is burdensome and expensive. In addition,
our intellectual property rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. We also rely
on trade secrets and contract law to protect some of our intellectual property rights. We will enter into confidentiality and invention
agreements with our employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect
our right to our un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and know-how.
Risks Concerning our Common Stock
There is a limited market for our common stock,
which may make it difficult for you to sell your stock . Our common stock trades on the OTCQB market under the symbol “QPRC.”
The OTCQB market is not a national securities exchange and does not provide the benefits to stockholders which a national exchange provides.
Furthermore, according to the OTC Markets website, the OTCQB “is for early-stage and developing U.S. and international companies.
To be eligible, companies must be current in their reporting and undergo an annual verification and management certification process.
Companies must meet $0.01 bid test and may not be in bankruptcy.” There is a limited trading market for our common stock and our
common stock has frequently traded for less than $0.02. From August 28, 2020 to May 7, 2021 our common stock was delisted from the OTCQB
and traded on the OTC Pink because our stock price fell below $0.01 per share for more than 30 consecutive trading days. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common
stock to sell our common stock, or the prices at which holders may be able to sell our common stock. Further, because of the thin float,
the reported bid and asked prices may have little relationship to the price you would pay if you wanted to buy shares or the price you
would receive if you wanted to sell shares.
Because our common stock is a penny stock,
you may have difficulty selling our common stock in the secondary trading market . Our common stock fits the definition of a penny
stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny
stocks. The SEC rules may have the effect of reducing trading activity in our common stock making it more difficult for investors to purchase
and sell their shares. The SEC’s rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver
the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature
and level of risks in the penny stock market. The broker or dealer must also disclose the aggregate amount of any compensation received
or receivable by him in connection with such transaction prior to consummating the transaction. In addition, the SEC’s rules also
require a broker or dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction before completion of the transaction. The existence of the SEC’s
rules may result in a lower trading volume of our common stock and lower trading prices. Further, some broker-dealers will not process
transactions in penny stocks. Many brokers do not trade in penny stocks and stock that are not listed on a stock exchange.
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Our lack of internal controls over financial
reporting may affect the market for and price of our common stock . Our disclosure controls and our internal controls over financial
reporting are not effective. Since we became engaged in the intellectual property management business in 2008, we have not had the financial
resources or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to
be able to implement financial controls. Our continued poor financial condition together with the fact that we have one full time employee,
who is both our chief executive officer and chief financial officer, makes it difficult for us to implement a system of internal controls
over financial reporting, and we cannot assure you that we will be able to develop and implement the necessary controls. The absence of
internal controls over financial reporting may inhibit investors from purchasing our shares and may make it more difficult for us to raise
debt or equity financing.
Our lack of a full-time chief financial officer
could affect our ability to develop financial controls, which could affect the market price for our common stock . We do not have a
full-time chief financial officer. At present, our chief executive officer, who does not have an accounting background, is also acting
as our chief financial officer. We do not anticipate that we will be able to hire a qualified chief financial officer unless our financial
condition improves significantly. The lack of an experienced chief financial officer, together with our lack of internal controls, may
impair our ability to raise money through a debt or equity financing, the market for our common stock and our ability to enter into agreements
with owners of intellectual property rights.
Our stock price may be volatile and your investment
in our common stock could suffer a decline in value . As of the date of this annual report, there has only been limited trading activity
in our common stock. There can be no assurance that any significant market will ever develop in our common stock. Because of the low public
float and the absence of any significant trading volume, the reported prices may not reflect the price at which you would be able to sell
shares if you want to sell any shares you own or buy shares if you wish to buy share. Further, stocks with a low public float may be more
subject to manipulation than a stock that has a significant public float. The price may fluctuate significantly in response to a number
of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks
described above and general market and economic conditions:
● our
low stock price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large effect on
the stock price;
● the
effect of the COVID-19 pandemic and the response to the pandemic on the market both generally and on penny stocks;
● the
market’s perception as to our ability to generate positive cash flow or earnings from our intellectual property portfolios;
● changes
in our or securities analysts’ estimate of our financial performance;
● our
ability or perceived ability to obtain necessary financing for operations and for the monetization of our intellectual property rights;
● the
market’s perception of the effects of legislation or court decisions on our business;
● the
market’s perception that a defendant may obtain a judgement against a subsidiary and foreclose on the intellectual property of
the subsidiary, which may result in a default under our agreement with QFL and, even if a default is not claimed, QFL may not provide
financing for us;
● the
effects or perceived effects of the potential convertibility of convertible notes issued by us;
● the
results or anticipated results of litigation by or against us;
● the
anticipated or actual results of our operations;
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● events
or conditions relating to the enforcement of intellectual property rights generally;
● changes
in market valuations of other intellectual property marketing companies;
● any
discrepancy between anticipated or projected results and actual results of our operations;
● the
market’s perception or our ability to continue to make our filings with the SEC in a timely manner;
● actions
by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and
● other
matters not within our control.
Raising funds by issuing equity or convertible
debt securities could dilute the value of the common stock and impose restrictions on our working capital . If we were to raise additional
capital by issuing equity securities, either alone or in connection with a non-equity financing, the value of the then outstanding common
stock could decline. If the additional equity securities were issued at a per share price less than the per share value of the outstanding
shares, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer a dilution
in value with the issuance of such additional shares. Because of the low price of our stock and our working capital deficiency, the dilution
to our stockholders could be significant. We may have difficulty in raising funds through the sale of debt securities because of both
our financial position, the lack of any collateral on which a lender may place a value, and the absence of any history of significant
monetizing of our intellectual property rights. If we are able to raise funds from the sale of debt securities, the lenders may impose
restrictions on our operations and may impair our working capital as we service any such debt obligations.
Our failure to have filed reports with the
SEC may impair the market for and the value of our common stock and may result in liability to us . We did not file reports with the
SEC from 2003 until December 2014. We filed our Form 10-K for the year ended December 31, 2012 on December 15, 2014; our Form 10-K for
the year ended December 31, 2013 on April 10, 2015; and our Form 10-K for the year ended December 31, 2014 on August 18, 2015. Our failure
to have made such filings may affect both the market for our common stock and the value of our common stock as well as the willingness
of investors to purchase our stock. Further, because we did not have current information concerning our business and operations available,
we have potential liability resulting from our failure to have been current in our SEC filings, and the SEC has broad power to take action
against us for our failure to have been in compliance with the reporting requirement of the Securities Exchange Act of 1934. Although
the SEC permits an issuer to file an omnibus 10-K covering the periods for which filings were not made, the SEC is not foreclosed from
seeking enforcement action for our filing delinquencies. Any such action could have a material adverse effect upon us and the market for
and price of our common stock.
Because we have a classified board of directors,
it may be more difficult for a third party to obtain control of us . As a result of the approval by our stockholders of our amended and
restated certificate of incorporation, our board of directors is a classified board, which means that at each annual meeting, the stockholder
will vote for only one-third of the board. A classified board of directors may make it more difficult for a third party to gain control
of us which may affect the opportunity of our stockholders to receive any potential benefit which could be available from a third party
seeking to obtain control over us.
We do not intend to pay any cash dividends
in the foreseeable future . We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our
common stock in the foreseeable future.
ITEM 2. PROPERTIES
We do not own or lease any real property.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
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PART II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.