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Item 1. Financial Statements

2024-08-12 compared with 2024-05-15 · 419 added, 383 removed, 422 unchanged (66% of the section changed)

Financial Statements

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

8 unchanged sentences

Current liabilities

Accounts payable and accrued liabilities ($ 1,378,154 due to related

parties at March 31, 2024 and December 31, 2023)

Accounts payable and accrued liabilities ($ 324,439 and $ 1,378,154 due to related parties at June 30, 2024 and December 31, 2023, respectively)

Loans payable

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Common stock, par value $ 0.00003 per share;

authorized 30,000,000 at March 31, 2024 and December 31, 2023;

5,331,973 shares issued and outstanding at March 31, 2024 and December 31, 2023

authorized 30,000,000 at June 30, 2024 and December 31, 2023;

5,331,973 shares issued and outstanding at June 30, 2024 and December 31, 2023

Additional paid-in capital

13 unchanged sentences

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

Three Months Ended June 30,

Six Months Ended June 30,

Patent licensing fees

Cost of revenue

Cost of revenues

Litigation and licensing expenses

Gross profit (loss)

Operating expenses

1 unchanged sentence

Total operating expenses

Income (loss) from operations

Other expenses

Loss from operations

( 1,510,738 )

Other income (expenses)

Change in fair market value of warrant liability

Interest expense

Total other expenses

Interest expense, net

Total other income (expenses)

Loss before income tax

( 1,169,646 )

( 2,079,011 )

Income tax expense

1 unchanged sentence

$ ( 1,169,646 )

$ ( 878,552 )

$ ( 2,109,011 )

Loss per share - basic and diluted

3 unchanged sentences

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ DEFICIT

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS' DEFICIT

Additional Paid-In

8 unchanged sentences

( 9,483,619 )

Stock-based compensation

( 1,169,646 )

Balances as of June 30, 2023

$ ( 28,298,505 )

$ ( 10,643,293 )

Additional Paid-In

8 unchanged sentences

( 6,661,282 )

Balances as of June 30, 2024

$ ( 24,789,573 )

$ ( 7,108,392 )

See the accompanying notes to the unaudited condensed

1 unchanged sentence

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH

Three Months Ended March 31,

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

Six Months Ended June 30,

Cash flows from operating activities:

10 unchanged sentences

Accounts payable and accrued liabilities

Net cash used in operating activities

( 1,135,946 )

Net cash provided by (used in) operating activities

( 1,097,994 )

Cash flows from investing activities:

6 unchanged sentences

Payment of funding liability

Net cash provided by financing activities

Net increase in cash and cash equivalents

( 1,525,502 )

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

7 unchanged sentences

QUEST PATENT RESEARCH CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS

5 unchanged sentences

All intellectual property acquisition, development, licensing and enforcement

activities are conducted by the Company’s wholly and majority-owned and controlled operating subsidiaries.

The accompanying unaudited condensed

consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.

for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

Accordingly, these interim

financial statements do not include all of the information and notes required by GAAP for complete financial statements.

adjustments (consisting of normal recurring items) necessary to present fairly the Company’s consolidated financial position

have been included.

These interim financial statements should be read in conjunction with the restated consolidated financial

statements and accompanying notes included in amendment no.1 to the Company’s annual report on Form 10-K/A for the year ended

December 31, 2023.

Operating results for the interim periods presented herein are not necessarily indicative of the results

that may be expected for any other interim period or for the entire year.

activities are conducted by the Company’s wholly and majority-owned operating subsidiaries.

The accompanying unaudited condensed consolidated

financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.

(GAAP) for interim financial

information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

Accordingly, these interim financial statements do

not include all of the information and notes required by GAAP for complete financial statements.

All adjustments (consisting of normal

recurring items) necessary to present fairly the Company’s consolidated financial position have been included.

These interim financial

statements should be read in conjunction with the restated consolidated financial statements and accompanying notes included in amendment

no.1 to the Company's annual report on Form 10-K/A for the year ended December 31, 2023.

Operating results for the interim periods

presented herein are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements

of the Company and its wholly owned and majority owned subsidiaries as of March 31, 2024.

The consolidated financial statements include the

accounts and operations of:

of the Company and its wholly owned and majority owned subsidiaries as of June 30, 2024.

The consolidated financial statements include

the accounts and operations of:

Quest Patent Research Corporation

(“The Company”)

Digital IP Advisors Inc.

(wholly owned) (formerly Quest Licensing Corporation (NY))

Quest Licensing Corporation (DE)

(“QLC”) (wholly owned)

Quest Packaging Solutions Corporation

( 90 % owned)

Quest Nettech Corporation (“NetTech”)

( 65 % owned)

Quest Licensing Corporation

(DE) (“QLC”) (wholly owned)

Quest Packaging Solutions

Corporation ( 90 % owned)

Quest Nettech Corporation

(“NetTech”) ( 65 % owned)

Semcon IP, Inc.

6 unchanged sentences

(wholly owned)

Photonic Imaging Solutions Inc.

Photonic Imaging Solutions

(“PIS”) (wholly owned)

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(wholly owned)

Harbor Island Dynamic LLC (“HID”)

(wholly owned)

Harbor Island Dynamic LLC

(“HID”) (wholly owned)

Flash Uplink LLC ("FUL")

2 unchanged sentences

have been eliminated in consolidation.

The non-controlling interests are presented in the

unaudited condensed consolidated balance sheets, separately from equity attributable to the stockholders of the Company.

During the three

months ended March 31, 2024 and 2023, none of the Company’s net loss was attributable to non-controlling interests.

The non-controlling interests are presented in

the unaudited condensed consolidated balance sheets, separately from equity attributable to the stockholders of the Company.

three and six months ended June 30, 2024 and 2023, none of the Company’s net loss was attributable to non-controlling interests.

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.

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.

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dates of three months or less when purchased, to be cash equivalents.

The Company had no cash equivalents as of March 31, 2024 and

The Company had no cash equivalents as of June 30, 2024 and

December 31, 2023.

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 did not record an allowance for credit losses at March 31, 2024 and December 31,

The accounts receivable balance at March 31,

2024 and December 31, 2023 of approximately $ 3,989,000 and $ 3,015,000 , respectively, represent amounts due and payable in connection

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 did not record an allowance for credit losses at June 30,

2024 and December 31, 2023.

The accounts receivable balance at June 30,

2024 and December 31, 2023 of approximately $ 758,000 and $ 3,015,000 , respectively, represents amounts due and payable in connection

with the settlement of patent infringement lawsuits.

The amounts were fully guaranteed by the licensee pursuant to the license agreement.

In April 2024, the Company collected approximately $ 3,000,000 of the March 31, 2024 balance.

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 impact the assets’ ultimate recoverability as prescribed under the guidance related to impairment of

long-lived assets.

Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on

a straight-line basis with the associated patent.

Patents include the cost of patents or patent rights

(collectively “patents”) acquired from third-parties or acquired in connection with business combinations.

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 impact the assets' ultimate recoverability as prescribed under the guidance related

to impairment of long-lived assets.

Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets

and amortized on a straight-line basis with the associated patent.

Patents include the cost of patents or patent

rights (collectively “patents”) acquired from third-parties or acquired in connection with business combinations.

Patent acquisition

6 unchanged sentences

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets with

a finite life, are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property,

Long-lived assets, including intangible assets

with a finite life, are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property,

Plant, and Equipment” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable

4 unchanged sentences

of the asset is recorded.

There were no impairments of long-lived assets for

the three months ended March 31, 2024 and 2023.

There were no impairments of long-lived assets

for the three and six months ended June 30, 2024 and 2023.

Warrant Liability

3 unchanged sentences

the liability is determined at the end of each fiscal period and the period-to-period change in the amount of warrant liability is reflected

as a change in fair market value of warrant liability and is included under other income (expense) in the accompanying consolidated statements

of operations.

as a change in fair market value of warrant liability and is included under 'Other income (expenses)' in the accompanying condensed consolidated

statements of operations.

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.

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

3 unchanged sentences

The fair value hierarchy, based on the three levels

of inputs that may be used to measure fair value are as follows:

of inputs that may be used to measure fair value, is as follows:

Level 1 – Quoted

4 unchanged sentences

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

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.

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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

These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of any negotiated fees,

settlements or judgments awarded.

The Company’s operating subsidiaries may engage

with funding sources that provide financing for patent licensing and enforcement.

These litigation finance firms may be engaged on a non-recourse

basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements or judgments awarded in exchange

for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing and enforcement activities.

The economic terms of the inventor agreements, operating

agreements, contingent legal fee arrangements and litigation financing agreements associated with the patent portfolios owned or controlled

by the Company’s operating subsidiaries, if any, including royalty rates, contingent fee rates and other terms, vary across the

patent portfolios owned or controlled by such operating subsidiaries and are included in cost of revenues as litigation and licensing

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.

The Company’s operating subsidiaries may

retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing

and enforcement activities.

These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of

any negotiated fees, settlements or judgments awarded.

The Company’s operating subsidiaries may

engage with funding sources that provide financing for patent licensing and enforcement.

These litigation finance firms may be engaged

on a non-recourse basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements or judgments awarded

in exchange for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing and enforcement activities.

The economic terms of the inventor agreements,

operating agreements, contingent legal fee arrangements and litigation financing agreements associated with the patent portfolios owned

or controlled by the Company’s operating subsidiaries, if any, including royalty rates, contingent fee rates and other terms, vary

across the patent portfolios owned or controlled by such operating subsidiaries and are included in 'Cost of revenues' as 'Litigation

and licensing expenses' in the accompanying condensed consolidated statements of operations.

Inventor/former owner royalties, payments

to non-controlling interests, contingent legal fees expenses and litigation finance expenses fluctuate period to period, based on the

amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific

patent portfolios with varying economic terms and obligations generating revenues each period.

Inventor/former owner royalties, contingent

legal fees expenses and litigation finance expenses will continue to fluctuate and may continue to vary significantly period to period,

based primarily on these factors.

Revenue Recognition

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is not separately identifiable from other promises to transfer intellectual property rights in the contract.

Since the promised intellectual property rights are

not individually distinct, the Company combined each individual IP right in the contract into a bundle of IP rights that is distinct

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.

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component or consideration payable to the customer in these transactions.

The Company’s revenue for the three months ended March

31, 2024 was generated from licenses pursuant to the settlement of patent infringement lawsuits in the TLL portfolio.

Revenue for the

three months ending March 31, 2023 was generated from licenses pursuant to the settlement of patent infringement lawsuits in the Tyche

and STX portfolios.

The Company's revenue for the three and six months

ended June 30, 2024 was generated from licenses pursuant to the settlement of patent infringement lawsuits in the TLL and Deepwell portfolios.

Revenue for the six months ended June 30, 2023 was generated from licenses pursuant to the settlement of patent infringement lawsuits

in the Tyche and STX portfolios.

Cost of Revenues

2 unchanged sentences

patents and other related expenses.

Cost of revenue does not include expenses related to product development, patent amortization, integration

or support, as these are included in general and administrative expenses.

During the three months ended March 31, 2024, the Company received

a reimbursement for costs expensed in prior periods in the amount of approximately $ 334,000 , resulting in a reduction of litigation and

licensing expenses.

Inventor Royalties, Litigation Funding Fees and

Contingent Legal Expenses.

Cost of revenues does not include expenses related to product development, patent amortization, integration

or support, as these are included in selling, general and administrative expenses.

During the six months ended June 30, 2024 the Company

received a reimbursement for costs expensed in prior periods in the amount of approximately $ 334,000 , resulting in a reduction of litigation

and licensing expenses.

Inventor Royalties, Litigation Funding Fees

and Contingent Legal Expenses.

In connection with the investment in or acquisition

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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

These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of any negotiated fees,

settlements or judgments awarded.

The Company’s operating subsidiaries may engage

with funding sources that specialize in providing financing for patent licensing and enforcement.

These litigation finance firms may be

engaged on a non-recourse basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements or judgments

awarded in exchange for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing and enforcement

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.

The Company did not incur any foreign income tax expense

for the three months ended March 31, 2024.

The Company incurred $ 30,000 of foreign income tax expense for the three months ended March

The Company’s operating subsidiaries may

retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing

and enforcement activities.

These law firms may be retained on a contingent fee basis whereby such law firms are paid a percentage of

any negotiated fees, settlements or judgments awarded.

The Company’s operating subsidiaries may

engage with funding sources that specialize in providing financing for patent licensing and enforcement.

These litigation finance firms

may be engaged on a non-recourse basis whereby such litigation finance firms are paid a percentage of any negotiated fees, settlements

or judgments awarded in exchange for providing funding for legal fees and out of pocket expenses incurred as a result of the licensing

and enforcement activities.

The economic terms of the inventor agreements,

operating agreements, contingent legal fee arrangements and litigation financing agreements associated with the patent portfolios owned

or controlled by the Company’s operating subsidiaries, if any, including royalty rates, contingent fee rates and other terms, vary

across the patent portfolios owned or controlled by such operating subsidiaries.

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.

The Company incurred $ 105,033 and $0 of foreign

income tax expense for the three months ended June 30, 2024 and 2023.

The Company incurred $ 105,033 and $ 30,000 of foreign income tax

expense for the six months ended June 30, 2024 and 2023.

The foreign income tax expense incurred during the three and six months ended

June 30, 2024 primarily relates to the withholding tax in connection with settlements of patent infringement litigations.

Stock-Based Compensation

The Company recognizes stock-based compensation for

employees and non-employees pursuant to ASC 718, “Compensation — Stock Compensation,” which prescribes accounting and

reporting standards for all stock-based payment transactions.

Transactions include incurring liabilities, or issuing or offering to issue

shares, options and other equity instruments.

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 estimated using a Black-Scholes option pricing model.

expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the

requisite service period (usually the vesting period).

The Company recognizes stock-based compensation

for employees and non-employees pursuant to ASC 718, “Compensation — Stock Compensation,” which prescribes accounting

and reporting standards for all stock-based payment transactions.

Transactions include incurring liabilities, or issuing or offering to

issue shares, options and other equity instruments.

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 estimated using a Black-Scholes option pricing

That expense is recognized over the period during which an employee is required to provide services in exchange for the award,

known as the requisite service period (usually the vesting period).

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts,

which at times, may exceed federally insured limits.

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.

Net Income (Loss) Per Share

The Company calculates net income (loss) per

share by dividing income or losses allocated to the Company’s stockholders by the weighted average number of shares of common

stock outstanding for the period.

Diluted weighted average shares is computed using basic weighted average shares plus any

potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method,

except when their effect is anti-dilutive.

Because the Company incurred losses for the three months ended March 31, 2024 and 2023,

potentially dilutive securities would be anti-dilutive, and therefore, the diluted net loss per share is the same as the basic net

loss per share.

The Company’s potentially dilutive securities include 962,463 potential shares of common stock issuable upon

exercise of warrants granted to QPRC Finance LLC (“QFL”) in connection with the Purchase Agreement, described in Note 4,

500,000 shares of common stock issuable upon exercise of stock options granted to Intelligent Partners in connection with the

Restructure Agreement described in Note 4 and 600,000 shares of common stock issuable upon exercise of stock options granted to

officers and consultants.

The Company calculates net income (loss) per share

by dividing income or losses allocated to the Company’s stockholders by the weighted average number of shares of common stock outstanding

for the period.

Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities

outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive.

Because the Company incurred losses for the three and six months ended June 30, 2024 and 2023, potentially dilutive securities would be

anti-dilutive, and therefore, the diluted net loss per share is the same as the basic net loss per share.

The Company’s potentially

dilutive securities include 962,463 potential shares of common stock issuable upon exercise of warrants granted to QPRC Finance LLC ("QFL")

in connection with the Purchase Agreement, described in Note 4, 500,000 shares of common stock issuable upon exercise of stock options

granted to Intelligent Partners in connection with the Restructure Agreement described in Note 4 and 700,000 shares of common stock issuable

upon exercise of stock options granted to officers and consultants.

See Notes 4, 5 and 6.

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 our financial statements.

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 our financial statements.

Going Concern

The Company has an accumulated deficit of approximately $ 24,342,000

and negative working capital of approximately $ 9,965,000 as of March 31, 2024.

Although the Company generated income in 2023, it

incurred a loss for the three months ended March 31, 2024 and it has a history of losses and can give no assurance that it will generate

income in the future.

Because of the Company’s history of losses, its working capital deficiency, the uncertainty of future revenue, its

obligations to Intelligent Partners, QF3, and QFL, the low stock price of the Company’s common stock and the absence of an active trading

market in its common stock and the its failure to have effective internal controls over financial reporting, as reflected in the restatement

of its financial statements for the year ended December 31, 2023, the Company’s ability to raise funds in the equity market or from lenders

is severely impaired.

These conditions, as well as any adverse consequences which would result from the Company’s failure to meet the

continued listing requirements of the OTCQB (see Note 9), raise substantial doubt as to the Company’s ability to continue as a going concern.

The Company’s revenue is generated exclusively from license fees generated from litigation seeking damages for infringement of its intellectual

property rights.

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 is uncertain.

The financial statements do not include any adjustments that might result

from the outcome of this uncertainty.

INTANGIBLE ASSETS

Intangible assets include patents purchased and are

recorded at their acquisition cost.

The Company has an accumulated deficit of $ 24,789,573 and negative working capital of approximately $ 10,248,000 as of June 30, 2024.

Because of the Company's history of losses,

its working capital deficiency, the uncertainty of future revenue, its obligations to Intelligent Partners, QF3, and QFL, the low stock

price of the Company's common stock and the absence of an active trading market in its common stock and its failure to have effective

internal controls over financial reporting, as reflected in the restatement of its financial statements for the year ended December 31,

2023, the Company's ability to raise funds in the equity market or from lenders is severely impaired.

These conditions, as well as any

adverse consequences which would result from the Company's failure to meet the continued listing requirements of the OTCQB (see Note 9),

raise substantial doubt as to the Company's ability to continue as a going concern.

The Company's revenue is generated exclusively from

license fees generated from litigation seeking damages for infringement of its intellectual property rights.

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 is uncertain.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Intangible assets include patents purchased and

are recorded at their acquisition cost.

Intangible assets consisted of the following:

2024 December 31,

Patents $ 6,087,000 $ 6,087,000

Subtotal 6,087,000 6,087,000

accumulated amortization ( 2,743,495 ) ( 2,412,397 )

( 2,579,264 )

( 2,412,397 )

Net value of intangible assets $ 3,343,505 $ 3,674,603

Weighted Average Amortization Period (Years) 5.07 5.47

Intangible assets are comprised of patents with estimated

useful lives.

The intangible assets at March 31, 2024 represent:

Intangible assets are comprised of patents with

estimated useful lives.

The intangible assets at June 30, 2024 represent:

● patents (which were fully amortized at the date of acquisition) acquired in January 2018 pursuant to an

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The useful lives of the patents, at the date of purchase, was approximately 9 - 10 years.

The Company amortizes the costs of intangible assets

over their estimated useful lives on a straight-line basis.

Costs incurred to acquire patents, including legal costs, are also capitalized

as long-lived assets and amortized on a straight-line basis with the associated patent.

The Company assesses intangible assets for any impairment

to the carrying values.

As of March 31, 2024, management concluded that there was no impairment to the intangible assets.

The Company amortizes the costs of intangible

assets over their estimated useful lives on a straight-line basis.

Costs incurred to acquire patents, including legal costs, are also

capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.

The Company assesses intangible assets for any

impairment to the carrying values.

As of June 30, 2024, management concluded that there was no impairment to the intangible assets.

Amortization expense for patents was approximately

$ 167,000 and $ 159,000 for the three months ended March 31, 2024 and 2023, respectively.

$ 167,000 and $ 331,000 for the three and six months ended June 30, 2024, respectively.

Amortization expense for patents was approximately

$ 230,000 and $ 389,000 for the three and six months ended June 30, 2023, respectively.

Amortization expense is included in 'Selling, general

and administration expenses in the accompanying condensed consolidated statement of operations.

and administration expenses' in the accompanying condensed consolidated statements of operations.

Future amortization of intangible assets

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Remainder of 2024

SHORT-TERM DEBT AND LONG-TERM LIABILITIES

SHORT-TERM DEBT AND LONG-TERM

Short-Term Debt

Loans Payable

The loans payable represents demand loans made by

former officers and directors, who are third parties and stockholders, whose holdings were insignificant, at March 31, 2024 and December 31,

The loans payable represents demand loans made

by former officers and directors, who are third parties and stockholders whose holdings were insignificant at June 30, 2024 and December 31,

2023, in the amount of $ 138,000 .

The loans are payable on demand plus accrued interest at 10 % per annum.

Accrued interest at March 31,

Accrued interest at June 30,

2024 and December 31, 2023 was approximately $ 317,000 and $ 310,000 , respectively.

Funding Liabilities

The following table shows the Company’s funding

liabilities to QFL and QF3 at March 31, 2024 and December 31, 2023:

The following table shows the Company’s

funding liabilities to QFL and QF3 at June 30, 2024 and December 31, 2023:

Funding liability – QFL

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Funding Liabilities - QFL

The QFL funding liabilities at March 31, 2024

and December 31, 2023 of $ 1,526,770 and $ 1,525,502 , respectively, represent the principal amount of the Company’s obligations

to QFL pursuant to a purchase agreement (“Purchase Agreement”) dated February 22, 2021 between the Company and QFL, as described

As of March 31, 2024, the Company had made total repayments in the amount of approximately $ 4,877,000 since February 22, 2021.

No repayments were made during the three months ended March 31, 2024.

The obligation to QFL has no repayment term since payment is due

solely from a portion of net proceeds generated from the monetization of the Company’s intellectual property and has been classified as

a current liability as of March 31, 2024 and December 31, 2023.

Accrued interest related to this funding liability as of March 31,

2024 and December 31, 2023 was approximately $ 492,000 and $ 478,000 , respectively.

The Company did not request an operating capital advance

during the three months ended March 31, 2024.

The Company requested and received an operating capital advance in the amount of $ 200,000

from QFL pursuant to the Purchase Agreement during the three months ended March 31, 2023.

The QFL funding liabilities at June 30,

2024 and December 31, 2023 of $ 0 and $ 1,525,502 , respectively, represent the principal amount of the Company’s

obligations to QFL pursuant to a purchase agreement (“Purchase Agreement”) dated February 22, 2021 and amended and

restated on May 2, 2024, between the Company and QFL, as described below.

As of June 30, 2024, the Company had made total

repayments in the amount of approximately $ 6,402,000 since February 22, 2021.

The obligation to QFL has no repayment term since

payment is due solely from a portion of net proceeds generated from the monetization of the Company's intellectual property and was

classified as a current liability as of December 31, 2023.

During the six months ended June 30, 2024 the Company repaid the

full outstanding principal balance of $ 1,525,502 .

Accrued interest related to this funding liability as of June 30, 2024 and

December 31, 2023 was approximately $ 0 and $ 478,000 , respectively.

The Company did not request an operating

capital advance during the three and six months ended June 30, 2024 and no further advances are to be made pursuant to the Purchase

The Company requested and received an operating capital advance in the amount of $ 0 and $ 200,000 from QFL pursuant to the

Purchase Agreement during the three and six months ended June 30, 2023, respectively.

Funding Liabilities - QF3

The QF3 funding liabilities at March 31, 2024

The QF3 funding liabilities at June 30, 2024

and December 31, 2023 of $ 6,634,381 and $ 5,800,000 , respectively, represent the principal amount of the Company’s obligations

to QF3 pursuant to a purchase agreement (“QF3 Purchase Agreement”) dated March 12, 2023 between the Company and QF3, as described

As of March 31, 2024, the Company has made no repayments on this funding liability.

As of June 30, 2024, the Company has made no repayments on this funding liability.

The obligation to QF3 has no repayment

term since the payment is due from net proceeds generated from the monetization of the Company's intellectual property and has been classified

as a current liability as of March 31, 2024 and December 31, 2023.

Accrued interest related to this funding liability as of

March 31, 2024 and December 31, 2023 was approximately $ 418,000 and $ 299,000 , respectively.

On March 12, 2023, the Company and HID, entered into

a series of agreements, all dated March 12, 2023, with QF3, a non-affiliated party, including a prepaid forward purchase agreement (the

“Purchase Agreement QF3”), a security agreement (the “QF3 Security Agreement”), a patent security agreement (the

“QF3 Patent Security Agreement” together with the QF3 Security Agreement, the QF3 Patent Security Agreement, and the QF3 Purchase

Agreement, the “QF3 Investment Documents”) pursuant to which, at the closing held contemporaneously with the execution of

the agreements on March 12, 2023:

(i) Pursuant to the QF3 Purchase Agreement, QF3 agreed to make available

to the Company a financing facility of:

(a) up to $ 4,000,000 for operating expenses, of which the Company has requested and received $ 3,334,381

as of March 31, 2024, of which approximately $ 834,000 was received during the three months ended March 31, 2024;

(b) $ 3,300,000 to

fund the cash payment portion of the purchase of a patent portfolio from Tower Semiconductor Ltd.

and (c) up to an

additional $ 25,000,000 for the acquisition of mutually agreed patent rights that the Company intends to monetize, of which no amounts

have been requested or received as of March 31, 2024.

In return, the Company transferred to QF3 a right to receive a portion of net

proceeds generated from the monetization of those patents.

(ii) On March 17, 2023, the Company used

$ 3,300,000 of proceeds from the QF3 financing as the cash payment portion of the purchase of a seven-patent portfolio from Tower (the

“HID Portfolio”).

as a current liability as of June 30, 2024 and December 31, 2023.

Accrued interest related to this funding liability as of June 30,

2024 and December 31, 2023 was approximately $ 553,000 and $ 299,000 , respectively.

On March 12, 2023, the Company and HID, entered

into a series of agreements, all dated March 12, 2023, with QF3, a non-affiliated party, including a prepaid forward purchase agreement

(the “Purchase Agreement QF3”), a security agreement (the “QF3 Security Agreement”), a patent security agreement

(the “QF3 Patent Security Agreement” together with the QF3 Security Agreement, the QF3 Patent Security Agreement, and the

QF3 Purchase Agreement, the “QF3 Investment Documents”) pursuant to which, at the closing held contemporaneously with the

execution of the agreements on March 12, 2023:

(i) Pursuant to the QF3 Purchase Agreement,

QF3 agreed to make available to the Company a financing facility of:

(a) up to $ 4,000,000 for operating expenses, of which the Company

has requested and received $ 3,334,381 as of June 30, 2024, of which approximately $ 834,000 was received during the six months ended

June 30, 2024;

(b) $ 3,300,000 to fund the cash payment portion of the purchase of a patent portfolio from Tower Semiconductor Ltd.

and (c) up to an additional $ 25,000,000 for the acquisition of mutually agreed patent rights that the Company intends to monetize, of

which no amounts have been requested or received as of June 30, 2024.

In return, the Company transferred to QF3 a right to receive

a portion of net proceeds generated from the monetization of those patents.

(ii) On March 17, 2023, the Company

used $ 3,300,000 of proceeds from the QF3 financing as the cash payment portion of the purchase of a seven-patent portfolio from Tower

(the “HID Portfolio”).

(iii) Pursuant to the QF3 Security Agreement

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and (d) proceeds (including, without limitation, cash proceeds and insurance proceeds) and products of the foregoing (a)-(c).

In connection with the agreements with QF3, the Company,

HID and the Subsidiary Guarantors entered into an intercreditor agreement with QF3 and Intelligent Partners which sets forth the priority

of QF3 in the collateral under the Investment Documents.

In connection with the agreements with QF3, the

Company, HID and the Subsidiary Guarantors entered into an intercreditor agreement with QF3 and Intelligent Partners which sets forth

the priority of QF3 in the collateral under the Investment Documents.

Loan Payable Related Party

The loan payable – related party at March 31,

2024 and December 31, 2023 represents the current amount of a non-interest bearing total monetization proceeds obligation (the “TMPO”)

due to Intelligent Partners, LLC (“Intelligent Partners”) of $ 2,796,500 , pursuant to a restructure agreement (“Restructure

Agreement”) dated February 22, 2021 whereby the Company and Intelligent Partners, extinguished the Company’s 10 % Note to Intelligent

Partners as transferee of the notes issued to United Wireless Holdings, Inc.

(“United Wireless”), in the amount of $ 4,672,810

pursuant to securities purchase agreement dated October 22, 2015 between the Company and United Wireless.

The notes became due by their

terms on September 30, 2020, and the Company did not make any payment on account of principal of and interest on the notes.

to September 30, 2020, the Company engaged in negotiations with Intelligent Partners in parallel with the Company’s negotiations

with QFL, with a view to restructuring the Company’s obligations under the United Wireless agreements, including the notes, so that

the Company no longer had any obligations under the notes or the SPA.

These negotiations resulted in the Restructure Agreement, described

below, which provided for the payment to Intelligent Partners of $ 1,750,000 from the proceeds from the Company’s agreements with

As part of the restructure of the Company’s agreements with Intelligent Partners, the Company amended the existing MPAs and

granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property the Company acquires, as described

Under these MPAs, Intelligent Partners participates in the monetization proceeds the Company receives with respect to new patents

after QFL has received its negotiated rate of return.

The loan payable – related party at June 30, 2024 and December 31,

2023 represents the current amount of a non-interest bearing total monetization proceeds obligation (the “TMPO”) due to Intelligent

Partners, LLC (“Intelligent Partners”) of $ 2,796,500 , pursuant to a restructure agreement (“Restructure Agreement”)

dated February 22, 2021 whereby the Company and Intelligent Partners, extinguished the Company’s 10 % Note to Intelligent Partners

as transferee of the notes issued to United Wireless Holdings, Inc.

(“United Wireless”), in the amount of $ 4,672,810 pursuant

to securities purchase agreement dated October 22, 2015 between the Company and United Wireless.

The notes became due by their terms on

September 30, 2020, and the Company did not make any payment on account of principal of and interest on the notes.

Subsequent to September

30, 2020, the Company engaged in negotiations with Intelligent Partners in parallel with the Company’s negotiations with QFL, with

a view to restructuring the Company’s obligations under the United Wireless agreements, including the notes, so that the Company

no longer had any obligations under the notes or the SPA.

These negotiations resulted in the Restructure Agreement, described below, which

provided for the payment to Intelligent Partners of $ 1,750,000 from the proceeds from the Company’s agreements with QFL.

of the restructure of the Company’s agreements with Intelligent Partners, the Company amended the existing MPAs and granted Intelligent

Partners certain rights in the monetization proceeds from any new intellectual property the Company acquires, as described below.

these MPAs, Intelligent Partners participates in the monetization proceeds the Company receives with respect to new patents after QFL

and QF3 have received their negotiated rate of return.

On or prior to the date of the Restructure Agreement,

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(the “Transferred Note”), thereby reducing the principal amount of the notes held by Intelligent Partners to $ 4,422,810 .

Because of the beneficial ownership percentage of

its principals, Intelligent Partners is treated as a related party.

Because of the beneficial ownership percentage

of its principals, Intelligent Partners is treated as a related party.

Long-Term Liabilities

Loan Payable – SBA

The loans payable – SBA balance at March 31,

The loans payable – SBA balance at June 30,

2024 and December 31, 2023 of $ 150,000 represents the total amount due under a secured Economic Injury Disaster Loan from the U.S.

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Purchase Price of Patents

The purchase price of patents balance at March 31,

The purchase price of patents balance at June 30,

2024 and December 31, 2023 of $ 53,665 represents:

The non-current portion of our obligations under the

unsecured non-recourse funding agreement with a third-party funder entered into in May 2020 whereby the third-party agreed to provide

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.

2 unchanged sentences

received $ 53,665 .

The Company did not make any payments with respect to this obligation in 2024.

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 sufficient net proceeds.

ASC 470, the Company recorded this monetization obligation as debt and the difference between the purchase price and total obligation

The Company did not make any payments with respect to this obligation in 2024 to-date.

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 sufficient net proceeds.

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.

On February 22, 2021, the Company issued warrants

to purchase 962,463 shares of common stock to QFL (see Note 4) in connection with its funding agreement.

to purchase 962,463 shares of common stock to QFL in connection with its funding agreement (see Note 4).

If on the date of initial exercise

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and is valued at its fair value as of the grant date and re-measured at each balance sheet date with the period-to-period change in the

fair market value of the warrant liability reflected as a change in fair market value of warrant liability and included under other expenses.

As of March 31, 2024 and December 31, 2023,

fair market value of the warrant liability reflected as a change in fair market value of warrant liability and included under 'Other income

(expenses)' in the accompanying condensed consolidated statements of operations.

As of June 30, 2024 and December 31,

2023, the aggregate fair value of the outstanding warrant liability was approximately $ 241,000 and $ 282,000 , respectively.

The Company estimated the fair value of the warrant

liability using the Black-Scholes option pricing model using the following key assumptions as of March 31, 2024 and December 31,

liability using the Black-Scholes option pricing model using the following key assumptions as of June 30, 2024 and December 31,

Exercise price

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Expected term

The following schedule summarizes the valuation of

financial instruments at fair value in the balance sheets as of March 31, 2024 and December 31, 2023:

The following schedule summarizes the valuation

of financial instruments at fair value in the balance sheets as of June 30, 2024 and December 31, 2023:

Fair Value Measurements as of

March 31, 2024

June 30, 2024

December 31, 2023

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Total liabilities

The following table sets forth a reconciliation of

changes in the fair value of warrant liabilities classified as Level 3 in the fair value hierarchy:

The following table sets forth a reconciliation

of changes in the fair value of warrant liabilities classified as Level 3 in the fair value hierarchy:

Balance at December 31, 2023

1 unchanged sentence

Balance at March 31, 2024

See Notes 4 and 6 for information on the warrant issuance.

Gain on subsequent measurement

Balance at June 30, 2024

See Note 6 for information on the warrant issuance.

STOCKHOLDERS'

Issuance of Options

A summary of the status of the Company’s stock

options and changes is set forth below:

Number of Options (#)

Weighted Average Exercise

Weighted Average Grant Date Fair Value ($)

Weighted Average Remaining Contractual Life (Years)

A summary of the status of the Company’s

stock options and changes is set forth below:

Options (#) Weighted

Price ($) Weighted

Value ($) Weighted

Balance - December 31, 2023 2,000,000 2.39 1.20 5.80

Balance - March 31, 2024

Balance - June 30, 2024 2,000,000 2.39 1.20 5.30

Options exercisable at end of period 1,200,000 0.97 1.20 3.95

The outstanding options do not have an intrinsic value

as of March 31, 2024 or December 31, 2023.

As of March 31, 2024, there was approximately

$ 960,000 of unrecognized compensation expense related to nonvested stock option awards that is expected to be recognized over a weighted

average expected term of approximately 6.90 years.

The outstanding options do not have an intrinsic

value as of June 30, 2024 or December 31, 2023.

As of June 30, 2024, there was approximately

$ 960,000 of unrecognized compensation expense related to nonvested stock option awards with a weighted average expected term of approximately

The recognition of the unrecognized compensation expense is subject to certain conditions that the Company has currently deemed to not

be probable of achieving.

Issuance of Warrants

A summary of the status of the Company’s warrants

and changes is set forth below:

Number of Warrants (#)

Weighted Average Exercise

Weighted Average Remaining Contractual Life (Years)

A summary of the status of the Company’s

warrants and changes is set forth below:

Warrants (#) Weighted

Price ($) Weighted

Balance - December 31, 2023 962,463 0.54 7.14

Balance - March 31, 2024

The warrants contain 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

The outstanding warrants do not have an intrinsic value as of March 31, 2024 or December 31, 2023.

Balance - June 30, 2024 962,463 0.54 6.65

The warrants contain 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).

The outstanding warrants do not have an intrinsic value as of June 30, 2024 or December 31, 2023.

NON-CONTROLLING INTEREST

1 unchanged sentence

to the non-controlling interest related to Quest Packaging Solutions Corporation.

Balance, beginning of year

Balance, beginning of period

Net loss attributable to non-controlling interest

Balance, end of year

Balance, end of period

RELATED PARTY TRANSACTIONS

The Company has at various times entered into transactions

with related parties, including officers, directors and major stockholders, wherein these parties have provided services, advanced or

loaned money, or both, to the Company which was needed to support its daily operations.

The Company discloses all related party transactions.

See Note 4 in connection with the Restructure Agreement

dated February 22, 2021 with Intelligent Partners.

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

See Note 9 with respect to the employment agreement

with the Company’s president and chief executive officer.

During three months ended March 31, 2024 and 2023, the Company contracted

with a law firm more than 10 percent owned by the chief executive officer.

The firm is engaged as counsel in connection with general

corporate matters, diligence and maintenance of the Company’s patent portfolio.

In connection with the engagement, the Company

recorded patent service costs of approximately $ 30,000 and $ 0 for the three months ended March 31, 2024 and 2023, respectively, and these

were recorded as part of general and of selling, administrative expenses in the consolidated statements of operations.

During the three months ended March 31, 2024 and

2023, the Company contracted with a law firm more than 10 percent owned, but not controlled, by the father-in-law of the chief

The Company has at various times entered into

transactions with related parties, including officers, directors and major stockholders, wherein these parties have provided services,

advanced or loaned money, or both, to the Company which was needed to support its daily operations.

The Company discloses all related

party transactions.

See Note 4 in connection with the Restructure

Agreement dated February 22, 2021 with Intelligent Partners.

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

related party.

During the three and six months ended June 30,

2024, the Company contracted with a law firm more than 10 percent owned by the chief executive officer.

The firm is engaged as counsel

in connection with general corporate matters, diligence and maintenance of the Company’s patent portfolio.

In connection with the

engagement, the Company recorded patent service costs of approximately $ 30,000 and $ 60,000 for the three and six months ended June 30,

2024, respectively, and these were recorded as part of 'Selling, general and administrative expenses' in the accompanying condensed consolidated

statements of operations.

As the Company did not contract with the law firm during the six months ended June 30, 2023, there are no equivalent

costs for the comparative periods presented.

During the three and six months ended June 30,

2024 and 2023, the Company contracted with a law firm more than 10 percent owned, but not controlled, by the father-in-law of the chief

executive officer.

The firm is engaged on a contingent fee basis and serves as escrow agent in connection with monetization of the

Company’s patents in matters where the firm is serving as counsel to the Company.

For the three months ended March 31, 2024

and 2023, the cost of these services was approximately $ 464,000 and $ 62,000 , respectively, and these were recorded as part of

litigation and licensing expenses in the consolidated statements of operations.

As of March 31, 2024 and December 31, 2023,

approximately $ 1,379,000 of such costs were payable to the related party.

Since the services are on a contingent fee basis, no fees

are incurred unless there is a recovery.

The firm is engaged on a contingent fee basis and serves as escrow agent in connection with monetization of the Company’s

patents in matters where the firm is serving as counsel to the Company.

For the three and six months ended June 30, 2024, the cost of

these services was approximately $ 318,000 and $ 781,000 , respectively.

For the three and six months ended June 30, 2023, the cost of these

services was approximately $ 0 and $ 62,000 , respectively.

These costs were recorded as part of 'Litigation and licensing expenses' in the

condensed consolidated statements of operations.

As of June 30, 2024 and December 31, 2023, approximately $ 328,000 and $ 1,379,000

of such costs were payable to the related party, respectively.

Since the services are on a contingent fee basis, no fees are incurred

unless there is a recovery.

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, which

was increased in 2016 to $ 300,000 and to $ 600,000 , effective January 1, 2023.

The chief executive officer is entitled to a bonus if the

Company meets or exceeds performance criteria established by the compensation committee.

In August 2016, the Company’s board of

directors approved annual bonus compensation equal to 30 % of the amount by which the Company’s consolidated income before income

taxes exceeds $ 500,000 , but, if the Company is subject to the limitation on deductibility of executive compensation pursuant to Section

162(m) of the Internal Revenue Code, the bonus cannot exceed the amount which would be deductible pursuant to Section 162(m).

executive’s bonus for 2023 was approximately $ 334,000 .

The chief executive officer is also eligible to participate in any executive incentive

plans which the Company may adopt.

Pursuant to the SEP IRA plan adopted by the Company

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The Company’s chief executive officer and chief technology officer are

the only participants and during the three months ended March 31, 2024 and 2023, approximately $ 17,300 and $ 16,500 was deposited into

the chief executive officer’s SEP IRA account, respectively and approximately $ 6,600 and $ 0 was deposited into the chief technology officer’s

the only participants and during the three and six months ended June 30, 2024, approximately $ 17,250 and $ 34,500 was deposited into the

chief executive officer's SEP IRA account, respectively and approximately $ 3,450 and $ 3,450 was deposited into the chief technology officer's

SEP IRA account, respectively.

During the three and six months ended June 30, 2023, approximately $ 16,500 and $ 33,000 were deposited into

the chief executive officer's SEP IRA account, respectively.

No amounts were deposited into the chief technology officer's SEP IRA account

during the three and six months ended June 30, 2023.

Inventor Royalties, Contingent Litigation Funding

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generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

The Company’s operating subsidiaries may engage

third-party funding sources to provide funding for patent licensing and enforcement.

The agreements with the third-party funding sources

may provide that the funding source receive a portion of any negotiated fees, settlements or judgments.

In certain instances, these third-party

funding sources are entitled to receive a significant percentage of any proceeds realized until the third-party funder has recouped agreed

upon amounts based on formulas set forth in the underlying funding agreement, which may reduce or delay and proceeds due to the Company.

The Company’s operating subsidiaries may retain

the services of law firms in connection with their licensing and enforcement activities.

The Company’s operating subsidiaries may

engage third-party funding sources to provide funding for patent licensing and enforcement.

The agreements with the third-party funding

sources may provide that the funding source receive a portion of any negotiated fees, settlements or judgments.

In certain instances,

these third-party funding sources are entitled to receive a significant percentage of any proceeds realized until the third-party funder

has recouped agreed upon amounts based on formulas set forth in the underlying funding agreement, which may reduce or delay and proceeds

due to the Company.

The Company’s operating subsidiaries may

retain the services of law firms in connection with their licensing and enforcement activities.

These law firms may be retained on a contingent

1 unchanged sentence

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.

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

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of the subsidiary and/or the loss of the patents, which are the subsidiaries’ only assets.

SUBSEQUENT EVENTS

Effects of possible delisting of common stock on OTCQB

Our registration rights agreement with QFL provides

that, in the event of a failure to comply with certain covenants, which includes the failure of our common stock to be traded on the OTCQB,

in addition to any other remedies available to QFL, we are to pay to QFL an amount in cash equal to 2.0 % of the aggregate value of QFL’s

Registrable Securities, as defined in the Registration Rights Agreement, whether or not included in such registration statement, on each

of the following dates:

(i) the initial day of a maintenance failure;

(ii) on the 30th day after the date of such a failure and (iii)

every 30th day thereafter (prorated for periods totaling less than thirty (30) days) until such failure is cured.

The Company cannot assure

it will continue to meet the requirements for continued listing on the OTCQB, including the maintenance of a bid price of at least $ 0.01

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements