ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated audited financial statements and related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements” and “Risk Factors.” Our actual results could differ materially from those anticipated in the forward-looking statements.
Overview
Our principal operations include the development, acquisition, licensing and enforcement of intellectual property rights that are either owned or controlled by us or one of our wholly owned subsidiaries. We currently own, control or manage twenty-four intellectual property portfolios, of which we are currently seeking or may seek monetization with respect to seven, which principally consist of patent rights. As part of our intellectual property asset management activities and in the ordinary course of our business, it has been necessary for either us or the intellectual property owner who we represent to initiate, and it is likely to continue to be necessary to initiate patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our primary source of revenue will come from the grant of licenses to use our intellectual property, including licenses granted as part of the settlement of patent infringement lawsuits.
Market and Economic Conditions
Macroeconomic trends may result in adverse impacts on our business, and we continue to monitor these potential impacts, including potential economic recession, the effects of tariffs by the United States and counter-tariffs by other countries, whether threatened or implemented; changes in the Federal Reserve’s monetary policy, as well as geopolitical risks, including the Ukraine-Russia war and the potential resolution of the war and its effect on Europe; the continuing war between Israel and Hamas and any further intensification of hostilities with others, including Iran and Hezbollah and potential effects of an intensification of the hostilities between India and Pakistan. We cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. A significant downturn in economic conditions may adversely affect the intellectual property licensing market including the financial condition of financing sources and the willingness of potential financing sources to provide funding for our litigation; a law firms’ ability and willingness to provide us with legal services on acceptable contingent fee terms; and the financial condition and prospects of and potential , which could make it less likely that they would be willing to settle our claim.
Further, to the extent that holders of intellectual property rights consider these and other macroeconomic factors, they may be reluctant to sell intellectual property to us on terms which are acceptable to us, if at all.
We seek to generate revenue from patent licensing fees from the licensing of our intellectual property, primarily from litigation relating to enforcement of our intellectual property rights. For the year ended December 31, 2025 we did not generate any such revenue. All of the revenue for the year ended December 31, 2024 was from patent licensing fees, of which approximately 84%, respectively, was paid to the patent seller, funding sources and legal counsel pursuant to our agreements with patent sellers, funding sources and legal counsel.
Because of the nature of our business transactions to date, we recognize revenues from licensing upon execution of a license agreement following settlement of litigation and not over the life of the patent. Thus, we would recognize revenue when we receive the license fee or settlement payment. Although we would prefer to develop portfolios of intellectual property rights that provide us a continuing stream of revenue, to date we have not been successful in doing so, and we do not anticipate that we will be able to generate any significant revenue from licenses that provide a continuing stream of revenue. Thus, to the extent that we continue to generate cash from single payment licenses, our revenue can, and is likely to, vary significantly from quarter to quarter and year to year. Our gross profit from license fees reflects the payment of any royalties due in connection with our license.
It has been necessary to commence litigation in order to obtain a recovery for past infringement of, or to license the use of, our intellectual property rights. Intellectual property litigation is very expensive, with no certainty of any recovery. To the extent possible we seek to engage counsel on a contingent fee or partial contingent fee basis, which significantly reduces our litigation cost, but which also reduces the value of the recovery to us. We do not have the resources to enable us to fund the cost of litigation. Because we cannot fund litigation ourselves, we need to enter into an agreement with a third-party funding source. Our agreements with the funding sources typically provide that the funding source pays the litigation costs and that the funding source receives a percentage of the recovery, thus reducing our recovery in connection with any settlement of the litigation. In view of our limited cash and our working capital deficiency, we are not to institute any monetization program that may require unless we engage counsel on a fully contingent basis or we obtain funding from third party funding sources. In these cases, counsel may be afforded a participation in the recovery and the third party that funds the would be entitled to participate in any recovery. To the extent that we have agreements with counsel and/or funding sources pursuant to which payments made to them represent a portion of the gross recovery, and such payment is contingent upon a recovery, our revenue from reflects the gross recovery from as licensing fees, and payments to counsel and/or funding sources are reflected as cost of revenue.
Agreements with QPRC Finance
On April 11, 2025, we and our newly-formed wholly-owned subsidiary, MR, entered into a series of agreements, all dated April 11, 2025, with QPRC Finance. The agreements are (i) the QPRC Finance Purchase Agreement, (iii) the Security Agreement, the QPRC Finance Patent Security Agreement, (iv) the Subordination Agreement, (v) the Letter of Instructions to Fabricant LLP, the law firm that is to represent MR in the litigation relating to the monetization of the patents to be purchased with the proceeds of the financing from QPRC Finance (the “Law Firm”) as to the disposition of any funds generated from the proceeds of the financing, (the “Letter of Instructions”), (vi) the Waterfall Agreement.
Pursuant to the Purchase Agreement, QPRC Finance agreed to make available to the Company a financing facility of: (a) up to $3,000,000 for operating expenses, of which approximately $1,500,000 has been drawn down as of December 31, 2025; (b) up to $9,000,000 to fund the purchase by MR of certain patent assets from Monterey pursuant to the Monterey Agreement and (c) up to $7,500,000 for patent enforcement costs, including legal fees subject to budget limitations to be agreed upon, of which approximately $4,054,000 was drawn down during the year ended December 31, 2025. In return, the Company transferred to QPRC Finance the right to receive a portion of net proceeds generated from the monetization of those patents.
On April 18, 2025, MR took down $9,000,000 of proceeds from the QPRC Finance financing to purchase the patent portfolio from Monterey, which consisted of more than 2,500 United States patents, foreign patents and patent applications, pursuant to the Monterey Agreement. These patents relate to data storage device security and semiconductor circuitry. The payment was made directly from QPRC Finance to Monterey in accordance with instructions from the Company and MR. The Monterey Agreement provides that after MR has received an amount equal to 200% of the sum of the purchase price plus other money deployed to the monetization of the assigned patents, the next $7,000,000 is paid to Monterey and thereafter Monterey is to receive 20% of net licensing revenues.
Pursuant to the Purchase Agreement, the Company and MR transferred to QPRC Finance the right to receive a portion of net proceeds generated from the monetization of those patents covered by the Security Agreement, during which time the Company and MR do not receive any portion of the net proceeds. The Waterfall Agreement sets forth the details of the order of payment. Pursuant to the Waterfall Agreement, (i) 100% of the net proceeds is paid to QPRC Finance until QPRC Finance has received its initial recovery amount; (ii) 90% of the net proceeds are distributed to QPRC Finance and 10% to the Company and MR until QPRC Finance has received an amount determined pursuant to the Purchase Agreement, and (iii) any net proceeds remaining after the foregoing distributions are paid to the Company and MR and the Law Firm in accordance with the Waterfall Agreement, in view of the plan to pay the Law Firm pursuant to a budget from the distribution allocated to patent enforcement costs. Any contingent payments due Monterey in addition to the $9,000,000 paid from the initial distribution from QPRC Finance shall be paid from the funds paid to the Company and MR pursuant to the Waterfall Agreement. Except in an Event of Default, as defined therein, all payment obligations by the Company and MR to QPRC Finance pursuant to the Purchase Agreement are non-recourse and shall be paid only from net proceeds from monetization, if any, of the patent rights owned or acquired by the Company or MR utilizing the QPRC Finance facility.
Agreements with QF3, QFL and Intelligent Partners
On March 12, 2023, we entered into a funding agreement with QF3.
Pursuant to the Purchase Agreement with QF3, QF3 agreed to make available to us a financing facility of: (a) up to $25,000,000 for the acquisition of mutually agreed patent rights that we intend to monetize, of which no amounts have been requested or received as of December 31, 2025; (b) up to $4,334,000 for operating expenses, of which the we have requested and received $4,334,000 as of December 31, 2025; and (iii) $3,300,000 to fund the cash payment portion of the purchase price of a patent portfolio acquired from Tower. In return we transferred to QF3 a right to receive a portion of net proceeds generated from the monetization of those patents. We used $3,300,000 proceeds from the QF3 financing as the cash payment portion of the purchase price of a portfolio acquired from Tower. Our obligations to QF3 are secured by the proceeds from the patents acquired with their funding, the patents and all general intangibles now or hereafter arising from or related to the foregoing and the proceeds and products of the foregoing.
On February 22, 2021, we entered into a funding agreement with QFL and a restructure agreement with Intelligent Partners.
Pursuant to the Purchase Agreement with QFL, QFL made available to us a total of $6,402,000, consisting of (a) $2,653,000 for the acquisition of mutually agreed patent rights that we intended to monetize; (b) $2,000,000 for operating expenses; and (iii) $1,750,000 to fund the cash payment portion of the restructure of our obligations to Intelligent Partners. In return we transferred to QFL a right to receive a portion of net proceeds generated from the monetization of those patents. On May 2, 2024 the funding agreement with QFL was amended and restated to terminate QFL’s funding obligation. During the year ended December 31, 2024 we repaid the full outstanding principal balance of $1,525,502. No further advances are to be made pursuant to the Purchase Agreement. In connection with the QFL purchase agreement, we granted QFL a ten-year warrant to purchase a total of up to 962,463 shares of our common stock, with an exercise price of $0.54 per share which may be exercised through February 18, 2031 on a cash or cashless basis, subject to certain limitations on exercisability. The warrant also contains certain minimum ownership percentage antidilution rights pursuant to which the aggregate number of shares of common stock purchasable upon the initial exercise of the Warrant shall not be less than 10% of the aggregate number of outstanding shares of our capital stock (determined on a fully diluted basis). A portion of any from sale of the shares, net of taxes and costs of exercise, realized prior to the completion of all monetization activities shall be credited the total return due to QFL pursuant to the Purchase Agreement. We also agreed to take all commercially reasonable steps necessary to compliance with the OTCQB eligibility standards as soon as practicable, but in no event later than 12 months from the date, and we compliance on May 7, 2021. We granted QFL registration rights with respect to the common stock issuable upon exercise of the warrants. We also granted QFL certain board observation rights. Pursuant to the Purchase Agreement, all of the net proceeds from the monetization of the intellectual property acquired with funds from QFL are paid directly to QFL. After QFL has received a negotiated rate of return, we and QFL share net proceeds equally until QFL its investment return, as defined in the agreement. Thereafter, we retain 100% of all net proceeds. Except in an Event of , as defined therein, all payments to be paid by us to QFL pursuant to the Purchase Agreement are non-recourse and shall be paid only if and after net proceeds from monetization of the patent rights owned or acquire by us are received, or to be received.
Contemporaneously with the execution of the agreements with QFL, we entered into a restructure agreement with Intelligent Partners to eliminate any obligations we had with respect to the outstanding notes and the securities purchase agreement. As part of the restructure of our agreements with Intelligent Partners, we amended the existing MPAs and granted Intelligent Partners certain rights in the monetization proceeds from any new intellectual property we acquire. Under these MPAs, Intelligent Partners receives a 60% interest in the proceeds from our intellectual property owned by the eight Subsidiary Guarantors. Intelligent Partners also participates in the monetization proceeds from new intellectual property that we acquire until the total payments under all the monetization participation agreements equal $2,805,000, as follows: for net proceeds between $0 and $1,000,000, Intelligent Partners receives 10% of the net proceeds realized from new patents, except that if, in any calendar quarter, net proceeds realized by us exceed $1,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 30% on the portion of net proceeds in excess of $1,000,000 but less than $3,000,000. If in the same calendar quarter, net proceeds exceed $3,000,000, Intelligent Partners’ entitlement for that quarter only shall increase to 50% on the portion of net proceeds in excess of $3,000,000. The payments with respect to the new patents terminate once total payments to Intelligent Partners under all monetization participation agreements reach $2,805,000. The payments to Intellectual Partners with respect new patents are payable from the proceeds which are allocated to us under the QFL and QF3 agreements, which start after QFL and QF3 have received a negotiated rate of return. In connection with the agreement with Intelligent Partners, we entered into a board observation rights agreement with Intelligent Partners. On April 17, 2025, Intelligent Partners notified us that it plans to exercise its rights under the board observation rights agreement.
Current Litigation and Settlements
In November 2021, TLL brought patent infringement suits in the U.S. District for the Eastern District of Texas against Trend Micro Incorporated. In March 2022, Trend Micro, Inc. filed a complaint against TLL in the U.S. District for the Western District of Texas seeking declaratory judgement of non-infringement of the patents subject to the litigation. In February 2022, TLL brought patent infringement suits in the U.S. District Court for the Eastern District of Texas against Checkpoint Software Technologies Ltd. and Palo Alto Networks, Inc. In March 2022, TLL voluntarily dismissed, without prejudice, the action against Palo Alto Networks, Inc. In March 2022, Palo Alto Networks, Inc. filed a complaint against TLL and the Company in the U.S. District for the Southern District of New York seeking declaratory judgement of non- of the patents in suit. In May 2022, Trend Micro Inc. filed a motion with the Panel on Multidistrict seeking to have the pending actions consolidated into a centralized multidistrict for proceedings. In August 2022, the Judicial Panel on Multidistrict consolidated all actions in the U.S. District for the Eastern District of Texas. In October 2022, TLL brought patent suits in the U.S. District for the Eastern District of Texas Fortinet, Inc., Crowdstrike, Inc. et.al., and Musarubra US, LLC. The actions Trend Micro Incorporated, Checkpoint Software Technologies Ltd, Palo Alto Networks, Inc. and Crowdstrike, Inc. were resolved in 2023 and our revenue for the year ended December 31, 2023 includes revenue from the related settlements. In February 2024, TLL brought patent suits in the U.S. District for the Eastern District of Texas Sonicwall, Inc. The actions Fortinet, Inc., Musarubra US LLC, and Sonicwall Inc. have been resolved and revenue for the year ended December 31, 2024 includes revenue from the related settlements.
In November 2021, MML brought patent infringement suits in the U.S. District for the Eastern District of Texas against ZTE Corporation and Guangdong OPPO Mobile Telecommunications Corp., Ltd. In November 2022, MML brought patent infringement suits in the U.S. District for the Eastern District of Texas against Samsung Electronics Co., Ltd. et al and TCL Technology Group Corporation et al. In June 2022, MML and AI agreed to amend the Purchase Agreement to add two additional patent families for an additional $92,000. We requested and received a capital advance from QFL in the amount of $92,000, which we used to make payment to AI in August 2022 pursuant to the amendment to the Purchase Agreement. The actions against ZTE Corporation and Guangdong OPPO Mobile Telecommunications Corp., Ltd. were resolved in 2023 and revenue for the year ended December 31, 2023 includes revenue from the related settlements. The actions against Samsung Electronics Co., Ltd. Et al were resolved in 2024 and revenue for the year ended December 31, 2024 includes revenue from the related settlement.
In September 2023, Deepwell brought a patent infringement suit in the U.S. District for the Eastern District of Texas against MediaTek Inc. The action against MediaTek, Inc. has been resolved and revenue for the year ended December 31, 2024 includes revenue from the related settlement.
In February 2024, Harbor Island Dynamic brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Samsung Electronics Co., Ltd. et al. (“Samsung”). In August 2024, Harbor Island Dynamic brought a patent infringement suit in the U.S. District for the Eastern District of Texas against NXP Semiconductors NV et. al. Samsung’s 2024 petitions for review were granted in April 2025. These actions are pending.
In April 2025, MR brought patent infringement suits in the U.S. District for the Eastern District of Texas against Renesas Electronics Corporation, Denso Corporation and Denso International America.
In June 2025, MR brought patent infringement suits in the U.S. District for the Eastern District of Texas against Seagate Technology Holdings Plc, Seagate Singapore International Headquarters Pte. Ltd, Seagate Technology International, Seagate Technology (Thailand) Limited, and Seagate Technology (Netherlands) BV.
In August 2025, MR brought a patent infringement suit in the U.S. District for the Eastern District of Texas against Texas Instruments, Inc.
In December 2025, Koyo brought patent infringement suits in the U.S. District for the Eastern District of Texas against Samsung Electronics Co., Ltd. et al.
The actions by MR and Koyo are pending.
Results of Operations
The years ended December 31, 2025 and 2024:
Year Ended
December 31,
Revenues (patent licensing fees)
Cost of revenue (litigation and licensing expenses)
Selling, general and administrative expenses
Loss from operations
Other income (expense)
Change in fair market value of warrant liability
Interest expense
Total other income (expense)
Loss before income tax
Income tax expense
Net loss
We did not generate any revenue for the year ended December 31, 2025. For the year ended December 31, 2024 we generated revenue of approximately $2,795,000. Our revenue for the year ended December 31, 2024 was generated from licenses issued in the settlement of patent infringement lawsuits in the TLL, Deepwell, and Multimodal Media portfolios. Since we only generate revenue from litigation seeking to monetize our intellectual property rights, although we had pending litigation with respect to three portfolios in 2025, none of such actions were concluded during 2025, as a result of which we did not generate any revenue during 2025. Cost of revenue for the years ended December 31, 2025 and 2024 was approximately $4,071,000 and $1,844,000, respectively. The substantial increase in cost of revenues is primarily due to increased litigation and licensing expenses associated with the MR portfolio which were funded from advances to fund litigation pursuant to the QPRC Finance financings. The timing and amount of our revenue is dependent upon the results of litigation seeking to enforce our intellectual property rights, and we cannot predict when or whether we will have a recovery and how much of the recovery will be received by us after payments to legal counsel, to our funding sources, to /former patent owners and to Intelligent Partners all of whom have an interest in our share of the recovery from certain patent portfolios.
Selling, general, and administrative expenses for the year ended December 31, 2025 increased by approximately $821,000, or approximately 29%, compared to the year ended December 31, 2024. The increase is primarily due to an increase in amortization of intangible assets of approximately $1,172,000 offset by a decrease in compensation expense of approximately $329,000. Our principal operating expenses for the year ended December 31, 2025 were compensation expenses of approximately $720,000, amortization of intangible assets of approximately $1,808,000 and professional fees of approximately $600,000. Our principal operating expenses for the year ended December 31, 2024 were compensation expenses of approximately $994,000, amortization of intangible assets of approximately $636,000 and professional fees of approximately $541,000. The increase in amortization of intangible assets reflects the amortization of intellectual property rights acquired by us in 2024 and 2025.
Other income and expense for the year ended December 31, 2025 included a loss on change in fair value of warrant liability of approximately $102,000. Other income and expense for the year ended December 31, 2024 included a gain on change in fair value of warrant liability of approximately $165,000. The fair value of the warrant liability is affected by the price of our common stock, so the liability increases as the stock price goes up, resulting in an expense, and decreases as the stock price goes down resulting in income from change in warrant liability. Other expense also reflects interest expense of approximately $700,000 for the year ended December 31, 2025 and approximately $690,000 for the year ended December 31, 2024. The interest expense primarily reflects the accrued interest on the principal amount of QF3 facilities.
We incurred income tax expense of $0 and $100,000 for the years ended December 31, 2025 and 2024, respectively.
As a result of the foregoing, we realized net loss of approximately $8,492,000, or ($1.59) per share (basic and diluted), for the year ended December 31, 2025, compared to net loss of approximately $2,472,000, or ($0.46) per share (basic and diluted), for the year ended December 31, 2024.
Liquidity and Capital Resources
At December 31, 2025, we had current assets of approximately $207,000, and current liabilities of approximately $27,427,000. Our current liabilities include funding liabilities of approximately $22,264,000 of which approximately $7,634,000 is payable to QF3, a non-interest bearing total monetization proceeds obligation (the “TMPO”) to Intelligent Partners under the Restructure Agreement which is only payable from money generated from the monetization of intellectual property and approximately $14,629,000 payable to QPRC Finance which is non-interest bearing and only payable from the net proceeds from monetization, if any, of the patent rights owed or acquired by us, loans payable of approximately $138,000, accounts payable and accrued liabilities of approximately $122,000, warrant liability of approximately $219,000, and accrued interest of approximately $1,887,000. As of December 31, 2025, we have an accumulated deficit of approximately $34,874,000 and a negative working capital of approximately $27,220,000. Other than salary and pension benefits to our chief executive officer, we do not contemplate any other material operating expense requiring cash in the near future other than normal general and administrative expenses and legal fees, including expenses relating to our status as a public company filing reports with the SEC.
The following table shows the summary cash flows for the years ended December 31, 2025 and 2024:
For the Year Ended
December 31,
Cash flows (used) in operating activities
Cash flows (used) in investing activities
Cash flows from financing activities
Net decrease in cash
Cash at beginning of year
Cash at end of year
For the year ended December 31, 2025, cash flows used in operating activities primarily reflects the net loss of $8,491,508, increased by amortization of intangible assets of $1,807,987 and accrued interest of $691,126, offset by a decrease in accounts payable and accrued liabilities of $34,097. For the year ended December 31, 2024, cash flows used in operating activities primarily reflects the net loss of $2,471,651, increased by a reduction in accounts receivable of $3,007,044 and amortization of intangible assets of $636,353, offset by a decrease in accounts payable and accrued liabilities of $1,518,662.
During the year ended December 31, 2025 cash flows used in investing activities reflects the patents acquired from Monterey. During the year ended December 31, 2024 there was no cash flow from investing activities.
Cash flows provided by financing activities for the year ended December 31, 2025 was approximately $14,629,000 representing fundings by QPRC Finance and QF3. Cash flows provided by financing activities for the year ended December 31, 2024 was approximately $309,000 representing approximately $1,834,000 from funding by QF3, offset by payment of a funding liability to QFL of approximately $1,526,000.
We cannot assure you that we will be successful in generating future revenues, in obtaining any third-party funding in connection with any of our intellectual property portfolios or operating expenses or that we will receive any of the proceeds of any litigation settlements after making all required payments to counsel and funding sources and payments to Intelligent Partners, operating expenses, debt or equity financing or that and debt or equity financing will be available on terms acceptable to us. We have no credit facilities. Although our agreement with QF3 provides for QF3 to provide us with funding to acquire intellectual property rights, subject to QF3’s approval, it does not provide for financing the litigation necessary for the monetization of the intellectual property rights and we cannot assure you that it will provide financing for any intellectual property acquisition. We do not have any credit facilities or any arrangements for us to finance the litigation necessary to monetize our intellectual property rights other than contingent fee arrangements with counsel with respect to our pending litigation and our agreement with QPRC finance. If we do not secure contingent representation or obtain financing, we may be to monetize our intellectual property.
We cannot predict the success of any pending or future litigation. Typically, our agreements with the funding sources provide that the funding sources will participate in any recovery which is generated. We believe that our financial condition, our history of losses and negative cash flow from operations, absence of revenue for 2025 and our low stock price make it difficult for us to raise funds in the debt or equity markets.
As noted below, there is a substantial doubt about our ability to continue as a going concern.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of our financial statements.
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. In determining the relevant useful lives the Company considers several factors including the age of the acquired patent portfolio, the statutory lives of the patents acquired, whether the Company has already identified potential litigation under the patent portfolio, and the expected timeline to monetize the asset.
Intangible assets are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to impairment of long-lived assets. In determining whether a trigger event has occurred, the Company contemplates several factors including the status and stage of litigation, whether a portfolio has received any unfavorable litigation outcomes determined to final and non-appealable, changes in legal factors or market conditions for patent assets, and whether the ultimate costs to continue to litigate a patent would exceed potential returns. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.
Patents include the cost of patents or patent rights (collectively “patents”) acquired from third-parties or acquired in connection with business combinations. Patent acquisition costs are allocated equally across the patents in force at the time of acquisition. Patent acquisition costs are amortized utilizing the straight-line method over their remaining economic useful lives, ranging from one to ten years. Certain patent application and prosecution costs incurred to secure additional patent claims that, based on management’s estimates, are deemed to be recoverable, are capitalized and amortized over the remaining estimated economic useful life of the related patent portfolio.
Warrant Liability
We reflect a warrant liability with respect to warrants for which the number of shares underlying the warrants is not fixed until the date of the initial exercise. The amount of the liability is determined at the end of each fiscal period by using a Black-Scholes option pricing model to estimate the fair value. The period to period change in the amount of warrant liability is reflected as a gain or loss in warrant liability and is included under other income (expense).
Stock-Based Compensation
We account for 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. 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).
Revenue Recognition
Patent Licensing Fees
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Under Topic 606, revenue is recognized when there is a contract which has commercial substance which is approved by both parties and identifies the rights of the parties and the payment terms.
For the periods presented, revenue contracts executed by the Company primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company’s operating subsidiaries as part of the settlement of litigation commenced by the Company’s subsidiaries. Intellectual property rights granted included the following, as applicable: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted were perpetual in nature, extending until the legal expiration date of the related patents. The individual intellectual property rights are not accounted for as separate performance obligations, as (a) the nature of the promise, within the context of the contract, is to transfer combined items to which the promised intellectual property rights are inputs and (b) the Company’s promise to transfer each individual intellectual property right described above to the customer is not separately identifiable from other promises to transfer intellectual property rights in the contract.
Since the intellectual property rights are not individually distinct, the Company combined each individual IP right in the contract into a bundle of IP rights that is distinct, and accounted for all of the intellectual property rights promised in the contract as a single performance obligation. The intellectual property rights granted were “functional IP rights” that have significant standalone functionality. The Company’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. The Company’s subsidiaries have no further obligation with respect to the grant of intellectual property rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant (i.e., transfer of control) of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the intellectual property rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized at a point in time, upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 30 to 90 days of execution of the contract. Contractual payments made by licensees are generally non-refundable. The Company does not have any significant payment terms, as payment is received shortly after goods are delivered or services are provided, therefore there is no significant financing component or consideration payable to the customer in these transactions.
Recent Accounting Pronouncements
See Note 2 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.
Going Concern
We have an accumulated deficit of approximately $34,874,000 and negative working capital of approximately $27,220,000 as of December 31, 2025. Because of our history of losses, including the lack of any revenue for the year ended December 31, 2025, our working capital deficiency, the uncertainty of future revenue, our obligations to QPRC Finance, Intelligent Partners and QF3, the low stock price of our common stock and the absence of an active trading market in our common stock, our 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 our failure to meet the continued listing requirements of the OTCQB, raise substantial doubt as to our ability to continue as a going concern. Our revenue is generated exclusively from license fees generated from seeking for of our intellectual property rights and the amount and timing of revenue is dependent upon the of seeking to enforce the Company’s intellectual property rights. Although we may seek to raise funds and to obtain third-party funding for to enforce our intellectual property rights, the terms and availability of such funds is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
