Quarterly report pursuant to Section 13 or 15(d)

COMMITMENTS AND CONTINGENCIES

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COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 31, 2024
COMMITMENTS AND CONTINGENCIES (Note G)  
COMMITMENTS AND CONTINGENCIES

NOTE G – COMMITMENTS AND CONTINGENCIES

[1] Legal Fees

Russ, August & Kabat provides legal services to the Company with respect to its patent litigation filed in May 2017 against Facebook, Inc. (now Meta Platforms, Inc.) in the U.S. District Court for the Southern District of New York relating to several patents within the Company’s Mirror Worlds Patent Portfolio (see Note I[2] hereof). The terms of the Company’s agreement with Russ, August & Kabat provide for cash payments on a monthly basis subject to a cap plus a contingency fee ranging between 15% and 24% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all approved expenses incurred with respect to this litigation.

Russ, August & Kabat also provides legal services to the Company with respect to its pending patent litigations filed in April 2014 and December 2014 against Google Inc. and YouTube, LLC in the U.S. District Court for the Southern District of New York relating to certain patents within the Company’s Cox Patent Portfolio (see Note I[1] hereof). The terms of the Company’s agreement with Russ, August & Kabat provide for legal fees on a full contingency basis ranging from 15% to 30% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all of the approved expenses incurred with respect to this litigation.

Dovel & Luner, LLP (“Dovel”) provides legal services to the Company with respect to its patent litigation related to the Remote Power Patent (See Note I[4] hereof). The terms of the Company’s agreement with Dovel provide, among other things, for legal fees on a contingency basis ranging from 15% to 40% of the net recovery (after deduction of expenses where applicable) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for a portion of the expenses incurred with respect to this litigation.

[2] Patent Acquisitions

On March 25, 2022, the Company completed the acquisition of a new patent portfolio (HFT Patent Portfolio) currently consisting of nine U.S. patents and two pending U.S. patents covering certain advanced technologies relating to high frequency trading, which inventions specifically address technological problems associated with speed and latency and provide critical latency gains in trading systems where the difference between success and failure may be measured in nanoseconds. The Company paid the seller $500,000 at the closing and has an obligation to pay the seller an additional $500,000 in cash and $375,000 of the Company’s common stock (up to a maximum of 375,000 shares) upon achieving certain milestones with respect to the patent portfolio. The Company also has an additional obligation to pay the seller 15% of the first $50 million of net proceeds (after deduction of expenses) generated by the patent portfolio and 17.5% of net proceeds greater than $50 million. No such payments were made by the Company during the three months ended March 31, 2024 and 2023.

In connection with the Company’s acquisition of its Cox Patent Portfolio, the Company is obligated to pay Dr. Cox 12.5% of the net proceeds (after deduction of expenses) generated by the Company from licensing, sale or enforcement of the patent portfolio. No such payments were made by the Company during the three ended March 31, 2024 and 2023.

As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with Recognition Interface, LLC (“Recognition”) pursuant to which Recognition received from the Company an interest in the net proceeds realized from the monetization of the Mirror Worlds Patent Portfolio, as follows: (i) 10% of the first $125 million of net proceeds; (ii) 15% of the next $125 million of net proceeds; and (iii) 20% of any portion of the net proceeds in excess of $250 million.  Since entering into the agreement with Recognition in May 2013, the Company has paid Recognition an aggregate of $3,127,000 with respect to such net proceeds interest related to the Mirror Worlds Patent Portfolio. No such payments were made by the Company during the three months ended March 31, 2024 and 2023.

In connection with the Company’s acquisition of its M2M/IoT Patent Portfolio, the Company is obligated to pay M2M 14% of the first $100 million of net proceeds (after deduction of expenses) and 5% of net proceeds greater than $100 million from Monetization Activities (as defined) related to the patent portfolio. In addition, M2M will be entitled to receive from the Company $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio. No such payments were made by the Company during the three months ended March 31, 2024 and 2023.

[3] Leases

The Company has one operating lease for its principal office space in New Canaan, Connecticut that expires on April 30, 2025. The Company pays a base rent of $5,500 for such office space. On September 29, 2023, the Company exercised its early termination right under the lease effective December 31, 2023 which was subsequently extended to March 31, 2024. On March 28, 2024, the Company agreed to revoke its exercise of its early termination right and the lease expires on April 30, 2025.

The calculated incremental borrowing rate was approximately 4.2%, which was calculated based on the remaining lease term of 3 years as of May 1, 2022. There are no material residual guarantees associated with the Company’s lease and there are no significant restrictions or covenants included in the Company’s lease agreement.

The remaining lease term as of March 31, 2024 is thirteen (13) months.

Right of use lease assets and related lease obligations for the Company’s operating leases were recorded in the unaudited condensed consolidated balance sheets as follows:

             
   

As of

March 31, 2024

    As of
December 31, 2023
 
                 
Operating lease right-of-use assets   $ 75,000     $ 16,000  
                 
Operating lease obligations – current   $ 57,000     $ 23,000  
Operating lease obligations – non-current     24,000        
Total lease obligations   $ 81,000     $ 23,000  
                 

 

The table below presents certain information related to the Company’s lease costs for the period ended:

 

                 
    For the Three Months
Ended March 31,
 
   

2024

   

2023

 
                 
Operating lease cost   $ 17,000     $ 19,000  
Short-term lease cost            
Total lease cost   $ 17,000     $ 19,000  

 

 

 

Future lease payments included in the measurement of lease liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2024, were as follows:

 

         
    Operating Leases  
2024 – remaining period   $ 59,000  
2025     26,000  
Total future minimum lease payments     85,000  
Less imputed interest     (4,000 ) 
Total operating lease liability   $ 81,000