Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Summary of Significant Accounting Policies [Abstract] | |
Principles of consolidation and financial statement presentation | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Principles of consolidation and financial statement presentation |
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The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements of the Company and its wholly owned and majority owned subsidiaries as of December 31, 2013. |
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The consolidated financial statements include the accounts and operations of: |
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Quest Patent Research Corporation (“The Company”) |
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Quest Licensing Corporation (1) |
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Quest Packaging Solutions Corporation (90% owned) |
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Quest Nettech Corporation (wholly owned) |
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| -1 | Quest Licensing Corporation was a wholly owned subsidiary of the Company through October 31, 2012 when 50% of its issued and outstanding shares were transferred to Allied Standard Limited (see NOTE 1). Subsequent to October 31, 2012, the Company did not include Quest Licensing Corporation in its consolidated financial statements since there are significant contingencies related to the control of Quest Licensing Corporation. | | | | | | |
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The operations of Wynn Technologies Inc. are not included in the Company’s consolidated financial statements as there are significant contingencies related to its control of Wynn Technologies Inc. |
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The Company accounts for Quest Licensing Corporation and Wynn Technologies, Inc. under the equity method whereby the investment accounts are increased for contributions by the Company plus its 50% and 60% shares of income, respectively, and reduced for distributions and its 50% and 60% shares of loses incurred, respectively, with the restriction whereby the account balances cannot go below zero. |
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Significant intercompany transaction and balances have been eliminated in consolidation. |
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Pro Forma Financial Information (unaudited) | Pro Forma Financial Information (unaudited) |
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The pro forma financial information set forth below is based upon our historical consolidated statements of operations for the years ended December 31, 2013 and 2012, adjusted to give effect to the deconsolidation of Quest Licensing as if it had occurred on January 1, 2012. |
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The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the deconsolidation occurred on January 1, 2012, nor does it purport to represent the results of future operations (in thousands): |
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| | Year Ended | |
| | 31-Dec | | | 31-Dec | |
2013 | 2012 |
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Statement of operations: | | | | | | |
Revenue | | $ | 74,555 | | | $ | 260,975 | |
Cost of goods sold | | | 22,066 | | | | 77,539 | |
Gross profit | | | 52,489 | | | | 183,436 | |
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Selling, general and administrative expenses | | | (901,838 | ) | | | (789,342 | ) |
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Other expenses | | | (21,750 | ) | | | (21,750 | ) |
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Net loss | | | (871,099 | ) | | | (627,656 | ) |
Net loss attributable to non-controlling interest in subsidiaries | | | (62 | ) | | | (2,672 | ) |
Net loss attributable to Quest Patent Research Corporation | | $ | (871,161 | ) | | $ | (630,328 | ) |
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Use of Estimates | Use of Estimates |
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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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Cash and Cash Equivalents | Cash and Cash Equivalents |
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The Company considers all highly liquid investments with original maturity dates of three months or less when purchased, to be cash equivalents. |
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Accounts Receivable | Accounts Receivable |
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Accounts receivable are recorded at the invoiced amount. Any allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses to the Company’s existing accounts receivable. No allowance for doubtful accounts was recorded for the year ended December 31, 2013. |
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Intangible Assets | Intangible Assets |
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Intangible assets consist of patents which are amortized using the straight-line method over their estimated useful lives or statutory lives whichever is shorter and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to impairment of long-lived assets. |
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Impairment of long-lived assets | Impairment of long-lived assets |
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Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. |
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Fair value of financial instruments | Fair value of financial instruments |
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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. |
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The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows: |
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Level 1 – Quoted prices in active markets for identical assets or liabilities. |
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Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
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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. |
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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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Revenue Recognition | Revenue Recognition |
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Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable and, (iv) the collectability of amounts is reasonable assured. |
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License Service Fees |
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In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for the term agreement renewals, and when all other revenue recognition criteria have been met. |
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Certain of the Company’s revenue arrangements provide for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management. |
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Amounts related to revenue arrangements that do not meet the revenue recognition criteria described above are deferred until the revenue recognition criteria are met. |
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The Company assesses the collectability of fees receivable based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectability becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash. |
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Packaging Sales |
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The Company’s packaging operation customers are end users. Revenues from packaging sales, less reserves for returns, are recognized upon shipment to the customer. |
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Research and development | Research and development |
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Research and development costs are expensed as incurred. |
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Income Taxes | Income Taxes |
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Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of events that have been included in the consolidated financial statements or income tax returns. Deferred income tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse. |
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In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards. |
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The Company also follows the guidance related to accounting for income tax uncertainties effective November 1, 2007. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of December 31, 2013 and in the interim periods. |
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Share-based compensation | Share-based compensation |
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The Company accounts for share-based awards issued to employees and non-employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation” effective February 1, 2006. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period , which is normally the vesting period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. |
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Prior to February 1, 2006 and as permitted by ASC 718, the Company accounted for their stock options in accordance with APB 25, “Accounting for Stock Issued to Employees.” Employee stock options are granted at or above the market price at dates of grant which does not require the Company to recognize any compensation expense. |
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The Company adopted ASC 718 (then SFAS123R) on February 1, 2006 using the modified prospective method. In accordance with such method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of ASC 718. |
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Earnings (loss) per share | Earnings (loss) per share |
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Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share calculation. Because the Company incurred losses in all period covered by the financial statements, the diluted earnings per shares is the same as the basic earnings per share. |
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Concentration of credit risk | Concentration of credit risk |
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We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits. We have not experienced any such losses in these accounts. |
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Recently adopted accounting standards | Recently adopted accounting standards |
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Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition. |
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