·
|
On November 13, 2017, a jury empaneled in Network-1's patent infringement litigation in the United States District Court for the Eastern District of Texas, Tyler Division, found that certain claims of Network-1's Remote Power Patent were invalid and not infringed by Hewlett-Packard (the "HP Jury Verdict"). On February 2, 2017, Network-1 moved to throw out the HP Jury Verdict and have the District Court determine that certain claims of the Remote Power Patent are not obvious (invalid) as a matter of law by filing motions for judgment as a matter of law on validity and a new trial on validity and infringement. A hearing on the motions is currently scheduled for May 14, 2018. The HP Jury Verdict had a material adverse effect on Network-1's business, results of operations and cash-flow for the quarter ended December 31, 2017 and may continue to do so in the future. Several of Network-1's largest licensees for its Remote Power Patent advised Network-1 that they will no longer pay ongoing royalties to Network-1 pursuant to their license agreements. Network-1 disagrees with the position taken by such licensees for, among other reasons, that the HP Jury Verdict has not been subject to an order of the District Court and may be thrown out as a result of motion practice in the District Court. If Network-1 is unable to satisfactorily resolve the issue, it intends to pursue arbitration. If the District Court subsequently issues an order confirming the HP Jury Verdict and finding certain claims of the Remote Power Patent obvious (invalid), and Network-1 is unable to overturn such order on appeal to the United States Court of Appeals for the Federal Circuit, certain of its licensees will not be obligated to pay Network-1 ongoing royalties and other licensees, including Cisco, Network-1's largest licensee, will likely continue not to pay royalties unless there is an arbitration ruling that the District Court order does not affect the obligation of such licensees to continue to pay royalties to Network-1.
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·
|
On May 9, 2017, Network-1's wholly-owned subsidiary, Mirror Worlds Technologies, LLC, initiated patent litigation against Facebook, Inc. in United States District Court for the Southern District of New York for infringement of U.S. Patent No. 6,006,227, U.S. Patent No. 7,865,538 and U.S. Patent No. 8,255,439, patents within Network-1's Mirror Worlds Patent Portfolio. The lawsuit alleges that the aforementioned patents are infringed by Facebook's core technologies that enable Facebook's Newsfeed and Timeline features. The lawsuit further alleges that Facebook's unauthorized use of the stream based solutions of the asserted patents has helped Facebook become the most popular social networking site in the world.
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·
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On June 14, 2017, the Board of Directors of Network-1 authorized an extension and increase of Network-1's Share Repurchase Program to repurchase up to $5,000,000 of its common stock over the subsequent 24 month period. During the year ended December 31, 2017, Network-1 repurchased an aggregate of 649,549 shares of its common stock pursuant to its Share Repurchase Program at a cost of $2,081,135 (exclusive of commissions) or an average price per share of $3.20 per share. Since inception of the Share Repurchase Program (August 2011) through December 31, 2017, Network-1 has repurchased an aggregate of 7,575,553 shares of its common stock at a cost of $13,545,008 (exclusive of commissions) or an average per share price of $1.79 per share.
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·
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On October 16, 2017, the U.S. Bankruptcy Court of the Southern District of New York approved the Network-1's settlement with Avaya, Inc. ("Avaya"). As part of the settlement, Avaya, which on January 19, 2007 had filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, entered into a non-exclusive license agreement for the full term of the Remote Power Patent. Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated Power over Ethernet ("PoE") products, and an ongoing royalty for other designated PoE products. In addition, Avaya agreed that Network-1 had an allowed general unsecured claim in the amount of $37,500,000, as amended, relating to all acts occurring on or before January 19, 2017. On January 9, 2018, the Company sold its allowed general unsecured claim of $37,500,000 against Avaya, Inc. for $6,320,000 to an unaffiliated third party.
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·
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On December 29, 2017, Network-1 acquired from M2M and IoT Technologies, LLC ("M2M") the M2M/IoT Patent Portfolio consisting of twelve (12) issued United States patents relating to, among other things, the enabling technology for authenticating and using embedded SIM cards in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers as well as automobiles and drones. It is estimated that the annual sales of devices making use of embedded SIM technology will exceed 900 million units by 2021 as they are used in an extremely wide assortment of connected devices.
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·
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On December 7, 2016, the Board of Directors of Network-1 approved the initiation of a dividend policy providing for the payment of a semi-annual dividend of $0.05 per common share ($0.10 per common share annually) commencing in 2017. Network-1 anticipates paying the semi-annual dividends in March and September of each year. It is anticipated that the semi-annual dividend will continue to be paid through March 2020 (the expiration of Network-1's Remote Power Patent) provided that Network-1 continues to receive royalties from licensees of its Remote Power Patent. On February 2, 2017, the Board of Directors of Network-1 declared an initial semi-annual cash dividend of $0.05 per common share with a payment date of March 24, 2017 to all common stockholders of record as of March 3, 2017. On July 25, 2017, the Board of Directors declared a semi-annual cash dividend of $0.05 per share with a payment date of September 20, 2017 to all common stockholders of record as of September 1, 2017. Network-1's dividend policy undergoes a periodic review by the Board of Directors and is subject to change at any time depending on Network'1 earnings, financial requirements and other factors existing at the time. Future declarations of semi-annual cash dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board of Directors.
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·
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On November 1, 2017, defendant Juniper Networks, Inc. ("Juniper"). agreed to settle its litigation with Network-1 for $13,250,000 for a fully-paid license to the Remote Power Patent. On December 8, 2017, Network-1 was advised by Juniper that it would not make the settlement payment as a result of the HP Jury Verdict and that there was no binding settlement agreement. On January 16, 2018, Network-1 revised and closed its settlement with defendant Juniper. Network-1 agreed to revise the settlement to avoid the possibility of protracted litigation regarding enforcing the settlement. Under the terms of the revised settlement Juniper paid Network-1 $12,700,000 and received a fully-paid license to the Remote Power Patent (and certain other patents owned by Network-1) for its full term, which applies to its sales of PoE products.
|
Years Ended
December 31, |
||||||||
2017
|
2016
|
|||||||
REVENUE
|
$
|
16,451,000
|
$
|
65,088,000
|
||||
OPERATING EXPENSES:
|
||||||||
Costs of revenue
|
4,970,000
|
25,794,000
|
||||||
Professional fees and related costs
|
2,057,000
|
2,590,000
|
||||||
General and administrative
|
2,255,000
|
2,782,000
|
||||||
Amortization of patents
|
206,000
|
813,000
|
||||||
Stock-based compensation
|
949,000
|
509,000
|
||||||
Contingent patent cost
|
―
|
500,000
|
||||||
TOTAL OPERATING EXPENSES
|
10,437,000
|
32,988,000
|
||||||
OPERATING INCOME
|
6,014,000
|
32,100,000
|
||||||
OTHER INCOME:
|
||||||||
Interest income, net
|
215,000
|
61,000
|
||||||
INCOME BEFORE INCOME TAXES
|
6,229,000
|
32,161,000
|
INCOME TAXES:
|
||||||||
Current
|
2,057,000
|
4,187,000
|
||||||
Deferred taxes, net
|
39,000
|
4,751,000
|
||||||
Total income taxes
|
2,096,000
|
8,938,000
|
||||||
NET INCOME
|
$
|
4,133,000
|
$
|
23,223,000
|
||||
Net Income Per Share
|
||||||||
Basic
|
$
|
0.17
|
$
|
1.00
|
||||
Diluted
|
$
|
0.16
|
$
|
0.93
|
||||
Weighted average common shares outstanding: | ||||||||
Basic
|
24,147,908 | 23,320,065 | ||||||
Diluted
|
26,396,160 | 24,885,282 | ||||||
Cash dividends declared per share
|
$
|
0.10
|
―
|
|||||
NET INCOME
|
$
|
4,133,000
|
$
|
23,223,000
|
||||
OTHER COMPREHENSIVE INCOME (LOSS):
|
||||||||
Unrealized holding gain (loss) on securities available-for-sale arising during the year
|
(11,000)
|
|
4,000
|
|||||
Total other comprehensive income (loss)
|
(11,000)
|
|
4,000
|
|||||
COMPREHENSIVE INCOME
|
$
|
4,122,000
|
$
|
23,227,000
|
Cash and cash equivalents
|
$
|
53,101,000
|
||
Total current assets
|
$
|
54,938,000
|
||
Total assets
|
$
|
57,294,000
|
||
Total current liabilities
|
$
|
2,882,000
|
||
Total long term liabilities
|
$
|
-0-
|
||
Total stockholders' equity
|
$
|
54,412,000
|
||