UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
_________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________ |
Commission
File Number
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§223.405) of this chapter during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company |
||
| Emerging growth company |
||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares of the registrant’s common stock, $.01 par value per share, outstanding as of November 10, 2022 was .
-1-
NETWORK-1 TECHNOLOGIES, INC.
Form 10-Q Index
-2-
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to future performance and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Factors that could cause or contribute to such differences include various risks and uncertainties described below and elsewhere in this Quarterly Report on Form 10-Q as well as in our Annual Report on Form 10-K for the year ended December 31, 2021 (filed with the SEC on March 30, 2022). Furthermore, such forward-looking statements speak only as of the date of this report. Such risks and uncertainties include, but are not limited to, the following:
| • | our uncertain revenue; |
| • | uncertainty of the outcome of our pending litigations; |
| • | our ability to achieve future revenue from our patent portfolios; |
| • | our ability to protect our patents; |
| • | our ability to execute our strategy to acquire or make investments in high quality patents with significant licensing opportunities; |
| • | our ability to enter into strategic relationships with third parties to license or otherwise monetize their intellectual property; |
| • | our ability to achieve a return on our investment in ILiAD Biotechnologies, LLC; |
| • | our ability to continue to acquire additional intellectual property; |
| • | uncertainty as to whether cash dividends will continue to be paid; |
| • | variations in our quarterly and annual operating results; |
| • | the risk that we may be determined to be a personal holding company in 2022 or future years which may result in our issuing a special cash dividend to our stockholders to the extent we have undistributed personal holding company income resulting in less cash available for our operations and strategic transactions; and |
| • | legislative, regulatory and competitive developments. |
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2022 | December 31, 2021 | |||||||
ASSETS
CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities, at fair value | ||||||||
| Prepaid taxes | ||||||||
| Other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| OTHER ASSETS: | ||||||||
| Patents, net of accumulated amortization | ||||||||
| Equity investment | ||||||||
| Convertible note investment | ||||||||
| Operating leases right of - use asset | ||||||||
| Security deposits | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY:
CURRENT LIABILITIES: | ||||||||
| Income taxes payable | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued contingency fees and related costs | ||||||||
| Accrued payroll | ||||||||
| Other accrued expenses | ||||||||
| Operating lease obligation, current | ||||||||
| Total current liabilities | ||||||||
| LONG TERM LIABILITIES: | ||||||||
| Deferred tax liability | ||||||||
| Operating lease obligation, noncurrent | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (Note G) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value, authorized shares; issued and outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; authorized shares; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Costs of revenue | ||||||||||||||||
| Professional fees and related costs | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of patents | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| OPERATING INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| OTHER INCOME: | ||||||||||||||||
| Interest and dividend income, net | ||||||||||||||||
| Gain on conversion of note | ||||||||||||||||
| Gain on equity method investment | ||||||||||||||||
| Net realized and unrealized loss on marketable securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income, net | ||||||||||||||||
| INCOME BEFORE INCOME TAXES AND EQUITY IN NET LOSSES OF EQUITY METHOD INVESTEE | ||||||||||||||||
| INCOME TAXES PROVISION: | ||||||||||||||||
| Current | ( | ) | ( | ) | ||||||||||||
| Deferred taxes, net | ( | ) | ||||||||||||||
| Total income tax expense | ||||||||||||||||
| INCOME (LOSS) BEFORE SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE: | $ | $ | ||||||||||||||
| SHARE OF NET LOSS OF EQUITY METHOD INVESTEE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET INCOME (LOSS) | $ | $ | $ | ( | ) | $ | ||||||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | $ | $ | ( | ) | $ | ||||||||||
| Diluted | $ | $ | $ | ( | ) | $ | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Cash dividends declared per share | $ | $ | $ | $ | ||||||||||||
| NET INCOME (LOSS) | $ | $ | $ | ( | ) | $ | ||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
Net unrealized holding gain (loss) on corporate bonds and notes arising during the period, net of tax | ( | ) | ( | ) | ||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | $ | ( | ) | $ | ||||||||||
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Income | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) | Equity | |||||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Dividends and dividend equivalents declared | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | ||||||||||||||||||||||
| Value of shares delivered to pay withholding taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net unrealized loss on corporate bonds and notes | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Dividend equivalents rights declared | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Treasury stock purchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net unrealized loss on corporate bonds and notes | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Dividend and dividend equivalents rights declared | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Treasury stock purchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net unrealized gain on corporate bonds and notes | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Income | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) | Equity | |||||||||||||||||||
| Balance – January 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Dividends and dividend equivalents declared | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Net unrealized gain on corporate bonds and notes | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Treasury shares purchased and retired | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net unrealized loss on corporate bonds and notes | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Dividends and dividend equivalents declared | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Net other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| used in operating activities: | ||||||||
| Amortization of patents | ||||||||
| Stock-based compensation | ||||||||
| Loss allocated from equity method investment | ||||||||
| Deferred tax expense | ||||||||
| Amortization of right of use asset, net | ||||||||
| Gain on equity method investment | ( | ) | ||||||
| Accrued interest on convertible note | ( | ) | ||||||
| Gain on conversion of note | ( | ) | ||||||
| Unrealized loss on marketable securities | ||||||||
| Changes in operating asset and liabilities: | ||||||||
| Other current assets | ||||||||
| Prepaid taxes | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Security deposit | ||||||||
| Operating lease obligations | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Sales of marketable securities | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Development of patents | ( | ) | ( | ) | ||||
| Equity Investment | ( | ) | ||||||
| Convertible note investment | ( | ) | ||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Value of shares delivered to fund withholding taxes | ( | ) | ||||||
| Repurchases of common stock, inclusive of commissions | ( | ) | ( | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES: | ( | ) | ( | ) | ||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| NON-CASH FINANCING ACTIVITIES | ||||||||
| Accrued dividend rights on restricted stock units | $ | $ | ||||||
| Right of use asset obtained in exchange for lease liability | $ | $ | ||||||
| Conversion of note receivable | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NETWORK-1 TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS
[1] BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited, but, in the opinion of the management of Network-1 Technologies, Inc. (the “Company”), contain all adjustments consisting only of normal recurring items which the Company considers necessary for the fair presentation of the Company’s financial position as of September 30, 2022, and the results of its operations and comprehensive income (loss) for the three and nine month periods ended September 30, 2022 and September 30, 2021, changes in stockholders’ equity for the nine month periods ended September 30, 2022 and September 30, 2021, and its cash flows for the nine month periods ended September 30, 2022 and September 30, 2021. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP may have been omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2022. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, Mirror Worlds Technologies, LLC. and HFT Solutions, LLC.
On March 17, 2022, the Company formed HFT Solutions, LLC for the purpose of acquiring its HFT patent portfolio (see Note G[2] hereof). All intercompany balances and transactions have been eliminated in consolidation.
[2] BUSINESS
The
Company is engaged in the development, licensing and protection of its intellectual property assets. The Company presently owns ninety-six
(
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NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
The Company had been dependent upon its Remote Power Patent for a significant portion of its revenue. The Company no longer receives licensing revenue for its Remote Power Patent for any period subsequent to March 7, 2020 (the expiration date of the patent). The Company’s future revenue is largely dependent on its ability to monetize its other patent assets.
The Company’s current strategy includes continuing to pursue licensing opportunities for its patent portfolios. In addition, the Company reviews opportunities to acquire or license additional intellectual property as well as other strategic alternatives. The Company’s patent acquisition and development strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as the Company has achieved with respect to its Remote Power Patent and Mirror Worlds Patent Portfolio. In addition, the Company may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property.
During
the period December 2018 through August 2022, the Company made an aggregate investment of $
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| [1] | Use of Estimates and Assumptions |
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company’s unaudited condensed consolidated financial statements include legal fees and related costs, income taxes, valuation of patents, and equity method investments, including evaluation of the Company’s basis difference. Actual results could be materially different from those estimates, upon which the carrying values were based.
| [2] | Cash and Cash Equivalents |
The
Company maintains cash deposits in high quality financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).
Accounts at each institution are insured by the FDIC up to $
-10-
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company considers all highly liquid short-term investments, including certificates of deposit and money market funds, that are purchased with an original maturity of three months or less to be cash equivalents.
| [3] | Marketable Securities |
The Company’s marketable securities are comprised of certificates of deposit, with original maturity greater than three months from date of purchase, government securities, fixed income mutual funds, and a corporate bond. The Company’s marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit, government securities, and fixed income mutual funds are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations and comprehensive income (loss).
Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as a separate component of stockholders’ equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities.
| [4] | Revenue Recognition |
Under ASC 606, revenue is recognized when the Company completes the licensing of its intellectual property to its licensees, in an amount that reflects the consideration the Company expects to be entitled to in exchange for licensing its intellectual property.
The Company determines revenue recognition through the following steps:
| • | identification of the license agreement; |
| • | identification of the performance obligations in the license agreement; |
| • | determination of the consideration for the license; |
| • | allocation of the transaction price to the performance obligations in the contract; and |
| • | recognition of revenue when the Company satisfies its performance obligations. |
The Company relies on royalty reports received from third party licensees to record its revenue. From time to time, the Company may audit or otherwise dispute royalties reported from licensees. Any adjusted royalty revenue as a result of such audits or dispute is recorded by the Company in the period in which such adjustment is agreed to by the Company and the licensee or otherwise determined.
Revenue from the Company’s patent licensing business is generated from negotiated license agreements. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the terms of each agreement and the nature of the obligations of the parties. These agreements may include, but not be limited to, elements related to past infringement liabilities, non-refundable upfront license fees, and ongoing royalties on licensed products sold by the licensee. Generally, in the event of a litigation settlement related to the Company’s assertion of patent infringement involving its intellectual property, defendants will either pay (i) a non-refundable lump sum payment for a non-exclusive fully-paid license, or (ii) a non-refundable lump sum payment (license initiation fee) together with an ongoing obligation to pay quarterly or monthly royalties to the Company for the life of the licensed patent.
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NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| [5] | Equity Method Investments |
Equity method investments are equity securities in entities the Company does not control but over which it has the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures (see Note J hereof). Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss. The Company’s proportionate share of the income or loss from equity method investments is recognized on a one-quarter lag. When the Company’s carrying value in an equity method investment is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.
Upon a sale of an equity method investment by the Company, the difference between sales proceeds and the carrying amount of the equity investment is recognized in profit or loss. Upon the issuance of securities by the equity method investee in an observable price transaction, the Company will account for the share issuance by an investee as if the Company had sold a proportionate share of its investment in the transaction and records a gain or loss associated with the Company’s dilution of its investment with respect to the transaction. As such the Company will increase or decrease its basis in the non-marketable equity of the investee and record a gain or loss associated with the dilution of the investment basis based on the fair value indicated by the issuance of the securities. The resulting gain or loss related to the dilution is recorded within other income or expense in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss).
| [6] | Income Taxes |
The
Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 740, Income Taxes (ASC 740), which requires the Company to use the assets and liability method of accounting for income
taxes. Under the assets and liability method, deferred income taxes are recognized for the tax consequences of temporary (timing) differences
by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the
tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect
on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. As of
September 30, 2022, the Company had total deferred tax assets generated from the Company’s activities totaling $
-12-
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC 740-10, Accounting for Uncertainty in Income Taxes, defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company had no uncertain tax positions as of September 30, 2022.
The Company recognizes interest and penalties related to income tax in the income tax provision in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
U.S. federal, state and local income tax returns prior to 2019 are not subject to examination by any applicable tax authorities, except that tax authorities could challenge returns (only under certain circumstances) for earlier years to the extent they generated loss carry-forwards that are available for those future years.
The personal holding company (“PHC”) rules under the Internal Revenue Code impose a 20% tax on a PHC’s undistributed personal holding company income (“UPHCI”), which means, in general, taxable income subject to certain adjustments and reduced by certain distributions to shareholders. For a corporation to be classified as a PHC, it must satisfy two tests: (i) that more than 50% in value of its outstanding shares must be owned directly or indirectly by five or fewer individuals at any time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the “Ownership Test”) and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the “Income Test”).
During the second half of 2022 through October 2022, based on available information concerning the Company’s shareholder ownership, the Company did not satisfy the Ownership Test. However, the Company may subsequently be determined to be a PHC in 2022 or in future years if it satisfies both the Ownership Test and Income Test. If the Company were to become a PHC in 2022 or any future year, it would be subject to the 20% tax on its UPHCI. In such event, the Company may issue a special cash dividend to its shareholders in an amount equal to the UPHCI rather than incur the 20% tax.
| [7] | Leases |
Under ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use (“ROU”) assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's determined incremental borrowing rate is a hypothetical rate based on its understanding of what the Company's credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received and net of the deferred rent balance on the date of implementation. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options. As permitted under ASC 842, the Company has elected to not recognize ROU assets and related lease obligations for leases with terms of twelve months or less.
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NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| [8] | Reclassifications |
Certain amounts in prior periods’ unaudited condensed consolidated financial statements have been recast and reclassified to conform to the current year’s presentation.
NOTE C – PATENTS
The
Company’s intangible assets at September 30, 2022 include patents with estimated remaining economic useful lives ranging from
| September 30, 2022 | December 31, 2021 | |||||||
| Gross carrying amount – patents | $ | $ | ||||||
| Accumulated amortization – patents | ( | ) | ( | ) | ||||
| Patents, net | $ | $ | ||||||
Amortization
expense for the three months ended September 30, 2022 and 2021 was $
| Twelve Months Ended September 30, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
All
of the patents within the Cox Patent Portfolio expired in September 2021 except for two patents which expire in
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Restricted Stock Units
The 2013 Stock Incentive Plan (“2013 Plan”) provides for the grant of any or all of the following types of awards: (a) stock options, (b) restricted stock, (c) deferred stock, (d) stock appreciation rights, and (e) other stock-based awards including restricted stock units. Awards under the 2013 Plan may be granted singly, in combination, or in tandem. Subject to standard anti-dilution adjustments as provided, the 2013 Plan provides for an aggregate of 2,600,000 shares of the Company’s common stock to be available for distribution. The Company’s Compensation Committee generally has the authority to administer the 2013 Plan, determine participants who will be granted awards, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. Awards under the 2013 Plan may be granted to employees, directors and consultants of the Company and its subsidiaries. As of September 30, 2022, there were shares of common stock available for issuance under the 2013 Plan.
During the three months ended September 30, 2022, the Company adopted the Network-1 2022 Stock Incentive Plan (“2022 Plan”), by the Company’s Board of Directors on July 25, 2022 and its stockholders on September 20, 2022. The 2022 Plan provides for the grant of any or all of the following types of awards: (a) stock options, (b) restricted stock units, (c) restricted stock, (d) deferred stock, (e) stock appreciation rights, (f) unrestricted stock awards and (g) other stock-based awards. Awards under the 2022 Plan may be granted singly, in combination, or in tandem. Subject to standard anti-dilution adjustments as provided, the 2022 Plan provides for an aggregate of 2,300,000 shares of the Company’s common stock to be available for distribution. The Company’s Compensation Committee generally has the authority to administer the 2022 Plan, determine participants who will be granted awards, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. Awards under the 2022 Plan may be granted to employees, directors and consultants of the Company and its subsidiaries. As of September 30, 2022, shares of common stock available for issuance under the 2022 Plan.
The Company intends to discontinue issuing awards under its 2013 Stock Incentive Plan as a result of the adoption of the 2022 Plan.
A summary of restricted stock unit activity for the nine months ended September 30, 2022 is as follows (each restricted stock unit issued by the Company represents the right to receive one share of the Company’s common stock):
| Number of Shares | Weighted-Average Grant Date Fair Value | |||||||
| Balance of restricted stock units outstanding at December 31, 2021 | $ | |||||||
| Grants of restricted stock units | ||||||||
| Vested restricted stock units | ( | ) | ( | ) | ||||
| Balance of restricted stock units outstanding at September 30, 2022 | $ | |||||||
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NOTE D – STOCK-BASED COMPENSATION (continued)
Restricted stock unit compensation expense was $ and $ for the three months ended September 30, 2022 and 2021, respectively. Restrictedstock unit expense was $ and $ for the nine months ended September 30, 2022 and 2021, respectively. Stock-based compensationexpense is included in general and administrative expenses on the unaudited condensed consolidated statement of operations and comprehensive income (loss).
The Company has an aggregate of $ of unrecognized restricted stock unit compensation as of September 30, 2022 to be expensed over a weighted average period of years.
All
of the Company’s outstanding (unvested) restricted stock units have dividend equivalent rights. As of September 30, 2022 and December
31, 2021, there was $
Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of outstanding common shares during the period. Diluted per share data includes the dilutive effects of options and restricted stock units. Potentially dilutive shares of and at September 30, 2022 and 2021, respectively, consisted of options and restricted stock units.
Computations of basic and diluted weighted average common shares outstanding were as follows:
Nine Months Ended | Three Months Ended | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted-average common shares outstanding – basic | ||||||||||||||||
| Dilutive effect of options and restricted stock units | ||||||||||||||||
| Weighted-average common shares outstanding – diluted | ||||||||||||||||
| Options and restricted stock units excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive | ||||||||||||||||
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NOTE F – MARKETABLE SECURITIES
Marketable securities as of September 30, 2022 and December 31, 2021 were composed of the following:
| September 30, 2022 |
Cost
| Gross Unrealized Gains
| Gross Unrealized Losses
| Fair Value
| |||||||||||||
| Certificates of deposit | $ | $ | $ | ( | ) | $ | ||||||||||
| Government securities | ( | ) | ||||||||||||||
| Fixed income mutual funds | ( | ) | ||||||||||||||
| Corporate bond | ( | ) | ||||||||||||||
| Total marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2021 |
Cost
| Gross Unrealized Gains
| Gross Unrealized Losses
| Fair Value
| |||||||||||||
| Fixed income mutual funds | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate bonds and notes | ( | ) | ||||||||||||||
| Total marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
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. 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[4] 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 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[3] 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 expenses incurred with respect to this litigation.
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NOTE G – COMMITMENTS AND CONTINGENCIES (continued)
| [2] | Patent Acquisitions |
On
March 25, 2022, the Company completed the acquisition of a new patent portfolio (HFT Patent Portfolio) consisting of six 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 $
In
connection with the Company’s acquisition of its Cox Patent Portfolio, the Company is obligated to pay Dr. Cox
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)
In
connection with the Company’s acquisition of its M2M/IoT Patent Portfolio, the Company is obligated to pay M2M
| [3] | Leases |
The Company has one operating lease for its principal office space in New Canaan, Connecticut that will expire on April 30, 2025.
There are no material residual guarantees associated with any of the Company’s leases and there are no significant restrictions or covenants included in the Company’s lease agreements.
The
calculated incremental borrowing rate was approximately
There was no sublease rental income for the three and nine months ended September 30, 2022, and the Company is not the lessor in any lease arrangement, and there were no related-party lease agreements.
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NOTE G – COMMITMENTS AND CONTINGENCIES (continued)
Right of use lease assets and related lease obligations for the Company’s operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:
| As of | As of | |||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease obligations – current | ||||||||
| Operating lease obligations – non-current | ||||||||
| Total lease obligations | $ | $ | ||||||
The table below presents certain information related to the Company’s lease costs for the period ended:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Future lease payments included in the measurement of lease liabilities on the unaudited condensed consolidated balance sheet as of September 30, 2022, were as follows:
| Operating Leases | |||||
| 2022 – remaining period | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Total future minimum lease payments | |||||
| Less imputed interest | ( | ) | |||
| Total operating lease liability | $ | ||||
NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS
[1]
On March 22, 2022, the Company entered into a new employment agreement (“Agreement”) with its Chairman and Chief Executive
Officer, pursuant to which he continues to serve as the Company’s Chairman and Chief Executive Officer for a four year term (“Term”),
at an annual base salary of $
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NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
In
addition, pursuant to the Agreement, the Company granted the Chairman and Chief Executive Officer, under its 2013 Plan,
Under
the terms of the Agreement (which terms are substantially the same as the prior employment agreement with the Chairman and Chief Executive
Officer), so long as the Chairman and Chief Executive Officer continues to serve as an executive officer of the Company, whether pursuant
to the Agreement or otherwise, the Chairman and Chief Executive Officer shall also receive incentive compensation in an amount equal
to 5% of the Company’s gross royalties or other payments from Licensing Activities (as defined) (without deduction of legal fees
or any other expenses) with respect to its Remote Power Patent and a 10% net interest (gross royalties and other payments after deduction
of all legal fees and litigation expenses related to licensing, enforcement and sale activities, but in no event shall he receive less
than 6.25% of the gross recovery) of the Company’s royalties and other payments relating to Licensing Activities with respect to
patents other than the Remote Power Patent (including all of the Company’s patent portfolios and its investment in ILiAD Biotechnologies)
(collectively, the “Incentive Compensation”). During the three and nine months ended September 30, 2022, the Chairman and
Chief Executive Officer did
The Incentive Compensation shall continue to be paid to the Chairman and Chief Executive Officer for the life of each of the Company’s patents with respect to licenses entered into with third parties during the term of his employment or at any time thereafter, whether he is employed by us or not; provided, that, the employment of the Chairman and Chief Executive Officer has not been terminated by the Company “For Cause” (as defined) or terminated by him without “Good Reason” (as defined). In the event of a merger or sale of substantially all of the Company’s assets,
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NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
the
Company has the option to extinguish the right of the Chairman and Chief Executive Officer to receive future Incentive Compensation by
payment to him of a lump sum payment, in an amount equal to the fair market value of such future interest as determined by an independent
third party expert if the parties do not reach agreement as to such value. In the event that the Chairman and Chief Executive Officer’s
employment is terminated by the Company “Other Than For Cause” (as defined) or by him for “Good Reason” (as defined),
the Chairman and Chief Executive Officer shall also be entitled to (i) a lump sum severance payment of 12 months base salary, (ii) a
pro-rated portion of the $
In connection with the Agreement, the Chairman and Chief Executive Officer has also agreed not to compete with the Company as follows: (i) during the term of the Agreement and for a period of 12 months thereafter if his employment is terminated “Other Than For Cause” (as defined) provided he is paid his 12 month base salary severance amount and (ii) for a period of two years from the termination date, if terminated “For Cause” by the Company or “Without Good Reason” by the Chairman and Chief Executive Officer.
[2]
The Company’s Chief Financial Officer serves on an at-will basis at an annual base salary of $
[3]
The Company’s Executive Vice President serves on an at-will basis at an annual base salary of $
NOTE I – LEGAL PROCEEDINGS AND DISPUTES
[1]
On March 30, 2021, the Company entered into an amendment (the “Amendment”) to the Settlement and License Agreement, dated
May 25, 2011, between the Company and Cisco (the “Agreement”). Pursuant to the Amendment, Cisco paid $
[2]
On July 26, 2021, the Company agreed to settle its patent litigation against Hewlett-Packard Company and Hewlett-Packard Enterprise
Company (collectively, “HP”) pending in the U.S. District Court for the Eastern District of Texas, Tyler Division, for infringement
of the Company’s Remote Power Patent. Under the terms of the settlement agreement, Hewlett-Packard Enterprise Company paid the
Company $
[3] On April 4, 2014 and December 3, 2014, the Company initiated litigation against Google Inc. (“Google”) and YouTube, LLC (“YouTube”) in the U.S. District Court for the Southern District of New York for infringement of several of its patents within its Cox Patent Portfolio acquired from Dr. Cox which relate to the identification of media content on the Internet. The lawsuit alleges that Google and YouTube have infringed and continue to infringe certain of the Company’s patents by making, using, selling and offering to sell unlicensed systems and related products and services, which include YouTube’s Content ID system. The litigations against Google and YouTube were subject to court ordered stays which were in effect from July 2, 2015 until January 2, 2019 as a result of proceedings at the Patent Trial and Appeal Board (PTAB) and the appeals of PTAB Final Written Decisions to the U.S. Court of Appeals for the Federal Circuit. Pursuant to a Joint Stipulation and Order Regarding Lifting of Stays, entered on January 2, 2019, the parties agreed, among other things, that the stays with respect to the litigations were lifted. In January 2019, the two litigations against Google and YouTube were consolidated. Discovery has been substantially completed and a trial date has not yet been set.
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NOTE I – LEGAL PROCEEDINGS AND DISPUTES (continued)
[4]
On May 9, 2017, Mirror Worlds Technologies, LLC, the
On March 7, 2022, the District Court entered a ruling granting in part and denying in part a motion for summary judgment by Facebook. In its ruling the Court (i) denied Facebook’s motion that the asserted patents were invalid by concluding that all asserted claims were patent eligible under §101 of the Patent Act and (ii) granted summary judgment of non-infringement in favor of Facebook and dismissed the case. The Company strongly disagrees with the decision of the District Court on non-infringement and on April 4, 2022, the Company filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On April 18, 2022, Facebook filed a notice of cross-appeal with respect to the Court’s ruling on validity. On September 19, 2022, the Company filed its brief on the appeal.
[5] On December 15, 2020, the Company filed a lawsuit against NETGEAR, Inc. (“Netgear”) in the Supreme Court of the State of New York, County of New York, for breach of a Settlement and License Agreement, dated May 22, 2009, with the Company (the “Agreement”) for failure to make royalty payments, and provide corresponding royalty reports, to the Company based on sales of Netgear’s PoE products. On October 22, 2021, Netgear filed a Demand for Arbitration at the American Arbitration Association (“AAA”) seeking to arbitrate certain issues raised in the litigation. The Company objected to jurisdiction at the AAA. On April 1, 2022, the Court denied Netgear’s motion to compel arbitration. On April 22, 2022, Netgear filed a counterclaim in the Court action alleging that the Company breached the Agreement by not offering Netgear lower royalties. On September 22, 2022, the arbitration brought by Netgear was dismissed by the AAA on jurisdiction grounds.
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NOTE J – INVESTMENT
During
the period December 2018 through August 2022, the Company made an aggregate investment of $
On
August 24, 2022, ILiAD completed a private financing of $
The Company has accounted for the transaction in accordance with ASC 323-10-40-1, which states that an equity method investor (the Company) shall account for a share issuance by an investee (ILiAD) as if the investor had sold a proportionate share of its investment in the transaction and records a gain or loss associated with the dilution of its investment. The difference between the securities of ILiAD owned by the Company and the securities sold in the Financing were not material. Accordingly, the Company valued its securities at the observable transaction price. Any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings.
In
addition, as part of the Financing, the Company converted its convertible note in the principal amount of $
For
the three months ended September 30, 2022 and 2021, the Company recorded an allocated net loss from its equity method investment in ILiAD
of $
The
difference between the Company’s share of equity in ILiAD’s net assets and the equity investment carrying value reported
on the Company’s unaudited condensed consolidated balance sheet at September 30, 2022 is due to an excess amount paid over the
book value of the investment totaling approximately $
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On
June 8, 2021, the Board of Directors authorized an extension and increase of the Company’s share repurchase program (the “Share
Repurchase Program”) to repurchase up to $
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of Treasury has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
NOTE L – CONCENTRATIONS
The
Company had no revenue for the three and nine months ended September 30, 2022. Revenue from one licensee constituted
NOTE M – DIVIDEND POLICY
The Company’s dividend policy consists of semi-annual cash dividends of $ per share ($per share annually) which are anticipated to be paid in March and September of each year. The Company paid dividends consistent with its policy in 2021 and 2022. The Company’s dividend policy undergoes a periodic review by the Board of Directors and is subject to change at any time depending upon the Company’s earnings, financial requirements and other factors existing at the time.
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NOTE N – RELATED PARTY TRANSACTION
On
June 1, 2022, the Company repurchased from a director, in a privately negotiated transaction, shares of its common stock at a
purchase price of $ per share or an aggregate consideration of $
NOTE O – SUBSEQUENT EVENTS
[1] On October 6, 2022, the Company commenced litigation against Arista Networks Inc., Fortinet, Inc., Honeywell International Inc. and Ubiquiti Inc. in four separate actions filed in the United States District Court, District of Delaware for infringement of its Remote Power Patent (U.S. Patent No. 6,218,930). The Company seeks monetary damages based upon reasonable royalties.
[2]
On October 27, 2022, the Company’s Chairman and Chief Executive Officer exercised a stock option to purchase shares
of the Company’s common stock at an exercise price of $
[3] On October 27, 2022 and November 3, 2022, the Company commenced litigation against TP-Link USA Corporation and Hikvision USA, Inc. in two separate actions filed in the United States District Court for the Central District of California for infringement of its Remote Power Patent. The Company seeks monetary damages based upon reasonable royalties.
[4] On November 4, 2022, the Company commenced litigation against Panasonic Holdings Corporation and Panasonic Corporation of North America in an action filed in the United States District Court for the Eastern District of Texas (Marshall Division) for infringement of its Remote Power Patent. The Company seeks monetary damages based on reasonable royalties.
[5] On November 11, 2022, the Company commenced litigation against Antaira Technologies, LLC in the United States District Court for the Central District of California for infringement of its Remote Power Patent. The Company seeks monetary damages based on reasonable royalties.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q.
OVERVIEW
Our principal business is the development, licensing and protection of our intellectual property assets. We presently own ninety-six (96) patents including: (i) our Cox Patent Portfolio relating to enabling technology for identifying media content on the Internet and taking further action to be performed after such identification; (ii) our M2M/IoT Patent Portfolio relating to, among other things, enabling technology for authenticating, provisioning and using embedded sim technology in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers; (iii) our HFT Patent Portfolio 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; (iv) our Mirror Worlds Patent Portfolio relating to foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system; and (v) our Remote Power Patent covering the delivery of power over Ethernet (PoE) cables for the purpose of remotely powering network devices, such as wireless access ports, IP phones and network based cameras. In addition, we continually review opportunities to acquire or license additional intellectual property as well as other strategic alternatives.
At September 30, 2022, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $48,923,000 and working capital of $48,555,000. Based on our cash position, we continually review opportunities to acquire additional intellectual property as well as evaluate other strategic opportunities.
During the period December 2018 through August 2022, we made an aggregate investment of $7,000,000 in ILiAD Biotechnologies, LLC (“ILiAD”), a clinical stage biotechnology company with an exclusive license to sixty-two (62) patents (see Note J to our unaudited condensed consolidated financial statements included herein). Our investment in ILiAD involves significant risk.
During the three and nine months ended September 30, 2022, we recorded a gain on our investment in ILiAD of $3,727,000 due to an observable transaction price and dilution to the Company’s ownership of ILiAD with respect to an ILiAD private offering as well as a gain on conversion of our convertible note from ILiAD of $271,000 as a result of the conversion of the convertible note in the private offering, (see Note J and Note B[5] to our unaudited condensed consolidated financial statements included herein).
We have been dependent upon our Remote Power Patent for a significant portion of our revenue. Our Remote Power Patent generated licensing revenue in excess of $187,000,000 from May 2007 through September 30, 2022. We no longer receive licensing revenue for our Remote Power Patent for any period subsequent March 7, 2020 (the expiration date of the patent). We recently commenced litigations against nine defendants involving our Remoter Power Patent for patent infringement for the period prior to March 7, 2020 (see Notes O[1], O[3], O[4] and O[5] to our unaudited condensed consolidated financial statements).
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Our current strategy includes continuing our licensing efforts with respect to our intellectual property assets and the monetization of our patent portfolios. In addition, we continue to seek to acquire additional intellectual property assets to develop, commercialize, license or otherwise monetize. Our strategy includes working with inventors and patent owners to assist in the development and monetization of their patented technologies. We may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property. Our patent acquisition and development strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as we have achieved with respect to our Remote Power Patent and Mirror Worlds Patent Portfolio.
On March 25, 2022, we completed the acquisition of a new patent portfolio (the HFT Patent Portfolio) consisting of six U.S. patents and two pending U.S. patents (see Note G[2] to our unaudited condensed consolidated financial statements included in this Quarterly Report). On May 10, 2022, we received an additional patent issuance from the U.S. Patent and Trademark Office related to the HFT Patent Portfolio.
We had no revenue for the three and nine months ended September 30, 2022. Our revenue of $35,692,000 for the nine months ended September 30, 2021 resulted from the resolution of our contractual dispute with Cisco in which we received $18,692,000 and revenue of $17,000,000 from our litigation settlement with Hewlett-Packard (see Notes I[1] and I[2] to our unaudited condensed consolidated financial statements included herein). While we have pending litigation involving certain patents within our Cox Patent Portfolio and our Remote Power Patent and have appealed the judgment of the District Court dismissing our litigation against Facebook on the grounds of non-infringement involving certain patents within our Mirror Worlds Portfolio, we may not achieve successful outcomes of such litigation or the appeal. Accordingly, our future revenue is uncertain.
The significant components of expenses impacting our net income include income tax expense as a result of transactions with our equity method investment. Other significant components of expenses impacting our net income when revenue is recorded relate to contingent legal fees and expenses related to our patent litigation (see Note B[7] to our unaudited condensed consolidated financial statements included herein) and incentive compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H[1] to our unaudited condensed consolidated financial statements included herein), both such components of expenses are based on a percentage of the licensing revenue received by us as a result of litigation or otherwise.
Our quarterly and annual operating and financial results may fluctuate significantly from period to period as a result of a variety of factors that are outside our control, including the timing and our ability to achieve successful outcomes of patent litigation, our ability and timing of consummating future license agreements for our intellectual property, and whether we will achieve a return on our investment in ILiAD Biotechnologies, LLC (“ILiAD”) and the timing of any such return.
Our future operating results may also be materially impacted by our ability to acquire high quality patents which management believes have the potential to generate significant licensing opportunities. In the future, we may not be able to identify or consummate such patent acquisitions or achieve significant licensing revenue with respect to such patent acquisitions.
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In 2022 and future years we could be classified as a Personal Holding Company. If this is the case, we would be subject to a 20% tax on the amount of any undistributed personal holding company income (as defined) for such year that we do not distribute to our shareholders (see Note B[8] to our unaudited condensed consolidated financial statements included in this Quarterly Report).
On June 9, 2021, our Board of Directors approved the continuation of our dividend policy consisting of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which are anticipated to be paid in March and September of each year. In 2021 and 2022, we paid semi-annual cash dividends in accordance with our dividend policy. Our dividend policy undergoes a periodic review by our Board of Directors and is subject to change at any time depending upon our financial requirements, earnings and other factors existing at the time (see Note M to our unaudited condensed consolidated financial statements included herein).
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Revenue. We had no revenue for the three months ended September 30, 2022 as compared to revenue of $17,000,000 for three months ended September 30, 2021 from our litigation settlement with Hewlett-Packard (see Note I[2] to our unaudited condensed consolidated financial statements included herein).
Operating Expenses. Operating expenses for the three months ended September 30, 2022 were $838,000 as compared to $7,963,000 for the three months ended September 30, 2021. We had costs of revenue of $-0- and $6,610,000 for the three months ended September 30, 2022 and 2021, respectively. Included in the costs of revenue for the three months ended September 30, 2021 were contingent legal fees of $5,760,000 and $850,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H[1] to our unaudited condensed consolidated financial statements included herein).
General and administrative expenses were $639,000 for the three months ended September 30, 2022 as compared to $558,000 for the three months ended September 30, 2021. The increase in general and administrative expenses of $81,000 was primarily due to stock-based compensation expense related to the issuance of restricted stock units, which was $174,000 for the three months ended September 30, 2022 as compared to $65,000 for the three months ended September 30, 2021. The increase in stock-based compensation expense was due to the issuance of additional restricted stock units in March 2022 to our Chairman and Chief Executive Officer in accordance with his new employment agreement (see Note H[1] to our unaudited condensed consolidated financial statements included herein). Professional fees and related costs were $117,000 for the three months ended September 30, 2022 as compared to $721,000 for the three months ended September 30, 2021 as a result of decreased expenses related to patent litigation.
Operating (Loss) Income. We had an operating loss of $838,000 for the three months ended September 30, 2022 compared with operating income of $9,037,000 for the three months ended September 30, 2021. The operating loss of $838,000 for the three months ended September 30, 2022 was primarily due to no revenue for the period as compared to revenue of $17,000,000 from our litigation settlement with Hewlett-Packard for the three months ended September 30, 2021. Additionally, since we incurred no revenue for the three months ended September 30, 2022, we did not incur any cost of revenue as of September 30, 2022 compared to incurring $6,610,000 of cost of revenue as of September 30, 2021.
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Interest and Dividend Income. Interest and dividend income, for the three months ended September 30, 2022 was $321,000 as compared to $67,000 for the three months ended September 30, 2021 primarily as a result of a change in the mix of our short term fixed income investments and cash equivalents.
Gain on Conversion of Note. For the three months ended September 30, 2022, we recorded a gain on conversion of our ILiAD convertible note of $271,000 as compared to $-0- for the three months ended September 30, 2021 as a result of conversion of the note and accrued interest into equity of ILiAD (see Note J to our unaudited condensed consolidated financial statements included herein).
Gain on Equity Method Investment. For the three months ended September 30, 2022, we recorded a gain on our equity method investment of $3,727,000 as compared to $-0- for the three months ended September 30, 2021 as a result of adjustment to our equity method investment based on the fair value of an observable price transaction relating to ILiAD’s private offering in August 2022 (see Note J to our unaudited condensed consolidated financial statements included herein).
Realized and Unrealized Loss on Marketable Securities. For the three months ended September 30, 2022, we recorded a realized and unrealized loss on marketable securities of $268,000 as compared to $40,000 for the three months ended September 30, 2021. The change of $228,000 is due to unfavorable market conditions for the three months ended September 30, 2022 resulting in additional realized and unrealized losses.
Income Taxes. For the three months ended September 30, 2022, we had a current tax benefit for federal, state and local income taxes of $274,000 and a deferred tax expense of $976,000. For the three months ended September 30, 2021, we had a current tax expense for federal, state and local income taxes of $2,326,000 and a deferred tax benefit of $37,000. The net decrease of income tax expense of $1,587,000 was primarily due to decreased taxable income of $5,851,000.
Share of Net Losses of Equity Method Investee. We incurred a net loss of $285,000 during the three month period ended September 30, 2022 related to our equity share in ILiAD as compared to a net loss of $186,000 for the three months ended September 30, 2021 (see Note J to our unaudited condensed consolidated financial statements included herein).
Net Income (Loss). As a result of the foregoing, we realized a net income of $2,226,000 or $0.09 per share basic and diluted for the three months ended September 30, 2022 compared with net income of $6,589,000 or $0.28 per share basic and $0.27 per share diluted for the three months ended September 30, 2021. The decrease in net income for the three months ended September 30, 2022 was primarily due to no revenue for the period as compared to revenue of $17,000,000 from our litigation settlement with Hewlett-Packard for the three months ended September 30, 2021. This was partially offset by a $3,727,000 gain related to the Company’s equity method investment for the three months ended September 30, 2022.
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Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Revenue. We had no revenue for the nine months ended September 30, 2022 as compared to revenue of $35,692,000 for the nine months ended September 30, 2021. Revenue for the nine months ended September 30, 2021 resulted from our resolution of a contractual dispute with Cisco concerning licensing of our Remote Power Patent and our litigation settlement with Hewlett-Packard (see Note I[1] and I[2] to our unaudited condensed consolidated financial statements included herein).
Operating Expenses. Operating expenses for the nine months ended September 30, 2022 were $2,569,000 as compared to $15,285,000 for the nine months ended September 30, 2021. We had costs of revenue of $-0- and $12,030,000 for the nine months ended September 30, 2022 and 2021, respectively. Included in the costs of revenue for the nine months ended September 30, 2021 were contingent legal fees of $10,245,000 and $1,785,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H[1] to our unaudited condensed consolidated financial statements included herein).
General and administrative expenses were $1,812,000 for the nine months ended September 30, 2022 as compared to $1,650,000 for the nine months ended September 30, 2021. The increase in general and administrative expenses of $162,000 was primarily due to stock-based compensation expense related to the issuance of restricted stock units, which was $407,000 for the nine months ended September 30, 2022 as compared to $183,000 for the nine months ended September 30, 2021. The increase in stock-based compensation expense was due to the issuance of additional restricted stock units to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H[1] to our unaudited condensed consolidated financial statement included herein). Professional fees and related costs were $524,000 for the nine months ended September 30, 2022 as compared to $1,384,000 for the nine months ended September 30, 2021 as a result of decreased expenses related to patent litigation.
Operating (Loss) Income. We had an operating loss of $2,569,000 for the nine months ended September 30, 2022 compared with operating income of $20,407,000 for the nine months ended September 30, 2021. The operating loss for the nine months ended September 30, 2022 was due to no revenue for the period as compared to revenue of $35,692,000 for the nine months ended September 30, 2021.
Interest and Dividend Income. Interest and dividend income for the nine months ended September 30, 2022 was $532,000 as compared to $185,000 for the nine months ended September 30, 2021 primarily as a result of a change in the mix of our short term fixed income investments and cash equivalents.
Gain on Conversion of Note. For the nine months ended September 30, 2022, we recorded a gain on conversion of our ILiAD convertible note of $271,000 as compared to $-0- for the nine months ended September 30, 2021 as a result of the conversion of the note and accrued interest into equity of ILiAD (see Note J to our unaudited condensed consolidated financial statements included herein).
Gain on Equity Method Investment. For the nine months ended September 30, 2022, we recorded a gain on our equity method investment of $3,727,000 as compared to $-0- for the nine months ended September 30, 2021 as a result of an adjustment to our equity method investment based on the fair value of an observable price transaction of ILiAD relating to its private offering in August 2022 (see Note J to our unaudited condensed consolidated financial statements included herein).
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Realized and Unrealized Loss on Marketable Securities. For the nine months ended September 30, 2022, we recorded a realized and unrealized loss on marketable securities of $1,358,000 as compared to $32,000 for the nine months ended September 30, 2021. The change of $1,326,000 is due to unfavorable market conditions for the nine months ended September 30, 2022 resulting in additional realized and unrealized losses.
Income Taxes. For the nine months ended September 30, 2022, we had a current tax benefit of $274,000 for federal, state and local income taxes and a deferred tax expense of $422,000. For the nine months ended September 30, 2021, we had a current tax expense for federal, state and local income taxes of $3,036,000 and a deferred tax expense of $1,635,000. The net decrease of income tax expense of $4,523,000 was primarily due to decreased taxable income of $19,957,000.
Share of Net Losses of Equity Method Investee. We incurred a net loss of $1,073,000 during the nine month period ended September 30, 2022 related to our equity share in ILiAD as compared to a net loss of $632,000 for the nine months ended September 30, 2021 (see Note J to our unaudited condensed consolidated financial statements included herein).
Net Income (Loss). As a result of the foregoing, we realized a net loss of $618,000 or $0.03 loss per share basic and diluted for the nine months ended September 30, 2022 compared with net income of $15,257,000 or $0.63 per share basic and $0.62 per share diluted for the nine months ended September 30, 2021. The net loss for the nine months ended September 30, 2022 was due to no revenue for such period as compared to $35,692,000 of revenue for the nine months ended September 30, 2021 from the resolution of our contractual dispute with Cisco and our litigation settlement with Hewlett-Packard (see Notes I[1] and I[2] to our unaudited condensed consolidated financial statements included herein).
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from revenue from licensing our patents. At September 30, 2022, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $48,923,000 and working capital of $48,555,000. Based on our current cash position, we believe that we will have sufficient cash to fund our operations for the next twelve months and the foreseeable future.
Working capital decreased by $7,110,000 at September 30, 2022 to $48,555,000 as compared to working capital of $55,665,000 at December 31, 2021. The decrease in working capital of $7,110,000 for the nine months ended September 30, 2022 was primarily due to our operating loss of $2,569,000, cash dividends paid of $2,381,000, and an additional investment of $1,000,000 in ILiAD.
Net cash (used in) provided by operating activities for the nine months ended September 30, 2022 decreased by $24,781,000 from $19,601,000 provided by operating activities for the nine months ended September 30, 2021 to $5,180,000 used in operating activities for the nine months ended September 30, 2022, primarily due to revenue of $35,692,000 from resolution of our contractual dispute with Cisco and our litigation settlement with Hewlett-Packard during the nine months ended September 30, 2021.
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Net cash (used in) provided by investing activities during the nine months ended September 30, 2022 was $(15,238,000) as compared to $608,000 for the nine months ended September 30, 2021 primarily as a result of the differential of purchases and sales of marketable securities.
Net cash used in financing activities for the nine months ended September 30, 2022 and 2021 was $2,915,000 and $2,541,000, respectively. The change of $374,000 primarily resulted from repurchases of common stock of $422,000 for the nine months ended September 30, 2022 compared to $131,000 of repurchases for the nine months ended September 30, 2021 and the value of shares delivered to fund withholding taxes of $112,000.
We maintain our cash in money market funds, government securities, certificates of deposit, and short-term fixed income securities. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
We do not have any long-term debt, capital lease obligations, purchase obligations or other long-term liabilities except for our lease obligations for our principal office space (see Note G[3] to our unaudited condensed consolidated financial statement included herein).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements included in this Quarterly Report on Form 10-Q requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of our unaudited condensed consolidated financial statements include revenue recognition, contingent legal fees and related expenses, income taxes, valuation of patents and equity method investments, including the evaluation of the Company’s basis difference. Actual results could be materially different from those estimates, upon which the carrying values were based. See also Note B to our unaudited condensed consolidated financial statements included in this quarterly report.
We believe our most critical accounting policies and estimates to be the following:
Equity Method Investments
Equity method investments are equity securities in entities that we do not control but over which we have the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures (see Note J hereof). Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss, and adjustments based on the investees observable price transactions, if any. Our proportionate share of the income or loss from equity method investments is recognized on a one-quarter lag. When our carrying value in an equity method investment is reduced to zero, no further losses are recorded in our financial statements unless we guaranteed obligations of the investee company or have committed additional funding. When the investee company subsequently reports income, we will not record our share of such income until it equals the amount of our share of losses not previously
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recognized. In the event the equity method investee enters into an observable price transaction, the Company will increase or decrease the carrying value in its equity method investment based on the fair value indicated by such transaction. Upon sale of equity method investments, the difference between sales proceeds and the carrying amount of the equity investment is recognized in profit or loss. In determining whether an equity method investment is impaired, we take into consideration a variety of factors including the operating and financial performance of the investee, the investee’s future business plans and projections, discussions with the investee’s management, and our intent and ability to hold the investment until it recovers in value. Accordingly, we make assumptions and estimates in assessing whether an impairment has occurred and if, in the future, our assumptions and estimates made in assessing the fair value of these investments change, this could result in a material decrease in the carrying value of the investment. This would cause us to write-down the carrying value of the investment and could have a material adverse effect on our results of operations in the period the impairment charge is taken.
Income Taxes
We account for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes (ASC 740), which requires us to use the assets and liability method of accounting for income taxes. Under the assets and liability method, deferred income taxes are recognized for the tax consequences of temporary (timing) differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. In evaluating the need for a valuation allowance, we estimate future taxable income based on management business plans. This process involves significant management judgment about assumptions that are subject to change from period to period. Because the recognition of deferred tax assets requires management to make significant judgments about future earnings, the periods in which items will impact taxable income and the application of inherently complex tax laws, we have identified the assessment of deferred tax assets and the need for any related valuation allowance as a critical accounting estimate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this review, these officers concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our legal proceedings see Note I and Note O to our unaudited condensed consolidated financial statements included in this Quarterly Report and Item 1. Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed with the SEC on March 30, 2022). During the three months ended September 30, 2022, no material events occurred with respect to our legal proceedings.
ITEM 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations and trading price of our common stock. Investors should carefully consider the risks described in this Quarterly Report on Form 10-Q for the three months ended September 30, 2022, and our Annual Report on Form 10-K for the year ended December 31, 2021 (pages 11-20), filed with the SEC on March 30, 2022.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Issuances of Unregistered Securities
There were no such issuances during the three and nine months ended September 30, 2022.
Stock Repurchases
On June 8, 2021, our Board of Directors authorized an extension and increase of the Share Repurchase Program to repurchase up to $5,000,000 of shares of our common stock over the subsequent 24 month period. The common stock may be repurchased from time to time in open market transactions or privately negotiated transactions in our discretion. The timing and amount of the shares repurchased is determined by management based on its evaluation of market conditions and other factors. The Share Repurchase Program may be increased, suspended or discontinued at any time. Since inception of the Share Repurchase Program in August 2011 through September 30, 2022, we have repurchased an aggregate of 9,162,427 shares of our common stock at an aggregate cost of $17,647,631 (exclusive of commissions) or an average per share price of $1.93. During the three months ended September 30, 2022, we repurchased an aggregate of 75,213 shares of our common stock at an aggregate cost of $174,530 or an average per share price of $2.32. During the nine months ended September 30, 2022, we repurchased an aggregate of 178,293 shares of its common stock at an aggregate cost of $422,388 (exclusive of commission) or an average per share price of $2.37. At September 30, 2022, the remaining dollar value of shares that may be repurchased under the Share Repurchase Program was $3,508,374.
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During the months of July, August and September 2022, we purchased common stock pursuant to our Share Repurchase Program as indicated below:
Period |
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| July 1 to July 31, 2022 | 18,438 | $2.39 | 18,438 | $3,638,879 |
| August 1 to August 31, 2022 | 14,483 | $2.30 | 14,483 | $3,605,541 |
| September 1 to September 30, 2022 | 42,292 | $2.30 | 42,292 | $3,508,374 |
| Total | 75,213 | $2.32 | 75,213 |
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. Exhibits
(a) Exhibits
| 31.1 | Controls and Procedure Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| 31.2 | Controls and Procedure Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 101 | Interactive data files:** |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Scheme Document |
| 101.CAL | XBRL Calculation Linkbase Document |
| 101.DEF | XBRL Definition Linkbase Document |
| 101.LAB | XBRL Label Linkbase Document |
| 101.PRE | XBRL Presentation Linkbase Document |
_____________________________
* Filed herewith
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NETWORK-1 TECHNOLOGIES, INC. | ||
| ||
| Date: November 14, 2022 | By: | /s/ Corey M. Horowitz |
Corey M. Horowitz (Principal Executive Officer) |
||
| ||
| Date: November 14, 2022 | By: | /s/ David C. Kahn |
David C. Kahn (Principal Financial Officer) |
||
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