☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
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11-3027591
(IRS Employer Identification No.) |
445 Park Avenue, Suite 912
New York, New York
(Address of Principal Executive Offices)
|
10022
(Zip Code)
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Large accelerated filer ☐
|
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Accelerated filer ☐
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|
|
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Non-accelerated filer ☐
|
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Smaller reporting company ☒
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Emerging growth Company ☐
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Page No.
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PART I. Financial Information
|
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Item 1. Condensed Consolidated Financial Statements (unaudited)
|
|
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
|
3 |
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2018 and 2017
|
4 |
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
|
5 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
6 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
|
27 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
35 |
Item 4. Controls and Procedures
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35 |
PART II. Other Information
|
|
Item 1. Legal Proceedings
|
36 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
39 |
Item 3. Defaults Upon Senior Securities
|
40 |
Item 5. Other Information
|
40 |
Item 6. Exhibits
|
40 |
Signatures
|
41 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS: | ||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
27,193,000
|
$
|
51,101,000
|
||||
Other investments
|
29,612,000
|
3,054,000
|
||||||
Royalty receivables, net
|
1,861,000
|
575,000
|
||||||
Prepaid taxes
|
—
|
125,000
|
||||||
Other current assets
|
18,000
|
83,000
|
||||||
Total Current Assets
|
58,684,000
|
54,938,000
|
||||||
OTHER ASSETS:
|
||||||||
Deferred tax assets
|
168,000
|
168,000
|
||||||
Patents, net of accumulated amortization
|
2,062,000
|
2,169,000
|
||||||
Security deposits
|
21,000
|
19,000
|
||||||
Total Other Assets
|
2,251,000
|
2,356,000
|
||||||
TOTAL ASSETS
|
$
|
60,935,000
|
$
|
57,294,000
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY:
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
$
|
159,000
|
$
|
244,000
|
||||
Income taxes payable
|
744,000
|
—
|
||||||
Accrued contingency fees and related costs
|
1,039,000
|
1,780,000
|
||||||
Accrued payroll
|
90,000
|
709,000
|
||||||
Other accrued expenses
|
164,000
|
149,000
|
||||||
TOTAL LIABILITIES
|
2,196,000
|
2,882,000
|
||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
STOCKHOLDERS' EQUITY
|
||||||||
Preferred stock, $0.01 par value, authorized 10,000,000 shares;
|
||||||||
none issued and outstanding at September 30, 2018
|
||||||||
December 31, 2017
|
—
|
—
|
||||||
|
||||||||
Common stock, $0.01 par value; authorized 50,000,000 shares;
|
||||||||
23,755,171 and 23,843,915 shares issued and outstanding at
|
||||||||
September 30, 2018 and December 31, 2017, respectively
|
237,000
|
238,000
|
||||||
Additional paid-in capital
|
65,035,000
|
64,435,000
|
||||||
Accumulated deficit
|
(6,452,000
|
)
|
(10,219,000
|
)
|
||||
Accumulated other comprehensive loss
|
(81,000
|
)
|
(42,000
|
)
|
||||
TOTAL STOCKHOLDERS' EQUITY
|
58,739,000
|
54,412,000
|
||||||
|
||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
60,935,000
|
$
|
57,294,000
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
REVENUE
|
$
|
1,798,000
|
$
|
3,237,000
|
$
|
21,732,000
|
$
|
14,320,000
|
||||||||
OPERATING EXPENSES:
|
||||||||||||||||
Costs of revenue
|
596,000 | 964,000 | 7,988,000 | 4,339,000 | ||||||||||||
Professional fees and related costs
|
352,000 | 534,000 | 1,456,000 | 1,154,000 | ||||||||||||
General and administrative
|
491,000 | 434,000 | 1,460,000 | 1,358,000 | ||||||||||||
Amortization of patents
|
70,000 | 50,000 | 209,000 | 150,000 | ||||||||||||
Stock-based compensation
|
120,000 | 237,000 | 571,000 | 711,000 | ||||||||||||
TOTAL OPERATING EXPENSES
|
1,629,000
|
2,219,000
|
11,684,000
|
7,712,000
|
||||||||||||
OPERATING INCOME
|
169,000
|
1,018,000
|
10,048,000
|
6,608,000
|
||||||||||||
OTHER INCOME:
|
||||||||||||||||
Interest income, net
|
244,000
|
55,000
|
590,000
|
89,000
|
||||||||||||
INCOME BEFORE INCOME TAXES
|
413,000
|
1,073,000
|
10,638,000
|
6,697,000
|
||||||||||||
INCOME TAXES:
|
||||||||||||||||
Current
|
167,000
|
425,000
|
2,355,000
|
2,198,000
|
||||||||||||
Deferred taxes, net
|
—
|
—
|
—
|
39,000
|
||||||||||||
Total income taxes
|
167,000
|
425,000
|
2,355,000
|
2,237,000
|
||||||||||||
NET INCOME
|
$
|
246,000
|
$
|
648,000
|
$
|
8,283,000
|
$
|
4,460,000
|
||||||||
Net Income Per Share
|
||||||||||||||||
Basic
|
$
|
0.01
|
$
|
0.03
|
$
|
0.35
|
$
|
0.18
|
||||||||
Diluted
|
$
|
0.01
|
$
|
0.02
|
$
|
0.33
|
$
|
0.17
|
||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
23,525,645
|
24,150,388
|
23,767,700
|
24,185,129
|
||||||||||||
Diluted
|
24,922,434
|
26,412,139
|
25,457,953
|
26,480,084
|
||||||||||||
Cash dividends declared per share
|
$
|
0.05
|
$
|
0.05
|
$
|
0.10
|
$
|
0.10
|
||||||||
NET INCOME
|
$
|
246,000
|
$
|
648,000
|
$
|
8,283,000
|
$
|
4,460,000
|
||||||||
OTHER COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||
Unrealized holding loss on securities available-for-sale arising during the period
|
(5,000
|
)
|
(2,000
|
)
|
(39,000
|
)
|
(1,000
|
)
|
||||||||
COMPREHENSIVE INCOME
|
$
|
241,000
|
$
|
646,000
|
$
|
8,244,000
|
$
|
4,459,000
|
||||||||
Nine Months Ended
September 30,
|
||||||||
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net Income
|
$
|
8,283,000
|
$
|
4,460,000
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Amortization of patents
|
209,000
|
150,000
|
||||||
Stock-based compensation
|
571,000
|
711,000
|
||||||
Deferred tax provision
|
—
|
39,000
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Royalty receivables
|
(1,286,000
|
)
|
(691,000
|
)
|
||||
Prepaid taxes
|
125,000
|
895,000
|
||||||
Other current assets
|
65,000
|
65,000
|
||||||
Accounts payable
|
(85,000
|
)
|
(101,000
|
)
|
||||
Income taxes payable
|
744,000
|
930,000
|
||||||
Accrued expenses
|
(1,334,000
|
)
|
(2,521,000
|
)
|
||||
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
7,292,000
|
3,937,000
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Increase in security deposit
|
(2,000
|
)
|
—
|
|||||
Purchases of other investments
|
(26,601,000
|
) |
—
|
|||||
Development of patents
|
(102,000
|
)
|
(50,000
|
)
|
||||
CASH USED IN INVESTING ACTIVITIES
|
(26,705,000
|
)
|
(50,000
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Cash dividends paid
|
(2,445,000
|
)
|
(2,421,000
|
)
|
||||
Value of shares delivered to fund withholding taxes
|
(545,000
|
)
|
(56,000
|
)
|
||||
Repurchases of common stock, net of commissions
|
(1,535,000
|
)
|
(1,131,000
|
)
|
||||
Proceeds from exercise of options and warrants
|
30,000
|
1,068,000
|
||||||
NET CASH USED IN FINANCING ACTIVITIES
|
(4,495,000
|
)
|
(2,540,000
|
)
|
||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(23,908,000
|
)
|
1,347,000
|
|||||
CASH AND CASH EQUIVALENTS, beginning of period
|
51,101,000
|
$
|
50,918,000
|
|||||
CASH AND CASH EQUIVALENTS, end of period
|
$
|
27,193,000
|
$
|
52,265,000
|
||||
|
||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
—
|
$
|
—
|
||||
Income taxes
|
1,501,000
|
440,000
|
||||||
NON-CASH FINANCING ACTIVITY
|
||||||||
Accrued dividend rights on restricted stock units
|
$
|
61,000
|
$
|
84,000
|
·
|
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 we satisfy our performance obligations.
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Fully-Paid - Licenses
|
$
|
―
|
$
|
973,000
|
$ |
12,700,000
|
$ |
3,273,000
|
||||||||
Royalty Bearing - Licenses
|
1,798,000
|
2,264,000
|
2,712,000
|
11,047,000
|
||||||||||||
Other Revenue(1)
|
―
|
―
|
6,320,000
|
―
|
||||||||||||
Total Revenue
|
$
|
1,798,000
|
$
|
3,237,000
|
$
|
21,732,000
|
$
|
14,320,000
|
September 30, 2018 | December 31, 2017 | |||||||
Gross carrying amount – patents
|
$
|
7,673,000
|
$
|
7,571,000
|
||||
Accumulated amortization – patents
|
(5,611,000
|
)
|
(5,402,000
|
)
|
||||
Patents, net
|
$
|
2,062,000
|
$
|
2,169,000
|
Twelve Months Ended September 30,
|
||||
2019
|
$
|
273,000
|
||
2020
|
272,000
|
|||
2021
|
272,000
|
|||
2022
|
272,000
|
|||
2023 and thereafter
|
973,000
|
|||
Total
|
$
|
2,062,000
|
||
Number of Shares
|
Weighted-Average Grant Date Fair Value
|
|||||||
Balance of restricted stock units outstanding at December 31, 2017
|
820,000
|
2.28
|
||||||
Grants of restricted stock units
|
45,000
|
2.60
|
||||||
Vested restricted stock units
|
(478,750
|
)
|
2.49
|
|||||
Balance of unvested restricted stock units at September 30, 2018
|
386,250
|
$
|
2.06
|
Weighted
|
||||||||
Weighted
|
Average
|
|||||||
Range of
|
Average
|
Remaining
|
||||||
Exercise
|
Options
|
Exercise
|
Life in
|
Options
|
||||
Price
|
Outstanding
|
Price
|
Years
|
Exercisable
|
||||
$0.83 - $2.34
|
1,635,000
|
$1.18
|
1.74
|
1,635,000
|
Nine Months Ended
September 30,
|
Three Months Ended
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Weighted-average common shares outstanding – basic
|
23,767,700
|
24,185,129
|
23,525,645
|
24,150,388
|
||||||||||||
Dilutive effect of options, warrants and restricted stock units
|
1,690,253
|
2,294,955
|
1,396,789
|
2,261,751
|
||||||||||||
Weighted-average common shares outstanding – diluted
|
25,457,953
|
26,480,084
|
24,922,434
|
26,412,139
|
||||||||||||
Options and restricted stock units excluded from the computation of diluted income per share because the effect of inclusion would have been anti-dilutive
|
—
|
—
|
—
|
—
|
September 30, 2018
|
December 31, 2017
|
|||||||
Cash and cash equivalents:
|
||||||||
Cash
|
$
|
7,388,000
|
$
|
7,514,000
|
||||
Money market funds
|
16,530,000
|
43,337,000
|
||||||
Certificates of deposit (3 months or less maturity)
|
3,275,000
|
250,000
|
||||||
Total Cash and cash equivalents:
|
$
|
27,193,000
|
$
|
51,101,000
|
||||
Other Investments
|
||||||||
Certificates of deposit (greater than 3 months up 12 months maturity)
|
8,485,000
|
2,000,000
|
||||||
Short term bond funds
|
12,623,000
|
―
|
||||||
Corporate bonds and notes
|
8,504,000
|
1,054,000
|
||||||
Total other investments
|
29,612,000
|
3,054,000
|
||||||
Total cash and cash equivalents and other investments
|
$
|
56,805,000
|
$
|
54,155,000
|
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, 2018
|
—
|
—
|
—
|
$ 1,642,793
|
August 1 to August 31, 2018
|
27,120
|
$2.57
|
27,120
|
$ 1,573,077
|
September 1 to September 30, 2018
|
64,875
|
$2.75
|
64,875
|
$ 1,394,532
|
Total
|
91,995
|
$2.70
|
91,995
|
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
|
NETWORK-1 TECHNOLOGIES, INC.
|
|||
Date: November 14, 2018
|
By:
|
/s/ Corey M. Horowitz | |
Corey M. Horowitz
|
|||
Chairman and Chief Executive Officer
|
|||
Date: November 14, 2018
|
By:
|
/s/ David C. Kahn | |
David C. Kahn
|
|||
Chief Financial Officer
|
|||
Date: November 14, 2018
|
/s/ Corey M. Horowitz | ||
Corey M. Horowitz
|
|||
Chairman and Chief Executive Officer
|
|||
Date: November 14, 2018
|
/s/ David C. Kahn | ||
David C. Kahn
|
|||
Chief Financial Officer
|
|||
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Nov. 12, 2018 |
|
Document And Entity Information | ||
Entity Registrant Name | NETWORK 1 TECHNOLOGIES INC | |
Entity Central Index Key | 0001065078 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 23,755,171 | |
Document Fiscal Year Focus | 2018 | |
Entity Emerging Growth Company | false | |
Entity Small Business | true |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 23,755,171 | 23,843,915 |
Common stock, shares outstanding | 23,755,171 | 23,843,915 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Condensed Consolidated Statements Of Income And Comprehensive Income | ||||
REVENUE | $ 1,798,000 | $ 3,237,000 | $ 21,732,000 | $ 14,320,000 |
OPERATING EXPENSES: | ||||
Costs of revenue | 596,000 | 964,000 | 7,988,000 | 4,339,000 |
Professional fees and related costs | 352,000 | 534,000 | 1,456,000 | 1,154,000 |
General and administrative | 491,000 | 434,000 | 1,460,000 | 1,358,000 |
Amortization of patents | 70,000 | 50,000 | 209,000 | 150,000 |
Stock-based compensation | 120,000 | 237,000 | 571,000 | 711,000 |
TOTAL OPERATING EXPENSES | 1,629,000 | 2,219,000 | 11,684,000 | 7,712,000 |
OPERATING INCOME | 169,000 | 1,018,000 | 10,048,000 | 6,608,000 |
OTHER INCOME: | ||||
Interest income, net | 244,000 | 55,000 | 590,000 | 89,000 |
INCOME (LOSS) BEFORE INCOME TAXES | 413,000 | 1,073,000 | 10,638,000 | 6,697,000 |
INCOME TAXES: | ||||
Current | 167,000 | 425,000 | 2,355,000 | 2,198,000 |
Deferred taxes, net | 39,000 | |||
Total income taxes | 167,000 | 425,000 | 2,355,000 | 2,237,000 |
NET INCOME | $ 246,000 | $ 648,000 | $ 8,283,000 | $ 4,460,000 |
Net Income Per Share | ||||
Basic | $ 0.01 | $ 0.03 | $ 0.35 | $ 0.18 |
Diluted | $ 0.01 | $ 0.02 | $ 0.33 | $ 0.17 |
Weighted average common shares outstanding: | ||||
Basic | 23,525,645 | 24,150,388 | 23,767,700 | 24,185,129 |
Diluted | 24,922,434 | 26,412,139 | 25,457,953 | 26,480,084 |
Cash dividends declared per share | $ 0.05 | $ 0.05 | $ 0.10 | $ 0.10 |
NET INCOME | $ 246,000 | $ 648,000 | $ 8,283,000 | $ 4,460,000 |
OTHER COMPREHENSIVE INOME (LOSS) | ||||
Unrealized holding loss on securities available-for-sale arising during the period | (5,000) | (2,000) | (39,000) | (1,000) |
COMPREHENSIVE INCOME | $ 241,000 | $ 646,000 | $ 8,244,000 | $ 4,459,000 |
BASIS OF PRESENTATION AND NATURE OF BUSINESS: |
9 Months Ended |
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Sep. 30, 2018 | |
Notes to 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, 2018, and the results of its operations and comprehensive income for the three and nine month periods ended September 30, 2018 and September 30, 2017 and its cash flows for the nine month periods ended September 30, 2018 and September 30, 2017. 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, 2017 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2018. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations to be expected for the full year.
The accompanying condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, Mirror Worlds Technologies, LLC.
[2] BUSINESS:
The Company is engaged in the development, licensing and protection of its intellectual property assets. The Company presently owns sixty-two (62) patents including (i) the remote power patent (the "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; (ii) the Mirror Worlds patent portfolio (the "Mirror Worlds Patent Portfolio") relating to foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system; (iii) the Cox patent portfolio (the "Cox Patent Portfolio") relating to enabling technology for identifying media content on the Internet and taking further action to be performed based on such identification; (iv) M2M/IoT patent portfolio (the "M2M/IoT Patent Portfolio") relating to, among other things, 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; and (v) patents covering systems and methods for the transmission of audio, video and data over computer and telephony networks in order to achieve high quality of service (QoS) (the "QoS Patents"). The Company has been actively engaged in licensing its Remote Power Patent (U.S. Patent No. 6,218,930) covering the control of power delivery over Ethernet cables. As of September 30, 2018, the Company has entered into twenty-seven (27) license agreements with respect to its Remote Power Patent. The Company has also entered into two license agreements with respect to its Mirror Worlds Patent Portfolio. The Company's current strategy includes continuing to pursue licensing opportunities for its intellectual property assets. In addition, the Company continually reviews opportunities to acquire or license additional intellectual property as well as other strategic alternatives. The Company's acquisition 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. The Company's Remote Power Patent has generated licensing revenue in excess of $143,000,000 from May 2007 through September 30, 2018. The Company's Mirror Worlds Patent Portfolio achieved licensing and other revenue of $47,150,000 through September 30, 2018. In addition, the Company may enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property.
On November 13, 2017, a jury empaneled in the United States District Court for the Eastern District of Texas, Tyler Division, found that certain claims of the Company's Remote Power Patent were invalid and not infringed by Hewlett-Packard (the "HP Jury Verdict"). On August 29, 2018, the District Court (i) granted the Company's motion for judgment as a matter of law that the Company's Remote Power Patent is valid, thereby overturning the jury verdict of invalidity and (ii) denied the Company's motion for a new trial on infringement. The Company has appealed the District Court's denial of its motion for a new trial on infringement to the United States Court of Appeals for the Federal Circuit. (see Note I[1] hereof). The HP Jury Verdict had a material adverse effect on the Company's results of operations and cash-flow for the three and nine months ended September 30, 2018 and may continue to do so in the future. The Company has depended upon its Remote Power Patent for a significant portion of its revenue. As a result of the HP Jury Verdict several of the Company's largest licensees, including Cisco Systems, Inc., its largest licensee, notified the Company in late November 2017 and January 2018 that they will no longer make ongoing royalty payments to the Company pursuant to their license agreements. If the Company successfully overturns the HP Jury Verdict of non-infringement in its appeal to the Federal Circuit, certain licensees of the Remote Power Patent, including Cisco, will be obligated to pay the Company ongoing royalties and all royalties that accrued but were not paid following (and prior to) the HP Jury Verdict in November 2017. If the Company is unable to reverse the HP Jury Verdict of non-infringement on appeal, or there is an arbitration ruling that certain of the Company's licensees, including Cisco, are relieved of their obligations to pay royalties and the District Court order of non-infringement is not subsequently reversed on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected (see Note I[1] and I[2] hereof).
Consistent with the Company's prior view, the District Court decision overturning the HP Jury Verdict on invalidity as referenced above confirmed the obligations of certain licensees to pay the Company all prior unpaid royalties, including those that accrued after the date of the HP Jury Verdict (November 13, 2017), as well as future royalties through the expiration of the Remote Power Patent in March 2020 (see Note I[1] and Note N hereof).
Consistent with the Company's revenue recognition policy (see Note B hereof), the Company did not record revenue for the three and nine months ended September 30, 2018 from certain licensees, including Cisco, who notified the Company they would not pay the Company ongoing royalties as a result of the HP Jury Verdict. The Company disagrees with the position taken by such licensees and may pursue arbitration if it does not achieve a satisfactory resolution (see Note I[1] and I[2] hereof). |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Use of Estimates and Assumptions
The preparation of 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 revenue recognition, stock-based compensation, income taxes and valuation of patents. Actual results could be materially different from those estimates, upon which the carrying values were based.
Patents
The Company owns patents that relate to various technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of its acquired patents and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the patents would be capitalized and amortized over the balance of the useful life for the patents.
Revenue Recognition
On January 1, 2018, we adopted ASU. No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Under Topic 606, revenue is recognized when we complete the licensing of our intellectual property to our licensees, in an amount that reflects the consideration we expect to be entitled to in exchange for licensing our intellectual property.
We determine revenue recognition through the follow steps:
Revenue disaggregated by revenue source for the three and nine months ended September 30, 2018, consists of the following:
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(1) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I- "Legal Proceedings").
The Company relies on royalty reports received from third party licensees to record its revenue. From time to time the Company may audit royalties reported from licensees. Any adjusted royalty revenue as a result of such audits 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 licensing royalties on licensed products sold by the licensee. Generally, in the event of settlement of litigation 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 (a "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 (a "Royalty Bearing License").
The Company's license agreements, both Fully-Paid Licenses and Royalty Bearing Licenses, typically include some combination of the following: (i) the grant of a non-exclusive license to manufacture and/or sell products covered by its patented technologies; (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted pursuant to these licenses typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company typically has no further performance obligations with respect to the grant of the non-exclusive licenses. Generally, the license agreements provide for the grant of the licenses, releases, and other obligations following execution of the agreement and the receipt of the up-front lump sum payment for a Fully-Paid License or a license initiation fee for a Royalty Bearing License.
Ongoing Royalty Payments: Certain of the Company's revenue from Royalty Bearing Licenses results from the calculation of royalties based on a licensee's actual quarterly sales (one licensee pays monthly royalties) of licensed products, applied to a contractual royalty rate. Licensees that pay royalties on a quarterly basis generally report to the Company actual quarterly sales and related quarterly royalties due within 45 days after the end of the quarter in which such sales activity takes place. Licensees with Royalty Bearing Licenses are obligated to provide the Company with quarterly (or monthly) royalty reports that summarize their sales of licensed products and their related royalty obligations to the Company. The Company receives these royalty reports subsequent to the period in which its licensees underlying sales occurred. The amount of royalties due under Royalty Bearing Licenses, each quarter, cannot be reasonably estimated by management. Consequently, the Company recognizes revenue for the period in which the royalty report is received in arrears and other revenue recognition criteria are met.
Non-Refundable Up-Front Fees: Fully-Paid Licenses provide for a non-refundable up-front payment, for which the Company has no future obligations or performance requirements, revenue is generally recognized when the Company has obtained the signed license agreement, all performance obligations have been substantially performed, amounts are fixed and determinable, and collectability is reasonably assured. Revenue from Fully-Paid Licenses may consist of one or more installments. The timing and amount of revenue recognized from each licensee depends upon a number of factors including the specific terms of each agreement and the nature of the deliverables and obligations.
Costs of Revenue
The Company includes in costs of revenue for the three and nine months ended September 30, 2018 and 2017 contingent legal fees payable to patent litigation counsel (see Note G[1] hereof) and incentive bonus compensation payable to its Chairman and Chief Executive Officer (see Note H[1] hereof).
Income Taxes
The Company uses the assets and liability method of accounting for income taxes to record deferred income taxes 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.
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, 2018 and December 31, 2017.
United States federal, state and local income tax returns prior to 2015 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. On July 19, 2018, the Internal Revenue Service notified the Company that it was examining its 2016 federal tax return.
On December 22, 2017, the 2017 Tax Cuts and Job Act was enacted into law and the new legislation contains key tax provisions that affect us. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not extended beyond one year of the enactment date.
The personal holding company ("PHC") rules under the Internal Revenue Code impose a 20% tax on a PHC's undistributed personal holding company income ("PHC Income"), which means, in general, taxable income subject to certain adjustments. 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 5 or fewer individuals at anytime 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"). In the second half of 2018 through September 30, 2018 (as well as during the second half of prior years), the Company did not meet the Ownership Test. Due to the significant number of shares held by the Company's largest shareholders, the Company continually assesses its share ownership to determine whether it meets the Ownership Test. If the Ownership Test were met and the income generated by the Company were determined to constitute "royalties" within the meaning of the Income Test, the Company would constitute a PHC and the Company would be subject to a 20% tax on the amount of any PHC Income that it does not distribute to its shareholders.
Impairment of long-lived assets
Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Accordingly, we record impairment losses on long-lived assets used in operations or expected to be disposed of when indicators of impairment exist and the undiscounted cash flows expected to be derived from those assets are less than carrying amounts of these assets. At September 30, 2018, there was no impairment to the Company's patents.
Stock-Based Compensation
Stock-based compensation to employees, including grants of employee stock options and restricted stock units, are recognized in the unaudited condensed consolidated statements of income and comprehensive income based on their grant date fair values. Compensation expense related to awards to employees is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Share-based compensation issued to non-employees is recorded at its fair value, and is periodically revalued as the equity instruments vest and is recognized as expense over the related service period and is expensed using an accelerated attribution model. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options granted. The fair value of restricted stock units is determined based on the number of shares granted and either the quoted market price of the Company's common stock on the date of grant for time-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model for market-based awards (see Note D hereof for further discussion of the Company's stock–based compensation).
Earnings Per Share
The Company reports earnings per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and options to purchase common stock were exercised and shares were issued pursuant to outstanding restricted stock units. Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share (see Note E hereof).
Financial Instruments
Fair value is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable.
The carrying value of cash, other investments, royalty receivables, other assets, accounts payable, and accrued expenses approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Other investments available for sale are measured at fair market value.
Dividends
Dividends are recorded when declared by the Company's Board of Directors. Common stock dividends are charged against retained earnings when declared or paid (see Note L hereof).
Reclassification
The Company has reclassified certain amounts in prior period condensed consolidated financial statements to conform to the current period's presentation. These reclassifications had no impact on the previously reported net income.
Accounting Standards Adopted in the Period
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 provides for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective approach.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on its consolidated financial position, statements of operations and cash flows. |
PATENTS |
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NOTE C - PATENTS | The Company's intangible assets at September 30, 2018 include patents with estimated remaining economic useful lives ranging from 1.70 to 15.25 years. For all periods presented, all of the Company's patents were subject to amortization. The gross carrying amounts and accumulated amortization related to acquired intangible assets as of September 30, 2018 and December 31, 2017 were as follows:
Amortization expense for the three months ended September 30, 2018 and September 30, 2017 was $70,000 and $50,000, respectively. Amortization expense for the nine months ended September 30, 2018 and September 30, 2017 was $209,000 and $150,000, respectively. Future amortization of intangible assets, net is as follows:
The Company's Remote Power Patent expires in March 2020. The expiration date of the patent within the Company's Mirror Worlds Patent Portfolio is February 2020 (eight of the nine patents in the Mirror Worlds Patent Portfolio have expired). The expiration dates of the patents within the Cox Patent Portfolio range from September 2021 to November 2023. The expiration dates of patents within the Company's M2M/IoT Patent Portfolio range from January 2034 to May 2034 and the expiration date of the QoS Patents is June 2019. |
STOCK-BASED COMPENSATION |
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NOTE D - STOCK-BASED COMPENSATION | Restricted Stock Units
During the nine months ended September 30, 2018, the Company issued 15,000 restricted stock units to each of its three non-management directors as an annual grant for 2018 for service on the Company's Board of Directors. Each restricted stock unit represents a contingent right to receive one share of the Company's common stock. The restricted stock units vest in four equal quarterly installments of 3,750 shares of common stock on March 15, 2018, June 15, 2018, September 15, 2018 and December 15, 2018, subject to continued service on the Board of Directors.
On July 14, 2018, 375,000 restricted stock units owned by the Company's Chairman and Chief Executive Officer vested in accordance with his employment agreement, dated July 14, 2016, (see Note H hereof). With respect to such vesting of restricted stock units, the Company's Chairman and Chief Executive Officer delivered 172,313 shares of common stock to satisfy withholding taxes and received 202,687 net shares of common stock.
A summary of restricted stock unit activity for the nine months ended September 30, 2018 is as follows (each restricted stock unit represents the right to receive one share of the Company's common stock):
Restricted stock unit compensation expense was $120,000 and $237,000 for the three months ended September 30, 2018 and September 30, 2017, respectively, and $571,000 and $711,000 for the nine months ended September 30, 2018 and September 30, 2017, respectively.
The Company has an aggregate of $406,000 of unrecognized restricted stock unit compensation as of September 30, 2018 to be expensed over a weighted average period of 1.23 years.
All of the Company's 386,250 outstanding (unvested) restricted stock units at September 30, 2018 have dividend equivalent rights. As of September 30, 2018, there was $76,000 accrued for dividend equivalent rights. As of December 31, 2017, there was $84,000 accrued for dividend equivalent rights.
Stock Options
There were no stock option grants during the three and nine months ended September 30, 2018 and September 30, 2017.
The following table presents information relating to all stock options outstanding and exercisable at September 30, 2018:
The Company had no recorded stock-based compensation related to stock option grants for the three and nine months ended September 30, 2018 and September 30, 2017.
The Company had no unrecognized stock-based compensation cost as of September 30, 2018. The aggregate intrinsic value of options exercisable at September 30, 2018 was $2,489,000.
During the nine months ended September 30, 2018, stock options to purchase an aggregate of 75,000 shares of the Company's common stock were exercised (50,000 shares of which were exercised on a net exercise (cashless) basis) by three non-management directors of the Company at an exercise price of $1.19 per share. With respect to the aforementioned stock options to purchase 50,000 shares exercised on a net exercise (cashless) basis by two directors of the Company, net shares of an aggregate of 26,890 were delivered to the directors.
During the nine months ended September 30, 2018, a director of the Company exercised on a net exercise (cashless basis) a stock option to purchase 300,000 shares of common stock, at an exercise price of $1.88 per share, which resulted in net shares of 118,064 issued to the director.
During the nine months ended September 30, 2017, the Company's Chief Financial Officer and three of his children exercised stock options to purchase an aggregate 75,000 shares of the Company's common stock at an exercise price of $1.40 per share. In addition, during the nine months ended September 30, 2017, a former director exercised a stock option to purchase 125,000 shares of the Company's common stock at an exercise price of $1.40.
Warrants
As of September 30, 2018, there were no outstanding warrants to purchase shares of the Company's common stock.
During the nine months ended September 30, 2017, Recognition Interface, LLC exercised its remaining warrants to purchase an aggregate of 375,000 shares of the Company's common stock, at an exercise price of $2.10 per share, which resulted in gross proceeds to the Company of $787,500. |
EARNINGS PER SHARE |
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NOTE E - EARNINGS PER SHARE | Basic Earnings per share is calculated by dividing the net income by the weighted average number of outstanding common shares during the period. Diluted per share data includes the dilutive effects of options, warrants and restricted stock units. Potential shares of 2,021,250 and 2,940,125 at September 30, 2018 and September 30, 2017, respectively, consisted of options and restricted stock units. Computations of basic and diluted weighted average common shares outstanding were as follows:
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CASH AND CASH EQUIVALENTS, AND OTHER INVESTMENTS |
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NOTE F - CASH AND CASH EQUIVALENTS, AND OTHER INVESTMENTS | The Company places cash investments in high quality financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC"). At September 30, 2018, the Company maintained a cash balance of $25,541,000 in excess of FDIC limits.
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents.
Cash and cash equivalents, and other investments as of September 30, 2018 and December 31, 2017 were composed of:
Other investments are classified as available-for-sale and are recorded at fair market value. Unrealized gains and losses are reported as other comprehensive income or loss. Realized gains and losses are reclassified from other comprehensive income or loss to net income or loss in the period they are realized. |
COMMITMENTS AND CONTINGENCIES |
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Notes to Financial Statements | |
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 United States 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 of the 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 United States 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.
Dovel & Luner, LLP provides legal services to the Company with respect to its patent litigation filed in September 2011 against sixteen (16) data networking equipment manufacturers in the United States District Court for the Eastern District of Texas, Tyler (see Note I[1] hereof). The terms of the Company's agreement with Dovel & Luner LLP essentially provide for legal fees on a full contingency basis ranging from 12.5% to 35% (with certain exceptions) of the net recovery (after deduction for expenses) depending on the stage of the preceding in which a result (settlement or judgment) is achieved. For the three months ended September 30, 2018 and September 30, 2017, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $496,000 and $523,000, respectively. For the nine months ended September 30, 2018 and September 30, 2017, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $6,873,000 and $1,789,000, respectively. The Company is responsible for a certain portion of the expenses incurred with respect to the litigation.
Dovel & Luner, LLP also provided legal services to the Company with respect to the litigation settled in July 2010 against Cisco and several other major data networking equipment manufacturers (see Note I[2] hereof). The terms of the Company's agreement with Dovel & Luner, LLP with respect to this litigation provided for legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of 24% (based on the settlement being achieved at the trial stage). As a result of the royalty payments payable quarterly by Cisco in accordance with the Company's settlement and license agreement with Cisco, the Company has an obligation to pay Dovel & Luner, LLP (including local counsel) 24% of such royalties received. During the three months ended September 30, 2018 and September 30, 2017, the Company incurred aggregate legal fees to Dovel & Luner LLP with respect to the litigation of -0- and $268,000, respectively. For the nine months ended September 30, 2018 and September 30, 2017, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $-0- and $1,801,000.
[2] Patent Acquisitions:
On February 28, 2013, the Company completed the acquisition of four patents (as well as a pending patent application) from Dr. Ingemar Cox (these patents together with subsequent related patent issuances comprise the Cox Patent Portfolio), a technology leader in digital watermarking content identification, digital rights management and related technologies, for a purchase price of $1,000,000 in cash and 403,226 shares of the Company's common stock. In addition, the Company is obligated to pay Dr. Cox 12.5% of the net proceeds (after deduction of expenses) generated by the Company from licensing, sale or enforcement of the patents. Since the acquisition of the patent portfolio from Dr. Cox, the Company has been issued twenty-four (24) additional related patents by the USPTO resulting in an aggregate of twenty-eight (28) patents within the Cox Patent Portfolio.
On May 21, 2013, the Company's wholly-owned subsidiary, Mirror Worlds Technologies, LLC, acquired all of the patents previously owned by Mirror Worlds, LLC (which subsequently changed its name to Looking Glass LLC ("Looking Glass")), consisting of nine issued United States patents and five pending applications covering foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system (these patents together with subsequent related patent issuances comprise the Mirror Worlds Patent Portfolio). As consideration for the patent acquisition, the Company paid Looking Glass $3,000,000 in cash, and issued 5-year warrants to purchase an aggregate of 1,750,000 shares of the Company's common stock (875,000 shares of common stock at an exercise price of $1.40 per share and 875,000 shares of common stock at an exercise price of $2.10 per share) (the "Looking Glass Warrants"). On June 3, 2014, the Company repurchased the Looking Glass Warrants from Looking Glass at a cost of $505,000. In addition, Recognition (and an affiliated entity) also received warrants to purchase an aggregate of 1,250,000 shares of the Company's common stock (500,000 shares at an exercise price of $2.05 per share, 375,000 shares at an exercise price of $2.10 per share and 375,000 shares at an exercise price of $1.40 per share). All such warrants were exercised by Recognition (and its affiliate) as of January 2017, resulting in aggregate proceeds to the Company of $2,337,500.
As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with Recognition Interface, LLC ("Recognition"), an entity that financed the commercialization of the patent portfolio prior to its sale to Mirror Worlds, LLC and also retained an interest in the licensing proceeds of the patent portfolio held by Mirror Worlds, LLC. Pursuant to the terms of the Company's agreement with Recognition, Recognition received from the Company an interest in the net proceeds realized from the monetization of the Mirror Worlds Patent Portfolio, as follows: (i) 10% of the first $125 million of net proceeds; (ii) 15% of the next $125 million of net proceeds; and (iii) 20% of any portion of the net proceeds in excess of $250 million. Since entering into the agreement with Recognition in May 2013, the Company has paid Recognition an aggregate of $3,127,000 with respect to such net proceeds interest related to the Mirror Worlds Patent Portfolio.
On December 29, 2017, the Company acquired from M2M and IoT Technologies, LLC ("M2M") the M2M/IoT Patent Portfolio consisting of twelve (12) issued U.S. 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. The Company paid $1,000,000 to acquire the M2M/IoT Patent Portfolio from M2M and has an obligation to pay M2M 14% of the first $100 million of net proceeds (after deduction of expenses) and 5% of net proceeds greater than $100 million from Monetization Activities (as defined) related to the patent portfolio. In addition, M2M will be entitled to receive from the Company $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio. Since the acquisition of the patent portfolio from M2M, the Company has been issued six additional related patents by the USPTO resulting in an aggregate of eighteen (18) issued U.S. patents.
[3] Lease Agreements:
The Company leases its principal office space in New York City at a monthly base rent of approximately $3,900 which lease expires on May 31, 2020.
The Company leases office space in New Canaan, Connecticut expiring on September 30, 2019 at a base rent of $7,200 per month (increasing $100 per month each year), which is subject to annual adjustments to reflect increases in real estate taxes and operating expenses. |
EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS |
9 Months Ended |
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Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS | [1] On July 14, 2016, the Company entered into a new employment agreement ("Agreement") with its Chairman and Chief Executive Officer pursuant to which he continues to serve the Company in such positions for a five year term, at an annual base salary of $475,000 which shall be increased by 3% per annum during the term of the Agreement. The Agreement established an annual target bonus of $175,000 for the Chairman and Chief Executive Officer based upon performance. In addition, the Company granted to the Chairman and Chief Executive Officer, under its 2013 Stock Incentive Plan, 750,000 restricted stock units (the "RSUs") which terms provided for vesting in three tranches, as follows: (i) 250,000 RSUs shall vest on July 14, 2018, subject to the Chairman and Chief Executive Officer's continued employment by the Company through the vesting date (the "Employment Condition"); (ii) 250,000 RSUs shall vest at any time beginning July 14, 2018 through July 14, 2021 in equal annual installments for the remaining term of employment, subject to (1) the Employment Condition being satisfied through each such annual vesting date and (2) the Company's common stock achieving a closing price (for 20 consecutive trading days) of a minimum of $3.25 per share (subject to adjustment for stock splits) at any time during the term of employment; and (iii) 250,000 RSUs vest at any time beginning July 14, 2018 through July 14, 2021 in equal annual installments for the remaining term of employment subject to (1) the Employment Condition being satisfied through each such annual vesting date and (2) the Company's common stock achieving a closing price (for 20 consecutive trading days) of a minimum of $4.25 per share (subject to adjustment for stock splits) at any time during the term of employment. The aforementioned stock price vesting conditions of $3.25 per share and $4.25 per share have been satisfied. Notwithstanding the above, in the event of a Change of Control (as defined), a Termination Other Than for Cause (as defined), or a termination of employment by the Chairman and Chief Executive Officer for Good Reason (as defined), all of the 750,000 RSUs shall accelerate and become immediately fully vested.
On July 14, 2018, 375,000 restricted stock units owned by the Company's Chairman and Chief Executive Officer vested in accordance with the above referenced terms of the Agreement. With respect to such vesting of restricted stock units, the Company's Chairman and Chief Executive Officer delivered 172,313 shares of common stock to satisfy withholding taxes, and received 202,687 net shares of common stock.
Under the terms of the Agreement, 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 the Mirror Worlds Patent Portfolio, Cox Patent Portfolio and M2M/IoT Patent Portfolio) (collectively, the "Incentive Compensation"). During the three months ended September 30, 2018 and September 30, 2017, the Chairman and Chief Executive Officer earned Incentive Compensation of $90,000 and $162,000, respectively. During the nine months ended September 30, 2018 and September 30, 2017, the Chairman and Chief Executive Officer earned Incentive Compensation of $1,087,000 and $716,000, respectfully. As of September 30, 2018 and December 31, 2017, $90,000 and $346,000 of such compensation were included in accrued expenses, respectively. 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 anytime thereafter, whether he is employed by the Company or not; provided, that, the Chairman and Chief Executive Officer's employment 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 assets of the Company, 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 $175,000 target bonus provided bonus criteria have been satisfied on a pro-rated basis through the calendar quarter in which the termination occurs and (iii) accelerated vesting of all unvested options, warrants, RSUs and other awards.
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, pursuant to an offer letter dated April 9, 2014, at an annual base salary of $175,000 (increased in June 2016 from $157,500) and is eligible to receive incentive or bonus compensation on an annual basis in the discretion of the Company's Compensation Committee. In connection with the offer letter, the Chief Financial Officer was issued, under the Company's 2013 Stock Incentive Plan, a 5-year stock option to purchase 50,000 shares of the common stock, at an exercise price of $1.65 per share, which option vested in two equal amounts (25,000 shares each) on each of December 31, 2014 and December 31, 2015. On June 9, 2016, the Company granted 50,000 restricted stock units to its Chief Financial Officer, which vested 25,000 restricted stock units on June 9, 2017 and 25,000 restricted stock units on June 9, 2018. In addition, in the event the Chief Financial Officer's employment is terminated without "Good Cause" (as defined), he shall receive (i) (a) 6 months base salary or (b) 12 months base salary in the event of a termination without "Good Cause" within 6 months following a "Change of Control" of the Company (as defined) and (ii) accelerated vesting of all remaining unvested shares underlying his options or any other awards he may receive in the future.
[3] The Company's Executive Vice President serves on an at-will basis at an annual base salary of $200,000 and is eligible to receive incentive or bonus compensation on an annual basis in the discretion of the Company's Compensation Committee. On June 9, 2016, the Company granted 50,000 restricted stock units to its Executive Vice President which vested 25,000 restricted stock units on June 9, 2017 and 25,000 restricted stock units on June 9, 2018. |
LEGAL PROCEEDINGS |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE I - LEGAL PROCEEDINGS | [1] In September 2011, the Company initiated patent litigation against sixteen (16) data networking equipment manufacturers (and affiliated entities) in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of its Remote Power Patent. Named as defendants in the lawsuit, excluding related parties, were Alcatel-Lucent USA, Inc., Allied Telesis, Inc., Avaya Inc., AXIS Communications Inc., Dell, Inc., GarrettCom, Inc., Hewlett-Packard Company, Huawei Technologies USA, Juniper Networks, Inc., Motorola Solutions, Inc., NEC Corporation, Polycom Inc., Samsung Electronics Co., Ltd., ShoreTel, Inc., Sony Electronics, Inc., and Transitions Networks, Inc. As of September 30, 2018, the Company had achieved settlement agreements with fifteen (15) of the sixteen (16) defendants.
On November 13, 2017, a jury empaneled in the United States District Court for the Eastern District of Texas, Tyler Division, found that certain claims of the Company's Remote Power Patent were invalid and not infringed by Hewlett-Packard (the "HP Jury Verdict"). As a result of the HP Jury Verdict, in November 2017 and January 2018, several of the largest licensees of the Company's Remote Power Patent, including Cisco, advised the Company that they will no longer pay the Company ongoing royalties pursuant to their license agreements. On August 29, 2018, the District Court issued an order granting the Company's motion for judgment as a matter of law that the Company's Remote Power Patent is valid, thereby overturning the jury verdict of invalidity and denied the Company's motion for a new trial on infringement. The Company has appealed the District Court's denial of its motion for a new trial on infringement to the United States Court of Appeals for the Federal Circuit. If the Company successfully overturns the jury verdict of non-infringement in its appeal to the Federal Circuit, certain licensees of the Remote Power Patent, including Cisco, will be obligated to pay the Company ongoing royalties and all royalties that accrued but were not paid following the HP Jury Verdict in November 2017. If the Company is unable to reverse the jury verdict of non-infringement on appeal, or there is an arbitration ruling that certain of the Company's licensees, including Cisco, are relieved of their obligations to pay royalties and the District Court order of non-infringement is not subsequently reversed on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected.
In October 2016, the Company entered a settlement agreement with Polycom, Inc. ("Polycom"). Under the terms of the settlement, Polycom entered into a non-exclusive license for our Remote Power Patent for its full term and is obligated to pay a license initiation fee of $5,000,000 for past sales of its Power over Ethernet ("PoE") products and ongoing royalties based on its sales of PoE products. $2,000,000 of the license initiation fee was paid within 30 days and the balance payable in three annual installments of $1,000,000 beginning in October 2017. Payments due in October 2018 and October 2019 need not be paid by Polycom if all asserted claims of our Remote Power Patent have been found invalid. Since the District Court in August 2018 granted our motion for judgment as a matter of law that our Remote Power Patent is valid thereby overturning the HP July verdict of invalidity, Polycom is obligated to make the aforementioned remaining aggregate payments of $2,000,000 to the Company (of which $1,000,000 of revenue was recorded for the three months ended September 30, 2018 and paid on November 5, 2018).
In October 2017, the U.S. Bankruptcy Court of the Southern District of New York approved the Company's settlement with defendant Avaya, Inc. ("Avaya"). As part of the settlement, Avaya, which on January 19, 2017 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 Company's Remote Power Patent. Under the terms of the license, Avaya paid the Company a lump sum amount for sales of certain designated Power over Ethernet ("PoE") products, and agreed to pay ongoing royalties for other designated PoE products. In addition, Avaya agreed that the Company shall have 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 (the "Allowed Claim"). On January 9, 2018, the Company sold its Allowed Claim for $6,320,000 to an unaffiliated third party.
On November 1, 2017, defendant Juniper Networks, Inc. ("Juniper") agreed to settle its litigation with the Company for $13,250,000 for a fully-paid license to the Company's Remote Power Patent. On December 8, 2017, the Company was advised by Juniper that it would not make the settlement payment to us as a result of the HP Jury Verdict and that there was no binding settlement agreement. On January 16, 2018, the Company revised and closed its settlement with defendant Juniper. The Company 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 the Company $12,700,000 and received a fully-paid license to the Remote Power Patent (and certain other patents owned by us) for its full term, which applies to its sales of PoE products.
[2] In July 2010, the Company settled its patent litigation pending in the United States District Court for the Eastern District of Texas, Tyler Division, against Adtran, Inc., Cisco Systems, Inc. and Cisco-Linksys, LLC, (collectively, "Cisco"), Enterasys Networks, Inc., Extreme Networks, Inc., Foundry Networks, Inc., and 3Com Corporation, Inc. As part of the settlement, Adtran, Cisco, Enterasys, Extreme Networks and Foundry Networks each entered into a settlement agreement with the Company and entered into non-exclusive licenses for the Company's Remote Power Patent (the "Licensed Defendants"). Under the terms of the licenses, the Licensed Defendants paid the Company upon settlement approximately $32 million and also agreed to license the Remote Power Patent for its full term, which expires in March 2020. In accordance with the Settlement and License Agreement, dated May 25, 2011 (the "Agreement"), Cisco is obliged to pay the Company royalties (which began in the first quarter of 2011) based on its sales of PoE products up to maximum royalty payments per year of $9 million for the remaining term of the patent. The actual royalty payments received by the Company may be less than the caps stated above. Under the terms of the Agreement, if the Company grants other licenses with lower royalty rates to third parties (as defined in the Agreement), Cisco shall be entitled to the benefit of the lower royalty rates provided it agrees to the material terms of such other license.
The royalty payments from Cisco are subject to certain conditions including that there is no "Adverse Ruling" (as defined in the Agreement) related to the Company's Remote Power Patent. Cisco notified the Company in January 2018 that in its view that no further royalty payments are due the Company under the Agreement because the jury verdict in the Company's Hewlett-Packard trial finding that certain claims of the Remote Power Patent are invalid and not infringed by Hewlett-Packard constituted an "Adverse Ruling" under the Agreement. The Company disagrees with Cisco that HP Jury Verdict finding of non-infringement (confirmed by the District Court in August 2018) relieves Cisco of its royalty obligations to the Company. However, the Company's position may not prevail.
If the Company successfully overturns the jury verdict of non-infringement in its appeal to the Federal Circuit, Cisco (and certain other licensees) will be obligated to pay the Company ongoing royalties and all royalties that accrued but were not paid following (and prior to) the HP Jury Verdict in November 2017. If the Company is unable to reverse the jury verdict of non-infringement on appeal, or there is an arbitration ruling that Cisco is relieved of its obligations to pay royalties and the District Court order of non-infringement is not subsequently reversed on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected.
[3] On April 4, 2014 and December 3, 2014, the Company initiated litigation against Google Inc. ("Google") and YouTube, LLC ("YouTube") in the United States District Court for the Southern District of New York for infringement of several of its patents within the Cox Patent Portfolio acquired from Dr. Cox (see Note G[2] hereof) which relate to the identification of media content on the Internet. The lawsuits allege 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 above referenced litigations that the Company commenced in the United States District Court for the Southern District of New York in April 2014 and December 2014 against Google and YouTube are currently subject to a court ordered stay which has been in effect since July 2015 as a result of proceedings at the Patent Trial and Appeal Board (PTAB) and the appeals to the United States District Court of Appeals for the Federal Circuit (see below).
In December 2014, Google filed four petitions to institute Inter Partes Review ("IPRs") at the United States Patent and Trademark Office ("USPTO") pertaining to patents within the Company's Cox Patent Portfolio asserted in the litigation filed in April 2014 as described above. Google in each of the IPRs sought to invalidate certain claims of the patents at issue within the Cox Patent Portfolio. On June 23, 2015, the Patent Trial and Appeal Board ("PTAB") of the USPTO issued an order instituting for oral hearing each of the four IPRs which was held on March 9, 2016. On June 20, 2016, the PTAB issued its Final Written Decisions in the Company's favor in the four pending IPRs. On August 18, 2016, Google filed Notices of Appeal with respect to the PTAB's Final Written Decision to the United States Court of Appeals for the Federal Circuit. On March 26, 2018, the United States Court of Appeals for the Federal Circuit vacated certain rulings of the PTAB's Final Written Decisions in favor of the Company determining that the PTAB erred in its claim construction of a certain claim term and remanded the four cases to the PTAB for further proceedings to address the claims that contained the term that was erroneously construed. The Federal Circuit left undisturbed the PTAB's findings that the remaining claims of the patents (that did not include this claim term) are not invalid. On May 9, 2018, the Company filed a combined petition for panel rehearing and rehearing en banc of the Federal Circuit's decision. On July 10, 2018, the Federal Circuit denied the Company's petition.
On April 13, 2015, Google filed a Petition for Covered Business Method Review (CBM) at the PTAB seeking to invalidate claims pertaining to the Company's U.S. Patent No. 8,904,464, the patent asserted in the Company's litigation against Google and YouTube filed on December 3, 2014 as referenced above. On October 19, 2015, the PTAB issued an order instituting for oral hearing the Covered Business Method Review on certain grounds. The oral hearing was held on May 11, 2016. On October 18, 2016, the PTAB issued its Final Written Decision in the Company's favor. On December 20, 2016, Google filed a Notice of Appeal to appeal the PTAB's Final Written Decision to the United States Court of Appeals for the Federal Circuit. On January 23, 2018, the United States Court of Appeals for the Federal Circuit affirmed the final written decision of the PTAB in favor of the Company relating to the CBM.
[4] On May 9, 2017, Mirror Worlds Technologies, LLC, the Company's wholly-owned subsidiary, initiated litigation against Facebook, Inc. ("Facebook") in the United States District Court for the Southern District of New York, for infringement of certain patents within the Company's Mirror Worlds Patent Portfolio. The lawsuit alleged that the asserted patents are infringed by Facebook's core technologies that enable Facebook's Newsfeed and Timeline features. The lawsuit further alleged 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. The Company sought, among other things, monetary damages based upon reasonable royalties. On May 7, 2018, Facebook filed a motion for summary judgment on non-infringement. On August 11, 2018, the Court granted Facebook's motion for summary judgment on non-infringement and dismissed the case. On August 30, 2018, the Company filed a Notice of Appeal appealing the District Court's summary judgment decision to the United States District Court of Appeals for the Federal Circuit. |
STOCK REPURCHASE |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE J - STOCK REPURCHASE | On June 14, 2017, the Board of Directors authorized an extension and increase of the Company's share repurchase program (the "Share Repurchase Program") to repurchase up to $5,000,000 of common stock over the subsequent 24 month period (for a total authorization of approximately $17,000,000 since inception of the program in August 2011). The common stock may be repurchased from time to time in open market transactions or privately negotiated transactions in the Company's 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 through September 30, 2018, the Company has repurchased an aggregate of 8,123,904 shares of its common stock at an aggregate cost of $15,069,477 (exclusive of commissions) or an average per share price of $1.86. All such repurchased shares have been cancelled. During the three months ended September 30, 2018, the Company repurchased an aggregate of 91,995 shares of its common stock at an aggregate cost of $248,260 (exclusive of commissions) or an average per share price of $2.70. During the nine months ended September 30, 2018, the Company repurchased an aggregate of 548,351 shares of its common stock at an aggregate cost of $1,524,468(exclusive of commissions) on an average per share price of $2.78. Such shares repurchased during the nine months ended September 30, 2018 include 75,000 shares of common stock repurchased from a director of the Company at a purchase price of $2.77 per share or an aggregate consideration of $207,750. At September 30, 2018, the dollar value of remaining shares that may be repurchased under the Share Repurchase Program was $1,394,532. |
CONCENTRATIONS |
9 Months Ended |
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Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE K - CONCENTRATIONS | Revenue from one licensee constituted approximately 81% of the Company's revenue for the three months ended September 30, 2018 and revenue from one licensee constituted approximately 58% of the Company's revenue for the nine months ended September 30, 2018. Revenue from the sale of the Company's unsecured claim against Avaya, Inc. constituted approximately 29% of the Company's revenue for the nine months ended September 30, 2018. Revenue from three licensees constituted approximately 75% of the Company's revenue for both the three and nine months ended September 30, 2017. At September 30, 2018, royalty receivables from one licensee constituted in the aggregate approximately 79% of the Company's royalty receivables. At December 31, 2017, royalty receivables from three licensees constituted in the aggregate approximately 79% of the Company's royalty receivables. |
DIVIDEND POLICY |
9 Months Ended |
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Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE L - DIVIDEND POLICY | On December 7, 2016, the Board of Directors of the Company approved the initiation of a dividend policy providing for the payment of a semi-annual cash dividend of $0.05 per common share ($0.10 per common share annually) commencing in 2017. The Company anticipates paying the semi-annual cash dividends in March and September of each year. It is anticipated that the semi-annual cash dividend will continue to be paid through March 2020 (the expiration of the Company's Remote Power Patent) provided that the Company continues to receive royalties from licensees of its Remote Power Patent. On February 9, 2018, the Board of Directors of the Company declared a semi-annual cash dividend of $0.05 per common share which was paid on March 23, 2018 to all common stockholders of record as of March 9, 2018. On July 26, 2018, the Board of Directors declared a cash dividend of $0.05 per common share with a payment date of September 20, 2018 to all common stockholders as of September 4, 2018. However, if the Company is unable to overturn the jury verdict of non-infringement in its litigation with Hewlett-Packard on appeal to the Federal Circuit (see Note I[1] hereof), or there is not an arbitration ruling that the HP Jury Verdict finding of non-infringement does not apply to certain licensees of the Remote Power Patent including Cisco, the Board of Directors may decide to modify or discontinue semi-annual cash dividends of $0.05 per common share. |
RELATED PARTY TRANSACTIONS |
9 Months Ended |
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Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE M - RELATED PARTY TRANSACTIONS | On May 30, 2018, the Company repurchased from a director 75,000 shares of its common stock at a purchase price per share of $2.77 or aggregate consideration of $207,750 (see Note J hereof). |
SUBSEQUENT EVENTS |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
Notes to Financial Statements | |
NOTE N - SUBSEQUENT EVENTS | On November 13, 2018, the Company filed a lawsuit against Dell, Inc. ("Dell") in the District Court, 241st Judicial District, Smith County, Texas, for breach of a settlement and license agreement with the Company as a result of Dell's failure to make royalty payments, and provide corresponding royalty reports, to the Company based on sales of Dell's PoE products. The Company believes Dell is obligated to pay the Company all prior unpaid royalties, including those that accrued after the date of the HP Jury Verdict (November 13, 2017), as well as future royalties through the expiration of the Remote Power Patent in March 2020 (see Note I[1]). |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Summary Of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of Estimates and Assumptions | The preparation of 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 revenue recognition, stock-based compensation, income taxes and valuation of patents. Actual results could be materially different from those estimates, upon which the carrying values were based. |
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Patents | The Company owns patents that relate to various technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of its acquired patents and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the patents would be capitalized and amortized over the balance of the useful life for the patents. |
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Revenue Recognition | On January 1, 2018, we adopted ASU. No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Under Topic 606, revenue is recognized when we complete the licensing of our intellectual property to our licensees, in an amount that reflects the consideration we expect to be entitled to in exchange for licensing our intellectual property.
We determine revenue recognition through the follow steps:
Revenue disaggregated by revenue source for the three and nine months ended September 30, 2018, consists of the following:
__________________________
(1) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I- "Legal Proceedings").
The Company relies on royalty reports received from third party licensees to record its revenue. From time to time the Company may audit royalties reported from licensees. Any adjusted royalty revenue as a result of such audits 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 licensing royalties on licensed products sold by the licensee. Generally, in the event of settlement of litigation 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 (a "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 (a "Royalty Bearing License").
The Company's license agreements, both Fully-Paid Licenses and Royalty Bearing Licenses, typically include some combination of the following: (i) the grant of a non-exclusive license to manufacture and/or sell products covered by its patented technologies; (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted pursuant to these licenses typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company typically has no further performance obligations with respect to the grant of the non-exclusive licenses. Generally, the license agreements provide for the grant of the licenses, releases, and other obligations following execution of the agreement and the receipt of the up-front lump sum payment for a Fully-Paid License or a license initiation fee for a Royalty Bearing License.
Ongoing Royalty Payments: Certain of the Company's revenue from Royalty Bearing Licenses results from the calculation of royalties based on a licensee's actual quarterly sales (one licensee pays monthly royalties) of licensed products, applied to a contractual royalty rate. Licensees that pay royalties on a quarterly basis generally report to the Company actual quarterly sales and related quarterly royalties due within 45 days after the end of the quarter in which such sales activity takes place. Licensees with Royalty Bearing Licenses are obligated to provide the Company with quarterly (or monthly) royalty reports that summarize their sales of licensed products and their related royalty obligations to the Company. The Company receives these royalty reports subsequent to the period in which its licensees underlying sales occurred. The amount of royalties due under Royalty Bearing Licenses, each quarter, cannot be reasonably estimated by management. Consequently, the Company recognizes revenue for the period in which the royalty report is received in arrears and other revenue recognition criteria are met.
Non-Refundable Up-Front Fees: Fully-Paid Licenses provide for a non-refundable up-front payment, for which the Company has no future obligations or performance requirements, revenue is generally recognized when the Company has obtained the signed license agreement, all performance obligations have been substantially performed, amounts are fixed and determinable, and collectability is reasonably assured. Revenue from Fully-Paid Licenses may consist of one or more installments. The timing and amount of revenue recognized from each licensee depends upon a number of factors including the specific terms of each agreement and the nature of the deliverables and obligations. |
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Costs of Revenue | The Company includes in costs of revenue for the three and nine months ended September 30, 2018 and 2017 contingent legal fees payable to patent litigation counsel (see Note G[1] hereof) and incentive bonus compensation payable to its Chairman and Chief Executive Officer (see Note H[1] hereof). |
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Income Taxes | The Company uses the assets and liability method of accounting for income taxes to record deferred income taxes 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.
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, 2018 and December 31, 2017.
United States federal, state and local income tax returns prior to 2015 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. On July 19, 2018, the Internal Revenue Service notified the Company that it was examining its 2016 federal tax return.
On December 22, 2017, the 2017 Tax Cuts and Job Act was enacted into law and the new legislation contains key tax provisions that affect us. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not extended beyond one year of the enactment date.
The personal holding company ("PHC") rules under the Internal Revenue Code impose a 20% tax on a PHC's undistributed personal holding company income ("PHC Income"), which means, in general, taxable income subject to certain adjustments. 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 5 or fewer individuals at anytime 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"). In the second half of 2018 through September 30, 2018 (as well as during the second half of prior years), the Company did not meet the Ownership Test. Due to the significant number of shares held by the Company's largest shareholders, the Company continually assesses its share ownership to determine whether it meets the Ownership Test. If the Ownership Test were met and the income generated by the Company were determined to constitute "royalties" within the meaning of the Income Test, the Company would constitute a PHC and the Company would be subject to a 20% tax on the amount of any PHC Income that it does not distribute to its shareholders. |
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Impairment of long-lived assets | Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Accordingly, we record impairment losses on long-lived assets used in operations or expected to be disposed of when indicators of impairment exist and the undiscounted cash flows expected to be derived from those assets are less than carrying amounts of these assets. At September 30, 2018, there was no impairment to the Company's patents. |
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Stock-Based Compensation | Stock-based compensation to employees, including grants of employee stock options and restricted stock units, are recognized in the unaudited condensed consolidated statements of income and comprehensive income based on their grant date fair values. Compensation expense related to awards to employees is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Share-based compensation issued to non-employees is recorded at its fair value, and is periodically revalued as the equity instruments vest and is recognized as expense over the related service period and is expensed using an accelerated attribution model. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options granted. The fair value of restricted stock units is determined based on the number of shares granted and either the quoted market price of the Company's common stock on the date of grant for time-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model for market-based awards (see Note D hereof for further discussion of the Company's stock–based compensation) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | The Company reports earnings per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and options to purchase common stock were exercised and shares were issued pursuant to outstanding restricted stock units. Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share (see Note E hereof). |
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Financial Instruments | Fair value is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable.
The carrying value of cash, other investments, royalty receivables, other assets, accounts payable, and accrued expenses approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Other investments available for sale are measured at fair market value. |
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Dividends | Dividends are recorded when declared by the Company's Board of Directors. Common stock dividends are charged against retained earnings when declared or paid (see Note L hereof). |
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Reclassification | The Company has reclassified certain amounts in prior period condensed consolidated financial statements to conform to the current period's presentation. These reclassifications had no impact on the previously reported net income. |
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Accounting Standards Adopted in the Period | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 provides for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective approach.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on its consolidated financial position, statements of operations and cash flows. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure Summary Of Significant Accounting Policies Tables Abstract | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue disaggregated by revenue source |
Revenue disaggregated by revenue source for the three and nine months ended September 30, 2018, consists of the following:
__________________________
(1) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I- "Legal Proceedings"). |
PATENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
Disclosure Patents Tables Abstract | |||||||||||||||||||||||||||||||||||||||||
Accumulated amortization related to acquired intangible assets |
The gross carrying amounts and accumulated amortization related to acquired intangible assets as of September 30, 2018 and December 31, 2017 were as follows:
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Future amortization of current intangible assets, net |
Future amortization of intangible assets, net is as follows:
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STOCK-BASED COMPENSATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of restricted stock unit activity |
A summary of restricted stock unit activity for the nine months ended September 30, 2018 is as follows (each restricted stock unit represents the right to receive one share of the Company's common stock):
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Summary of information of stock options outstanding and exercisable |
The following table presents information relating to all stock options outstanding and exercisable at September 30, 2018:
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EARNINGS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure Earnings Loss Per Share Tables Abstract | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share |
Computations of basic and diluted weighted average common shares outstanding were as follows:
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CASH AND CASH EQUIVALENTS, AND OTHER INVESTMENTS (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash And Cash Equivalents And Other Investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scedule of cash and cash equivalents and other investments |
Cash and cash equivalents, and other investments as of September 30, 2018 and December 31, 2017 were composed of:
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BASIS OF PRESENTATION AND NATURE OF BUSINESS (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
Agreement
| |
Basis Of Presentation And Nature Of Business | |
Patents owned | 62 |
Number of Remote Power Patent License Agreements | 27 |
Remote Power Patent revenue since May 2007 | $ | $ 143,000,000 |
Mirror Worlds Patent Portfolio Licensing and other revenue | $ | $ 47,150,000 |
Number of Mirror Worlds Patent Portfolio Licensing Agreements | 2 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Summary Of Significant Accounting Policies Details Narrative | |||||||
Fully-Paid Licenses | $ 973,000 | $ 12,700,000 | $ 3,273,000 | ||||
Royalty Bearing Licenses | 1,798,000 | 2,264,000 | 2,712,000 | 11,047,000 | |||
Other Revenue | 6,320,000 | [1] | |||||
Total Revenue | $ 1,798,000 | $ 3,237,000 | $ 21,732,000 | $ 14,320,000 | |||
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Summary Of Significant Accounting Policies Details Narrative | |
Impairment of long-lived assets | $ 0 |
PATENTS (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Patents, net | $ 2,062,000 | $ 2,169,000 |
Patents [Member] | ||
Gross carrying amount - patents | 7,673,000 | 7,571,000 |
Accumulated amortization - patents | (5,611,000) | (5,402,000) |
Patents, net | $ 2,062,000 | $ 2,169,000 |
PATENTS (Details 1) - Patents [Member] |
Sep. 30, 2018
USD ($)
|
---|---|
2019 | $ 273,000 |
2020 | 272,000 |
2021 | 272,000 |
2022 | 272,000 |
2023 and thereafter | 973,000 |
Total | $ 2,062,000 |
PATENTS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Amortization expense | $ 70,000 | $ 50,000 | $ 209,000 | $ 150,000 |
Expiration date of Remote Power Patent | March 2020 | |||
Expiration date of QoS family patents | June 2019 | |||
Expiration dates of the patents within the Company's Mirror Worlds patent portfolio | FEBRUARY 2020 | |||
Minimum [Member] | ||||
Estimated remaining economic useful of patents | 1 year 8 months 12 days | |||
Expiration dates of the patents within the Cox patent portfolio | SEPTEMBER 2021 | |||
Expiration dates of the patents within the Company's M2M/IoT Patent Portfolio | January 2034 | |||
Maximum [Member] | ||||
Estimated remaining economic useful of patents | 15 years 2 months 30 days | |||
Expiration dates of the patents within the Cox patent portfolio | NOVEMBER 2023 | |||
Expiration dates of the patents within the Company's M2M/IoT Patent Portfolio | May 2034 |
STOCK BASED COMPENSATION (Details) |
9 Months Ended |
---|---|
Sep. 30, 2018
$ / shares
shares
| |
Over $250 Million | |
Number of restricted stock units outstanding, Beginning balance | shares | 820,000 |
Weighted average grant date fair value, Beginning balance | $ / shares | $ 2.28 |
Number of restricted stock units, Grants | shares | 45,000 |
Weighted average grant date fair value, Grants | $ / shares | $ 2.60 |
Vested restricted stock units, shares | shares | (478,750) |
Vested restricted stock units, weighted average grant date fair value | $ / shares | $ 2.49 |
Unvested restricted stock units, shares, Ending balance | shares | 386,250 |
Unvested restricted stock units, weighted average grant date fair value, Ending balance | $ / shares | $ 2.06 |
STOCK BASED COMPENSATION (Details 1) |
9 Months Ended |
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Sep. 30, 2018
$ / shares
shares
| |
Options outstanding | shares | 1,635,000 |
Weighted average exercise price | $ 1.18 |
Weighted Average Remaining Life in Years | 1 year 8 months 26 days |
Options exercisable | shares | 1,635,000 |
Minimum [Member] | |
Range of Exercise price | $ 0.83 |
Maximum [Member] | |
Range of Exercise price | $ 2.34 |
EARNINGS PER SHARE (Details) - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Earnings Loss Per Share Tables Abstract | ||||
Weighted-average common shares outstanding - basic | 23,525,645 | 24,150,388 | 23,767,700 | 24,185,129 |
Dilutive effect of options, warrants and restricted stock units | 1,396,789 | 2,261,751 | 1,690,253 | 2,294,955 |
Weighted-average common shares outstanding - diluted | 24,922,434 | 26,412,139 | 25,457,953 | 26,480,084 |
Options and restricted stock units excluded from the computation of diluted income per share because the effect of inclusion would have been anti-dilutive |
EARNINGS PER SHARE (Details Narratrive) - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Disclosure Earnings Loss Per Share Details Narratrive Abstract | ||
Potentially Dilutive Shares | 2,021,250 | 2,940,125 |
CASH AND CASH EQUIVALENTS, AND OTHER INVESTMENTS (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|---|---|
Cash and cash equivalents: | ||||
Cash | $ 7,388,000 | $ 7,514,000 | ||
Money market funds | 16,530,000 | 43,337,000 | ||
Certificates of deposit (3 months or less maturity) | 3,275,000 | 250,000 | ||
Total Cash and cash equivalents | 27,193,000 | 51,101,000 | $ 52,265,000 | $ 50,918,000 |
Other Investments | ||||
Certificates of deposit (greater than 3 months up 12 months maturity) | 8,485,000 | 2,000,000 | ||
Short term bond funds | 12,623,000 | |||
Corporate bonds and notes | 8,504,000 | 1,054,000 | ||
Total other investments | 29,612,000 | 3,054,000 | ||
Total cash and cash equivalents and other investments | $ 56,805,000 | $ 54,155,000 |
CASH AND CASH EQUIVALENTS, AND OTHER INVESTMENTS (Details Narrative) |
Sep. 30, 2018
USD ($)
|
---|---|
Cash And Cash Equivalents Details Narrative | |
Maintained cash balance in excess of FDIC | $ 25,541,000 |
COMMITMENTS AND CONTINGENCIES - Legal Fees (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Legal Service Agreement With Dovel And Luner For Litigation Filed In September 2011 [Member] | ||||
Legal Fees payment ,Terms | Legal fees on a full contingency basis ranging from 12.5% to 35% (with certain exceptions) of the net recovery (after deduction for expenses) | |||
Contingent legal fees | $ 496,000 | $ 523,000 | $ 6,873,000 | $ 1,789,000 |
Legal Service Agreement With Russ, August Kabot For Litigation Filed In April 2014 and December 2014 [Member] | ||||
Legal Fees payment ,Terms | Legal fees on a full contingency basis ranging from 15% to 30% of the net recovery (after deduction of expenses) | |||
Legal Service Agreement With Russ, August Kabot For Litigation Filed In May 2017 [Member] | ||||
Legal Fees payment ,Terms | 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) | |||
Legal Service Agreement With Dovel And Luner For Litigation Settlement In July 2010 [Member] | ||||
Legal Fees payment ,Terms | Legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of 24% (based on the settlement being achieved at the trial stage) | |||
Contingent legal fees | $ 0 | $ 268,000 | $ 0 | $ 1,801,000 |
COMMITMENTS AND CONTINGENCIES - Leases Agreements (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
New York City [Member] | |
Rental cost per month | $ 3,900 |
Expiring date | May 31, 2020 |
New Canaan CT [Member] | |
Rental cost per month | $ 7,200 |
Expiring date | September 30, 2019 |
Description lease agreement | <p style="margin: 0pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Connecticut expiring on September 30, 2019 at a base rent of $7,200 per month (increasing $100 per month each year), which is subject to annual adjustments to reflect increases in real estate taxes and operating expenses.</font></p> |
STOCK REPURCHASE (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | 86 Months Ended | |||
---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2018 |
Sep. 30, 2018 |
May 30, 2018 |
Jun. 14, 2017 |
Aug. 31, 2011 |
|
Number of shares, common stock repurchased | 91,995 | 548,351 | 8,123,904 | |||
Average price per share, common stock subject to repurchase | $ 2.70 | $ 2.78 | $ 1.86 | |||
Aggregate cost of common stock repurchased | $ 248,260 | $ 1,524,468 | $ 15,069,477 | |||
Remaining shares subject to repurchase, value | $ 1,394,532 | |||||
Director [Member] | ||||||
Stock Repurchase Program, dollar amount of additional shares authorized to be repurchased | 75,000 | |||||
Number of shares, common stock repurchased | 75,000 | |||||
Average price per share, common stock subject to repurchase | $ 2.77 | |||||
Aggregate cost of common stock repurchased | $ 207,750 | |||||
Board of Directors [Member] | ||||||
Stock Repurchase Program, dollar amount of additional shares authorized to be repurchased | 5,000,000 | |||||
Stock Repurchase Program, dollar amount of shares authorized for repurchase since inception | 17,000,000 |
CONCENTRATIONS (Details Narrative) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Licensees One [Member] | |||||
Percentage revenue | 81.00% | 75.00% | 58.00% | 75.00% | |
Percentage revenue from sale of unsecured Avaya claim | 29.00% | ||||
Royalty receivables percentage from one licensee | 79.00% | ||||
Licensees Three [Member] | |||||
Percentage revenue | 75.00% | 75.00% | |||
Royalty receivables percentage from three licensees | 79.00% | ||||
Licensees Two [Member] | |||||
Percentage revenue | 75.00% | 75.00% |
DIVIDEND POLICY (Details Narrative) - $ / shares |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Dec. 07, 2016 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Dividend Policy | |||||
Semi-annual cash dividend per common share | $ 0.05 | $ 0.05 | $ 0.05 | $ 0.10 | $ 0.10 |
Annual dividend per common share | $ 0.10 | ||||
Dividend policy payment description | <p style="margin: 0pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">On February 9, 2018, the Board of Directors of the Company declared a semi-annual cash dividend of $.05 per common share which was paid on March 23, 2018 to all common stockholders of record as of March 9, 2018. On July 26, 2018, the Board of Directors declared a cash dividend of $.05 per common share with a payment date of September 20, 2018 to all common stockholders as of September 4, 2018. </font></p> |
RELATED PARTY TRANSACTIONS (Details Narrative) - Director [Member] |
1 Months Ended |
---|---|
May 30, 2018
USD ($)
$ / shares
shares
| |
Number of shares, common stock repurchased from a director | shares | 75,000 |
Price per share, common stock subject to repurchase | $ / shares | $ 2.77 |
Aggregate cost of common stock eligible for repurchase | $ | $ 207,750 |
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