U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended SeptemberJune 30, 20172019
 
 
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission File Number 1-15288
 

NETWORK-1 TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 

Delaware
(State or Other Jurisdiction of Incorporation or Organization)
11-3027591
(IRS Employer Identification No.)
 
 
 
445 Park Avenue, Suite 912
New York, New York
(Address of Principal Executive Offices)
10022
(Zip Code)
 
 

              212-829-5770              
(Registrant's Telephone Number)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading symbol
NTIP
Name of each exchange on which registered
NYSE American

 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§223.405) of this chapter)chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer ☐
 
Accelerated filer ☐
 
 
 
Non-accelerated filer ☐
 
Smaller reporting company ☒
   
  Emerging growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying  with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

The number of shares of the registrant's common stock, $.01 par value per share, outstanding as of November 13, 2017August 12, 2019 was 24,131,012.24,156,998.

 
 
NETWORK-1 TECHNOLOGIES, INC.
 
Form 10-Q Index
 
 
 
 
Page No.
  
PART I.  Financial Information 
  
Item 1.   Condensed Consolidated Financial Statements (unaudited) 
  
Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172019 and December 31, 201620183
  
Condensed Consolidated Statements of IncomeOperations and Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 201620184
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2019 and 20185
  
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 201620185 6
  
Notes to Unaudited Condensed Consolidated Financial Statements67
  
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations2330
  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk3138
  
Item 4.   Controls and Procedures3138
  
  
PART II. Other Information 
  
Item 1.   Legal Proceedings32
Item 1A. Risk Factors3539
  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds3541
  
Item 3.   Defaults Upon Senior Securities3642
Item 4.   Other Information42
  
Item 5.   Other Information36
Item 6.  Exhibits3642
  
Signatures3743
 

 
- 2 -
PART I.  FINANCIAL INFORMATION
Item 1.  Condensed Consolidated Financial Statements
 
NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
  
September 30,
2017
  
December 31,
2016
 
ASSETS:      
       
CURRENT ASSETS:      
Cash and cash equivalents $
52,265,000
  $50,918,000 
Marketable securities, available for sale  1,064,000   1,065,000 
Royalty receivables, net  3,570,000   2,879,000 
Prepaid taxes  300,000   1,195,000 
Other current assets  18,000   83,000 
         
Total Current Assets  57,217,000   56,140,000 
         
OTHER ASSETS:        
Deferred tax assets  168,000   207,000 
Patents, net of accumulated amortization  1,131,000   1,231,000 
Security deposits  19,000   19,000 
         
Total Other Assets  1,318,000   1,457,000 
         
TOTAL ASSETS $58,535,000  $57,597,000 
         
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY:        
         
CURRENT LIABILITIES:        
Accounts payable $70,000  $171,000 
Income taxes payable  930,000   — 
Accrued contingency fees and related costs  1,789,000   2,681,000 
Accrued payroll  240,000   1,748,000 
Other accrued expenses  87,000   125,000 
         
TOTAL LIABILITIES  3,116,000   4,725,000 
         
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS' EQUITY        
         
Preferred stock, $0.01 par value, authorized 10,000,000 shares;        
none issued and outstanding at September 30, 2017 and December 31, 2016  —   — 
         
Common stock, $0.01 par value; authorized 50,000,000 shares;        
24,131,012 and 23,744,829 shares issued and outstanding at        
September 30, 2017 and December 31, 2016, respectively  241,000   238,000 
         
Additional paid-in capital  64,141,000   62,367,000 
Accumulated deficit  (8,931,000)  (9,702,000)
Accumulated other comprehensive loss  (32,000)  (31,000)
         
TOTAL STOCKHOLDERS' EQUITY  55,419,000   52,872,000 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $58,535,000  $57,597,000 
  
June 30,
2019
  
December 31,
2018
 
ASSETS:      
       
CURRENT ASSETS:      
Cash and cash equivalents $18,923,000  $23,763,000 
Marketable securities, at fair value  32,116,000   31,228,000 
Royalty receivables, net  641,000   444,000 
Other current assets  58,000   112,000 
         
Total Current Assets  51,738,000   55,547,000 
         
OTHER ASSETS:        
Deferred tax assets  271,000   168,000 
Patents, net of accumulated amortization  1,883,000   1,989,000 
Equity investment  3,392,000   2,541,000 
Operating leases right-of-use asset  63,000   — 
Security deposits  21,000   21,000 
         
Total Other Assets  5,630,000   4,719,000 
         
TOTAL ASSETS $57,368,000  $60,266,000 
         
LIABILITIES AND STOCKHOLDERS' EQUITY:        
         
CURRENT LIABILITIES:        
Accounts payable $200,000  $67,000 
Income taxes payable  197,000   197,000 
Accrued contingency fees and related costs  276,000   1,136,000 
Accrued payroll  64,000   486,000 
Operating lease obligations – current  64,000   — 
Other accrued expenses  184,000   175,000 
         
TOTAL CURRENT LIABILITIES $985,000  $2,061,000 
         
TOTAL LIABILITIES $985,000  $2,061,000 
         
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS' EQUITY        
         
Preferred stock, $0.01 par value, authorized 10,000,000 shares;        
none issued and outstanding at June 30, 2019 and        
December 31, 2018 —  — 
         
Common stock, $0.01 par value; authorized 50,000,000 shares;        
24,088,811 and 23,735,927 shares issued and outstanding at        
June 30, 2019 and December 31, 2018, respectively  241,000   237,000 
         
Additional paid-in capital  65,524,000   65,151,000 
Accumulated deficit  (9,464,000)  (7,102,000)
Accumulated other comprehensive income (loss)  82,000   (81,000)
         
TOTAL STOCKHOLDERS' EQUITY  56,383,000   58,205,000 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,368,000  $60,266,000 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
- 3 -
NETWORK-1 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
 
 
 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 2017  2016  2017  2016  2019  2018  2019  2018 
                        
REVENUE $3,237,000  $34,326,000  $14,320,000  $59,963,000  $599,000  $471,000  $1,205,000  $19,934,000 
                                
OPERATING EXPENSES:                                
Costs of revenue  964,000   16,943,000   4,339,000   24,183,000   175,000   133,000   321,000   7,392,000 
Professional fees and related costs  534,000   633,000   1,154,000   1,458,000   238,000   586,000   545,000   1,104,000 
General and administrative  434,000   428,000   1,358,000   1,256,000   488,000   462,000   976,000   969,000 
Amortization of patents  50,000   49,000   150,000   760,000   87,000   69,000   141,000   139,000 
Stock-based compensation  237,000   189,000   711,000   233,000   127,000   225,000   271,000   451,000 
Contingent patent cost  —   —   —   500,000 
                
TOTAL OPERATING EXPENSES  2,219,000   18,242,000   7,712,000   28,390,000   1,115,000   1,475,000   2,254,000   10,055,000 
                                
OPERATING INCOME  1,018,000   16,084,000   6,608,000   31,573,000 
OPERATING INCOME (LOSS)  (516,000)  (1,004,000)  (1,049,000)  9,879,000 
OTHER INCOME:
      ��                         
Interest income, net  55,000   24,000   89,000   50,000   301,000   203,000   602,000   346,000 
Net realized and unrealized gain on marketable securities  
22,000
   —   45,000   — 
Total other income, net  323,000   203,000   647,000   346,000 
                                
INCOME BEFORE INCOME TAXES  1,073,000   16,108,000   6,697,000   31,623,000 
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSSES OF EQUITY METHOD INVESTEE  (193,000)  (801,000)  (402,000)  10,225,000 
                                
                
INCOME TAXES:                
INCOME TAXES (BENEFIT):                
Current  425,000   3,817,000   2,198,000   4,198,000   —   (237,000)  —   2,188,000 
Deferred taxes, net  —   1,459,000   39,000   4,543,000   (38,000)  —   (103,000)  — 
Total income taxes  425,000   5,276,000   2,237,000   8,741,000 
Total income taxes (benefit)  (38,000)  (237,000)  (103,000)  2,188,000 
                                
NET INCOME $648,000  $10,832,000  $4,460,000  $22,882,000 
INCOME (LOSS) BEFORE SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE:  (155,000)  564,000   (299,000)  
8,037,000
 
                                
Net Income Per Share                
SHARE OF NET (LOSSES) OF EQUITY METHOD INVESTEE  (53,000)  —   (149,000)  — 
                
NET INCOME (LOSS) $(208,000) $(564,000) $(448,000) $8,037,000 
                
Net Income (Loss) Per Share                
Basic $0.03  $0.46  $0.18  $0.98  $(0.01) $(0.02) $(0.02) $0.34 
Diluted $0.02  $0.43  $0.17  $0.93  $(0.01) $(0.02) $(0.02) $0.31 
                                
Weighted average common shares outstanding:                                
Basic  24,150,388   23,320,514   24,185,129   23,291,408   23,917,563   23,713,827   23,830,367   23,760,163 
Diluted  26,412,139   25,198,142   26,480,084   24,700,784   23,917,563   23,713,827   23,830,367   25,599,581 
                                
Cash dividends declared per share $0.05  $—  $0.10  $—   —   —  $0.05  $0.05 
                                
NET INCOME $648,000  $10,832,000  $4,460,000  $22,882,000 
NET INCOME (LOSS) $(208,000) $(564,000) $(448,000) $8,037,000 
                                
OTHER COMPREHENSIVE INCOME:                
Unrealized holding gain (loss) on securities available-for-sale arising during the period  (2,000)  (4,000)  (1,000)  39,000 
OTHER COMPREHENSIVE INCOME (LOSS)                
Net unrealized holding gain (loss) on corporate bonds and notes arising during the period, net of tax  53,000   (9,000)  
163,000
   (34,000)
                                
                
COMPREHENSIVE INCOME $646,000  $10,828,000  $4,459,000  $22,921,000 
COMPREHENSIVE INCOME (LOSS) $(155,000) $(573,000) $(285,000) $8,003,000 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

- 4 -
NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019
  
 
Common Stock
  
Additional
Paid-in Capital
  
Accumulated Deficit
  
Accumulated Other Comprehensive Income (Loss)
  Total Stockholders' Equity 
 
Shares
  Amount
Balance – December 31, 2018  23,735,927  $237,000  $65,151,000  $(7,102,000) $(81,000) $58,205,000 
Dividends and dividend equivalents declared  ―   ―   ―   (1,215,000)  ―   (1,215,000)
Stock-based compensation  ―   ―   144,000   ―   ―   144,000 
Vesting of restricted stock units  11,250   ―   ―   ―   ―   ― 
Cashless exercise of stock options  105,000   1,000   (1,000)  ―   ―   ― 
Shares delivered to fund stock option exercises  (69,116)  ―   ―   ―   ―   ― 
Treasury stock purchased and retired  (300)  ―   ―   (1,000)  ―   (1,000)
Net unrealized gain on corporate bonds and notes  ―   ―   ―   ―   110,000   110,000 
Net loss  —   —   ―   (240,000)  —   (240,000)
Balance – March 31, 2019  23,782,761  $238,000  $65,294,000  $(8,558,000) $29,000  $57,003,000 
Stock-based compensation  ―   ―   127,000   ―   ―   127,000 
Vesting of restricted stock units  11,250   ―   ―   ―   ―   ― 
Proceeds from exercise of stock options  65,150   ―   107,000   ―   ―   107,000 
Cashless exercise of stock options  859,849   9,000   (9,000)  ―   ―   ― 
Shares delivered to fund stock option exercises  (490,351)  (5,000)  5,000   ―   ―   ― 
Value of shares delivered to pay withholding taxes  ―   ―   ―   (366,000)  ―   (366,000)
Treasury stock purchased and retired  (139,848)  (1,000)  ―   (332,000)  ―   (333,000)
Net unrealized gain on corporate bonds and notes  ―   ―   ―   ―   53,000   53,000 
Net loss  —   ―   —   (208,000)  —   (208,000)
Balance – June 30, 2019  24,088,811  $241,000  $65,524,000  $(9,464,000) $82,000  $56,383,000 
THREE AND SIX MONTHS ENDED JUNE 30, 2018
  
 
Common Stock
  
Additional
Paid-in Capital
  
Accumulated Deficit
  
Accumulated Other Comprehensive Income (Loss)
  Total Stockholders' Equity 
 Shares  Amount
Balance – December 31, 2017  23,843,915  $238,000  $64,435,000  $(10,219,000) $(42,000) $54,412,000 
Dividends and dividend equivalents declared  ―   ―   ―   (1,228,000)  ―   (1,228,000)
Stock-based compensation  ―   ―   226,000   ―   ―   226,000 
Vesting of restricted stock units  11,250   ―   ―   ―   ―   ― 
Cashless exercise of stock options  50,000   1,000   ―   ―   ―   1,000 
Shares delivered to fund stock option exercise  (23,110)  ―   ―   ―   ―   ― 
Proceeds from exercise of stock options  25,000   1,000   29,000   ―   ―   30,000 
Treasury stock purchased and retired  (153,993)  (2,000)  ―   (397,000)  ―   (399,000)
Net unrealized loss on corporate bonds and notes  ―   ―   ―   ―   (25,000)  (25,000)
Net income  —   —   —   8,601,000   —   8,601,000 
Balance – March 31, 2018  23,753,062  $238,000  $64,690,000  $(3,243,000) $(67,000) $61,618,000 
Stock-based compensation  ―   ―   225,000   ―   ―   225,000 
Vesting of restricted stock units  81,250   ―   ―   ―   ―   ― 
Value of shares delivered to pay withholding taxes  (16,784)  ―   1,000   (53,000)  ―   (52,000)
Cashless exercise of stock options  300,000   3,000   (3,000)   ―   ―   ― 
Shares delivered to fund stock option exercises  (181,936)  (2,000)  2,000   ―   ―   ― 
Treasury stock purchased and retired  (302,363)  (3,000)  ―   (882,000)  ―   (885,000)
Net unrealized loss on corporate bonds and notes  ―   ―   ―   ―   (9,000)  (9,000)
Net loss  —   —   —   (564,000)  —   (564,000)
Balance – June 30, 2018  
23,633,229
  
$
236,000
  
$
64,915,000
  
$
(4,742,000
)
 
$
(76,000
)
 
$
60,333,000
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
- 5 -
NETWORK-1 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
Nine Months Ended
September 30,
  
Six Months Ended
June 30,
 
 2017  2016  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net Income $4,460,000  $22,882,000 
Adjustments to reconcile net income to net cash provided by operating activities:        
Net income (loss) $(448,000) $8,037,000 
Adjustments to reconcile net income(loss)to net cash        
(used in) provided by operating activities:        
Amortization of patents  150,000   760,000   141,000   139,000 
Stock-based compensation  711,000   233,000   271,000   451,000 
Deferred tax provision  39,000   4,543,000 
Loss from equity investment  149,000   ― 
Deferred tax benefit  (103,000)  — 
Amortization of right of use asset, net  67,000   — 
Unrealized gain on marketable securities  (45,000)  — 
                
Changes in operating assets and liabilities:                
Royalty receivables  (691,000)  123,000   (197,000)  127,000 
Prepaid Taxes  895,000   — 
Prepaid taxes  —   125,000 
Other current assets  65,000   176,000   54,000   39,000 
Accounts payable  
(101,000
)  323,000   133,000   (10,000)
Income taxes payable  —   1,164,000 
Operating lease obligations  (67,000)  — 
Accrued expenses  (2,521,000)  4,020,000   (1,297,000)  (1,693,000)
Income taxes payable  930,000   4,080,000 
NET CASH PROVIDED BY OPERATING ACTIVITIES  3,937,000   37,140,000 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES  (1,342,000)  8,379,000 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of patents  (50,000)  (4,000)
Sales of marketable securities  21,611,000   4,894,000 
Purchases of marketable securities  (22,291,000)  (24,378,000)
Development of patents  (35,000)  (53,000)
Equity Investment  (1,000,000)  — 
                
NET CASH USED IN INVESTING ACTIVITY  (1,715,000)  
(19,537,000
)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash dividends  (2,421,000)  — 
Value of shares delivered to fund withholding taxes on exercise of options  (56,000)  (44,000)
Repurchases of common stock, net of commissions  (1,131,000)  (1,000)
Cash dividends paid  (1,191,000)  (1,188,000)
Value of shares delivered to fund withholding taxes  (366,000)  (50,000)
Repurchases of common stock, inclusive of commissions  (333,000)  (1,283,000)
Proceeds from exercise of options and warrants  1,068,000   60,000   107,000   30,000 
               
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  (2,540,000)  15,000 
NET CASH USED IN FINANCING ACTIVITIES  (1,783,000)  (2,491,000)
                
NET INCREASE IN CASH AND CASH EQUIVALENTS  1,347,000   37,151,000 
        
NET DECREASE IN CASH AND CASH EQUIVALENTS  (4,840,000)  
(13,649,000
)
                
CASH AND CASH EQUIVALENTS, beginning of period  50,918,000   20,608,000   23,763,000   44,351,000 
                
CASH AND CASH EQUIVALENTS, end of period $52,265,000  $57,759,000  $18,923,000  $30,702,000 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
CASH PAID DURING THE PERIOD FOR:        
Interest $—  $— 
Taxes  440,000  $— 
Cash paid during the period for:        
Income taxes $—  $918,000 
                
NON-CASH FINANCING ACTIVITY                
Accrued dividend rights on restricted stock units  84,000   —  $27,000  $41,000 
 
 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
- 56 -
NETWORK-1 TECHNOLOGIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS:
 
[1] BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited, but, in the opinion of the management of Network-1 Technologies, Inc. (the "Company"), contain all adjustments consisting only of normal recurring items which the Company considers necessary for the fair presentation of the Company's financial position as of SeptemberJune 30, 2017,2019, and the results of its operations and comprehensive income (loss) for the three and ninesix month periods ended SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018, changes in stockholders' equity for the three and six month periods ended June 30, 2019 and June 30, 2018, and its cash flows for the ninesix month periods ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016.2018.  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, 20162018 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017.29, 2019. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172019 are not necessarily indicative of the results of operations to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, Mirror Worlds Technologies, LLC.
[2] BUSINESS:
BUSINESS
The Company is engaged in the development, licensing and protection of its intellectual property assets.  The Company presently owns thirty-six (36) seventy-two (72)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 actionactions 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, provisioning and (iv)using embedded sim cards in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers; and (v) QoS patents (the "QoS 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 SeptemberJune 30 2017,, 2019, the Company hashad entered into twenty-six (26)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.
- 7 -

NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
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 patent 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 $119,000,000 from May 2007 through September 30, 2017.  As a result of the Company's acquisition of the Mirror Worlds Patent Portfolio in May 2013, the Company achieved licensing and other revenue of $47,150,000 through September 30, 2017.
- 6 -
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 U.S. 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 its Remote Power Patent is valid, thereby overturning the HP 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 U.S. 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 year ended December 31, 2018 and the three and six months ended June 30, 2019 and will continue to do so for the life of the Company's Remote Power Patent (March 2020) unless the District Court judgment of non-infringement is reversed on appeal.  The Company has been dependent 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 District Court order 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 District Court order 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 the Company 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 Note I[2] hereof).
UseConsistent with the Company's prior view, the District Court decision overturning the HP Jury Verdict on invalidity as referenced above confirmed the obligations of Estimatescertain 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] to our unaudited condensed consolidated financial statements included in this quarterly report).  Notwithstanding the District Court decision overturning the HP Jury Verdict on validity, Dell Inc. refused to pay us all unpaid royalties that accrued prior to and Assumptionsafter the HP Verdict and in November 2018 we instituted litigation against Dell to collect such unpaid royalties (see Note I[5] to the Company's unaudited condensed consolidated financial statements included in this quarterly report).
 
- 8 -

NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
Consistent with the Company's revenue recognition policy (see Note B[4] hereof), the Company did not record revenue for 2018 and for the three and six months ended June 30, 2019 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).
Note B – Summary of Significant Accounting Policies
[1]Use of Estimates and Assumptions
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company's unaudited condensed consolidated financial statements include revenue recognition, stock-based compensation, income taxes, valuation of patents and stock-based compensation.equity method investments, including evaluation of the Company's basis difference.  Actual results could be materially different from those estimates, upon which the carrying values were based.
 
Patents
[2]Cash and Cash Equivalents
The Company maintains cash deposits in high quality financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC").  Accounts at each institution are insured by the FDIC up to $250,000. At June 30, 2019, the Company maintained a cash balance of $12,107,000 in excess of the FDIC insured limit.
The Company considers all highly liquid short-term investments, including certificates of deposit and money market funds, that are purchased with an original maturity of three months or less to be cash equivalents.
[3]Marketable Securities
The Company's marketable securities are comprised of certificates of deposit with original maturity greater than three months from date of purchase, bond mutual funds, and corporate bonds and notes (see Note F). At June 30, 2019, included in marketable securities, the Company had aggregate certificates of deposit of $7,006,000 at financial institutions which constituted $500,000 in excess of the FDIC limit. The Company's marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit and bond mutual funds are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of income and comprehensive income(loss). Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Dividend and interest income are recognized when earned.  Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities.
 
- 9 -
Note B – Summary of Significant Accounting Policies (continued)
[4]Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018.
Under ASC 606, revenue is recognized when the Company completes the licensing of its intellectual property to its licensees, in an amount that reflects the consideration the Company expects to be entitled to in exchange for licensing its intellectual property.
The Company determines revenue recognition through the following steps:
·identification of the license agreement;
·identification of the performance obligations in the license agreement;
·determination of the consideration for the license;
·allocation of the transaction price to the performance obligations in the contract; and
·recognition of revenue when the Company satisfies its performance obligations.

Revenue disaggregated by source is as follows:

  
Three Months
Ended June 30,
  
Six Months
Ended June 30,
 
  2019  2018  2019  2018 
Fully-Paid - Licenses $―  $―  $130,000
(1) 
 $12,700,000 
Royalty Bearing - Licenses  599,000   471,000   1,075,000   914,000 
Other Revenue  ―   ―   ―   6,320,000
(2) 
Total Revenue $599,000  $471,000  $1,205,000  $19,934,000 
__________________________
(1)  Includes conversion of an existing royalty bearing license to a fully-paid license.
(2)  Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I[1] hereof).

The Company relies on royalty reports received from third party licensees to record its revenue.  From time to time, the Company may audit or otherwise dispute royalties reported from licensees. Any adjusted royalty revenue as a result of such audits or dispute is recorded by the Company in the period in which such adjustment is agreed to by the Company and the licensee or otherwise determined.
Revenue from the Company's patent licensing business is generated from negotiated license agreements.  The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the terms of each agreement and the nature of the obligations of the parties.  These agreements may include, but not be limited to, elements related to past infringement liabilities, non-refundable upfront license fees, and ongoing royalties on licensed products sold by the licensee.  Generally, in the event of 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").

- 10 -
Note B – Summary of Significant Accounting Policies (continued)
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.
[5]Equity Method Investments
Equity method investments are equity securities in entities the Company does not control but over which it has the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures (see Note J hereof). Equity method investments are measured at cost minus impairment, if any, plus or minus the Company's share of an investee's income or loss. The Company's proportionate share of the income or loss from equity method investments is recognized on a one-quarter lag. When the Company's carrying value in an equity method investment is reduced to zero, no further losses are recorded in the Company's financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding.
When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. Upon sale of equity method investments, the difference between sales proceeds and the carrying amount of the equity investment is recognized in profit or loss.
- 11 -
Note B – Summary of Significant Accounting Policies (continued)
[6]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.
[7]Costs of Revenue
Revenue Recognition

The Company recognizes revenue received from the licensing of its intellectual property and other related intellectual property activities.  Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been performed pursuant to the terms of the license or other applicable agreement, (iii) amounts are fixed or determinable, and (iv) collectability of amounts is reasonably assured.  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.
Costs of Revenue
The Company includes in costs of revenue for the three and ninesix months ended SeptemberJune 30 2017, 2019 and 20162018 contingent legal fees payable to patent litigation counsel (see Note H[G[1] hereof), other contractual payments related to net proceeds from settlements (see Note G[2] hereof) and incentive bonus compensation payable to its Chairman and Chief Executive Officer (see Note I[H[1] hereof) and payments of certain percentages of net proceeds to Recognition Interface, LLC and others with respect to monetization of the Company's Mirror Worlds Patent Portfolio (see Note H[.2] hereof).
Income Taxes
[8]Income Taxes
The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, "Income Taxes"Income Taxes (ASC 740), which requires the Company to use the assets and liability method of accounting for income taxes. Under the assets and liability method, deferred income taxes are recognized for the tax consequences of temporary (timing) differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards.
- 7 -
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, "AccountingAccounting 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 SeptemberJune 30, 20172019 and December 31, 2016.2018.
United StatesU.S. federal, state and local income tax returns prior to 20142015 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. In July 2018, the Internal Revenue Service notified the Company that it was examining its 2016 federal tax return.
Effective January 1,On December 22, 2017, the Company adopted ASU 2016-09, ImprovementsUnited States enacted the Tax Cuts and Jobs Act ("Tax Act"), which made significant changes to Employee Share Based Accounting, which impacts the Company's presentationU.S. federal income tax law.  The Tax Act affects 2018 and forward, including, but not limited to, a reduction in the federal corporate rate from 35.0% to 21.0%, elimination of the corporate alternative minimum tax, a new limitation on the deductibility of certain taxes.  See "Accounting Standards Adopted in Period" sectionexecutive compensation, limitations on net operating losses generated after December 31, 2017 and various other items.
- 12 -

Note B – Summary of this Note B for further details.
Significant Accounting Policies (continued)
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 anytimeany time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the "Ownership Test") and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the "Income Test").  In the second halfAs of 2017July 2019 (as well as during the second half of prior years), the Company believes it 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.
[9]Stock-Based Compensation


- 8 -
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2017, there was no impairment to the Company's patents.
Stock-Based Compensation
The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718,, Compensation - Stock Compensation ("ASC 718"). ASC 718 requires all stock-based compensation to employees, including grants of employee stock options and restricted stock units, to be 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 compensationShare based payments issued to non-employees are recorded at their fair values and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period and are 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 grantedunderlying the grant 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–basedstock-based compensation).
On January 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation ("ASC 718"), Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07)". The amendments in ASU 2018-07 expanded the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
Earnings Per Share
[10]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,
- 13 -
Note B – Summary of Significant Accounting Policies (continued)
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)E).
[11]Fair Value Measurements
Financial Instruments
U.S. GAAP regardingASC Topic 820, Fair Value Measurement and Disclosures, defines fair value of financial instruments and relatedas the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value measurements define fair value, establish a three-level valuation hierarchy thatwhich requires an entity to maximize the use ofclassification based on observable inputs and minimize the use of unobservable inputs when measuring fair value.
- 9 -
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
TheThere are three levels of inputs are defined as follows:
that may be used to measure fair value:
Level 11: Observable inputs to the valuation methodology aresuch as quoted prices (unadjusted) in an active market for identical assets or liabilities in active markets.
liabilities.
Level 2 inputs to the valuation methodology2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets andor liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that are observable forsupported by little or no market activity; therefore, the assetinputs are developed by the Company using estimates and assumptions that the Company expects a market participant would use, including pricing models, discounted cash flow methodologies, or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable.
similar techniques.
The carrying value of the Company's financial instruments, including cash marketable securities,and cash equivalents, royalty receivables,receivable, other assets, accounts payable, and accrued expenses approximates fair value because of the short periodshort-term nature of time betweenthese financial instruments.
The Company's marketable securities are classified within Level 1 because they are valued using quoted market prices in an active market (see Marketable Securities– Note F).
[12]Carrying Value, Recoverability and Impairment of Long-Lived Assets
An impairment loss shall be recognized only if the originationcarrying amount of such instrumentsa long-lived asset (asset group) is not recoverable and theirexceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected realizationto result from the use and their current market rateseventual disposition of interest.  Marketable securities availablethe asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for sale arerecoverability. An impairment loss shall be measured atas the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair valuevalue.
If an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited. At June 30, 2019 and 2018, there was no impairment to the Company's patents and equity investment.
The Company's equity method investment in ILiAD Biotechnologies, LLC ("ILiAD"), a privately held development stage biotechnology company (see Equity Investment – Note J) is evaluated on a recurringnon-recurring basis based onfor impairment and is classified within Level 13 as it is valued using significant unobservable inputs (see Note G hereof).or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity.
 
Dividends
- 14 -
Note B – Summary of Significant Accounting Policies (continued)
 
[13]Dividend Policy
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 NM hereof).
[14]Reclassification
Recent Accounting PronouncementsThe Company has reclassified certain amounts in the prior period consolidated financial statements to conform to the current period's presentation. The Company reclassified a certain investment within cash and cash equivalents which was previously classified as marketable securities. These reclassifications had no impact on the previously reported net income.

In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company does not believe that the adoption of this ASU will have a material impact on its consolidated financial statements.
[15]New Accounting Standards
Leases
In February 2016, the FASB issued AASU 2016-2, SULeases ("ASC 842"), which required the Company to recognize lease assets and lease obligations (related to leases previously classified as operating under previous U.S. GAAP) on its condensed consolidated balance sheet. ASC 842 was effective for the Company on January 1, 2019. The adoption of ASC 842 impacted the Company's condensed consolidated financial statements in that existing leases were recorded as right-of-use ("ROU") assets and related lease obligations on the condensed consolidated balance sheet.

The Company elected to adopt ASC 842 using the modified retrospective method and, therefore, has not recast comparative periods presented in its unaudited condensed consolidated financial statements. The Company elected the package of transition practical expedients for existing leases and therefore the Company has not reassessed the following: lease classification for existing leases, whether any existing contracts contained leases, and if any initial direct costs were incurred. The Company did not apply the hindsight practical expedient, and accordingly, the Company did not use hindsight in its assessment of lease terms. As permitted under ASC 842, the Company elected to not recognize ROU assets and related lease obligations for leases with terms of twelve months or less.
In connection with the adoption of ASC 842, the Company recorded $127,000 of operating lease right-of-use assets and $128,000 of operating lease obligations as of January 1, 2019. See Note G[3] for additional information and required disclosures.

Under ASC 842, the Company determined if an arrangement is a lease at inception. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's determined incremental borrowing rate is a hypothetical rate based on its understanding of what the Company's credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received and net of the deferred rent balance on the date of implementation. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.


- 15 -

Note B – Summary of Significant Accounting Policies (continued)
Disclosures
On January 1, 2019, the Company adopted the final rule under SEC Release No. 2016-02, Leases (Topic 842)33-10532, Disclosure Update and Simplification., which amended certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In September 2017,addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The Company has updated its condensed consolidated financial statements to include a reconciliation of the beginning balance to the ending balance of stockholders' equity for each period for which a statement of operations is presented.
Fair Value Measurements
In August 2018, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605)2018-13, Fair Value Measurement ("ASC 820"), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02 Leases (Topic 842).  ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, and requires a lessee to recognize assets and liabilities for leases with a maximum possible term of more than 12 months.  A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term.  Early application is permitted. The Company does not believe that the adoption of this accounting standard will have a material impact on its consolidated financial statements.
In May 2014, 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 new revenue standard allows for either full retrospective or modified retrospective application.  The Company is required to adopt the amendments in ASU No. 2014-09 using one of the two acceptable methods.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective
Disclosure Framework - 10 -
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
date of ASU No. 2014-09 to annual periods beginning after December 2017, along with an option to permit early adoption as of the original effective date.  In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends the guidance in 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property.  The ASU does not change the core principle of the guidance in Topic 606. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842), which provides additional implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The effective date and transition requirements for the ASUs are the same as the effective date and transition requirements in Topic 606. Public entities should apply the ASUs for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company intends to adopt ASU 2014-09 on January 1, 2018.  The Company has elected to apply the modified retrospective method of adoption.  The Company does not expect the impact of the adoption of the new revenue standard to have a material impact on its consolidated financial statements.  The Company will continue to evaluate any new license agreements entered into in the future to determine the impact upon adoption.
In May 2017, FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718) which provides guidance on determining which changesChanges to the terms and conditionsDisclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 is intended to improve the effectiveness of share-based payment awards require an entity to apply modification accounting in Topic 718.  The new standard is effective beginning after December 15, 2017 with early adoption permitted.  The Company does not believe the adoption of this standard will have a material impact on its financial statements.

Accounting Standards Adopted in the Period

In March 2016, the Financial Accounting Standards Board ("FASB") issued fair value measurement disclosures. ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  Prior to this amendment, excess tax benefits resulting from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting were not recognized until the deduction reduced taxes payable.  Under the new method the Company will recognize excess tax benefits in the current accounting period.  Additionally, ASU 2016-09 requires that the Company present excess tax benefits on the Statement of Cash Flows as an operating activity. ASU 2016-092018-13 is effective for fiscal years beginning after December 15, 2016.2019, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted is currently evaluating the impact of ASU 2016-09 in the first quarter of 2017 and elected to apply this adoption prospectively. Prior periods have not been adjusted. The effective tax rate for the nine months ended September 30, 2017 differed from the federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09.

- 11 -
2018-13 on its consolidated financial statements.
NOTE C -– PATENTS
The Company's intangible assets at SeptemberJune 30, 20172019 include patents with estimated remaining economic useful lives ranging from 3.01.00 to 4.014.50 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 SeptemberJune 30, 20172019 and December 31, 20162018 were as follows:
  September 30, 2017  December 31, 2016 
         
Gross carrying amount – patents $6,477,000  $6,427,000 
Accumulated amortization – patents  (5,346,000)  (5,196,000)
Patents, net $1,131,000  $1,231,000 

  
June 30,
2019
  
December 31,
2018
 
 
Gross carrying amount – patents
 $7,717,000  $7,682,000 
 
Accumulated amortization – patents
  (5,834,000)  (5,693,000)
 
Patents, net
 $1,883,000  $1,989,000 
Amortization expense for the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018 was $50,000$87,000 and $49,000,$69,000, respectively.  Amortization expense for the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018 was $150,000$141,000 and $760,000,$139,000, respectively. Future amortization of current intangible assets, net is as follows:
  
Twelve Months Ended September 30,
 
 
            2018 $200,000 
            2019 $193,000 
            2020 $193,000 
            2021 $193,000 
            2022 and thereafter $352,000 
                             Total $1,131,000 
     

  
Twelve Months Ended June 30,
 
2020 $283,000 
2021  283,000 
2022  283,000 
2023  283,000 
2024 and thereafter  751,000 
Total $1,883,000 
     
 
The Company's Remote Power Patent expires in March 2020. The expiration datesdate of the patentspatent within the Company's Mirror Worlds Patent Portfolio range from April 2018 tois February 2020 (six(eight of the nine patents in the Mirror Worlds Patent Portfolio expired during the nine months ended September 30, 2016 and two of the patents in the Mirror Worlds Patent Portfolio expired during the nine months ended September 30, 2017)have expired).  The expiration dates of the patents within the Cox Patent Portfolio range from September 2021 to November 20232023.  The expiration dates of patents within the Company's M2M/IoT Patent Portfolio range from September 2033 to May 2034 and the expiration date of the QoS Patents is June 2019.
- 16 -
NOTE D – STOCK-BASED COMPENSATION
Restricted Stock Units
During the ninesix months ended SeptemberJune 30, 2017,2019, the Company issued 13,50015,000 restricted stock units ("RSUs") to each of its three non-management directors as an annual grant for 20172019 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 unitsRSUs vest in four equal quarterly installments of 3,3753,750 shares of common stock on March 15, 2017,2019, June 15, 2017,2019, September 15, 20172019 and December 15, 2017,2019, subject to continued service on the Board of Directors.
- 12 -
NOTE D – STOCK-BASED COMPENSATION (During the six months ended June 30, 2018, the Company issued 15,000 RSUs to each of its three non-management directors as an annual grant for 2018 for service on the Company's Board of Directors.  The RSUs vested 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.
A summary of restricted stock unit activity for the ninesix months ended SeptemberJune 30, 20172019 is as follows (each restricted stock unit issued by the Company represents the right to receive one share of the Company's common stock):
  Number of Shares  
Weighted-Average
Grant Date Fair Value
 
 
Balance of restricted stock units outstanding at December 31, 2018
  505,000  $2.17 
 
Grants of restricted stock units
  45,000   2.60 
 
Vested restricted stock units
  (22,500)  2.60 
 
Balance of unvested restricted stock units at June 30, 2019
  

527,500
  $2.19 

  Number of Shares  
Weighted-Average Grant Date Fair Value
 
Balance of restricted stock units outstanding at December 31, 2016  
890,000
  $2.29 
Grants of restricted stock units  40,500  $3.80 
Vested restricted stock units  (100,375) $(2.87)
         
Balance of unvested restricted stock units at September 30, 2017  
830,125
  $2.30 

Restricted stock unit compensation expense was $237,000$127,000 and $711,000$225,000 for the three and nine months ended SeptemberJune 30, 2017,2019 and June 30, 2018, respectively.  Restricted stock unit compensation expense was $189,000$271,000 and $221,000$451,000 for the three and ninesix months ended SeptemberJune 30, 2016,2019 and June 30, 2018, respectively.
The Company has an aggregate of $1,097,000$472,000 of unrecognized restricted stock unit compensation expense as of SeptemberJune 30, 20172019 to be expensed over a weighted average period of 1.6.99 years.
All of the Company's 830,125 outstanding (unvested) restricted stock units at September 30, 2017 have dividend equivalent rights.
  As of June 30, 2019, there was $102,000 accrued for dividend equivalent rights.  As of December 31, 2018, there was $76,000 accrued for dividend equivalent rights.
Stock Options
There were no stock option grants during the three or ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016.

2018.  The following table presents information relating to all stock options outstanding and exercisable at SeptemberJune 30 2017:, 2019:

      Weighted  
    Weighted Average  
Range of   Average Remaining  
Exercise Options Exercise Life in Options
Price Outstanding Price Years Exercisable
         
$0.83 - $2.34 2,110,000 $1.28 2.25 2,110,000
Range of
Exercise Price
 
Options
Outstanding
 
Weighted Average Exercise
 Price
 
Weighted
Average
Remaining
Life in Years
 
Options
Exercisable
         
$1.19 - $2.34 605,000 
$1.39
 
$2.86
 605,000

 
- 17 -
NOTE D – STOCK-BASED COMPENSATION (continued)
The Company had no recorded stock-based compensation related to stock option grants for the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016, respectively.  The Company recorded stock-based compensation related to stock option grants of $-0- and $12,000 for the nine months ended September 30, 2017 and September 30, 2016, respectively.
2018.
The Company had no unrecognized stock-based compensation cost as of SeptemberJune 30, 2017.2019.  The aggregate intrinsic value of options exercisable at SeptemberJune 30, 20172019 was $5,431,000.
- 13 -
NOTE D – STOCK-BASED COMPENSATION (continued)
$672,000.
During the ninethree months ended SeptemberJune 30, 2017, the Company's Chief Financial Officer and three of his children exercised2019, stock options to purchase an aggregate of 75,000925,000 shares were exercised by executive officers of the Company and a consultant (750,000 shares at an exercise price of $0.83 per share by the Company's Chairman and Chief Executive Officer,  50,000 shares at an exercise price of $1.65 per share by each of the Company's Chief Financial Officer and Executive Vice President and 75,000 shares at an exercise price of $1.65 per share by a consultant). With respect to such options, options to purchase an aggregate of 859,849 shares were exercised on a net exercise (cashless) basis by the Company's Chairman and Chief Executive Officer (750,000 shares), the Company's Executive Vice President (34,849 shares)  and a consultant (75,000 shares) resulting in net shares (after delivery of shares for withholding taxes) of an aggregate of 328,111 issued to the Company's Chairman and Chief Executive Officer, 27,713 net shares issued to the Company's Executive Vice President and 28,824 net shares issued to the consultant.
During the three months ended June 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 $1.40 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 per share.
Warrants
As of September 30, 2017, 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$1.88 per share, which resulted in gross proceedsnet shares of 118,064 issued to the Company of $787,500.
director.
 
NOTE E – EARNINGS (LOSS) PER SHARE
Basic Earningsearnings (loss) 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 2,940,1251,132,500 and 4,061,2502,407,000 at SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, respectively, consisted of options warrants and restricted stock units.
Computations of basic and diluted weighted average common shares outstanding were as follows:
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Weighted-average common shares outstanding – basic  
24,185,129
   
23,291,408
   
24,150,388
   
23,320,514
 
                 
Dilutive effect of options, warrants and restricted stock units  
2,294,955
   
1,409,376
   
2,261,751
   
1,877,628
 
                 
Weighted-average common shares outstanding – diluted  
26,480,084
   
24,700,784
   
26,412,139
   
25,198,142
 
                 
Options and warrants excluded from the computation of diluted income per share because the effect of inclusion would have been anti-dilutive  
—
   
141,304
   
—
   
423,913
 

NOTE F – CASH AND CASH EQUIVALENTS

The Company places cash investments in high quality financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC").  At September 30, 2017, the Company maintained a cash balance of $51,366,000 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.
  
Six Months Ended
June 30,
  
Three Months Ended
June 30,
 
  2019  2018  2019  2018 
Weighted-average common shares outstanding – basic  23,830,367   23,760,163   23,917,563   23,713,827 
Dilutive effect of options, warrants and restricted stock units  ―   1,839,418   ―   ― 
Weighted-average common shares outstanding – diluted  23,830,367   25,599,581   23,917,563   23,713,827 
Options and restricted stock units excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive  1,132,500   ―   1,132,500   2,407,000 
 
 
 

- 1418 -
NOTE F – CASH AND CASH EQUIVALENTS (continued)MARKETABLE SECURITIES

Cash and cash equivalentsMarketable securities as of SeptemberJune 30 2017, 2019 and December 31, 20162018 were composed of: 
June 30, 2019
 
 
  
Cost
Basis
  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
Certificates of deposit $6,998,000  $8,000  $―  $7,006,000 
Short term bond funds  13,970,000   37,000   ―   14,007,000 
Corporate bonds and notes  11,021,000   145,000  $(63,000) $11,103,000 
Total marketable securities $31,989,000  $190,000  $(63,000) $32,116,000 

December 31, 2018
 
 
  
Cost
Basis
  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
Certificates of deposit $13,151,000  $―  $―  $13,151,000 
Short term bond funds  9,648,000   ―   (8,000)  9,640,000 
Corporate bonds and notes  8,518,000   ―   (81,000)  8,437,000 
Total marketable securities $31,317,000   ―  $(89,000) $31,228,000 


  September 30, 2017  December 31, 2016 
       
Cash $9,395,000  $9,452,000 
Money market fund  42,870,000   41,466,000 
Total $52,265,000  $50,918,000 

NOTE G - MARKETABLE SECURITIES
MarketableThe Company's marketable securities are classified as available-for-salemeasured at fair value and are recorded at fair market value.accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit and bond mutual funds are recorded in net realized and unrealized loss from investments on the consolidated statements of income and comprehensive income. Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as other comprehensivea separate component of stockholders' equity until realized. Dividend and interest income or loss.are recognized when earned.  Realized gains and losses are reclassified from other comprehensive income or loss to net income or lossincluded in earnings and are derived using the period they are realized.  At September 30, 2017 and December 31, 2016,specific identification method for determining the Company's marketable securities consisted of two corporate bonds (aggregate face value $1,000,000) with a 3.9% and 4.5% coupon and term of greater than three months when purchased.  The Company's marketable securities mature in 2021 and it is not the intentioncost of the Company to hold such securities until maturity.
marketable securities.
 
NOTE HG – COMMITMENTS AND CONTINGENCIES

[1] Legal Fees:
[1]Legal Fees
Russ, August & Kabat provides legal services to the Company with respect to its pending patent litigation filed in May 2017 against Facebook, Inc. in the United StatesU.S. District Court for the Southern District of New York relating to several patents within the Company's Mirror Worlds Patent Portfolio (see Note J[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 StatesU. S. District Court for the Southern District of New York relating to certain patents
- 19 -
NOTE G – COMMITMENTS AND CONTINGENCIES (continued)
within the Company's Cox Patent Portfolio (see Note J[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 StatesU.S. District Court for the Eastern District of Texas, Tyler (see Note J[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 SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $$523,000 136,000 and $2,348,000$100,000, respectively.  For the nine month periodsix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the Company incurred aggregate contingent legal
- 15 -

NOTE H – COMMITMENTS AND CONTINGENCIES (continued)

fees to Dovel & Luner, LLP with respect to the litigation of $1,789,000$244,000 and $2,706,000,$6,377,000, 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 J[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 and six months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the Company incurred aggregatedid not incur any contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $268,000 and $264,000, respectively.  During the nine months ended September 30, 2017 and September 30, 2016, the Company incurred aggregate legal fees to Dovel & Luner LLP with respect to the litigation of $1,801,000 and $1,824,000, respectively.litigation.
[2] Patent Acquisitions:
[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 sixteen (16)twenty-nine (29) additional related patents by the USPTO resulting in an aggregate of twenty (20)thirty-three (33) patents within the Cox Patent Portfolio.  Professional fees and filing fees of $169,000 were capitalized as patent cost.
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 StatesU.S. 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
- 20 -
NOTE G – COMMITMENTS AND CONTINGENCIES (continued)
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.
As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with  In addition, 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.
- 16 -
NOTE H – COMMITMENTS AND CONTINGENCIES (continued)
PursuantLLC, and an affiliated entity also received warrants to the termspurchase 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 $2,337,000.
As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with Recognition pursuant to which Recognition received from the Company an interest in the net proceeds realized from the monetization of the Mirror Worlds Patent Portfolio, as follows: (i) 10% of the first $125 million of net proceeds; (ii) 15% of the next $125 million of net proceeds; and (iii) 20% of any portion of the net proceeds in excess of $250 million.  Since entering into the agreement with Recognition in May 2013, the Company has paid Recognition an aggregate of $3,127,000 with respect to such net proceeds interest related to the Mirror Worlds Patent Portfolio.  No such payments were made by the Company to Recognition during the three and six months ended June 30, 2019 and June 30, 2018.
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, Recognition (and an affiliated entity) also received warrantsM2M will be entitled to purchase an aggregatereceive from the Company $250,000 of 1,250,000 sharesadditional consideration upon the occurrence 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 proceedscertain future events related to the Company of $2,337,500.  As part ofpatent portfolio.  Since the acquisition of the Mirror Worlds Patent Portfolio, professional fees and filing feespatent portfolio from M2M, the Company has been issued eleven (11) additional related patents by the USPTO resulting in an aggregate of $409,000 were capitalized as patent cost.twenty-three (23) issued U.S. patents.
[3]
Lease Agreements
[3] Lease Agreements:
The Company currently has two facility operating leases with remaining lease terms of three months to eleven months at June 30, 2019. The Company leases its principal office space in New York City at a monthly base rent of approximately $3,800$3,900 which lease expires on May 31, 2018.
2020.The Company entered into a lease agreement in July 2011 to rentalso leases office space in New Canaan, Connecticut.  In August 2015, the Company entered into an agreement to extend the lease for a four year period (expiringConnecticut expiring on September 30, 2019)2019 at a base rent (inclusive of $7,000utilities) of $7,750 per month for the first year (increasing $100 per month each year), which is subject to annual adjustments to reflect increases in real estate taxes and operating expenses.

Mirror Worlds Technologies, LLC,Under ASC 842 (see Note B[15] hereof), operating lease expense is generally recognized evenly over the term of the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease arrangements entered into or reassessed after the adoption of ASC 842, the Company combines the lease and non-lease components in determining the right-of-use ("ROU") assets and related lease obligation.
- 21 -
NOTE G – COMMITMENTS AND CONTINGENCIES (continued)
Activity related to the Company's wholly-owned subsidiary, entered into a one yearoperating leases was as follows:

  
Three Months
Ended June 30, 2019
  
Six Months
Ended June 30, 2019
 
Operating lease expense $40,000  $74,000 
Cash paid for amounts included in the measurement of operating
lease obligations
 $33,000  $67,000 

The Company's operating lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate was determined based on information available for purposes of determining the present value of lease payments. The Company used an incremental borrowing rate of 5.5% at a base rentJanuary 1, 2019 for all leases that commenced prior to that date. ROU assets obtained in exchange for operating lease obligations totaled $128,000 at January 1, 2019. ROU lease assets and related lease obligations for the Company's operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:

  As of 
  June 30, 2019 
Operating lease right-of-use assets $63,000 
Operating lease obligations – current $64,000 
Total lease obligations $64,000 
 
Weighted average remaining lease term (in months)
  
8
 
Weighted average discount rate  5.5%
     
     
Future lease payments included in the measurement of $620 per month, to rent office space in Tyler, Texas (expiring Aprillease liabilities on the unaudited condensed consolidated balance sheet as of June 30, 2018).2019, were as follows:

  Operating Leases 
2019 – remaining period $45,000 
2020  20,000 
Total future minimum lease payments  65,000 
Less imputed interest  (1,000)
Total operating lease liability $64,000 
 
 
NOTE IH - 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"("RSUs") which. The Agreement provided for the 750,000 RSUs to vest in the 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

- 22 -

NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
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
- 17 -
NOTE I - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
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 RSUs 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 RSUs, 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 the CoxM2M/IoT Patent Portfolio) (collectively, the "Incentive Compensation").  During the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, the Chairman and Chief Executive Officer earned Incentive Compensation of $162,000$30,000 and $2,029,000,$24,000, respectively. During the ninesix months ended Septemberend June 30, 20172019 and SeptemberJune 30, 2016,2018, the Chairman and Chief Executive Officer earned incentive compensationIncentive Compensation of $716,000$60,000 and $3,996,000,$997,000, respectively. As of SeptemberJune 30, 20172019 and December 31, 2016, $239,0002018, $60,000 and $748,000$109,000 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 anytimeany time 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
- 23 -

NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
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 by us "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
- 18 -
NOTE I - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (continued)
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 will vest on June 9, 2018, subject to his continued employment.  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.
  On June 9, 2016, the Company granted 50,000 RSUs to its Chief Financial Officer, which vested 25,000 RSUs on June 9, 2017 and 25,000 RSUs on June 9, 2018. On November 27, 2018, the Company's Chief Financial Officer was granted 40,000 RSUs, with 50% of such RSUs vesting on the one year anniversary of the grant date (November 27, 2019) and 50% vesting on the two year anniversary of the grant date (November 27, 2020), subject to the Chief Financial Officer's continued employment by the Company.
[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 unitsRSUs to its Executive Vice President which vested 25,000 restricted stock unitsRSUs on June 9, 2017 and 25,000 restricted stock units will vestRSUs on June 9, 2018.  On November 27, 2018, the Executive Vice President was granted 50,000 RSUs which vested 50% on the one year anniversary of the grant date (November 27, 2019) and 50% on the two year anniversary of the grant date (November 27, 2020), subject to histhe Executive Vice President's continued employment.employment by the Company.
 
NOTE J - LEGAL PROCEEDINGS 
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 StatesU.S. District Court for the Eastern District of Texas, Tyler Division, for infringement of its Remote Power Patent.  Named as defendants in the lawsuit, excluding relatedaffiliated 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 TransitionsTransition Networks, Inc.  The Company seeks monetary damages based upon
- 24 -reasonable

Note I – Legal Proceedings  royalties.  (continued)
As of September 30, 2017,January 2018, the Company had achieved settlement agreementsreached settlements with thirteen (13)fifteen (15) of the sixteen (16) defendants the remaining three defendants werewith Hewlett-Packard Company Juniper Networks, Inc. and Avaya Inc. 
("HP") being the sole remaining defendant. On May 2,November 13, 2017, Judge Robert W. Schroeder ofa jury empaneled in the United StatesU.S. District Court for the Eastern District of Texas, Tyler Division, infound that certain claims of the Company's patent infringement action with respect to its Remote Power Patent as described above issued an order adoptingwere invalid and not infringed by HP.  On February 2, 2018, the prior reportCompany moved to throw out the jury verdict and recommendation ofhave the United States Magistrate Judge which foundCourt determine that all of thecertain claims of the Remote Power Patent wereare not invalid.  Asobvious (invalid) as a matter of law by filing motions for judgment as a matter of law on validity and a new trial on validity and infringement.  On August 29, 2018, the District Court issued an order granting the Company's motion for judgment as a matter of law that the Remote Power Patent is valid, thereby overturning the jury verdict of invalidity and denied the Company's motion for a new trial on infringement.  On August 30, 2018, the Company appealed the District Court's denial of its motion for a new trial on infringement to the U.S. Court of Appeals for the Federal Circuit.  On September 13, 2018, HP filed a cross-appeal of the District Court's order that the Remote Power Patent is valid as a matter of law.  No hearing on the appeal has been set.  If the Company is unable to reverse the District Court order on appeal, or there is an arbitration ruling that the District Court order relieves the obligation of certain of the Company's licensees including Cisco, the Company's largest licensee, to continue to pay royalties to the Company and the District Court order is not subsequently reversed on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected.
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 the Company as a result of the Court's decision,HP Jury Verdict and that there was no binding settlement agreement.  On January 16, 2018, the balanceCompany revised and closed its settlement with defendant Juniper.  The Company agreed to revise the settlement to avoid the possibility of $2,300,000protracted 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 the Company) for its full term, which applies to its sales of PoE products.
On October 16, 2017, the U.S. Bankruptcy Court of the Southern District of New York approved the Company's settlement with ALE USAdefendant Avaya, Inc. reached in July 2016 is payable("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 Remote Power Patent.  Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated 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 three equal quarterly paymentsthe amount of $766,666$37,500,000, as amended, relating to all acts occurring on or before January 19, 2017 ("Allowed Claim").
Under the Debtors' Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and its Debtor Affiliates, which began on July 1, 2017.  The settlement balance of $2,300,000 has been recorded in fullwas approved by the Company as revenueBankruptcy Court on November 28, 2017 and became effective on December 15, 2017, the Debtors estimated that the total amount of general unsecured claims that will ultimately be allowed will total approximately $305,000,000 which, based on the treatment of general unsecured creditors therein, would result in estimated recoveries for the nine months ended September 30, 2017.holders of general unsecured claims of approximately 18.9% of their Allowed Claim.  On January 9, 2018, the Company sold its Allowed Claim to a third party for $6,320,000.
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 the Remote Power Patent for its full term and is obligated to pay the Company a license initiation fee of $5,000,000 for past sales of its PoE products and ongoing royalties based on its sales of PoE
 
- 1925 -
NOTE J - LEGAL PROCEEDINGS Note I – Legal Proceedings (continued)
products.  $2,000,000 of the license initiation fee was paid within 30 days and the balance is 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 the Company's Remote Power Patent have been found invalid.  Since the District Court in August 2018 granted the Company's motion for judgment as a matter of law that the Remote Power Patent is valid thereby overturning the HP Jury Verdict of invalidity, Polycom became obligated to make the aforementioned remaining aggregate payments of $2,000,000 (subject to the continued validity of the Remote Power Patent) to the Company (of which $1,000,000 was paid in November 2018).
[2]In July 2010,, the Company settled its patent litigation pending in the United StatesU.S. 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 paidmade aggregate payments to the Company of approximately $32,000,000 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 obligedobligated 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 beginning in 2016 ($8 million through 2015) for the remaining term of the patent (March 2020).patent.  The royalty payments from Cisco are subject to certain conditions including that there is no "Adverse Ruling" (as defined in the continued validity ofAgreement) involving the Company's Remote Power Patent, and the actual royalty amounts received may be less than the cap stated above.Patent.  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.  Under the terms of the Agreement, the Company has certain obligations to Cisco and if it materially breaches such terms, Cisco will be entitled to stop paying royalties to the Company.  This would have
The Company's seventeen (17) licensees with royalty bearing licenses are obligated to pay the Company ongoing royalties on a material adverse effect onquarterly or monthly basis for the life of its Remote Power Patent (through March 2020), subject to certain conditions.  These conditions include the continued validity of certain claims of the Remote Power Patent or a finding that a third party's PoE products are found not to infringe the Remote Power Patent and such finding applies to the applicable licensee's licensed products.  As a result of the HP Jury Verdict several of the Company's largest licensees, including Cisco, 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 District Court judgment of non-infringement in the 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 District Court order of non-infringement on appeal, or there is an arbitration ruling that certain of our 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, financial condition and results of operations.operations and cash-flow will continue to be materially adversely effected (see Note I[1] hereof).
 
- 26 -

Note I – Legal Proceedings (continued)
[3]On April 4, 2014 and December 3, 2014, the Company initiated litigation against Google Inc.("Google") and YouTube, LLC ("YouTube") in the United StatesU.S. District Court for the Southern District of New York for infringement of several of its patents within theits Cox Patent Portfolio acquired from Dr. Cox (see Note H[G[2] hereof) which relate to the identification of media content on the Internet.  The lawsuits allegelawsuit alleges that Google and YouTube have infringed and continue to infringe certain of the Company's patents by making, using, selling and offering to sell unlicensed systems and related products and services, which include YouTube's Content ID system.
  In May 2014, the defendants filed an answer to the complaint and asserted defenses of non-infringement and invalidity.
The above referenced litigations that the Company commenced in the United StatesU.S. District Court for the Southern District of New York in April 2014 and December 2014 against Google and YouTube are currentlywere subject to a court ordered staystays which has beenwere in effect sincefrom July 2, 2015 until January 2, 2019 as a result of proceedings at the Patent Trial and Appeal Board (PTAB) and related appeals. Pursuant to a Joint Stipulation and Order Regarding Lifting of Stays, entered on January 2, 2019, the pending appealsparties agreed, among other things, that the stays with respect to the United States District Court of Appeals for the Federal Circuit which have been consolidated and are scheduled for oral argument on December 4, 2017.
litigations were lifted.
[4]On May9, 2017, Mirror Worlds Technologies, LLC, the Company's wholly-owned subsidiary, Mirror Worlds Technologies, LLC, initiated patent litigation against Facebook, Inc. ("Facebook") in United Statesthe U.S. District Court for the Southern District of New York, for infringement of U.S. Patent No. 6,006,227, U.S. Patent No. 7,865,538 and U.S. Patent No. 8,255,439 (among the patents within the Company's Mirror Worlds Patent Portfolio.Portfolio).  The lawsuit allegesalleged that the aforementionedasserted 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 Company's 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 issued an order granting Facebook's motion for summary judgment of non-infringement and dismissed the case.  On August 17, 2018, the Company filed a Notice of Appeal to appeal the summary judgment decision to the U.S. Court of Appeals for the Federal Circuit.  No hearing on the appeal has been set.
[5] On November 13, 2018, the Company filed a lawsuit against Dell, Inc. in the District Court, 241st Judicial District, Smith County, Texas, for breach of a settlement and license agreement, dated August 15, 2016, 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 that accrued prior to and after the date of the HP Jury Verdict (November 2017) as well as future royalties through the expiration of the Remote Power Patent in March 2020.  On December 7, 2018, Dell filed its Answer and Counterclaim. Dell denied the claim asserted by the Company and asserted a counterclaim in excess of $1,000,000.  On January 28, 2019, Dell brought a motion to stay the case as a result of the Company's pending appeal of the District Court order overturning the HP Jury Verdict on non-infringement to the U.S. Court of Appeals for the Federal Circuit and HP's appeal of the District Court's order that the Remote Power Patent is valid as a matter of law.  Dell's motion to stay the litigation was denied by the Court on May 7, 2019.
 
 
- 2027 -
NOTE K
Note J – Equity Investment
On December 18, 2018, the Company agreed to make an investment of up to $5,000,000 in ILiAD Biotechnologies, LLC ("ILiAD"), a privately held development stage biotechnology company dedicated to the prevention of human disease caused by Bordetella pertussis with a current focus on its proprietary intranasal vaccine, BPZE1, for the prevention of pertussis (whooping cough). The investment by the Company is part of a financing of up to approximately $16,200,000 of Class C units of ILiAD, consisting of two tranches. The Company made an initial investment (tranche 1) at the December 18, 2018 closing of $2,500,000 to purchase 1,111,111 Class C units at $2.25 per unit and received five-year warrants to purchase 366,666 Class C units at an exercise price of $2.75 per unit.  In connection with its investment, the Company's Chairman and Chief Executive Officer obtained a seat on ILiAD's Board of Managers.  The Company incurred approximately $41,000 of advisory and legal expenses in conjunction with its equity investment in ILiAD which have been capitalized as a component of the equity investment carrying value at June 30, 2019.
In accordance with the Securities Purchase Agreement, dated December 18, 2018, the Company is obligated to invest an additional $2,500,000 (tranche 2) to purchase 943,396 Class C units at $2.65 per unit (and will also receive additional five-year warrants to purchase 311,320 Class C units at an exercise price of $3.50 per unit) contingent upon ILiAD receiving, on or before December 31, 2019, an "allowed-to-proceed" notification from the FDA for a Phase 2b clinical study. On May 2, 2019, ILiAD notified the Company that it had received an "allowed to proceed" notice from the FDA permitting ILiAD to advance to the Phase 2b clinical study of its BP2E1 vaccine. ILiAD elected to permit its Class C investors (including the Company) to bifurcate their tranche 2 commitments such that 40% would be currently due and 60% (additional $1,500,000 investment by the Company) would be due when ILiAD receives satisfactory safety data from the clinical study. On May 6, 2019, the Company satisfied its 40% commitment through an additional $1,000,000 investment by the Company in exchange for 377,358 Class C units at $2.65 per unit and received five-year warrants to purchase 124,528 Class C units at an exercise price of $3.50 per unit. At June 30, 2019, the Company owned approximately 8.4% of the outstanding units of ILiAD (on a non-fully diluted basis).
The Company's investment in ILiAD is accounted for as an equity method investment in accordance with ASC 323, Investments — Equity Method and Joint Ventures as the Company has the ability to exercise significant influence, but not control, over ILiAD. The Company's investment in ILiAD is measured at cost minus impairment, if any, plus or minus the Company's share of ILiAD's income or loss. The Company's proportionate share of the income or loss from its investment in ILiAD is recognized on a one-quarter lag. For the three and six months ended June 30, 2019, the Company recorded net (loss) from its equity investment in ILiAD totaling $(53,000) and $(149,000), respectively.
The difference between the Company's share of equity in ILiAD's net assets and the equity investment carrying value reported on the Company's condensed consolidated balance sheet at June 30, 2019 is due to an excess amount paid over the book value of the investment totaling approximately $3,392,000 which is accounted for as equity method goodwill.
- 28 -
Note K– STOCK REPURCHASE
On June 14, 2017,11, 2019, 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$22,000,000 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 SeptemberJune 30, 2017,2019, the Company has repurchased an aggregate of 7,201,5978,294,546 shares of its common stock at an aggregate cost of $12,589,253$15,473,903 (exclusive of commissions) or an average per share price of $1.75.$1.87.  All such repurchased shares have been cancelled.  During the threesix months ended SeptemberJune 30, 2017,2019, the Company repurchased an aggregate of 39,872140,148 shares of its common stock at an aggregatea cost of $149,253$330,987 (exclusive of commissions) or an average per share price of $3.74.  During the nine months ended September$2.37. At June 30, 2017, the Company repurchased an aggregate of 275,593 shares of its common stock at an aggregate cost of $1,125,087 (exclusive of commissions) or an average per share price of $4.08.  At September 30, 2017,2019, the dollar value of remaining shares that may be repurchased under the Share Repurchase Program was $3,875,050.$4,818,350.
 
NOTE L –CONCENTRATIONS
Revenue from four licensees constituted approximately 56%, 10%, 10%  and 10% of the Company's revenue for the three months ended June 30, 2019 and revenue from four licensees constituted approximately 43%, 14%, 11% and 11% of the Company's revenue for the six months ended June 30, 2019. Revenue from three licensees constituted approximately 75%41%, 18% and 12% of the Company's revenue for both the three and nine months ended September 30, 2017. For the three months ended SeptemberJune 30, 2017,2018 and revenue from one licensee with a fully-paid license constituted approximately 30%64% of the Company's revenue and two other licensees with ongoing royalty bearing licenses constituted approximately 45%for the six months ended June 30, 2018. Revenue from the sale of the Company's revenue.  Revenue from three licenseesunsecured claim against Avaya, Inc. constituted approximately 96% and 90%32 % of the Company's revenue for the three and nine months ended SeptemberJune 30, 2016 (exclusive of revenue from our professional liability settlement – see Note M), respectively.2018.  At SeptemberJune 30, 2017,2019, royalty receivables from three licensees constituted in the aggregate approximately 36%, 27% and 21%82% of the Company's net royalty receivables.  At December 31, 2016,2018, royalty receivables from three licensesfour licensees constituted in the aggregate approximately 29%, 45% and 11%80% of the Company's net royalty receivables.
 
NOTE M – REVENUE FROM PROFESSIONAL LIABILITY SETTLEMENT
On April 22, 2016, Mirror Worlds Technologies, LLC ("MWT"), the Company's wholly-owned subsidiary, entered into an agreement pursuant to which it received $17.5 million in connection with the settlement of a professional liability claim relating to services rendered in 2008-2010.  The Company, through MWT, acquired the claim in May 2013 as part of its acquisition of the patent portfolio of Mirror Worlds, LLC.
NOTE N - DIVIDENDS
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 regular 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 regular dividend will continue to be paid through March 2020 (the expiration of
- 21 -
NOTE N – DIVIDENDS (continued)
the Company's Remote Power Patent) provided that the Company continues to receive royalties from licensees of its Remote Power Patent.
On February 2, 2017, the Board of Directors of the Company declared an initial semi-annual cash dividend of $0.05 per common share with a payment date of March 24, 2017 to all common stockholders of record as of March 3, 2017.

On July 25, 2017,9, 2018, the Board of Directors of the Company declared a semi-annual cash dividend of $0.05 per annumcommon share which was paid on March 23, 2018 to all common stockholders of record as of March 9, 2018.  On February 11, 2019, the Board of Directors declared a cash dividend of $0.05 per common share with a payment date of March 25, 2019 to all common stockholders as of March 11, 2019.  However, if the Company is unable to overturn the District Court order 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.
NOTE N – SUBSEQUENT EVENTS
[1] On July 14, 2019, 125,000 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[1] hereof). With respect to the vesting of such restricted stock units, the Company's Chairman and Chief Executive Officer delivered 56,813 shares of common stock to satisfy withholding taxes and received 68,187 net shares of common stock.
[2] On July 25, 2019, the Board of Directors of the Company declared a cash dividend of $.05 per common share with a payment date of September 20, 20172019 to all common stockholders of record as of September 1, 2017.4, 2019.

At September 30, 2017,[3] On August 9, 2019, ILiAD notified the Company accrued dividends of $84,000 for unvested restricted stock units with dividend equivalent rights.

NOTE O – SUBSEQUENT EVENTS
[1]   On October 16, 2017,that the U.S. Bankruptcy CourtFDA has allowed Phase 2b to proceed to full enrollment based on satisfactory safety data from the first phase of the Southern District of New York approvedclinical study.  As a result, the Company's settlement of its patent litigation against Avaya, Inc. ("Avaya") pending in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of Network-1's Remote Power Patent (U.S. Patent No. 6,218,930) (see Note J[1] hereof).  As part of the settlement, Avaya, which on January 19, 2007 had filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, entered into a non-exclusive license agreement for the full term of the Company's Remote Power Patent, which expires in March, 2020.  Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated Power over Ethernet ("PoE") products andCompany is obligated to payinvest an ongoing royaltyadditional $1,500,000 in ILiAD for other designated PoE products.  In addition, Avaya agreed that the Company shall have an allowed general unsecured claim ("Allowed Claim") in the amount of $40,000,000 relating to all acts occurring on or before January 19, 2017.
Under the Debtors' (Avaya and certain affiliates) First Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Its Debtor Affiliates, which the Debtors filed with the Bankruptcy Court on August 24, 2017, and the Modified Global Plan Settlement, dated October 11, 2017 (collectively the "Plan"), the Debtors have estimated that the total amount of general unsecured claims that will ultimately be allowed will total approximately $305,000,000 which, based on the treatment of general unsecured creditors therein, would result in estimated recoveries for the holders of general unsecured claims of approximately 18.9%.  The Debtors have acknowledged in the Plan that depending on its ability to successfully prosecute or otherwise reduce the remaining outstanding claims, the total amount of the general unsecured claims could be substantially higher which would decrease the percentage recoveries to the holders of general unsecured claims, including the Company.  In such an event, the amount recovered by the Company under its Allowed Claim could be substantially lower than 18.9%.  A hearing to consider confirmation of the Plan is currently scheduled to commence on November 15, 2017.  There is no assurance that the Bankruptcy Court will confirm the Plan or any other Chapter 11 plan, and no assurance of the recovery for general unsecured claims under either the Plan or any other Chapter 11 plan.
[2]   On November 1, 2017, the Company agreed to settle its patent litigation against Juniper Networks, Inc. ("Juniper") pending in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of Network-1's Remote Power Patent (See Note J[1] hereof).  Under the terms of the settlement, Juniper will pay $13,250,000 to the Company566,038 Class C units at $2.65 per unit and receive a fully-paid licensefive-year warrants to the Company's Remote Power Patent for its full term.
[3]   On November 13, 2017, a jury in the United States District Court for the Eastern Districtpurchase 186,792 Class C units at an exercise price of Texas, Tyler Division, determined that certain claims of the Company's Remote Power Patent (U.S. Patent No. 6,218,930) are invalid and not infringed by Hewlett-Packard.  The jury verdict of invalidity and non-infringement, or a final judgment based on this verdict, may be determined to relieve some of our licensees of our Remote Power Patent from their obligation to continue to pay royalties to the Company, including Cisco Systems, Inc., our largest licensee.  Such a determination would have a material adverse effect on our business and results of operations.$3.50 per unit (see Note J hereof).
 
- 2229 -
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE STATEMENTS THAT INCLUDE INFORMATION BASED UPON BELIEF OF OUR MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION AVAILABLE TO MANAGEMENT. STATEMENTS CONTAINING TERMS SUCH AS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS" OR SIMILAR WORDS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS.  ACTUAL RESULTS, EVENTS AND CIRCUMSTANCES (INCLUDING FUTURE PERFORMANCE, RESULTS AND TRENDS) COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS DUE TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED ON PAGES 16-26  OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20162018 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 201729, 2019 AND IN THIS QUARTERLY REPORT ON FORM 10-Q.
OVERVIEW
Our principal business is the development, licensing and protection of our intellectual property assets.  We presently own thirty-six (36)seventy-two (72) patents includingincluding: (i) our remote power patent ("Remote Power PatentPatent") 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) our Mirror Worlds patent portfolio (the "Mirror Worlds Patent PortfolioPortfolio") relating to foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system; (iii) our Cox patent portfolio (the "Cox Patent PortfolioPortfolio") relating to enabling technology for identifying media content on the Internet and taking further action to be performed based on such identification; and (iv) our M2M/IoT patent portfolio (the "M2M/IoT Patent Portfolio") relating to, among other things, enabling technology for authenticating, provisioning and using embedded sim cards in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers; and (v) our QoS Patentspatents (the "QoS Patents") covering systems and methods for the transmission of audio, video and data in order to achieve high quality of service (QoS) over computer and telephony networks. In addition, we continually review opportunities to acquire or license additional intellectual property.
property as well as other strategic alternatives.
We have been actively engaged in the licensing of our Remote Power Patent (U.S. Patent No. 6,218,930).  We currently have entered into twenty-seven (27) licensees forlicense  agreements with respect to our Remote Power Patent which, among others, include license agreements with Cisco, Systems,Dell Inc., Extreme Networks, Inc., Netgear, Inc., Microsemi Corporation, Motorola Solutions, Inc., NEC Corporation, Samsung Electronics Co., Ltd., Dell, Inc.,Ltd, Huawei Technologies Co., Ltd., ShoreTel, Inc., Juniper Networks, Inc., Polycom, Inc. and Avaya, Inc.  and several other major data networking equipment manufacturers.  In addition, weWe have also entered into license agreements with Apple Inc. and Microsoft Corporation with respect to our Mirror Worlds Patent Portfolio.  Our current strategy includes continuing our licensing efforts with respect to our intellectual property assets.  In addition, we continue to seek to acquire additional intellectual property assets to develop, commercialize, license or otherwise monetize such intellectual property.monetize.  Our strategy includes working with inventors and patent owners to assist in the development and monetization of their patented technologies. We may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property.
Our patent acquisition and development strategy focusesis to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as we have achieved with respect to our Remote Power Patent and Mirror Worlds Patent Portfolio.  Our Remote Power Patent has generated licensing revenue in excess of $119,000,000approximately $145,000,000 from May 2007 through SeptemberJune 30, 2017.  As a result of2019.  Since our acquisition of the Mirror Worlds Patent Portfolio in May 2013, we achievedhave received licensing and other revenue from the portfolio of an aggregate of $47,150,000 through SeptemberJune 30, 2017.2019.
 
- 30 -
On November 13, 2017, the HP Jury Verdict was rendered which found that certain claims of our Remote Power Patent were invalid and not infringed by Hewlett-Packard.  On August 29, 2018, the District Court (i) granted our motion for judgment as a matter of law that our Remote Power Patent is valid, thereby overturning the HP Jury Verdict of invalidity and (ii) denied our motion for a new trial on infringement.  We have appealed the District Court's denial of our motion for a new trial on infringement to the U.S. Court of Appeals for the Federal Circuit (see Note I[1] to our unaudited condensed consolidated financial statements included in this quarterly report).  The HP Jury Verdict had a material adverse effect on our business, results of operations and cash-flow for the year ended December 31, 2018 and the three and six months ended June 30, 2019 and will continue to do so for the life of our Remote Power Patent (March 2020) unless the District Court judgment of non-infringement is reversed on appeal.  We have been dependent upon our Remote Power Patent for a significant portion of our revenue.  As a result of the HP Jury Verdict, several of our largest licensees, including Cisco, our largest licensee, notified us in late November 2017 and January 2018 that they will no longer make ongoing royalty payments to us pursuant to their license agreements.  If we successfully overturn the District Court order of non-infringement in our appeal to the Federal Circuit, certain licensees of the Remote Power Patent, including Cisco, will be obligated to pay us ongoing royalties and all royalties that accrued but were not paid following (and prior to) the HP Jury Verdict in November 2017.  If we are unable to reverse the District Court order of non-infringement on appeal, or there is an arbitration ruling that certain of our 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, our business, results of operations and cash-flow will continue to be materially adversely effected (see Note I[1] and Note I[2] to our unaudited condensed consolidated financial statements included in this quarterly report).
Consistent with our prior view, the District Court decision overturning the HP Jury Verdict on invalidity confirmed the following: (i) we believe that Dell, Inc. ("Dell") is obligated to pay to us 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 and (ii) Polycom, Inc. has a continuing obligation to make ongoing licensing payments to us including $2,000,000 of installment license initiation fees ($1,000,000 of which was paid and recorded as revenue for the year ended December 31, 2018) (see Note I[1] to our unaudited condensed consolidated financial statements included in this quarterly report).  Dell has not made payment of such accrued royalties due us and on November 13, 2018 we commenced legal action against Dell (see Note I[5] to our unaudited consolidated financial statements included in this quarterly report).
We have been dependent upon our Remote Power Patent for a significant amount of our revenue.  Revenue for the year ended December 31, 2018 from license agreements for our Remote Power Patent was $15,785,000 (71% of our revenue) and such revenue was $16,451,000 (100% of our revenue) for the year ended December 31, 2017.  In addition, we have been dependent on royalty bearing licenses for our Remote Power Patent for our recurring revenue (mostly payable quarterly).  As a result of certain of our largest licensees not paying us royalties pursuant to licenses for our Remote Power Patent following the HP Jury Verdict as described above, we only achieved revenue from royalty bearing licenses of $3,086,000 for the year ended December 31, 2018 as compared to royalty bearing revenue of $12,053,000 and $10,788,000 for the year ended December 31, 2017 and December 31, 2016, respectively. In addition, we only received revenue from Royalty Bearing Licenses of $599,000 and $471,000 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $1,075,000 and $914,000 for the six months ended June 30, 2019 and June 30, 2018. Since significant revenue from our Remote Power Patent licensees (including Cisco) remains uncertain pending the outcome of the appeal to the Federal Circuit of the District Court order of non-infringement in our trial with Hewlett Packard, additional significant licensing revenue may be dependent upon the outcome of litigation involving our Cox Patent Portfolio, Mirror Worlds Patent Portfolio and our ability to monetize our M2M/IoT Patent Portfolio or new patents to be acquired in the future.  Our future revenue stream is uncertain.
 
 
- 2331 -
At SeptemberJune 30, 2017,2019, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $52,265,000$51,039,000 and working capital of $54,101,000.  We believe based$50,753,000.  Based on our current cash position, and projected licensing revenue from existing licenseeswe believe that we will have sufficient cash to fund our operations for the foreseeable future.  Based on our cash position, we continually review opportunities to acquire additional intellectual property as well as evaluate other strategic alternatives.opportunities.
In December 2018, we agreed to make an investment of up to $5.0 million ($2.5 million of which was invested at the December 2018 closing and an additional $1,000,000 was invested in May 2019) in ILiAD Biotechnologies, LLC, a development stage biotechnology company with an exclusive license to over thirty-five (35) patents (see Note J to our unaudited condensed consolidated financial statements in this quarterly report).
On December 7,8, 2016, our Board of Directors approved the initiation of a dividend policy.  The policy provides for the payment of regular semi-annual cash dividends of $0.05 per common share ($0.10 per common share annually) which are anticipated to be paid in March and September of each year.  It is anticipated that the semi-annual cash dividend will continue to be paid through March 2020 (expiration of our Remote Power Patent) provided that we continue to receive royalties from licensees of our Remote Power Patent.  During 2017 and 2018 semi-annual cash dividends of $0.05 per share were paid in March and September in accordance with our dividend policy.  On February 2, 2017,11, 2019, our Board of Directors declared an initiala semi-annual cash dividend of $0.05 per common share with a payment date of March 24, 201725, 2019 to all shareholders of record on March 3, 2017.11, 2019. On July 25, 2017,2019, our Board of Directors declared a semi-annual cash dividend of $0.05 per common share with a payment date of September 20, 20172019 to all shareholdersstockholders as of record on September 1, 2017.
4, 2019. However, if we are unable to overturn the HP Jury Verdict finding of non-infringement in the District Court or there is not an arbitration ruling that the HP Jury Verdict finding of non-infringement does not apply to certain of our licensees of our Remote Power Patent, our Board of Directors may choose to modify or discontinue regular semi-annual cash dividends of $0.05 per common share.
Our revenue from our patent licensing and enforcement business is generated from license agreements entered into as a result of litigation settlements or judgments (after a jury verdict).  Generally, in the event of settlement of litigation related to our assertion of patent infringement involving our 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 us for the life of the licensed patent (a "Royalty Bearing License").
 
On November 13, 2017, a jury in the United States District Court for the Eastern District of Texas, Tyler Division, determined that certain claims of our Remote Power Patent (U.S. Patent No. 6,218,930) are invalid and not infringed by Hewlett-Packard.  The jury verdict of invalidity and non-infringement, or a final judgment based on this verdict, may be determined to relieve some of our licensees of our Remote Power Patent from their obligation to continue to pay royalties to us, including Cisco Systems, Inc., our largest licensee.  Such a determination would have a material adverse effect on our business and results of operations.- 32 -
Royalty Bearing Licenses
We currently haveOur Royalty Bearing Licenses for our Remote Power Patent with seventeen (17)obligate licensees pursuant to which such licensees are obligated to pay us ongoing royalties primarily on a quarterly or monthly basis for the life of our Remote Power Patent (March 2020).  Revenue from, subject to certain conditions including the validity of certain claims of our Remote Power Patent or a finding that a third party's PoE products are found not to infringe our Remote Power Patent and such finding applies to our particular licensee's licensed products.  At June 30, 2019, we had sixteen (16) Royalty Bearing Licenses was $2,263,000 and $11,046,000 for the three and nine months ended Septemberat June 30, 2017, respectively, as compared to $7,426,000 and $14,663,000 for the three and nine months ended September 30, 2016, respectively.  At September 30, 2017,2018 we had Royalty Bearing Licenses with sixteen (16) licencees as compared to fifteen (15) such licensees at September 30, 2016.  Cisco is our largest royalty bearing licensee.  Cisco constituted 43% and 64% of our ongoing royalty revenue from ourseventeen (17) licensees.  In March 2019, one Royalty Bearing Licenses for the three months ended September 30, 2017 and September 30, 2016, respectively.  DueLicense was converted to our annual royalty rate structure with Cisco, which includes declining rates as the volume of PoE products sales increase during the year, royalties from Cisco are typically highest in the first quarter of the calendar year and decline for each of the remaining calendar quarters of the year.
- 24 -
a Fully-Paid License.
Pending Litigation
We currently have pending patent infringement litigations involving our Remote Power Patent and certain patents within our Cox Patent Portfolio and Mirror Worlds Patent Portfolio (see "Legal Proceedings" at pages 3239 – 3441 hereof).
In September 2011, we initiated patent litigation against sixteen (16) data equipment manufacturers in the United StatesU.S. District Court for the Eastern District of Texas, Tyler Division, for infringement of our Remote Power Patent.  We have since settled the litigation against fifteen (15) of the sixteen (16) defendants.  The remaining defendant in the litigation is Hewlett-Packard Company.  On November 13, 2017, a jury determined that certain claims of our Remote Patent are invalid and not infringed by Hewlett-PackardHewlett-Packard.  On August 29, 2018, the District Court granted our motion for judgment as a matter of law that our Remote Power Patent is valid, thereby overturning the HP Jury Verdict on validity.  In addition, the District Court denied our motion for a new trial on non-infringement.  We have appealed the District Court's denial of our motion for a new trial on infringement to the U.S. Court of Appeals for the Federal Circuit (see "Legal Proceedings" at page 32pages 39-40 hereof).
In April 2014 and December 2014, we initiated patent infringement litigation against Google Inc. and YouTube, LLC in the United StatesU.S. District Court for the Southern District of New York for infringement of several patents within our Cox Patent Portfolio (see "Legal Proceedings" at page 34 hereof).  These litigations are currently subject to a court ordered stay pending appeal to the United States Court of Appeals for the Federal Circuit of Final Written Decisions of the Patent Trial and Appeal Board (PTAB) of the USPTO in our favor relating to four Inter Partes Review proceedings and a Covered Business Method Review (CBM) instituted by Google (see "Legal Proceedings" at page 34pages 40-41 of this quarterly report).
In May 2017, we initiated patent infringement litigation against Facebook, Inc. ("Facebook") in the United StatesU.S. District Court for the Southern District of New York, for infringement of our U.S. Patent No. 6,006,227, U.S. Patent No. 7,865,538 and U.S. Patent No. 8,225,439 (among the patents we acquired as part of our acquisition of our Mirror Worlds Patent Portfolio).  In August 2018, the Court granted Facebook's motion for summary judgment of non-infringement and dismissed the case.  We have appealed the decision to the U.S. Court of Appeals for the Federal Circuit (see "Legal Proceedings" at page 3340 hereof).
Settlements and Related Matters in the Periods
During the three and ninesix month periods ended SeptemberJune 30, 2017,2019, we had no revenue of approximately $970,000 and $3,270,000, respectively, from Fully-Paid Licenses and license initiation fees related to patentnew litigation settlements.  During the three  and nine month periodsperiod ended SeptemberJune 30, 2016,2018, we also had no revenue from new litigation settlements. During the six month period ended June 30, 2018, we had revenue of $32,900,000$12,700,000 from our Fully-Paid License with Juniper Systems, Inc. from a litigation settlement and $33,800,000, respectively,$6,320,000 from Fully-Paid Licenses and license initiation fees related to patent litigation settlements.  In addition, during the nine month period ended September 30, 2016, we received $17,500,000 in connection with settlement of a professional liability claim which we had acquired as partsale of our acquisition of the Mirror Worlds Patent Portfolio in May 2013.
Taxes
We utilized our remaining net operating loss carry-forwards (NOLs) during the year ended December 31, 2016.  Current federal, state and local income taxes of $425,000 and $2,198,000 were recorded for the three and nine months ended September 30, 2017, respectively.  The remaining deferred tax assets of $168,000Avaya unsecured claim (see "Legal Proceedings" at September 30, 2017 relate to temporary (timing) differences with respect to outstanding options and restricted stock units.
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)page 39 hereof).  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").  During the second half of 2017 (as well as during the second half of prior years), we did not meet the Ownership Test.  Due to the significant number of shares held by our largest shareholders, we continually assess our share ownership to determine whether it meets the Ownership Test.  If the Ownership Test were met and the income generated by us were determined to constitute "royalties" within the meaning of the Income Test, we would constitute a PHC and we would be subject to a 20% tax on the amount of any PHC Income that we do not distribute to our shareholders.
 
- 2533 -
RESULTS OF OPERATIONS
Three Months Ended SeptemberJune 30, 20172019 Compared to Three Months Ended SeptemberJune 30, 2016
2018
Revenue.Revenue.  We had revenue of $3,237,000 $599,000 for the three months ended SeptemberJune 30, 20172019 as compared to revenue of $34,326,000$471,000 for the three months ended SeptemberJune 30, 2016.2018.  The decreaseincrease in revenue of $31,089,000$128,000 for the three months ended SeptemberJune 30, 20172019 was primarily due to revenue of $32,900,000 for the three months ended September 30, 2016 from Fully-Paid Licenses and license initiation fees related to patent litigation settlements with Apple Inc. ($25,000,000), Dell, Inc. ($6,000,000), and Alcatel and ALE USA Inc. ($1,900,000) (see "Legal Proceedings" at page 33 of this quarterly report).  Excluding revenue from Fully-Paid Licenses and license initiation fees related to litigation settlements, revenue for the three months ended September 30, 2017 increased $837,000 or 59% as compared to the three months ended September 30, 2016 due primarily to increased revenue from our Royalty Bearing Licenseslicensees for our Remote Power Patent.
Operating Expenses.Expenses.  Operating expenses for the three months ended SeptemberJune 30, 20172019 were $2,219,000$1,115,000 as compared to $18,242,000$1,475,000 for the three months ended SeptemberJune 30, 2016.2018.  The decrease in operating expenses of $16,023,000$360,000 was primarily due to an increase indecreased legal fees and costs of revenue of $15,979,000 for the three months ended September 30, 2016 associated with revenue of $32,900,000 from Fully-Paid Licenses and license initiation fees related to our patent litigation settlements.litigation.  We had costs of revenue of $964,000 $175,000 and $16,943,000$133,000 for the three months ended SeptemberJune 30, 20172019 and September 30, 2016,2018, respectively.  Included in the costs of revenue for the three months ended SeptemberJune 30, 20172019 were contingent legal fees and expenses of $802,000$145,000 and $162,000$30,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note I and Note J[1]H to our unaudited condensed consolidated financial statements included in this quarterly report).  Included in the costs of revenue for the three months ended SeptemberJune 30, 20162018 were contingent legal fees and expenses of $13,273,000, $2,029,000$109,000 and $24,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreementagreement.
General and other contractual paymentsadministrative expenses increased by $26,000 from $462,000 for the three months ended June 30, 2018 to $488,000 for the three months ended June 30, 2019.  Amortization of $1,641,000patents was $87,000 for three months ended June 30, 2019 as compared to $69,000 for the three months ended June 30, 2018.  Stock-based compensation expense related to the issuance of certain percentagesrestricted stock units was $127,000 for the three months ended June 30, 2019 as compared to $225,000 for the three months ended June 30, 2018.  Professional fees and related costs were $238,000 for the three months ended June 30, 2019 as compared to $586,000 for the three months ended June 30, 2018 primarily as a result of decreased legal fees and costs related to our pending patent litigations.
Operating Loss. We had an operating loss of $(516,000) for the three months ended June 30, 2019 compared with operating loss of $1,004,000 for the three months ended June 30, 2018.  The decreased operating loss of $488,000 for the three months ended June 30, 2019 was due to increased revenue and decreased legal fees and costs related to our patent litigation.
Interest Income.  Interest income for the three months ended June 30, 2019 was $301,000 as compared to interest income of $203,000 for the three months ended June 30, 2018 primarily as a result of interest earned on additional investments of short-term marketable securities.
Income Taxes(Deferred Tax Benefit). We had a deferred tax benefit for federal, state and local income taxes of $(38,000) and a current tax benefit of $(237,000) for federal, state and local taxes were recorded for the three months ended June 30, 2019 and 2018, respectively.  The increase in such taxes of $199,000 for the three months ended June 30, 2019 was primarily due to the loss before taxes of $(193,000).
Share of Net Losses of Equity Method Investee. We incurred a net proceedsloss of $(53,000) during the three month period ended June 30, 2019 related to our equity share in ILiAD Biotechnologies (see Note J to our condensed consolidated financial statements included in this quarterly report).
Net Income (Loss).  As a result of the foregoing, we realized a net loss of $(208,000) or $(0.01) per share basic and diluted for the three months ended June 30, 2019 compared with net loss of $(564,000) or $(0.02) per share basic and diluted for the three months ended June 30, 2018.  The decrease in net loss of $356,000 for the three months ended June 30, 2019 was primarily due to increased revenue and decreased legal fees and costs related to our patent litigation.
- 34 -
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Revenue.  We had revenue of $1,205,000 for the six months ended June 30, 2019 as compared to revenue of $19,934,000 for the six months ended June 30, 2018.  The decrease in revenue of $18,729,000 for the six months ended June 30, 2019 was primarily due to revenue for the six months ended June 30, 2018 from the monetizationa Fully-Paid License related to our patent litigation settlement with Juniper Networks, Inc. of $12,700,000 and $6,320,000 of revenue from sale of our Mirror Worlds Patent PortfolioAvaya unsecured claim (see note H[2]Notes I[1] to our unaudited condensed consolidated financial statements included in this quarterly report).
General and administrative expenses increased by $6,000 from $428,000 for the three months ended September 30, 2016 to $434,000 for the three months ended September 30, 2017.  Amortization of patents was $50,000 for the three months ended September 30, 2017 as compared to $49,000 for the three months ended September 30, 2016.  Stock-based compensation expense related to the issuance of restricted stock units was $237,000 for the three months ended September 30, 2017 as compared to $189,000 for the issuance of restricted stock units and the vesting of stock options for the three months ended September 30, 2016.  Professional fees and related costs were $534,000 for the three months ended September 30, 2017 as compared to $633,000 for the three months ended September 30, 2016.
Interest Income.  Interest income for the three months ended September 30, 2017 was $55,000 as compared to interest income of $24,000 for the three months ended September 30, 2016.
- 26 -
Operating Income. We had operating income of $1,018,000 for the three months ended September 30, 2017 compared with operating income of $16,084,000 for the three months ended September 30, 2016.  The decreased operating income of $15,066,000 for the three months ended September 30, 2017 was primarily due to operating income associated with revenue of $32,900,000 from Fully-Paid Licenses and license initiation fees related to patent litigation settlements for the three months ended September 30, 2016.
Current Taxes.  Federal, state and local income taxes of $425,000 and $3,817,000 were recorded for the three months ended September 30, 2017 and September 30, 2016, respectively.  The decrease in such taxes of $3,392,000 for the three months ended September 30, 2017 was due to a decrease of $15,035,000 in income before taxes for the three months ended September 30, 2017.
Deferred Tax Expense.  We recorded deferred tax expense of $-0- and $1,459,000 for the three months ended September 30, 2017 and September 30, 2016, respectively.  The deferred tax expenses of $1,459,000 for the three months ended September 30, 2016 was due to utilization of our net-operating loss carry-forwards and temporary (timing) differences with respect to outstanding stock options and restricted stock units.  We have no remaining net operating loss carry-forwards as of September 30, 2017.
Net Income.  As a result of the foregoing, we realized net income of $648,000 or $0.03 per share (basic) and $0.02 per share (diluted) for the three months ended September 30, 2017 compared with net income of $10,832,000 or $0.46 per share (basic) and $0.43 per share (diluted) for the three months ended September 30, 2016.  The decrease in net income of $10,184,000 was primarily due to income associated with revenue of $32,900,000 from Fully-Paid Licenses and license initiation fees related to patent litigation settlements for the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenue.  We had revenue of $14,320,000 for the nine months ended September 30, 2017 as compared to revenue of $59,963,000 for the nine months ended September 30, 2016.  The decrease in revenue of $45,643,000 for the nine months ended September 30, 2017 was due primarily to revenue of $33,800,000 for the nine months ended September 30, 2016 from Fully-Paid Licenses and license initiation fees related to litigation settlements and our $17,500,000 settlement of a professional liability claim (see "Legal Proceedings" at page 33 hereof and Note M to our unaudited condensed consolidated financial statements included in this quarterly report).  Excluding revenue from our Fully-Paid LicensesLicense with Juniper and license initiation fees related to patent litigation settlements andsale of our Avaya unsecured claim for the six months ended June 30, 2018, revenue from our one-time professional liability settlement, revenue for the nine months ended September 30, 2017 increased $2,384,000 or 27.5% compared to the nine months ended September 30, 2016 primarily due to increased revenue from Royalty Bearing Licenses for our Remote Power Patent.the six months ended June 30, 2018 was $
914,000 compared to $1,075,000 for the six months ended June 30, 2019.
Operating Expenses.  Operating expenses for the ninesix months ended SeptemberJune 30, 20172019 were $7,712,0002,254,000 as compared to $28,390,000$10,055,000 for the ninesix months ended SeptemberJune 30, 2016.2018.  The decrease in operating expenses of $20,678,000$7,801,000 was primarily due to a decrease indecreased costs of revenue of $19,844,000$7,071,000 for the ninesix months ended SeptemberJune 30, 2016 associated with $33,800,000 of revenue from Fully-Paid Licenses and license initiation fees2018 related to our Fully-Paid License with Juniper from our patent litigation settlementssettlement and the sale of our $17,500,000 professional liability settlement.unsecured Avaya claim.  We had costs of revenue of $4,339,900$321,000 and $24,183,000$7,392,000 for the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, respectively.
- 27 -
Included in the costs of revenue for ninesix months ended SeptemberJune 30, 20172019 were contingent legal fees and expenses of $3,623,000$261,000 and $716,000$60,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note IG[1] and Note J[H[1] to our unaudited condensed consolidated financial statements included in this quarterly report).  Included in the costs of revenue for the ninesix months ended SeptemberJune 30, 20162018 were contingent legal fees and expenses of $16,841,000 payable to our patent litigation counsel, $3,996,000$6,395,000 and $997,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement and other contractual payments of $3,345,000 paid to Recognition Interface LLC and others of certain percentages of net proceeds from the monetization of our Mirror Worlds Patent Portfolio (see Note H[2] to our unaudited condensed consolidated financial statements included in this quarterly report).
agreement.
General and administrative expenses increased by $102,000$7,000 from $1,256,000$969,000 for the ninesix months ended September June 30, 20162018 to $1,358,000$976,000 for the ninesix months ended SeptemberJune 30, 2017, primarily due to increased franchise taxes of $74,000.2019.  Amortization of patents was $150,000$141,000 for the ninesix months ended SeptemberJune 30, 20172019 as compared to $760,000$139,000 for the ninesix months ended SeptemberJune 30, 2016 due to the expiration of certain patents during the nine months ended September 30, 2016.2018. Stock-based compensation expense related to the issuance of restricted stock units was $711,000$271,000 for the ninesix months ended SeptemberJune 30, 20172019 as compared to $233,000$451,000 for the issuance of restricted stock units and the vesting of stock options for the ninesix months ended SeptemberJune 30, 2016.2018.  Professional fees and related costs were $1,154,000$545,000 for the ninesix months ended SeptemberJune 30, 20172019 as compared to $1,458,000$1,104,000 for the ninesix months ended SeptemberJune 30, 2016.  Contingent2018 primarily as a result of decreased legal fees and costs related to our pending patent cost was $-0- and $500,000litigations.
Operating Income (Loss). We had an operating loss of $(1,049,000) for the ninesix months ended SeptemberJune 30, 20172019 compared with operating income of $9,879,000 for the six months ended June 30, 2018.  Our operating income for the six months ended June 30, 2018 was due to operating income associated with revenue of $19,020,000 from our Fully-Paid License with Juniper and September 30, 2016, respectively.
the sale of our Avaya unsecured claim, less related costs.
Interest Income.  Interest income for the ninesix months ended SeptemberJune 30, 20172019 was $89,000$602,000 as compared to interest income of $50,000$346,000 for the ninesix months ended SeptemberJune 30, 2016.2018 primarily as a result of interest earned on additional investments.
 
Operating Income.- 35 -
Income Taxes (Deferred Tax Benefit).We had operating income of $6,608,000a deferred tax benefit for the nine months ended September 30, 2017 compared with operating income of $31,573,000 for the nine months ended September 30, 2016.  The decreased operating income of $24,965,000 for the nine months ended September 30, 2017 was primarily due to revenue of $33,800,000 from Fully-Paid Licenses and license initiation fees related to patent litigation settlements and revenue of $17,500,000 from settlement of a professional liability claim.
Current Taxes.  Federal,federal, state and local income taxes of  $2,198,000$(103,000) and $4,198,000a current tax expense of $2,188,000 for federal, state and local taxes were recorded for the ninesix months ended SeptemberJune 30, 20172019 and September 30, 2016, respectively.2018. The decrease in such taxes of $2,000,000$2,291,000  for the ninesix months ended SeptemberJune 30, 20172019 was primarily due to taxes associated withdecreased taxable income of $22,882,000$10,627,000 for the ninesix months ended SeptemberJune 30, 2016.
2019.
Deferred Tax Expense.Share of Net Losses of Equity Method Investee. We recorded deferred tax expenseincurred a loss of $39,000 and $4,543,000 for$(149,000) during the nine monthssix month period ended SeptemberJune 30, 2017 and September 30, 2016, respectively.  The deferred tax expense2019 related to our share of $39,000 for the nine months ended September 30, 2017 relatesnet losses in ILiAD Biotechnologies (see Note J to temporary (timing) differences with respect to outstanding stock options and restricted stock units.  The deferred tax expenses of $4,543,000 for the nine months ended September 30, 2016 was due to utilization of our net operating loss carry-forwards.  We have no remaining net operating loss carry-forwards as of September 30, 2017.
- 28 -
condensed consolidated financial statements included in this quarterly report).
Net Income.Income (Loss).  As a result of the foregoing, we realized net incomeloss of $4,460,000$(448,000) or $0.18$(0.02) per share (basic)basic and $0.17 per share (diluted)diluted for the ninesix months ended SeptemberJune 30, 20172019 compared with net income of $22,882,000$8,037,000 or $0.98$0.34 per share (basic)basic and $0.93$0.31 per share (diluted)diluted for the ninesix months ended SeptemberJune 30, 2016.2018.  The decrease in net income of $$8,485,000 for the six months ended June 30, 2019 18,422,000 was primarily due to income for the six months ended June 30, 2018 associated with revenue forof $19,020,000 from our Fully-Paid License with Juniper and from the nine months ended September 30, 2016sale of $33,800,000 for Fully-Paid Licenses and license initiation feesour Avaya claims, less related to litigation settlements and the $17,500,000 professional liability settlement.costs.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from revenue from licensing our patents.  At SeptemberJune 30, 2017,2019, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $52,265,000$51,039,000 and working capital of $54,101,000.  We believe based$50,753,000.  Based on our current cash position, and projected licensing revenue from our existing license agreementswe believe that we will have sufficient cash to fund our operations for the foreseeable future.
At SeptemberJune 30, 2017,2019, we had royalty receivables of $3,570,000 consisting of $1,803,000$641,000 due from our Royalty Bearing Licenses, which are typically paid within sixty days of the end of the quarter, and payments due with respect to a Fully-Paid License and a license initiation fee aggregating $1,767,000 due later in 2017.
(60) days.
Working capital increaseddecreased by $2,686,000 to $54,101,000$2,733,000 at SeptemberJune 30, 20172019 as compared to working capital of $51,415,000$53,486,000 at December 31, 2016.2018. The increasedecrease in working capital for the ninesix months ended SeptemberJune 30, 20172019 was primarily due to increasesa decrease in cash and cash equivalents of $1,347,000$4,840,000, which included a cash dividend of $1,191,000 and royalty receivablesan additional equity investment of $691,000, decreases in accrued payroll of $1,508,000 and accrued contingency fees and related costs of $892,000,$1,000,000, offset by an increase in income taxes payable of $930,000 and a decrease in prepaid taxesaccrued expenses of $895,000.
$1,297,000.
Net cash provided by (used in) operating activities for the ninesix months ended SeptemberJune 30, 20172019 decreased by $33,203,000$9,721,000 from $37,140,000$8,379,000 for the ninesix months ended SeptemberJune 30, 20162018 to $3,937,000$(1,342,000) for the ninesix months ended SeptemberJune 30, 2017.2019.  The decrease in net cash provided by (used in) operating activities for the ninesix months ended SeptemberJune 30, 20172019 compared with the same period in 2016six months ended June 30, 2018 was primarily due to decreasesa decrease in net income of $18,422,000, accrued expenses of $6,541,000, deferred taxes of $4,504,000 and income taxes payable of $3,150,000.
$8,485,000.
Net cash used in investing activities during the six months ended June 30, 2019 was $(1,715,000) as compared to $(19,537,000) for the ninesix months ended SeptemberJune 30, 2017 and September2018 as a result of new investments in short term marketable securities for the six months ended June 30, 2016 was $50,000 and $4,000, respectively, related to the purchase of patents.
2018.
Net cash provided by (used in)used in financing activities for the ninesix months ended SeptemberJune 30, 20172019 and September 30, 20162018 was $(2,540,000)$(1,783,000) and $15,000,$(2,491,000), respectively.  The change of $(708,000) primarily resulted from the repurchasereduced stock repurchases of our common stock of $1,131,000 and cash dividends of $2,421,000 offset by $1,068,000 of proceeds from the exercise of options and warrants for the nine months ended September 30, 2017.
$950,000.
We maintain our cash primarily in money market accounts.accounts and other short-term fixed income securities.  Accordingly, we do not believe that our investments have significant exposure to interest rate risk.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
 
- 36 -
CONTRACTUAL OBLIGATIONS
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities except forliabilities.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition, results of operations, and cash flows are based on our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the lease obligations set forth in Note H[3] toUnited States.  The preparation of our condensed consolidated financial statements included in this quarterly report.
- 29 -
CRITICAL ACCOUNTING POLICIES
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statementsQuarterly Report on Form 10-Q requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities revenue, costsand disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and related disclosures. Theseassumptions made in the preparation of our unaudited condensed consolidated financial statements include revenue recognition, patents, stock-based compensation, income taxes, valuation of patents and equity method investments, including the evaluation of the Company's basis difference. Actual results could be materially different from those estimates, form the basis for judgments we make aboutupon which the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing  basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.  We believe that the assumptions and estimates associated with revenue recognition, patents, income taxes, and stock-based compensation have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.  There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.were based. See also Note B to our unaudited condensed consolidated financial statements included in this quarterly report.
Effect of New Accounting Pronouncements
Standards Adopted In The Period
In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted.  We do not believe that the adoption of this ASU will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-022016-2, Leases ("ASC 842"), Leases (Topic 842). In September 2017,which required us to recognize lease assets and lease obligations (related to leases previously classified as operating under previous U.S. GAAP) on its condensed consolidated balance sheet. ASC 842 was effective for the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),Company on January 1, 2019. The adoption of ASC 842 impacted our condensed consolidated financial statements in that existing leases were recorded as right-of-use ("ROU") assets and Leases (Topic 842), which provides additional implementation guidancerelated lease obligations on the previously issued ASU 2016-02 Leases (Topic 842)condensed consolidated balance sheet..  ASU No. 2016-02 is effective

We elected to adopt ASC 842 using the modified retrospective method and, therefore, has not recast comparative periods presented in its unaudited condensed consolidated financial statements. We elected the package of transition practical expedients for annual periods beginning after December 15, 2018,existing leases and requires a lesseetherefore we have not reassessed the following: lease classification for existing leases, whether any existing contracts contained leases, and if any initial direct costs were incurred. We did not apply the hindsight practical expedient, and accordingly, we did not use hindsight in its assessment of lease terms. As permitted under ASC 842, we elected to not recognize ROU assets and liabilitiesrelated lease obligations for leases with terms of twelve months or less. In connection with the adoption of ASC 842, the Company recorded $127,000 of operating lease right-of-use assets and $128,000 of operating lease obligations as of January 1, 2019.

Under ASC 842, we determined if an arrangement is a maximum possible termlease at inception. ROU assets and related lease obligations are recognized at commencement date based on the present value of more than 12 months. A lessee would recognize a liability to makeremaining lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) forover the lease term. Early applicationFor this purpose, we consider only payments that are fixed and determinable at the time of commencement. As our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We determined incremental borrowing rate is permitted. a hypothetical rate based on its understanding of what our credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received and net of the deferred rent balance on the date of implementation. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

We do not believe that adoption of thisother recently issued but not yet effective accounting standard willstandards, if currently adopted, would have a material impacteffect on our consolidated financial statements.
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 customersposition, statements of operations and supersedes most current revenue recognition guidance.  The new revenue standard allows for either full retrospective or modified retrospective application.  We are required to adopt the amendments in ASU No. 2014-09 using one of the two acceptable methods.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU No. 2014-09 to annual periods beginning after December 2017, along with an option to permit early adoption as of the original effective date.  In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends the guidance in 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property.  The ASU does not change the core principle of the guidance in Topic 606. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842), which provides additional implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The effective date and transition requirements for the ASUs are the same as the effective date and transition requirements in Topic 606. Public entities should apply the ASUs for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  We intend to adopt ASU 2014-09 on January 1, 2018.  We have elected to apply the modified retrospective method of adoption.  We do not expect the impact of the adoption of the new revenue standard to have a material impact on our consolidated financial statements.  We will continue to evaluate any new license agreements entered into in the future to determine the impact upon adoption.cash flows.
 
- 3037 -
In May 2017, FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718) which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting in Topic 718.  The new standard is effective beginning after December 15, 2017 with early adoption permitted.  We do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
Accounting Standards Adopted in the Period

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Prior to this amendment, excess tax benefits resulting from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting were not recognized until the deduction reduced taxes payable.  Under the new method we will recognize excess tax benefits in the current accounting period.   Additionally, ASU 2016-09 requires that we present excess tax benefits on the Statement of Cash Flows as an operating activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016. We adopted ASU 2016-09 in the first quarter of 2017 and elected to apply this adoption prospectively. Prior periods have not been adjusted. The effective tax rate for the nine months ended September 30, 2017 differed from the federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK
 
Not Applicable
 
ITEM 4. CONTROLS AND PROCEDURES.
PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.

Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this review, these officers concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended SeptemberJune 30, 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
- 3138 -
PART II. OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS
Remote Power Patent Legal Proceedings
Litigation
In September 2011, we initiated patent litigation against sixteen (16) data networking equipment manufacturers (and affiliated entities) in the United StatesU.S. District Court for the Eastern District of Texas, Tyler Division, for infringement of our Remote Power Patent.  Named as defendants in the lawsuit (excluding affiliated 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 Transition Networks, Inc.  We seek monetary damages based upon reasonable royalties.
In March 2012,As of January 2018, we reached settlement agreementssettlements with defendants Motorola Solutions, Inc. ("Motorola") and Transition Networks, Inc. ("Transition Networks").  In October 2012, we reached a settlement with defendant GarretCom, Inc ("GarretCom").  In February 2013, we reached settlement agreements with Allied Telesis, Inc. ("Allied Telesis") and NEC Corporation ("NEC").  As partfifteen (15) of the settlements, Motorola, Transition Networks, GarretCom, Allied Telesis and NEC each entered intosixteen (16) defendants, with Hewlett-Packard Company ("HP") being the sole remaining defendant.
On November 13, 2017, a non-exclusive license agreementjury empaneled in the U.S. District Court for the Eastern District of Texas, Tyler Division, found that certain claims of our Remote Power Patent pursuantwere invalid and not infringed by HP.  On February 2, 2018, we moved to which each such defendant agreed to licensethrow out the jury verdict and have the Court determine that certain claims of our Remote Power Patent are not obvious (invalid) as a matter of law by filing motions for judgment as a matter of law on validity and a new trial on validity and infringement.  On August 29, 2018, the District Court issued an order granting our motion for judgment as a matter of law that our Remote Power Patent is valid, thereby overturning the jury verdict of invalidity and denied our motion for a new trial on infringement.  On August 30, 2018, we appealed the District Court's denial of our motion for a new trial on infringement to the U.S. Court of Appeals for the Federal Circuit.  On September 13, 2018, HP filed a cross-appeal of the District Court's order that the Remote Power Patent is valid as a matter of law.  No hearing on the appeal has been set.  If we are unable to reverse the District Court order of non-infringement on appeal, or there is an arbitration ruling that the District Court order relieves the obligation of certain of our licensees including Cisco, our largest licensee, to continue to pay us royalties and the District Court order is not subsequently reversed on appeal, our business, results of operations and cash-flow will continue to be materially adversely effected.
On November 1, 2017, defendant Juniper Networks, Inc. ("Juniper") agreed to settle its litigation with us for $13,250,000 for a fully-paid license to our Remote Power Patent.  On December 8, 2017, we were 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, we revised and closed our settlement with defendant Juniper.  We 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 us $12,700,000 and received a fully-paid license to our Remote Power Patent (and certain other patents owned by us) for its full term, (which expires in March 2020) and pay a license initiation fee and ongoing royalties based on their sales of PoE products.  In March 2015 and July 2015, we reached settlements with defendants Samsung Electronics Co., Ltd. ("Samsung"), Huawei Technologies Co., Ltd. ("Huawei") and ShoreTel, Inc. ("ShoreTel").  Samsung and Huawei each entered into a non-exclusive fully paid license agreement for our Remote Power Patent for its full term.  ShoreTel entered into a non-exclusive license agreement for our Remote Power Patent for its full term and paid a license initiation fee and agreedwhich applies to pay quarterly royalties based upon its sales of PoE products.
In June 2016, we reached a settlement with Sony Corporation and affiliated entities ("Sony").  With respect to the settlement, Sony received a non-exclusive fully-paid license for our Remote Power Patent for its remaining life.
In July 2016, we reached a settlement with Dell, Inc.  Under the terms of the settlement, Dell received a non-exclusive license for our Remote Power Patent for its full term, Dell paid a license initiation fee of $6,000,000 and agreed to pay quarterly royalties based on its sales of PoE products.
In July 2016, we also reached settlement agreements with Alcatel-Lucent USA, Inc. and Alcatel-Lucent Holdings Inc. (collectively, "Alcatel") and ALE, USA, Inc. ("ALE").  Under the terms of the settlement agreements, Alcatel and ALE received a non-exclusive fully paid license for our Remote Power Patent for its remaining life.  The aggregate consideration to be received by us from Alcatel and ALE for the fully-paid license is $4,200,000 of which $1,900,000 has been paid and the balance of $2,300,000 is payable in three equal quarterly payments, two installments of which have been received.
In August 2017, we entered into a settlement agreement with Axis Communications, Inc. and affiliated entities ("Axis").  With respect to the settlement, Axis received a fully-paid license for our Remote Power Patent for its remaining life.
In October 2016, we 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 will be paid 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.  Such payments in October 2018 and October 2019 have not been included in our revenue to date.
- 32 -
On October 16, 2017, the U.S. Bankruptcy Court of the Southern District of New York approved our settlement with defendant Avaya, Inc. ("Avaya").  As part of the settlement, Avaya, which on January 19, 20072017 had filed a voluntary petition for relief under Chapter 11 of the United StatesU.S. Bankruptcy Code, entered into a non-exclusive license agreement for the full term of our Remote Power Patent.  Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated Power over Ethernet ("PoE")PoE products and anagreed to pay ongoing royaltyroyalties for other designated PoE products.  In addition, Avaya agreed we shall have an allowed general unsecured claim ("Allowed Claim") in the amount of $40,000,000$37,500,000, as amended, relating to all acts occurring on or before January 19, 2017.2017 ("Allowed Claim").
 
- 39 -
Under the Debtors' (Avaya and certain of its affiliates) FirstSecond Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Itsits Debtor Affiliates, which the Debtors filed withwas approved by the Bankruptcy Court on August 24,November 28, 2017 and the Modified Global Plan Settlement, dated October 11,became effective on December 15, 2017, (collectively, the "Plan"), the Debtors have estimated that the total amount of general unsecured claims that will ultimately be allowed will total approximately $305,000,000 which, based on the treatment of general unsecured creditors therein, would result in estimated recoveries for the holders of general unsecured claims of approximately 18.9% of their Allowed Claim.  The Debtors have acknowledged in the Plan that depending on its ability to successfully prosecute or otherwise reduce the remaining outstanding claims, the total amount of the general unsecured claims could be substantially higher which would decrease the percentage recoveries to the holders of general unsecured claims, including our unsecured claim.  In such an event, the amount recovered by us underClaim.  On January 9, 2018, we sold our Allowed Claim could be substantially lower than 18.9%.  A hearing to consider confirmation of the Plan is currently scheduled to commence on November 15, 2017.  There is no assurance that the Bankruptcy Court will confirm the Plan or any other Chapter 11 plan, and no assurance of the recoverya third party for general unsecured claims under either the Plan or any other Chapter 11 plan.$6,320,000.
On November 2,In October 2016, the Court issued its ruling on the Markman hearing and defendants' motion for summary judgment (the motion asserted that all claims of the Remote Power Patent were invalid for improper claim broadening).  The Court found that all of the original asserted claims of the Remote Power Patent survived the challenge and only one claim (Claim 23 obtained duringwe entered a Reexamination of the Remote Power Patent at the USPTO in 2014) was invalid due to improper claim broadening.
On November 1, 2017, we agreed to settle our litigation against defendant Juniper Networks,settlement agreement with Polycom, Inc. ("Juniper"Polycom").  Under the terms of the settlement, Juniper will pay $13,250,000 to us and receivePolycom entered into a fully-paidnon-exclusive license for theour Remote Power Patent for its remaining life.
On November 13, 2017,full term and is obligated to pay us a jurylicense initiation fee of $5,000,000 for past sales of its 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 is payable in the United States District Court for the Eastern Districtthree annual installments of Texas, Tyler Division, determined that certain$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 (U.S.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 No. 6,218,930) are invalid and not infringed by Hewlett-Packard.  The jury verdictis valid thereby overturning the HP Jury Verdict of invalidity, and non-infringement, or a final judgment based on this verdict, may be determinedPolycom became obligated to relieve somemake the aforementioned remaining aggregate payments of our licensees$2,000,000 (subject to the continued validity of our Remote Power Patent from their obligationPatent) to continueus (of which $1,000,000 was paid in November 2018).
Dell Litigation
On November 13, 2018, we filed a lawsuit against Dell, Inc. in the District Court, 241st Judicial District, Smith County, Texas, for breach of a settlement and license agreement, dated August 15, 2016, with us as a result of Dell's failure to make royalty payments, and provide corresponding royalty reports, to us based on sales of Dell's PoE products.  We believe Dell is obligated to pay us all prior unpaid royalties that accrued prior to and after the date of the HP Jury Verdict (November 2017) as well as future royalties through the expiration of the Remote Power Patent in March 2020.  On December 7, 2018, Dell filed its Answer and Counterclaim. Dell denied the claim asserted by us including Cisco Systems, Inc.,and asserted a counterclaim in excess of $1,000,000.  On January 28, 2019, Dell brought a motion to stay the case as a result of our largest licensee.  Suchpending appeal of the District Court order overturning the HP Jury Verdict on non-infringement to the U.S. Court of Appeals for the Federal Circuit and HP's appeal of the District Court's order that the Remote Power Patent is valid as a determination would have a material adverse effectmatter of law.  Dell's motion to stay was denied by the Court on our business and results of operations.
May 7, 2019.
Mirror Worlds Patent Portfolio Litigation
Pending Facebook Litigation
On May 9, 2017, Mirror Worlds Technologies, LLC, our wholly-owned subsidiary, initiated litigation against Facebook, Inc. ("Facebook") in the United StatesU.S. District Court for the Southern District of New York, for infringement of U.S. Patent No. 6,006,227, U. S.U.S. Patent No. 7,865,538 and U.S. Patent No. 8,255,439 (among the patents within our Mirror Worlds Patent Portfolio).  The lawsuit allegesalleged that the asserted patents are infringed by Facebook's core technologies that enable Facebook's Newsfeed and Timeline features.  The lawsuit further allegesalleged that Facebook's unauthorized use of the stream basedstream-based solutions of our asserted patents has helped Facebook become the most popular social networking site in the world with more than 1.94 billion monthly active users as of March 2017.  We seek, among other things, monetary damages based upon reasonable royalties.  On July 5, 2017, Facebook filed its Answer denying our claims and asserting various affirmative defenses.
Prior Litigation
On May 23, 2013, we initiated patent litigation in the United States District Court for the Eastern District of Texas, Tyler Division, against Apple Inc., Microsoft Corporation, Hewlett-Packard Company, Lenovo Group Ltd., Lenovo (United States), Inc., Dell, Inc., Best Buy Co., Inc., Samsung Electronics America, Inc. and Samsung Telecommunications America L.L.C., for infringement of U.S. Patent No. 6,006,227 (the "'227 Patent").world.  We sought, among other things, monetary damages based upon reasonable royalties.  The lawsuit alleged thatOn May 7, 2018, Facebook filed a motion for summary judgment on non-infringement.  On August 11, 2018, the defendants have infringedCourt issued an order granting Facebook's motion for summary judgment of non-infringement and continuedismissed the case.  On August 17, 2018, we filed a Notice of Appeal to infringeappeal the claimssummary judgment decision to the U.S. Court of Appeals for the '227 Patent by making, selling, offering to sell and using infringing products including Mac OS and Windows operating systems and personal computers and tablets that include versions of those operating systems, and by encouraging others to make, sell, and use these products.  On December 10, 2013,Federal Circuit.  No hearing on the litigation was severed into two consolidated actions, Mirror Worlds v. Apple, Inc. (Case No. 6:13-cv-419), and Mirror Worlds v. Microsoft, et al. (Case No. 6:13-cv-941).
appeal has been set.
- 3340 -
On November 6, 2015, we entered into a settlement agreement with Microsoft pursuant to which Microsoft (including its customers) received a non-exclusive fully-paid license for our Mirror Worlds Patent Portfolio for its remaining life in consideration of a lump sum payment to us of $4,650,000.  In addition, as customers of Microsoft, the pending litigation was also dismissed against Hewlett-Packard Company, Lenovo Group Ltd., Lenovo, Inc., Dell, Inc., Best Buy Co., Inc., Samsung Electronics of America, Inc. and Samsung Telecommunications America L.L.C.
On July 8, 2016, we entered into a settlement agreement with Apple Inc. in connection with litigation in the United States District Court for the Eastern District of Texas, for infringement of our '227 Patent.  Under the terms of the settlement agreement, Apple received a fully paid non-exclusive license to the '227 Patent for its full term (which expired in June 2016), along with certain rights to other patents in our patent portfolio.  We received $25,000,000 from Apple for the settlement and fully paid non-exclusive license.
Cox Patent Portfolio – Google and YouTube Legal Proceedings
On April 4, 2014, we initiated litigation against Google Inc. ("Google") and YouTube, LLC ("YouTube") in the United StatesU.S. District Court for the Southern District of New York for infringement of several of our patents within our Cox Patent Portfolio which relate to the identification of media content on the Internet.  The lawsuit alleges that Google and YouTube have infringed and continue to infringe certain of our patents by making, using, selling and offering to sell unlicensed systems and related products and services, which include YouTube's Content ID system.  In May 2014, the defendants filed an answer to our complaint and asserted defenses of non-infringement and invalidity.
On December 3, 2014, we initiated a second litigation against Google and YouTube in the United States District Court for the Southern District of New York for infringement of our then newly issued patent (part of the Cox Patent Portfolio) relating to the identification and tagging of media content (U.S. Patent No. 8,904,464).  The lawsuit alleges that Google and YouTube have infringed and continue to infringe the asserted patent by making, using, selling and offering to sell unlicensed systems and products and services related thereto, which include YouTube's contentContent ID system.  In January 2015, the defendants filed an answer to our complaint and asserted defenses of non-infringement and invalidity.
The above referenced litigations that we commenced in the United StatesU.S. District Court for the Southern District of New York in April 2014 and December 2014 against Google and YouTube are currentlywere subject to a court ordered staystays which has beenwere in effect sincefrom July 2, 2015 until January 2, 2019 as a result of proceedings then pending at the Patent Trial and Appeal Board (PTAB) and the pending appeals of PTAB Final Written Decisions to the United StatesU.S. District Court of Appeals for the Federal Circuit as described below.
Circuit.  Pursuant to a Joint Stipulation and Order Regarding Lifting of Stays, entered on January 2, 2019, the parties agreed, among other things, that the stays with respect to the litigations were lifted.  In December 2014, Google filed four petitionsaddition, we agreed not to institute Inter Partes Review proceedings (the "IPRs") at the PTAB pertaining toassert certain patents within our Cox Patent Portfolio.  In each of the IPRs, Google sought to invalidate certainpatent claims of our patents within our Cox Patent Portfolio which have beenwere asserted in our litigations againstthe litigation commenced in April 2014 and we were permitted to substitute new claims.  Google and YouTubealso agreed to terminate the pending inIPR proceedings that were subject to remand by the United States DistrictU.S. Court of Appeals for the Southern District of New York as described above.  On June 23, 2015, the PTAB issued an order instituting each of the four IPR petitions for oral hearing.  The consolidated oral hearing was held on March 9, 2016.  On June 20, 2016, the PTAB issued its Final Written Decisions in the four pending IPRs finding eighty-six (86) claims "not unpatentable" (valid) and in total, one hundred nineteen (119) out of one hundred and twenty-nine (129) or 92% of the challenged claims of the patents survived.  None ofFederal Circuit. In January 2019, our asserted claims in the pendingtwo litigations against Google and YouTube were found invalid.  Onconsolidated.  The Court has set a claim construction hearing for August 18, 2016, Google filed Notices of Appeal26, 2019 and discovery is to appeal the PTAB's Final Written Decisions on the IPRs to the United States Court of Appeals for the Federal Circuit and oral argument on the appeals (which have been consolidated) is scheduled for December 4, 2017.be completed by September 30, 2019.
 
On April 13, 2015, Google filed a Petition for Covered Business Method Review (CBM) at the PTAB seeking to invalidate claims pertaining to our U.S. Patent No. 8,904,464, the patent asserted in our litigation against Google and YouTube filed on December 3, 2014 as referenced above.  On October 19, 2015, the PTAB issued an order instituting the Covered Business Method Review for oral hearing.  The oral hearing was held on May 11, 2016.  On October 18, 2016, the PTAB issued its Final Written Decision in favor of us with respect to the CBM and ruled that Google had failed to show that any of the thirty-four (34) claims of our U.S. Patent 8,904,464 were unpatentable.  On December 20, 2016, Google filed a Notice of Appeal to appeal the PTAB's Final Written Decision on the CBM to the United States Court of Appeals for the Federal Circuit and the appeal is pending.
- 34 -
ITEM 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations and trading price of our common stock.  In addition to the risks described below and elsewhere in this quarterly report, and our Annual Report on Form 10-K for the year ended December 31, 2016 (pages 16-26) filed with the Securities and Exchange Commission on March 20, 2017 includes a discussion of our risk factors and should be carefully considered by investors.
The Jury Verdict in the Hewlett-Packard Trial Invalidating Certain Claims of Our Remote Power Patent and Finding Non-Infringement May Have a Material Adverse Effect On Our Business and Results of Operations.
On November 13, 2017, a jury in the United States District Court for the Eastern District of Texas, Tyler Division, determined that certain claims of our Remote Power Patent (U.S. Patent No. 6,218,930) are invalid and not infringed by Hewlett-Packard.  The jury verdict of invalidity and non-infringement, or a final judgment based on this verdict, may be determined to relieve some of our licensees of our Remote Power Patent from their obligation to continue to pay royalties to us, including Cisco Systems, Inc., our largest licensee.  Such a determination would have a material adverse effect on our business and results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Issuances of Unregistered Securities
There were no such issuances during the three months ended SeptemberJune 30, 2017.
2019.
Stock Repurchases
On August 22, 2011, we established a share repurchase program ("Share Repurchase Program").  On June 14, 2017,11, 2019, our Board of Directors authorized an extension and increase of the Share Repurchase Program to repurchase up to $5,000,000 of shares of our common stock over the subsequent 1224 month period.period (for a total authorization of approximately $22,000,000 since inception of the program).  The common stock may be repurchased from time to time in open market transactions or privately negotiated transactions in our discretion.  The timing and amount of the shares repurchased is determined by management based on its evaluation of market conditions and other factors.  The Share Repurchase Program may be increased, suspended or discontinued at any time.  Since inception of the Share Repurchase Program in August 2011 through SeptemberJune 30, 2017,2019, we have repurchased an aggregate of 7,201,5978,294,546 shares of our common stock at an aggregate cost of $12,589,253$15,473,903 (exclusive of commissions) or an average per share price of $1.75.$1.86.  During the three months ended SeptemberJune 30, 2017,2019, we repurchased 39,872139,848 shares of our common stock at an aggregate cost of $149,253$330,987 (exclusive of commissions) or an average per share price of $3.74.  At September$2.37.At June 30, 2017,2019, the remaining dollar value of shares that may be repurchased under the Share Repurchase Program was $3,875,050.$4,878,350.
- 41 -
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(1)
 
July 1 to July 31, 2017-0-——$  4,024,303
August 1 to August 31, 201725,022$3.7725,022$  3,929,875
September 1 to September 30, 201714,850$3.6914,850$  3,875,050
Total39,872$3.7439,872 
__________________
(1)   The dollar amounts in this column reflect an extension
During the months of April, May and increase of theJune 2019, we purchased common stock pursuant to our Share Repurchase Program approved by the Board of Directors on June 14, 2017 to repurchase up to $5,000,000 shares of common stock over the subsequent 24 month period.
as indicated below:

Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
 
April 1 to April 30, 2019
 
 
26,900
 
2.48
 
26,900
 
$1,254,339
 
May 1 to May 31, 2019
 
 
32,000
 
2.32
 
32,000
 
$1,180,244
 
June 1 to June 30, 2019
 
 
80,948
 
2.35
 
80,948
 
$4,878,350(1)
 
Total
 
 
139,848
 
2.37
 
139,848
 
- 35 -     ________________
(1)Gives effect to the authorization by the Board of Directors of the Company on June 11, 2019 of an extension and increase of the Company's Share Repurchase Program to repurchase up to $5,000,000 of common stock over the next 24 months.

ITEM 3. Defaults Upon Senior Securities.

DEFAULTS UPON SENIOR SECURITIES
None.
 

ITEM 5. Other Information.
4. OTHER INFORMATION
None.
 
 
ITEM 6. Exhibits5. EXHIBITS

   (a) Exhibits

31.1
Controls and Procedure Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2
Controls and Procedure Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101Interactive data files:**
101.INSXBRL Instance Document
101.SCHXBRL Scheme Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase Document
_____________________________
* Filed herewith
**Furnished herewith
 
**              Furnished herewith
- 3642 -
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 NETWORK-1 TECHNOLOGIES, INC. 
   
   
   
    
Date:  NovemberAugust 14, 20172019By:/s/ Corey M. Horowitz 
  Corey M. Horowitz 
  Chairman and Chief Executive Officer 
    
 
 
 
 
  
    
Date:  NovemberAugust 14, 20172019By:/s/ David C. Kahn 
  David C. Kahn 
  Chief Financial Officer 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 3743 -