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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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~~The number of shares of the registrant’s common stock, $.01 par value per share, outstanding as of ~~November 9, 2020~~May 10, 2021 was ~~24,033,076.~~ 24,117,129.

~~PART I. FINANCIAL INFORMATION~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to future performance and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include various risks and uncertainties described below and elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 (on pages 13-22) filed with the SEC on March 31, 2021. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Such risks and uncertainties include, but are not limited to, the following:

our ability to generate further revenue from our Remote Power Patent for the period prior to March 7, 2020 (the expiration of the patent) including achieving a favorable outcome in our trial with Hewlett-Packard scheduled to commence on August 2, 2021;

our ability to achieve future revenue from our Cox patent portfolio, Mirror Worlds patent portfolio and M2M/IoT patent portfolio;

our ability to execute our strategy to acquire or make investments in high quality patents with significant licensing opportunities;

our ability to enter into strategic relationships with third parties to license or otherwise monetize their intellectual property;

the risk that we may be determined to be a personal holding company in 2021 which may result in our issuing a special cash dividend to our stockholders to the extent we have undistributed personal holding company income resulting in less cash available for our operations and strategic transactions;

							March 31,			December 31,
	September 30, 2020			December 31, 2019			2021			2020
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	24,221,000		$	22,587,000		$	24,122,000		$	25,505,000
Marketable securities, at fair value		21,271,000			25,730,000			17,149,000			19,366,000
Royalty receivables, net		—			343,000
Royalty receivables								18,692,000			—
Other current assets		30,000			98,000			88,000			120,000
											��
TOTAL CURRENT ASSETS		45,522,000			48,758,000			60,051,000			44,991,000


OTHER ASSETS:
Deferred tax assets, net								—			954,000
Patents, net of accumulated amortization		1,653,000			1,819,000			1,512,000			1,578,000
Equity investment		3,793,000			4,437,000			3,440,000			3,650,000
Operating leases right-of-use asset		—			41,000
Convertible note investment								1,000,000			—
Security deposits		21,000			21,000			13,000			21,000

Total Other Assets		5,467,000			6,318,000			5,965,000			6,203,000

TOTAL ASSETS	$	50,989,000		$	55,076,000		$	66,016,000		$	51,194,000


LIABILITIES AND STOCKHOLDERS’ EQUITY:

CURRENT LIABILITIES:
Income taxes payable							$	890,000		$	—
Accounts payable	$	70,000		$	421,000			363,000			597,000
Accrued contingency fees and related costs		75,000			492,000			5,422,000			932,000
Accrued payroll		5,000			334,000			941,000			277,000
Operating lease obligations – current		—			41,000
Other accrued expenses		194,000			281,000			164,000			226,000

TOTAL CURRENT LIABILITIES		344,000			1,569,000
Total Current Liabilities								7,780,000			2,032,000

LONG TERM LIABILITIES:
Deferred tax liability								769,000			—

TOTAL LIABILITIES	$	344,000		$	1,569,000		$	8,549,000		$	2,032,000


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Preferred stock, $0.01 par value, authorized 10,000,000 shares;
none issued and outstanding at September 30,2020 and December 31,2019		—			—
none issued and outstanding at March 31, 2021 and December 31, 2020								—			—

Common stock, $0.01 par value; authorized 50,000,000 shares; 24,033,076 and 24,036,071 shares issued and outstanding at September 30,2020 and December 31,2019,respectively		240,000			240,000
Common stock, $0.01 par value; authorized 50,000,000 shares;
24,117,129 and 24,105,879 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively								241,000			241,000

Additional paid-in capital		66,065,000			65,824,000			66,183,000			66,124,000
Accumulated deficit		(15,664,000	)		(12,636,000	)		(8,958,000	)		(17,193,000	)
Accumulated other comprehensive income		4,000			79,000
Accumulated other comprehensive income (loss)								1,000			(10,000	)

TOTAL STOCKHOLDERS’ EQUITY		50,645,000			53,507,000			57,467,000			49,162,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	50,989,000		$	55,076,000		$	66,016,000		$	51,194,000

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

~~The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.~~

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of the unaudited condensed consolidated financial ~~statements~~statements.

The accompanying condensed consolidated financial statements are unaudited, but, in the opinion of the management of Network-1 Technologies, Inc. (the “Company”), contain all adjustments consisting only of normal recurring items which the Company considers necessary for the fair presentation of the Company’s financial position as of ~~September 30, 2020,~~March 31, 2021, and the results of its operations and comprehensive income (loss) for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ changes in stockholders’ equity for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ and its cash flows for the ~~nine~~three month periods ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019.~~March 31, 2020. 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, ~~2019~~2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~20, 2020.~~31, 2021. The results of operations for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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.

The Company is engaged in the development, licensing and protection of its intellectual property assets. The Company presently owns eighty-four (84) 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 actions to be performed based on such identification; and (iv) the 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)~~computers.

Until March 7, 2020, when the ~~QoS patents (the “QoS Patents”) covering systems and methods for~~Remote Power Patent expired, the ~~transmission of audio, video and data over computer and telephony networks in order to achieve high quality of service (QoS). The~~ Company had been actively engaged in licensing its Remote Power Patent (U.S. Patent No. 6,218,930) ~~which expired on~~. As of March 7, ~~2020. As of the expiration date,~~2020, the Company had ~~entered into~~ twenty-seven (27) license agreements with respect to its Remote Power

Patent. ~~The~~As a result of the expiration of the Remote Power Patent, the Company no longer receives licensing revenue for its Remote Power Patent ~~that accrues~~ for any period subsequent to the expiration date (March 7, 2020). Notwithstanding the expiration of the Remote Power Patent, the Company believes that Cisco and certain other licensees are obligated to pay the Company significant royalties related to its Remote Power Patent for periods prior to March 7, 2020 asAs a result of the decision on September 24, 2020 of the U.S. Court of Appeals for the Federal Circuit to overturn the District Court’s ~~order~~judgment of non-infringement that resulted from the Company’s trial with Hewlett-Packard involving the Remote Power Patent, the Company believed that Cisco Systems, Inc. (“Cisco”), the largest licensee of the Remote Power Patent, was obligated to pay the Company royalties that accrued but were not paid beginning in ~~its trial~~the fourth quarter of 2017 through the expiration of the Remote Power Patent. On March 30, 2021, the Company entered into an amendment (the “Amendment”) to the Settlement and License Agreement, dated May 25, 2011, between the Company and Cisco (the “Agreement”). Pursuant to the Amendment, Cisco paid $18,692,000 to the Company in April 2021 to resolve a dispute relating to Cisco’s contractual obligation to pay royalties under the Agreement to the Company for the period beginning in the fourth quarter of 2017 through March 7, 2020 (when the Remote Power Patent expired) with ~~Hewlett-Packard.~~respect to licensing the Remote Power Patent (see Note I[2] hereof). The Company also believes that NETGEAR, Inc. (“Netgear”), another licensee of the Remote Power Patent, is obligated to pay the Company royalties that accrued but were not paid during the same period. The Company has commenced litigation against Netgear (see Note I[5] hereof). In addition, the Company ~~has an opportunity to~~may receive additional revenue ~~from Hewlett-Packard~~ related to its Remote Power Patent from Hewlett-Packard depending upon the outcome of athe new trial ~~with Hewlett-Packard~~scheduled to commence on August 2, 2021 as a result of the Federal Circuit’s decision ~~of the Federal Circuit~~in September 2020 (see ~~below and~~ Note I[1] ~~and Note I[2]~~ hereof). ~~In addition, the Company has two license agreements with respect to its Mirror Worlds Patent Portfolio.~~

The Company’s current strategy includes continuing to pursue licensing opportunities for its intellectual property assets. In addition, the Company continually reviews opportunities to acquire or license additional intellectual property as well as other strategic alternatives. The Company’s patent acquisition and development strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as the Company has achieved with respect to its Remote Power Patent and Mirror Worlds Patent Portfolio. In addition, the Company may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property.

On September 24, 2020, the U.S. Court of Appeals for the Federal Circuit overturned the judgment of non-infringement of the U.S. District Court of the Eastern District of Texas in the Company’s litigation with Hewlett-Packard involving its Remote Power Patent. The Federal Circuit also vacated the District Court judgment of validity of the Remote Power Patent. The Federal Circuit has remanded the case to the District Court for a new trial on infringement against Hewlett-Packard and further proceedings on validity. As a result of the Federal Circuit’s decision to overturn the District Court judgment of non-infringement, the Company believes that Cisco and certain other licensees of the Company’s Remote Power Patent are obligated to pay the Company significant royalties that accrued but were not paid beginning the fourth quarter of 2017 through March 7, 2020 (the expiration of the Remote Power Patent) (see Note I[1] and Note I[2] hereof). There is, however, no certainty that the Company will receive such royalties from Cisco and certain other licensees.

~~Consistent~~ with the Company’s revenue recognition policy (see Note B[4] hereof), the Company did not record revenue for 2018, 2019 and for the three and nine months ended September 30, 2020 from certain licensees, including Cisco, who notified the Company they would not pay the Company ongoing royalties as a result of the Hewlett-Packard jury verdict. The Company disagrees with the position taken by such licensees and may pursue legal proceedings if it does not achieve a satisfactory resolution (see Notes I[1] and I[2] hereof).

~~Summary~~[1]       Use of ~~Significant Accounting Policies~~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 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.

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 ~~September 30, 2020,~~March 31, 2021, the Company maintained a cash balance of ~~$6,772,000~~$4,241,000 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.

The Company’s marketable securities are comprised of certificates of deposit with original maturity greater than three months from date of purchase, fixed income mutual funds, and corporate bonds and ~~notes (see Note F).~~notes. At ~~September 30, 2020,~~March 31, 2021, included in marketable securities, the Company had aggregate certificates of deposit of ~~$8,195,000~~$2,250,000 at financial institutions which were within 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 fixed income mutual funds are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations and comprehensive 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.

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.

~~Note~~ ~~B –~~ ~~Summary of Significant Accounting Policies (continued)~~

~~Revenue disaggregated by source is~~All of the Company’s revenue for the three months ended March 31, 2021 was as ~~follows:~~

~~(1) Includes conversion~~a result of ~~an existing~~resolution of a contractual dispute with a licensee to pay royalties to the Company pursuant to a royalty bearing license ~~to a fully-paid license.~~

~~(2) Includes revenue~~for the Remote Power Patent for the period beginning in the fourth quarter of ~~$4,150,000 from a litigation settlement with Dell, Inc.~~2017 through March 7, 2020 (when the Remote Power Patent expired) (see Note I[5]2] 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”).

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.

~~Note~~ ~~B –~~ ~~Summary of Significant Accounting Policies (continued)~~

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.

The Company recognizes revenue from their Royalty Bearing Licenses in a manner consistent with the legal form of the arrangement, and in accordance with the royalty recognition constraint that applies to licenses of IP for which some or all of the consideration is in the form of sales or usage based royalty. Consequently, the Company recognizes revenue at the later of when (1) the subsequent sale occurs or (2) the performance obligation to which some or all of the sales based royalty has been satisfied.

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.

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.

~~The Company owns patents that relate to various technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance~~[6]       Costs of its acquired patents and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the patents would be capitalized and amortized over the balance of the useful life for the patents.Revenue

The Company includes in costs of revenue for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019~~2020 contingent legal fees payable to patent litigation counsel (see Note G[1] hereof), any other contractual payments to third parties 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 H[1] hereof).

~~Note~~ ~~B –~~ ~~Summary of Significant Accounting Policies (continued)~~

The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes (ASC 740), which requires the Company to use the assets and liability method of accounting for income taxes. Under the assets and liability method, deferred income taxes are recognized for the tax consequences of temporary (timing) differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. ~~As of September 30, 2020 and December 31, 2019, the Company recorded a full valuation allowance against its deferred tax assets due to uncertainty around its ability to generate future net income.~~

ASC 740-10, Accounting for Uncertainty in Income Taxes, defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company had no uncertain tax positions as of March 31, 2021.~~September 30~~

~~, 2020.~~NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

U.S. federal, state and local income tax returns prior to ~~2016~~2017 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. In March 2020, the Company was advised by the Internal Revenue Service that the examination was concluded with no change to the Company’s 2016 federal tax return.

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”~~UPHCI”), 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)~~(1) that more than 50% in value of its outstanding shares must be owned directly or indirectly by 5five or fewer individuals at any time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the “Ownership Test”) and ~~(ii)~~(2) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the “Income Test”). ~~Beginning in July~~During the second half of 2020, based upon available shareholder information and certain assumptions as to the attribution of stock ownership, ~~information,~~ the Company may have satisfied the Ownership Test. ~~As a result,~~In addition, the Company ~~has engaged tax counsel~~may have satisfied the Income Test for 2020. However, the Company did not have UPHCI for 2020 because the Company did not have taxable income as adjusted for purposes of computing UPHCI for 2020. Based on net income of $9,451,000 for the three months ended March 31, 2021, the Company is likely to ~~further evaluate whether~~have UPHCI for 2021 if it ~~has satisfied~~satisfies both the Ownership Test and ~~whether potential future income generated by the Company constitutes “royalties” within the meaning of the~~ Income Test ~~as well as other related PHC issues.~~for 2021. If the Company satisfies the Ownership Test and ~~achieves net income~~the Income Test for ~~the year ended December 31, 2020~~2021, and has UPHCI for 2021 (or ~~for~~in any subsequent year in which the ~~Ownership Test is also satisfied) that~~

~~Note~~ ~~B –~~ ~~Summary of Significant Accounting Policies (continued)~~

~~is determined to satisfy the Income Test, the Company would constitute a PHC and for the year ended December 31, 2020 (and each subsequent year in which the Ownership Test is also~~tests are satisfied), the Company would be subject to a 20% tax on the amount of ~~any PHC Income~~UPHCI that it does not distribute to its shareholders. ~~While~~In the event that the Company is determined to be a Personal Holding Company in 2021 (satisfying both the Ownership Test and Income Test) and the Company has ~~sustained a net loss of $234,000~~UPHCI for ~~the nine month period ended September 30, 2020, it is possible that~~2021, the Company ~~could achieve significant income for the year ended December 31, 2020 in the event of favorable outcomes of pending litigation and receipt of significant revenue including, but not limited~~may issue a special cash dividend to its ~~successful appeal~~shareholders in an amount equal to the ~~U.S. Court of Appeals for~~UPHCI rather than incur the Federal Circuit of the District Court’s order of non-infringement in its trial with HP (see Note I[1] and Note I[2] hereof). If any such net income were achieved for the year ended December 31, 2020 and determined to be PHC Income, it would be subject to a 20% ~~tax on the amount of any PHC Income the Company does not distribute to its shareholders.~~

~~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 condensed consolidated statements of operations and comprehensive loss 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 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 underlying 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 for further discussion of the Company’s stock-based compensation).

The Company reports earnings per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and options to purchase common stock, were exercised and shares were issued pursuant to outstanding restricted stock units. Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share (see Note E).

~~Note~~ [8]~~B –~~ ~~Summary of Significant~~       New Accounting ~~Policies (continued)~~

~~ASC Topic 820, Fair Value Measurement and Disclosures~~, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value.

~~Level 1: Observable inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities.~~

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or 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 supported by little or no market activity; therefore, the inputs 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 similar techniques.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, royalty receivable, other assets, accounts payable, and accrued expenses approximates fair value because of the short-term nature of these 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).~~

An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds 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 to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.

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 September 30, 2020 and 2019, 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 non-recurring basis for impairment and is classified within Level 3 as it is valued using significant unobservable inputs or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity.

~~Cash 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 M hereof).~~

~~Note~~ ~~B –~~ ~~Summary of Significant Accounting Policies (continued)~~

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions for performing intra-period allocation and calculating income taxes in interim periods. It also simplifies the accounting for income taxes by requiring recognition of franchise tax partially based on income as an income-based tax, requiring reflection of enacted changes in tax laws in the interim period and making improvements for income taxes related to employee stock ownership plans. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. ~~Early~~The adoption ~~is permitted, including adoption in any interim period for which financial statements~~of this standard did not have ~~not been issued. The Company is currently evaluating~~a material effect on the ~~impact the standard will have on its~~Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The ASU amends and clarifies certain interactions between the guidance under Topic 321, Topic 323 and Topic 815, by reducing diversity in practice and increasing comparability of the

accounting for these interactions. The amendments in the ASU should be applied on a prospective basis. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact the standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“ASC 820”), Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. On January 1, 2020, the Company adopted ASU 2018-13. The adoption of this standard did not have a material ~~impact~~effect on the Company’s ~~condensed~~ consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in Section B of this Update improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section. Section C of this Update contains Codification improvements that vary in nature. The amendments in this Update should be applied retrospectively. This Update is effective for annual periods beginning after December 15, 2020. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

The Company’s intangible assets at ~~September 30~~March 31, ~~2020~~2021 include patents with estimated remaining economic useful lives ranging from ~~1.00~~0.50 to ~~13.00~~12.50 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 ~~September 30~~March 31, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Gross carrying amount – patents	$	7,847,000		$	7,797,000		$	7,856,000		$	7,848,000
Accumulated amortization – patents		(6,194,000	)		(5,978,000	)		(6,344,000	)		(6,270,000	)
Patents, net	$	1,653,000		$	1,819,000		$	1,512,000		$	1,578,000

Amortization expense for the three months ended ~~September 30~~March 31, ~~2020~~2021 and ~~September 30, 2019~~2020 was $~~72,000~~74,000 and ~~$71,000, respectively. Amortization expense for the nine months ended September 30, 2020 and September 30, 2019, was~~ ~~$216,000~~ ~~and $212,000,~~$72,000, respectively. Future amortization of intangible assets, net is as follows:

The Company’s Remote Power Patent expired on March 7, 2020. All of the patents within the Company’s Mirror Worlds Patent Portfolio have expired. The expiration dates of the patents within the Cox Patent Portfolio range from September 2021 to November 2023. The expiration dates of patents within the Company’s M2M/IoT Patent Portfolio range from September 2033 to May 2034.

During the nine months ended September 30, 2020, the Company issued 15,000 restricted stock units (“RSUs”) to each of its three non-management directors as an annual grant for 2020 for service on the Company’s Board of Directors. The RSUs vest in four equal quarterly installments of 3,750 shares of common stock on March 15, 2020, June 15, 2020, September 15, 2020 and December 15, 2020, subject to continued service on the Board of Directors.

During the nine months ended September 30, 2019, the Company issued 15,000 RSUs to each of its three non-management directors as an annual grant for 2019 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, 2019, June 15, 2019, September 15, 2019 and December 15, 2019.

On July 14, 2020, 125,000 RSUs owned by the Company’s Chairman and Chief Executive Officer vested in accordance with his employment agreement (see Note H[1] hereof), and he delivered 50,563 shares of the Company’s common stock to satisfy withholding taxes resulting in 74,437 net shares issued.

The 2013 Stock Incentive Plan (“2013 Plan”) provides for the grant of any or all of the following types of awards: (a) stock options, (b) restricted stock, (c) deferred stock, (d) stock appreciation rights, and (e) other stock-based awards including restricted stock units. Awards under the 2013 Plan may be granted singly, in combination, or in tandem. Subject to standard anti-dilution adjustments as provided, the 2013 Plan provides for an aggregate of 2,600,000 shares of the Company’s common stock to be available for distribution. The Company’s Compensation Committee generally has the authority to administer the 2013 Plan, determine participants who will be granted awards, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. Awards under the 2013 Plan may be granted to employees, directors and consultants of the Company and its subsidiaries. As of March 31, 2021, there are 1,832,308 shares of common stock available for issuance under the 2013 Plan.

A summary of restricted stock unit activity for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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		Number of Shares			Weighted-Average Grant Date Fair Value
Balance of restricted stock units outstanding at December 31, 2019		340,000		$	2.15
Balance of restricted stock units outstanding at December 31, 2020							162,500		$	2.25
Grants of restricted stock units		45,000			2.30		45,000			3.51
Vested restricted stock units		(158,750	)		2.10		(11,250	)		(3.51	)
Balance of unvested restricted stock units at September 30, 2020		226,250		$	2.22
Balance of unvested restricted stock units at March 31, 2021							196,250		$	2.47

Restricted stock unit compensation expense was ~~$85,000~~$59,000 and ~~$154,000~~$72,000 for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019, respectively. Restricted stock unit compensation expense was $242,000 and $425,000 for the nine months ended September 30, 2020 and September 30, 2019,~~ respectively.

The Company has an aggregate of ~~$85,000~~$232,000 of unrecognized restricted stock unit compensation as of ~~September 30, 2020~~March 31, 2021 to be expensed over a weighted average period of ~~0.57~~1.02 years.

All of the Company’s outstanding (unvested) restricted stock units have dividend equivalent rights. As of ~~September 30, 2020,~~March 31, 2021, there was ~~$68,000~~$63,000 accrued for dividend equivalent rights. As of December 31, ~~2019,~~2020, there was ~~$90,000~~$53,000 accrued for dividend equivalent rights.

There were no stock option grants during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019.~~2020. The following table presents information relating to all stock options outstanding and exercisable at ~~September 30~~March 31, ~~2020:~~2021:

The Company had no recorded stock-based compensation related to stock option grants for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019.~~2020.

The Company had no unrecognized stock-based compensation cost as of ~~September 30, 2020.~~March 31, 2021. The aggregate intrinsic value of stock options exercisable at ~~September 30, 2020~~March 31, 2021 was ~~$730,000.~~$965,000.

~~During the three months ended September 30, 2020 and September 30, 2019, there were no stock option exercises.~~

During the nine months ended September 30, 2020, stock options to purchase an aggregate of 105,000 shares of the Company’s common stock, at an exercise price of $2.34 per share, were exercised on a net exercise (cashless) basis by three non-management directors of the Company. With respect to the aforementioned stock options, net shares of an aggregate of 4,707 shares were delivered to the non-management directors.

During the nine months ended September 30, 2019, stock options to purchase an aggregate of 925,000 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 328,111 net shares (after delivery of shares for withholding taxes) 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 nine months ended September 30, 2019, stock options to purchase an aggregate of 105,000 shares of the Company’s common stock, at an exercise price of $1.65 per share, were exercised on a net exercise (cashless) basis by three non-management directors of the Company. With respect to the aforementioned stock options, 35,884 net shares were issued to the three non-management directors.

Basic earnings (loss) per share is calculated by dividing the net loss by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share data includes the dilutive effects of options, warrants and restricted stock units. ~~Potential~~Potentially dilutive shares of ~~726,250~~696,250 and ~~996,250~~873,750 at ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019,~~ respectively, consisted of options and restricted stock units.

Computations of basic and diluted weighted average common shares outstanding were as follows:

Marketable securities as of March 31, 2021 and December 31, 2020 were composed of:

~~Marketable securities as of~~ ~~September 30, 2020 and December 31, 2019 were composed of:~~

Russ, August & Kabat provides legal services to the Company with respect to its patent litigation filed in May 2017 against Facebook, Inc. in the U.S. District Court for the Southern District of New York relating to several patents within the Company’s Mirror Worlds Patent Portfolio (see Note I[4] hereof). The terms of the Company’s agreement with Russ, August & Kabat provide for cash payments on a monthly basis subject to a cap plus a contingency fee ranging between 15% and 24% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all 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 U.S. District Court for the Southern District of New York relating to certain patents within the Company’s Cox Patent Portfolio (see Note I[3] hereof). The terms of the Company’s agreement with Russ, August & Kabat provide for legal fees on a full contingency basis ranging from 15% to 30% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all of the expenses incurred with respect to this litigation.

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 U.S. District Court for the Eastern District of Texas, Tyler (see Note I[1] hereof). The terms of the Company’s agreement with Dovel & Luner LLP essentially provide for legal fees on a full contingency basis ranging from 12.5% to 35% (with certain exceptions) of the net recovery (after deduction for expenses) depending on the stage of the preceding in which a result (settlement or judgment) is achieved. For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019,~~ the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of ~~$1,385,000~~$-0- and ~~$103,000, respectively. For the nine months ended September 30,~~

~~2020 and September 30, 2019, the Company incurred contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $1,421,000 and $346,000,~~$19,000, respectively. As of ~~September 30, 2020~~March 31, 2021 and for the year ended December 31, ~~2019,~~2020, the Company included in accrued expenses aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of ~~$36,000 and $485,000, respectively.~~$38,000. The Company is responsible for a certain portion of the expenses incurred with respect to the litigation. As of March 31, 2021, the Company had accrued expenses of $887,000 owed to Dovel & Luner, LLP with respect to the litigation.

Dovel & Luner, LLP also provided legal services to the Company with respect to the litigation settled in July 2010 against Cisco and several other major data networking equipment manufacturers (see Note I[2] hereof). The terms of the Company’s agreement with Dovel & Luner, LLP with respect to this litigation provided for legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of 24% (based on the settlement being achieved at the trial stage). With respect to royalty payments received from Cisco in accordance with the Company’s ~~settlement~~Settlement and ~~license agreement~~License Agreement with Cisco, the Company has an obligation to pay Dovel & Luner, LLP (including local counsel) 24% of such royalties received. ~~During~~For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019,~~ the Company ~~did not incur any~~incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $4,485,000 and $-0-, respectively. The Company is responsible for a portion of the expenses incurred with respect to the litigation. As of March 31, 2021, the Company had accrued expenses of $4,490,000 (consisting of contingency fees and costs) owed to Dovel & Luner, LLP with respect to the litigation.

In connection with the Company’s acquisition of its Cox Patent Portfolio, 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 patent portfolio.

As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with Recognition Interface, LLC (“Recognition”) pursuant to which Recogn~~iti~~itioonn 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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019.~~2020.

In connection with the Company’s acquisition of its M2M/IoT Patent Portfolio, the Company is obligated to pay M2M 14% of the first $100 million of net proceeds (after deduction of expenses) and 5% of net proceeds greater than $100 million from Monetization Activities (as defined) related to the patent portfolio. In addition, M2M will be entitled to receive from the Company $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio.

The Company leases its principal office in New York City at a monthly base rate of approximately $3,900 which expired on May 31, 2020 and is currently occupied on a month-to-month basis. The Company also leases office space in New Canaan, Connecticut at a base rent of ~~$7,850~~$7,300 per month which expired on March 31, 2020 and is currently occupied on a month-to-month basis.

Under ASC 842 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.

As of ~~September 30, 2020,~~March 31, 2021, there were no future lease payments included in the measurement of operating lease liabilities on the unaudited condensed consolidated balance sheet as all of the Company’s leases are now on a month-to-month basis. In accordance with ASC 842 and the Company’s policy, the Company does not recognize an operating lease right-of-use asset and associated lease obligation for leases with an initial term of less than 12 months.

[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 (“RSUs”). ~~The Agreement provided for the 750,000~~625,000 of such RSUs ~~to vest in the three tranches,~~vested as ~~follows: (i) 250,000~~of March 31, 2021 and 125,000 RSUs ~~shall~~will vest on July 14, ~~2018,~~2021, subject to the Chairman and Chief Executive Officer’s continued employment by the Company through the vesting date (the “Employment Condition”); (ii) 250,000 RSUs shall vest at any time beginning July 14, 2018 through July 14, 2021 in equal annual installments for the remaining term of employment, subject to (1) the Employment Condition being satisfied through each such annual vesting date and (2) the Company’s common stock achieving a closing price (for 20 consecutive trading days) of a minimum of $3.25 per share (subject to adjustment for stock splits) at any time during the term of employment; and (iii) 250,000 RSUs vest at any time beginning July 14, 2018 through July 14, 2021 in equal annual installments for the remaining term of employment subject to (1) the Employment Condition being satisfied through each such annual vesting date and (2) the Company’s common stock achieving a closing price (for 20 consecutive trading days) of a minimum of $4.25 per share (subject to adjustment for stock splits) at any time during the term of employment. The aforementioned stock price vesting conditions of $3.25 per share and $4.25 per share have been satisfied. Notwithstanding the above, in the event of a Change of Control (as defined), a Termination Other Than for Cause (as defined), or a termination of employment by the Chairman and Chief Executive Officer for Good Reason (as defined), all of the 750,000 RSUs shall accelerate and become immediately fully vested.

Under the terms of the Agreement, so long as the Chairman and Chief Executive Officer continues to serve as an executive officer of the Company, whether pursuant to the Agreement or otherwise, the Chairman and Chief Executive Officer shall also receive incentive compensation in an amount equal to 5% of the Company’s gross royalties or other payments from Licensing Activities (as defined) (without deduction of legal fees or any other expenses) with respect to its Remote Power Patent and a 10% net interest (gross royalties and other payments after deduction of all legal fees and litigation expenses related to licensing, enforcement and sale activities, but in no event shall he receive less than 6.25% of the gross recovery) of the Company’s royalties and other payments relating to Licensing Activities with respect to patents other than the Remote Power Patent (including the Mirror Worlds Patent Portfolio, Cox Patent Portfolio and M2M/IoT Patent

Portfolio) (collectively, the “Incentive Compensation”). During the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019,~~ the Chairman and Chief Executive Officer earned Incentive Compensation of ~~$208,000~~$935,000 and ~~$26,000, respectively. During the nine months ended September 30, 2020 and September 30, 2019, the Chairman and Chief Executive Officer earned incentive compensation $218,000 and $86,000,~~$8,000, respectively. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, $-0-~~2020, $935,000 and ~~$92,000~~$2,000 of such compensation were included in accrued payroll expenses, respectively.

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. On July 14, 2019, 125,000 additional RSUs owned by the Company’s Chairman and Chief Executive Officer vested in accordance with the Agreement. 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. On July 14, 2020, 125,000 additional RSUs owned by the Chairman and Chief Executive Officer vested in accordance with the Agreement and he delivered 50,563 shares of common stock to satisfy withholding taxes resulting in 74,437 net shares issued.

The Incentive Compensation shall continue to be paid to the Chairman and Chief Executive Officer for the life of each of the Company’s patents with respect to licenses entered into with third parties during the term of his employment or at any time thereafter, whether he is employed by the Company or not; provided, that, the Chairman and Chief Executive Officer’s employment has not been terminated by the Company “For Cause” (as defined) or terminated by him without “Good Reason” (as defined). In the event of a merger or sale of substantially all of the assets of the Company, the Company has the option to extinguish the right of the Chairman and Chief Executive Officer to receive future Incentive Compensation by payment to him of a lump sum payment, in an amount equal to the fair market value of such future interest as determined by an independent third party expert if the parties do not reach agreement as to such value. In the event that the Chairman and Chief Executive Officer’s employment is terminated by the Company “Other Than For Cause” (as defined) or by him for “Good Reason” (as defined), the Chairman and Chief Executive Officer shall also be entitled to (i) a lump sum severance payment of 12 months base salary, (ii) a pro-rated portion of the $175,000 target bonus provided bonus criteria have been satisfied on a pro-rated basis through the calendar quarter in which the termination occurs and (iii) accelerated vesting of all unvested options, warrants, RSUs and other awards.

In connection with the Agreement, the Chairman and Chief Executive Officer has also agreed not to compete with the Company as follows: (i) during the term of the Agreement and for a period of 12 months thereafter if his employment is terminated 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 from the termination date, if terminated “For Cause” by the Company or “Without Good Reason” by the Chairman and Chief Executive Officer.

[2] The Company’s Chief Financial Officer serves on an at-will basis at an annual base salary of $175,000 and is eligible to receive incentive or bonus compensation on an annual basis in the discretion of the Company’s Compensation Committee. In the event the Chief Financial Officer’s employment is terminated without “Good Cause” (as defined), he shall receive (i) (a) 6 months base salary or (b) 12 months base salary in the event of a termination without “Good Cause” within

6 months following a “Change of Control” of the Company (as defined) and (ii) accelerated vesting of all remaining unvested shares underlying his options or any other awards he may receive in the future.

[3] The Company’s Executive Vice President serves on an at-will basis at an annual base salary of $200,000 and is eligible to receive incentive or bonus compensation on an annual basis in the discretion of the Company’s Compensation Committee.

[1] In September 2011, the Company initiated patent litigation against sixteen (16) data networking equipment manufacturers (and affiliated entities) in the U.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 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. As of January 2018, the Company reached settlements with fifteen (15) of the sixteen (16) defendants with Hewlett-Packard Company (“HP”) being the sole remaining defendant.

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 HP. On February 2, 2018, the Company moved to throw out the jury verdict and have the Court determine that certain claims of the Remote Power Patent are not obvious (invalid) as a matter of law by filing motions for judgment as a matter of law on validity and a new trial on validity and infringement. 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. On September 24, 2020, the U.S. Court of Appeals for the Federal Circuit overturned the judgment of non-infringement of the U.S. District Court of the Eastern District of Texas. The Federal Circuit also vacated the District Court judgment of validity of the Remote Power Patent. The Federal Circuit has remanded the case to the District Court for a new trial on infringement against HP and further proceedings on validity. On ~~October 9, 2020,~~May 7, 2021, the ~~Company filed~~U.S. District Court for the Eastern District of Texas, Tyler Division, granted the Company’s motion for new trial and denied the Company’s request for judgment as a ~~petition for rehearing to the Federal Circuit to clarify the scope~~matter of law on validity (which will be a part of the ~~Federal Circuit’s remand to~~trial). In addition, the District Court scheduled the trial to commence on validity. On October 14, 2020, Hewlett-Packard filed a petition seeking rehearing of the Federal Circuit’s decision that the Company is entitled to a new trial on infringement. Both Petitions for Rehearing are currently pending.August 2, 2021.

[2]In accordance with the Settlement and License Agreement, dated May 25, 2011, between the Company and Cisco (the “Agreement”), Cisco became obligated 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 ~~$9,000,000~~$9 million beginning in 2016 for the remaining term of the patent. The royalty payments from Cisco ~~are~~were subject to certain conditions including 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 ~~in November 2017 several of the Company’s~~(referenced above), Cisco, our largest ~~licensees, including Cisco, its largest~~ licensee, and Netgear 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. As a

result of the decision on September 24, 2020 of the U.S. Court of Appeals for the Federal Circuit to overturn the District ~~Court~~Court’s judgment of non-infringement in our trial with Hewlett-Packard involving the ~~Company believes that certain licensees of its~~ Remote Power Patent, ~~including~~the Company believed that Cisco ~~are~~was obligated to pay the Company ~~significant~~ royalties that accrued but were not paid beginning in the fourth quarter of 2017 through ~~March 7, 2020 (the~~

the expiration of the Remote Power ~~Patent). There is, however, no certainty that~~Patent. On March 30, 2021, the Company ~~will receive such significant~~entered into an amendment (the “Amendment”) to the Settlement and License Agreement, dated May 25, 2011, between the Company and Cisco (the “Agreement”). Pursuant to the Amendment, Cisco paid $18,692,000 to the Company to resolve a dispute relating to Cisco’s contractual obligation to pay royalties ~~from Cisco and other licensees.~~under the Agreement to the Company for the period beginning in the fourth quarter of 2017 through March 7, 2020 (when the Remote Power Patent expired) with respect to licensing the Remote Power Patent. The Company has commenced litigation against Netgear (see Note I[5] hereof).

[3] On April 4, 2014 and December 3, 2014, the Company initiated litigation against Google Inc. (“Google”) and YouTube, LLC (“YouTube”) in the U.S. District Court for the Southern District of New York for infringement of several of its patents within its Cox Patent Portfolio acquired from Dr. Cox (see Note G[2] hereof) which relate to the identification of media content on the Internet. The lawsuit alleges that Google and YouTube have infringed and continue to infringe certain of the Company’s patents by making, using, selling and offering to sell unlicensed systems and related products and services, which include YouTube’s Content ID system. 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 U.S. District Court for the Southern District of New York in April 2014 and December 2014 against Google and YouTube were subject to court ordered stays which were in effect from July 2, 2015 until January 2, 2019 as a result of proceedings at the Patent Trial and Appeal Board (PTAB) and the appeals of PTAB Final Written Decisions to the U.S Court of Appeals for the Federal Circuit. Pursuant to a Joint Stipulation and Order Regarding Lifting of Stays, entered on January 2, 2019, the parties agreed, among other things, that the stays with respect to the litigations were lifted. In January 2019, the two litigations against Google and YouTube were consolidated. A Markman hearing (claim construction) was held on November 21, 2019 and a ruling has not yet been rendered.

[4]On May 9, 2017, Mirror Worlds Technologies, LLC, the Company’s wholly-owned subsidiary, initiated litigation against Facebook, Inc. (“Facebook”) in the 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). The lawsuit alleged that the asserted patents are infringed by Facebook’s core technologies that enable Facebook’s Newsfeed and Timeline features. The lawsuit further alleged that Facebook’s unauthorized use of the stream-based solutions of the 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. On January 23, 2020, the U.S. Court of Appeals for the Federal Circuit reversed the summary judgment finding of the District Court and remanded the litigation to the Southern District of New York for further proceedings.

[5]On ~~November 13, 2018,~~December 15, 2020, the Company filed a lawsuit against ~~Dell, Inc.~~Netgear in the ~~District~~Supreme Court ~~241st Judicial District, Smith~~of the State of New York, County ~~Texas,~~of New York, for breach of a ~~settlement~~Settlement and ~~license agreement,~~License Agreement, dated ~~August 15, 2016,~~May 22, 2009, with the Company ~~as a result of Dell’s~~for failure to make royalty payments, and provide corresponding royalty reports, to the Company based on sales of ~~Dell’s~~Netgear’s PoE products. ~~The Company alleged that 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.~~ [6] On ~~December~~January 7, ~~2018, Dell filed its Answer and Counterclaim. Dell denied the claims asserted by the Company and asserted a counterclaim in excess of $1,000,000. On December 19, 2019,~~2021, the Company filed a ~~motion~~lawsuit against Plantronics, Inc., the successor entity to Polycom, Inc., in the Supreme Court of the State of California, County of Santa Clara, for ~~summary judgment. On March 25, 2020, the Court granted the Company’s motion for summary judgment on its~~ breach of ~~contract claim~~a Settlement and ~~denied Dell’s motion for summary judgment on its breach of contract claim. On August 7, 2020, Dell paid~~License Agreement, dated September 29, 2016, with the Company ~~$4,150,000 in full settlement~~for the failure of ~~the litigation which~~Plantronics and Polycom to make royalty payments, and provide corresponding royalty reports, to the Company ~~recorded as revenue during the three months ended September 30, 2020.~~ based on sales of PoE products.

During the period December 2018 ~~– August 2019,~~through March 2021, the Company made an aggregate investment of ~~$5,000,000~~$6,000,000 in ILiAD Biotechnologies, LLC (“~~ILiAD,~~ILiAD), a privately held clinical 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 aggregate investment of $6,000,000 by the Company includes a $5,000,000 equity investment and a $1,000,000 investment in a convertible note (see below). At ~~September 30, 2020,~~March 31, 2021, the Company owned approximately 9.5% of the outstanding units of ILiAD on a non-fully diluted basis and ~~8.3%~~7.6% of the outstanding units on a fully diluted basis (after giving effect to the exercise of all outstanding options and warrants). In connection with its investment, the Company’s Chairman and Chief Executive Officer obtained a seat on ILiAD’s Board of Managers and receives the same compensation for service on the Board of Managers as other non-management Board members. 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.

On September 29, 2020, ILiAD presented positive topline Phase 2b trial results of its lead pertussis (whooping cough) vaccine candidate BPZE1 at the virtual World Vaccine Congress. BPZE1 met both primary endpoints of overall safety and induction of mucosal immunity. Specifically, a single vaccination with BPZE1 prevented 90% of colonization by revaccination/challenge three months later (only 10% colonization observed). BPZE1 was differentiated in its ability to demonstrate induction of broad mucosal immunity against whole cell extract (WCE) and pertussis-specific protein antibodies. In addition, BPZE1 induced both IgG and IgA systemic immunity using WCE and pertussis specific protein assays, with durability of response measured to end of study (nine months).

On March 12, 2021, the Company invested an additional $1,000,000 in ILiAD as part of a private offering of up to $23,500,000 of convertible notes (the “Notes”). The Notes have a maturity of three years with interest accruing at 6% per annum. The Notes are required to be converted into a Qualified Financing (minimum financing of $15 million) at the lesser of (i) 80% of the price paid per unit in such offering or (ii) a price based on an enterprise value of $176,000,000. In addition, the Notes shall convert in the event of a merger at the lower of an enterprise value of $176,000,000 or the stated valuation of ILiAD in the merger transaction. In the event of a change-in-control, noteholders will also have the option to have the Notes repaid except in a Qualified Offering or a stock-for-stock merger. The convertible note held by the Company in the principal amount of $1,000,000 has been recorded on the Company’s balance sheet at March 31, 2021 as “Convertible note investment”.

The Company’s investment in ILiAD is accounted for as an equity method investment in accordance with ASC 323, Investments — Equity Method and Joint Venturesas 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. At ~~June 30,~~December 31, 2020, the Company owned approximately 9.5% of the outstanding units of ILiAD on a non-fully diluted basis. For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the Company recorded a net loss from its equity investment in ILiAD totaling ~~$146,000 and $644,000, respectively.~~$210,000.

The difference between the Company’s share of equity in ILiAD’s net assets and the equity investment carrying value reported on the Company’s unaudited condensed consolidated balance sheet at ~~September 30, 2020~~March 31, 2021 is due to an excess amount paid over the book value of the equity investment totaling approximately $5,000,000 which is accounted for as equity method goodwill.

On June 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 $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 September 30, 2020, the Company has repurchased an aggregate of 8,605,659 shares of its common stock at an aggregate cost of $16,156,005 (exclusive of commissions) or an average per share price of $1.88. All such repurchased shares have been cancelled. During the three months ended September 30, 2020, the Company did not repurchase any of its shares. During the nine months ended September 30, 2020, the Company repurchased 115,889 shares of its common stock at an aggregate cost of $249,158 (exclusive of commissions) or an average per share price of $2.15. At September 30, 2020, the dollar value of remaining shares that may be repurchased under the Share Repurchase Program was $4,196,100.

Revenue from the Company’s Remote Power Patent ~~constituted 100% of the Company’s revenue for the three and nine months ended September 30, 2020 and September 30, 2019. Revenue~~ from one licensee constituted 100% of the Company’s revenue for the three months ended ~~September 30, 2020. Revenue from one licensee constituted approximately 95% of the Company’s revenue for the nine months ended September 30, 2020.~~March 31, 2021. Revenue from five licensees constituted approximately ~~93%~~99% of the Company’s revenue for the three months ended ~~September 30, 2019 and revenue from five licensees~~March 31, 2020. At March 31, 2021, one licensee constituted ~~approximately 86%~~100% of the Company’s ~~revenue for the nine months ended September 30, 2019. At September 30,~~royalty receivables and at December 31, 2020 the Company had no royalty receivables. ~~At December 31, 2019, royalty receivables from four licensees constituted in the aggregate approximately 97% of the Company’s royalty receivables.~~

On June 9, 2020, the Board of Directors of the Company approved the continuation of the Company’s dividend policy which consists of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which are anticipated to be paid in March and September of each year. ~~The Company’s dividend policy was previously contingent upon receipt of revenue from its Remote Power Patent through March 7, 2020 (the expiration of the patent).~~ On February ~~15, 2020,~~23, 2021, the Company’s Board of Directors declared a semi-annual cash dividend of $0.05 per share with a payment date of March 31, ~~2020~~2021 to all common shareholders of record as of March 16, 2020. On August 18, 2020, the Company’s Board of Directors declared a semi-annual dividend of $0.05 per share with a payment date of September 30, 2020 to all common shareholders of record as of September 14, 2020.2021. The Company’s dividend policy undergoes a periodic review by the Board of Directors and is subject to change at any time depending upon the Company’s earnings, financial requirements and other factors existing at the time.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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 16-25 OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019 FILED WITH THE SEC ON MARCH 20, 2020, PAGE 36 OF OUR QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2020 FILED WITH THE SEC ON MAY 19, 2020 AND PAGE 38 OF OUR QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 2020 FILED WITH THE SEC ON AUGUST 12, 2020.

Our principal business is the development, licensing and protection of our intellectual property assets. We presently own eighty-four (84) patents including: (i) our remote power patent (“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) our 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) our Cox patent portfolio (the “Cox Patent Portfolio”) relating to enabling technology for identifying media content on the Internet and taking further action to be performed after such identification; (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 patents (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.computers. In addition, we continually review opportunities to acquire or license additional intellectual property as well as other strategic alternatives.

Until March 7, 2020, when the Remote Power Patent expired, we had been actively engaged in the licensing of our Remote Power Patent (U.S. Patent No. 6,218,930) which generated licensing revenue in excess of ~~$151,000,000~~$170,000,000 from May 2007 through ~~September 30, 2020.~~March 31, 2021. As of March 7, 2020, ~~(the expiration of our Remote Power Patent),~~ we had twenty-seven (27) license agreements with respect to our Remote Power Patent which, among others, included license agreements with Cisco, Dell Inc., Extreme Networks, Inc., Netgear, ~~Inc.,~~ Microsemi Corporation, Motorola Solutions, Inc., NEC Corporation, Samsung Electronics Co., Ltd, Huawei Technologies Co., Ltd., ShoreTel, Inc., Juniper Networks, Inc., Polycom, Inc. and Avaya, Inc. As a result of the expiration of our Remote Power Patent, we no longer receive licensing revenue for our Remote Power Patent that accrues for any period subsequent to the expiration date (March 7, 2020). As a result of the decision ~~on September 24, 2020~~ of the U.S. Court of Appeals for the Federal Circuit on September 24, 2020 to overturn the District Court’s judgment of non-infringement inthat resulted from our trial with Hewlett-Packard involving our Remote Power Patent, we ~~believe~~believed that Cisco, ~~and certain other licensees~~the largest licensee of our Remote Power Patent, ~~are~~

was obligated to pay us significant royalties that accrued but were not paid beginning in the fourth quarter of 2017 through the expiration of our Remote Power Patent. ~~The amount of such royalties payable~~On March 30, 2021, we entered into an amendment (the “Amendment”) to the Settlement and License Agreement, dated May 25, 2011, between us and Cisco (the “Agreement”). Pursuant to the Amendment, Cisco agreed to pay $18,692,000 to us to resolve a dispute relating to Cisco’s contractual obligation to pay us royalties under the Agreement for ~~such~~the period ~~depends upon~~beginning in the ~~amount~~fourth quarter of ~~sales~~2017 through March 7, 2020 (when the Remote Power Patent expired) with respect to licensing the Remote Power Patent (see Note I[2] to our consolidated financial statements included in this Quarterly Report). Cisco paid the $18,692,000 to us in April 2021. We also believe that Netgear, another licensee of ~~licensed products by Cisco and other licensees pursuant~~our Remote Power Patent, is obligated to ~~their license agreements with us. There is, however, no certainty~~pay us royalties that ~~we will receive such significant royalties from Cisco and other licensees.~~accrued but were not paid for the same period. We have commenced litigation against Netgear (see I[5] to our consolidated financial statements included herein). In addition, we ~~have an opportunity to achieve~~may receive additional revenue related to our Remote Power Patent from Hewlett-Packard depending upon the outcome of the new trial as a result of the September 24, 2020 decision of the U.S. Court of Appeals for the Federal Circuit ~~decision in September 2020~~ (see Note I[1] ~~and Note I[2] hereof). We have also entered into license agreements with Apple Inc. and Microsoft Corporation with respect~~ to our ~~Mirror Worlds Patent Portfolio.~~unaudited condensed consolidated financial statements included herein).

Consistent with our revenue recognition policy (see Note B[4] of the consolidated financial statements included herein), we did not record revenue beginning in the fourth quarter of 2017 through March 7, 2020 (the expiration of the Remote Power Patent) from Cisco and Netgear who notified us they would not pay us ongoing royalties as a result of the jury verdict of non-infringement in our trial with HP.

Our current strategy includes continuing our licensing efforts with respect to our ~~Cox Patent Portfolio and Mirror Worlds Patent Portfolio as well as further developing our M2M Patent Portfolio (currently 29 issued patents)~~intellectual property assets. In addition, we continue to ~~position it for future licensing efforts.~~seek to acquire additional intellectual property assets to develop, commercialize, license or otherwise monetize. Our strategy includes working with inventors and patent owners to assist in the development and monetization of their patented technologies. We may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property.

Our patent acquisition and development strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as we have achieved with respect to our Remote Power Patent and Mirror Worlds Patent Portfolio. ~~Since our acquisition of Mirror Worlds Patent Portfolio in May 2013, we have received licensing and other revenue from the portfolio of $47,150,000 through September 30, 2020.~~

We have been dependent upon our Remote Power Patent for a significant ~~amount~~portion of our revenue. ~~For~~Our Remote Power Patent has generated licensing revenue in excess of $170,000,000 from May 2007 through March 31, 2021. In addition, revenue for the ~~three~~years ended December 31, 2020, 2019 and ~~nine month periods ended September 30, 2020, 100% and 95% of our revenue was derived~~2018 from ~~a settlement payment from Dell, Inc. in the amount of $4,150,000 relating to~~license agreements for our Remote Power ~~Patent.~~Patent constituted $4,403,000 (100% of our revenue), $3,037,000 (100% of our revenue) and $15,785,000 (71% of our revenue), respectively. As a result of the expiration of our Remote Power Patent on March 7, 2020, we no

longer receive licensing revenue for our Remote Power Patent for any period subsequent to the expiration date. Except for the uncertain revenue from our Remote Power Patent for periods prior to its expiration date from HP, Netgear and Plantronics (successor to Polycom) (see ~~Note~~Notes I[1], I[5] and I[6] to our unaudited condensed consolidated financial statements included herein)., our future revenue will be entirely dependent on our ability to monetize our Mirror Worlds, Cox M2M/IoT patent portfolios as well as any new patents we may acquire.

Our annual and quarterly operating and financial results may fluctuate significantly from period to period as a result of a variety of factors that are outside our control, including the timing and our ability to achieve successful outcomes of patent litigation, our ability and timing of consummating future license agreements for our intellectual property, and whether we will achieve a return on our investment in ILiAD Biotechnologies, LLC (“ILiAD”) and the timing of any such distributions.

At ~~September 30, 2020,~~March 31, 2021, our principal sources of liquidity consisted of cash and cash equivalents and, marketable securities of ~~$45,492,000~~$41,271,000 and working capital of ~~$45,178,000.~~$52,271,000. Based on our current cash position, we 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 opportunities.

As to the impact of the global COVID-19 pandemic on us, COVID-19 is currently causing some delays in the courts including the scheduling of trial dates, which could adversely affect the timing of our consummation of future license agreements (see Item 1A. Risk Factors to our Quarterly Report on Form 10-Q for the three months ended June 30, 2020).

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 Note I[I] to our ~~unaudited condensed~~ consolidated financial statements included herein). Patent litigation is inherently risky and the outcome is uncertain.

~~The Company may~~In 2021 and future years we could be ~~deemed~~classified as a ~~personal holding company for 2020 and possibly in subsequent years.~~Personal Holding Company. If this is the case, ~~the Company~~we would be subject to a 20% tax on the amount of any PHC Income for such year that ~~it does~~we do not distribute to ~~its~~our shareholders. If we are determined to be a Personal Holding Company in 2021 and in 2021 we have undistributed personal holding company income (which generally means taxable income subject to certain adjustments), we will issue a special dividend to our shareholders ~~(see~~rather than incur the 20% tax(see Note B[8] to our ~~unaudited condensed~~ consolidated financial statements included ~~herein)~~in this Quarterly Report).

~~Beginning in~~During the period December 2018 through March 2021, we made an aggregate investment of ~~up to $5,000,000~~$6,000,000 in ILiAD, ~~Biotechnologies, LLC,~~ a clinical stage biotechnology company with an exclusive license to ~~fifty (50)~~fifty-one (51) patents (see Note J to our unaudited condensed consolidated financial statements included herein). Our investment in ILiAD involves significant risk.

As to the impact of the global COVID-19 pandemic on us, COVID-19 has and continues to cause some delays in the courts including the scheduling of trial dates, which could adversely affect the timing of our consummation of future license agreements.

On June 9, 2020, our Board of Directors approved the continuation of our dividend policy consisting of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which are anticipated to be paid in March and September of each year. ~~The Company’s~~On February 23, 2021, our Board of Directors declared a semi-annual cash dividend of $0.05 per share with a payment date of March 31, 2021 to all common shareholders of record as of March 16, 2021. Our dividend policy undergoes a periodic review by our Board of Directors and is subject to change at any time depending upon our financial requirements, earnings and other factors existing at the time (see Note ~~M to our unaudited condensed financial statements included herein).~~

~~Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019~~

~~Revenue~~. We had revenue of $4,150,000 for the three months ended September 30, 2020 as compared to revenue of $520,000 for the three months ended September 30, 2019. The increase in revenue of $3,630,000 for the three months ended September 30, 2020 was due to revenue of $4,150,000 from our litigation settlement with Dell, Inc. (see Note I[5]L to our unaudited condensed consolidated financial statements included herein).

Revenue. We had revenue of $18,692,000 for the three months ended March 31, 2021 as compared to revenue of $161,000 for the three months ended March 31, 2020. The increase in revenue of $18,531,000 for the three months ended March 31, 2021 was due to revenue of $18,692,000 from our resolution of a contractual dispute with Cisco concerning licensing of our Remote Power Patent (see Note I[2] to our unaudited condensed consolidated financial statements included herein).

Operating Expenses. Operating expenses for the three months ended ~~September 30, 2020~~March 31, 2021 were ~~$2,490,000~~$6,421,000 as compared to ~~$1,096,000~~$1,061,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. We had costs of revenue of ~~$1,593,000~~$5,420,000 and ~~$138,000~~$32,000 for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~ respectively. Included in the costs of revenue for the three months ended ~~September 30, 2020~~March 31, 2021 were contingent legal fees of $4,485,000 and ~~expenses of $1,385,000 and $208,000~~$935,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note HH[1] to our unaudited condensed consolidated financial statements included herein). Included in the costs of revenue for the three months ended ~~September 30, 2019~~March 31, 2020 were contingent legal fees of $24,000 and ~~expenses of $112,000 and $26,000~~$8,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement.

General and administrative expenses were ~~$473,000~~$513,000 for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~$466,000~~$486,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. Amortization of patents was ~~$72,000~~$74,000 for three months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~$71,000~~$72,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. Stock-based compensation expense related to the issuance of restricted stock units was ~~$85,000~~$59,000 for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~$154,000~~$72,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. Professional fees and related costs were ~~$267,000~~$355,000 for the three months ended ~~September 30, 2020 and September 30, 2019.~~March 31, 2021 as compared to $399,000 for the three months ended March 31, 2020.

Operating Income (Loss). We had operating income of ~~$1,660,000~~$12,271,000 for the three months ended ~~September 30, 2020~~March 31, 2021 compared with an operating loss of ~~$576,000~~$900,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. The increased operating income of ~~$2,236,000~~$13,171,000 for the three months ended ~~September 30, 2020~~March 31, 2021 was primarily due to revenue of ~~$4,150,000~~$18,692,000 from the resolution of our ~~settlement~~contractual dispute with ~~Dell.~~Cisco.

Interest and Dividend Income. Interest and dividend income for the three months ended ~~September 30, 2020~~March 31, 2021 decreased ~~to $105,000~~$128,000 from ~~$270,000~~$178,000 for the three months ended ~~September 30, 2019~~March 31, 2020 to $50,000 for the three months ended March 31, 2021 primarily as a result of ~~lower interest rates on short-term fixed~~a change in the mix of our short term fix income ~~investments.~~investments and cash equivalents.

Income Taxes ~~(Benefit)~~. For the three months ended ~~September 30, 2020,~~March 31, 2021, we had a current tax expense for federal, state and local income taxes of ~~$355,000~~$890,000 and a deferred tax ~~benefit~~expense of ~~$(355,000).~~$1,724,000. For the three months ended ~~September 30, 2019,~~March 31, 2020, we had ano deferred tax ~~expense~~ for federal, state and local income taxes as a result of ~~$67,000~~a full allowance for the deferred tax asset and ano current tax benefit ~~of $(197,000).~~for federal, state and local taxes.

Share of Net Losses of Equity Method Investee. We incurred a net loss of ~~$146,000~~$210,000 during the three month period ended ~~September 30, 2020~~March 31, 2021 related to our equity share in ILiAD Biotechnologies as compared to a net loss of ~~$196,000~~$293,000 for the three months ended ~~September 30, 2019~~March 31, 2020 (see Note J to our unaudited condensed consolidated financial statements included herein).

Net Income (Loss). As a result of the foregoing, we realized net income of ~~$1,687,000~~$9,451,000 or ~~$0.07~~$0.39 per share basic and $0.38 diluted for the three months ended March 31, 2021 compared with a net loss of $1,337,000 or $(0.06) per share basic and diluted for the three months ended ~~September 30, 2020 compared with a~~March 31, 2020. The increased net ~~loss~~income of ~~$411,000 or $(0.02) per share basic and diluted~~$10,788,000 for the three months ended ~~September 30, 2019. The increased net income~~March 31, 2021 was primarily due to $18,692,000 of ~~$2,098,000 for~~revenue from the resolution of our contractual dispute with Cisco during the three months ended ~~September 30, 2020 was primarily due to $4,150,000 of revenue from our settlement with Dell for the three months ended September 30, 2020.~~

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019~~

~~Revenue~~. We had revenue of $4,366,000 for the nine months ended September 30, 2020 as compared to revenue of $1,725,000 for the nine months ended September 30, 2019. The increase in revenue of $2,641,000 for the nine months ended September 30, 2020 was due to revenue of $4,150,000 from our settlement with DellMarch 31, 2021 (see Note I[5]2] to our unaudited condensed consolidated financial statements included herein).

~~Operating Expenses~~. Operating expenses for the nine months ended September 30, 2020 were $4,311,000 as compared to $3,350,000 for the nine months ended September 30, 2019. We had costs of revenue of $1,645,000 and $459,000 for the nine months ended September 30, 2020 and 2019, respectively. Included in the costs of revenue for the nine months ended September 30, 2020 were contingent legal fees and expenses of $1,427,000 and $218,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H to our unaudited condensed consolidated financial statements included herein). Included in the costs of revenue for the nine months ended September 30, 2019 were contingent legal fees and expenses of $373,000 and $86,000 of incentive bonus compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement.

General and administrative expenses were $1,418,000 for the nine months ended September 30, 2020 as compared to $1,442,000 for the nine months ended September 30, 2019. Amortization of patents was $216,000 for nine months ended September 30, 2020 as compared to $212,000 for the nine months ended September 30, 2020. Stock-based compensation expense related to the issuance of restricted stock units was $242,000 for the nine months ended September 30, 2020 as compared to $425,000 for the nine months ended September 30, 2019. Professional fees and related costs were $790,000 for the nine months ended September 30, 2020 as compared to $812,000 for the nine months ended September 30, 2019.

~~Operating Income (Loss)~~. We had operating income of $55,000 for the nine months ended September 30, 2020 compared with an operating loss of $1,625,000 for the nine months ended September 30, 2019. The increased operating income of $1,680,000 for the nine months ended September 30, 2020 was primarily due to revenue of $4,150,000 from our settlement with Dell for the nine months ended September 30, 2020.

~~Interest and Dividend Income~~. Interest and dividend income for the nine months ended September 30, 2020 was $403,000 as compared to interest and dividend income of $872,000 for the nine months ended September 30, 2019 primarily as a result of lower interest rates on short-term fixed income investments.

~~Income Taxes (Benefit)~~. For the nine months ended September 30, 2020, we had a deferred tax benefit for federal, state and local income taxes of $79,000 and a current tax benefit of $(79,000). For the nine months ended September 30, 2019, we had a deferred tax benefit for federal state and local income taxes of $(36,000) and a current tax benefit of $(197,000).

~~Share of Net Losses of Equity Method Investee~~. We incurred a net loss of $644,000 during the nine month period ended September 30, 2020 related to our equity share in ILiAD Biotechnologies as compared to a net loss of $345,000 for the nine months ended September 30, 2019 (see Note J to our unaudited condensed consolidated financial statements included herein).

~~Net Loss~~. As a result of the foregoing, we realized a net loss of $234,000 or $(0.01) per share basic and diluted for the nine months ended September 30, 2020 compared with a net loss of $859,000 or $(0.04) per share basic and diluted for the nine months ended September 30, 2019. The decreased net loss of $625,000 for the nine months ended September 30, 2020 was primarily due to revenue of $4,150,000 from our settlement with Dell for the nine months ended September 30, 2020.

We have financed our operations primarily from revenue from licensing our patents. At ~~September 30, 2020,~~March 31, 2021, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of ~~$45,492,000~~$41,271,000 and working capital of ~~$45,178,000.~~$52,271,000. Based on our current cash position, we believe that we will have sufficient cash to fund our operations for the foreseeable future.

Working capital ~~decreased~~increased by ~~$2,011,000~~$9,312,000 at ~~September 30, 2020~~March 31, 2021 to ~~$45,178,000~~$52,271,000 as compared to working capital of ~~$47,189,000~~$42,959,000 at December 31, ~~2019.~~2020. The ~~decrease~~increase in working capital of ~~$2,011,000~~$9,312,000 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was primarily due to ~~a decrease~~net income of $9,451,000.

Net cash used in ~~cash and cash equivalents and marketable securities~~operating activities for the three months ended March 31, 2021 increased by $163,000 from $1,538,000 for the three months ended March 31, 2020 to $1,375,000 for the three months ended March 31, 2021 primarily due to revenue of ~~$2,825,000 offset by a decrease~~$18,692,000 from resolution of ~~current liabilities of $1,225,000 including decreases in accounts payable of $351,000, accrued contingency fees and related costs of $417,000 and accrued payroll of $329,000.~~our contractual dispute with Cisco during the three months ended March 31, 2021.

Net cash provided by (used in) operating activities for the nine months ended September 30, 2020 increased by $1,495,000 from $(1,388,000) for the nine months ended September 30, 2019 to $107,000 for the nine months ended September 30, 2020 primarily due to revenue of $4,150,000 from our settlement with Dell for the nine months ended September 30, 2020.

~~Net cash provided by (used in)~~ investing activities during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$4,344,000~~$1,198,000 as compared to ~~$(2,410,000)~~$6,910,000 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily as a result of the differential of purchases and sales of marketable securities and our ~~additional equity~~$1,000,000 convertible note investment ~~of $2,500,000~~ in ILiAD Biotechnologies ~~for the nine months ended September 30, 2019.~~(see Note J to our unaudited condensed consolidated financial statements included herein).

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 was $1,206,000 and ~~2019 was $2,817,000 and $3,228,000,~~$1,365,000, respectively. The change of ~~$411,000~~$159,000 primarily resulted from ~~a decrease of $390,000 in the value of shares delivered to fund withholding taxes and a decrease of $157,000 in~~no repurchases of our common stock for the ~~nine~~three months ended ~~September 30, 2020 which was offset by proceeds from exercises~~March 31, 2021 compared to $154,000 of ~~options~~repurchases of ~~$107,000 during~~our common stock for the ~~nine months~~three month period ended ~~September 30, 2019.~~March 31, 2020.

We maintain our cash in money market funds, certificates of deposit and short-term fixed income securities. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.

We do not have any long-term debt, capital lease obligations, purchase obligations or other long-term liabilities.

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements included in this Quarterly Report on Form 10-Q requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of our unaudited condensed consolidated financial statements include revenue recognition, ~~patents, stock-based compensation,~~contingent legal fees and related expenses, income taxes, valuation of patents and equity method investments, including the evaluation of the Company’s basis difference. Actual results could be materially different from those estimates, upon which the carrying values were based. See also Note B to our unaudited condensed consolidated financial statements included in this quarterly report.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“ASC 820”), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. On January 1, 2020, the Company adopted ASU 1028-13. The adoption of this standard did not have a material impact on its consolidated financial statements.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes~~. The ASU removes certain exceptions for performing intra-period allocation and calculating income taxes in interim periods. It also simplifies the accounting for income taxes by requiring recognition of franchise tax partially based on income as an income-based tax, requiring reflection of enacted changes in tax laws in the interim period and making improvements for income taxes related to employee stock ownership plans. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. We are currently evaluating the impact the standard will have on its consolidated financial statements.

~~Equity Securities~~We believe our most critical accounting policies to be the following:

Under ASC 606, revenue is recognized when we complete the ~~FASB issued ASU 2020-01,~~ ~~Investments – Equity Securities (Topic 321), Investments – Equity Method~~licensing of our intellectual property to our licensees, in an amount that reflects the consideration we expect to be entitled to in exchange for licensing our intellectual property. Revenue from our patent licensing business is generated from negotiated license agreements. The timing and ~~Joint Ventures (Topic 323),~~amount of revenue recognized from each licensee depends upon a variety of factors, including the terms of each agreement and ~~Derivatives and Hedging (Topic 815).~~ ~~The ASU amends and clarifies certain interactions between~~ the ~~guidance under Topic 321, Topic 323 and Topic 815, by reducing diversity in practice and increasing comparability~~nature of the ~~accounting for these interactions. The amendments~~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 ~~ASU should be applied on~~event of settlement of litigation related to our assertion of patent infringement involving our intellectual property, defendants will either pay (i) a ~~prospective basis. The ASU is effective~~non-refundable lump sum payment for ~~fiscal years beginning after December 15, 2020,~~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”).

We recognize revenue from our Royalty Bearing Licenses in a manner consistent with the legal form of the arrangement, and ~~interim periods within those fiscal years. Early adoption is permitted, including early adoption~~ in ~~an interim period~~accordance with the royalty recognition constraint that applies to licenses of IP for which ~~financial statements~~some or all of the consideration is in the form of sales or usage based royalty. Consequently, we recognize revenue at the later of when (1) the subsequent sale occurs or (2) the performance obligation to which some or all of the sales based royalty has been satisfied.

Fully-Paid Licenses provide for a non-refundable up-front payment, for which we have ~~not yet~~no future obligations or performance requirements, revenue is generally recognized when we have obtained the signed license agreement, all performance obligations have been ~~issued.~~ 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.

We ~~are currently evaluating~~include in costs of revenue for the ~~impact the standard will have on~~three months ended March 31, 2021 and 2020 contingent legal fees payable to patent litigation counsel, any other contractual payments to third parties related to net proceeds from settlements (see Note G[2] hereof) and incentive bonus compensation payable to its ~~consolidated financial statements.~~Chairman and Chief Executive Officer.

We do not believe ~~other~~ recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated financial position, statements of operations and cash ~~flows.~~flows (see Note B to our unaudited condensed financial statements included herein).

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.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended ~~September 30, 2020~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During the three months ended ~~September 30, 2020,~~March 31, 2021, the following material events occurred with respect to certain of our legal proceedings:

On ~~July 28, 2020,~~January 7, 2021, we ~~reached~~filed a ~~settlement with Dell,~~lawsuit against Plantronics, Inc. ~~(“Dell”) in our litigation~~, the successor entity to Polycom, Inc., in the ~~District~~Supreme Court ~~241~~^st ~~Judicial District, Smith~~of the State of California, County ~~Texas~~of Santa Clara, for breach of a Settlement and License Agreement, dated ~~August 15,~~September 29, 2016, ~~related to Dell’s~~with us for the failure of Plantronics and Polycom to make royalty payments, and provide corresponding royalty reports, to ~~us. Dell paid~~ us ~~$4,150,000 in full settlement~~based on sales of ~~the litigation.~~PoE products.

On ~~September 24, 2020, the U.S. Court of Appeals for the Federal Circuit ruled in our favor on our appeal by overturning the judgment of non-infringement of~~May 7, 2021, the U.S. District Court offor the Eastern District of Texas, inTyler Division, granted our ~~litigation with Hewlett-Packard involving~~motion for new trial and denied our ~~Remote Power Patent. The Federal Circuit also vacated~~request for judgment as a matter of law on validity (which will be part of the trial). In addition, the District Court ~~judgment of validity of our Remote Power Patent. The Federal Circuit has remanded~~scheduled the ~~case~~trial to ~~the District Court for a new trial~~commence on ~~infringement against Hewlett-Packard and further proceedings on validity.~~August 6, 2021.

On October 9, 2020, we filed a petition for rehearing to the Federal Circuit to clarify the scope of the Federal Circuit’s remand to the District Court on validity. On October 14, 2020, Hewlett-Packard filed a petition seeking rehearing of the Federal Circuit’s decision that we are entitled to a new trial on infringement. Both Petitions for Rehearing are currently pending.

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~~Investors should carefully consider the risks described ~~below and elsewhere~~ in this Quarterly Report on Form 10-Q for the three months ended March 31, 2021 including, but not limited to, the risk described below, and our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (pages ~~16-27)~~13-22), filed with the SEC on March ~~20, 2020,~~31, 2021.

If we are determined to be a personal holding company in 2021 and have undistributed personal holding company income, we may issue a special cash dividend to our shareholders and will have less cash available for our operations and strategic transactions.

If we are determined to be a personal holding company in 2021 and have undistributed personal holding company income (see Note B[8] to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form ~~10-Q~~10-Q), we may issue a special cash dividend to our shareholders in the full amount of undistributed personal holding company income (which means, in general, taxable income subject to certain adjustments) rather than incur an additional 20% tax on such income. Such a special cash dividend would mean that we will have less cash available for ~~the three months ended March 31, 2020 (page 36) filed with the SEC on May 19, 2020~~our operations and our Quarterly Report on Form 10-Q for the three months ended June 30, 2020 (page 36) filed with the SEC on August 12, 2020 include a discussion of our risk factors and should be carefully considered by investors.strategic transactions.

There were no such issuances during the three months ended ~~September 30, 2020.~~March 31, 2021.

On August 22, 2011, we established a share repurchase program (“Share Repurchase Program”). On June 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 24 month 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 ~~September 30, 2020,~~March 31, 2021, we have repurchased an aggregate of 8,605,659 shares of our common stock at an aggregate cost of $16,156,005 (exclusive of commissions) or an average per share price of $1.88. During the three months ended ~~September 30, 2020,~~March 31, 2021, we did not repurchase any of our shares of common stock. At ~~September 30, 2020,~~March 31, 2021, the remaining dollar value of shares that may be repurchased under the Share Repurchase Program was $4,196,100.

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.

Delaware		11-3027591
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

445 Park Avenue, Suite 912 New York, New York		10022
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NTIP	NYSE American

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☒

Emerging growth company ☐




		Page No.
PART I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	34

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	45

	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	56

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2823

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3429

Item 4.	Controls and Procedures	3429


PART II. Other Information

Item 1.	Legal Proceedings	3429

Item 1A.	Risk Factors	3530

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3530

Item 3.	Defaults Upon Senior Securities	3630

Item 4.	Other Information	3630

Item 5.	Exhibits	3631

Signatures		3732

	Three Months Ended March 31,
	2021			2020

REVENUE	$	18,692,000		$	161,000

OPERATING EXPENSES:
Costs of revenue		5,420,000			32,000
Professional fees and related costs		355,000			399,000
General and administrative		513,000			486,000
Amortization of patents		74,000			72,000
Stock-based compensation		59,000			72,000

TOTAL OPERATING EXPENSES		6,421,000			1,061,000

OPERATING INCOME (LOSS)		12,271,000			(900,000	)

OTHER INCOME (LOSS):
Interest and dividend income, net		50,000			178,000
Net realized and unrealized gain (loss) on marketable securities		(46,000	)		(322,000	)
Total other income (loss), net		4,000			(144,000	)

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSSES OF EQUITY METHOD INVESTEE		12,275,000			(1,044,000	)

INCOME TAXES PROVISION:
Current		890,000			—
Deferred taxes, net		1,724,000			—
Total income taxes provision		2,614,000			—

INCOME (LOSS) BEFORE SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE:	$	9,661,000		$	(1,044,000	)

SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE	$	(210,000	)	$	(293,000	)

NET INCOME (LOSS)	$	9,451,000		$	(1,337,000	)

Net Income (Loss) Per Share
Basic	$	0.39		$	(0.06	)
Diluted	$	0.38		$	(0.06	)

Weighted average common shares outstanding:
Basic		24,107,879			24,029,513
Diluted		24,616,379			24,029,513

Cash dividends declared per share	$	0.05		$	0.05

NET INCOME (LOSS)	$	9,451,000		$	(1,337,000	)

OTHER COMPREHENSIVE INCOME (LOSS)

Net unrealized holding gain (loss) on corporate bonds and notes during the period, net of tax		11,000			(163,000	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			(20,000	)
Net other comprehensive income (loss)		11,000			(183,000	)

COMPREHENSIVE INCOME (LOSS)	$	9,462,000		$	(1,520,000	)

	Three Months Ended September 30,						��	Nine Months Ended September 30,
	2020			2019				2020			2019

REVENUE	$	4,150,000		$	520,000			$	4,366,000		$	1,725,000

OPERATING EXPENSES:
Costs of revenue		1,593,000			138,000				1,645,000			459,000
Professional fees and related costs		267,000			267,000				790,000			812,000
General and administrative		473,000			466,000				1,418,000			1,442,000
Amortization of patents		72,000			71,000				216,000			212,000
Stock-based compensation		85,000			154,000				242,000			425,000

TOTAL OPERATING EXPENSES		2,490,000			1,096,000				4,311,000			3,350,000

OPERATING INCOME (LOSS)		1,660,000			(576,000	)			55,000			(1,625,000	)

OTHER INCOME (LOSS):
Interest and dividend income, net		105,000			270,000				403,000			872,000
Net realized and unrealized gain (loss) on marketable securities		68,000			(39,000	)			(48,000	)		6,000
Total other income, net		173,000			231,000				355,000			878,000

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSSES OF EQUITY METHOD INVESTEE		1,833,000			(345,000	)			410,000			(747,000	)

INCOME TAXES PROVISION (BENEFIT):
Current		355,000			(197,000	)			(79,000	)		(197,000	)
Deferred taxes, net		(355,000	)		67,000				79,000			(36,000	)
Total income taxes (benefit)		—			(130,000	)			—			(233,000	)

INCOME (LOSS) BEFORE SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE:	$	1,833,000		$	(215,000	)		$	410,000		$	(514,000	)

SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE	$	(146,000	)	$	(196,000	)		$	(644,000	)	$	(345,000	)

NET INCOME (LOSS)	$	1,687,000		$	(411,000	)		$	(234,000	)	$	(859,000	)

Net Income (loss) per share
Basic	$	0.07		$	(0.02	)		$	(0.01	)	$	(0.04	)
Diluted	$	0.07		$	(0.02	)		$	(0.01	)	$	(0.04	)

Weighted average common shares outstanding:
Basic		24,012,333			24,138,191				23,992,203			23,935,304
Diluted		24,521,708			24,138,191				23,992,203			23,935,304

Cash dividends declared per share	$	0.05		$	0.05			$	0.10		$	0.10

NET INCOME (LOSS)	$	1,687,000		$	(411,000	)		$	(234,000	)	$	(859,000	)

OTHER COMPREHENSIVE INCOME (LOSS) Net unrealized holding gain (loss) on corporate bonds and notes arising during the period, net of tax		(67,000	)		20,000				(75,000	)		183,000

COMPREHENSIVE INCOME (LOSS)	$	1,620,000		$	(391,000	)		$	(309,000	)	$	(676,000	)

	Common Stock						Additional						Accumulated Other			Total
	Shares			Amount			Paid-in Capital			Accumulated Deficit			Comprehensive Income (Loss)			Stockholders’ Equity
Balance – December 31, 2019		24,036,071		$	240,000		$	65,824,000		$	(12,636,000	)	$	79,000		$	53,507,000
Dividends and dividend equivalents declared		—			—			—			(1,221,000	)		—			(1,221,000	)
Stock-based compensation		—			—			72,000			—			—			72,000
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		(100,293	)		(1,000	)		—			—			—			(1,000	)
Treasury stock purchased and retired		(72,300	)		(1,000	)		—			(153,000	)		—			(154,000	)
Net unrealized loss on corporate bonds and notes		—			—			—			—			(183,000	)		(183,000	)
Net loss		—			—			—			(1,337,000	)		—			(1,337,000	)
Balance – March 31, 2020		23,979,728		$	239,000		$	65,896,000		$	(15,347,000	)	$	(104,000	)	$	50,684,000
Stock-based compensation		—			—			85,000			—			—			85,000
Vesting of restricted stock units		11,250			—			—			—			—			—
Treasury stock purchased and retired		(43,589	)		—			—			(98,000	)		—			(98,000	)
Net unrealized gain on corporate bonds and notes		—		��	—			—			—			175,000			175,000
Net loss		—			—			—			(584,000	)		—			(584,000	)
Balance – June 30, 2020		23,947,389		$	239,000		$	65,981,000		$	(16,029,000	)	$	71,000		$	50,262,000
Dividends and dividend equivalents declared		—			—			—			(1,213,000	)		—			(1,213,000	)
Stock-based compensation		—			—			85,000			—			—			85,000
Vesting of restricted stock units		136,250			1,000			(1,000	)		—			—			—
Value of shares delivered to pay withholding taxes		(50,563	)		—			—			(109,000	)		—			(109,000	)
Net unrealized loss on corporate bonds and notes		—			—			—			—			(67,000	)		(67,000	)
Net income		—			—			—			1,687,000			—			1,687,000
Balance – September 30, 2020		24,033,076		$	240,000		$	66,065,000		$	(15,664,000	)	$	4,000		$	50,645,000

	Common Stock				Additional					Accumulated Other			Total
					Paid-in		Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance – December 31, 2020		24,105,879	$	241,000	$	66,124,000	$	(17,193,000	)	$	(10,000	)	$	49,162,000
Dividends and dividend equivalents declared		—		—		—		(1,216,000	)		—			(1,216,000	)
Stock-based compensation		—		—		59,000		—			—			59,000
Vesting of restricted stock units		11,250		—		—		—			—			—
Net other comprehensive gain		—		—		—		—			11,000			11,000
Net income		—		—		—		9,451,000			—			9,451,000
Balance – March 31, 2021		24,117,129	$	241,000	$	66,183,000	$	(8,958,000	)	$	1,000		$	57,467,000

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Fully-Paid - Licenses	$	―		$	―	$	―		$	130,000	(1)
Royalty Bearing - Licenses		4,150,000	(2)		520,000		4,366,000	(2)		1,595,000
Total Revenue	$	4,150,000		$	520,000	$	4,366,000		$	1,725,000

Twelve Months Ended September 30,
	2021	$	293,000
	2022		293,000
	2023		282,000
	2024		83,000
	2025 and thereafter		702,000
	Total	$	1,653,000

Twelve Months Ended March 31,
	2022	$	294,000
	2023		294,000
	2024		230,000
	2025		83,000
	2026 and thereafter		611,000
	Total	$	1,512,000

Options Outstanding	Weighted Average Exercise Price	Weighted Average Remaining Life in Years	Options Exercisable
500,000	$1.19	2.09	500,000

	March 31, 2021
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposit	$	2,279,000	$	—	$	(7,000	)	$	2,272,000
Fixed income mutual funds		11,377,000		—		(16,000	)		11,361,000
Corporate bonds and notes		3,515,000		1,000		—			3,516,000
Total marketable securities	$	17,171,000	$	1,000	$	(23,000	)	$	17,149,000

	September 30, 2020
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposit	$	8,282,000	$	22,000	$	—		$	8,304,000
Fixed income mutual funds		9,616,000		—		(24,000	)		9,592,000
Corporate bonds and notes		3,371,000		26,000		(22,000	)		3,375,000
Total marketable securities	$	21,269,000	$	48,000	$	(46,000	)	$	21,271,000

	NETWORK-1 TECHNOLOGIES, INC.

Date:    ~~November 12, 2020~~May 17, 2021	By:	/s/ Corey M. Horowitz
		Corey M. Horowitz Chairman and Chief Executive Officer