Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Document And Entity Information | ' |
Entity Registrant Name | 'NETWORK 1 TECHNOLOGIES INC |
Entity Central Index Key | '0001065078 |
Document Type | 'POS AM |
Document Period End Date | 31-Dec-13 |
Amendment Flag | 'false |
Current Fiscal Year End Date | '--12-31 |
Is Entity a Well-known Seasoned Issuer | 'No |
Is Entity a Voluntary Filer | 'No |
Is Entity's Reporting Status Current | 'Yes |
Entity Filer Category | 'Smaller Reporting Company |
Entity Common Stock, Shares Outstanding | 25,854,548 |
Entity Public Float | $0 |
Document Fiscal Period Focus | 'FY |
Document Fiscal Year Focus | '2013 |
Balance_Sheets
Balance Sheets (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
CURRENT ASSETS: | ' | ' |
Cash and cash equivalents | $18,938,000 | $21,983,000 |
Marketable securities | 530,000 | 547,000 |
Royalty receivables | 814,000 | 775,000 |
Other current assets | 276,000 | 222,000 |
Total Current Assets | 20,558,000 | 23,527,000 |
OTHER ASSETS: | ' | ' |
Deferred tax asset | 5,659,000 | 6,194,000 |
Patent, net of accumulated amortization | 5,136,000 | 65,000 |
Other Investments | 196,000 | ' |
Security deposits | 19,000 | 19,000 |
Total Other Assets | 11,010,000 | 6,278,000 |
TOTAL ASSETS | 31,568,000 | 29,805,000 |
CURRENT LIABILITIES: | ' | ' |
Accounts payable | 136,000 | 232,000 |
Accrued expenses | 628,000 | 593,000 |
TOTAL LIABILITIES | 764,000 | 825,000 |
COMMITMENTS AND CONTINGENCIES | ' | ' |
STOCKHOLDERS' EQUITY | ' | ' |
Common stock, $0.01 par value; authorized 50,000,000 shares; 25,854,548 and 25,392,269 issued and outstanding at December 31, 2013 and December 31, 2012, respectively | 259,000 | 254,000 |
Additional paid-in capital | 61,129,000 | 58,046,000 |
Accumulated deficit | -30,553,000 | -29,306,000 |
Other comprehensive income (loss) | -31,000 | -14,000 |
TOTAL STOCKHOLDERS' EQUITY | 30,804,000 | 28,980,000 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $31,568,000 | $29,805,000 |
Balance_Sheets_Parenthetical
Balance Sheets (Parenthetical) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Balance Sheets Parenthetical | ' | ' |
Common stock, par value | $0.01 | $0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 25,854,548 | 25,392,269 |
Common stock, shares outstanding | 25,854,548 | 25,392,269 |
Statements_of_Income_and_Compr
Statements of Income and Comprehensive Income (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Statements Of Income And Comprehensive Income | ' | ' |
ROYALTY REVENUE | $8,017,000 | $8,698,000 |
COST OF REVENUE | 2,359,000 | 2,602,000 |
GROSS PROFIT | 5,658,000 | 6,096,000 |
OPERATING EXPENSES: | ' | ' |
General and administrative | 2,735,000 | 2,438,000 |
Amortization of Patents | 1,008,000 | 9,000 |
Non-cash compensation | 390,000 | 316,000 |
TOTAL OPERATING EXPENSES | 4,133,000 | 2,763,000 |
OPERATING INCOME | 1,525,000 | 3,333,000 |
OTHER INCOME (EXPENSES): | ' | ' |
Interest income, net | 36,000 | 39,000 |
INCOME BEFORE INCOME TAXES | 1,561,000 | 3,372,000 |
INCOME TAXES (BENEFIT) | ' | ' |
Current | 10,000 | 37,000 |
Deferred | 535,000 | 709,000 |
Total Income Taxes (Benefits) | 545,000 | 746,000 |
NET INCOME | 1,016,000 | 2,626,000 |
Net Income per share | ' | ' |
Basic | $0.04 | $0.10 |
Diluted | $0.04 | $0.09 |
Weighted average number of common shares outstanding: | ' | ' |
Basic | 25,589,238 | 25,744,330 |
Diluted | 27,954,685 | 28,472,753 |
NET INCOME | 1,016,000 | 2,626,000 |
OTHER COMPREHENSIVE INCOME NET OF TAX: | ' | ' |
Unrealized gain (loss) arising during the period | -17,000 | -9,000 |
COMPREHENSIVE INCOME | $999,000 | $2,617,000 |
Statement_Of_Changes_In_Stockh
Statement Of Changes In Stockholders' Equity (USD $) | Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Accumulated Other Comprehensive Income | Total |
Balance at Dec. 31, 2011 | $250,000 | $57,728,000 | ($30,575,000) | ($5,000) | $27,398,000 |
Balance, shares at Dec. 31, 2011 | 25,037,518 | ' | ' | ' | ' |
Granting of options | ' | 316,000 | ' | ' | 316,000 |
Proceeds from exercise of options and warrants | 14,000 | 2,000 | ' | ' | 16,000 |
Proceeds from exercise of options and warrants, shares | 1,441,268 | ' | ' | ' | ' |
Value of shares delivered to fund withholding taxes | -3,000 | ' | -484,000 | ' | -487,000 |
Value of shares delivered to fund withholding taxes, shares | -350,160 | ' | ' | ' | ' |
Treasury stock purchased and retired | -7,000 | ' | -873,000 | ' | -880,000 |
Treasury stock purchased and retired, shares | -736,357 | ' | ' | ' | ' |
Unrealized gain (loss) on bonds | ' | ' | ' | -9,000 | -9,000 |
Net income | ' | ' | 2,626,000 | ' | 2,626,000 |
Balance at Dec. 31, 2012 | 254,000 | 58,046,000 | -29,306,000 | -14,000 | 28,980,000 |
Balance, shares at Dec. 31, 2012 | 25,392,269 | ' | ' | ' | ' |
Granting of options | ' | 390,000 | ' | ' | 390,000 |
Proceeds from exercise of options and warrants | 16,000 | 1,081,000 | ' | ' | 1,097,000 |
Proceeds from exercise of options and warrants, shares | 1,581,142 | ' | ' | ' | ' |
Shares and warrants issued in connection with patent acquisitions | 4,000 | 1,612,000 | ' | ' | 1,616,000 |
Shares and warrants issued in connection with patent acquisitions, shares | 403,226 | ' | ' | ' | ' |
Value of shares delivered to fund withholding taxes | -4,000 | ' | -777,000 | ' | -781,000 |
Value of shares delivered to fund withholding taxes, shares | -435,216 | ' | ' | ' | ' |
Treasury stock purchased and retired | -11,000 | ' | -1,486,000 | ' | -1,497,000 |
Treasury stock purchased and retired, shares | -1,086,872 | ' | ' | ' | ' |
Unrealized gain (loss) on bonds | ' | ' | ' | -17,000 | -17,000 |
Net income | ' | ' | 1,016,000 | ' | 1,016,000 |
Balance at Dec. 31, 2013 | $259,000 | $61,129,000 | ($30,553,000) | ($31,000) | $30,804,000 |
Balance, shares at Dec. 31, 2013 | 25,854,549 | ' | ' | ' | ' |
Statements_of_Cash_Flows
Statements of Cash Flows (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net Income | $1,016,000 | $2,626,000 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ' | ' |
Amortization of Patents | 1,008,000 | 9,000 |
Stock based compensation | 390,000 | 316,000 |
Non-cash royalty revenue | -70,000 | ' |
Source (use) of cash from changes in operating assets and liabilities: | ' | ' |
Royalty receivables | -39,000 | -15,000 |
Other current assets | -54,000 | -16,000 |
Deferred tax asset | 535,000 | 709,000 |
Accounts payable and accrued expenses | -61,000 | -956,000 |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 2,725,000 | 2,673,000 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Purchase of patents and other assets | -4,463,000 | ' |
Investments | -126,000 | ' |
NET CASH USED IN INVESTING ACTIVITIES | -4,589,000 | ' |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Value of shares delivered to fund withholding taxes | -781,000 | -487,000 |
Repurchase of treasury stock | -1,497,000 | -880,000 |
Proceeds from exercises of options and warrants | 1,097,000 | 16,000 |
NET CASH (USED IN) FINANCING ACTIVITIES | -1,181,000 | -1,351,000 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | -3,045,000 | 1,322,000 |
CASH AND CASH EQUIVALENTS, Beginning | 21,983,000 | 20,661,000 |
CASH AND CASH EQUIVALENTS, Ending | 18,938,000 | 21,983,000 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ' | ' |
Cash paid during the years for Interest | ' | ' |
Cash paid during the years for Taxes | 352,000 | 266,000 |
NON-CASH INVESTING AND FINANCING ACTIVITIES | ' | ' |
Value of shares and warrants issued to purchase patents | $1,616,000 | ' |
THE_COMPANY
THE COMPANY | 12 Months Ended |
Dec. 31, 2013 | |
Company | ' |
THE COMPANY | ' |
Network-1 Technologies, Inc. (the “Company”) is engaged in the development, licensing and protection of its intellectual property assets. The Company presently owns twenty-two (22) patents that relate to various technologies including patents covering (i) 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) foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system; (iii) enabling technology for identifying media content on the Internet and taking further action to be performed based on such identification including, among others, the insertion of advertising and the facilitation of the purchase of goods and services related to such content; and (iv) systems and methods for the transmission of audio, video and data over computer and telephony networks in order to achieve high quality of service (QoS). The Company’s strategy is to pursue licensing and strategic alliances with companies in industries that manufacture and sell products that make use of the technologies underlying the Company’s intellectual property as well as with other users of the technologies who benefit directly from the technologies including corporate entities and educational institutions. The Company has been actively engaged in licensing its remote power patent (U.S. Patent No. 6,218,930) covering the control of power delivery over Ethernet cables (the “Remote Power Patent”). The Company has entered into sixteen (16) license agreements with respect to its Remote Power Patent. The Company’s current strategy includes continuing to pursue licensing opportunities for its Remote Power Patent and efforts to monetize two patent portfolios (the Cox and Mirror Worlds patent portfolios) acquired by the Company in 2013 (See Note D[2] hereof). The Company continually reviews opportunities to acquire or license additional intellectual property. In addition, the Company may enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property. | |
The accompanying financial statements include the accounts of the Company and its wholly owned subsidiary, Mirror Worlds Technologies, LLC (a single member LLC). |
SUMMARY_OF_SIGNIFICANT_ACCOUNT
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended | ||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||
Summary Of Significant Accounting Policies | ' | ||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' | ||||||||||||||||
[1] | Cash and cash equivalents: | ||||||||||||||||
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. | |||||||||||||||||
Cash and cash equivalents as of December 31 are composed of: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Cash | $ | 1,903,000 | $ | 1,444,000 | |||||||||||||
Money market fund | 17,035,000 | 20,539,000 | |||||||||||||||
Total | $ | 18,938,000 | $ | 21,983,000 | |||||||||||||
[2] | Marketable securities | ||||||||||||||||
Marketable securities are classified as available-for-sale and are recorded as fair market value. Unrealized gain and losses are reported as other comprehensive income. Realized gains and losses are included in income in the period they are realized. The Company's marketable securities consist of a corporate bond (face value $500,000) with a 5% coupon and a maturity date of June 2015. | |||||||||||||||||
[3] | Revenue recognition: | ||||||||||||||||
The Company recognizes revenue received from the licensing of its intellectual property in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB No. 104") and related authoritative pronouncements. Under this guidance, revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been performed pursuant to the terms of the license agreement, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured. One licensee (Cisco Systems, Inc. and affiliate) constituted approximately 77% of the Company’s revenue for each of the years ended December 31, 2013 and 2012. | |||||||||||||||||
[4] | Patents: | ||||||||||||||||
The Company owns patents that relate to various computing, telecommunications and data networking and Internet related technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of the patents and amortizes these assets over their remaining useful lives, ranging from three (3) years to fifteen (15) years, on a straight-line basis. | |||||||||||||||||
[5] | Impairment of long-lived assets: | ||||||||||||||||
Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Accordingly, the Company records impairment losses on long-lived assets used in operations or expected to be disposed of when indicators of impairment exist and the undiscounted cash flows expected to be derived from those assets are less than carrying amounts of those assets. At December 31, 2013 and 2012, there was no impairment to the Company's patents. | |||||||||||||||||
[6] | Income taxes: | ||||||||||||||||
The Company utilizes the liability method of accounting for income taxes. Under such method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect at the balance sheet date. The resulting asset or liability is adjusted to reflect enacted changes in tax law. Deferred tax assets are reduced, if necessary, by a valuation allowance when the likelihood of realization is not assured. | |||||||||||||||||
[7] | Earnings (Loss) Per Share | ||||||||||||||||
Basic Earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of outstanding common shares during the period. Diluted per share data included the dilutive effects of options, warrants and convertible securities. Potential shares of 6,782,500 and 5,832,500 at December 31, 2013 and 2012, respectively, consisted of options and warrants. Computations of basic and diluted weighted average common shares outstanding are as follows: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Weighted-average common shares outstanding - basic | 25,589,238 | 25,744,330 | |||||||||||||||
Dilutive effect of options and warrants | 2,365,447 | _2,728,423 | |||||||||||||||
Weighted-average common shares outstanding - diluted | 27,954,685 | 28,472,753 | |||||||||||||||
Options and Warrants excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive | 4,417,053 | 3,104,077 | |||||||||||||||
[8] | Use of estimates: | ||||||||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 period. Actual results could differ from those estimates. | |||||||||||||||||
[9] | Financial instruments: | ||||||||||||||||
The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses approximate their fair value due to the short period to maturity of these instruments. The investment in a corporate bond is reported at the closing price reported on the active market on which the bond is traded. | |||||||||||||||||
[10] | Stock-based compensation: | ||||||||||||||||
The Company accounts for its stock-based compensation at fair value estimated on the grant date using the Black-Scholes option pricing model. See Note C[1] for further discussion of the Company’s stock-based compensation. | |||||||||||||||||
[11] | Allowance for Doubtful Accounts: | ||||||||||||||||
The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to their expected net realizable value. There was no allowance for doubtful accounts at December 31, 2013 and 2012. | |||||||||||||||||
[12] | Fair Value Measurements: | ||||||||||||||||
Accounting Standard Codification (“ASC”) Topic 820 (“ASC 820”) utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: | |||||||||||||||||
● | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; | ||||||||||||||||
● | Level 2: Inputs other than quoted prices that are observable for the asset or liability, 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; and | ||||||||||||||||
● | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. | ||||||||||||||||
The Company’s financial assets subject to fair value measurements and the necessary disclosures are as follows: | |||||||||||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2013 Using Fair Value Hierarchy | ||||||||||||||||
31, 2013 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 18,938,000 | $ | 18,938,000 | $ | — | $ | — | |||||||||
Corporate bond | 530,000 | — | 530,000 | ||||||||||||||
Total | $ | 19,468,000 | $ | 18,938,000 | $ | 530,000 | $ | — | |||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2012 Using Fair Value Hierarchy | ||||||||||||||||
31, 2012 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 21,983,000 | $ | 21,983,000 | $ | — | $ | — | |||||||||
Corporate bond | 547,000 | — | 547,000 | ||||||||||||||
Total | $ | 22,530,000 | $ | 21,983,000 | $ | 547,000 | $ | — | |||||||||
[13] | Subsequent event evaluation: | ||||||||||||||||
The Company has evaluated subsequent events from the balance sheet date through the issuance date of the financial statements and has determined that there are no such events that would have a material impact on the financial statements. | |||||||||||||||||
[14] | Recently issued accounting standards: | ||||||||||||||||
In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operation Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU No. 2013-11 is a new accounting standard on the financial statement presentation of unrecognized tax benefits. The new standard provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new standard becomes effective for the Company on January 1, 2014 and will be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. Adoption of the guidance will not have a material impact on the Company’s financial statements. | |||||||||||||||||
In February 2013, the FASB issued updated guidance that amends the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”). These amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, either on the face of the financial statement where net income is presented or in the notes to the financial statements. This guidance is effective for fiscal periods beginning after December 15, 2012, and is to be applied prospectively. The Company complied with this guidance as of January 1, 2013, and the adoption of the guidance has not had a material impact on the Company’s financial statements. | |||||||||||||||||
[15] | INVESTMENT IN LIFESTREAMS | ||||||||||||||||
In May 2013, as part of the acquisition of the Mirror Worlds patent portfolio (See Note D[2] hereof), the Company acquired from Mirror Worlds, LLC 250,000 shares of common stock of Lifestreams Technologies Corporation (“Lifestreams”), a company engaged in the development of next generation applications and methodologies designed to organize and display digital data. In addition, in July 2013 the Company made an additional investment of $50,000 in Lifestreams as part of a financing and received 123,456 shares of Series A preferred stock and, as part of an amended license agreement between the Company’s subsidiary and Lifestreams, the Company received a warrant to purchase 7.5% of the then outstanding shares of common stock of Lifestreams on a fully diluted basis (post-financing). The warrant is valued at $70,000 based on the Black-Scholes option model and recorded as non-cash royalty income. Since the investment in Lifestreams does not have a readily determinable fair value, such investment was recorded utilizing the cost-method. At December 31, 2013, the Company’s investment in Lifestreams consists of the following: | |||||||||||||||||
Number of | Value | ||||||||||||||||
Shares | |||||||||||||||||
Common Stock | 250,000 | $ | 76,000 | ||||||||||||||
Series A Preferred Stock | 123,456 | 50,000 | |||||||||||||||
Warrants | 1,305,000 | 70,000 | |||||||||||||||
$ | 196,000 | ||||||||||||||||
STOCKHOLDERS_EQUITY
STOCKHOLDERS' EQUITY | 12 Months Ended | |||||||||||||||||||||
Dec. 31, 2013 | ||||||||||||||||||||||
Stockholders Equity | ' | |||||||||||||||||||||
STOCKHOLDERS' EQUITY | ' | |||||||||||||||||||||
[1] | Stock options: | |||||||||||||||||||||
On October 9, 2013, the Company’s 2013 Stock Incentive Plan (“2013 Plan”) was approved by the Company’s stockholders (previously approved by the Company’s Board of Directors on August 7, 2013). The 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. Awards under the 2013 Plan may be granted singly, in combination, or in tandem. Subject to standard anti-dilution adjustments as provided in the 2013 Plan, the 2013 Plan provides for an aggregate of 2,600,000 shares of the Company’s common stock to be available for distribution pursuant to the 2013 Plan. The Compensation Committee will generally have the authority to administer the 2013 Plan, determine participants who will be granted awards under the 2013 Plan, 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. | ||||||||||||||||||||||
During 1996, the Board of Directors and stockholders approved the adoption of the 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan, as amended, provided for the granting of both incentive and non-qualified options to purchase common stock of the Company. A total of 4,000,000 were eligible to be issued under the 1996 Plan. As of March 2006, in accordance with the terms of the plan, no further options were eligible to be issued under the Plan. | ||||||||||||||||||||||
At December 31, 2013, no awards had been made under the 2013 Stock Incentive Plan, options to purchase 417,500 shares were outstanding under the 1996 Plan and options to purchase 3,865,000 shares of common stock were outstanding representing option grants outside of the 2013 Plan and the 1996 Plan. | ||||||||||||||||||||||
The fair value of options on the date of grant is estimated using the Black-Scholes option-pricing model utilizing the following weighted average assumptions: | ||||||||||||||||||||||
Year Ended | ||||||||||||||||||||||
December 31, | ||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Risk-free interest rates | 0.78% - 1.24% | 0.71% - 1.75% | ||||||||||||||||||||
Expected option life in years | 5 years | 5 years – 10 years | ||||||||||||||||||||
Expected stock price volatility | 43.54% - 44.31% | 43.54% - 45.86% | ||||||||||||||||||||
Expected dividend yield | 0.00% | 0.00% | ||||||||||||||||||||
The weighted average fair value of the options, on the option grant date during the years ended December 31, 2013 and 2012 was $0.68 and $0.59 per share, respectively. | ||||||||||||||||||||||
The following table summarizes stock option activity for the years ended December 31: | ||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||
Average | Average | |||||||||||||||||||||
Options | Exercise | Options | Exercise | |||||||||||||||||||
Outstanding | Price | Outstanding | Price | |||||||||||||||||||
Options outstanding at beginning of year | 5,582,500 | $ | 0.78 | 7,208,070 | $ | 0.69 | ||||||||||||||||
Granted | 400,000 | $ | 1.71 | 925,000 | $ | 1.24 | ||||||||||||||||
Cancelled/expired/exercised | (1,700,000 | ) | $ | 0.67 | (2,550,570 | ) | $ | 0.66 | ||||||||||||||
Options outstanding at end of year | 4,282,500 | $ | 0.91 | 5,582,500 | $ | 0.78 | ||||||||||||||||
Options exercisable at end of year | 3,790,834 | $ | 0.84 | 4,826,250 | $ | 0.71 | ||||||||||||||||
During the years ended December 31, 2013 and 2012, the Company granted stock options to purchase an aggregate of 400,000 and 925,000 shares of its common stock, respectively, to its officers, directors and consultants. The fair value of these options based on the Black-Scholes option-pricing model amounted to $271,000 and $549,000, respectively, for the 2013 and 2012 grants. The Company recorded non-cash compensation of $123,000 and $141,000 for the vesting portion of these options for the years ended December 31, 2013 and 2012, respectively. The Company also recognized non-cash compensation of $265,000 and $157,000 in 2013 and 2012, respectively, for the options that were granted in prior years but vested in 2013 and 2012. | ||||||||||||||||||||||
During the year ended December 31, 2013, options to purchase an aggregate of 1,402,500 shares of the Company’s common stock were exercised (primarily on a cashless or net exercise basis) at prices ranging from $0.54 per share to $1.35 per share, resulting in cash proceeds to the Company of $72,000. As most of these options were exercised on a cashless (net exercise) basis, an aggregate of 679,401 net shares of common stock were issued. In addition, during the year ended December 31, 2013 an aggregate of 381,741 shares were delivered by the Company’s Chief Executive and Executive Vice President with a value of $690,000 to fund payroll withholding taxes on exercise. | ||||||||||||||||||||||
During the year ended December 31, 2012, options to purchase an aggregate of 2,478,070 shares of the Company's common stock were exercised at prices of between $0.14 and $0.68 per share, for total cash proceeds to the Company of $16,000. As most of these options were exercised on a cashless (net exercise) basis, 962,537 shares of common stock were issued. In addition, during the year ended December 31, 2012 an aggregate of 350,100 shares were delivered by the Company’ Chief Executive Officer with a value of $486,000 to fund payroll withholding taxes on exercise. | ||||||||||||||||||||||
The following table presents information relating to all stock options outstanding and exercisable at December 31, 2013: | ||||||||||||||||||||||
Weighted | ||||||||||||||||||||||
Weighted | Average | Weighted | ||||||||||||||||||||
Range of | Average | Remaining | Average | |||||||||||||||||||
Exercise | Options | Exercise | Life in | Options | Exercise | |||||||||||||||||
Price | Outstanding | Price | Years | Exercisable | Price | |||||||||||||||||
$0.25 - $1.88 | 4,282,500 | $ | 0.91 | 3.3 | 3,790,834 | $ | 0.84 | |||||||||||||||
[2] | Warrants: | |||||||||||||||||||||
As of December 31, 2013, the following are the outstanding warrants to purchase shares of the Company's common stock: | ||||||||||||||||||||||
Number of | Exercise | |||||||||||||||||||||
Warrants | Price | Expiration Date | ||||||||||||||||||||
1,125,000 | $ | 2.1 | May 21, 2018 | |||||||||||||||||||
1,125,000 | $ | 1.4 | May 21, 2018 | |||||||||||||||||||
125,000 | $ | 2.1 | July 26, 2018 | |||||||||||||||||||
125,000 | $ | 1.4 | July 26, 2018 | |||||||||||||||||||
2,500,000 | ||||||||||||||||||||||
The outstanding warrants at December 31, 2013 pertain to 5-year warrants issued in connection with the Company’s (through Mirror Worlds Technologies, LLC, its wholly owned subsidiary) purchase of the patent portfolio owned by Mirror Worlds, LLC in May 2013 (See Note D[2]). Such warrants include warrants to purchase an aggregate of 1,750,000 shares of common stock (875,000 shares at $2.10 per share and 875,000 shares at $1.40 per share) owned by Looking Glass LLC (formerly Mirror Worlds, LLC) and warrants to purchase an aggregate of 750,000 shares (375,000 shares at $2.10 per share and 375,000 shares at $1.40 per share) owned by Recognition Interface, LLC. | ||||||||||||||||||||||
On October 7, 2013, warrants to purchase 250,000 shares of the Company’s common stock were exercised (on a cashless basis) by the Company’s Chairman and Chief Executive Officer and 53,475 shares were delivered to satisfy withholding taxes (with a value of $91,000) which resulted in a net issuance of 96,525 shares of common stock. | ||||||||||||||||||||||
On July 22, 2013, warrants, issued in connection with the Company’s purchase of the patent portfolio of Mirror Worlds, LLC (described above), to purchase an aggregate of 500,000 shares of common stock were exercised by Abacus & Associates, Inc., at a price of $2.05 per share or aggregate proceeds to the Company of $1,025,000 (see Note D[2]). | ||||||||||||||||||||||
During the year ended December 31, 2012, warrants to purchase an aggregate of 300,000 shares of the Company's common stock were exercised (on a cashless basis) by an affiliated entity of the Company’s Chairman and Chief Executive Officer, which resulted in a net issuance of 128,572 shares of common stock. |
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended | |
Dec. 31, 2013 | ||
Commitments And Contingencies | ' | |
NOTE D - COMMITMENTS AND CONTINGENCIES | ' | |
[1] | Legal fees: | |
Dovel & Luner, LLP provides legal services to the Company with respect to its patent litigation commenced in May 2013 against Apple, Inc., Microsoft, Inc. and other major vendors of document system software and computer systems in the United States District Court of Texas, Tyler Division for infringement of U.S. Patent No. 6,006,227. The terms of the Company’s agreement with Dovel & Luner LLP provide for legal fees on a contingency basis ranging from 25% to 40% of the net recovery (after deduction of expenses) depending upon the stage of proceeding in which a result (settlement or judgment) is achieved, subject to certain agreed upon contingency fee caps depending upon the amount of the net recovery. The Company is responsible for a certain portion of the expenses incurred with respect to the litigation. | ||
Dovel & Luner, LLP provides legal services to the Company with respect to the Company’s pending patent litigation filed in September 2011 against sixteen (16) data networking equipment manufacturers in the United States District Court for the Eastern District of Texas, Tyler (see Note I[2]). The terms of the Company’s agreement with Dovel & Luner LLP essentially provides 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 year ended December 31, 2013 and December 31, 2012, the Company incurred legal fees and expenses of $206,000 and $344,000, respectively, with respect to the litigation. | ||
Dovel & Luner, LLP provided legal services to the Company with respect to the Company’s patent litigation settled in July 2010 against several major data networking equipment manufacturers. (see Note I[3]). The terms of the Company’s agreement with Dovel & Luner, LLP provided for legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of up to 24% (based on the settlement being achieved at the trial stage) including legal fees of local counsel in Texas. With respect to royalty payments payable quarterly by Cisco in accordance with the Company’s settlement and license agreement with Cisco (See Note I[3]),the Company has an obligation to pay Dovel & Luner 24% of such royalties received after expenses). During the years ended December 31, 2013 and 2012, total contingency fees incurred to Dovel & Luner, LLP (including local counsel) approximated $1,611,000 and $1,726,000, respectively. | ||
With respect to the Company’s litigation against D-Link, which was settled in May 2007, the Company utilized the services of Blank Rome, LLP, on a full contingency basis. In accordance with the Company’s contingency fee agreement with Blank Rome LLP, once the Company recovers its expenses related to the litigation (which was recovered in the first quarter of 2013), the Company is obligated to pay legal fees to Blank Rome LLP equal to 25% of the royalty revenue received by the Company from its license agreement with D-Link. During the year ended December 31, 2013, the Company incurred legal fees to Blank Rome of $41,000. | ||
[2] | Patent Acquisitions: | |
On February 28, 2013, the Company completed the acquisition of four (4) patents (as well as a pending patent application) from Dr. Ingemar Cox, a technology leader in digital watermarking content identification, digital rights management and related technologies, for a purchase price of $1,000,000 in cash and 403,226 shares of the Company’s common stock. In addition, the Company is obligated to pay Dr. Cox 12.5% of the net proceeds (after deduction of expenses) generated by the Company from licensing, sale or enforcement of the patents. Since the acquisition of the patent portfolio from Dr. Cox, the Company has filed seven (7) additional related patent applications with the United States Patent and Trademark Office seeking patent protection based upon the original patent application filed in 2000. Professional fees and filing fees of $169,000 were capitalized as patent cost. | ||
On May 21, 2013, the Company’s newly formed subsidiary, Mirror Worlds Technologies, LLC, acquired all of the patents previously owned by Mirror Worlds, LLC (which subsequently changed its name to Looking Glass LLC), consisting of nine (9) issued United States patents and five (5) pending applications covering foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system. As consideration for the patent acquisition, the Company paid Mirror Worlds, LLC $3,000,000 in cash and issued 5-year warrants to purchase an aggregate of 1,750,000 shares of the Company’s common stock (875,000 shares of common stock at an exercise price of $1.40 per share and 875,000 shares of common stock at an exercise price of $2.10 per share). As part of the acquisition, the Company also entered into an agreement with Recognition Interface, LLC (“Recognition”), an entity that financed the commercialization of the patent portfolio prior to its sale to Mirror Worlds, LLC and also retained an interest in the licensing proceeds of the patent portfolio held by Mirror Worlds, LLC. Pursuant to the terms of the Company’s agreement with Recognition, Recognition received (i) 5-year warrants to purchase 250,000 shares of the Company’s common stock at $1.40 per share, and (ii) 5-year warrants to purchase 250,000 shares of common stock at $2.10 per share. Recognition also received from the Company an interest in the net proceeds realized from the monetization of the 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. In addition, Abacus and Associates, Inc. (“Abacus”), an investment entity affiliated with Recognition, received a 60-day warrant to purchase 500,000 shares of the Company’s common stock at $2.05 per share. In accordance with the Company’s agreement with Recognition, as a result of the exercise of the 60-day warrant by Abacus in July 2013, additional 5-year warrants to purchase an aggregate of 250,000 shares (125,000 shares at an exercise price of $2.10 per share and 125,000 shares at an exercise price of $1.40 per share) of the Company’s common stock were issued to Recognition. Professional fees and filing fees of $409,000 were capitalized as patent cost. | ||
[3] | Amended Patent Purchase Agreement: | |
On January 18, 2005, the Company and Merlot Communications, Inc., the successor of which is BAXL Technologies, Inc. (the “Seller”), amended the Patent Purchase Agreement originally entered into in November 2003 (the "Amendment") pursuant to which the Company paid an additional purchase price of $500,000 to Seller for the restructuring of future contingent payments to Seller from the licensing or sale of the patents (including the Remote Power Patent and the QoS family of patents). The Amendment provided for future contingent payments by the Company to Seller of $1.0 million upon achievement of $25 million of Net Royalties (as defined) which payment was accrued in 2011 and subsequently paid, an additional contingency payment of $1.0 million upon achievement of $50 million of Net Royalties and an additional contingency payment of $500,000 upon achievement of $62.5 million of Net Royalties from the licensing or sale of the patents acquired from Seller. | ||
[4] | Services agreement: | |
On November 30, 2004, the Company entered into a master services agreement (the "Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which ThinkFire has been granted the exclusive worldwide rights (except for direct efforts by the Company and related companies) to negotiate license agreements for the Remote Power Patent with respect to certain potential licensees agreed to between the parties. Either the Company or ThinkFire can terminate the Agreement upon 60 days' notice for any reason or upon 30 days' notice in the event of a material breach. The Company agreed to pay ThinkFire a fee not to exceed 20% of the royalty payments received from license agreements consummated by ThinkFire on its behalf after the Company recovers its expenses. For the years ended December 31, 2013 and December 31, 2012, fees incurred to ThinkFire amounted to $104,000 and $97,000, respectively. | ||
[5] | Operating leases: | |
The Company leases its principal office space in New York City at a monthly base rent of approximately $3,600 which lease expires in November 2014. | ||
On June 16, 2011, the Company entered into a four-year lease agreement commencing July 18, 2011 to rent office space, consisting of approximately 2,400 square feet, for offices in New Canaan, Connecticut. In accordance with the lease, the Company pays a base rent of $6,400 per month for the first two years, $6,800 per month for the third year and $7,000 per month for the fourth year. The base rent is subject to | ||
annual adjustments to reflect increases in real estate taxes and operating expenses. The Company also entered into a one year sublease (which expired July 2012) at a base rent of $3,700 per month to sublet approximately 50% of the space to a third party. | ||
On May 15, 2014, Mirror Worlds Technologies, LLC, the Company’s wholly owned subsidiary, entered into a one year lease, at a base rent of $620 per month, to rent office space consisting of approximately 420 square feet in Tyler, Texas. On January 7, 2014, the lease was renewed for a fifteen (15) month period expiring on April 30, 2015. | ||
Rental expense for the years ended December 31, 2013 and 2012 aggregated $132,000 and $99,000, respectively, net of sublease income of $26,000 in the year ended December 31, 2012. | ||
[6] | Savings and investment plan: | |
The Company has a Savings and Investment Plan which allows participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code of 1986. The Company also may make discretionary annual matching contributions in amounts determined by the Board of Directors, subject to statutory limits. The 401(k) Plan expense for the years ended December 31, 2013 and 2012 was $33,500 and $33,000, respectively. |
INCOME_TAXES
INCOME TAXES | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Taxes | ' | ||||||||
NOTE E - INCOME TAXES | ' | ||||||||
At December 31, 2013, the Company had net operating loss carryforwards (NOLs) totaling approximately $25,239,000 expiring through 2029, with a future tax benefit of approximately $8,581,000. At December 31, 2013 and 2012, $5,659,000 and $6,194,000, respectively, was recorded as a deferred tax asset on the Company’s balance sheet. During the year ended December 31, 2013, as a result of income (before taxes) for the year of $1,561,000, $545,000 was recorded as income tax expense and the deferred tax asset was reduced by $535,000 to $5,659,000. To the extent that the Company earns income in the future, the Company will report income tax expense and such expense attributable to federal income taxes will reduce the recorded income tax asset reflected on the balance sheet. Management will continue to evaluate the recoverability of the NOL and adjust the deferred tax asset appropriately. Utilization of NOL credit carryforwards can be subject to a substantial annual limitation due to ownership change limitations that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. | |||||||||
The principal components of the net deferred tax assets are as follows: | |||||||||
Year Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforwards | $ | 8,581,000 | $ | 8,840,000 | |||||
Options and warrants not yet deducted, for tax purposes | 1,149,000 | 420,000 | |||||||
9,730,000 | 9,250,000 | ||||||||
Valuation allowance | (4,071,000 | ) | (3,066,000 | ) | |||||
Net deferred tax assets | $ | 5,659,000 | $ | 6,194,000 | |||||
The reconciliation between the taxes as shown and the amount that would be computed by applying the statutory federal income tax rate to the income before income taxes is as follows: | |||||||||
Year Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Income tax - statutory rate | 34 | % | 34 | % | |||||
State and local, net | 1 | % | 0 | % | |||||
Valuation allowance on deferred tax assets | 0 | % | (12.0 | )% | |||||
35 | % | 22 | % | ||||||
While only the tax returns for the four years ended December 31, 2013 are open for examination for taxes payable for those years, tax authorities could challenge returns for earlier years to the extent that they generated loss carry forwards that are available for those or future years. |
CONCENTRATIONS
CONCENTRATIONS | 12 Months Ended |
Dec. 31, 2013 | |
Concentrations | ' |
NOTE F - CONCENTRATIONS | ' |
The Company places its cash investments in high quality financial institutions which at December 31, 2013 exceed the Federal Insurance Deposit Corporation $250,000 limit. At December 31, 2013, the Company invested $17,035,000 in a money market fund. |
RELATED_PARTY_TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended | |
Dec. 31, 2013 | ||
Related Party Transactions | ' | |
NOTE G - RELATED PARTY TRANSACTIONS | ' | |
[1] | On August 16, 2013, the Company repurchased 15,112 shares of the Company’s common stock from a former director of the Company at a purchase price of $1.78 per share or aggregate consideration of $ 26,824. | |
[2] | On April 25, 2012, the Company repurchased 27,757 shares of its common stock from its Chief Financial Officer at a purchase price of $1.35 per share or aggregate consideration of $37,472. | |
EMPLOYMENT_ARRANGEMENTS_AND_OT
EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS | 12 Months Ended | |
Dec. 31, 2013 | ||
Employment Arrangements And Other Agreements | ' | |
NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS | ' | |
[1] | On November 1, 2012, the Company entered into a new employment agreement (the “Agreement”) with its Chairman and Chief Executive Officer for three successive one year terms (unless terminated by the Company) at an annual base salary of $415,000. The Agreement established an annual target bonus of $150,000 for the Chairman and Chief Executive Officer based on performance criteria to be established on an annual basis by the Board of Directors (or compensation committee). For the years ended December 31, 2013 and December 31, 2012, the Chairman and Chief Executive Officer received a cash bonus of $175,000 and $150,000, respectively. In connection with the Agreement, the Chairman and Chief Executive Officer was issued a 10-year option to purchase 500,000 shares of the Company’s common stock at an exercise price of $1.19 per share, which vests in equal quarterly amounts of 41,667 shares beginning November 1, 2012 through August 31, 2015, subject to acceleration upon a change of control. The Chairman and Chief Executive Officer shall forfeit the balance of unvested shares if his employment has been terminated “For Cause” (as defined) by the Company or by him without "Good Reason" (as defined). | |
Under the terms of the Agreement, the Chairman and Chief Executive Officer also receives incentive compensation in an amount equal to 5% of the Company’s gross royalties or other payments or proceeds (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 or proceeds 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 with respect to its other patents besides the Remote Power Patent (the “Additional Patents”) (the “Incentive Compensation”). For the years ended December 31, 2013 and December 31, 2012, the Chairman and Chief Executive Officer earned Incentive Compensation of $397,000 and $435,000, respectively. The Incentive Compensation shall continue to be paid to the Chairman and Chief Executive Officer for the life of each of the Company’s patents with respect to licenses entered into with third parties during the term of his employment or at anytime thereafter, whether he is employed by the Company or not; provided, that, the Chairman and Chief Executive Officer’s employment has not been terminated by the Company “For Cause” (as defined) or terminated by him without “Good Reason” (as defined). In the event of a merger or sale of substantially of the assets of the Company, the Company has the option to extinguish the right of 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 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 $150,000 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 and warrants. | ||
In connection with the Agreement, the Chairman and Chief Executive Officer has also agreed not to compete with the Company as follows: (i) during the term of the Agreement and for a period of 12 months thereafter if his employment is terminated “Other Than For Cause” (as defined) provided he is paid his 12 month base salary severance amount and (ii) for a period of two years from the termination date, if terminated “For Cause” by the Company or “Without Good Reason” by the Chairman and Chief Executive Officer. | ||
[2] | On June 8, 2009, the Company entered into an Employment Agreement (the “Agreement”) with the Chairman and Chief Executive Officer for a three year term (which expired in June 2012) at an annual base salary of $375,000 (retroactive to April 1, 2009) for the first year and increasing 5% on each of April 1, 2010 and April 1, 2011. During the term of the Agreement, the Chairman and Chief Executive Officer received a cash bonus in an amount no less than $150,000 on an annual basis. In connection with the Agreement, the Chairman and Chief Executive Officer was issued a 10-year option to purchase 750,000 shares of common stock at an exercise price of $0.83 per share, which vested in equal quarterly amounts of 62,500 shares beginning June 30, 2010 through March 31, 2012. In addition to the aforementioned option grant, the Company extended for an additional 5 years the expiration dates of all options (an aggregate of 417,500 shares) expiring in the calendar year 2009 owned by the Chairman and Chief Executive Officer. Under the terms of the Agreement, the Chairman and Chief Executive Officer also received additional bonus compensation in an amount equal to 5% of the Company’s royalties or other payments with respect to the Company’s Remote Power Patent (before deduction of payments to third parties including, but not limited to, legal fees and expenses and third party license fees). | |
[3] | On February 3, 2011, the Company entered into an agreement with its Chief Financial Officer for his continued service through December 31, 2012. In consideration for his services, the Chief Financial Officer was compensated at the rate of $9,000 per month for the year ending December 31, 2011 and was to be compensated at the rate of $9,450 per month for the year ending December 31, 2012. In connection with the agreement, the Chief Financial Officer was also issued a five year option to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.59 per share. The option vested 50,000 shares on the date of grant and the balance of the shares (50,000) vested on the one year anniversary date (February 3, 2012) from the date of grant. | |
[4] | On April 12, 2012, the Company entered into an agreement, with its Chief Financial Officer which amended the agreement, dated February 3, 2011 (See Note H[3] above), pursuant to which he continued to serve the Company. The amendment (the "Amendment") provided as follows: (i) the term of service of the Chief Financial Officer shall be extended until December 31, 2013; (ii) monthly compensation shall be increased to $11,000 per month; and (iii) the Chief Financial Officer was granted a 5-year option to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.40 per share, which option vests over a one year period in equal quarterly amounts of 18,750 shares. Except as provided in the Amendment, all other terms of the Agreement, dated February 3, 2011, remain in full force and effect. |
LITIGATION
LITIGATION | 12 Months Ended | |
Dec. 31, 2013 | ||
Litigation | ' | |
NOTE I - LITIGATION | ' | |
[1] | On May 23, 2013, through the Company’s wholly owned subsidiary Mirror Worlds Technologies, LLC, the Company initiated patent litigation in the United States District Court for the Eastern District of Texas, Tyler Division, against Apple, Inc., Microsoft, Inc., Hewlett-Packard Company, Lenovo Group Ltd., Lenovo (United States), Inc., Dell, Inc., Best Buy Co., Inc., Samsung Electronics America, Inc. and Samsung Telecommunications America L.L.C., for infringement of the ‘227 Patent (one of the patents we acquired as part of the acquisition of the Mirror Worlds patent portfolio). The Company seeks, among other things, monetary damages based upon reasonable royalties. The lawsuit alleges that the defendants have infringed and continue to infringe the claims of the ‘227 Patent by making, selling, offering to sell and using infringing products including Mac OS and Windows operating systems and personal computers and tablets that include versions of those operating systems, and by encouraging others to make, sell, and use these products. In September 2013 and October 2013, the defendants filed their answers to the Company’s complaint. Defendants Apple and Microsoft, Inc. also filed counterclaims for a declaratory, judgment of non infringement or our ‘227 Patent and invalidity of our ‘227 Patent. In December 2013, the litigation was severed into two consolidated actions, Mirror Worlds v Apple, et. al. and Mirror Worlds v. Microsoft, et. al. | |
[2] | In September 2011, the Company initiated patent litigation against 16 data networking equipment manufacturers in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of its Remote Power Patent. Named as defendants in the lawsuit, excluding related parties, were Alcatel-Lucent USA, Inc., Allied Telesis, Inc., Avaya Inc., AXIS Communications Inc., Dell, Inc., GarrettCom, Inc., Hewlett-Packard Company, Huawei Technologies USA, Juniper Networks, Inx., Motorola Solutions, Inc., NEC Corporation, Polycom Inc., Samsung Electronics Co., Ltd., ShoreTel, Inc., Sony Electronics, Inc., and Transitions Networks, Inc. Network-1 seeks monetary damages based upon reasonable royalties. During the year ended December 31, 2012, the Company reached settlement agreements with defendants Motorola Solutions, Inc. ("Motorola"), Transition Networks, Inc. ("Transition Networks") and GarretCom, Inc. (“GarretCom”). In February 2013, the Company reached settlement agreements with Allied Telesis, Inc. (“Allied Telesis”) and NEC Corporation (“NEC”). As part of the settlements, Motorola, Transition Networks, GarretCom, Allied Telesis and NEC each entered into a non-exclusive license agreement for the Company’s Remote Power Patent pursuant to which each such defendant agreed to license the Remote Power Patent for its full term (which expires in March 2020) and pay a license initiation fee and quarterly or annual royalties based on their sales of PoE products. On March 5, 2013, the Court granted the motion of certain of the defendants to stay the litigation pending completion of the Inter Partes review described in Note I[5] below. | |
[3] | In July 2010, the Company settled its patent litigation pending in the United States District Court for the Eastern District of Texas, Tyler Division, against Adtran, Inc, Cisco Systems, Inc. and Cisco-Linksys, LLC, (collectively, “Cisco”), Enterasys Networks, Inc., Extreme Networks, Inc., Foundry Networks, Inc., and 3Com Corporation, Inc. As part of the settlement, Adtran, Cisco, Enterasys, Extreme Networks and Foundry Networks each entered into a settlement agreement with the Company and entered into non-exclusive licenses for our Remote Power Patent (the “Licensed Defendants”). Under the terms of the licenses, the Licensed Defendants paid the Company aggregate upfront payments of approximately $32 million and also agreed to license the Remote Power Patent for its full term, which expires in March 2020. In accordance with the Settlement and License Agreement, dated May 25, 2011, which expanded upon the July 2010 agreement, Cisco is obliged to pay the Company royalties (which began in the first quarter of 2011) based on its sales of PoE products up to maximum royalty payments per year of $8 million through 2015 and $9 million per year thereafter for the remaining term of the patent. The royalty payments are subject to certain conditions including the continued validity of the Company’s Remote Power Patent, and the actual royalty amounts received may be less than the caps stated above, as was the case in 2013 and 2012. Under the terms of the Agreement, if the Company grants other licenses with lower royalty rates to third parties (as defined in the Agreement), Cisco shall be entitled to the benefit of the lower royalty rates provided it agrees to the material terms of such other license. Under the terms of the Agreement, the Company has certain obligations to Cisco and if it materially breaches such terms, Cisco will be entitled to stop paying royalties to the Company. This would have a material adverse effect on the Company’s business, financial condition and results of operations. | |
In May 2009, the Company achieved a settlement with Netgear, Inc. (“Netgear”), also a defendant in the above referenced litigation in Tyler, Texas which was settled with the other defendants in July 2010. As part of the settlement and under its special licensing program, Netgear entered into a license agreement with the Company for the Remote Power Patent effective April 1, 2009. Under the terms of the license, Netgear licenses the Remote Power Patent from the Company for its full term (which expires in March 2020), and pays quarterly royalties (which began as of April 1, 2009) based on its sales of Power over Ethernet products, including those Power over Ethernet products which comply with the Institute of Electrical and Electronic Engineers 802.3af and 802.3at Standards. Licensed products include Netgear’s Power over Ethernet enabled switches and wireless access points. The royalty rates included in the license are 1.7% of the sales price of Power Sourcing Equipment, which includes Ethernet switches, and 2% of the sales price of Powered Devices, which includes wireless access points. The royalty rates are subject to adjustment, under certain circumstances, if the Company grants a license to other licensees with lower royalty rates and Netgear is able to and agrees to assume all material terms and conditions of such other license. In addition, Netgear made a payment of $350,000 to the Company with respect to the settlement. | ||
[4] | On July 20, 2012, an unknown third party filed with the United States Patent and Trademark Office (USPTO) a request for an Ex Parte Reexamination, requesting that our Remote Power Patent be reexamined by the USPTO. The request for reexamination was stayed on December 21, 2012 pending the termination or completion of the Inter Partes Review proceedings described in Note I[5] below. | |
[5] | Avaya Inc., Dell Inc., Sony Corporation of America and Hewlett Packard Co. are petitioners in Inter Partes Review proceedings (which have been joined together) (the “IPR Proceeding”) pending at the United States Patent and Trademark Office before the Patent Trial and Appeal Board (the “Patent Board”) involving the Company’s Remote Power Patent. Petitioners in the IPR Proceeding seek to cancel certain claims of our Remote Power as unpatentable. A hearing on the merits of the IPR Proceeding was held on January 9, 2014 and a decision is pending. In the event that the Patent Board renders a decision in the IPR Proceeding that the Remote Power Patent is invalid, such a determination (unless overturned by the United States Court of Appeals for the Federal Circuit) would have a material adverse effect on the Company’s business, financial condition and results of operations as our entire current revenue stream is dependent upon the continued validity of the Company’s Remote Power Patent. |
STOCK_REPURCHASE_PROGRAM
STOCK REPURCHASE PROGRAM | 12 Months Ended |
Dec. 31, 2013 | |
Stock Repurchase Program | ' |
NOTE J - STOCK REPURCHASE PROGRAM | ' |
On August 22, 2011, the Company announced that the Board of Directors approved a share repurchase program to repurchase up to $2,000,000 of shares of its common stock over the next 12 months (“Share Repurchase Program”). 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 will be determined by management based on its evaluation of market conditions and other factors. The repurchase program may be increased, suspended or discontinued at any time. On January 31, 2012, the Board of Directors increased the Share Repurchase Program to repurchase up to an additional $2,000,000 (or an aggregate of $4,000,000) of the Company's common stock. On January 14, 2013, the Board of Directors increased the Share Repurchase Program to repurchase up to an additional $1,000,000 (or an aggregate of $5,000,000) of the Company’s common stock over the next 12 months. | |
On December 10, 2013, the Board of Directors further increased the Share Repurchase up to an additional $2,000,000 shares of common stock over the next 12 months (for a total of up to $7,000,000 since inception of the Share Repurchase Program). During the year ended December 31, 2013, the Company repurchased an aggregate of 1,086,872 shares of common stock pursuant to its Share Repurchase Program at a cost of $1,485,732 or an average price per share of $1.37. |
SUMMARY_OF_SIGNIFICANT_ACCOUNT1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended | ||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||
Summary Of Significant Accounting Policies Policies | ' | ||||||||||||||||
Cash and cash equivalents | ' | ||||||||||||||||
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. | |||||||||||||||||
Cash and cash equivalents as of December 31 are composed of: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Cash | $ | 1,903,000 | $ | 1,444,000 | |||||||||||||
Money market fund | 17,035,000 | 20,539,000 | |||||||||||||||
Total | $ | 18,938,000 | $ | 21,983,000 | |||||||||||||
Marketable securities | ' | ||||||||||||||||
Marketable securities are classified as available-for-sale and are recorded as fair market value. Unrealized gain and losses are reported as other comprehensive income. Realized gains and losses are included in income in the period they are realized. The Company's marketable securities consist of a corporate bond (face value $500,000) with a 5% coupon and a maturity date of June 2015. | |||||||||||||||||
Revenue recognition | ' | ||||||||||||||||
The Company recognizes revenue received from the licensing of its intellectual property in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB No. 104") and related authoritative pronouncements. Under this guidance, revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been performed pursuant to the terms of the license agreement, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured. One licensee (Cisco Systems, Inc. and affiliate) constituted approximately 77% of the Company’s revenue for each of the years ended December 31, 2013 and 2012. | |||||||||||||||||
Patents | ' | ||||||||||||||||
The Company owns patents that relate to various computing, telecommunications and data networking and Internet related technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of the patents and amortizes these assets over their remaining useful lives, ranging from three (3) years to fifteen (15) years, on a straight-line basis. | |||||||||||||||||
Impairment of long-lived assets | ' | ||||||||||||||||
Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Accordingly, the Company records impairment losses on long-lived assets used in operations or expected to be disposed of when indicators of impairment exist and the undiscounted cash flows expected to be derived from those assets are less than carrying amounts of those assets. At December 31, 2013 and 2012, there was no impairment to the Company's patents. | |||||||||||||||||
Income taxes | ' | ||||||||||||||||
The Company utilizes the liability method of accounting for income taxes. Under such method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect at the balance sheet date. The resulting asset or liability is adjusted to reflect enacted changes in tax law. Deferred tax assets are reduced, if necessary, by a valuation allowance when the likelihood of realization is not assured. | |||||||||||||||||
Earnings (Loss) Per Share | ' | ||||||||||||||||
Basic Earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of outstanding common shares during the period. Diluted per share data included the dilutive effects of options, warrants and convertible securities. Potential shares of 6,782,500 and 5,832,500 at December 31, 2013 and 2012, respectively, consisted of options and warrants. Computations of basic and diluted weighted average common shares outstanding are as follows: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Weighted-average common shares outstanding - basic | 25,589,238 | 25,744,330 | |||||||||||||||
Dilutive effect of options and warrants | 2,365,447 | _2,728,423 | |||||||||||||||
Weighted-average common shares outstanding - diluted | 27,954,685 | 28,472,753 | |||||||||||||||
Options and Warrants excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive | 4,417,053 | 3,104,077 | |||||||||||||||
Use of estimates | ' | ||||||||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 period. Actual results could differ from those estimates. | |||||||||||||||||
Financial instruments | ' | ||||||||||||||||
The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses approximate their fair value due to the short period to maturity of these instruments. The investment in a corporate bond is reported at the closing price reported on the active market on which the bond is traded. | |||||||||||||||||
Stock-based compensation | ' | ||||||||||||||||
The Company accounts for its stock-based compensation at fair value estimated on the grant date using the Black-Scholes option pricing model. See Note C[1] for further discussion of the Company’s stock-based compensation. | |||||||||||||||||
Allowance for Doubtful Accounts | ' | ||||||||||||||||
The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to their expected net realizable value. There was no allowance for doubtful accounts at December 31, 2013 and 2012. | |||||||||||||||||
Fair Value Measurements | ' | ||||||||||||||||
Accounting Standard Codification (“ASC”) Topic 820 (“ASC 820”) utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: | |||||||||||||||||
● | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; | ||||||||||||||||
● | Level 2: Inputs other than quoted prices that are observable for the asset or liability, 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; and | ||||||||||||||||
● | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. | ||||||||||||||||
The Company’s financial assets subject to fair value measurements and the necessary disclosures are as follows: | |||||||||||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2013 Using Fair Value Hierarchy | ||||||||||||||||
31, 2013 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 18,938,000 | $ | 18,938,000 | $ | — | $ | — | |||||||||
Corporate bond | 530,000 | — | 530,000 | ||||||||||||||
Total | $ | 19,468,000 | $ | 18,938,000 | $ | 530,000 | $ | — | |||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2012 Using Fair Value Hierarchy | ||||||||||||||||
31, 2012 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 21,983,000 | $ | 21,983,000 | $ | — | $ | — | |||||||||
Corporate bond | 547,000 | — | 547,000 | ||||||||||||||
Total | $ | 22,530,000 | $ | 21,983,000 | $ | 547,000 | $ | — | |||||||||
Subsequent event evaluation | ' | ||||||||||||||||
The Company has evaluated subsequent events from the balance sheet date through the issuance date of the financial statements and has determined that there are no such events that would have a material impact on the financial statements. | |||||||||||||||||
Recently issued accounting standards | ' | ||||||||||||||||
In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operation Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU No. 2013-11 is a new accounting standard on the financial statement presentation of unrecognized tax benefits. The new standard provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new standard becomes effective for the Company on January 1, 2014 and will be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. Adoption of the guidance will not have a material impact on the Company’s financial statements. | |||||||||||||||||
In February 2013, the FASB issued updated guidance that amends the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”). These amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, either on the face of the financial statement where net income is presented or in the notes to the financial statements. This guidance is effective for fiscal periods beginning after December 15, 2012, and is to be applied prospectively. The Company complied with this guidance as of January 1, 2013, and the adoption of the guidance has not had a material impact on the Company’s financial statements. | |||||||||||||||||
Investment In Lifestreams | ' | ||||||||||||||||
In May 2013, as part of the acquisition of the Mirror Worlds patent portfolio (See Note D[2] hereof), the Company acquired from Mirror Worlds, LLC 250,000 shares of common stock of Lifestreams Technologies Corporation (“Lifestreams”), a company engaged in the development of next generation applications and methodologies designed to organize and display digital data. In addition, in July 2013 the Company made an additional investment of $50,000 in Lifestreams as part of a financing and received 123,456 shares of Series A preferred stock and, as part of an amended license agreement between the Company’s subsidiary and Lifestreams, the Company received a warrant to purchase 7.5% of the then outstanding shares of common stock of Lifestreams on a fully diluted basis (post-financing). The warrant is valued at $70,000 based on the Black-Scholes option model and recorded as non-cash royalty income. Since the investment in Lifestreams does not have a readily determinable fair value, such investment was recorded utilizing the cost-method. At December 31, 2013, the Company’s investment in Lifestreams consists of the following: | |||||||||||||||||
Number of | Value | ||||||||||||||||
Shares | |||||||||||||||||
Common Stock | 250,000 | $ | 76,000 | ||||||||||||||
Series A Preferred Stock | 123,456 | 50,000 | |||||||||||||||
Warrants | 1,305,000 | 70,000 | |||||||||||||||
$ | 196,000 |
SUMMARY_OF_SIGNIFICANT_ACCOUNT2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended | ||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||
Summary Of Significant Accounting Policies Tables | ' | ||||||||||||||||
Cash and cash equivalents | ' | ||||||||||||||||
Cash and cash equivalents as of December 31 are composed of: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Cash | $ | 1,903,000 | $ | 1,444,000 | |||||||||||||
Money market fund | 17,035,000 | 20,539,000 | |||||||||||||||
Total | $ | 18,938,000 | $ | 21,983,000 | |||||||||||||
Computations of basic and diluted weighted average common shares outstanding | ' | ||||||||||||||||
Computations of basic and diluted weighted average common shares outstanding are as follows: | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Weighted-average common shares outstanding - basic | 25,589,238 | 25,744,330 | |||||||||||||||
Dilutive effect of options and warrants | 2,365,447 | _2,728,423 | |||||||||||||||
Weighted-average common shares outstanding - diluted | 27,954,685 | 28,472,753 | |||||||||||||||
Options and Warrants excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive | 4,417,053 | 3,104,077 | |||||||||||||||
Financial assets subject to fair value measurements | ' | ||||||||||||||||
The Company’s financial assets subject to fair value measurements and the necessary disclosures are as follows: | |||||||||||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2013 Using Fair Value Hierarchy | ||||||||||||||||
31, 2013 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 18,938,000 | $ | 18,938,000 | $ | — | $ | — | |||||||||
Corporate bond | 530,000 | — | 530,000 | ||||||||||||||
Total | $ | 19,468,000 | $ | 18,938,000 | $ | 530,000 | $ | — | |||||||||
Fair Value as | Fair Value Measurements at December 31, | ||||||||||||||||
of December | 2012 Using Fair Value Hierarchy | ||||||||||||||||
31, 2012 | Level 1 | Level 2 | Level 3 | ||||||||||||||
Cash and cash equivalents | $ | 21,983,000 | $ | 21,983,000 | $ | — | $ | — | |||||||||
Corporate bond | 547,000 | — | 547,000 | ||||||||||||||
Total | $ | 22,530,000 | $ | 21,983,000 | $ | 547,000 | $ | — | |||||||||
Investment In Lifestreams | ' | ||||||||||||||||
At December 31, 2013, the Company’s Investment In Lifestreams consists of the following: | |||||||||||||||||
Number of | Value | ||||||||||||||||
Shares | |||||||||||||||||
Common Stock | 250,000 | $ | 76,000 | ||||||||||||||
Series A Preferred Stock | 123,456 | 50,000 | |||||||||||||||
Warrants | 1,305,000 | 70,000 | |||||||||||||||
$ | 196,000 |
STOCKHOLDERS_EQUITY_Tables
STOCKHOLDERS' EQUITY (Tables) | 12 Months Ended | |||||||||||||||||||||
Dec. 31, 2013 | ||||||||||||||||||||||
Stockholders Equity Tables | ' | |||||||||||||||||||||
Fair value of options on the date of grant | ' | |||||||||||||||||||||
The fair value of options on the date of grant is estimated using the Black-Scholes option-pricing model utilizing the following weighted average assumptions: | ||||||||||||||||||||||
Year Ended | ||||||||||||||||||||||
December 31, | ||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Risk-free interest rates | 0.78% - 1.24% | 0.71% - 1.75% | ||||||||||||||||||||
Expected option life in years | 5 years | 5 years – 10 years | ||||||||||||||||||||
Expected stock price volatility | 43.54% - 44.31% | 43.54% - 45.86% | ||||||||||||||||||||
Expected dividend yield | 0.00% | 0.00% | ||||||||||||||||||||
Summary of stock option activity | ' | |||||||||||||||||||||
The following table summarizes stock option activity for the years ended December 31: | ||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||
Average | Average | |||||||||||||||||||||
Options | Exercise | Options | Exercise | |||||||||||||||||||
Outstanding | Price | Outstanding | Price | |||||||||||||||||||
Options outstanding at beginning of year | 5,582,500 | $ | 0.78 | 7,208,070 | $ | 0.69 | ||||||||||||||||
Granted | 400,000 | $ | 1.71 | 925,000 | $ | 1.24 | ||||||||||||||||
Cancelled/expired/exercised | (1,700,000 | ) | $ | 0.67 | (2,550,570 | ) | $ | 0.66 | ||||||||||||||
Options outstanding at end of year | 4,282,500 | $ | 0.91 | 5,582,500 | $ | 0.78 | ||||||||||||||||
Options exercisable at end of year | 3,790,834 | $ | 0.84 | 4,826,250 | $ | 0.71 | ||||||||||||||||
Stock options outstanding and exercisable | ' | |||||||||||||||||||||
The following table presents information relating to all stock options outstanding and exercisable at December 31, 2013: | ||||||||||||||||||||||
Weighted | ||||||||||||||||||||||
Weighted | Average | Weighted | ||||||||||||||||||||
Range of | Average | Remaining | Average | |||||||||||||||||||
Exercise | Options | Exercise | Life in | Options | Exercise | |||||||||||||||||
Price | Outstanding | Price | Years | Exercisable | Price | |||||||||||||||||
$0.25 - $1.88 | 4,282,500 | $ | 0.91 | 3.3 | 3,790,834 | $ | 0.84 | |||||||||||||||
Outstanding warrants to purchase common stock | ' | |||||||||||||||||||||
As of December 31, 2013, the following are the outstanding warrants to purchase shares of the Company's common stock: | ||||||||||||||||||||||
Number of | Exercise | |||||||||||||||||||||
Warrants | Price | Expiration Date | ||||||||||||||||||||
1,125,000 | $ | 2.1 | May 21, 2018 | |||||||||||||||||||
1,125,000 | $ | 1.4 | May 21, 2018 | |||||||||||||||||||
125,000 | $ | 2.1 | July 26, 2018 | |||||||||||||||||||
125,000 | $ | 1.4 | July 26, 2018 | |||||||||||||||||||
2,500,000 |
INCOME_TAXES_Tables
INCOME TAXES (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Taxes Tables | ' | ||||||||
Components of the net deferred tax assets | ' | ||||||||
The principal components of the net deferred tax assets are as follows: | |||||||||
Year Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforwards | $ | 8,581,000 | $ | 8,840,000 | |||||
Options and warrants not yet deducted, for tax purposes | 1,149,000 | 420,000 | |||||||
9,730,000 | 9,250,000 | ||||||||
Valuation allowance | (4,071,000 | ) | (3,066,000 | ) | |||||
Net deferred tax assets | $ | 5,659,000 | $ | 6,194,000 | |||||
Reconciliation between taxes | ' | ||||||||
The reconciliation between the taxes as shown and the amount that would be computed by applying the statutory federal income tax rate to the income before income taxes is as follows: | |||||||||
Year Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Income tax - statutory rate | 34 | % | 34 | % | |||||
State and local, net | 1 | % | 0 | % | |||||
Valuation allowance on deferred tax assets | 0 | % | (12.0 | )% | |||||
35 | % | 22 | % |
SUMMARY_OF_SIGNIFICANT_ACCOUNT3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule of Cash and Cash Equivalents (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 |
Summary Of Significant Accounting Policies - Schedule Of Cash And Cash Equivalents Details | ' | ' | ' |
Cash | $1,903,000 | $1,444,000 | ' |
Money Market fund | 17,035,000 | 20,539,000 | ' |
Total | $18,938,000 | $21,983,000 | $20,661,000 |
SUMMARY_OF_SIGNIFICANT_ACCOUNT4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Marketable Securities (Details Narrative) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Summary Of Significant Accounting Policies - Marketable Securities Details Narrative | ' |
Corporate Bond | $500,000 |
Coupon rate on corporate bond (in percent) | 5.00% |
SUMMARY_OF_SIGNIFICANT_ACCOUNT5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details Narrative) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Summary Of Significant Accounting Policies - Revenue Recognition Details Narrative | ' | ' |
Percentage of revenue from one licensee (Cisco Systems) out of total revenue (in percent) | 77.00% | 77.00% |
SUMMARY_OF_SIGNIFICANT_ACCOUNT6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule Earnings Per Share (Details) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Summary Of Significant Accounting Policies - Schedule Earnings Per Share Details | ' | ' |
Weighted-average common shares outstanding - basic | 25,589,238 | 25,744,330 |
Dilutive effect of options and warrants | 2,365,447 | 2,728,423 |
Weighted-average common shares outstanding - diluted | 27,954,685 | 28,472,753 |
Options and Warrants excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive | 4,417,053 | 3,104,077 |
SUMMARY_OF_SIGNIFICANT_ACCOUNT7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule Earnings Per Share (Details Narratrive) | Dec. 31, 2013 | Dec. 31, 2012 |
Summary Of Significant Accounting Policies - Schedule Earnings Per Share Details Narratrive | ' | ' |
Potentialy Dilutive Shares | 6,782,500 | 5,832,500 |
SUMMARY_OF_SIGNIFICANT_ACCOUNT8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value Measurements (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Fair Value [Member] | ' | ' |
Cash and cash equivalents | $18,938,000 | $21,983,000 |
Corporate bond | 530,000 | 547,000 |
Total | 19,468,000 | 22,530,000 |
Fair Value, Inputs, Level 1 [Member] | ' | ' |
Cash and cash equivalents | 18,938,000 | 21,983,000 |
Corporate bond | ' | ' |
Total | 18,938,000 | 21,983,000 |
Fair Value, Inputs, Level 2 [Member] | ' | ' |
Cash and cash equivalents | ' | ' |
Corporate bond | 530,000 | 547,000 |
Total | 530,000 | 547,000 |
Fair Value, Inputs, Level 3 [Member] | ' | ' |
Cash and cash equivalents | ' | ' |
Corporate bond | ' | ' |
Total | ' | ' |
SUMMARY_OF_SIGNIFICANT_ACCOUNT9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investment In Lifestreams (Details) (USD $) | Dec. 31, 2013 |
Summary Of Significant Accounting Policies - Investment In Lifestreams Details | ' |
Common Stock Shares Investment | 250,000 |
Common Stock Value Investment | $76,000 |
Series A Preferred Stock Shares Investment | 123,456 |
Series A Preferred Stock Value Investments | 50,000 |
Warrants Shares Investment | 1,305,000 |
Warrants Value Investment | 70,000 |
Total value of Investment | $196,000 |
STOCKHOLDERS_EQUITY_Stock_Opti
STOCKHOLDER'S EQUITY - Stock Options (Details) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Weighted average assumptions used for fair valuation of stock options | ' | ' |
Expected option life (in years) | '5 years | ' |
Expected dividend yield (in percent) | 0.00% | 0.00% |
Minimum [Member] | ' | ' |
Weighted average assumptions used for fair valuation of stock options | ' | ' |
Risk-free interest rates | 0.78% | 0.71% |
Expected option life (in years) | ' | '5 years |
Expected stock price volatility (in percent) | 43.54% | 43.54% |
Maximum [Member] | ' | ' |
Weighted average assumptions used for fair valuation of stock options | ' | ' |
Risk-free interest rates | 1.24% | 1.75% |
Expected option life (in years) | ' | '10 years |
Expected stock price volatility (in percent) | 44.31% | 45.86% |
STOCKHOLDERS_EQUITY_Stock_Opti1
STOCKHOLDER'S EQUITY - Stock Options (Details 1) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Stockholders Equity - Stock Options Details 1 | ' | ' |
Option outstanding at beginning of year | 5,582,500 | 7,208,070 |
Granted | 400,000 | 925,000 |
Cancelled/expired/exercised | -1,700,000 | -2,550,570 |
Options outstanding at end of year | 4,282,500 | 5,582,500 |
Options exercisable at end of year | 3,790,834 | 4,826,250 |
Option outstanding at beginning, Weighted Average Exercise Price | $0.78 | $0.69 |
Granted, Weighted Average Exercise Price | $1.71 | $1.24 |
Cancelled/expired/exercised,Weighted Average Exercise Price | $0.67 | $0.66 |
Option outstanding at end, Weighted Average Exercise Price | $0.91 | $0.78 |
Options exercisable, Weighted Average Exercise Price | $0.84 | $0.71 |
STOCKHOLDERS_EQUITY_Stock_Opti2
STOCKHOLDER'S EQUITY - Stock Options (Details 2) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Stockholders Equity - Stock Options Details 2 | ' |
Range of exercise price, lower limit | $0.25 |
Range of exercise price, upper limit | $1.88 |
Option outstanding | 4,282,500 |
Weighted Average Exercise Price | $0.91 |
Weighted Average Remaining Life in Years | '3 years 3 months 18 days |
Options Exercisable | 3,790,834 |
Option Exercisable, Weighted Average Exercise Price | $0.84 |
STOCKHOLDERS_EQUITY_Stock_Opti3
STOCKHOLDER'S EQUITY - Stock Options (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Weighted average fair value of options on option grant date | $0.68 | $0.59 |
Granted | 400,000 | 925,000 |
Fair value of options granted to officers, directors and consultants | $271,000 | $549,000 |
Non-cash compensation of vesting portion of stock options | 123,000 | 141,000 |
Recognized non-cash compensation | 265,000 | 157,000 |
Options to purchase common stock shares on exercise of stock options | 1,402,500 | 2,478,070 |
Cash proceeds from exercise of stock option | 72,000 | 16,000 |
Stock option exercise price, minimum | $0.54 | $0.14 |
Stock option exercise price, maximum | $1.35 | $0.68 |
Number of shares issued on exercise of stock options | 679,401 | 962,537 |
Common stock delivered to fund payroll taxes, Shares | 381,741 | 350,100 |
Common stock delivered to fund payroll taxes, Value | $690,000 | $486,000 |
Stock Option Plan 1996 [Member] | ' | ' |
Options to purchase number of outstanding common shares | 417,500 | ' |
Stock Option Plan 2013 [Member] | ' | ' |
Options to purchase number of outstanding common shares | 0 | ' |
Stock Options outside of 1996 Plan and 2013 Plan [Member] | ' | ' |
Options to purchase number of outstanding common shares | 3,865,000 | ' |
STOCKHOLDERS_EQUITY_Warrants_D
STOCKHOLDER'S EQUITY - Warrants (Details) (USD $) | Dec. 31, 2013 |
Warrant One [Member] | ' |
Number of Warrants | 1,125,000 |
Warrant Exercise Price | $2.10 |
Warrants Expiration Date | 'May 21, 2018 |
Warrant Two [Member] | ' |
Number of Warrants | 1,125,000 |
Warrant Exercise Price | $1.40 |
Warrants Expiration Date | 'May 21, 2018 |
Warrant Three [Member] | ' |
Number of Warrants | 125,000 |
Warrant Exercise Price | $2.10 |
Warrants Expiration Date | 'July 26, 2018 |
Warrant Four [Member] | ' |
Number of Warrants | 125,000 |
Warrant Exercise Price | $1.40 |
Warrants Expiration Date | 'July 26, 2018 |
Warrant [Member] | ' |
Number of Warrants | 2,500,000 |
STOCKHOLDERS_EQUITY_Warrants_D1
STOCKHOLDER'S EQUITY - Warrants (Details Narrative) | 12 Months Ended |
Dec. 31, 2012 | |
Stockholders Equity - Warrants Details Narrative | ' |
Exercise of warrants to purchase common stock shares | 300,000 |
Number of net shares issued to officer on exercise of warrant | 128,572 |
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES - Legal Fees (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Legal Service Agreement-Blank Rome [Member] | ' | ' |
Legal fees payment ,Terms | 'Once the Company recovers its expenses related to the litigation it is obligated to pay legal fees to Blank Rome LLP equal to 24% of the net royalty revenue received by the Company from its license agreement with D-Link | ' |
Legal fees | $41,000 | ' |
Legal Service Agreement With Dovel And Luner For Litigation Filed In September 2011 [Member] | ' | ' |
Legal fees payment ,Terms | 'Contingency fee ranging from 12.5% to 35% of net recovery (with certain exceptions) | ' |
Legal fees | 206,000 | 344,000 |
Legal Service Agreement With Dovel And Luner For Litigation Settlement In July 2010 [Member] | ' | ' |
Legal fees payment ,Terms | ' | ' |
24% of royalties received after expenses | ||
Legal fees | $1,611,000 | $1,726,000 |
Legal Service Agreement With Dovel And Luner For Litigation Filed In May 2013 [Member] | ' | ' |
Legal fees payment ,Terms | 'Contingency fee ranging from 25% to 40% of the net recovery | ' |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES - Patent Acquisitions (Details Narrative) (USD $) | Jul. 31, 2013 | 21-May-13 | Feb. 28, 2013 |
Commitments And Contingencies - Patent Acquisitions Details Narrative | ' | ' | ' |
Acquisition of four patents, purchase price | ' | ' | $1,000,000 |
Acquisition of four patents, common stock issued | ' | ' | 403,226 |
Obligated to pay Dr Cox, net proceeds percentage | ' | ' | 12.50% |
Capitalized professional fees | ' | 409,000 | 169,000 |
Cash consideration for patent acquisition (Mirror Worlds) | ' | $3,000,000 | ' |
Issued 5-year warrants to purchase an aggregate shares of common stock | ' | 1,750,000 | ' |
60 days Warrants to purchase shares of common stock | ' | 500,000 | ' |
Additional 5-year warrants to purchase shares of common stock as a result of exercise of 60-day warrant | 250,000 | ' | ' |
Net proceeds percentage payable to third party from the monetization of the Mirror Worlds patent portfolio | ' | ' | ' |
First $125 Million | ' | 10.00% | ' |
Next $125 Million | ' | 15.00% | ' |
Over $250 Million | ' | 20.00% | ' |
COMMITMENTS_AND_CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES - Services Agreement (Details Narrative) (Services Agreement with ThinkFire, USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Services Agreement with ThinkFire | ' | ' |
Purchase Commitment, Excluding Long-term Commitment [Line Items] | ' | ' |
Fees for services performed on behalf of entity | $104,000 | $97,000 |
COMMITMENTS_AND_CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES - Lease Agreement (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Commitments And Contingencies - Lease Agreement Details Narrative | ' | ' |
Rental expense | $132,000 | $99,000 |
Sublease agreement | ' | $26,000 |
COMMITMENTS_AND_CONTINGENCIES_4
COMMITMENTS AND CONTINGENCIES - Savings and Investment Plan (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Commitments And Contingencies - Savings And Investment Plan Details Narrative | ' | ' |
Plan matching contribution | $33,500 | $33,000 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Deferred tax assets: | ' | ' |
Net operating loss carryforwards | $8,581,000 | $8,840,000 |
Options and warrants not yet deducted, for tax purposes | 1,149,000 | 420,000 |
Gross deferred tax assets | 9,730,000 | 9,250,000 |
Valuation allowance | -4,071,000 | -3,066,000 |
Net deferred tax assets | $5,659,000 | $6,194,000 |
INCOME_TAXES_Details_1
INCOME TAXES (Details 1) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Taxes Details 1 | ' | ' |
Income tax - statutory rate | 34.00% | 34.00% |
State and local, net | 1.00% | 0.00% |
Valuation allowance on deferred tax assets | 0.00% | -12.00% |
Effective income tax rate | 35.00% | 22.00% |
INCOME_TAXES_Details_Narrative
INCOME TAXES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Taxes Details Narrative | ' | ' |
Net operating loss carryforwards | $25,239,000 | ' |
Net operating loss carryforwards, Future tax benefits | 8,581,000 | 8,840,000 |
Net operating loss carryforwards expiration period | '2029 | ' |
Deferred tax assets | 5,659,000 | 6,194,000 |
Income before taxes | 1,561,000 | 3,372,000 |
Income tax expense (benefit) | 545,000 | 746,000 |
Deferred tax assets reduction | $535,000 | $709,000 |
CONCENTRATIONS_Details_Narrati
CONCENTRATIONS (Details Narrative) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Concentrations Details Narrative | ' |
Federal Insurance Deposit Corporation limit | $250,000 |
Money market fund | 17,035,000 |
RELATED_PARTY_TRANSACTIONS_Det
RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | 12 Months Ended | 0 Months Ended | 1 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | Aug. 16, 2013 | Apr. 25, 2012 | |
Former Director [Member] | Chief Financial Officer [Member] | |||
Common stock repurchased from related parties, Shares | ' | ' | 15,112 | 27,757 |
Share price | ' | ' | $1.78 | $1.35 |
Common stock repurchased from related parties, Value | $1,497,000 | $880,000 | $26,824 | $37,472 |
EMPLOYMENT_ARRANGEMENTS_AND_OT1
EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Employment Arrangements And Other Agreements Details Narrative | ' | ' |
Cash bonus received by Chairman and CEO | $175,000 | $150,000 |
Incentive Compensation for Chairman and CEO | 397,000 | 435,000 |
Monthly compensation for CFO | $11,550 | $11,000 |
LITIGATION_Details_Narrative
LITIGATION (Details Narrative) (USD $) | 12 Months Ended | 60 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2013 | Dec. 31, 2015 | |
Litigation Details Narrative | ' | ' | ' |
Maximum royalty payments | ' | ' | $8,000,000 |
Maximum royalty payments after 2015 | $9,000,000 | ' | ' |
Settlements expiry period | ' | '2020-03 | ' |
STOCK_REPURCHASE_PROGRAM_Detai
STOCK REPURCHASE PROGRAM (Details Narrative) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Stock Repurchase Program Details Narrative | ' |
Common stock repurchased, Shares | 1,086,872 |
Cost of common stock repurchased | $1,485,732 |
Average price per share | $1.37 |