Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2019 | Nov. 11, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | NETWORK 1 TECHNOLOGIES INC | |
Entity Central Index Key | 0001065078 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2019 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 24,137,841 | |
Document Fiscal Year Focus | 2019 | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity File Number | 001-15288 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 16,737,000 | $ 23,763,000 |
Marketable securities, at fair value | 31,283,000 | 31,228,000 |
Royalty receivables, net | 493,000 | 444,000 |
Other current assets | 31,000 | 112,000 |
Total Current Assets | 48,544,000 | 55,547,000 |
OTHER ASSETS: | ||
Deferred tax assets | 204,000 | 168,000 |
Patents, net of accumulated amortization | 1,832,000 | 1,989,000 |
Equity investment | 4,696,000 | 2,541,000 |
Operating leases right-of-use asset | 52,000 | |
Security deposits | 21,000 | 21,000 |
Total Other Assets | 6,805,000 | 4,719,000 |
TOTAL ASSETS | 55,349,000 | 60,266,000 |
CURRENT LIABILITIES: | ||
Accounts payable | 245,000 | 67,000 |
Income taxes payable | 197,000 | |
Accrued contingency fees and related costs | 112,000 | 1,136,000 |
Accrued payroll | 30,000 | 486,000 |
Operating lease obligations – current | 53,000 | |
Other accrued expenses | 198,000 | 175,000 |
TOTAL CURRENT LIABILITIES | 638,000 | 2,061,000 |
TOTAL LIABILITIES | 638,000 | 2,061,000 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' EQUITY | ||
Preferred stock, $0.01 par value, authorized 10,000,000 shares; none issued and outstanding at September 30, 2019 and 12/31/2018 | ||
Common stock, $0.01 par value; authorized 50,000,000 shares; 24,137,841 and 23,735,927 shares issued and outstanding at September 30, 2019 and December 31, 2018, | 241,000 | 237,000 |
Additional paid-in capital | 65,678,000 | 65,151,000 |
Accumulated deficit | (11,310,000) | (7,102,000) |
Accumulated other comprehensive income (loss) | 102,000 | (81,000) |
TOTAL STOCKHOLDERS' EQUITY | 54,711,000 | 58,205,000 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 55,349,000 | $ 60,266,000 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2019 | Dec. 31, 2018 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 24,137,841 | 23,735,927 |
Common stock, shares outstanding | 24,137,841 | 23,735,927 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Condensed Consolidated Statements Of Operations And Comprehensive Income Loss | ||||
REVENUE | $ 520,000 | $ 1,798,000 | $ 1,725,000 | $ 21,732,000 |
OPERATING EXPENSES: | ||||
Costs of revenue | 138,000 | 596,000 | 459,000 | 7,988,000 |
Professional fees and related costs | 267,000 | 352,000 | 812,000 | 1,456,000 |
General and administrative | 466,000 | 491,000 | 1,442,000 | 1,460,000 |
Amortization of patents | 71,000 | 70,000 | 212,000 | 209,000 |
Stock-based compensation | 154,000 | 120,000 | 425,000 | 571,000 |
TOTAL OPERATING EXPENSES | 1,096,000 | 1,629,000 | 3,350,000 | 11,684,000 |
OPERATING INCOME(LOSS) | (576,000) | 169,000 | (1,625,000) | 10,048,000 |
OTHER INCOME (LOSS): | ||||
Interest and dividend income, net | 270,000 | 244,000 | 872,000 | 590,000 |
Net realized and unrealized gain (loss) on marketable securities | (39,000) | 6,000 | ||
Total other income, net | 231,000 | 244,000 | 878,000 | 590,000 |
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSSES OF EQUITY METHOD INVESTEE | (345,000) | 413,000 | (747,000) | 10,638,000 |
INCOME TAXES PROVISION (BENEFIT): | ||||
Current | (197,000) | 167,000 | (197,000) | 2,355,000 |
Deferred taxes, net | 67,000 | (36,000) | ||
Total income taxes provision (benefit) | (130,000) | 167,000 | (233,000) | 2,355,000 |
INCOME (LOSS) BEFORE SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE: | (215,000) | 246,000 | (514,000) | 8,283,000 |
SHARE OF NET (LOSSES) OF EQUITY METHOD INVESTEE | (196,000) | (345,000) | ||
NET INCOME (LOSS) | $ (411,000) | $ 246,000 | $ (859,000) | $ 8,283,000 |
Net Income (LOSS) Per Share | ||||
Basic | $ (0.02) | $ 0.01 | $ (0.04) | $ 0.35 |
Diluted | $ (0.02) | $ 0.01 | $ (0.04) | $ 0.33 |
Weighted average common shares outstanding: | ||||
Basic | 24,138,191 | 23,525,645 | 23,935,304 | 23,767,700 |
Diluted | 24,138,191 | 24,922,434 | 23,935,304 | 25,457,953 |
Cash dividends declared per share | $ 0.05 | $ 0.05 | $ 0.10 | $ 0.10 |
NET INCOME (LOSS) | $ (411,000) | $ 246,000 | $ (859,000) | $ 8,283,000 |
OTHER COMPREHENSIVE INOME (LOSS) | ||||
Net unrealized holding gain (loss) on corporate bonds and notes arising during the period, net of tax | 20,000 | (5,000) | 183,000 | (39,000) |
COMPREHENSIVE INCOME (LOSS) | $ (391,000) | $ 241,000 | $ (676,000) | $ 8,244,000 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total |
Beginning Balance, Shares at Dec. 31, 2017 | 23,843,915 | ||||
Beginning Balance, Amount at Dec. 31, 2017 | $ 238,000 | $ 64,435,000 | $ (10,219,000) | $ (42,000) | $ 54,412,000 |
Dividends and dividend equivalents declared | (1,228,000) | (1,228,000) | |||
Stock-based compensation | 226,000 | 226,000 | |||
Vesting of restricted stock units, Shares | 11,250 | ||||
Vesting of restricted stock units, Amount | |||||
Cashless exercise of options, Shares | 50,000 | ||||
Cashless exercise of options, Amount | $ 1,000 | 1,000 | |||
Shares delivered to fund stock option exercises, shares | (23,110) | ||||
Shares delivered to fund stock option exercises, amount | |||||
Treasury stock purchased and retired, Shares | (153,993) | ||||
Treasury stock purchased and retired, Amount | $ (2,000) | (397,000) | (399,000) | ||
Net unrealized loss on corporate bonds and notes | (25,000) | (25,000) | |||
Proceeds from exercise of options, Shares | 25,000 | ||||
Proceeds from exercise of options, Amount | $ 1,000 | 29,000 | 30,000 | ||
Net loss | 8,601,000 | 8,601,000 | |||
Ending Balance, Shares at Mar. 31, 2018 | 23,753,062 | ||||
Ending Balance, Amount at Mar. 31, 2018 | $ 238,000 | 64,690,000 | (3,243,000) | (67,000) | 61,618,000 |
Beginning Balance, Shares at Dec. 31, 2017 | 23,843,915 | ||||
Beginning Balance, Amount at Dec. 31, 2017 | $ 238,000 | 64,435,000 | (10,219,000) | (42,000) | 54,412,000 |
Net loss | 8,283,000 | ||||
Ending Balance, Shares at Sep. 30, 2018 | 23,755,171 | ||||
Ending Balance, Amount at Sep. 30, 2018 | $ 237,000 | 65,035,000 | (6,452,000) | (81,000) | 58,739,000 |
Beginning Balance, Shares at Mar. 31, 2018 | 23,753,062 | ||||
Beginning Balance, Amount at Mar. 31, 2018 | $ 238,000 | 64,690,000 | (3,243,000) | (67,000) | 61,618,000 |
Stock-based compensation | 225,000 | 225,000 | |||
Vesting of restricted stock units, Shares | 81,250 | ||||
Vesting of restricted stock units, Amount | |||||
Value of shares delivered to pay withholding taxes, shares | (16,784) | ||||
Value of shares delivered to pay withholding taxes, amount | 2,000 | (53,000) | (51,000) | ||
Cashless exercise of options, Shares | 300,000 | ||||
Cashless exercise of options, Amount | $ 3,000 | (3,000) | |||
Shares delivered to fund stock option exercises, shares | (181,936) | ||||
Shares delivered to fund stock option exercises, amount | $ (2,000) | 2,000 | |||
Treasury stock purchased and retired, Shares | (302,363) | ||||
Treasury stock purchased and retired, Amount | $ (3,000) | (882,000) | (885,000) | ||
Net unrealized loss on corporate bonds and notes | (9,000) | (9,000) | |||
Net loss | (564,000) | (564,000) | |||
Ending Balance, Shares at Jun. 30, 2018 | 23,633,229 | ||||
Ending Balance, Amount at Jun. 30, 2018 | $ 236,000 | 64,916,000 | (4,742,000) | (76,000) | 60,334,000 |
Dividends and dividend equivalents declared | (1,217,000) | (1,217,000) | |||
Stock-based compensation | 120,000 | 120,000 | |||
Vesting of restricted stock units, Shares | 386,250 | ||||
Vesting of restricted stock units, Amount | $ 3,000 | (3,000) | |||
Value of shares delivered to pay withholding taxes, shares | (172,313) | ||||
Value of shares delivered to pay withholding taxes, amount | $ (2,000) | 2,000 | (490,000) | (490,000) | |
Treasury stock purchased and retired, Shares | (91,995) | ||||
Treasury stock purchased and retired, Amount | (249,000) | (249,000) | |||
Net unrealized loss on corporate bonds and notes | (5,000) | (5,000) | |||
Net loss | 246,000 | 246,000 | |||
Ending Balance, Shares at Sep. 30, 2018 | 23,755,171 | ||||
Ending Balance, Amount at Sep. 30, 2018 | $ 237,000 | 65,035,000 | (6,452,000) | (81,000) | 58,739,000 |
Beginning Balance, Shares at Dec. 31, 2018 | 23,735,927 | ||||
Beginning Balance, Amount at Dec. 31, 2018 | $ 237,000 | 65,151,000 | (7,102,000) | (81,000) | 58,205,000 |
Dividends and dividend equivalents declared | (1,215,000) | (1,215,000) | |||
Stock-based compensation | 144,000 | 144,000 | |||
Vesting of restricted stock units, Shares | 11,250 | ||||
Vesting of restricted stock units, Amount | |||||
Cashless exercise of options, Shares | 105,000 | ||||
Cashless exercise of options, Amount | $ 1,000 | (1,000) | |||
Shares delivered to fund stock option exercises, shares | (69,116) | ||||
Shares delivered to fund stock option exercises, amount | |||||
Treasury stock purchased and retired, Shares | (300) | ||||
Treasury stock purchased and retired, Amount | (1,000) | (1,000) | |||
Net unrealized loss on corporate bonds and notes | 110,000 | 110,000 | |||
Net loss | (240,000) | (240,000) | |||
Ending Balance, Shares at Mar. 31, 2019 | 23,782,761 | ||||
Ending Balance, Amount at Mar. 31, 2019 | $ 238,000 | 65,294,000 | (8,558,000) | 29,000 | 57,003,000 |
Beginning Balance, Shares at Dec. 31, 2018 | 23,735,927 | ||||
Beginning Balance, Amount at Dec. 31, 2018 | $ 237,000 | 65,151,000 | (7,102,000) | (81,000) | 58,205,000 |
Net loss | (859,000) | ||||
Ending Balance, Shares at Sep. 30, 2019 | 24,137,841 | ||||
Ending Balance, Amount at Sep. 30, 2019 | $ 241,000 | 65,678,000 | (11,310,000) | 102,000 | 54,711,000 |
Beginning Balance, Shares at Mar. 31, 2019 | 23,782,761 | ||||
Beginning Balance, Amount at Mar. 31, 2019 | $ 238,000 | 65,294,000 | (8,558,000) | 29,000 | 57,003,000 |
Stock-based compensation | 127,000 | 127,000 | |||
Vesting of restricted stock units, Shares | 11,250 | ||||
Vesting of restricted stock units, Amount | |||||
Value of shares delivered to pay withholding taxes, shares | |||||
Value of shares delivered to pay withholding taxes, amount | (366,000) | (366,000) | |||
Cashless exercise of options, Shares | 859,849 | ||||
Cashless exercise of options, Amount | $ 9,000 | (9,000) | |||
Shares delivered to fund stock option exercises, shares | (490,351) | ||||
Shares delivered to fund stock option exercises, amount | $ (5,000) | 5,000 | |||
Treasury stock purchased and retired, Shares | (139,848) | ||||
Treasury stock purchased and retired, Amount | $ (1,000) | (332,000) | (333,000) | ||
Net unrealized loss on corporate bonds and notes | 53,000 | 53,000 | |||
Proceeds from exercise of options, Shares | 65,150 | ||||
Proceeds from exercise of options, Amount | 107,000 | 107,000 | |||
Net loss | (208,000) | (208,000) | |||
Ending Balance, Shares at Jun. 30, 2019 | 24,088,811 | ||||
Ending Balance, Amount at Jun. 30, 2019 | $ 241,000 | 65,524,000 | (9,464,000) | 82,000 | 56,383,000 |
Dividends and dividend equivalents declared | (1,227,000) | (1,227,000) | |||
Stock-based compensation | 154,000 | 154,000 | |||
Vesting of restricted stock units, Shares | 136,250 | ||||
Vesting of restricted stock units, Amount | $ 1,000 | (1,000) | |||
Value of shares delivered to pay withholding taxes, shares | (56,813) | ||||
Value of shares delivered to pay withholding taxes, amount | $ (1,000) | 1,000 | (133,000) | (133,000) | |
Cashless exercise of options, Amount | |||||
Shares delivered to fund stock option exercises, amount | |||||
Treasury stock purchased and retired, Shares | (30,407) | ||||
Treasury stock purchased and retired, Amount | (75,000) | (75,000) | |||
Net unrealized loss on corporate bonds and notes | 20,000 | 20,000 | |||
Net loss | (411,000) | (411,000) | |||
Ending Balance, Shares at Sep. 30, 2019 | 24,137,841 | ||||
Ending Balance, Amount at Sep. 30, 2019 | $ 241,000 | $ 65,678,000 | $ (11,310,000) | $ 102,000 | $ 54,711,000 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income (loss) | $ (859,000) | $ 8,283,000 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Amortization of patents | 212,000 | 209,000 |
Stock-based compensation | 425,000 | 571,000 |
Loss from equity investment | 345,000 | |
Deferred tax benefit | (36,000) | |
Amortization of right of use asset, net | 76,000 | |
Unrealized gain on marketable securities | (17,000) | |
Changes in operating assets and liabilities: | ||
Royalty receivables | (49,000) | (1,286,000) |
Prepaid taxes | 125,000 | |
Other current assets | 81,000 | 65,000 |
Accounts payable | 178,000 | (85,000) |
Income taxes payable | (197,000) | 744,000 |
Operating lease obligations | (74,000) | |
Accrued expenses | (1,473,000) | (1,334,000) |
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (1,388,000) | 7,292,000 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Sales of marketable securities | 30,836,000 | |
Increase in security deposit | (2,000) | |
Purchases of marketable securities | (30,691,000) | (26,601,000) |
Development of patents | (55,000) | (102,000) |
Equity Investment | (2,500,000) | |
NET CASH USED IN INVESTING ACTIVITY | (2,410,000) | (26,705,000) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Cash dividends paid | (2,428,000) | (2,445,000) |
Value of shares delivered to fund withholding taxes | (499,000) | (545,000) |
Repurchases of common stock, net of commissions | (408,000) | (1,535,000) |
Proceeds from exercise of options | 107,000 | 30,000 |
NET CASH USED IN FINANCING ACTIVITIES | (3,228,000) | (4,495,000) |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (7,026,000) | (23,908,000) |
CASH AND CASH EQUIVALENTS, beginning of period | 23,763,000 | 51,101,000 |
CASH AND CASH EQUIVALENTS, end of period | 16,737,000 | 27,193,000 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||
Cash paid during the period for: Interest | ||
Cash paid during the period for: Income taxes | 1,501,000 | |
NON-CASH FINANCING ACTIVITY | ||
Accrued dividend rights on restricted stock units | $ 50,000 | $ 61,000 |
BASIS OF PRESENTATION AND NATUR
BASIS OF PRESENTATION AND NATURE OF BUSINESS: | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE A - BASIS OF PRESENTATION AND NATURE OF BUSINESS: | [1] BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited, but, in the opinion of the management of Network-1 Technologies, Inc. (the "Company"), contain all adjustments consisting only of normal recurring items which the Company considers necessary for the fair presentation of the Company's financial position as of September 30, 2019, and the results of its operations and comprehensive income (loss) for the three and nine month periods ended September 30, 2019 and September 30, 2018, changes in stockholders' equity for the three and nine month periods ended September 30, 2019 and September 30, 2018, and its cash flows for the nine month periods ended September 30, 2019 and September 30, 2018. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP may have been omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2019. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying unaudited condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, Mirror Worlds Technologies, LLC. [2] BUSINESS The Company is engaged in the development, licensing and protection of its intellectual property assets. The Company presently owns seventy-two (72) The Company's current strategy includes continuing to pursue licensing opportunities for its intellectual property assets. In addition, the Company continually reviews opportunities to acquire or license additional intellectual property as well as other strategic alternatives. The Company's patent acquisition strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as the Company has achieved with respect to its Remote Power Patent and Mirror Worlds Patent Portfolio. In addition, the Company may enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property. On August 30, 2018, the Company appealed the decision of the U.S. District Court for the Eastern District of Texas denying its motion for a new trial on infringement with respect to the November 13, 2017 jury finding that its Remote Power Patent was not infringed by Hewlett Packard. Oral argument on the appeal took place on November 4, 2019 and a decision is pending. If the Company is unable to reverse the District Court order of non-infringement on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected (see Note I[1] and Note I[2] hereof). Consistent with the Company's revenue recognition policy (see Note B[4] hereof), the Company did not record revenue for 2018 and for the three and nine months ended September 30, 2019 from certain licensees, including Cisco, who notified the Company they would not pay the Company ongoing royalties as a result of the HP Jury Verdict. The Company disagrees with the position taken by such licensees and may pursue arbitration if it does not achieve a satisfactory resolution (see Note I[1] and I[2] hereof). |
SUMMARY OF SIGNIFICANT ACCOUNT
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | [1] Use of Estimates and Assumptions The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company's unaudited condensed consolidated financial statements include revenue recognition, stock-based compensation, income taxes, valuation of patents and equity method investments, including evaluation of the Company's basis difference. Actual results could be materially different from those estimates, upon which the carrying values were based. [2] Cash and Cash Equivalents The Company maintains cash deposits in high quality financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC"). Accounts at each institution are insured by the FDIC up to $250,000. At September 30, 2019, the Company maintained a cash balance of $8,964,000 in excess of the FDIC insured limit. The Company considers all highly liquid short-term investments, including certificates of deposit and money market funds, that are purchased with an original maturity of three months or less to be cash equivalents. [3] Marketable Securities The Company's marketable securities are comprised of certificates of deposit with original maturity greater than three months from date of purchase, fixed income mutual funds, and corporate bonds and notes (see Note F). At September 30, 2019, included in marketable securities, the Company had aggregate certificates of deposit of $4,455,000 at financial institutions which were within the FDIC limit. The Company's marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit and fixed income mutual funds are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations and comprehensive income (loss). Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities. [4] Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09 Revenue from Contracts with Customers Under ASC 606, revenue is recognized when the Company completes the licensing of its intellectual property to its licensees, in an amount that reflects the consideration the Company expects to be entitled to in exchange for licensing its intellectual property. The Company determines revenue recognition through the following steps: · identification of the license agreement; · identification of the performance obligations in the license agreement; · determination of the consideration for the license; · allocation of the transaction price to the performance obligations in the contract; and · recognition of revenue when the Company satisfies its performance obligations. Revenue disaggregated by source is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Fully-Paid – Licenses $ ― $ 1,000,000 $ 130,000 (1) $ 13,700,000 Royalty Bearing - Licenses 520,000 798,000 1,595,000 1,712,000 Other Revenue ― ― ― 6,320,000 (2) Total Revenue $ 520,000 $ 1,798,000 $ 1,725,000 $ 21,732,000 (1) Includes conversion of an existing royalty bearing license to a fully-paid license. (2) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I[1] hereof). The Company relies on royalty reports received from third party licensees to record its revenue. From time to time, the Company may audit or otherwise dispute royalties reported from licensees. Any adjusted royalty revenue as a result of such audits or dispute is recorded by the Company in the period in which such adjustment is agreed to by the Company and the licensee or otherwise determined. Revenue from the Company's patent licensing business is generated from negotiated license agreements. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the terms of each agreement and the nature of the obligations of the parties. These agreements may include, but not be limited to, elements related to past infringement liabilities, non-refundable upfront license fees, and ongoing royalties on licensed products sold by the licensee. Generally, in the event of settlement of litigation related to the Company's assertion of patent infringement involving its intellectual property, defendants will either pay (i) a non-refundable lump sum payment for a non-exclusive fully-paid license (a "Fully-Paid License"), or (ii) a non-refundable lump sum payment (license initiation fee) together with an ongoing obligation to pay quarterly or monthly royalties to the Company for the life of the licensed patent (a "Royalty Bearing License"). The Company's license agreements, both Fully-Paid Licenses and Royalty Bearing Licenses, typically include some combination of the following: (i) the grant of a non-exclusive license to manufacture and/or sell products covered by its patented technologies; (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted pursuant to these licenses typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company typically has no further performance obligations with respect to the grant of the non-exclusive licenses. Generally, the license agreements provide for the grant of the licenses, releases, and other obligations following execution of the agreement and the receipt of the up-front lump sum payment for a Fully-Paid License or a license initiation fee for a Royalty Bearing License. Ongoing Royalty Payments: Certain of the Company's revenue from Royalty Bearing Licenses results from the calculation of royalties based on a licensee's actual quarterly sales (one licensee pays monthly royalties) of licensed products, applied to a contractual royalty rate. Licensees that pay royalties on a quarterly basis generally report to the Company actual quarterly sales and related quarterly royalties due within 45 days after the end of the quarter in which such sales activity takes place. Licensees with Royalty Bearing Licenses are obligated to provide the Company with quarterly (or monthly) royalty reports that summarize their sales of licensed products and their related royalty obligations to the Company. The Company receives these royalty reports subsequent to the period in which its licensees underlying sales occurred. The amount of royalties due under Royalty Bearing Licenses, each quarter, cannot be reasonably estimated by management. Consequently, the Company recognizes revenue for the period in which the royalty report is received in arrears and other revenue recognition criteria are met. Non-Refundable Up-Front Fees: Fully-Paid Licenses provide for a non-refundable up-front payment, for which the Company has no future obligations or performance requirements, revenue is generally recognized when the Company has obtained the signed license agreement, all performance obligations have been substantially performed, amounts are fixed and determinable, and collectability is reasonably assured. Revenue from Fully-Paid Licenses may consist of one or more installments. The timing and amount of revenue recognized from each licensee depends upon a number of factors including the specific terms of each agreement and the nature of the deliverables and obligations. [5] Equity Method Investments Equity method investments are equity securities in entities the Company does not control but over which it has the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. Upon sale of equity method investments, the difference between sales proceeds and the carrying amount of the equity investment is recognized in profit or loss. [6] Patents The Company owns patents that relate to various technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of its acquired patents and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the patents would be capitalized and amortized over the balance of the useful life for the patents. [7] Costs of Revenue The Company includes in costs of revenue for the three and nine months ended September 30, 2019 and 2018 contingent legal fees payable to patent litigation counsel (see Note G[1] hereof), other contractual payments related to net proceeds from settlements (see Note G[2] hereof) and incentive bonus compensation payable to its Chairman and Chief Executive Officer (see Note H[1] hereof). [8] Income Taxes The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes ASC 740-10, Accounting for Uncertainty in Income Taxes U.S. federal, state and local income tax returns prior to 2015 are not subject to examination by any applicable tax authorities, except that tax authorities could challenge returns (only under certain circumstances) for earlier years to the extent they generated loss carry-forwards that are available for those future years. In July 2018, the Internal Revenue Service notified the Company that it was examining its 2016 federal tax return. On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Act"), which made significant changes to the U.S. federal income tax law. The Tax Act affects 2018 and forward, including, but not limited to, a reduction in the federal corporate rate from 35% to 21%, elimination of the corporate alternative minimum tax, a new limitation on the deductibility of certain executive compensation, limitations on net operating losses generated after December 31, 2017 and various other items. The personal holding company ("PHC") rules under the Internal Revenue Code impose a 20% tax on a PHC's undistributed personal holding company income ("PHC Income"), which means, in general, taxable income subject to certain adjustments. For a corporation to be classified as a PHC, it must satisfy two tests: (i) that more than 50% in value of its outstanding shares must be owned directly or indirectly by 5 or fewer individuals at any time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the "Ownership Test") and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the "Income Test"). As of September 30, 2019 (as well as during the second half of prior years), the Company believes it did not meet the Ownership Test. Due to the significant number of shares held by the Company's largest shareholders, the Company continually assesses its share ownership to determine whether it meets the Ownership Test. If the Ownership Test were met and the income generated by the Company were determined to constitute "royalties" within the meaning of the Income Test, the Company would constitute a PHC and the Company would be subject to a 20% tax on the amount of any PHC Income that it does not distribute to its shareholders. [9] Stock-Based Compensation The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718 Compensation - Stock Compensation Compensation expense related to awards to employees is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Share based payments issued to non-employees are recorded at their fair values and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period and are expensed using an accelerated attribution model. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options granted. The fair value of restricted stock units is determined based on the number of shares underlying the grant and either the quoted market price of the Company's common stock on the date of grant fortime-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model for market-based awards (see Note D for further discussion of the Company's stock-based compensation). On January 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting [10] Earnings Per Share The Company reports earnings per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and options to purchase common stock, were exercised and shares were issued pursuant to outstanding restricted stock units. Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share (see Note E). [11] Fair Value Measurements ASC Topic 820, Fair Value Measurement and Disclosures There are three levels of inputs that may be used to measure fair value: Level 1: Observable inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that are supported by little or no market activity; therefore, the inputs are developed by the Company using estimates and assumptions that the Company expects a market participant would use, including pricing models, discounted cash flow methodologies, or similar techniques. The carrying value of the Company's financial instruments, including cash and cash equivalents, royalty receivable, other assets, accounts payable, and accrued expenses approximates fair value because of the short-term nature of these financial instruments. The Company's marketable securities are classified within Level 1 because they are valued using quoted market prices in an active market (see Marketable Securities – Note F). [12] Carrying Value, Recoverability and Impairment of Long-Lived Assets An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. If an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited. At September 30, 2019 and 2018, there was no impairment to the Company's patents and equity investment. The Company's equity method investment in ILiAD Biotechnologies, LLC ("ILiAD"), a privately held development stage biotechnology company (see Equity Investment – Note J) is evaluated on a non-recurring basis for impairment and is classified within Level 3 as it is valued using significant unobservable inputs or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity. [13] Dividend Policy Cash dividends are recorded when declared by the Company's Board of Directors. Common stock dividends are charged against retained earnings when declared or paid (see Note M hereof). [14] Reclassification The Company has reclassified certain amounts in the prior period consolidated financial statements to conform to the current period's presentation. The Company reclassified a certain investment within cash and cash equivalents which was previously classified as marketable securities. These reclassifications had no impact on the previously reported net income. [15] New Accounting Standards Leases In February 2016, the FASB issued ASU 2016-2, Leases The Company elected to adopt ASC 842 using the modified retrospective method and, therefore, has not recast comparative periods presented in its unaudited condensed consolidated financial statements. The Company elected the package of transition practical expedients for existing leases and therefore the Company has not reassessed the following: lease classification for existing leases, whether any existing contracts contained leases, and if any initial direct costs were incurred. The Company did not apply the hindsight practical expedient, and accordingly, the Company did not use hindsight in its assessment of lease terms. As permitted under ASC 842, the Company elected to not recognize ROU assets and related lease obligations for leases with terms of twelve months or less. In connection with the adoption of ASC 842, the Company recorded $127,000 of operating lease right-of-use assets and $128,000 of operating lease obligations as of January 1, 2019. See Note G[3] for additional information and required disclosures. Under ASC 842, the Company determined if an arrangement is a lease at inception. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's determined incremental borrowing rate is a hypothetical rate based on its understanding of what the Company's credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received and net of the deferred rent balance on the date of implementation. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options. Disclosures On January 1, 2019, the Company adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification Fair Value Measurements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement |
PATENTS
PATENTS | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE C - PATENTS | The Company's intangible assets at September 30, 2019 include patents with estimated remaining economic useful lives ranging from 0.75 to 15.0 September 30, 2019 December 31, 2018 Gross carrying amount – patents $ 7,737,000 $ 7,682,000 Accumulated amortization – patents (5,905,000 ) (5,693,000 ) Patents, net $ 1,832,000 $ 1,989,000 Amortization expense for the three months ended September 30, 2019 and September 30, 2018 was $71,000 Twelve Months Ended September 30, 2020 $ 285,000 2021 285,000 2022 285,000 2023 240,000 2024 and thereafter 737,000 Total $ 1,832,000 The Company's Remote Power Patent expires in March 2020. The expiration date of the patent within the Company's Mirror Worlds Patent Portfolio is February 2020 (eight of the nine patents in the Mirror Worlds Patent Portfolio have expired). The expiration dates of the patents within the Cox Patent Portfolio range from September 2021 to November 2023. The expiration dates of patents within the Company's M2M/IoT Patent Portfolio range from September 2033 to May 2034 and the expiration date of the QoS Patents was June 2019. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE D - STOCK-BASED COMPENSATION | Restricted Stock Units During the nine months ended September 30, 2019, the Company issued 15,000 restricted stock units ("RSUs") to each of its three non-management directors as an annual grant for 2019 for service on the Company's Board of Directors. The RSUs vest in four equal quarterly installments of 3,750 shares of common stock on March 15, 2019, June 15, 2019, September 15, 2019 and December 15, 2019, subject to continued service on the Board of Directors. On July 14, 2019, 125,000 restricted stock units owned by the Company's Chairman and Chief Executive Officer vested in accordance with his employment agreement dated July, 14, 2016 (see Note H[1] hereof). With respect to the vesting of such restricted stock units, the Company's Chairman and Chief Executive Officer delivered 56,813 shares of common stock to satisfy withholding taxes and received 68,187 net shares of common stock. During the nine months ended September 30, 2018, the Company issued 15,000 RSUs to each of its three non-management directors as an annual grant for 2018 for service on the Company's Board of Directors. The RSUs vested in four equal quarterly installments of 3,750 shares of common stock on March 15, 2018, June 15, 2018, September 15, 2018 and December 15, 2018, subject to continued service on the Board of Directors. On July 14, 2018, 375,000 restricted stock units owned by the Company's Chairman and Chief Executive Officer vested in accordance with his employment agreement, dated July 14, 2016 (see Note H[1] hereof). With respect to such vesting of restricted stock units, the Company's Chairman and Chief Executive Officer delivered 172,313 shares of common stock to satisfy withholding taxes and received 202,687 net shares of common stock. A summary of restricted stock unit activity for the nine months ended September 30, 2019 is as follows (each restricted stock unit issued by the Company represents the right to receive one share of the Company's common stock): Number of Shares Weighted-Average Grant Date Fair Value Balance of restricted stock units outstanding at December 31, 2018 $ 2.17 Grants of restricted stock units 45,000 2.60 Vested restricted stock units (158,750 ) 2.16 Balance of unvested restricted stock units at September 30, 2019 $ 2.23 Restricted stock unit compensation expense was $154,000 The Company has an aggregate of $308,000 of unrecognized restricted stock unit compensation as of September 30, 2019 to be expensed over a weighted average period of 1.25 years. All of the Company's outstanding (unvested) restricted stock units have dividend equivalent rights. As of September 30, 2019, there was $90,000 Stock Options There were no stock option grants during the nine months ended September 30, 2019 and September 30, 2018. The following table presents information relating to all stock options outstanding and exercisable at September 30, 2019: Range of Options Weighted Average Exercise Weighted Options $1.19 - $2.34 605,000 $1.39 2.61 605,000 The Company had no recorded stock-based compensation related to stock option grants for the three months ended September 30, 2019 and September 30, 2018. The Company had no unrecognized stock-based compensation cost as of September 30, 2019. The aggregate intrinsic value of stock options exercisable at September 30, 2019 was $570,000. During the three months ended September 30, 2019 and September 30, 2018, there were no stock option exercises. During the nine months ended September 30, 2019, stock options to purchase an aggregate of 925,000 shares of common stock were exercised by executive officers of the Company and a consultant (750,000 shares at an exercise price of $0.83 per share by the Company's Chairman andChief Executive Officer, 50,000 shares at an exercise price of $1.65 per share by each of the Company's Chief Financial Officer and Executive Vice President and 75,000 shares at an exercise price of $1.65 per share by a consultant). With respect to such stock option exercises, options to purchase an aggregate of 859,849 shares were exercised on a net exercise (cashless) basis by the Company's Chairman and Chief Executive Officer (750,000 shares), the Company's Executive Vice President (34,849 shares) and a consultant (75,000 shares) resulting in net shares (after delivery of shares for withholding taxes) of an aggregate of 328,111 issued to the Company's Chairman and Chief Executive Officer, 27,713 net shares issued to the Company's Executive Vice President and 28,824 net shares issued to the consultant. During the nine months ended September 30, 2019, stock options to purchase an aggregate of 105,000 shares of the Company's common stock, at an exercise price of $1.65 per share, were exercised on a net exercise (cashless) basis by three non-management directors of the Company. With respect to the aforementioned stock options, net shares of an aggregate of 35,884 were delivered to the three non-management directors. During the nine months ended September 30, 2018, a director of the Company exercised on a net exercise (cashless) basis a stock option to purchase 300,000 shares of common stock, at an exercise price of $1.88 per share, which resulted in net shares of 118,064 issued to the director. In addition, during the nine months ended September 30, 2018, stock options to purchase an aggregate of 75,000 shares of the Company's common stock, at an exercise price of $1.19 per share, were exercised by three non-management directors (25,000 shares were exercised for cash by a director and 50,000 shares were exercised by two directors on a net exercise (cashless) basis). With respect to the aforementioned stock options to purchase 50,000 shares on a net exercise basis by two directors of the Company, net shares of an aggregate of 26,890 were delivered to the directors. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE E - EARNINGS 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 includes the dilutive effects of options, warrants and restricted stock units. Potential shares of 996,250 and 2,021,250 at September 30, 2019 and September 30, 2018, respectively, consisted of options and restricted stock units. Computations of basic and diluted weighted average common shares outstanding were as follows: Nine Months Ended September 30, Three Months Ended September 30, 2019 2018 2019 2018 Weighted-average common shares outstanding – basic 23,935,304 23,767,700 24,138,191 23,525,645 Dilutive effect of options, warrants and restricted stock units ― 1,690,253 ― 1,396,789 Weighted-average common shares outstanding – diluted 23,935,304 25,457,953 24,138,191 24,922,434 Options and restricted stock units excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive 996,250 ― 996,250 ― |
MARKETABLE SECURITIES
MARKETABLE SECURITIES | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE F - MARKETABLE SECURITIES | Marketable securities as of September 30, 2019 and December 31, 2018 were composed of: September 30, 2019 Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 4,500,000 $ 8,000 $ ― $ 4,508,000 Fixed income mutual funds 15,810,000 9,000 ― 15,819,000 Corporate bonds and notes 10,854,000 176,000 (74,000 ) 10,956,000 Total marketable securities $ 31,164,000 $ 193,000 $ (74,000 ) $ 31,283,000 December 31, 2018 Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 13,151,000 $ ― $ ― $ 13,151,000 Fixed income mutual funds 9,648,000 ― (8,000 ) 9,640,000 Corporate bonds and notes 8,518,000 ― (81,000 ) 8,437,000 Total marketable securities $ 31,317,000 ― $ (89,000 ) $ 31,228,000 The Company's marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit and bond mutual funds are recorded in net realized and unrealized loss from investments on the condensed consolidated statements of operations and comprehensive income (loss). Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE G - COMMITMENTS AND CONTINGENCIES | [1] Legal Fees Russ, August & Kabat provides legal services to the Company with respect to its patent litigation filed in May 2017 against Facebook, Inc. in the U.S. District Court for the Southern District of New York relating to several patents within the Company's Mirror Worlds Patent Portfolio (see Note I[4] hereof). The terms of the Company's agreement with Russ, August & Kabat provide for cash payments on a monthly basis subject to a cap plus a contingency fee ranging between 15% and 24% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all of the expenses incurred with respect to this litigation. Russ, August & Kabat also provides legal services to the Company with respect to its pending patent litigations filed in April 2014 and December 2014 against Google Inc. and YouTube, LLC in the U.S. District Court for the Southern District of New York relating to certain patents within the Company's Cox Patent Portfolio (see Note I[3] hereof). The terms of the Company's agreement with Russ, August & Kabat provide for legal fees on a full contingency basis ranging from 15% to 30% of the net recovery (after deduction of expenses) depending on the stage of the proceeding in which the result (settlement or judgment) is achieved. The Company is responsible for all of the expenses incurred with respect to this litigation. Dovel & Luner, LLP provides legal services to the Company with respect to its patent litigation filed in September 2011 against sixteen (16) data networking equipment manufacturers in the U.S. District Court for the Eastern District of Texas, Tyler (see Note I[1] hereof). The terms of the Company's agreement with Dovel & Luner LLP essentially provide for legal fees on a full contingency basis ranging from 12.5% to 35% (with certain exceptions) of the net recovery (after deduction for expenses) depending on the stage of the preceding in which a result (settlement or judgment) is achieved. For the three months ended September 30, 2019 and September 30, 2018, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $103,000 and $496,000, respectively. For the nine months ended September 30, 2019 and September 30, 2018, the Company incurred aggregate contingent legal fees to Dovel & Luner, LLP with respect to the litigation of $346,000 and $6,873,000, respectively. The Company is responsible for a certain portion of the expenses incurred with respect to the litigation. Dovel & Luner, LLP also provided legal services to the Company with respect to the litigation settled in July 2010 against Cisco and several other major data networking equipment manufacturers (see Note I[2] hereof). The terms of the Company's agreement with Dovel & Luner, LLP with respect to this litigation provided for legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of 24% (based on the settlement being achieved at the trial stage). With respect to royalty payments received from Cisco in accordance with the Company's settlement and license agreement with Cisco, the Company has an obligation to pay Dovel & Luner, LLP (including local counsel) 24% of such royalties received. During the three and nine months ended September 30, 2019 and September 30, 2018, the Company did not incur any contingent legal fees to Dovel & Luner, LLP with respect to the litigation. [2] Patent Acquisitions On February 28, 2013, the Company completed the acquisition of four patents (as well as a pending patent application) from Dr. Ingemar Cox (these patents together with subsequent related patent issuances comprise the Cox Patent Portfolio), a technology leader in digital watermarking content identification, digital rights management and related technologies, for a purchase price of $1,000,000 in cash and 403,226 shares of the Company's common stock. In addition, the Company is obligated to pay Dr. Cox 12.5% of the net proceeds (after deduction of expenses) generated by the Company from licensing, sale or enforcement of the patents. Since the acquisition of the patent portfolio from Dr. Cox, the Company has been issued twenty-nine (29) additional related patents by the USPTO resulting in an aggregate of thirty-three (33) patents within the Cox Patent Portfolio. On May 21, 2013, the Company's wholly-owned subsidiary, Mirror Worlds Technologies, LLC, acquired all of the patents previously owned by Mirror Worlds, LLC (which subsequently changed its name to Looking Glass LLC ("Looking Glass")), consisting of nine issued U.S. patents and five pending applications covering foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system (these patents together with subsequent related patent issuances comprise the Mirror Worlds Patent Portfolio). As consideration for the patent acquisition, the Company paid Looking Glass $3,000,000 in cash, and issued 5-year warrants to purchase an aggregate of 1,750,000 shares of the Company's common stock (875,000 shares of common stock at an exercise price of $1.40 per share and875,000 shares of common stock at an exercise price of $2.10 per share) (the "Looking Glass Warrants"). On June 3, 2014, the Company repurchased the Looking Glass Warrants from Looking Glass at a cost of $505,000. In addition, Recognition 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, and an affiliated entity also received warrants to purchase an aggregate of 1,250,000 shares of the Company's common stock (500,000 shares at an exercise price of $2.05 per share, 375,000 shares at an exercise price of $2.10 per share and 375,000 shares at an exercise price of $1.40 per share). All such warrants were exercised by Recognition (and its affiliate) as of January 2017, resulting in aggregate proceeds to the Company of $2,337,000. As part of the acquisition of the Mirror Worlds Patent Portfolio, the Company also entered into an agreement with Recognition pursuant to which Recognition received from the Company an interest in the net proceeds realized from the monetization of the Mirror Worlds Patent Portfolio, as follows: (i) 10% of the first $125 million of net proceeds; (ii) 15% of the next $125 million of net proceeds; and (iii) 20% of any portion of the net proceeds in excess of $250 million. Since entering into the agreement with Recognition in May 2013, the Company has paid Recognition an aggregate of $3,127,000 with respect to such net proceeds interest related to the Mirror Worlds Patent Portfolio. No such payments were made by the Company to Recognition during the three and nine months ended September 30, 2019 and September 30, 2018. On December 29, 2017, the Company acquired from M2M and IoT Technologies, LLC ("M2M") the M2M/IoT Patent Portfolio consisting of twelve (12) issued U.S. patents relating to, among other things, the enabling technology for authenticating and using embedded SIM cards in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers as well as automobiles and drones. The Company paid $1,000,000 to acquire the M2M/IoT Patent Portfolio from M2M and has an obligation to pay M2M 14% of the first $100 million of net proceeds (after deduction of expenses) and 5% of net proceeds greater than $100 million from Monetization Activities (as defined) related to the patent portfolio. In addition, M2M will be entitled to receive from the Company $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio. Since the acquisition of the patent portfolio from M2M, the Company has been issued eleven (11) additional related patents by the USPTO resulting in an aggregate of twenty-three (23) issued U.S. patents within the M2M/IoT Patent Portfolio. [3] Lease Agreements The Company currently has two facility operating leases with remaining lease terms of three months to eight months at September 30, 2019. The Company leases its principal office space in New York City at a monthly base rent of approximately $3,900 which lease expires on May 31, 2020. The Company also leases office space in New Canaan, Connecticut (which was to expire on September 30, 2019) at a base rent (inclusive of utilities) of $7,850 per month. The Connecticut lease was extended (in September 2019) through December 31, 2019. Under ASC 842 (see Note B[15] hereof), operating lease expense is generally recognized evenly over the term of the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease arrangements entered into or reassessed after the adoption of ASC 842, the Company combines the lease and non-lease components in determining the right-of-use ("ROU") assets and related lease obligation. Activity related to the Company's operating leases was as follows: Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 Operating lease expense $ 33,000 $ 107,000 Cash paid for amounts included in the measurement of operating lease obligations $ 34,000 $ 101,000 The Company's operating lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate was determined based on information available for purposes of determining the present value of lease payments. The Company used an incremental borrowing rate of 5.5% at January 1, 2019 for all leases that commenced prior to that date. ROU assets obtained in exchange for operating lease obligations totaled $128,000 at January 1, 2019. ROU lease assets and related lease obligations for the Company's operating leases were recorded in the unaudited condensed consolidated balance sheet as follows: As of September 30, 2019 Operating lease right-of-use assets $ 52,000 Operating lease obligations – current $ 53,000 Total lease obligations $ 53,000 Weighted average remaining lease term (in months) 6 months Weighted average discount rate 5.5% Future lease payments included in the measurement of lease liabilities on the unaudited condensed consolidated balance sheet as of September 30, 2019, were as follows: Operating Leases 2019 – remaining period $ 34,000 2020 $ 19,000 Total future minimum lease payments $ 53,000 Less imputed interest (1,000 ) Total operating lease liability $ 52,000 |
EMPLOYMENT ARRANGEMENTS AND OTH
EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE H - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS | [1] Under the terms of the Agreement, so long as the Chairman and Chief Executive Officer continues to serve as an executive officer of the Company, whether pursuant to the Agreement or otherwise, the Chairman and Chief Executive Officer shall also receive incentive compensation in an amount equal to 5% of the Company's gross royalties or other payments from Licensing Activities (as defined) (without deduction of legal fees or any other expenses) with respect to its Remote Power Patent and a 10% net interest (gross royalties and other payments after deduction of all legal fees and litigation expenses related to licensing, enforcement and sale activities, but in no event shall he receive less than 6.25% of the gross recovery) of the Company's royalties and other payments relating to Licensing Activities with respect to patents other than the Remote Power Patent (including the Mirror Worlds Patent Portfolio, Cox Patent Portfolio and M2M/IoT Patent Portfolio) (collectively, the "Incentive Compensation"). During the three months ended September 30, 2019 and September 30, 2018, the Chairman and Chief Executive Officer earned Incentive Compensation of $26,000 On July 14, 2018, 375,000 RSUs owned by the Company's Chairman and Chief Executive Officer vested in accordance with the above referenced terms of the Agreement. With respect to such vesting of RSUs, the Company's Chairman and Chief Executive Officer delivered 172,313 shares of common stock to satisfy withholding taxes and received 202,687 net shares of common stock. On July 14, 2019, 125,000 additional restricted stock units owned by the Company's Chairman and Chief Executive Officer vested in accordance with the Agreement. With respect to the vesting of such restricted stock units, the Company's Chairman and Chief Executive Officer delivered 56,813 shares of common stock to satisfy withholding taxes and received 68,187 net shares of common stock. The Incentive Compensation shall continue to be paid to the Chairman and Chief Executive Officer for the life of each of the Company's patents with respect to licenses entered into with third parties during the term of his employment or at any time thereafter, whether he is employed by the Company or not; provided, that, the Chairman and Chief Executive Officer's employment has not been terminated by the Company "For Cause" (as defined) or terminated by him without "Good Reason" (as defined). In the event of a merger or sale of substantially all of the assets of the Company, the Company has the option to extinguish the right of the Chairman and Chief Executive Officer to receive future Incentive Compensation by payment to him of a lump sum payment, in an amount equal to the fair market value of such future interest as determined by an independent third party expert if the parties do not reach agreement as to such value. In the event that theChairman and Chief Executive Officer's employment is terminated by the Company "Other Than For Cause" (as defined) or by him for "Good Reason" (as defined), the Chairman and Chief Executive Officer shall also be entitled to (i) a lump sum severance payment of 12 months base salary, (ii) a pro-rated portion of the $175,000 target bonus provided bonus criteria have been satisfied on a pro-rated basis through the calendar quarter in which the termination occurs and (iii) accelerated vesting of all unvested options, warrants, RSUs and other awards. In connection with the Agreement, the Chairman and Chief Executive Officer has also agreed not to compete with the Company as follows: (i) during the term of the Agreement and for a period of 12 months thereafter if his employment is terminated by us "Other Than For Cause" (as defined) provided he is paid his 12 month base salary severance amount and (ii) for a period of two years from the termination date, if terminated "For Cause" by the Company or "Without Good Reason" by the Chairman and Chief Executive Officer. [2] [3] |
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE I - LEGAL PROCEEDINGS | [1] On November 1, 2017, defendant Juniper Networks, Inc. ("Juniper") agreed to settle its litigation with the Company for $13,250,000 for a fully-paid license to the Company's Remote Power Patent. On December 8, 2017, the Company was advised by Juniper that it would not make the settlement payment to the Company as a result of the HP Jury Verdict and that there was no binding settlement agreement. On January 16, 2018, the Company revised and closed its settlement with defendant Juniper. The Company agreed to revise the settlement to avoid the possibility of protracted litigation regarding enforcing the settlement. Under the terms of the revised settlement, Juniper paid the Company $12,700,000 and received a fully-paid license to the Remote Power Patent (and certain other patents owned by the Company) for its full term, which applies to its sales of PoE products. On October 16, 2017, the U.S. Bankruptcy Court of the Southern District of New York approved the Company's settlement with defendant Avaya, Inc. ("Avaya"). As part of the settlement, Avaya, which on January 19, 2017 had filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, entered into a non-exclusive license agreement for the full term of the Remote Power Patent. Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated PoE products and agreed to pay ongoing royalties for other designated PoE products. In addition, Avaya agreed that the Company shall have an allowed general unsecured claim in the amount of $37,500,000, as amended, relating to all acts occurring on or before January 19, 2017 ("Allowed Claim"). Under the Debtors' Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and its Debtor Affiliates, which was approved by the Bankruptcy Court on November 28, 2017 and became effective on December 15, 2017, the Debtors estimated that the total amount of general unsecured claims that will ultimately be allowed will total approximately $305,000,000 which, based on the treatment of general unsecured creditors therein, would result in estimated recoveries for the holders of general unsecured claims of approximately 18.9% of their Allowed Claim. On January 9, 2018, the Company sold its Allowed Claim to a third party for $6,320,000. In October 2016, the Company entered a settlement agreement with Polycom, Inc. ("Polycom"). Under the terms of the settlement, Polycom entered into a non-exclusive license for the Remote Power Patent for its full term and is obligated to pay the Company a license initiation fee of $5,000,000 for past sales of its PoE products and ongoing royalties based on its sales of PoE products. $2,000,000 of the license initiation fee was paid within 30 days and the balance was payable in three annual installments of $1,000,000 beginning in October 2017. Payments due in October 2018 and October 2019 need not be paid by Polycom if all asserted claims of the Company's Remote Power Patent have been found invalid. Since the District Court in August 2018 granted the Company's motion for judgment as a matter of law that the Remote Power Patent is valid thereby overturning the HP Jury Verdict of invalidity, Polycom became obligated to make the aforementioned remaining aggregate payments of $2,000,000 (which payments were paid to the Company in November 2018 and November 2019). The $1,000,000 payment in November 2019 will be recorded as revenue by the Company in the fourth quarter of 2019. [2] The Company's seventeen (17) licensees with royalty bearing licenses are obligated to pay the Company ongoing royalties on a quarterly or monthly basis for the life of its Remote Power Patent (through March 2020), subject to certain conditions. These conditions include the continued validity of certain claims of the Remote Power Patent or a finding that a third party's PoE products are found not to infringe the Remote Power Patent and such finding applies to the applicable licensee's licensed products. As a result of the HP Jury Verdict several of the Company's largest licensees, including Cisco, its largest licensee, notified the Company in late November 2017 and January 2018 that they will no longer make ongoing royalty payments to the Company pursuant to their license agreements. If the Company successfully overturns the District Court judgment of non-infringement in the appeal to the Federal Circuit, certain licensees of the Remote Power Patent, including Cisco, will be obligated to pay the Company ongoing royalties and all royalties that accrued but were not paid following (and prior to) the HP Jury Verdict in November 2017. If the Company is unable to reverse the District Court order of non-infringement on appeal, or there is an arbitration ruling that certain of our licensees, including Cisco, are relieved of their obligations to pay royalties and the District Court order of non-infringement is not subsequently reversed on appeal, the Company's business, results of operations and cash-flow will continue to be materially adversely effected (see Note I[1] hereof). [3] The above referenced litigations that the Company commenced in the U.S. District Court for the Southern District of New York in April 2014 and December 2014 against Google and YouTube were subject to court ordered stays which were in effect from July 2, 2015 until January 2, 2019 as a result of proceedings at the Patent Trial and Appeal Board (PTAB) and related appeals. Pursuant to a Joint Stipulation and Order Regarding Lifting of Stays, entered on January 2, 2019, the parties agreed, among other things, that the stays with respect to the litigations were lifted. [4] [5] |
EQUITY INVESTMENT
EQUITY INVESTMENT | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE J – EQUITY INVESTMENT | On December 18, 2018, the Company agreed to make an investment of up to $5,000,000 in ILiAD Biotechnologies, LLC ("ILiAD"), a privately held development stage biotechnology company dedicated to the prevention of human disease caused by Bordetella pertussis with a current focus on its proprietary intranasal vaccine, BPZE1, for the prevention of pertussis (whooping cough). The investment by the Company was part of a financing of up to approximately $16,200,000 of Class C units of ILiAD, consisting of two tranches. The Company made an initial investment (tranche 1) at the December 18, 2018 closing of $2,500,000 to purchase 1,111,111 Class C units at $2.25 per unit and received five-year warrants to purchase 366,666 Class C units at an exercise price of $2.75 per unit. In connection with its investment, the Company's Chairman and Chief Executive Officer obtained a seat on ILiAD's Board of Managers. The Company incurred approximately $41,000 of advisory and legal expenses in conjunction with its equity investment in ILiAD which have been capitalized as a component of the equity investment carrying value. In accordance with the Securities Purchase Agreement, dated December 18, 2018, the Company became obligated to invest an additional $2,500,000 (tranche 2) to purchase 943,396 Class C units at $2.65 per unit (and received additional five-year warrants to purchase 311,320 Class C units at an exercise price of $3.50 per unit) as a result of ILiAD's notification to the Company on May 2, 2019 that it had received an "allowed to proceed" notice from the FDA permitting ILiAD to advance to the Phase 2b clinical study of its BP2E1 vaccine. ILiAD elected to permit its Class C investors (including the Company) to bifurcate their tranche 2 commitment such that 40% would be currently due ($1,000,000 paid by the Company on May 6, 2019) and 60% (additional $1,500,000 investment by the Company) would be due when ILiAD received satisfactory safety data from the clinical study. On August 9, 2019, ILiAD notified the Company that the FDA has allowed Phase 2b to proceed to full enrollment based on satisfactory safety data from the first phase of the clinical study which triggered the Company's additional $1,500,000 investment. At September 30, 2019, the Company owned approximately 10.4% of the outstanding units of ILiAD (on a non-fully diluted basis). The Company's investment in ILiAD is accounted for as an equity method investment in accordance with ASC 323, Investments — Equity Method and Joint Ventures The difference between the Company's share of equity in ILiAD's net assets and the equity investment carrying value reported on the Company's condensed consolidated balance sheet at September 30, 2019 is due to an excess amount paid over the book value of the investment totaling approximately $5,000,000 |
STOCK REPURCHASE
STOCK REPURCHASE | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE K - STOCK REPURCHASE | On June 11, 2019, the Board of Directors authorized an extension and increase of the Company's share repurchase program (the "Share Repurchase Program") to repurchase up to $5,000,000 of common stock over the subsequent 24 month period (for a total authorization of approximately $22,000,000 since inception of the program in August 2011). The common stock may be repurchased from time to time in open market transactions or privately negotiated transactions in the Company's discretion. The timing and amount of the shares repurchased is determined by management based on its evaluation of market conditions and other factors. The Share Repurchase Program may be increased, suspended or discontinued at any time. Since inception of the Share Repurchase Program through September 30, 2019, the Company has repurchased an aggregate of 8,324,953 shares of its common stock at an aggregate cost of $15,548,530 (exclusive of commissions) or an average per share price of $1.87. All such repurchased shares have been cancelled. During the three months ended September 30, 2019, the Company repurchased 30,407 shares of its common stock at a cost of $74,627 (exclusive of commissions) or an average per share price of $2.45. During the nine months ended September 30, 2019, the Company repurchased 170,555 shares of its common stock at a cost of $406,290 (exclusive of commissions) or an average per share price of $2.38. At September 30, 2019, the dollar value of remaining shares that may be repurchased under the Share Repurchase Program was $4,803,723. |
CONCENTRATIONS
CONCENTRATIONS | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE L - CONCENTRATIONS | Revenue from five |
DIVIDEND POLICY
DIVIDEND POLICY | 9 Months Ended |
Sep. 30, 2019 | |
Notes to Financial Statements | |
NOTE M - DIVIDEND POLICY | On December 7, 2016, the Board of Directors of the Company approved the initiation of a dividend policy providing for the payment of a semi-annual cash dividend of $0.05 per common share ($0.10 per common share annually) commencing in 2017. The Company anticipates paying the semi-annual cash dividends in March and September of each year. It is anticipated that the semi-annual cash dividend will continue to be paid through March 2020 (the expiration of the Company's Remote Power Patent) provided that the Company continues to receive royalties from licensees of its Remote Power Patent. On February 11, 2019, the Board of Directors declared a cash dividend of $0.05 per common share with a payment date of March 25, 2019 to all common stockholders as of March 11, 2019. On July 25, 2019, the Board of Directors declared a cash dividend of $.05 per common stock with a payment date of September 20, 2019 to all common stockholders as of September 4, 2019. In 2018, semi-annual cash dividends of $.05 per share were also paid in March and September. However, if the Company is unable to overturn the District Court order of non-infringement in its litigation with Hewlett-Packard on appeal to the Federal Circuit (see Note I[1] hereof), or there is not an arbitration ruling that the HP Jury Verdict finding of non-infringement does not apply to certain licensees of the Remote Power Patent including Cisco, the Board of Directors may decide to modify or discontinue semi-annual cash dividends of $0.05 per common share. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Summary Of Significant Accounting Policies | |
Use of Estimates and Assumptions | The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company's unaudited condensed consolidated financial statements include revenue recognition, stock-based compensation, income taxes, valuation of patents and equity method investments, including evaluation of the Company's basis difference. Actual results could be materially different from those estimates, upon which the carrying values were based. |
Cash and Cash Equivalents | The Company maintains cash deposits in high quality financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC"). Accounts at each institution are insured by the FDIC up to $250,000. At September 30, 2019, the Company maintained a cash balance of $8,964,000 in excess of the FDIC insured limit. The Company considers all highly liquid short-term investments, including certificates of deposit and money market funds, that are purchased with an original maturity of three months or less to be cash equivalents. |
Marketable Securities | The Company's marketable securities are comprised of certificates of deposit with original maturity greater than three months from date of purchase, fixed income mutual funds, and corporate bonds and notes (see Note F). At September 30, 2019, included in marketable securities, the Company had aggregate certificates of deposit of $4,455,000 at financial institutions which were within the FDIC limit. The Company's marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on certificates of deposit and fixed income mutual funds are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations and comprehensive income (loss). Unrealized holding gains and losses, net of the related tax effect, on corporate bonds and notes are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities. |
Revenue Recognition | On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09 Revenue from Contracts with Customers Under ASC 606, revenue is recognized when the Company completes the licensing of its intellectual property to its licensees, in an amount that reflects the consideration the Company expects to be entitled to in exchange for licensing its intellectual property. The Company determines revenue recognition through the following steps: · identification of the license agreement; · identification of the performance obligations in the license agreement; · determination of the consideration for the license; · allocation of the transaction price to the performance obligations in the contract; and · recognition of revenue when the Company satisfies its performance obligations. Revenue disaggregated by source is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Fully-Paid – Licenses $ ― $ 1,000,000 $ 130,000 (1) $ 13,700,000 Royalty Bearing - Licenses 520,000 798,000 1,595,000 1,712,000 Other Revenue ― ― ― 6,320,000 (2) Total Revenue $ 520,000 $ 1,798,000 $ 1,725,000 $ 21,732,000 (1) Includes conversion of an existing royalty bearing license to a fully-paid license. (2) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I[1] hereof). The Company relies on royalty reports received from third party licensees to record its revenue. From time to time, the Company may audit or otherwise dispute royalties reported from licensees. Any adjusted royalty revenue as a result of such audits or dispute is recorded by the Company in the period in which such adjustment is agreed to by the Company and the licensee or otherwise determined. Revenue from the Company's patent licensing business is generated from negotiated license agreements. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the terms of each agreement and the nature of the obligations of the parties. These agreements may include, but not be limited to, elements related to past infringement liabilities, non-refundable upfront license fees, and ongoing royalties on licensed products sold by the licensee. Generally, in the event of settlement of litigation related to the Company's assertion of patent infringement involving its intellectual property, defendants will either pay (i) a non-refundable lump sum payment for a non-exclusive fully-paid license (a "Fully-Paid License"), or (ii) a non-refundable lump sum payment (license initiation fee) together with an ongoing obligation to pay quarterly or monthly royalties to the Company for the life of the licensed patent (a "Royalty Bearing License"). The Company's license agreements, both Fully-Paid Licenses and Royalty Bearing Licenses, typically include some combination of the following: (i) the grant of a non-exclusive license to manufacture and/or sell products covered by its patented technologies; (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted pursuant to these licenses typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, the Company typically has no further performance obligations with respect to the grant of the non-exclusive licenses. Generally, the license agreements provide for the grant of the licenses, releases, and other obligations following execution of the agreement and the receipt of the up-front lump sum payment for a Fully-Paid License or a license initiation fee for a Royalty Bearing License. Ongoing Royalty Payments: Certain of the Company's revenue from Royalty Bearing Licenses results from the calculation of royalties based on a licensee's actual quarterly sales (one licensee pays monthly royalties) of licensed products, applied to a contractual royalty rate. Licensees that pay royalties on a quarterly basis generally report to the Company actual quarterly sales and related quarterly royalties due within 45 days after the end of the quarter in which such sales activity takes place. Licensees with Royalty Bearing Licenses are obligated to provide the Company with quarterly (or monthly) royalty reports that summarize their sales of licensed products and their related royalty obligations to the Company. The Company receives these royalty reports subsequent to the period in which its licensees underlying sales occurred. The amount of royalties due under Royalty Bearing Licenses, each quarter, cannot be reasonably estimated by management. Consequently, the Company recognizes revenue for the period in which the royalty report is received in arrears and other revenue recognition criteria are met. Non-Refundable Up-Front Fees: Fully-Paid Licenses provide for a non-refundable up-front payment, for which the Company has no future obligations or performance requirements, revenue is generally recognized when the Company has obtained the signed license agreement, all performance obligations have been substantially performed, amounts are fixed and determinable, and collectability is reasonably assured. Revenue from Fully-Paid Licenses may consist of one or more installments. The timing and amount of revenue recognized from each licensee depends upon a number of factors including the specific terms of each agreement and the nature of the deliverables and obligations. |
Equity Method Investments | Equity method investments are equity securities in entities the Company does not control but over which it has the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. Upon sale of equity method investments, the difference between sales proceeds and the carrying amount of the equity investment is recognized in profit or loss. |
Patents | The Company owns patents that relate to various technologies. The Company capitalizes the costs associated with acquisition, registration and maintenance of its acquired patents and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the patents would be capitalized and amortized over the balance of the useful life for the patents. |
Costs of Revenue | The Company includes in costs of revenue for the three and nine months ended September 30, 2019 and 2018 contingent legal fees payable to patent litigation counsel (see Note G[1] hereof), other contractual payments related to net proceeds from settlements (see Note G[2] hereof) and incentive bonus compensation payable to its Chairman and Chief Executive Officer (see Note H[1] hereof). |
Income Taxes | The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes ASC 740-10, Accounting for Uncertainty in Income Taxes meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company had no uncertain tax positions as of September 30, 2019 and 2018. U.S. federal, state and local income tax returns prior to 2015 are not subject to examination by any applicable tax authorities, except that tax authorities could challenge returns (only under certain circumstances) for earlier years to the extent they generated loss carry-forwards that are available for those future years. In July 2018, the Internal Revenue Service notified the Company that it was examining its 2016 federal tax return. On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Act"), which made significant changes to the U.S. federal income tax law. The Tax Act affects 2018 and forward, including, but not limited to, a reduction in the federal corporate rate from 35% to 21%, elimination of the corporate alternative minimum tax, a new limitation on the deductibility of certain executive compensation, limitations on net operating losses generated after December 31, 2017 and various other items. The personal holding company ("PHC") rules under the Internal Revenue Code impose a 20% tax on a PHC's undistributed personal holding company income ("PHC Income"), which means, in general, taxable income subject to certain adjustments. For a corporation to be classified as a PHC, it must satisfy two tests: (i) that more than 50% in value of its outstanding shares must be owned directly or indirectly by 5 or fewer individuals at any time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the "Ownership Test") and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the "Income Test"). As of September 30, 2019 (as well as during the second half of prior years), the Company believes it did not meet the Ownership Test. Due to the significant number of shares held by the Company's largest shareholders, the Company continually assesses its share ownership to determine whether it meets the Ownership Test. If the Ownership Test were met and the income generated by the Company were determined to constitute "royalties" within the meaning of the Income Test, the Company would constitute a PHC and the Company would be subject to a 20% tax on the amount of any PHC Income that it does not distribute to its shareholders. |
Stock-Based Compensation | The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718 Compensation - Stock Compensation Compensation expense related to awards to employees is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Share based payments issued to non-employees are recorded at their fair values and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period and are expensed using an accelerated attribution model. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options granted. The fair value of restricted stock units is determined based on the number of shares underlying the grant and either the quoted market price of the Company's common stock on the date of grant fortime-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model for market-based awards (see Note D for further discussion of the Company's stock-based compensation). On January 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting |
Earnings Per Share | The Company reports earnings per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and options to purchase common stock, were exercised and shares were issued pursuant to outstanding restricted stock units. Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share (see Note E). |
Fair Value Measurements | ASC Topic 820, Fair Value Measurement and Disclosures There are three levels of inputs that may be used to measure fair value: Level 1: Observable inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that are supported by little or no market activity; therefore, the inputs are developed by the Company using estimates and assumptions that the Company expects a market participant would use, including pricing models, discounted cash flow methodologies, or similar techniques. The carrying value of the Company's financial instruments, including cash and cash equivalents, royalty receivable, other assets, accounts payable, and accrued expenses approximates fair value because of the short-term nature of these financial instruments. The Company's marketable securities are classified within Level 1 because they are valued using quoted market prices in an active market (see Marketable Securities – Note F). |
Carrying Value, Recoverability and Impairment of Long-Lived Assets | An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. If an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited. At September 30, 2019 and 2018, there was no impairment to the Company's patents and equity investment. The Company's equity method investment in ILiAD Biotechnologies, LLC ("ILiAD"), a privately held development stage biotechnology company (see Equity Investment – Note J) is evaluated on a non-recurring basis for impairment and is classified within Level 3 as it is valued using significant unobservable inputs or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity. |
Dividend Policy | Cash dividends are recorded when declared by the Company's Board of Directors. Common stock dividends are charged against retained earnings when declared or paid (see Note M hereof). |
Reclassification | The Company has reclassified certain amounts in the prior period consolidated financial statements to conform to the current period's presentation. The Company reclassified a certain investment within cash and cash equivalents which was previously classified as marketable securities. These reclassifications had no impact on the previously reported net income. |
New Accounting Standards | Leases In February 2016, the FASB issued ASU 2016-2, Leases The Company elected to adopt ASC 842 using the modified retrospective method and, therefore, has not recast comparative periods presented in its unaudited condensed consolidated financial statements. The Company elected the package of transition practical expedients for existing leases and therefore the Company has not reassessed the following: lease classification for existing leases, whether any existing contracts contained leases, and if any initial direct costs were incurred. The Company did not apply the hindsight practical expedient, and accordingly, the Company did not use hindsight in its assessment of lease terms. As permitted under ASC 842, the Company elected to not recognize ROU assets and related lease obligations for leases with terms of twelve months or less. In connection with the adoption of ASC 842, the Company recorded $127,000 of operating lease right-of-use assets and $128,000 of operating lease obligations as of January 1, 2019. See Note G[3] for additional information and required disclosures. Under ASC 842, the Company determined if an arrangement is a lease at inception. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's determined incremental borrowing rate is a hypothetical rate based on its understanding of what the Company's credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received and net of the deferred rent balance on the date of implementation. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options. Disclosures On January 1, 2019, the Company adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification Fair Value Measurements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement |
SUMMARY OF SIGNIFICANT ACCOU_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure Summary Of Significant Accounting Policies Tables Abstract | |
Schedule of Revenue disaggregated by revenue source | Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Fully-Paid – Licenses $ ― $ 1,000,000 $ 130,000 (1) $ 13,700,000 Royalty Bearing - Licenses 520,000 798,000 1,595,000 1,712,000 Other Revenue ― ― ― 6,320,000 (2) Total Revenue $ 520,000 $ 1,798,000 $ 1,725,000 $ 21,732,000 |
PATENTS (Tables)
PATENTS (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure Patents Tables Abstract | |
Accumulated amortization related to acquired intangible assets | September 30, 2019 December 31, 2018 Gross carrying amount – patents $ 7,737,000 $ 7,682,000 Accumulated amortization – patents (5,905,000 ) (5,693,000 ) Patents, net $ 1,832,000 $ 1,989,000 |
Future amortization of current intangible assets, net | Twelve Months Ended September 30, 2020 $ 285,000 2021 285,000 2022 285,000 2023 240,000 2024 and thereafter 737,000 Total $ 1,832,000 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Stock-based Compensation | |
Summary of restricted stock unit activity | Number of Shares Weighted-Average Grant Date Fair Value Balance of restricted stock units outstanding at December 31, 2018 $ 2.17 Grants of restricted stock units 45,000 2.60 Vested restricted stock units (158,750 ) 2.16 Balance of unvested restricted stock units at September 30, 2019 $ 2.23 |
Summary of information of stock options outstanding and exercisable | Range of Options Weighted Average Exercise Weighted Options $1.19 - $2.34 605,000 $1.39 2.61 605,000 |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure Earnings Loss Per Share Tables Abstract | |
Schedule of Earnings Per Share | Nine Months Ended September 30, Three Months Ended September 30, 2019 2018 2019 2018 Weighted-average common shares outstanding – basic 23,935,304 23,767,700 24,138,191 23,525,645 Dilutive effect of options, warrants and restricted stock units ― 1,690,253 ― 1,396,789 Weighted-average common shares outstanding – diluted 23,935,304 25,457,953 24,138,191 24,922,434 Options and restricted stock units excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive 996,250 ― 996,250 ― |
MARKETABLE SECURITIES (Tables)
MARKETABLE SECURITIES (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure Marketable Securities Tables Abstract | |
Marketable securities | September 30, 2019 Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 4,500,000 $ 8,000 $ ― $ 4,508,000 Fixed income mutual funds 15,810,000 9,000 ― 15,819,000 Corporate bonds and notes 10,854,000 176,000 (74,000 ) 10,956,000 Total marketable securities $ 31,164,000 $ 193,000 $ (74,000 ) $ 31,283,000 December 31, 2018 Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 13,151,000 $ ― $ ― $ 13,151,000 Fixed income mutual funds 9,648,000 ― (8,000 ) 9,640,000 Corporate bonds and notes 8,518,000 ― (81,000 ) 8,437,000 Total marketable securities $ 31,317,000 ― $ (89,000 ) $ 31,228,000 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Commitments And Contingencies | |
Schedule of operating lease | Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 Operating lease expense $ 33,000 $ 107,000 Cash paid for amounts included in the measurement of operating lease obligations $ 34,000 $ 101,000 |
Schedule of operating leases were recorded in the condensed consolidated balance sheet | As of September 30, 2019 Operating lease right-of-use assets $ 52,000 Operating lease obligations – current $ 53,000 Total lease obligations $ 53,000 Weighted average remaining lease term (in months) 6 months Weighted average discount rate 5.5% |
Schedule of measurement of lease liabilities | Operating Leases 2019 – remaining period $ 34,000 2020 $ 19,000 Total future minimum lease payments $ 53,000 Less imputed interest (1,000 ) Total operating lease liability $ 52,000 |
BASIS OF PRESENTATION AND NAT_2
BASIS OF PRESENTATION AND NATURE OF BUSINESS (Details Narrative) | 9 Months Ended |
Sep. 30, 2019Agreement | |
Basis Of Presentation And Nature Of Business | |
Patents owned | 72 |
Number of Remote Power Patent License Agreements | 27 |
Number of Mirror Worlds Patent Portfolio Licensing Agreements | 2 |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |||
Disclosure Summary Of Significant Accounting Policies Details Abstract | ||||||
Fully-Paid Licenses | $ 1,000,000 | $ 130,000 | [1] | $ 13,700,000 | ||
Royalty Bearing Licenses | 520,000 | 798,000 | 1,595,000 | 1,712,000 | ||
Other Revenue | 6,320,000 | [2] | ||||
Total Revenue | $ 520,000 | $ 1,798,000 | $ 1,725,000 | $ 21,732,000 | ||
[1] | (1) Includes conversion of an existing royalty bearing license to a fully-paid license. | |||||
[2] | (2) Revenue from the sale of the Company's unsecured claim against Avaya, Inc. to an unaffiliated third party (see Note I[1] hereof). |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Impairment of long-lived assets | $ 0 |
FDIC insured limit | 250,000 |
Cash in excess of FDIC insured limit | 8,964,000 |
January 1, 2019 [Member] | |
ASC 842, operating lease right-of-use assets | 127,000 |
ASC 842, operating lease obligations | 128,000 |
Certificates of Deposit [Member] | |
Certificate of deposits | $ 4,455,000 |
PATENTS (Details)
PATENTS (Details) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Patents, net | $ 1,832,000 | $ 1,989,000 |
Patents [Member] | ||
Gross carrying amount - patents | 7,737,000 | 7,682,000 |
Accumulated amortization - patents | (5,905,000) | (5,693,000) |
Patents, net | $ 1,832,000 | $ 1,989,000 |
PATENTS (Details 1)
PATENTS (Details 1) - Patents [Member] | Sep. 30, 2019USD ($) |
2020 | $ 285,000 |
2021 | 285,000 |
2022 | 285,000 |
2023 | 240,000 |
2024 and thereafter | 737,000 |
Total | $ 1,832,000 |
PATENTS (Details Narrative)
PATENTS (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Amortization expense | $ 71,000 | $ 70,000 | $ 212,000 | $ 209,000 |
Expiration date of Remote Power Patent | March 2020 | |||
Expiration date of QoS family patents | June 2019 | |||
Expiration dates of the patents within the Company's Mirror Worlds patent portfolio | February 2020 | |||
Minimum [Member] | ||||
Estimated remaining economic useful of patents | 9 months | |||
Expiration dates of the patents within the Cox patent portfolio | September 2021 | |||
Expiration dates of the patents within the Company's M2M/IoT Patent Portfolio | September 2033 | |||
Maximum [Member] | ||||
Estimated remaining economic useful of patents | 15 years | |||
Expiration dates of the patents within the Cox patent portfolio | November 2023 | |||
Expiration dates of the patents within the Company's M2M/IoT Patent Portfolio | May 2034 |
STOCK BASED COMPENSATION (Detai
STOCK BASED COMPENSATION (Details) | 9 Months Ended |
Sep. 30, 2019$ / sharesshares | |
Stock Based Compensation | |
Number of restricted stock units outstanding, Beginning balance | shares | 505,000 |
Restricted stock units outstanding, weighted average grant date fair value, Beginning balance | $ / shares | $ 2.17 |
Number of restricted stock units outstanding, Grants | shares | 45,000 |
Restricted stock units outstanding, weighted average grant date fair value, Grants | $ / shares | $ 2.60 |
Vested restricted stock units, shares | shares | (158,750) |
Vested restricted stock units, weighted average grant date fair value | $ / shares | $ 2.16 |
Unvested restricted stock units, shares, Ending balance | shares | 391,250 |
Unvested restricted stock units, weighted average grant date fair value, Ending balance | $ / shares | $ 2.23 |
STOCK BASED COMPENSATION (Det_2
STOCK BASED COMPENSATION (Details 1) | 9 Months Ended |
Sep. 30, 2019$ / sharesshares | |
Options outstanding | shares | 605,000 |
Weighted average exercise price | $ 1.39 |
Weighted Average Remaining Life in Years | 2 years 7 months 10 days |
Options exercisable | shares | 605,000 |
Minimum [Member] | |
Range of Exercise price | $ 1.19 |
Maximum [Member] | |
Range of Exercise price | $ 2.34 |
STOCK BASED COMPENSATION (Det_3
STOCK BASED COMPENSATION (Details Narrative) - USD ($) | Jul. 14, 2019 | Jul. 14, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | Dec. 15, 2019 | Sep. 15, 2019 | Jun. 15, 2019 | Mar. 15, 2019 | Dec. 15, 2018 | Sep. 15, 2018 | Jun. 15, 2018 | Mar. 15, 2018 |
Restricted stock unit compensation expense | $ 154,000 | $ 120,000 | $ 425,000 | $ 571,000 | |||||||||||
Accrued dividend equivalent rights | 90,000 | $ 76,000 | |||||||||||||
Aggregate intrinsic value of options exercisable | 570,000 | $ 570,000 | |||||||||||||
Restricted Stock Units (RSUs) [Member] | |||||||||||||||
Restricted stock units to each director for services | 15,000 | 15,000 | |||||||||||||
Quarterly installments of shares | 3,750 | 3,750 | 3,750 | 3,750 | 3,750 | 3,750 | 3,750 | 3,750 | |||||||
Stock unit description | Each restricted stock unit issued by the Company represents the right to receive one share of the Company's common stock | ||||||||||||||
Unrecognized restricted stock unit compensation expense | $ 308,000 | $ 308,000 | |||||||||||||
Weighted average amortized period | 1 year 2 months 30 days | ||||||||||||||
Option Member | |||||||||||||||
Option exercised | 925,000 | ||||||||||||||
Directors [Member] | |||||||||||||||
Shares exercised | 25,000 | ||||||||||||||
Chairman and CEO [Member] | |||||||||||||||
Common stock shares issued during the period | 56,813 | 172,313 | |||||||||||||
Restricted stock units vested | 125,000 | 375,000 | |||||||||||||
Common stock shares received | 68,187 | 202,687 | |||||||||||||
Two directors [Member] | Option Member | |||||||||||||||
Cashless exercise of options, Shares | 50,000 | ||||||||||||||
Common stock shares issued during the period | 26,890 | ||||||||||||||
Three Non Management Directors [Member] | Option Member | |||||||||||||||
Exercise price | $ 1.65 | $ 1.19 | |||||||||||||
Cashless exercise of options, Shares | 105,000 | 75,000 | |||||||||||||
Common stock shares issued during the period | 35,884 | ||||||||||||||
Director [Member] | Option Member | |||||||||||||||
Exercise price | $ 1.88 | ||||||||||||||
Cashless exercise of options, Shares | 300,000 | ||||||||||||||
Common stock shares issued during the period | 118,064 | ||||||||||||||
Executive Vice President [Member] | |||||||||||||||
Common stock shares issued during the period | 27,713 | ||||||||||||||
Executive Vice President [Member] | Option Member | |||||||||||||||
Cashless exercise of options, Shares | 34,849 | ||||||||||||||
Consultant [Member] | |||||||||||||||
Common stock shares issued during the period | 28,824 | ||||||||||||||
Consultant [Member] | Option Member | |||||||||||||||
Option exercised | 75,000 | ||||||||||||||
Exercise price | $ 1.65 | ||||||||||||||
Cashless exercise of options, Shares | 75,000 | ||||||||||||||
Chief Financial Officer [Member] | Option Member | |||||||||||||||
Option exercised | 50,000 | ||||||||||||||
Exercise price | $ 1.65 | ||||||||||||||
Cashless exercise of options, Shares | 50,000 | ||||||||||||||
Chairman [Member] | |||||||||||||||
Common stock shares issued during the period | 328,111 | ||||||||||||||
Chairman [Member] | Option Member | |||||||||||||||
Option exercised | 750,000 | ||||||||||||||
Exercise price | $ 0.83 | ||||||||||||||
Cashless exercise of options, Shares | 859,849 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Disclosure Earnings Per Share Details Abstract | ||||
Weighted-average common shares outstanding - basic | 24,138,191 | 23,525,645 | 23,935,304 | 23,767,700 |
Dilutive effect of options, warrants and restricted stock units | 1,396,789 | 1,690,253 | ||
Weighted-average common shares outstanding - diluted | 24,138,191 | 24,922,434 | 23,935,304 | 25,457,953 |
Options and restricted stock units excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive | 996,250 | 996,250 |
EARNINGS PER SHARE (Details Nar
EARNINGS PER SHARE (Details Narratrive) - shares | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Disclosure Earnings Loss Per Share Details Narratrive Abstract | ||
Potentially Dilutive Shares | 996,250 | 2,021,250 |
MARKETABLE SECURITIES (Details)
MARKETABLE SECURITIES (Details) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Fair Value [Member] | ||
Certificates of deposit | $ 4,508,000 | $ 13,151,000 |
Fixed income mutual funds | 15,819,000 | 9,640,000 |
Corporate bonds and notes | 10,956,000 | 8,437,000 |
Total marketable securities | 31,283,000 | 31,228,000 |
Cost Basis [Member] | ||
Certificates of deposit | 4,500,000 | 13,151,000 |
Fixed income mutual funds | 15,810,000 | 9,648,000 |
Corporate bonds and notes | 10,854,000 | 8,518,000 |
Total marketable securities | 31,164,000 | 31,317,000 |
Gross Unrealized Gains [Member] | ||
Certificates of deposit | 8,000 | |
Fixed income mutual funds | 9,000 | |
Corporate bonds and notes | 176,000 | |
Total marketable securities | 193,000 | |
Gross Unrealized Losses [Member] | ||
Certificates of deposit | ||
Fixed income mutual funds | (8,000) | |
Corporate bonds and notes | (74,000) | (81,000) |
Total marketable securities | $ (74,000) | $ (89,000) |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019 | Sep. 30, 2019 | |
Commitments And Contingencies Details Abstract | ||
Operating lease expense | $ 33,000 | $ 107,000 |
Cash paid for amounts included in the measurement of operating lease obligations | $ 34,000 | $ 101,000 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details 1) - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Dec. 31, 2018 | |
Disclosure Commitments And Contingencies Details 1Abstract | ||
Operating lease right-of-use assets | $ 52,000 | |
Operating lease obligations – current | 53,000 | |
Total lease obligations | $ 53,000 | |
Weighted average remaining lease term (in months) | 6 months | |
Weighted average discount rate | 5.50% |
COMMITMENTS AND CONTINGENCIES_4
COMMITMENTS AND CONTINGENCIES (Details 2) | Sep. 30, 2019USD ($) |
Commitments And Contingencies Details 2Abstract | |
2019 – remaining period | $ 34,000 |
2020 | 19,000 |
Total future minimum lease payments | 53,000 |
Less imputed interest | (1,000) |
Total operating lease liability | $ 52,000 |
COMMITMENTS AND CONTINGENCIES -
COMMITMENTS AND CONTINGENCIES - Legal Fees (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Legal Service Agreement With Dovel And Luner For Litigation Filed In September 2011 [Member] | ||||
Legal Fees payment ,Terms | Legal fees on a full contingency basis ranging from 12.5% to 35% (with certain exceptions) of the net recovery (after deduction for expenses) | |||
Contingent legal fees | $ 103,000 | $ 496,000 | $ 346,000 | $ 6,873,000 |
Legal Service Agreement With Dovel And Luner For Litigation Settlement In July 2010 [Member] | ||||
Legal Fees payment ,Terms | Legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of 24% (based on the settlement being achieved at the trial stage) | |||
Royalty payments, Terms | Royalty payments received from Cisco in accordance with the Company's settlement and license agreement with Cisco, the Company has an obligation to pay Dovel & Luner, LLP (including local counsel) 24% of such royalties received. | |||
Legal Service Agreement With Russ, August Kabot For Litigation Filed In May 2017 [Member] | ||||
Legal Fees payment ,Terms | Cash payments on a monthly basis subject to a cap plus a contingency fee ranging between 15% and 24% of the net recovery (after deduction of expenses) | |||
Legal Service Agreement With Russ, August Kabot For Litigation Filed In April 2014 and December 2014 [Member] | ||||
Legal Fees payment ,Terms | Legal fees on a full contingency basis ranging from 15% to 30% of the net recovery (after deduction of expenses) |
COMMITMENTS AND CONTINGENCIES_5
COMMITMENTS AND CONTINGENCIES - Patent Acquisitions (Details Narrative) | 1 Months Ended | 77 Months Ended | ||||
Dec. 29, 2017USD ($)Agreement | Sep. 30, 2019USD ($) | Jan. 02, 2017USD ($) | Jun. 03, 2014USD ($) | May 21, 2013USD ($)$ / sharesshares | Feb. 28, 2013USD ($)shares | |
Acquisition of Cox patents cash, purchase price | $ | $ 1,000,000 | |||||
Acquisition of Cox patents, common stock issued | shares | 403,226 | |||||
Obligated to pay Cox, net proceeds percentage | 12.50% | |||||
Cash consideration for Mirror Worlds patent acquisition | $ | $ 3,000,000 | |||||
Cost of repurchase of Mirror Worlds warrants | $ | $ 505,000 | |||||
Issued 5-year warrants (Looking Glass) to purchase shares of common stock | shares | 1,750,000 | |||||
5-year warrants (Looking Glass) to purchase 875,000 shares, exercise price per share | shares | 1.40 | |||||
5-year warrants (Looking Glass) to purchase 875,000 shares, exercise price per share | shares | 2.10 | |||||
First $125 Million | 10.00% | |||||
Next $125 Million | 15.00% | |||||
Over $250 Million | 20.00% | |||||
Recognition net proceeds payment related to Mirror Worlds patents | $ | $ 3,127,000 | |||||
First warrants to purchase an aggregate of 1,250,000 shares of common stock | shares | 500,000 | |||||
First warrants to purchase an aggregate of 1,250,000 shares of common stock, exercise price per share | $ / shares | $ 2.05 | |||||
Second warrants to purchase an aggregate of 1,250,000 shares of common stock | shares | 375,000 | |||||
Second warrants to purchase an aggregate of 1,250,000 shares of common stock, exercise price per shares | $ / shares | $ 2.10 | |||||
Third warrants to purchase an aggregate of 1,250,000 shares of common stock | shares | 375,000 | |||||
Third warrants to purchase an aggregate of 1,250,000 shares of common stock, exercise price per shares | $ / shares | $ 1.40 | |||||
Net proceeds percentage payable to M2M from monetization of patents | $ | $ 0 | |||||
First $100 Million | 14.00% | |||||
Next $100 Million | 5.00% | |||||
Additional consideration payable upon occurrence of certain future events | $ | $ 250,000 | |||||
Payment to acquire the M2M/IoT Patent Portfolio | $ | $ 1,000,000 | |||||
Description of additional consideration to payable | Obligation to pay M2M $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio. | |||||
M2M [ Member] | ||||||
Number of U.S. patents - M2M patent portfolio | Agreement | 23 |
COMMITMENTS AND CONTINGENCIES_6
COMMITMENTS AND CONTINGENCIES - Lease Agreements (Details Narrative) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Incremental borrowing rate description | The Company used an incremental borrowing rate of 5.5% at January 1, 2019 for all leases that commenced prior to that date. |
ROU assets obtained | $ 128,000 |
New York City [Member] | |
Rental cost per month | $ 3,900 |
Expiring date | May 31, 2020 |
New Canaan CT [Member] | |
Rental cost per month | $ 7,850 |
Expiring date | September 30, 2019 |
EMPLOYMENT ARRANGEMENTS AND O_2
EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (Details Narrative) - USD ($) | Jul. 14, 2019 | Jul. 14, 2018 | Jun. 09, 2018 | Jun. 09, 2017 | Jul. 14, 2016 | Jun. 09, 2016 | Nov. 27, 2018 | Jun. 30, 2016 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2018 | Apr. 09, 2014 |
Annual base salary of Chief Financial Officer | $ 157,500 | $ 175,000 | ||||||||||||
Issuance of 5 year stock option to CFO | 50,000 | |||||||||||||
CFO stock option, exercise price | $ 1.65 | |||||||||||||
Option vested | 25,000 | 25,000 | ||||||||||||
Earned incentive compensation - Chairman and CEO | 86,000 | $ 1,087,000 | ||||||||||||
Incentive compensation included in accrued expenses - chairman and chief executive officer | 26,000 | $ 109,000 | ||||||||||||
Chairman and CEO [Member] | ||||||||||||||
Restricted stock units vested | 125,000 | 375,000 | ||||||||||||
Common stock delivered to satisfy withholding taxes | 56,813 | 172,313 | ||||||||||||
Common stock shares received | 68,187 | 202,687 | ||||||||||||
Chairman and CEO [Member] | EmploymentAgreement [Member] | ||||||||||||||
Target annual bonus or minimum bonus Chairman and CEO | 175,000 | |||||||||||||
CEO Incentive Compensation - percentage of gross royalties - Remote Power Patent | 5.00% | |||||||||||||
CEO Incentive Compensation - percentage of net royalties - Additional Patents | 10.00% | |||||||||||||
CEO Incentive Compensation - percentage of gross royalties - Additional Patents | 6.25% | |||||||||||||
Earned incentive compensation - Chairman and CEO | 30,000 | $ 24,000 | ||||||||||||
Restricted stock units vested | 375,000 | |||||||||||||
Common stock shares delivered to satisfy withholding taxes | 172,313 | |||||||||||||
Common stock shares issued, net | 202,687 | |||||||||||||
Chairman and CEO [Member] | NewEmploymentAgreement [Member] | ||||||||||||||
Annual base salary | $ 475,000 | |||||||||||||
Target annual bonus or minimum bonus Chairman and CEO | $ 175,000 | |||||||||||||
Executive Vice President [Member] | ||||||||||||||
Annual base salary of Executive Vice President | $ 200,000 | |||||||||||||
Common stock delivered to satisfy withholding taxes | 27,713 | |||||||||||||
Executive Vice President [Member] | Restricted Stock [Member] | ||||||||||||||
Restricted stock units vested | 25,000 | 25,000 | ||||||||||||
Restricted stock units granted | 50,000 | 50,000 | ||||||||||||
Description for vesting of RSUs | On November 27, 2018, the Executive Vice President was granted 50,000 RSUs which vested 50% on the one year anniversary of the grant date (November 27, 2019) and 50% on the two year anniversary of the grant date (November 27, 2020) | |||||||||||||
Chief Financial Officer [Member] | Restricted Stock [Member] | ||||||||||||||
Restricted stock units vested | 25,000 | 25,000 | ||||||||||||
Restricted stock units granted | 50,000 | 40,000 | ||||||||||||
Description for vesting of RSUs | On November 27, 2018, the Company's Chief Financial Officer was granted 40,000 RSUs, with 50% of such RSUs vesting on the one year anniversary of the grant date (November 27, 2019) and 50% vesting on the two year anniversary of the grant date (November 27, 2020) | |||||||||||||
2013 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | ||||||||||||||
RSUs granted to chairman and chief executive officer vested on July 14, 2018 | 750,000 | |||||||||||||
2013 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Transaction 1 [Member] | ||||||||||||||
RSUs granted to chairman and chief executive officer vested on July 14, 2018 | 250,000 | |||||||||||||
Closing price minimum for vesting beginning July 14, 2018 | $ 4.25 | |||||||||||||
2013 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Transaction 2 [Member] | ||||||||||||||
RSUs granted to chairman and chief executive officer vested on July 14, 2018 | 250,000 | |||||||||||||
Closing price minimum for vesting beginning July 14, 2018 | $ 3.25 | |||||||||||||
2013 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Transaction 3 [Member] | ||||||||||||||
RSUs granted to chairman and chief executive officer vested on July 14, 2018 | 250,000 |
LEGAL PROCEEDINGS (Details Narr
LEGAL PROCEEDINGS (Details Narrative) - USD ($) | Nov. 13, 2018 | Jan. 09, 2018 | Nov. 01, 2017 | Nov. 30, 2018 | Jan. 16, 2018 | Oct. 31, 2016 | Jul. 31, 2010 | Mar. 31, 2020 | Dec. 15, 2017 | Jan. 19, 2017 |
Payments received from license defendants upon settlement | $ 32,000,000 | |||||||||
Maximum Cisco royalty payment per year for remaining term of the remote power patent | $ 9,000,000 | |||||||||
General unsecured claim allowed sold to third party | $ 6,320,000 | |||||||||
Dell [Member] | ||||||||||
litigation settlement, description | On November 13, 2018, the Company filed a lawsuit against Dell, Inc. in the District Court, 241st Judicial District, Smith County, Texas, for breach of a settlement and license agreement, dated August 15, 2016, with the Company as a result of Dell's failure to make royalty payments, and provide corresponding royalty reports, to the Company based on sales of Dell's PoE products. The Company believes Dell is obligated to pay the Company all prior unpaid royalties that accrued prior to and after the date of the HP Jury Verdict (November 2017) as well as future royalties through the expiration of the Remote Power Patent in March 2020. On December 7, 2018, Dell filed its Answer and Counterclaim. Dell denied the claim asserted by the Company and asserted a counterclaim in excess of $1,000,000. On January 28, 2019, Dell brought a motion to stay the case as a result of the Company's pending appeal of the District Court order overturning the HP Jury Verdict on non-infringement to the U.S. Court of Appeals for the Federal Circuit and HP's appeal of the District Court's order that the Remote Power Patent is valid as a matter of law. Dell's motion to stay the litigation was denied by the Court on May 7, 2019 | |||||||||
Polycom [Member] | ||||||||||
Litigation settlement, licence initiation fee receivable | $ 5,000,000 | |||||||||
Payments received from license defendants upon settlement | $ 2,000,000 | |||||||||
Licence initiation fee payable, description | The balance is payable in three annual installments of $1,000,000 beginning in October 2017 | |||||||||
litigation settlement, description | The District Court in August 2018 granted the Company's motion for judgment as a matter of law that the Remote Power Patent is valid thereby overturning the HP Jury Verdict of invalidity, Polycom became obligated to make the aforementioned remaining aggregate payments of $2,000,000 to the Company (of which $1,000,000 was paid in November 2018.) | |||||||||
Avaya [Member] | ||||||||||
General unsecured claim allowed, amount | $ 305,000,000 | $ 37,500,000 | ||||||||
General unsecured claims, percentage | 18.90% | |||||||||
Juniper [Member] | ||||||||||
Litigation settlement, original settlement amount | $ 13,250,000 | |||||||||
Payments received from license defendants upon settlement | $ 12,700,000 | |||||||||
Polycom [Member] | ||||||||||
Payments received from license defendants upon settlement | $ 1,000,000 |
EQUTY INVESTMENT (Details Narra
EQUTY INVESTMENT (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Dec. 18, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | May 06, 2019 | |
SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE | $ (196,000) | $ (345,000) | ||||
Equity Method Goodwill | 5,000,000 | 5,000,000 | ||||
ILiAD [Member] | ||||||
Advisory and legal expenses | 41,000 | |||||
ILiAD [Member] | Maximum [Member] | ||||||
Investment | $ 5,000,000 | |||||
ILiAD [Member] | Tranche One [Member] | ||||||
Initial investment | $ 2,500,000 | |||||
Description for the terms of allowed-to-proceed notice under aggrement | May 2, 2019 that it had received an "allowed to proceed" notice from the FDA permitting ILiAD to advance to the Phase 2b clinical study of its BP2E1 vaccine. ILiAD elected to permit its Class C investors (including the Company) to bifurcate their tranche 2 commitment such that 40% would be currently due ($1,000,000 paid by the Company on May 6, 2019) and 60% (additional $1,500,000 investment by the Company) would be due when ILiAD received satisfactory safety data from the clinical study. On August 9, 2019, ILiAD notified the Company that the FDA has allowed Phase 2b to proceed to full enrollment based on satisfactory safety data from the first phase of the clinical study which triggered the Company's additional $1,500,000 investment. At September 30, 2019, the Company owned approximately 10.4% of the outstanding units of ILiAD (on a non-fully diluted basis). | |||||
ILiAD [Member] | Tranche Two [Member] | ||||||
Initial investment | $ 2,500,000 | $ 2,500,000 | ||||
ILiAD [Member] | Warrant [Member] | ||||||
Units purchase | 366,666 | 366,666 | ||||
Price per unit | $ 2.75 | $ 2.75 | ||||
ILiAD [Member] | Class C units [Member] | ||||||
Ownership percentage | 8.40% | |||||
ILiAD [Member] | Class C units [Member] | Maximum [Member] | ||||||
Investment | $ 16,200,000 | |||||
ILiAD [Member] | Class C units [Member] | Tranche One [Member] | ||||||
Units purchase | 1,111,111 | 1,111,111 | ||||
Price per unit | $ 2.25 | $ 2.25 | ||||
ILiAD [Member] | Class C units [Member] | Tranche Two [Member] | ||||||
Units purchase | 943,396 | |||||
Price per unit | $ 2.65 | |||||
Warrants to purchase units | 311,320 | |||||
Exercise price | $ 3.50 |
STOCK REPURCHASE (Details Narra
STOCK REPURCHASE (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | 97 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2019 | Sep. 30, 2019 | Jun. 11, 2019 | Aug. 31, 2011 | |
Number of shares, common stock repurchased | 30,407 | 170,555 | 8,324,953 | ||
Average price per share, common stock subject to repurchase | $ 2.45 | $ 2.38 | $ 1.87 | ||
Aggregate cost of common stock repurchased | $ 74,627 | $ 406,290 | $ 15,548,530 | ||
Remaining shares subject to repurchase, value | $ 4,803,723 | ||||
Chairman [Member] | |||||
Stock Repurchase Program, dollar amount of additional shares authorized to be repurchased | 5,000,000 | ||||
Stock Repurchase Program, dollar amount of shares authorized for repurchase since inception | 22,000,000 |
CONCENTRATIONS (Details Narrati
CONCENTRATIONS (Details Narrative) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Revenue [Member] | |||||
Percentage revenue from sale of unsecured Avaya claim | 29.00% | ||||
Licensees One [Member] | Revenue [Member] | |||||
Concentration risk, percentage | 41.00% | 81.00% | 43.00% | 58.00% | |
Licensees Two[Member] | Revenue [Member] | |||||
Concentration risk, percentage | 18.00% | 13.00% | |||
Licensees Three [Member] | Revenue [Member] | |||||
Concentration risk, percentage | 12.00% | 10.00% | |||
Licensees Four [Member] | |||||
Royalty receivables percentage | 80.00% | ||||
Licensees Four [Member] | Revenue [Member] | |||||
Concentration risk, percentage | 12.00% | 10.00% | |||
Licensees Five [Member] | |||||
Royalty receivables percentage | 97.00% | ||||
Licensees Five [Member] | Revenue [Member] | |||||
Concentration risk, percentage | 10.00% | 10.00% |
DIVIDEND POLICY (Details Narrat
DIVIDEND POLICY (Details Narrative) - $ / shares | Dec. 07, 2016 | Jul. 25, 2019 | Feb. 19, 2019 | Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 |
Dividend Policy Details Narrative Abstract | ||||||||
Semi-annual cash dividend per common share | $ 0.05 | $ 0.05 | $ 0.05 | $ 0.10 | $ 0.10 | $ 0.10 | ||
Annual dividend per common share | $ 0.10 | |||||||
Dividend policy payment description | On July 25, 2019, the Board of Directors declared a cash dividend of $.05 per common stock with a payment date of September 20, 2019 to all common stockholders as of September 4, 2019. | On February 11, 2019, the Board of Directors declared a cash dividend of $0.05 per common share with a payment date of March 25, 2019 to all common stockholders as of March 11, 2019. | In 2018, semi-annual cash dividends of $.05 per share were also paid in March and September. |