Network-1(NTIP) - 2020 Q3 - Quarterly Report

PART I. Financial Information Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for periods ended September 30, 2020, and 2019, detailing the company's financial position, performance, cash flows, and intellectual property licensing business Condensed Consolidated Balance Sheets Total assets decreased from $55.1 million at year-end 2019 to $51.0 million as of September 30, 2020, driven by reduced marketable securities and royalty receivables, while total liabilities also significantly declined Condensed Consolidated Balance Sheet Highlights (in thousands) | | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $45,522 | $48,758 | | Total Assets | $50,989 | $55,076 | | Total Current Liabilities | $344 | $1,569 | | Total Liabilities | $344 | $1,569 | | Total Stockholders' Equity | $50,645 | $53,507 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q3 2020 revenue surged to $4.15 million from $0.52 million in Q3 2019, resulting in a $1.69 million net income, while nine-month revenue also increased, narrowing the net loss to $0.23 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,150 | $520 | $4,366 | $1,725 | | Operating Income (Loss) | $1,660 | $(576) | $55 | $(1,625) | | Net Income (Loss) | $1,687 | $(411) | $(234) | $(859) | | Diluted EPS | $0.07 | $(0.02) | $(0.01) | $(0.04) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $53.5 million at year-end 2019 to $50.6 million as of September 30, 2020, primarily due to $2.4 million in dividends and treasury stock purchases, partially offset by net income - Total stockholders' equity declined from $53,507,000 at Dec 31, 2019 to $50,645,000 at Sep 30, 2020[17] - Key activities impacting equity during the nine months ended Sep 30, 2020 included dividend declarations ($2,434,000), net loss ($234,000), and treasury stock purchases ($252,000)[17] Condensed Consolidated Statements of Cash Flows Net cash from operating activities improved to $0.11 million for the nine months ended September 30, 2020, with investing activities providing $4.34 million and financing activities using $2.82 million, leading to a $1.63 million net cash increase Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $107 | $(1,388) | | Net Cash from Investing Activities | $4,344 | $(2,410) | | Net Cash from Financing Activities | $(2,817) | $(3,228) | | Net Increase (Decrease) in Cash | $1,634 | $(7,026) | | Cash and Cash Equivalents, End of Period | $24,221 | $16,737 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, patent portfolios, revenue recognition, a $4.15 million Dell settlement, favorable HP appeal ruling, an equity investment in ILiAD Biotechnologies, and potential Personal Holding Company (PHC) tax implications - The company's business is the development, licensing, and protection of its 84 patents, which include the Remote Power Patent (expired March 7, 2020), Mirror Worlds, Cox, M2M/IoT, and QoS patent portfolios[27][28] - Revenue for the three months ended September 30, 2020 includes $4,150,000 from a litigation settlement with Dell, Inc[40] - On September 24, 2020, a federal court overturned a non-infringement judgment in the company's litigation with Hewlett-Packard. The company believes this obligates Cisco and other licensees to pay significant royalties that accrued from Q4 2017 through March 7, 2020[30][109][111] - The company holds an equity investment in ILiAD Biotechnologies, a clinical-stage biotech company, and recorded its share of ILiAD's net losses, which amounted to $146,000 for Q3 2020 and $644,000 for the first nine months of 2020[116][118] - The company may be classified as a Personal Holding Company (PHC) starting in July 2020, which could subject it to a 20% tax on undistributed PHC income if it achieves net income for the year[53][54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses patent portfolios and licensing strategy, highlighting a significant Q3 2020 revenue increase due to a $4.15 million Dell settlement, leading to $1.66 million operating income, and assesses liquidity and COVID-19 impacts Results of Operations Q3 2020 revenue surged to $4.15 million from $0.52 million in Q3 2019 due to a Dell settlement, yielding $1.69 million net income, while nine-month revenue increased to $4.37 million, narrowing the net loss to $0.23 million Q3 2020 vs. Q3 2019 Performance (in thousands) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $4,150 | $520 | +$3,630 | | Operating Income (Loss) | $1,660 | $(576) | +$2,236 | | Net Income (Loss) | $1,687 | $(411) | +$2,098 | Nine Months 2020 vs. 2019 Performance (in thousands) | Metric | Nine Months 2020 | Nine Months 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $4,366 | $1,725 | +$2,641 | | Operating Income (Loss) | $55 | $(1,625) | +$1,680 | | Net Loss | $(234) | $(859) | +$625 | - The primary reason for the revenue increase in both the three and nine-month periods was a $4.15 million litigation settlement with Dell, Inc[139][148] Liquidity and Capital Resources As of September 30, 2020, liquidity is strong with $45.5 million in cash, equivalents, and marketable securities, and $45.2 million in working capital, despite a $2.0 million working capital decrease from year-end 2019 - Principal sources of liquidity at September 30, 2020 were cash, cash equivalents, and marketable securities of $45,492,000 and working capital of $45,178,000[156] - Working capital decreased by $2,011,000 from December 31, 2019, primarily due to a decrease in cash and marketable securities, offset by a decrease in current liabilities[157] - Net cash from operating activities improved to $107,000 for the nine months ended Sep 30, 2020, compared to a use of $(1,388,000) in the prior year period, driven by the Dell settlement revenue[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states this item is 'Not Applicable,' indicating no significant market risk exposure, as cash is held in money market funds, certificates of deposit, and short-term fixed-income securities - The company states this section is "Not Applicable"[171] - Cash is maintained in money market funds, certificates of deposit, and short-term fixed income securities, leading management to believe there is no significant exposure to interest rate risk[162] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarter covered by the report[171] - No material changes to internal control over financial reporting occurred during the fiscal quarter ended September 30, 2020[172] PART II. Other Information Item 1. Legal Proceedings This section highlights material legal developments, including a $4.15 million settlement with Dell and a favorable appeal ruling against Hewlett-Packard regarding the Remote Power Patent, remanding the case for a new trial - The company settled its breach of contract litigation with Dell, Inc., receiving a payment of $4,150,000 in full settlement on July 28, 2020[174] - On September 24, 2020, the U.S. Court of Appeals for the Federal Circuit overturned a non-infringement judgment in the company's litigation with Hewlett-Packard, remanding the case for a new trial on infringement and further proceedings on validity regarding the Remote Power Patent[176] Item 1A. Risk Factors The company refers investors to risk factors detailed in previous SEC filings, including its Annual Report on Form 10-K for 2019 and prior 2020 quarterly reports, with no new specific risks detailed - The report refers to previously filed documents (Annual Report on Form 10-K for year ended Dec 31, 2019, and prior 2020 10-Q reports) for a full discussion of risk factors[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales or stock repurchases during Q3 2020, with approximately $4.2 million remaining authorized for future repurchases under the existing program - There were no unregistered sales of equity securities during the three months ended September 30, 2020[179] - The company did not repurchase any of its common stock during the three months ended September 30, 2020[180] - As of September 30, 2020, $4,196,100 remained available for repurchase under the existing Share Repurchase Program[180] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reported "None"[182] Item 4. Other Information The company reported no other information to disclose for the period - The company reported "None"[183] Item 5. Exhibits This section lists exhibits filed with the report, including Sarbanes-Oxley certifications from the CEO and CFO, and interactive data files (XBRL) - The report lists certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act and XBRL interactive data files as exhibits[184]