Network-1(NTIP) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $13,424 | $13,145 | | Marketable securities, at fair value | $25,061 | $27,455 | | TOTAL CURRENT ASSETS | $38,665 | $40,832 | | Patents, net | $1,552 | $1,205 | | Equity investment | $2,596 | $3,337 | | TOTAL ASSETS | $42,826 | $45,414 | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | | | | Total Current Liabilities | $377 | $766 | | Deferred tax liability | $188 | $337 | | TOTAL LIABILITIES | $565 | $1,103 | | TOTAL STOCKHOLDERS' EQUITY | $42,261 | $44,311 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $42,826 | $45,414 | - Total assets decreased from $45.414 million at December 31, 2024, to $42.826 million at June 30, 2025[14] - Total stockholders' equity decreased from $44.311 million at December 31, 2024, to $42.261 million at June 30, 2025[14] Condensed Consolidated Statements of Operations This statement reports the company's revenues, expenses, and net loss over specific periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | REVENUE (in thousands) | $— | $100 | $150 | $100 | | TOTAL OPERATING EXPENSES (in thousands) | $720 | $724 | $1,515 | $1,642 | | OPERATING LOSS (in thousands) | $(720) | $(624) | $(1,365) | $(1,542) | | Total other income, net (in thousands) | $467 | $506 | $1,100 | $985 | | LOSS BEFORE INCOME TAXES AND SHARE OF NET LOSSES OF EQUITY METHOD INVESTEE (in thousands) | $(253) | $(118) | $(265) | $(557) | | Total income tax benefit (in thousands) | $(69) | $(137) | $(180) | $(284) | | SHARE OF NET LOSS OF EQUITY METHOD INVESTEE (in thousands) | $(279) | $(677) | $(741) | $(1,305) | | NET LOSS (in thousands) | $(463) | $(658) | $(826) | $(1,578) | | Net loss per share - Basic | $(0.02) | $(0.03) | $(0.04) | $(0.07) | | Net loss per share - Diluted | $(0.02) | $(0.03) | $(0.04) | $(0.07) | - Net loss for the three months ended June 30, 2025, decreased to $463 thousand from $658 thousand in the prior year period[16] - Net loss for the six months ended June 30, 2025, decreased to $826 thousand from $1.578 million in the prior year period[16] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details the changes in each component of stockholders' equity over a period Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | (in thousands) | Balance – January 1, 2025 | Balance – June 30, 2025 | | :------------- | :------------------------ | :---------------------- | | Common Stock (in thousands) | $229 | $228 | | Additional Paid-in Capital (in thousands) | $65,455 | $64,445 | | Accumulated Deficit (in thousands) | $(21,373) | $(22,412) | | Total Stockholders' Equity (in thousands) | $44,311 | $42,261 | - Total stockholders' equity decreased by $2.050 million from January 1, 2025, to June 30, 2025, primarily due to dividends declared ($1.171 million) and net loss ($826 thousand for six months, split between quarters)[19][16] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities (in thousands) | $(502) | $(660) | | Net cash provided by investing activities (in thousands) | $2,150 | $5,859 | | Net cash used in financing activities (in thousands) | $(1,369) | $(2,156) | | NET INCREASE IN CASH AND CASH EQUIVALENTS (in thousands) | $279 | $3,043 | | CASH AND CASH EQUIVALENTS, end of period (in thousands) | $13,424 | $19,939 | - Net cash used in operating activities decreased by $158 thousand, from $660 thousand in 2024 to $502 thousand in 2025[24] - Net cash provided by investing activities decreased significantly by $3.709 million, from $5.859 million in 2024 to $2.150 million in 2025[24] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information for the financial statements, clarifying accounting policies and specific line items NOTE A – BASIS OF PRESENTATION AND NATURE OF BUSINESS The Company's unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information. The Company's primary business involves the development, licensing, and protection of its intellectual property assets, which include various patent portfolios related to M2M/IoT, HFT, Cox, Smart Home, Mirror Worlds, and Remote Power technologies. The Company also holds an equity investment in ILiAD Biotechnologies, LLC - The Company owns 115 U.S. patents (54 expired) and 17 international patents across six portfolios: M2M/IoT, HFT, Cox, Smart Home, Mirror Worlds, and Remote Power[29] - Current strategy focuses on licensing existing patent portfolios, acquiring new high-quality patents, and forming strategic relationships for intellectual property monetization[30] - The Company has invested $7 million in ILiAD Biotechnologies, LLC, a clinical stage biotechnology company[31] NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the Company's key accounting policies, including the use of estimates, revenue recognition under ASC 606 (primarily from litigation settlements and license agreements), equity method investments (recognized on a one-quarter lag), and income tax accounting (using the asset and liability method with a valuation allowance for deferred tax assets). It also addresses the potential classification as a Personal Holding Company and recent accounting pronouncements - Revenue is recognized when intellectual property licensing is complete, a final judgment is obtained, or a litigation settlement agreement is entered, reflecting the expected consideration[34] Revenue Disaggregated by Source (in thousands) | Source | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Litigation settlements | $150 | $100 | $— | $100 | | Total Revenue | $150 | $100 | $— | $100 | - The Company had a deferred tax liability of $188 thousand as of June 30, 2025, and a valuation allowance of $1.671 million offsetting deferred tax assets[39] - The Company is evaluating the impact of new FASB ASUs on Income Statement Expense Disaggregation (ASU 2024-03) and Income Tax Disclosures (ASU 2023-09)[46][47] NOTE C – PATENTS This note details the Company's intangible assets related to patents, including their gross carrying amounts, accumulated amortization, and remaining useful lives. It also provides a schedule of future amortization expenses and the expiration dates for various patent portfolios Patents, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Gross carrying amount – patents | $8,887 | $8,473 | | Accumulated amortization – patents | $(7,335) | $(7,268) | | Patents, net | $1,552 | $1,205 | - Amortization expense for the six months ended June 30, 2025, was $67 thousand, up from $60 thousand in the prior year[49] - The M2M/IoT, HFT, and Smart Home Patent Portfolios have expiration dates ranging from 2033 to 2040, while Mirror Worlds, Cox, and Remote Power Patents have expired[50] NOTE D – STOCKHOLDERS' EQUITY This note describes the Company's stock incentive plans, including the 2022 Stock Incentive Plan, and provides a summary of restricted stock unit activity. It also details the associated compensation expense and dividend equivalent rights - As of June 30, 2025, there were 92,500 shares subject to outstanding awards under the 2022 Plan and 2,040,000 shares available for issuance[52] Restricted Stock Unit Activity (Six Months Ended June 30, 2025) | Item | Number of Shares | | :-------------------------------------- | :--------------- | | Balance at December 31, 2024 | 487,500 | | Grants of restricted stock units | 70,000 | | Vested restricted stock units | (40,000) | | Balance at June 30, 2025 | 517,500 | - Restricted stock unit compensation expense for the six months ended June 30, 2025, was $161 thousand, down from $210 thousand in the prior year[53] NOTE E – LOSS PER SHARE This note explains the calculation of basic and diluted loss per share. Due to net losses, all potentially dilutive shares (restricted stock units) were anti-dilutive and thus excluded from diluted loss per share calculations Weighted Average Common Shares Outstanding | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Weighted-average common shares outstanding – basic | 22,883,729 | 23,444,145 | | Weighted-average common shares outstanding – diluted | 22,883,729 | 23,444,145 | | Restricted stock units excluded (anti-dilutive) | 517,500 | 535,000 | NOTE F – MARKETABLE SECURITIES This note provides a breakdown of the Company's marketable securities by type, including their cost basis, unrealized gains and losses, and fair value. These securities are primarily classified within Level 1 of the fair value hierarchy Marketable Securities at Fair Value (June 30, 2025, in thousands) | Type of Security | Cost Basis (in thousands) | Unrealized Gains (in thousands) | Unrealized Losses (in thousands) | Fair Value (in thousands) | | :------------------ | :--------- | :--------------- | :---------------- | :--------- | | Certificates of deposit | $752 | $7 | $— | $759 | | Government securities | $12,844 | $78 | $(40) | $12,882 | | Fixed income mutual funds | $9,698 | $233 | $— | $9,931 | | Corporate bonds | $1,490 | $— | $(1) | $1,489 | | Total marketable securities | $24,874 | $318 | $(41) | $25,061 | - Total marketable securities decreased from $27.455 million at December 31, 2024, to $25.061 million at June 30, 2025[59] NOTE G – COMMITMENTS AND CONTINGENCIES This note outlines the Company's commitments and contingencies, including legal fees for patent litigation (often on a contingency basis), obligations related to patent acquisitions (Smart Home, HFT, Cox, M2M/IoT portfolios), and details of its operating lease for office space - Legal fees for patent litigation are typically 15-40% of net recovery, with the Company responsible for expenses[61] - On March 31, 2025, the Company acquired the Smart Home Patent Portfolio for $400 thousand cash, with additional contingent payments and a percentage of net proceeds[62] - The Company extended its principal office lease for one year to April 30, 2026, with a base rent of $5,500 per month[66] NOTE H – EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS This note details the employment agreement with the Chairman and CEO, including his annual base salary, target bonus, and incentive compensation structure tied to royalties and payments from patent licensing activities and the ILiAD investment - The Chairman and CEO's annual base salary is $535 thousand, increasing by 3% per annum, with an annual target bonus of $175 thousand[69] - Incentive compensation includes 5% of gross royalties from the Remote Power Patent and 10% net interest (min 6.25% gross) from other patent portfolios and ILiAD investment[70] - Incentive Compensation earned by the Chairman and CEO for the six months ended June 30, 2025, was $8 thousand, compared to $5 thousand in the prior year[70] NOTE I – LEGAL PROCEEDINGS This note provides updates on significant legal proceedings, including new patent infringement lawsuits against Samsung (M2M/IoT portfolio) and Citadel Securities/Jump Trading (HFT portfolio). It also details the ongoing appeal against Google/YouTube (Cox Patent Portfolio) and the conclusion of Remote Power Patent litigations, which generated $150,000 in revenue - On June 27, 2025, the Company commenced patent litigation against Samsung for infringement of M2M/IoT patents related to eSIM and 5G technologies[71] - In December 2024, HFT Solutions, LLC initiated patent litigations against Citadel Securities, LLC and Jump Trading, LLC for infringement of HFT Patent Portfolio[72] - The Company filed an appeal on May 14, 2024, to the U.S. Court of Appeals for the Federal Circuit regarding the dismissal of its patent infringement claims against Google and YouTube[73] - During the six months ended June 30, 2025, the Company received a $150 thousand conditional payment from a defendant in Remote Power Patent litigation, recorded as revenue[76] NOTE J – INVESTMENT This note details the Company's equity investment in ILiAD Biotechnologies, LLC, a clinical-stage biotechnology company. It outlines the Company's ownership percentage and the allocated net losses from this equity method investment - The Company has invested $7 million in ILiAD Biotechnologies, LLC, owning approximately 6.5% of outstanding units on a non-fully diluted basis[77] - For the six months ended June 30, 2025, the Company recognized an allocated net loss of $741 thousand from its ILiAD investment, a decrease from $1.305 million in the prior year[78] - The carrying value of the ILiAD investment decreased from $3.337 million at December 31, 2024, to $2.596 million at June 30, 2025[78] NOTE K – STOCK REPURCHASES This note describes the Company's share repurchase program, including its extension and increase to $5,000,000. It provides details on shares repurchased during the period, the average price, and the remaining authorization. It also mentions the adoption of a 10b5-1 trading plan and the potential impact of the U.S. federal 1% excise tax on stock repurchases - On June 17, 2025, the Board authorized an extension and increase of the share repurchase program by $5 million over the next 24 months[81] - During the six months ended June 30, 2025, the Company repurchased 151,473 shares at an aggregate cost of $202,194 (average $1.33 per share)[82] - As of June 30, 2025, $4.994853 million remained available under the Share Repurchase Program[85] NOTE L – CONCENTRATIONS OF CREDIT RISK This note addresses the Company's concentrations of credit risk, primarily related to cash and certificates of deposit held at financial institutions, noting amounts in excess of FDIC insured limits - At June 30, 2025, the Company had $8 thousand of cash and certificates of deposit in excess of the FDIC insured limit[86] - The Company held $13.373 million in cash equivalents in brokerage accounts at June 30, 2025[86] NOTE M – DIVIDEND POLICY This note outlines the Company's dividend policy of semi-annual cash dividends of $0.05 per share ($0.10 annually), typically paid in March and September, subject to Board review and financial conditions - The Company's dividend policy is semi-annual cash dividends of $0.05 per share ($0.10 annually), paid in March and September[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key business activities, financial performance drivers, liquidity, and capital resources. It discusses the Company's patent licensing strategy, ongoing litigations, and investment in ILiAD Biotechnologies OVERVIEW This section provides a high-level summary of the Company's business, strategic focus, and financial highlights for the period - The Company's core business is developing, licensing, and protecting intellectual property, holding 115 U.S. patents (54 expired) and 17 international patents across various technology sectors[89] - Principal liquidity sources at June 30, 2025, were cash, cash equivalents, and marketable securities totaling $38.485 million, with working capital of $38.288 million[91] - All revenue for 2024 and the first six months of 2025 derived from settlements involving the expired Remote Power Patent[93] - New patent litigations commenced against Samsung (M2M/IoT) and Citadel/Jump Trading (HFT), and an appeal is pending for the Google/YouTube (Cox) litigation[95][96][97] - The Company acquired the Smart Home Patent Portfolio on March 31, 2025, consisting of 8 U.S. patents, 1 international patent, and pending applications[98] RESULTS OF OPERATIONS This section analyzes the Company's financial performance, comparing current period results to prior periods and explaining key drivers of changes Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This subsection compares the financial performance for the three-month periods ended June 30, 2025, and 2024 - Revenue for the three months ended June 30, 2025, was $0, down from $100 thousand in the same period of 2024[106] - Net loss decreased by $195 thousand to $463 thousand for the three months ended June 30, 2025, primarily due to a $398 thousand decrease in the share of net losses from ILiAD[109] - Share of net losses from equity method investee (ILiAD) decreased to $279 thousand in Q2 2025 from $677 thousand in Q2 2024[108] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This subsection compares the financial performance for the six-month periods ended June 30, 2025, and 2024 - Revenue for the six months ended June 30, 2025, increased to $150 thousand from $100 thousand in the prior year, all from Remote Power Patent litigation settlements[110] - Operating expenses decreased by $127 thousand to $1.515 million, driven by lower professional fees and general and administrative expenses[111] - Net loss decreased by $752 thousand to $826 thousand for the six months ended June 30, 2025, primarily due to reduced ILiAD losses ($564 thousand decrease) and lower operating expenses[116] - Realized and unrealized gains on marketable securities increased to $171 thousand from $102 thousand, mainly due to timing of fixed income investment maturities[113] LIQUIDITY AND CAPITAL RESOURCES This section discusses the Company's ability to meet its short-term and long-term financial obligations and its sources of funding - At June 30, 2025, the Company's liquidity included $38.485 million in cash, cash equivalents, and marketable securities, with working capital of $38.288 million[117] - Working capital decreased by $1.778 million from December 31, 2024, primarily due to dividend payments ($1.155 million), patent acquisitions ($414 thousand), and stock repurchases ($207 thousand)[119] - Net cash used in operating activities decreased by $158 thousand to $502 thousand for the six months ended June 30, 2025[120] - Net cash provided by investing activities decreased by $3.709 million to $2.150 million, mainly due to decreased sales of marketable securities and patent acquisitions[121] - Net cash used in financing activities decreased by $787 thousand to $1.369 million, primarily due to a decrease in common stock repurchases[122] OFF-BALANCE SHEET ARRANGEMENTS This section confirms the absence of any off-balance sheet arrangements that could materially impact the Company's financial position - The Company does not have any off-balance sheet arrangements[123] CONTRACTUAL OBLIGATIONS This section outlines the Company's contractual obligations, including long-term debt, capital leases, and purchase commitments - The Company has no long-term debt, capital lease obligations, purchase obligations, or other long-term liabilities[124] CRITICAL ACCOUNTING ESTIMATES This section identifies accounting estimates that require significant judgment and could materially affect financial results if underlying assumptions change - Critical accounting estimates involve assumptions about highly uncertain matters, where changes could materially impact financial condition or results of operations[126] - Significant estimates include costs related to litigation, valuation of patent portfolios, stock-based compensation, recoverability of deferred tax assets, and carrying value of equity method investments[32] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the Company does not have significant exposure to interest rate risk due to its investments primarily being in money market funds, government securities, certificates of deposit, and short-term fixed income securities - The Company does not believe its investments have significant exposure to interest rate risk, as they are primarily in money market funds, government securities, certificates of deposit, and short-term fixed income securities[122][128] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness, and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This subsection reports on the effectiveness of the Company's disclosure controls and procedures as evaluated by management - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[128] Changes in Internal Controls This subsection reports any material changes in the Company's internal control over financial reporting during the period - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[129] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, other information, and exhibits Item 1. Legal Proceedings This section provides an update on legal proceedings, specifically noting the commencement of new patent litigation against Samsung Electronics Co., LTD and Samsung Electronics America, Inc. on June 27, 2025, for infringement of M2M/IoT Patent Portfolio patents - On June 27, 2025, the Company initiated patent litigation against Samsung for infringement of M2M/IoT Patent Portfolio patents related to eSIM and 5G technologies in mobile devices[131] Item 1A. Risk Factors This section advises investors to consider various risks and uncertainties that could negatively impact the Company's business, financial condition, results of operations, and stock price, referencing both the current 10-Q and the Annual Report on Form 10-K - Investors should carefully consider risks described in this Quarterly Report and the Annual Report on Form 10-K for the year ended December 31, 2024[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities during the quarter and details the Company's stock repurchase program, including its extension and increase, shares repurchased, and the remaining authorization Recent Issuances of Unregistered Securities This subsection reports on any unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities during the three months ended June 30, 2025[133] Stock Repurchases This subsection details the Company's stock repurchase activities, including program authorizations and shares repurchased - The Board authorized an extension and increase of the Share Repurchase Program to repurchase up to $5 million of common stock over the subsequent 24-month period[134] - During the three months ended June 30, 2025, 44,811 shares were repurchased at an aggregate cost of $55,337 (average $1.23 per share)[134] - As of June 30, 2025, the remaining dollar value of shares that may be repurchased was $4.994853 million[134] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[137] Item 5. Other Information This section indicates that there is no other information to report - No other information is reported in this section[137] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) and Interactive Data Files (XBRL) - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Interactive Data Files (XBRL) (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[138] Signatures This section contains the signatures of the registrant's authorized officers, including the Chairman and Chief Executive Officer and the Chief Financial Officer, certifying the report - The report is signed by Corey M. Horowitz, Chairman and Chief Executive Officer, and Robert Mahan, Chief Financial Officer, on August 8, 2025[142]