ITEM 1A. RISK FACTORS
Our
operations and financial results are subject to various material risks and uncertainties, including those described below, which could
adversely affect our business, financial condition, results of operations, cash flow, and the trading price of our common stock. You
should carefully consider the material risks and uncertainties described below in addition to the other information set forth in this
Annual Report on Form 10-K, including, but not limited to, the section titled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” The material risks described below are not the only risks we face. Additional risks that
we do not know of or that we currently believe are immaterial may also impair our business operations. If any of the following risks
actually occur, our business, financial condition, results of operations and cash flow could be materially adversely affected, and the
trading price of our common stock could decline significantly.
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Risks
Related to Our Business
Our
revenue is uncertain as it is dependent upon litigation outcomes involving our patents which we cannot predict.
Our
revenue is dependent upon our litigation outcomes. We currently have pending patent infringement litigations involving our HFT Patent
Portfolio and a pending appeal of dismissal of litigation involving our Cox Patent Portfolio (see “Legal Proceedings” at
page 20 hereof). Patent litigation is inherently risky and uncertain and we cannot assure you that any of our current or future litigation
will result in a favorable outcome for us. Accordingly, our revenue is uncertain.
If
we are unable to protect our patents, our business would be negatively impacted.
We
believe our patents are valid, enforceable and valuable. Despite this belief, third parties typically defend assertion of our patents
by asserting defenses, among others, of non-infringement and invalidity. In addition, in the future certain of our patents may be subject
to USPTO post-grant inter partes review proceedings (IPRs) which could result in all or a part of our patents being invalidated
or the claims being limited. Unfavorable outcomes in our litigation or IPRs may reduce our ability to enforce our patents or have other
adverse consequences. If we are unable to protect our patents or otherwise realize value for them, our business, financial condition
and operating results would be negatively impacted.
We
may not achieve successful outcomes of litigations involving our HFT Patent Portfolio or be able to monetize our M2M/IoT Patent Portfolio,
which would have a material negative impact on our ability to achieve significant revenue and net income in the future.
On
December 26, 2024, we commenced patent litigations against Citadel Securities, LLC and Jump Trading, LLC in the United States District
Court for the Northern District of Illinois for infringement of certain patents within our HFT Patent Portfolio (see “Legal Proceedings”
at page 20 hereof). We also intend to make efforts to monetize our M2M/IoT Patent Portfolio. We may not achieve successful outcomes in
these patent litigations involving our HFT Patent Portfolio or be able to monetize our M2M/IoT Patent Portfolio which would have a material
negative impact on our ability to achieve significant revenue and net income in the future.
The
outcome of our substantial investment in ILiAD is uncertain.
We
have invested $7,000,000 in ILiAD, a privately held clinical stage biotechnology company, with focus on validating its proprietary intranasal
vaccine (BPZE1) for the prevention of pertussis (whopping cough). Notwithstanding the aforementioned, ILiAD still faces material risks
going forward. Accordingly, our investment in ILiAD remains subject to substantial risks.
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We
have been dependent upon our Remote Power Patent for a significant portion of our revenue in the past and we may not be able to generate
future revenue from our other patents.
Our
Remote Power Patent has generated revenue for us in excess of $188,000,000 from May 2007 through December 31, 2024. Revenue from our
Remote Power Patent constituted 100% of our revenue for 2024 ($100,000) and 2023 ($2,601,000). We had no revenue in 2022 and revenue
from our Remote Power Patent constituted 100% of our revenue for 2021 ($36,029,000), 2020 ($4,403,000) and 2019 ($3,037,000). As a result
of the expiration of our Remote Power Patent on March 7, 2020, we no longer receive revenue from such patent for any period subsequent
to the expiration date. Our failure to successfully monetize our other patents, including our HFT Patent Portfolio and M2M/IoT Patent
Portfolio, would have a negative impact on our business, financial condition and operating results.
We
may not be able to capitalize in the future on our strategy to acquire high quality patents with significant licensing opportunities
or enter into strategic relationships with third parties to license or otherwise monetize their intellectual property.
Based
upon the success we achieved from licensing our Remote Power Patent (twenty-eight (28) license agreements and in excess of $188,000,000
of revenue through December 31, 2024), the revenue we generated from our Mirror Worlds Patent Portfolio ($47,150,000), establishing a
patent portfolio currently consisting of one hundred and six (106) U.S. patents and sixteen (16) foreign patents, and our cash position,
we believe we have the expertise and sufficient capital to compete in the patent monetization market and to enter strategic relationships
with third parties to develop, commercialize, license or otherwise monetize their patents. Our strategy is to focus on acquiring high
quality patent assets which management believes have the potential for significant licensing opportunities. However, we may not be able
to acquire such additional high quality patents or, if acquired, we may not achieve material revenue or profit from such patents. Acquisitions
of patent assets are competitive, time consuming, complex and costly to consummate. High quality patents with significant licensing
opportunities are difficult to find and are often very competitive to acquire. In addition, such acquisitions present material
risks. Even if we acquire such additional patent assets, we may not be able to achieve significant licensing revenue or even generate
sufficient revenue related to such patent assets to offset the acquisition costs and the legal fees and expenses which may be incurred
to enforce, license or otherwise monetize such patents. In addition, we may not be able to enter into strategic relationships with third
parties to license or otherwise monetize their intellectual property and, even if we consummate such strategic relationships, we may
not achieve material revenue or profit from such relationships.
The
patent monetization cycle is long, costly and unpredictable.
There
is generally a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During this
time lag, significant costs are likely to be incurred which may have a negative impact on our results of operations, cash flow
and financial position. Furthermore, the outcome of our efforts to monetize our patents is uncertain and we may not be successful.
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Our
quarterly and annual operating and financial results, including our revenue, are difficult to predict and are likely to fluctuate significantly
in future periods.
Our
quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from period to period.
Our revenue, net income and results of operations may widely fluctuate, including years where we may have no revenue, as a result of
a variety of factors that are outside our control, including the timing and our ability to achieve successful outcomes from current and
future patent litigation, our ability and timing in consummating future license agreements for our intellectual property assets, the
timing and extent of payments received by us from licensees, whether we will achieve a successful outcome of our investment in ILiAD,
and the timing and our ability to achieve revenue from future strategic relationships.
In
the future we could be classified as a Personal Holding Company resulting in a 20% tax on our PHC Income that we do not distribute to
our shareholders.
The
personal holding company (“PHC”) rules under the Internal Revenue Code impose a 20% tax on a PHC’s undistributed personal
holding company income (“UPHCI”), which means, in general, taxable income subject to certain adjustments and reduced by certain
distributions to shareholders. For a corporation to be classified as a PHC, it must satisfy two tests: (1) that more than 50% in value
of its outstanding shares must be owned directly or indirectly by five 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 (2) at least 60% of its adjusted ordinary gross income for
a taxable year consists of dividends, interest, royalties, annuities and rents (the “Income Test”). During the second
half of 2024, based on available information concerning our shareholder ownership, we did not satisfy the Ownership Test. In addition,
we did not satisfy the Income Test for 2024. Thus, we were not a PHC for 2024. However, we may be determined to be a PHC in the future. If
we were determined to be a PHC in 2025 or any future year, we would be subject to an additional 20% tax on our UPHCI. In such event,
we may issue a special cash dividend to our shareholders in an amount equal to the UPHCI rather than incur the 20% tax.
We
are dependent upon our CEO and Chairman.
Our
success is largely dependent upon the personal efforts of Corey M. Horowitz, our Chairman, Chief Executive Officer and Chairman of our
Board of Directors. On March 22, 2022, we entered into a new four year employment agreement with Mr. Horowitz pursuant to which
he continues to serve as our Chairman and Chief Executive Officer. The loss of the services of Mr. Horowitz would have a material adverse
effect on our business and prospects. We do not maintain key-man life insurance on the life of Mr. Horowitz.
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Cash
dividends may not be continued to be paid.
Our
dividend policy consists of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which have been paid in March and
September of each year. We have paid such semi-annual dividends since our dividend policy was enacted in December 2016. At this
time, we anticipate continuing to pay dividends consistent with our policy. However, our dividend policy undergoes a periodic review
by our Board of Directors and is subject to change at any time depending upon our earnings, financial requirements and other factors
existing at the time. We may not be in a position to continue to pay dividends in the future.
Legislation,
regulations, court rulings and actions by the USPTO have materially increased the risk and cost of enforcement of patents and may continue
to do so in the future.
Legislation,
regulations, court rulings and actions by the USPTO have materially increased the risk and cost of enforcing patents. U.S. patent laws
were amended by the Leahy-Smith America Invents Act, referred to as the America Invents Act, which became effective on March 16, 2013.
The America Invents Act included a number of significant changes to U.S. patent law. In general, it addressed issues surrounding the
enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation
and new administrative post-grant review procedures to challenge the patentability of issued patents outside of litigation, including
Inter Partes Review (IPR) proceedings, which provide third parties a timely, cost effective alternative to district court litigation
to challenge the validity of an issued patent. In addition, the America Invents Act changed the way that parties may be joined in patent
infringement actions, and increased the likelihood that such actions will need to be brought against individual parties allegedly infringing
by their respective individual actions or activities. The America Invents Act and its implementation also increased the uncertainties
and costs surrounding the enforcement of patent rights, which have made it more difficult to successfully prosecute our patents.
The
increasing development of artificial intelligence could impact our business.
Our
patents are central to our business strategy of licensing our intellectual property rights or enforcing such rights against those that
we believe are infringing. However, rapid advancements in the field of artificial intelligence (AI) and machine learning (ML) have the
potential to impact our current business model in various ways. AI technologies are increasingly capable of developing solutions that
either design around existing patents or create alternative technologies that may not infringe our intellectual property. Furthermore, the proliferation of AI may lead to the emergence of new market participants with innovative
solutions that challenge our patents' validity or enforceability. Such challenges could result in lengthy legal battles or the invalidation
of our patents, thereby impacting our potential future revenue.
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AI
driven legal analytics tools can also empower potential infringers with sophisticated insights into the strengths and weaknesses of our
patent claims, potentially reducing our leverage in litigation and licensing negotiations. Investors are advised that our financial results could be adversely affected
if we are unable to adapt to the rapid changes brought about by AI and ML technologies, and our ability to enforce our patent rights
is consequently diminished.
Changes
in patent law could adversely impact our business.
Patent
laws may continue to change and may alter the protections afforded to owners of patent rights. Such changes may not be advantageous to
us and may make it more difficult to obtain adequate patent protection to enforce our patents. Increased focus on the growing number
of patent lawsuits, particularly by non-practicing entities (NPEs), may result in further legislative changes which increase the risk
and costs of asserting patent litigation.
Our
pending patent infringement litigations are time consuming and costly.
We
have pending litigations involving our HFT Patent Portfolio and a pending appeal to the Federal Circuit of dismissal of our litigation
against Google and YouTube involving certain patents within our Cox Patent Portfolio (see “Legal Proceedings” at page 20
of this Annual Report). While we have contingent legal fee arrangements, or a contingency plus a fixed cash amount arrangement, with
our patent litigation counsel in each litigation, we are responsible for all or a portion of the expenses which are anticipated to be
material. In addition, the time and effort required of our management to effectively pursue these litigations is likely to be significant
and it may adversely affect other business opportunities.
We
face intense competition to acquire intellectual property and enter into strategic relationships.
With
respect to our ability to acquire additional intellectual property or enter into strategic relationships with third parties to monetize
their intellectual property, we face considerable competition from other companies, many of which have significantly greater financial
and other resources than we have. We face a number of competitors in the patent licensing and enforcement business seeking to acquire
intellectual property rights from third parties. Many of these competitors have significantly more financial and human resources than
us.
We
may also compete with strategic corporate buyers, litigation funding firms, venture capital firms and hedge funds for intellectual property
acquisitions and licensing opportunities. Many of these competitors also have greater financial resources and human resources than us.
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Our
markets are subject to rapid technological change and our technologies face potential technology obsolescence.
The
markets covered by our intellectual property are characterized by rapid technological changes, changing customer requirements, frequent
new product introductions and enhancements, and evolving industry standards. The introduction of products embodying new technologies
and the emergence of new industry standards may render our technologies obsolete or less marketable.
In
addition, other companies may develop competing technologies that offer better or less expensive alternatives to the technologies covered
by our intellectual property. Moreover, technological advances or entirely different approaches developed by other companies or adopted
by various standards groups could render our patents obsolete, less marketable or unenforceable.
The
burdens of being a public company may adversely affect us including our ability to pursue litigation.
As
a public company, our management must devote substantial time, attention and financial resources to comply with U.S. securities laws.
This may have a material adverse effect on management's ability to effectively and efficiently pursue its business. In addition, our
disclosure obligations under U.S. securities laws require us to disclose information publicly that will be available to litigation opponents.
We may, from time to time, be required to disclose information that may have a material adverse effect on our litigation strategies.
This information may enable our litigation opponents to develop effective litigation strategies that are contrary to our interests.
General
Risk Factors
Investors
may have limited influence on stockholder decisions because ownership of our common stock is concentrated.
As
of February 15, 2025, our executive officers and directors beneficially owned 31.9% of our outstanding common stock. As a
result, these stockholders may be able to exercise substantial control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets.
This concentration of ownership will limit other stockholders' ability to influence corporate matters and may have the effect of delaying
or preventing a third party from acquiring control over us.
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Our
common stock may be delisted from the NYSE American exchange if we fail to comply with continued listing standards.
Our
common stock is currently traded on the NYSE American exchange under the symbol “NTIP”. If we fail to meet any of the continued
listing standards of the NYSE American exchange, our common stock could be delisted. Such delisting could adversely affect the price
and trading (including liquidity) of our common stock.
There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance
with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial condition,
and operating results.
The
preparation of financial statements in accordance with accounting principles generally accepted in the United States involves making
estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves,
revenues, expenses, and income. Estimates, judgments, and assumptions are inherently subject to change in the future, and any such changes
could result in corresponding changes to the amounts of assets, liabilities, expenses, and income. Any such changes could have a material
adverse effect on our business, financial condition, and operating results.
Provisions
in our corporate charter, by-laws and in Delaware law could make it more difficult for a third party to acquire us, discourage a takeover
and adversely affect existing stockholders.
Our
certificate of incorporation authorizes the Board of Directors to issue up to 10,000,000 shares of preferred stock. The preferred
stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our Board of Directors, without
further action by stockholders, and may include, among other things, voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions, any of which could
adversely affect holders of our common stock. Although there are currently no shares of preferred stock outstanding, future holders of
preferred stock may have rights superior to our common stock and such rights could also be used to restrict our ability to merge with
or sell our assets to third parties.
We
are also subject to the “anti-takeover” provisions of Section 203 of the Delaware General Corporation Law, which could prevent
us from engaging in a “business combination” with a 15% or greater stockholder for a period of three years from the date
such person acquired that status unless appropriate board or stockholder approvals are obtained.
In
addition, our By-laws contain advance notice requirements for director nominations and for new business to be brought up at
stockholder meetings. Stockholders wishing to submit director nominations or raise matters to a vote of stockholders must provide
notice to us within specified date windows and in very specific forms in order to have that matter voted on at a stockholders
meeting.
The
aforementioned provisions could deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions
in which stockholders might otherwise receive a premium for their shares over the then current market price. These provisions may also
limit the ability of stockholders to delay, deter or prevent a change of control, or approve transactions that they may deem to be in
their best interests.
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Our
stock price may be volatile.
The
market price of our common stock may be highly volatile and could fluctuate widely in price in response to various factors, many of which
are beyond our control, including, but not limited to, the following:
• our ability to monetize our M2M/IoT Patent Portfolio;
• our ability to achieve a successful outcome of our investment in ILiAD;
• our ability to acquire additional intellectual property;
• variations in our quarterly and annual operating results;
• our ability to continue to pay cash dividends;
• our ability to raise capital if needed;
• sales of our common stock;
• technology changes;
• legislative, regulatory and competitive developments; and
• economic and other external factors.
In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also have a material and adverse effect on the market price
of our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Based
on our small size (two employees and two consultants), we rely extensively on information technology systems managed by third party major
service providers to securely process, store and transmit our data to conduct business. Our employees and consultants utilize end point
security tools, such as firewalls and anti-virus protection, to protect our data. We have recently implemented overall risk procedures
which incorporate certain uniform processes. To date, we have not engaged any consultants, auditors or other third parties in connection
with our risk management system or processes.
In
connection with our use of third party service providers, we have certain processes in place to oversee and identify cybersecurity risks
from threats and incidents.To date, we have not been materially impacted by risks from cybersecurity threats or incidents and we are
not aware of cybersecurity threats or incidents that are reasonably likely to materially affect our business. However, there could be
cybersecurity threats or incidents in the future that may adversely affect our business.
Our
Executive Vice President oversees risks of cybersecurity threats and reports quarterly, and as necessary, to the Board of Directors,
including promptly reporting any cybersecurity incidents that may pose a significant risk to us. Our Executive Vice President has over
ten years of experience with developers of access management, network security and data protection solutions.
ITEM 2. PROPERTIES
Our
principal executive offices are located in New Canaan, Connecticut, where we lease approximately 2,000 square feet of office space at
a base rent of $5,500 per month pursuant to a lease amendment, dated May 1, 2022, which term expires on April 30, 2025. We believe that
our office facility is suitable and appropriate to support our current needs.
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ITEM 3. LEGAL PROCEEDINGS
HFT
Patent Portfolio Litigation
On
December 24, 2024, our wholly-owned subsidiary, HFT Solutions, LLC (“HFT”), initiated patent litigations against Citadel
Securities, LLC and Jump Trading, LLC in the United States District Court for the Northern District of Illinois for infringement of U.S.
Patent No. 10,931,286, U.S. Patent No. 11,128,305, and U.S. Patent No. 11,575,381. The asserted patents are part of the HFT Patent Portfolio
acquired by us in March 2022. The HFT Patent Portfolio relates to, among other things, certain advanced technologies relating to high
frequency trading, which inventions specifically address technological problems associated with speed and latency and provide critical
latency gains in trading systems where the difference between success and failure may be measured in nanoseconds.
Cox
Patent Portfolio Litigation
On
April 4, 2014 and December 3, 2014, we initiated litigation against Google Inc. (“Google”) and YouTube, LLC (“YouTube”)
in the U.S. District Court for the Southern District of New York for infringement of several of our patents within our Cox Patent Portfolio
which relate to the identification of media content on the Internet. The lawsuit alleged that Google and YouTube had infringed and continued
to infringe certain of our patents by making, using, selling and offering to sell unlicensed systems and related products and services,
which included YouTube’s Content ID system.
The
litigations 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 then pending at the Patent Trial and Appeal Board (PTAB) and appeals to the U.S. District Court of Appeals
for the Federal Circuit. Pursuant to a joint stipulation and order, entered on January 2, 2019, the parties agreed, among other things,
that the stays with respect to the litigations were lifted. In January 2019, the two litigations against Google and YouTube were consolidated.
The consolidated actions proceeded and discovery was subsequently completed. On April 24, 2024, following a motion for summary judgment
by the defendants, the U.S. District Court for the Southern District of New York issued a judgment dismissing our patent infringement
claims finding that the asserted claims of two of the patents are invalid for indefiniteness and granting summary judgment that the asserted
claims of another asserted patent are not infringed by Google’s accused system. The Court’s ruling disposes of all of our
claims in the case. On May 14, 2024, we filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit and the appeal
is pending.
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Remote
Power Patent Litigation
In
October and November 2022, we initiated nine separate litigations against ten defendants for infringement of our Remote Power Patent
seeking monetary damages based upon reasonable royalties, as follows: (i) on October 6, 2022, we initiated such litigation against Arista
Networks, Inc., Fortinet, Inc., Honeywell International Inc. and Ubiquiti Inc. in the United States District Court, District of Delaware;
(ii) on October 27, 2022, and November 3, 2022, we initiated such litigation against TP-Link USA Corporation and Hikvision USA, Inc.
in the United States District Court for the Central District of California; (iii) on November 4, 2022, we initiated such litigation against
Panasonic Holdings Corporation and Panasonic Corporation of North America in the United States District Court for the Eastern District
of Texas (Marshall Division); and (iv) on November 8, 2022 and November 16, 2022, we initiated such litigation against Antaira Technologies,
LLC and Dahua Technology USA in the United States District Court for the Central District of California.
During
the year ended December 31, 2023, we entered into settlement agreements with eight of the defendants resulting in aggregate settlement
payments to us of $2,601,000 and a conditional payment of $150,000. On February 21, 2025, we received the conditional payment of $150,000
from a defendant as the conditions were satisfied in accordance with the settlement agreement. During the year ended December 31, 2024,
we entered into a settlement agreement with one additional defendant resulting in a settlement payment to us of $100,000. On January
14, 2025, the U.S. District Court for the District of Delaware granted Ubiquiti’s partial motion for summary judgment on indirect
infringement. On February 13, 2025, the Court granted the parties joint motion to dismiss the litigation.
Mirror
Worlds Patent Portfolio Litigation
On
May 9, 2017, Mirror Worlds Technologies, LLC, our wholly-owned subsidiary, initiated litigation against Facebook, Inc. (“now Meta
Platforms, Inc., “Meta”) in the U.S. District Court for the Southern District of New York, for infringement of U.S. Patent
No. 6,006,227, U.S. Patent No. 7,865,538 and U.S. Patent No. 8,255,439 (among the patents within our Mirror Worlds Patent Portfolio).
The lawsuit alleges that the asserted patents are infringed by Meta’s core technologies that enable Meta’s Newsfeed and Timeline
features. We seek, among other things, monetary damages based upon reasonable royalties.
On
August 11, 2018, the U.S. District Court for the Southern District of New York District Court issued an order granting Meta’s motion
for summary judgment of non-infringement and dismissed the case. On January 23, 2020, the U.S. Court of Appeals for the Federal Circuit
ruled in our favor and reversed the summary judgment finding on non-infringement of the District Court and remanded the litigation to
the Southern District of New York for further proceedings.
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On
March 7, 2022, the U.S. District Court for the Southern District of New York entered a ruling granting in part and denying in part a
motion for summary judgment by Meta. In its ruling, the District Court (i) denied Meta’s motion that the asserted patents were
invalid by concluding that all asserted claims were patent eligible under §101 of the Patent Act and (ii) granted summary
judgment of non-infringement in favor of Meta and dismissed the case. On April 4, 2022, we filed an appeal of the District Court
decision to the U.S. Court of Appeals for the Federal Circuit. On December 4, 2024, the U.S. Court of Appeals for the Federal
Circuit affirmed the judgment of the District Court granting Meta’s motion for summary judgment of non-infringement dismissing
our claims against Meta.
ITEM 4. MINE SAFETY DISCLOSURES
None.
-22-
PART
II
Market
Information. Our common stock is listed for trading on the NYSE American exchange under the symbol “NTIP”. On February
24, 2025, the closing price for our common stock as reported on the NYSE American exchange was $1.38 per share. The number of
record holders of our common stock was 36 as of February 24, 2025. In addition, we believe there were in excess of approximately 1200
holders of our common stock in “street name” as of February 24, 2025.
Dividend
Policy. Our dividend policy consists of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which
have been paid in March and September of each year. On February 23, 2024, our Board of Directors declared a semi-annual
cash dividend of $0.05 per share with a payment date of March 29, 2024 to all common shareholders of record as of March 15, 2024. On
August 27, 2024, our Board of Directors declared a semi-annual cash dividend of $0.05 per share with a payment date of September
26, 2024 to all common shareholders of record as of September 12, 2024. On February 19, 2025, our Board of Directors declared a semi-annual
cash dividend of $0.05 per share with a payment date of March 28, 2025 to all common shareholders of record as of March 14, 2025.
At this time, we anticipate continuing to pay dividends consistent with our policy. However, our dividend policy undergoes a periodic
review by our Board of Directors and is subject to change at any time depending upon our earnings, financial requirements and other factors
existing at the time.
As
of December 31, 2024, we had accrued dividends of $121,000 for unvested restricted stock units with dividend equivalent rights.
Recent
Issuances of Unregistered Securities. There were no unregistered sales of equity securities during the quarter ended December 31,
2024.
Stock
Repurchases. On June 14, 2023, our Board of Directors authorized an extension and increase of our share repurchase program (“Share
Repurchase Program”) to repurchase up to $5,000,000 of shares of our common stock over the subsequent 24 month period. The common
stock may be repurchased from time to time in open market transactions or privately negotiated transactions in our discretion. The timing
and amount of the shares repurchased is determined by management (excluding repurchases under our 10b5-1 plans) based on its evaluation
of market conditions and other factors. Our Share Repurchase Program may be increased, suspended or discontinued at any time.
-23-
During
the months of October, November and December 2024, we repurchased common stock pursuant to our Share Repurchase Program as indicated
below:
During
the year ended December 31, 2024, we repurchased an aggregate of 733,436 shares of our common stock pursuant to our Share Repurchase
Program at a cost of $1,270,438 (exclusive of commissions) or an average price per share of $1.73.
Since
the inception of our Share Repurchase Program (August 2011) to December 31, 2024, we have repurchased an aggregate of 10,374,232 shares
of our common stock at a cost of $19,983,354 (exclusive of commissions) or an average per share price of $1.93.
On
December 23, 2024, we entered into a written trading plan (the “10b5-1 Plan”) under Rule 10b5-1 of the Securities Exchange
Act of 1934 (the” Exchange Act”). Adopting a trading plan that satisfies the conditions of Rule 10b5-1 allows a company to
repurchase its shares at times when it might otherwise be prevented from doing so due to self-imposed trading black-outs or pursuant
to insider trading laws. Purchases under the 10b5-1 Plan may be made during the following periods: (1) beginning on January 2, 2025 until
two trading days after we issue a press release announcing our financial results for the year ended December 31, 2024, and (2) beginning
on April 1, 2025 until two trading days after we issue a press release announcing our financial results for the quarter ended March 31,
2025. Under the 10b5-1 Plan, our third party broker may purchase up to 1,000,000 shares of our common stock, subject to certain price,
market, volume and timing constraints, in accordance with the terms of the plan and subject to Rule 10b5-1 and Rule 10b-18 of the Exchange
Act.
-24-
Equity
Compensation Plan Information
The
following table summarizes share and exercise price information for our equity compensation plans as of December 31, 2024.
(a) (b) (c)
Equity compensation plans not approved by security holders $ — $ — —
___________________
(1)
Consists of shares issuable upon vesting of outstanding restricted stock units issued under the 2022 Stock Incentive
Plan and the 2013 Stock Incentive Plan.
(2)
Does not take into account outstanding restricted stock units as these awards have no exercise price.
(3) Represents
shares of common stock reserved for issuance under our 2022 Stock Incentive Plan. We discontinued issuing awards under our 2013 Stock
Incentive Plan as a result of adoption of the 2022 Stock Incentive Plan.
Our
2022 Stock Incentive Plan (“2022 Plan”) provides for the grant of any or all of the following types of awards: (a) stock
options, (b) restricted stock units (c) restricted stock, (d) stock appreciation rights, (e) unrestricted stock awards, (f) cash based
awards, and (g) other stock-based awards. Awards under the 2022 Plan may be granted singly, in combination, or in tandem. Subject
to standard anti-dilution adjustments as provided in the 2022 Plan, the 2022 Plan provides for an aggregate of 2,300,000 shares of our
common stock to be available for distribution pursuant to the 2022 Plan. The Compensation Committee (or the Board of Directors)
generally has the authority to administer the 2022 Plan, determine participants who will be granted awards under the 2022 Plan, the size
and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. Awards
under the 2022 Plan may be granted to our employees, directors and consultants. As of December 31, 2024, there were 62,500 shares issuable
upon vesting of outstanding restricted stock units under our 2022 Plan and 425,000 shares issuable upon vesting outstanding restricted
stock units under our 2013 Stock Incentive Plan (“2013 Plan”).
ITEM 6. (RESERVED)
Not
applicable.
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The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial
statements and related notes contained elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report
on Form 10-K, particularly in the “Risk Factors” Section on pages 10 – 18 hereof.
OVERVIEW
Our
principal business is the development, licensing and protection of our intellectual property assets. We presently own one hundred and
six (106) U.S. patents and sixteen (16) foreign patents relating to: (i) our M2M/IoT Patent Portfolio relating to, among other things,
enabling technology for authenticating and using eSIM (embedded Subscriber Identification Module) technology in IoT, Machine-to-Machine
and other mobile devices, including smartphones, tablets and computers, as well as automobiles; (ii) our HFT Patent Portfolio covering
certain advanced technologies relating to high frequency trading, which inventions specifically address technological problems associated
with speed and latency and provide critical latency gains in trading systems where the difference between success and failure may be
measured in nanoseconds; (iii) our Cox Patent Portfolio relating to enabling technology for identifying media content on the Internet
and taking further action to be performed after such identification; (iv) our Remote Power Patent covering the delivery of power over
Ethernet (PoE) cables for the purpose of remotely powering network devices, such as wireless access ports, IP phones and network based
cameras; and (v) our Mirror Worlds Patent Portfolio relating to foundational technologies that enable unified search and indexing,
displaying and archiving of documents in a computer system.
With
respect to our one hundred and six (106) U.S. patents, fifty-four (54) of such patents have expired. However, we can assert expired patents
against third parties but only for past damages up to the patent expiration date. In 2024, our revenue was from our expired Remote Power
Patent and we are currently appealing to the Federal Circuit a District Court dismissal of claims involving certain expired patents within
our Cox Patent Portfolio (see Note K to our consolidated financial statements included herein). Our revenue is dependent upon our ability
to achieve successful litigation outcomes.
At
December 31, 2024, our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $40,600,000
and working capital of $40,066,000. Based on our cash position, we review opportunities to acquire additional intellectual property
as well as evaluate other strategic opportunities.
To
date we have invested $7,000,000 in ILiAD, a clinical stage biotechnology company with an exclusive license to seventy-four (74)
patents (see Note H to our consolidated financial statements included herein). Our investment continues to involve significant risk
and the outcome is uncertain.
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We
have been dependent upon our Remote Power Patent for a significant portion of our revenue. Our Remote Power Patent has generated revenue
in excess of $188,000,000 from May 2007 through December 31, 2024. We no longer receive licensing revenue for our Remote Power Patent
for any period subsequent to March 7, 2020 (the expiration date of the patent). During the fourth quarter of 2022, we commenced nine
separate litigations against ten defendants involving our Remote Power Patent for patent infringement for the period prior to March 7,
2020. During 2024, we entered into a settlement agreement with one defendant for which we received $100,000. Such settlement payment
constituted all of our revenue for 2024. During 2023, we entered into settlement agreements with eight of the defendants with respect
to the aforementioned litigation resulting in aggregate settlement payments made to us of $2,601,000 and a future conditional payment
of $150,000 (see Note K to our consolidated financial statements included herein). All of our revenue for 2023 was from these settlements
involving our Remote Power Patent. If we are unable to successfully monetize our other patent portfolios or achieve a successful outcome
of our investment in ILiAD, our business, financial condition and results of operations will be negatively impacted.
In
addition, we have pending litigation involving certain patents within our HFT Patent Portfolio and have appealed the judgment of the
District Court dismissing our litigation against Google and YouTube on the grounds of non-infringement involving certain patents
within our Cox Patent Portfolio. In addition, we intend to monetize our M2M/IoT Patent Portfolio. We may not achieve successful outcomes
of such litigation, the appeal, or future litigation involving our patent assets.
Our
current strategy includes continuing our licensing efforts with respect to our intellectual property assets and the monetization of our
patent portfolios. In addition, we continue to seek to acquire additional intellectual property assets to develop, commercialize, license
or otherwise monetize. Our strategy includes working with inventors and patent owners to assist in the development and monetization of
their patented technologies. We may also enter into strategic relationships with third parties to develop, commercialize, license or
otherwise monetize their intellectual property. Our patent acquisition and development strategy is to focus on acquiring high quality
patents which management believes have the potential to generate significant licensing opportunities as we have achieved with respect
to our Remote Power Patent and Mirror Worlds Patent Portfolio.
The
significant components of expenses, when revenue is recorded, that may impact our net income (loss) relate to contingent legal fees and
expenses related to our patent litigation (see Note I[1] to our consolidated financial statements included herein) and incentive compensation
payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note J[1] to our consolidated financial
statements included herein). Both such components of expenses are based on a percentage of the revenue received by us as a result of
litigation or otherwise.
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Our
annual and quarterly operating and financial results may fluctuate significantly from period to period as a result of a variety of factors
that are outside our control, including the timing and our ability to achieve successful outcomes of our patent litigation, our ability
and timing of consummating future license agreements for our intellectual property, and whether we will achieve a return on our investment
in ILiAD and the timing of any such return.
Our
future operating results may also be materially impacted by our ability to acquire high quality patents which management believes have
the potential to generate significant licensing opportunities. In the future, we may not be able to identify or consummate such patent
acquisitions or, if consummated, achieve significant licensing revenue with respect to such acquisitions.
In
2025 and future years we could be classified as a Personal Holding Company. If this is the case, we would be subject to a 20% tax on
the amount of any undistributed personal holding company income (as defined) for such year that we do not distribute to our shareholders
(see Note E to our consolidated financial statements included in this Annual Report).
Our
current dividend policy consists of semi-annual cash dividends of $0.05 per share ($0.10 per share annually) which have been paid in
March and September of each year. In 2024 and 2023, we paid semi-annual cash dividends in accordance with our dividend policy. At this
time, we anticipate continuing to pay dividends consistent with our policy. However, our dividend policy undergoes a periodic review
by our Board of Directors and is subject to change at any time depending upon our financial requirements, earnings and other factors
existing at the time (see Note N to our consolidated financial statements included herein).
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RESULTS
OF OPERATIONS
Year
Ended December 31, 2024 Compared to Year Ended December 31, 2023
Revenue.
We had revenue of $100,000 for the year ended December 31, 2024 (“2024”) as compared to revenue of $2,601,000 for the year
ended December 31, 2023 (“2023”). All of our revenue for 2024 and 2023 was from litigation settlements involving our Remote
Power Patent (see Note K[4] to our consolidated financial statements included herein).
Operating
Expenses. Operating expenses for 2024 were $3,721,000 as compared to $4,836,000 for 2023. The decrease in operating expenses of $1,115,000
was primarily due to lower costs of revenue of $846,000, general and administrative of $275,000 and amortization of patents of $146,000.
These reductions were offset somewhat due to higher professional fees of $152,000.
We
had costs of revenue of $28,000 and $874,000 for 2024 and 2023, respectively. Included in the costs of revenue for 2024 were contingent
legal fees of $23,000 and incentive bonus compensation of $5,000 payable to our Chairman and Chief Executive Officer. Included in the
costs of revenue for 2023 were contingent legal fees of $744,000 and incentive bonus compensation of $130,000 payable to our Chairman
and Chief Executive Officer pursuant to his employment Agreement (see Note J [1] to our consolidated financial statement included herein).
General
and administrative expenses were $2,614,000 for 2024 as compared to $2,889,000 for 2023. The decrease in general and administrative expenses
for 2024 was primarily due to lower payroll and related employer taxes of $159,000 and stock-based compensation of $109,000.
Operating
Loss. We had an operating loss of $3,621,000 for 2024 compared with an operating loss of $2,235,000 for 2023. The operating loss
increase of $1,386,000 was primarily due to lower revenue from patent litigation settlements in 2024 of $2,501,000 as compared to 2023.
Realized
and Unrealized Loss on Marketable Securities. For 2024, we recorded realized and unrealized gains on marketable securities of $177,000
as compared to realized and unrealized gains on marketable securities of $525,000 in 2023, primarily due to the timing of maturities
on marketable securities and the declines in yields on our fixed income holdings.
Income
Taxes. For 2024, we had no current tax expense for federal, state and local income taxes and a deferred tax benefit of $425,000.
For 2023, we had a current income tax for federal, state and local income taxes of $11,000 and a deferred tax benefit of $399,000.
Share
of Net Losses of Equity Method Investee. We recognized $1,912,000 of net losses during 2024 related to our equity share of
ILiAD net losses, as compared to recognized net losses of $2,003,000 for 2023 (see Note H to our consolidated financial statements
included herein). We anticipate continuing to record our share of net losses from ILiAD.
Net
Loss. As a result of the foregoing, we realized a net loss of $3,034,000 or $0.13 per share basic and diluted for 2024 compared with
a net loss of $1,457,000 or $0.06 per share basic and diluted for 2023. Our net loss for 2024 increased by $1,577,000 as compared to
2023 primarily due to lower revenue from patent litigation settlements in 2024 of $2,501,000.
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LIQUIDITY
AND CAPITAL RESOURCES
We
have financed our operations primarily from revenue from licensing our patents. At December 31, 2024, our principal sources of liquidity
consisted of cash and cash equivalents and marketable securities of $40,600,000 and working capital of $40,066,000. Based on our
current cash position, we believe that we will have sufficient cash to fund our operations for the next twelve months and the foreseeable
future. Our patent infringement litigation or realization of our investment in ILiAD may result in a material increase in our liquidity
and capital resources.
Working
capital decreased by $4,784,000 at December 31,2024 to $40,600,000 as compared to working capital of $44,850,000 at December 31, 2023.
The decrease in working capital in 2024 was primarily due to our operating loss of $3,621,000, cash dividends payments of $2,366,000
and share repurchases of $1,295,000, offset by interest and dividend income of $1,897,000.
Net
cash used in operating activities for 2024 increased by $1,407,000 from $1,076,000 used in operating activities for 2024 compared to
$331,000 provided by operating activities for 2023, primarily because of the increase in our net loss of $1,577,000.
Net
cash used in investing activities during 2024 decreased by $5,488,000 as a result of our holdings of marketable securities declining
by $1,049,000 in 2024 as compared to $6,537,000 in 2023.
Net
cash used in financing activities for 2024 and 2023 was $3,724,000 and $3,420,000, respectively. The increase of $304,000 primarily resulted
from higher repurchases of common shares of $329,000.
We
maintain our cash equivalents and marketable securities in money market funds, government securities, certificates of deposit, corporate
bonds and short-term fixed income securities. Accordingly, we do not believe that our investments have significant exposure to interest
rate risk.
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OFF-BALANCE
SHEET ARRANGEMENTS
We
do not have any off-balance sheet arrangements.
CONTRACTUAL