UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________.
Commission File Number: 1-15288
NETWORK-1 TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
65 Locust Avenue, Third Floor New Canaan, Connecticut 06840
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(203) 920-1055
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class Trading symbol Name of each exchange on which registered
Common Stock $.01 par value NTIP NYSE American
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934. Yes ☐No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in this filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D.1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
☒
The aggregate market value of the voting and non-voting common stock held
by non-affiliates computed by reference to the price at which the common stock was last sold as of June 30, 2024 was approximately $28,027,116
based on the closing price as reported on NYSE American Exchange. Shares of voting stock held by each officer and director
and by each person, who as of June 30, 2024, the last business day of the Registrant’s most recently completed second quarter, may
be deemed to have beneficially owned more than 10% of the voting stock have been excluded. This determination of affiliate status is not
necessarily a conclusive determination of affiliate status for any other purpose.
The number of shares outstanding of Registrant's common stock as of February
24, 2025 was 22,981,271.
NETWORK-1
TECHNOLOGIES, INC.
2023
FORM 10-K
TABLE
OF CONTENTS
Page
No.
PART
I
Item 1. Business 2
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 19
Item 1C. Cybersecurity 19
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosures 22
PART II
Item 6. (Reserved) 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9A. Controls and Procedures 32
Item 9B. Other Information 33
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 33
PART III
Item 10. Directors, Executive Officers and Corporate Governance 34
Item 11. Executive Compensation 38
Item 14. Principal Accountant Fees and Services 45
PART IV
Item 15. Exhibits and Financial Statement Schedules 47
Signatures 50
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PART
I
Forward-looking
statements:
THIS
ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS ABOUT FUTURE EVENTS AND EXPECTATIONS WHICH ARE “FORWARD-LOOKING STATEMENTS”.
ANY STATEMENT IN THIS 10-K THAT IS NOT A STATEMENT OF HISTORICAL FACT MAY BE DEEMED TO BE A FORWARD-LOOKING STATEMENT WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED, OR SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FORWARD-LOOKING
STATEMENTS PROVIDE CURRENT EXPECTATIONS OF FUTURE EVENTS BASED ON CERTAIN ASSUMPTIONS AND INCLUDE ANY STATEMENT THAT DOES NOT DIRECTLY
RELATE TO ANY HISTORICAL OR CURRENT FACT. STATEMENTS CONTAINING SUCH WORDS AS “MAY,” “WILL,” “EXPECT,”
“BELIEVE,” “ANTICIPATE,” “INTEND,” “COULD,” “ESTIMATE,” “CONTINUE”
OR “PLAN” AND SIMILAR EXPRESSIONS OR VARIATIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
ARE BASED ON THE BELIEFS AND ASSUMPTIONS OF OUR MANAGEMENT BASED ON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CURRENT RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO VARIOUS FACTORS SET FORTH IN THIS REPORT AND IN OTHER
FILINGS MADE BY US WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, INCLUDING THOSE DISCUSSED AS “RISK FACTORS” IN ITEM 1A AND ELSEWHERE IN THIS REPORT, OR SHOULD
ANY OF OUR UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS REPORT. WE UNDERTAKE
NO OBLIGATION TO UPDATE, AND WE DO NOT HAVE A POLICY OF UPDATING OR REVISING THESE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT WAS MADE. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERMS “NETWORK-1”, “COMPANY”, “WE”, “OUR”, AND “US”
MEAN NETWORK-1 TECHNOLOGIES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES, MIRROR WORLDS TECHNOLOGIES, LLC AND HFT SOLUTIONS, LLC.
ITEM
1. BUSINESS
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, fifty-four (54) of such patents have expired, 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
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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.
We
have invested $7,000,000 in ILiAD Biotechnologies, LLC (“ILiAD”), a clinical stage biotechnology company with an exclusive
license to seventy-four (74) patents. On December 31, 2024, we owned approximately 6.5% of the outstanding units of ILiAD on a non-fully
diluted basis and 4.9% of the outstanding units on a fully diluted basis (after giving effect to the exercise of all outstanding options
and warrants).
Our
current strategy includes continuing our efforts to monetize our intellectual property. 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. 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 our Mirror Worlds Patent Portfolio. In addition,
we may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual
property.
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 revenue for our Remote Power Patent for any infringement
period subsequent to March 7, 2020 (the expiration date of the patent). During the year ended December 31, 2024 and 2023, our Remote
Power Patent generated all of our revenue. Our future revenue is largely dependent on our ability to monetize our other patent assets.
We
have pending litigations involving our assertion of infringement claims concerning certain patents within our HFT Patent Portfolio. In
addition, we have a pending appeal to the U.S. Court of Appeals for the Federal Circuit of the District Court judgment of non-infringement
dismissing our case against Google and YouTube involving certain patents within our Cox Patent Portfolio (see “Legal Proceedings”
at page 20 of this Annual Report).
At
December 31, 2024, we had 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 foreseeable future.
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Overview
of Our Patents
We
currently own one hundred and six (106) U.S. patents and sixteen (16) foreign patents relating to patents within our M2M/IoT Patent
Portfolio, HFT Patent Portfolio, Cox Patent Portfolio, Mirror Worlds Patent Portfolio and our Remote Power Patent. 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 expiration date. In 2024, our revenue was achieved from claims related to
our expired Remote Power Patent and we have appealed to the U.S. Court of Appeals for the Federal Circuit the District Court order
dismissing our claims involving certain expired patents within our Cox Patent Portfolio (see “Legal Proceedings” at
page 20 hereof).
M2M/IoT
Patent Portfolio
Our
M2M/IoT Patent Portfolio, acquired in December 2017 from M2M and IoT Technologies, LLC (“M2M”), relates 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. The M2M/IoT Patent Portfolio currently
consists of forty-one (41) issued U.S. patents, six (6) pending U.S. patent applications, and fifteen (15) registered foreign patents.
Since we acquired the M2M/IoT Patent Portfolio in December 2017, we have been issued twenty-nine (29) additional U.S. patents with respect
to the portfolio. We anticipate further issuances of additional claims for this portfolio. The expiration dates of the forty-one (41)
issued U.S. patents currently within our M2M/IoT Patent Portfolio range from September 2033 to May 2034.
We
have 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 our M2M/IoT Patent Portfolio. In addition, M2M will be entitled
to receive from us $250,000 of additional consideration upon the occurrence of certain future events related to the patent portfolio.
John
Nix, the Managing Member of M2M, provides consulting services to us with respect to our M2M/IoT Patent Portfolio. Mr. Nix is an entrepreneur
and inventor, and founder and Chief Executive Officer of Vobal Technologies, LLC. In 2016, Mr. Nix was recognized as “Creator of
the Year” by the Intellectual Property Law Association of Chicago for his intellectual property related to eSIM technology.
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HFT
Patent Portfolio
On
March 25, 2022, we acquired the HFT Patent Portfolio. This portfolio covers 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. The HFT Patent Portfolio
currently includes eleven (11) issued U.S. patents and two pending U.S. patents. The expiration dates within our HFT Patent Portfolio
range fromOctober 2039 to February 2040.
In
addition to the purchase price that we paid at closing, we have an obligation to pay the seller an additional cash payment of $500,000
and $375,000 of our common stock contingent upon achieving certain milestones with respect to the HFT Patent Portfolio. We also have
an obligation to pay the seller 15% of the first $50 million of net proceeds (after deduction of expenses) generated from the patent
portfolio and 17.5% of net proceeds greater than $50 million.
Cox
Patent Portfolio
Our
Cox Patent Portfolio, acquired from Dr. Ingemar Cox in February 2013, currently consists of thirty-nine (39) U.S. patents relating
to enabling technology for identifying media content on the Internet, such as audio and video, and taking further actions to be
performed based on such identification. All of the patents within our Cox patent portfolio have expired. We have a pending appeal to
the Federal Circuit of a District Court ruling dismissing our case against Google Inc. and YouTube, LLC involving assertion of
certain patents within our Cox Patent Portfolio (see “Legal Proceedings” at page 20 hereof). The patents within our Cox
Patent Portfolio are based on a patent application filed in 2000. Since the acquisition of the Cox Patent Portfolio in February
2013, we have been issued thirty-four (34) additional patents relating to this portfolio. The claims in these thirty-four (34)
additional patents are generally directed towards systems of content identification and performing actions following
therefrom.
We
are obligated to pay Dr. Cox 12.5% of the net proceeds generated by us from licensing, sale or enforcement of the Cox Patent Portfolio.
Dr. Cox provides consulting services to us with respect to the Cox Patent Portfolio and assists our efforts to develop the patent portfolio.
Dr.
Cox is currently a Professor at the University of Copenhagen and University College London where he is head of its Information and
Decision Systems Group. He is also Director of the EPSRC Digital Health Hub for AMR (Antimicrobial resistance). Dr. Cox was formerly
a member of the Technical Staff at AT&T Bell Labs and a Fellow at NEC Research Institute. He is a Fellow of the ACM, IEEE, the
IET (formerly IEE), and the British Computer Society and is a member of the UK Computing Research Committee. In 2019, Dr. Cox was
the recipient of the Tony Kent Strix Award in recognition of his contribution to the field of information retrieval. He was founding
co-editor in chief of the IEE Proc. on Information Security and was an associate editor of the IEEE Trans. on Information Forensics
and Security. He is co-author of a book entitled “Digital Watermarking” and its second edition “Digital
Watermarking and Steganography”. He is an inventor or co-inventor of over seventy (70) U.S. patents.
-5-
Remote
Power Patent
Our
Remote Power Patent (U.S. Patent No. 6,218,930) covers the delivery of power over Ethernet cables for the purpose of remotely powering
network devices such as wireless access ports, IP phones and network based cameras. Our Remote Power Patent expired on March 7, 2020.
Notwithstanding the expiration of the Remote Power Patent in March 2020, in October and November 2022, we asserted the patent in nine
separate actions against ten defendants for damages prior to March 7, 2020 and have reached settlement agreements with nine of the defendants
(see “Legal Proceedings” at page 20 hereof).
On
June 13, 2003, the Institute of Electrical Engineers (IEEE), a non-profit, technical professional association, approved the 802.3af Power
over Ethernet standard (the “Standard”), which covers technologies deployed in delivering power over Ethernet networks. The
Standard provides for the Power Sourcing Equipment (PSE) to be deployed in switches or as standalone midspan hubs to provide power to
remote devices such as wireless access points, IP phones and network-based cameras. The technology is commonly referred to as Power over
Ethernet (“PoE”). In 2009, the IEEE Standards Association approved 802.3at, a new PoE standard which, among other things,
increased the available power for delivery over Ethernet networks. We believe that our Remote Power Patent covers several of the key
technologies covered by both the 802.3af and 802.3at standards.
Mirror
Worlds Patent Portfolio
Our
Mirror Worlds Patent Portfolio, acquired in May 2013, consists of ten (10) U.S. patents and covers foundational technologies that enable
unified search and indexing, displaying and archiving of documents in a computer system. All of our patents within our Mirror Worlds
Patent Portfolio have expired. Our 227 Patent, within this portfolio, was previously asserted in litigations against Apple Inc.
and Microsoft Corporation which were settled resulting in aggregate payments to us of $29,650,000. In December 2024, the U.S. Circuit
Court of Appeals for the Federal Circuit affirmed the judgment of the District Court granting Meta Platform’s Inc.’s (formerly
Facebook) motion for summary judgment of non- infringement dismissing Network-1 claims against Meta involving certain patents within
our Mirror Worlds Patent Portfolio.
The
inventions relating to document stream operating systems covered by our Mirror Worlds Patent Portfolio resulted from the work done by
Yale University computer scientist, Professor David Gelernter, and his then graduate student, Dr. Eric Freeman, in the mid-1990s. Certain
aspects of the technologies developed by David Gelernter were commercialized in their company's product offering called “Scopeware.”
Technologies embodied in Scopeware are now common in various computer and web-based operating systems.
-6-
As
part of our acquisition of the Mirror Worlds Patent Portfolio in 2013, we also entered into an agreement with Recognition Interface,
LLC (“Recognition”), an entity that financed the commercialization of the Mirror Worlds patent portfolio prior to its sale
to Mirror Worlds, LLC and also retained an interest in the licensing proceeds of the Mirror Worlds patent portfolio. Pursuant to the
terms of the agreement with us, we are obligated to pay Recognition an interest in the net proceeds realized from our 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, we have paid Recognition an aggregate of $3,127,000 with respect to such net proceeds interest in our Mirror Worlds Patent
Portfolio (no such payments were made during the years 2024 and 2023).
Network-1
Strategy
Our
strategy is to capitalize on our intellectual property assets by entering into licensing arrangements with third parties that utilize
our intellectual property's proprietary technologies as well as any additional proprietary technologies covered by patents which may
be acquired by us in the future. Our current 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 has been the case with our Remote Power
Patent and Mirror Worlds Patent Portfolio. Our Remote Power Patent has generated licensing revenue in excess of $188,000,000 from May
2007 through December 31, 2024. Since the acquisition of our Mirror Worlds Patent Portfolio in May 2013, we have received licensing and
other revenue of $47,150,000 through December 31, 2024. In addition, we may enter into third party strategic relationships with inventors
and patent owners to assist in the development and monetization of their patent technologies. Based on our cash position, we review opportunities
to acquire additional intellectual property as well as evaluate other strategic alternatives.
In
connection with our activities relating to the protection of our intellectual property assets, or the intellectual property assets of
third parties with whom we may have strategic relationships in the future, it may be necessary to assert patent infringement claims against
third parties whom we believe are infringing our patents or those of our strategic partners. We are currently involved in several litigations
to protect our patents including certain patents within our HFT Patent Portfolio and an appeal to the Federal Circuit of a District Court
dismissal involving certain patents within our Cox Patent Portfolio (see “Legal Proceedings” at page 20 (hereof). We have
previously successfully asserted litigation with respect to our Remote Power Patent and our Mirror Worlds Patent Portfolio.
-7-
Revenue
Concentration
Revenue
from our Remote Power Patent as a result of a litigation settlement with a defendant constituted 100% of our revenue for the year ended
December 31, 2024.
We
anticipate that our future revenue will continue to be derived from a few parties.
Competition
With
respect to our ability to acquire additional intellectual property assets or enter into strategic relationships with third parties to
monetize their intellectual property assets, we face considerable competition from other companies, many of which have significantly
greater financial and other resources than we have. The patent licensing and enforcement industry has grown and there has been a material
increase in the number of companies seeking to acquire intellectual property assets from third parties or to provide financing to third
parties seeking to monetize their intellectual property. Entities including, among others, Acacia Research Corporation (NASDAQ:ACTG),
Intellectual Ventures, WI-LAN Inc., VirnetX Holdings Corporation (NYSE MKT:VHC) and RPX Corporation, seek to acquire intellectual
property or partner with third parties to license or enforce intellectual property rights. In addition, we also compete with strategic
corporate buyers with respect to the acquisition of intellectual property assets. It is expected that others will enter this market as
well. Many of these competitors have significantly greater financial and human resources than us.
We
may also compete with litigation funding firms such as Burford Capital Limited, Validity Finance, LLC, Fortress Investment Group, LLC,
Parabellum Capital LLC and Bentham Capital LLC, 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.
Regulatory
Environment
If
new legislation, regulations or rules are implemented either by Congress, the USPTO or the courts that impact the patent application
process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our business,
financial condition and results of operations. Certain legislation, regulations, and rulings by the courts and actions by the USPTO
have materially increased the risk and cost of enforcement of 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) and Covered Business Method Review (CBM) proceedings which provide third parties a timely and cost
effective alternative to district court litigation to challenge the validity of an issued patent. The America Invents Act and its
implementation increased the uncertainties and costs surrounding the enforcement of patent rights has made it more difficult to
successfully enforce our patents.
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In
addition, future changes in patent law could adversely impact our business. 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 legislative changes which increase the risk and costs of asserting patent
litigation.
Investment
in ILiAD Biotechnologies
During
the period December 2018 to date, we made aggregate investments of $7,000,000 in ILiAD, a privately held clinical stage biotechnology
company dedicated to the prevention and treatment of human disease caused by Bordetella pertussis. ILiAD is currently focused
on validating its proprietary intranasal vaccine, BPZE1, for the prevention of pertussis (whooping cough). Pertussis is a life-threatening
disease caused by the highly contagious respiratory bacterium Bordetella pertussis. ILiAD has the exclusive license to seventy-four
(74) issued patents and has fifty-four (54) pending patent applications. On December 31, 2024, we owned approximately 6.5% of the outstanding
units of ILiAD on a non-fully diluted basis and 4.9% of the outstanding units on a fully diluted basis (after giving effect to the exercise
of all outstanding options, and warrants). In connection with our investment, Corey Horowitz, our Chairman and Chief Executive Officer,
became a member of ILiAD’s Board of Managers and receives the same compensation for service on the Board as the other non-management
Board members.
BPZE1
was developed in the laboratory of Camille Locht, PhD, at the Institut Pasteur de Lille (IPL) and French National Institute of Health
and Medical research. BPZE1 is a live-attenuated intranasal vaccine designed to overcome deficiencies of current pertussis vaccines,
including poor durability of protection and failure to prevent nasopharyngeal Bordetella pertussis infections that lead to escape
mutants and transmission to vulnerable infants.
On
August 24, 2022, ILiAD consummated a private equity financing of $42,800,000, of which a multi-national pharmaceutical company invested
$30,000,000.
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Corporate
Information
We
were incorporated under the laws of the State of Delaware in July 1990. Our principal executive offices are located at 65 Locust Avenue,
Third Floor, New Canaan, Connecticut 06840 and our telephone number is (203) 920-1055.
Available
Information
We
file or furnish various reports, such as registration statements, quarterly and current reports, proxy statements and other materials
with the SEC. Our website address is www.network-1.com. You may obtain, free of charge on our Internet website, copies
of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 filings
and amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. The information we post on our website is intended
for reference purposes only; none of the information posted on our website is part of this Annual Report or incorporated by reference
herein.
In
addition to the materials that are posted on our website, you may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and other information statements,
and other information regarding issuers, including us, that file electronically with the SEC. The address of the SEC’s Internet
site is http://www.sec.gov.
Employees
and Consultants
We
currently have two full-time employees and two consultants providing monthly services to us.
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.
-10-
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,