Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Quarterly Report on Form 10-Q.

OVERVIEW

Our principal business is the development, licensing and protection of our intellectual property assets. We presently own one-hundred fifteen (115) U.S. patents, fifty-four (54) of which have expired, and seventeen (17) international patents related to (i) the M2M/IoT patent portfolio (the "M2M/IoT Patent Portfolio") relating to, among other things, enabling technology for authenticating and using eSIM (embedded Subscriber Identification Module) technology in Internet of Things ("IoT") Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers, as well as automobiles; (ii) the HFT patent portfolio (the "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) the Cox patent portfolio (the "Cox Patent Portfolio) relating to enabling technology for identifying media content on the Internet and taking further actions to be performed after such identification; (iv) the smart home patent portfolio (the "Smart Home Patent Portfolio") relating to, among other things, the enabling technology to support the interoperability of smart home IoT devices; (v) the Mirror Worlds patent portfolio (the "Mirror Worlds Patent Portfolio") relating to foundational technologies that enable unified search and indexing, displaying and archiving of documents in a computer system; and (vi) the remote power patent (the "Remote Power Patent") covering 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.

Although fifty-four (54) of our U.S. patents have expired, we can assert expired patents against third parties but only for past damages up to the patent expiration date. We currently have a pending appeal involving certain expired patents within our Cox Patent Portfolio and our revenue for the nine months ended September 30, 2025 related to a settlement payment received from litigation involving our expired Remote Power Patent (see Note I[5] to our unaudited condensed consolidated financial statements included herein).

At September 30, 2025 our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $37,097,000 and working capital of $36,856,000. 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-eight (78) patents (see Note J to our unaudited condensed consolidated financial statements included herein). Our investment continues to involve significant risk and the outcome is uncertain.

We have been dependent upon our Remote Power Patent for a significant portion of our revenue. Our Remote Power Patent has generated licensing revenue in excess of $188,000,000 from May 2007 through February 2025. We are no longer asserting our Remote Power Patent. All of our revenue for the nine months ended September 30, 2025 was from a settlement involving our Remote Power Patent (see Note I[5] to our unaudited condensed consolidated financial Statements included herein).

On September 8, 2025, we commenced patent infringement litigation against Optiver US LLC and Optiver Trading US LLC in the United States District Court for the Western District of Texas involving our HFT Patent Portfolio (see Note I[1] to our unaudited condensed consolidated financial statements included herein).

On June 27, 2025, we commenced patent litigation against Samsung Electronics Co., LTD and Samsung Electronics America, Inc. (collectively, "Samsung") in the United States District Court for the Eastern District of Texas for infringement of certain patents within our M2M/IoT Patent Portfolio (see Note I[2] to our unaudited condensed consolidated financial statements included herein).

On December 24, 2024, we commenced patent infringement litigations against Citadel Securities, LLC and Jump Trading, LLC in the Unted States District Court for the Northern District of Illinois involving our HFT Patent Portfolio (see Note I[3] to our unaudited condensed consolidated financial statements included herein).

In addition, we have appealed the judgment of the United States District Court for the Southern District of New York dismissing our litigation against Google and YouTube involving certain patents within our Cox Patent Portfolio (see Note I[4] to our unaudited condensed consolidated financial statements included herein).

On March 31, 2025, we acquired our Smart Home Patent Portfolio from IoT and M2M Technologies, LLC, relating to, among other things, enabling technology to support the interoperability of smart home IoT devices, advanced security against quantum computers and improvements in Internet transport layer security. The patent portfolio currently consists of eight (8) U.S. patents and one (1) international patent as well as eleven (11) U.S. pending patent applications and five (5) pending international patents (see Note G[2] to our unaudited condensed consolidated financial statements included herein).

If we are unable to successfully monetize our patent portfolios or achieve a successful outcome of our investment in ILiAD, our business, financial condition and results of operations will be negatively impacted.

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 G[1] to our unaudited condensed consolidated financial statements included herein) and incentive compensation payable to our Chairman and Chief Executive Officer pursuant to his employment agreement (see Note H to our unaudited condensed 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.

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 B[4] to our unaudited condensed consolidated financial statements included in this Quarterly Report).

RESULTS OF OPERATIONS

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

Revenue. We had no revenue for the three months ended September 30, 2025 and September 30, 2024. We currently have four pending patent infringement litigations involving certain patents within our HFT Patent Portfolio and M2M/ IoT Patent Portfolio as well as a pending appeal of an adverse ruling involving certain patents within our Cox Patent Portfolio (see Note I to our unaudited condensed consolidated financial statements included herein).

Operating Expenses. Operating expenses for the three months ended September 30, 2025 were $800,000 as compared to $896,000 for the three months ended September 30, 2024. The decrease in operating expenses was primarily due to decreased professional fees and related costs of $64,000 and general and administrative expenses of $39,000.

Professional fees and related costs were $226,000 for the three months ended September 30, 2025 as compared to $290,000 for the three months ended September 30, 2024. The decrease in professional fees and related costs of $64,000 was primarily due to decreased professional fees of $189,000 in 2025 due to the 2024 settlement of a putative class action, offset somewhat by increased professional fees of $104,000 related to the patent litigations commenced in 2025.

General and administrative expenses were $537,000 for the three months ended September 30, 2025 as compared to $576,000 for the three months ended September 30, 2024. The decrease in general and administrative expenses of $39,000 was primarily due to decreased stock-based compensation of $37,000.

Realized and Unrealized Gain on Marketable Securities. For the three months ended September 30, 2025, we recorded realized and unrealized gains on marketable securities of $44,000, as compared to $293,000 for the three months ended September 30, 2024. The decrease of $249,000 was due to increased unrealized losses of $358,000, offset somewhat by increased realized gains of $109,000.

Income Taxes. For the three months ended September 30, 2025 and 2024, we had a deferred tax benefit of $83,000 and $71,000, respectively. The increase of $12,000 in our deferred tax benefit was caused primarily by an increase of $46,000 in the net losses of ILiAD recognized in 2025.

Share of Net Losses of Equity Method Investee. We recognized $354,000 of net losses during the three month period ended September 30, 2025 related to our equity share of ILiAD net losses, as compared to a recognized net loss of $308,000 for the three months ended September 30, 2024. 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 $560,000 or $0.02 per share basic and diluted for the three months ended September 30, 2025, compared with a net loss of $316,000 or $0.01 per share basic and diluted for the three months ended September 30, 2024. The increase in our net loss of $244,000 for the three months ended September 30, 2025, as compared to the same period in 2024 was primarily the result of decreased other income of $306,000 and increased share of net losses of equity method investee of $46,000, offset somewhat by decreased operating expenses of $96,000.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Revenue. We had revenue of $150,000 for the nine months ended September 30, 2025 and $100,000 in revenue for the nine months ended September 30, 2024. All such revenue was from litigation settlements involving our Remote Power Patent (See Note I[5] to our unaudited condensed consolidated financial statements included herein).

Operating Expenses. Operating expenses for the nine months ended September 30, 2025 were $2,315,000 as compared to $2,538,000 for the nine months ended September 30, 2024. The decrease in operating expenses of $223,000 was primarily as a result of decreased professional fees and related costs of $145,000 and decreased general and administrative expenses of $86,000.

Professional fees and related costs were $511,000 for the nine months ended September 30, 2025 as compared to $656,000 for the nine months ended September 30, 2024. The decrease in professional fees and related costs of $145,000 was primarily due to decreased professional fees of $269,000 in 2025 due to the 2024 settlement of a putative class action, offset somewhat by increased professional fees of $144,000 related to the patent litigations commenced in 2025.

General and administrative expenses were $1,658,000 for the nine months ended September 30, 2025 as compared to $1,764,000 for the nine months ended September 30, 2024. The decrease in general and administrative expenses of $106,000 was primarily due to decreased state franchise and capital-based taxes of $52,000, decreased directors' fees of $28,000 and decreased stock-based compensation of $86,000, offset by increased compensation expenses of $33,000 and consulting fees of $23,000.

Realized and Unrealized Gain on Marketable Securities. For the nine months ended September 30, 2025, we recorded realized and unrealized gains on marketable securities of $215,000, as compared to $395,000 for the nine months ended September 30, 2024. The decrease of $180,000 was due to decreased unrealized gains of $203,000, offset somewhat by increased realized gains of $23,000.

Income Taxes. For the nine months ended September 30, 2025, we realized a $31,000 current tax benefit related to a federal income tax refund, as compared to no current income tax expense or benefit for the same period in 2024. We had a deferred tax benefit of $232,000 and $355,000 for the nine months ended September 30, 2025 and 2024, respectively. The decrease of $123,000 in our deferred tax benefit was primarily due to a decrease of $518,000 in the net losses of ILiAD recognized in 2025.

Share of Net Losses of Equity Method Investee. We recognized $1,095,000 of net losses during the nine month period ended September 30, 2025 related to our equity share of ILiAD net losses, as compared to a recognized net loss of $1,613,000 for the nine months ended September 30, 2024. 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 $1,386,000 or $0.06 per share basic and diluted for the nine months ended September 30, 2025, compared with a net loss of $1,894,000 or $0.08 per share basic and diluted for the nine months ended September 30, 2024. The reduction in net loss of $508,000 for the nine months ended September 30, 2025, as compared to 2024, was primarily the result of the decrease in the recognized share of the net losses of our equity method investee of $518,000.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily from revenue from licensing our patents. At September 30, 2025 our principal sources of liquidity consisted of cash and cash equivalents and marketable securities of $37,097,000 and working capital of $36,856,000. 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 pending 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 $3,210,000 at September 30, 2025 to $36,856,000 as compared to working capital of $40,066,000 at December 31, 2024. The decrease in working capital was primarily due to payment of dividends of $2,296,000, cash used in operating activities of $606,000, the acquisition of patents of $415,000 and repurchases of our common stock of $287,000.

Net cash used in operating activities decreased by $79,000 to $606,000 for the nine months ended September 30, 2025, from $685,000 for the nine months ended September 30, 2024. The decrease in cash used in operating activities was attributable to the decrease in our net loss of $508,000, offset by non-cash income and expense items of $352,000. The non-cash items include reduced recognized losses of our equity method investee of $518,000 and decreased stock-based compensation of $86,000, offset by the reduced deferred tax benefit of $123,000 and reduced unrealized gains on marketable securities of $136,000. In addition, the decrease in cash used in operating activities is net of an increase in cash used for operating assets and liabilities of $77,000. This included decreased cash provided by accounts payable of $229,000, offset by decreased cash used in payment of accrued expenses of $117,000.

Net cash used in investing activities during the nine months ended September 30, 2025 increased by $3,855,000 to $2,241,000 as compared to cash provided by investing activities of $1,614,000 for the nine months ended September 30, 2024, primarily as a result of decreased sales of marketable securities of $3,390,000 and the acquisition of patents in 2025 of $415,000.

Net cash used in financing activities for the nine months ended September 30, 2025 and 2024 was $2,590,000 and $3,510,000, respectively. The decrease of $920,000 for the nine months ended September 30, 2025 primarily resulted from a decrease of $796,000 in repurchases of our common stock.

We maintain our cash in money market funds, government securities, certificates of deposit and short-term fixed income securities. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

We do not have any long-term debt, capital lease obligations, purchase obligations or other long-term liabilities.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements included in this Quarterly Report on Form 10-Q requires management to make estimates that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from the period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting policies and related judgements, see Note B to our consolidated financial statements included herein.