What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-10 · 33 added, 29 removed, 69 unchanged (47% of the section changed)

37 unchanged sentences

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments also improve consistent application of and simplify U.

GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

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Results of Operation

Three Months Ended March 31, 2021

Compared with the Three Months Ended March 31, 2020

Three and Six Months Ended June 30, 2021

Compared with the Three and Six Months Ended June 30, 2020

(in thousands, except per share amounts)

For the three months ended March 31, 2021 and 2020, we recognized revenue of $5 and $302,576, respectively.

During the quarter ended March 31, 2020, the Company collected a lump sum payment of $454,034 from Apple, Inc.

(see “Legal Proceedings”), as a result of a favorable court decision relating to a patent infringement case.

For the three and six months ended June 30, 2021, we recognized revenue of $15 and $20, respectively, and revenues of $18 and $302,594, for the three and six months ended June 30, 2020, respectively.

During the six months ended June 30, 2020, we collected a lump sum payment of $454,034 from Apple, Inc.

as a result of a favorable court decision relating to a patent infringement case.

The payment includes past royalties, damages for willful infringement, interest, court costs and attorneys’ fees.

The elements of the payment were recognized in the Company’s condensed consolidated statement of operations as follows:

Classification in the Company’s Condensed Consolidated

Statement of Operations for the Three Months Ended March 31,

The elements of the payment were recognized in our condensed consolidated statement of operations as follows:

Classification in the Condensed Consolidated

Statement of Operations for the Six Months Ended June 30, 2020

Revenue (royalties)

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Licensing Costs

Included in operating expenses for the three months ended March 31, 2020, is $90,101 in licensing costs accrued in conjunction with the proceeds received from Apple, Inc., pursuant to the favorable court decision relating to a patent infringement case.

Accrued licensing costs of $9,438 were reversed during the three months ended March 31, 2021, as a result of the McKool award (See Note 7 - Litigation).

Licensing costs for the six months ended June 30, 2020, include $90,101 accrued in conjunction with the proceeds received from Apple, Inc., pursuant to the favorable court decision relating to a patent infringement case.

Accrued licensing costs of $9,438 were reversed during the six months ended June 30, 2021, as a result of the McKool award (See Note 7 — Litigation).

Research and Development Expenses

Our research and development expenses decreased by $753 to $1,152 for the three months ended March 31, 2021, from $1,905 for the three months ended March 31, 2020.

This decrease in 2021 was primarily due to increase in employee benefits in 2020.

Our research and development expenses decreased by $2,654 to $1,149 for the three months ended June 30, 2021, and decreased by $3,407 to $2,301 for the six months ended June 30, 2021.

Our research and development expenses were $3,803 and $5,708 for the three and six months ended June 30, 2020, respectively.

This change in 2021 was primarily due to a decrease in employee benefits.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses increased by $14,567 to $41,943 for the three months ended March 31, 2021, from $27,376 for the three months ended March 31, 2020.

The increase is primarily due to $38,284 disputed legal fees accrued to McKool (See Note - 7 Litigation), offset by a $22,407 decrease in attorney fees.

Our selling, general and administrative expenses decreased by $3,693 to $3,008 and increased by $10,874 to $44,951 for the three and six months ended June 30, 2021, from $6,701 and $34,077 for the three and six months ended June 30, 2020, respectively.

The increase is primarily due to $38,284 disputed legal fees accrued to McKool (See Note — 7 Litigation), offset by a $22,656 decrease in other attorney fees.

Gain on Settlement

For the three months ended March 31, 2020, we recorded a gain of $41,271 pursuant to the favorable court ruling in the case regarding Apple, Inc.

For the six months ended June 30, 2020, we recorded a gain of $41,271 pursuant to the favorable court ruling in the case regarding Apple, Inc.

discussed above.

Interest and other income, net

For the three months ended March 31, 2020, we recognized interest income of $108,221 pursuant to the favorable ruling against Apple, Inc.

For the six months ended June 30, 2020, we recognized interest income of $108,221 pursuant to the favorable ruling against Apple, Inc.

discussed above.

Liquidity and Capital Resources

As of March 31, 2021, our cash and cash equivalents totaled approximately $197,198 and our short-term investments totaled approximately $19,835, compared to cash and cash equivalents of approximately $192,908 and short-term investments of approximately $28,348 at December 31, 2020, respectively.

Working capital was $181,405 at March 31, 2021, and $214,076 at December 31, 2020.

The decrease in cash and investments during the three months ended March 31, 2021 was primarily attributed to operating expenses.

We expect that our cash and cash equivalents and short-term investments as of March 31, 2021, will be sufficient to fund our current level of selling, general and administration costs, including legal expenses and provide related working capital for the foreseeable future.

As of June 30, 2021, our cash and cash equivalents totaled approximately $153,632 and our short-term investments totaled approximately $21,908, compared to cash and cash equivalents of approximately $192,908 and short-term investments of approximately $28,348 at December 31, 2020, respectively.

Working capital was $178,139 at June 30, 2021, and $214,076 at December 31, 2020.

The decrease in cash and investments during the six months ended June 30, 2021 was primarily attributed to operating expenses.

We expect that our cash and cash equivalents and short-term investments as of June 30, 2021, will be sufficient to fund our current level of operating expense, including legal expenses and provide related working capital for the foreseeable future.

Over the longer term, we expect to derive the majority of our future revenue from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry in the United States and other markets around the world.

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We use the ATM proceeds for GABRIEL product development, marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses, and acquisitions of complementary products, technologies, or businesses.

As of March 31, 2021, common stock with an aggregate value of up to $21,964 remained available for offer and sale under the ATM agreement.

We sold no shares under the ATM for the three months ended March 31, 2021 and 1,049,382 shares during the three months ended March 31, 2020.

As of June 30, 2021, common stock with an aggregate value of up to $21,964 remained available for offer and sale under the ATM agreement.

We sold no shares under the ATM during 2021.

During the six months ended June 30, 2020, we sold 1,049,382 shares under the ATM.

The average sales price per common share was $4.41 and the aggregate proceeds from the sales totaled $4,627 during the period.

Sales commissions, fees and other costs associated with the ATM totaled $139.

For the three months ended March 31, 2021, we recognized income tax benefit of $7,193 on a loss before income taxes of $33,636, which is an effective tax rate of 21.38%.

The effective tax rate was higher than the statutory federal income tax rate primarily due to the effect of research and development tax credits.

During the three month period ended March 31, 2021 we had net operating losses (“NOLs”) which increased our deferred tax assets by $7,196 to $16,245 for NOL carryforwards.

We continue to provide a partial allowance against California net operating loss and research credit carryovers due to the fact that we have no income in California.

For the three months ended March 31, 2020, income tax expense was $32,759 on income before taxes of $332,704 and an effective tax rate of 9.9%.

The effective tax rate for the three-month period ended March 31, 2020 was favorably impacted by the reversal of valuation allowance reserves totaling $38,112 which were established in prior years on our deferred tax assets primarily associated with net operating loss (“NOL”) carryforwards.

For the three months ended June 30, 2021, we recognized income tax benefit of $609 on loss before income taxes of $4,132, which is an effective tax rate of 14.78%;

the effective tax rate was favorably impacted by the net operating loss (“NOL”).

For the six months ended June 30, 2021, we recognized income tax benefit of $7,802 on loss before income taxes of $37,768 which is an effective tax rate of 20.66%;

t he effective tax rate was higher than the statutory federal income tax rate primarily due to the effect of research and development tax credits .

For the three and six months ended June 30, 2020, we had an income tax benefit of $2,430 and an income tax expense of $30,329, respectively.

As of June 30, 2020, we had deferred tax assets of $8,536.

As of June 30, 2021, we had net deferred tax assets of $16,854 after applying a partial valuation allowance.

Contractual Obligations

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis