Network-1 Technologies

A net-net with "hidden" asset upside

Network-1 Technologies (NTIP) is a net-net trading at a 20% discount to net cash with potential catalysts that could dramatically increase the company’s assets. NTIP is not currently generating revenue from operations, but its annual cash burn is minimal (<$1mm per year) and management is relatively shareholder friendly (the CEO owns about 30% of the outstanding shares). NTIP is a low-risk, high-uncertainty investment opportunity.

NTIP is an intellectual property company that makes money by acquiring patents and then charging other companies to license the technology. NTIP’s biggest success so far has been their “Power over Internet” patent, which has brought in well over $100mm in licensing revenue. Unfortunately for NTIP, this PoE patent expired a number of years ago, and they have yet to replicate its success. The company has ongoing litigation tied to other patents, but steady revenue has been hard to come by since 2018.

Despite the lack of consistent revenue, NTIP’s management has been able to keep their balance sheet clean and to build up a sizeable cash pile while paying a dividend and making new investments. As it stands now, NTIP has about $37mm in cash, cash equivalents, and marketable securities against only $500k in total liabilities. With 22.8mm shares outstanding, NTIP’s net cash per share is $1.60. The company’s stock is currently trading at $1.33, which is about a 20% discount to net cash.

A 20% discount to net cash looks pretty cheap, but NTIP is burning cash rather than generating it. NTIP is on track to post a loss of $3.2mm from operations for 2025, but well over half of that loss will come from non-cash depreciation of their patents and equity investment (more on this in a minute). Combined with about $1.8mm that will generated from their marketable security holdings interest and dividends, NTIP is only going to burn about $800k in operational cash flow this year. NTIP has paid $.10/share in dividends annually since 2017 and management has suggested this will continue indefinitely into the future. This will draw down their cash balance by another $2.3mm, but investors will receive that cash directly. Projecting 2025 performance out for the next two years, NTIP investors could expect to receive a 15% total return from the dividend and still be holding a net-net (barely).

A 15% return over two years is not a disaster, but it isn’t enough to get me excited. What would be more exciting would be for the market to close the gap between NTIP’s share price and its cash per share. A quick 20% over the next year would be a perfectly acceptable outcome. An even more exciting outcome would be if the company’s investment ILiAD Biotechnologies pays off sometime in the next year or two. ILiAD is a clinical-stage biotech company that is beginning phase III clinical trials for a new pertussis vaccine. NTIP owns just under 5% of ILiAD on a fully-diluted basis, having invested a total of $7mm over the last few years. This initial $7mm investment is depreciated quarterly and currently sits at $2.24mm on the balance sheet (as “Equity investment”). ILiAD has a robust research pipeline and their phase I and II trials have been successful, but the company is still pre-revenue and is burning cash.

In the worst case, future trials fail and NTIP’s equity investment goes to zero. That would be a big disappointment, but NTIP would still be trading at a discount to its net cash. If ILiAD’s future trials are successful and the company is able to get their vaccine to market, NTIP would likely be able to cash out with a substantial gain. The problem there is that this outcome is likely 3-5 years out (at a minimum) and NTIP’s position will likely be further diluted by additional capital raises. I think the ideal outcome would be if a larger company acquires ILiAD during or just after phase III trials and NTIP either gets 5% of the sale price in cash or equity in the acquirer. No matter the outcome, the worst case is NTIP stays a net-net and the best case is a substantial future payout. Heads investors win, tails they don’t lose much.

A quick note about management. NTIP’s CEO, Corey Horowitz, is the original founder of the company and is the primary agent behind their success. On the positive side, he owns over 40% of the outstanding shares and has demonstrated a talent for making investments. On the other hand, he also drew over $3.5mm in salary and bonuses over the last three years, more than the entirety of NTIP’s revenue over that same time. NTIP’s dividend and limited share buybacks have returned some value to shareholders, and I don’t get the sense that Horowitz is just phoning it in and milking a bloated salary, but potential NTIP shareholders should be aware that the CEO is going to be fed first before anyone else.

I have owned NTIP off and on over the last 10 years as its share price fluctuated above and below its projected cash position. I don’t own shares today, but I check on the stock regularly and I am considering starting a position in the near future. The downside is strongly protected by their net cash position and their dividend mitigates some of the opportunity cost risk. Upside in NTIP is uncertain, both in amount and in timing, but the discount to net cash provides enough margin of safety to be appealing.