UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31,June 30, 2016

 

¨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: 001-34785

 

VRINGO, INC.FORM Holdings Corp.

(formerly Vringo, Inc.)

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 20-4988129

(State or other jurisdiction of

(I.R.S. Employer
incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   
780 Third Avenue, 12th Floor, New York, NY 10017
(Address of principal executive offices) (Zip Code)

 

(212) 309-7549

(Registrant’s Telephone Number, Including Area Code)

 

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. YesxNo¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer¨Accelerated filer¨
    
Non-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting companyx

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨Nox

 

As of May 5,August 15, 2016, 14,993,68615,762,072 shares of the registrant’s common stock were outstanding.outstanding, including 750,574 shares sold in private placement completed on August 8, 2016, but not yet allocated to investors.

 

 

 

VRINGO, INC.

FORM Holdings Corp.

 

Table of Contents

 

   Page
    
PART I. FINANCIAL INFORMATION 3
    
Item 1.Condensed Consolidated Financial Statements 3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 1824
Item 3.Quantitative and Qualitative Disclosures About Market Risk 2634
Item 4.Controls and Procedures 2634
    
PART II. OTHER INFORMATION 2735
    
Item 1.Legal Proceedings 2735
Item 1A.Risk Factors 2735
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 2837
Item 3.Defaults Upon Senior Securities 2837
Item 4.Mine Safety Disclosures 2837
Item 5.Other Information 2837
Item 6.Exhibits 2838

 

 2 

  

Part I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

Vringo, Inc.

FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

  March 31,
2016
(Unaudited)
  

December 31,
2015 

(see Note 2)

 
Current assets        
Cash and cash equivalents $20,560  $24,951 
Deposits with courts  831   1,930 
Accounts receivable, net  1,060   246 
Other current assets  934   1,077 
Total current assets  23,385   28,204 
         
Intangible assets, net  15,711   16,476 
Goodwill  4,863   4,863 
Other assets  916   916 
Total assets $44,875  $50,459 
         
Current liabilities        
Accounts payable, accrued expenses and other current liabilities $3,721  $6,030 
Senior secured notes     3,111 
Total current liabilities  3,721   9,141 
         
Long-term liabilities        
Senior secured notes  554    
Derivative warrant liabilities  428  416 
Other liabilities  152   386 
Commitments and contingencies (see Note 14)        
         
Stockholders’ equity*        
Series A Convertible Preferred stock, $0.01 par value per share; 500,000 shares authorized; none issued and outstanding      
Series B Convertible Preferred stock, $0.01 par value per share, 5,000,000 shares authorized; 1,666,667 shares issued and none outstanding      
Common stock, $0.01 par value per share 150,000,000 shares authorized; 14,993,686 and 13,220,050 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively  150   132 
Additional paid-in capital  240,687   237,246 
Accumulated deficit  (200,817)  (196,862)
Total stockholders’ equity  40,020   40,516 
Total liabilities and stockholders’ equity $44,875  $50,459 

*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on November 27, 2015.

  June 30,
2016
(Unaudited)
  December 31,
2015
(see Note 2)
 
Current assets        
Cash and cash equivalents $27,449  $24,951 
Deposits with courts     1,930 
Accounts receivable, net  530   246 
Inventory  260   379 
Other current assets  134   698 
Total current assets  28,373   28,204 
         
Intangible assets, net  3,426   16,476 
Goodwill  4,863   4,863 
Other assets  1,085   916 
Total assets $37,747  $50,459 
         
Current liabilities        
Accounts payable, accrued expenses and other current liabilities $6,327  $5,855 
Deferred revenue  439   175 
Senior secured notes  800   3,111 
Total current liabilities  7,566   9,141 
         
Long-term liabilities        
Derivative warrant liabilities  329   416 
Other liabilities  140   386 
Total liabilities  8,035   9,943 
Commitments and contingencies (see Note 12)        
         
Stockholders’ equity        
Series A Convertible Preferred stock, $0.01 par value per share; 500,000 shares authorized; 6,968 issued and none outstanding      
Series B Convertible Preferred stock, $0.01 par value per share, 5,000,000 shares authorized; 1,666,667 shares issued and none outstanding      
Series C Junior Preferred stock, $0.01 par value per share; 300,000 shares authorized; none issued and outstanding      
Common stock, $0.01 par value per share 150,000,000 shares authorized; 15,011,498 and 13,220,050 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively  150   132 
Additional paid-in capital  241,186   237,246 
Accumulated deficit  (211,624)  (196,862)
Total stockholders’ equity  29,712   40,516 
Total liabilities and stockholders’ equity $37,747  $50,459 

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 3 

  

Vringo, Inc.FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

 

 Three months ended March 31,  Three months ended June 30,  Six months ended June 30, 
 2016  2015  2016  2015  2016  2015 
Revenue                        
Licensing revenue $750  $150  $8,912  $  $9,675  $150 
Product revenue  1,294      2,450      3,731    
Total revenue  2,044   150   11,362      13,406   150 
                        
Costs and expenses**        
Costs and expenses*                
Cost of goods sold  1,127      2,179      3,306    
Operating legal costs  720   3,101   4,243   5,464   4,963   8,565 

Amortization of intangible assets

  851   804 
Amortization and impairment of intangible assets  12,350   813   13,201   1,617 
General and administrative  2,952   2,998   3,305   2,298   6,257   5,296 
Total operating expenses  5,650   6,903   22,077   8,575   27,727   15,478 
Operating loss  (3,606)  (6,753)  (10,715)  (8,575)  (14,321)  (15,328)
Non-operating income (expense), net  67   (223)
Gain on revaluation of warrants and conversion feature  270      99   695   369   695 
Interest expense  (476)     (272)  (465)  (748)  (465)
Extinguishment of debt  (210)        (210)  (210)  (210)
Non-operating income (expense), net  81   46   148   (177)
Net loss $(3,955) $(6,976) $(10,807) $(8,509) $(14,762) $(15,485)
Loss per share*:        
Loss per share:                
Basic net loss per share $(0.28) $(0.75) $(0.72) $(0.90) $(1.01) $(1.65)
Diluted net loss per share $(0.28) $(0.75) $(0.72) $(0.90) $(1.01) $(1.65)
Weighted-average number of shares outstanding during the year*:        
Weighted-average number of shares outstanding during the period:                
Basic  14,158,680   9,340,490   14,993,686   9,469,162   14,576,183   9,405,181 
Diluted  14,158,680   9,340,490   14,993,686   9,469,162   14,576,183   9,405,181 
** Includes stock-based compensation expense, as follows:        
                
* Includes stock-based compensation expense, as follows:                
Operating legal costs $68  $318  $64  $183  $132  $501 
General and administrative  395   1,554   435   1,070   830   2,624 
Total stock-based compensation expense $463  $1,872 
 $499  $1,253  $962  $3,125 

*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on November 27, 2015

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 4 

  

Vringo, Inc.FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

 

  Common 
stock
  Additional
paid-in capital
  Accumulated 
deficit
  Total 
Balance as of December 31, 2015 $132  $237,246  $(196,862) $40,516 
Issuance of common stock for repayment of convertible debt and related interest  18   2,978      2,996 
Stock-based compensation     463      463 
Net loss for the period        (3,955)  (3,955)
Balance as of March 31, 2016 $150  $240,687  $(200,817) $40,020 

  Common 
stock*
  Additional
paid-in capital*
  Accumulated 
deficit
  Total 
Balance as of December 31, 2014, as adjusted $93  $216,792  $(185,705) $31,180 
Reclassification of derivative warrants to equity warrants     175      175 
Stock-based compensation     1,872      1,872 
Net loss for the period        (6,976)  (6,976)
Balance as of March 31, 2015, as adjusted $93  $218,839  $(192,681) $26,251 
  Common
stock
  Additional
paid-in capital
  Accumulated
deficit
  Total 
Balance as of December 31, 2015 $132  $237,246  $(196,862) $40,516 
Issuance of common stock for repayment of convertible debt and related interest  18   2,978      2,996 
Stock-based compensation     962      962 
Net loss for the period        (14,762)  (14,762)
Balance as of June 30, 2016 $150  $241,186  $(211,624) $29,712 

 

*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on November 27, 2015.

  Common
stock
  Additional
paid-in capital
  Accumulated
deficit
  Total 
Balance as of December 31, 2014 $93  $216,792  $(185,705) $31,180 
Reclassification of derivative Reload Warrants and Series 1 Warrants to equity warrants     175      175 
Issuance of common stock  3   1,398       1,401 
Stock-based compensation     3,125      3,125 
Net loss for the period        (15,485)  (15,485)
Balance as of June 30, 2015 $96  $221,490  $(201,190) $20,396 

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 5 

  

Vringo, Inc.FORM Holdings Corp. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 Three months ended March 31,  Six months ended June 30, 
 2016  2015  2016  2015 
Cash flows from operating activities                
Net loss $(3,955) $(6,976) $(14,762) $(15,485)
Adjustments to reconcile net loss to net cash used in operating activities:        
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Items not affecting cash flows                
Depreciation and amortization  851   1,025   1,264   1,838 
Impairment of intangible assets  11,937    
Amortization of debt discount and debt issuance costs  414      660   310 
Stock-based compensation  463   1,872   962   3,125 
Amendment to warrants as part of debt modification  (281)     (281)   
Loss on extinguishment of debt  356    
Extinguishment of debt  356   210 
Change in fair value of warrants and conversion feature  11      (87)  (695)
Exchange rate loss, net  (86)  226 
Changes in current assets and liabilities        
Exchange rate loss (gain)  (71)  187 
Changes in operating assets and liabilities        
Increase in accounts receivable  (814)     (284)   
Decrease in other current assets  143   120 
Increase (decrease) in payables and accruals  (2,531)  231 
Net cash used in operating activities  (5,429)  (3,502)
Decrease in inventory  119    
Decrease in other current assets and other assets  395   429 
Increase in accounts payable, accrued expenses and other current liabilities  472   2,546 
Increase in deferred revenue  264    
Decrease in other liabilities  (246)  (178)
Net cash provided by (used in) operating activities  698   (7,713)
Cash flows from investing activities                
Acquisition of software  (86)   
Acquisition of property, equipment and technology  (151)   
Decrease (increase) in deposits  1,173   (278)  2,001   (287)
Net cash provided by (used in) investing activities  1,087   (278)  1,850   (287)
Cash flows from financing activities                
Net proceeds from senior secured notes and warrants     12,425 
Debt issuance costs  (50)     (50)  (218)
Net cash used in financing activities  (50)   
Net cash provided by (used in) financing activities  (50)  12,207 
        
Effect of exchange rate changes on cash and cash equivalents  1   (4)     (3)
Decrease in cash and cash equivalents  (4,391)  (3,784)
Increase in cash and cash equivalents  2,498   4,204 
Cash and cash equivalents at beginning of period  24,951   16,023   24,951   16,023 
Cash and cash equivalents at end of period $20,560  $12,239  $27,449   20,227 
Noncash investing and financing transactions        
Change in classification of derivative warrant liabilities into equity warrants $  $175 
Issuance of common stock to repay $2,786 of debt and interest $2,996  $ 
        
Cash paid during the period for        
Interest $40  $ 
        
Non-cash investing and financing transactions        
Change in classification of derivative warrants to equity warrants     175 
Issuance of common stock to repay debt and interest  2,996   1,401 
Debt discount     2,961 

   

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 6 

 

Vringo, Inc.FORM Holdings Corp. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for share and per share data)

 

Note 1. General

 

Overview

 

On May 6, 2016, Vringo, Inc. changed its name to FORM Holdings Corp. (“Vringo”FORM” or the “Company”) and concurrently announced its repositioning as a holding company of small and middle market growth companies. The Company’s focus is engaged in the innovation, developmenton acquiring and monetization of intellectual property, as well as the commercialization and distribution of wire-free power and rugged computing devices.building companies that would benefit from:

additional capital
exposure to visibility from the public markets
talent recruiting
rebranding and
implementation of best practices.

The Company’s management team is committed to execute on its strategy. The Company is industry agnostic, but limits the scope of its pipeline by looking only at companies with a clear path to grow in excess of $100,000 in revenue.

The Company’s common stock, par value $0.01 per share, which was previously listed on the NASDAQ Capital Market under the trading symbol “VRNG,” has been listed under the trading symbol “FH” since May 9, 2016.

The Company currently has three operating segments:

 

 Intellectual PropertyGroup Mobile
   
 FliFLI Charge
   
 Group MobileIntellectual property

 

The Company was incorporatedGroup Mobile is a growing premier supplier of innovative and full-service mobile technology solutions, including rugged computers, tablets, mobile devices, accessories, a full suite of professional services and other related products geared toward emergency first responders, municipalities and corporations. In addition, Group Mobile specializes in Delaware on January 9, 2006high-quality customer service and completed an initial public offering in June 2010. On July 19, 2012, Vringo closed a merger with Innovate/Protect, Inc. On August 9, 2012, the Company acquired a patent portfolio from Nokia, comprised of 124 patent families with counterparts in certain jurisdictions worldwide,support for $22,000. Under the terms of the purchase agreement, to the extent that the gross revenue as defined by the agreement exceeds $22,000, the Company is obligated to pay a royalty of 35% of such excess.

those products.

 

On October 15, 2015, the Company acquired 100% of International Development Group Limited (“IDG”), a holding company consisting of two subsidiaries, Fli Charge and Group Mobile. IDG owned 70% of Fli Charge and 100% of Group Mobile. The acquisition was a stock purchase whereby Vringo acquired its entire interest in IDG in exchange for shares in Vringo. The total value of the consideration was $5,571. On December 28, 2015, Vringo acquired the remaining 30% of Fli Charge from third party shareholders in exchange for shares in Vringo.

FliFLI Charge owns a patented conductive wire-freewireless charging technology and is focusedfocuses on the development and commercialization of its technology through the direct-to-consumer sale of enablements, as well as partnerships and licensing agreements in various industries. FliFLI Charge is currently working with partners that are interested in implementing FliFLI Charge technology for smart furniture, Original Equipment Manufacturers, “OEM”or “OEM,” and after-market automobiles and vaporizers. FliFLI Charge’s business model is to licensebased on licensing its technology in exchange for recurring licensing revenue as well as to manufacturemanufacturing and commercializecommercializing its own conductive charging pads and associated cases for phones, tablets and laptops.

 

Group MobileThe intellectual property operating segment is a full-service resellerfocused on the innovation, development and monetization of rugged computers, rugged tablets, ruggedintellectual property. The Company’s portfolio consists of over 600 patents and patent applications covering telecom infrastructure, internet search, ad-insertion and mobile devices, accessories and other related products geared toward emergency first responders, municipalities and corporations. In addition, Group Mobile specializes in high-quality customer support for those products.technologies.

7

 

Prior to December 31, 2013, Vringothe Company operated a global platform for the distribution of mobile social applications and services. On February 18, 2014, the Company sold its mobile social application business to InfoMedia Services Limited (“InfoMedia”), receiving an 8.25% ownership interest in InfoMedia as consideration and a seat on the board of directors of InfoMedia. As part of the transaction, the Company has the opportunity to license certain intellectual property assets and work with InfoMedia to identify and protect new intellectual property.

 

Each of the Company’s operating segments are described below.

Fli Charge

Fli Charge is a wire-free power company dedicated to making it easier for people to power and charge the multitude of mobile electronic devices they use on a daily basis. By eliminating the need to search and compete for outlets and charging cables, Fli Charge is improving the powering and charging experience for all battery and DC powered devices.

Fli Charge designs, develops, licenses, manufactures and markets wire-free conductive power and charging solutions. Fli Charge is currently working with partners in several verticals to bring products to market. These verticals include education, office, hospitality, automotive and consumer electronics among others. To date, Fli Charge has not yet generated any substantial revenue from its products. The Company believes that Fli Charge’s patented technology is the only wire-free power solution that is fully interoperable between different mobile devices ranging from smartphones to power tools, and many more. Fli Charge’s wire-free power solution can simultaneously power multiple devices on the same pad no matter their power requirements or positions on the pad.

The Fli Charge ecosystem consists of power pads or surfaces as well as devices that are connected to or embedded with Fli Charge enabling technology. Fli Charge pads and surfaces are connected to a power source or battery. The surface of the pad has conductive contact strips that provide power and are constantly monitored by control circuitry that immediately halts power transfer if an unapproved load or short-circuit condition is detected. Fli Charge-enabled devices are embedded with the Fli Charge contact enablement that consists of four contact points, known as the Fli Charge “constellation.” The constellation is designed to make an immediate and continuous electrical connection with the contact strips regardless of the device’s orientation on the pad. The enablement monitors the power coming from the pad and ensures that the correct amount of power goes to the device. Once an approved Fli Charge device is placed on a pad, power is transferred immediately to charge or power the device.

7

 

Group Mobile

 

Group Mobile is a growing and innovative full, end-to-end solution provider of rugged, mobilefor project lifecycle services including system integration, hardware service support, pre- and field-use computing products, serving customers worldwide.post-deployment and customer support helpdesk. Group Mobile provides total hardware solutions, including rugged laptops, tablets and handheld computers. Group Mobile also markets rugged mobile printers, vehicle computer docking and mounting gear, power accessories, wireless communication products, antennas, carrying cases, and other peripherals, accessories and add-ons needed to maximize productivity in a mobile- or field-computing environment.

Group Mobile operates a full-service e-commerce website with live chat, up-to-date product information and computer system configuration capabilities. Group Mobile’s goal is to ensure that its customers purchase the best productproducts and services for their specific requirements.

Group Mobile purchases rugged mobile computing equipment and complementary products from its primary distribution and manufacturing partners and sells them to enterprise, reseller,enterprises, resellers, and retail customers. Group Mobile’s primary customers range from corporations to local governments, emergency first responders and healthcare organizations. Group Mobile believes that its business is characterized by gross profits as a percentage of revenue slightly higher than is commonly found in resellers of computing devices. The market for rugged mobile computing products is trending towards an increase in the volume of unit sales combined with declining unit prices as the business transitions from primarily being comprised of laptops to one primarily comprised of rugged tablets. As this transition has occurred, Group Mobile is seeing shortened product life cycles and industry specific devices for segments such as healthcare. Group Mobile sets sale prices based on the market supply and demand characteristics for each particular product. Group Mobile is highly dependent on the end-market demand for rugged mobile computing products, which is influenced by many factors, including the introduction of new IT products by OEM, replacement cycles for existing rugged mobile computing products, overall economic growth, local and state budgets, and general business activity.

 

Product costs represent theGroup Mobile’s single largest expense and product inventory is one of the largest working capital investments for Group Mobile. Group Mobile’s primary suppliers include Synnex Corporation, Ingram Micro Inc., and Xplore Technologies Corporation, Flextronics International Ltd. and Trimble Navigation Ltd., which, combined, represent approximately 80% of Group Mobile’s inventory purchases. Group Mobile has reseller agreements with most of its OEM and distribution partners. These agreements usually provide for nonexclusive resale and distribution rights. The agreements are generally short-term, subject to periodic renewal, and often contain provisions permitting termination by either Group Mobile or theirthe supplier without cause upon relatively short notice. Furthermore, product procurement from the OEM suppliers is a highly complex process and, as such, efficient and effective purchasing operations are critical to Group Mobile’s success.

FLI Charge

FLI Charge is a wireless power company dedicated to simplifying the way people power and charge the multitude of mobile electronic devices they use on a daily basis. By eliminating the need to search and compete for outlets and charging cables, FLI Charge is improving the powering and charging experience for all currently existing battery and DC powered devices.

 

FLI Charge designs, develops, licenses, manufactures and markets wireless conductive power and charging solutions. FLI Charge is currently working with partners in several verticals to bring products to market. These verticals include education, office, hospitality, automotive and consumer electronics among others. To date, FLI Charge has not yet generated any substantial revenue from its product sales. The Company believes that FLI Charge’s patented technology is the only wireless power solution that is fully interoperable between different mobile devices ranging from smartphones to power tools, and many more. FLI Charge’s wireless power solution can simultaneously power multiple devices on the same pad no matter their power requirements or positions on the pad.

FLI Charge’s product line consists of power pads or surfaces as well as devices that are connected to or embedded with FLI Charge enabling technology. FLI Charge pads and surfaces are connected to a power source or battery. The surface of the pad has conductive contact strips that provide power and are constantly monitored by control circuitry that immediately halts power transfer if an unapproved load or short-circuit condition is detected. FLI Charge-enabled devices are embedded with the FLI Charge contact enablement that consists of four contact points, known as the “constellation.” The constellation is designed to make an immediate and continuous electrical connection with the contact strips regardless of the device’s orientation on the pad. The enablement monitors the power coming from the pad and ensures that the correct amount of power goes to the device. Once an approved FLI Charge device is placed on a pad, power is transferred immediately to charge or power the device.

FLI Charge launched its consumer product line on Indiegogo, a crowdfunding platform, on June 15, 2016; the campaign is ongoing as of June 30, 2016. The Company accounts for funds raised from crowdfunding campaigns and pre-sales, which was $177 as of June 30, 2016, as deferred revenue. FLI Charge expects to deliver products to the participants in the fourth quarter of 2016.

8

Intellectual Property

 

Vringo’s Intellectual PropertyThe intellectual property operating segment is engaged infocused on the innovation, development and monetization of intellectual property. The Company’s portfolio consists of over 600 patents and patent applications covering telecom infrastructure, internet search, ad-insertion and mobile technologies.

 

Vringo

The Company is currently focused on monetizing its technology portfolio through a variety of value enhancing initiatives including, but not limited to, licensing, litigation and strategic partnerships.

 

Recent Developments

 

Name Change

Senior Secured Convertible NotesOn May 6, 2016, the Company changed its name from Vringo, Inc. to FORM Holdings Corp. (“FORM” or the “Company”) and concurrently announced its repositioning as a holding company of small and middle market growth companies. The Company’s focus is on acquiring and building companies that would benefit from:

additional capital
exposure to visibility from the public markets
talent recruiting
rebranding and
implementation of best practices.

The Company’s management team is committed to execute on its strategy. The Company is industry agnostic, but limits the scope of its pipeline by looking only at companies with a clear path to grow in excess of $100,000 in revenue.

 

On March 9, 2016, the Company and the holders (the “Investors”) of theThe Company’s $12,500 Senior Convertible Notes (the “Notes”), which were originally issued by the Company in a registered direct offering on May 4, 2015, entered into an exchange note agreement (the “Exchange Note Agreement”). Pursuant to the Exchange Note Agreement, the Company issued to the Investors an aggregate of 703,644 shares of its common stock, par value $0.01 per share, in exchange forwhich was previously listed on the reduction of $1,267 of the outstanding aggregate principal amount of the Notes and $49 of accrued interest. As a result, the outstanding aggregate principal amountNASDAQ Capital Market under the Notes was reduced from $3,016 to $1,749 as of Marchtrading symbol “VRNG,” has been listed under the trading symbol “FH” since May 9, 2016.

 

Impairment of Patents

The Company’s name change and repositioning as a holding company was deemed a triggering event, which required the Company’s patent assets to be tested for impairment. In addition, on March 9, 2016,performing this impairment test, the Company withdetermined that the consent of eachpatent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the Investors, agreed to amendimpairment test, the Notes. Pursuant toCompany utilized its projections of future undiscounted cash flows based on its existing plans for the Amended and Restated Senior Secured Notes (the “Amended Notes”) andpatents. As a result, it was determined that the Indenture dated May 4, 2015, as supplemented by a First Supplemental Indenture dated May 4, 2015 and further supplemented by a Second Supplemental Indenture (the “Second Supplemental Indenture”) dated March 9, 2016: (i)Company’s projections of future undiscounted cash flows were less than the Amended Notes are no longer convertible into sharescarrying value of the Company’s common stock and will be payable byasset group. Accordingly, the Company onperformed the Maturity Date (as defined below) in cash only, (ii) the Maturity Datesecond step of the Amended Notes will extendimpairment test to June 30, 2017 (the “Maturity Date”), (iii)measure the potential impairment by calculating the asset group’s fair value as of May 6, 2016. As a result, following amortization for the month of April, the Company will discontinuerecorded an impairment charge of $11,937, which resulted in a new carrying value of $1,526 on May 6, 2016. Following the payment of principal prior to the Maturity Date (subject to certain exceptions), (iv) the interest rate increased from 8% to 10% per annum and will accrue on the outstanding aggregate principal amount of the Amended Notes, payable monthly, and (v)impairment, the Company will pay toreevaluated the Investors onremaining useful life and concluded that there were no changes in the Maturity Date 102% of the outstanding aggregate principal amount of the Amended Notes. The Company also agreed to maintain a cash balance (including cash equivalents) of not less than $2,900.estimated useful life.

 

In addition, the Company agreed to reduce the exercise price of the warrants to purchase an aggregate of 537,500 shares of the Company’s common stock granted as part of the initial agreement (the “May 2015 Warrants”) from $10.00 to $3.00 per share and the parties also agreed to remove from the May 2015 Warrants certain anti-dilution features. Other terms of the May 2015 Warrants remained the same. Furthermore, in connection with the Amended Notes, the Company paid a restructuring fee of $50 to the Investors.

8

Shareholder Rights Plan

 

On March 18, 2016, the Company announced that the Company’s Board of Directors adopted a shareholder rights plan in the form of a Section 382 Rights Agreement designed to preserve the Company’s tax assets. As a part of the plan, the Company’s Board of Directors declared a dividend of one preferred-share-purchase right for each share of the Company’s common stock outstanding as of March 29, 2016. Effective on March 18, 2016, if any group or person acquires 4.99% or more of the Company’s outstanding shares of common stock, or if a group or person that already owns 4.99% or more of the Company’s common stock acquires additional shares representing 0.5% or more of the Company’s common stock, then, subject to certain exceptions, there would be a triggering event under the plan. The rights would then separate from the Company’s common stock and would be adjusted to become exercisable to purchase shares of the Company’s common stock having a market value equal to twice the purchase price of $9.50, resulting in significant dilution in the ownership interest of the acquiring person or group. The Company’s Board of Directors has the discretion to exempt any acquisition of the Company’s common stock from the provisions of the plan and has the ability to terminate the plan prior to a triggering event. In connection with this plan, the Company filed a Certificate of Designation of Series C Junior Preferred Stock with the Secretary of State of the State of Delaware on March 18, 2016.

 

Senior Secured Notes

On March 9, 2016, the Company and the holders (the “Investors”) of the Company’s $12,500 Senior Secured Convertible Notes (the “Notes”), which were originally issued by the Company in a registered direct offering on May 4, 2015, entered into an exchange note agreement (the “Exchange Note Agreement”). Pursuant to the Exchange Note Agreement, the Company issued to the Investors an aggregate of 703,644 shares of its common stock, par value $0.01 per share, in exchange for the reduction of $1,267 of the outstanding aggregate principal amount of the Notes and $49 of accrued interest. As a result, the outstanding aggregate principal amount under the Notes was reduced from $3,016 to $1,749 as of March 9, 2016.

9

In addition, on March 9, 2016, the Company, with the consent of each of the Investors, agreed to amend the Notes. Pursuant to the Amended and Restated Senior Secured Notes (the “Amended Notes”) and the Indenture dated May 4, 2015, as supplemented by a First Supplemental Indenture dated May 4, 2015 and further supplemented by a Second Supplemental Indenture (the “Second Supplemental Indenture”) dated March 9, 2016: (i) the Amended Notes are no longer convertible into shares of the Company’s common stock and will be payable by the Company on the Maturity Date (as defined below) in cash only, (ii) the Maturity Date of the Amended Notes will extend to June 30, 2017 (the “Maturity Date”), (iii) the Company will discontinue the payment of principal prior to the Maturity Date (subject to certain exceptions), (iv) the interest rate increased from 8% to 10% per annum and will accrue on the outstanding aggregate principal amount of the Amended Notes, payable monthly, and (v) the Company will pay to the Investors on the Maturity Date 102% of the outstanding aggregate principal amount of the Amended Notes. The Company also agreed to maintain a cash balance (including cash equivalents) of not less than $2,900.

In addition, the Company agreed to reduce the exercise price of the warrants to purchase an aggregate of 537,500 shares of the Company’s common stock pursuant to the initial agreement (the “May 2015 Warrants”) from $10.00 to $3.00 per share and the parties also agreed to remove from the May 2015 Warrants certain anti-dilution features. Other terms of the May 2015 Warrants remained the same. Furthermore, in connection with the Amended Notes, the Company paid a restructuring fee of $50 to the Investors.

On July 1, 2016, the Company prepaid in full its Amended Notes that were due on June 30, 2017. As required by the terms of the Amended Notes, notice of prepayment was delivered to the Investors on June 30, 2016. The Company repaid the Amended Notes in full, including repayment of the principal and accrued interest as well as an additional 15% for early repayment. The Company used an aggregate of $2,011 of cash on hand for repayment of the Amended Notes. As a result of the repayment in full of the Amended Notes, all liens on the Company’s assets, including intellectual property, were released by the Investors.

Reverse Stock Split

 

OnUnless otherwise noted, the information contained in these condensed consolidated financial statements gives effect to a one-for-ten reverse stock split of our common stock effected on November 27, 2015 the Company implementedon a one-for-ten reverse split of its issued and outstanding shares of common stock (the "Reverse Stock Split"), as authorized at a special meeting of the Company’s stockholders held on November 16, 2015. The Reverse Stock Split became effective at the opening of trading on NASDAQ on November 27, 2015. As of November 27, 2015, every 10 shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the nominal par value per share of $0.01.retroactive basis for all periods presented.

 

Financial condition

As of March 31, 2016, the Company had a cash balance of $20,560, accounts receivable of $1,060, and deposits with courts of $831. In February 2016, $1,173 of deposits with courts and $192 of court fees were returned back to the Company. 

Note 2. Accounting and Reporting Policies

 

(a) Basis of presentation and principles of consolidation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, and the instructions to Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected by the Company.Company as required by Regulation S-X, Rule 10-01. Such adjustments are of a normal, recurring nature. The results of operations for the three monthsix-month period ended March 31,June 30, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. All significant intercompany balances and transactions have been eliminated in consolidation.

10

(b) Use of estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the Company’s valuation of intangible assets, the useful lives of the Company’s intangible assets, the valuation of the Company’s derivative warrants, the valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties, and other contingencies.

 

(c) Accounting guidance adopted in 2016

ASU No. 2015-03, Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

During the three monthsix-month period ended March 31,June 30, 2016, the Company adopted guidance on a retrospective basis that requires debt issuance costs related to a recognized debt liability to be presented in the condensed consolidated balance sheetsheets as a deduction from the carrying amount of such debt. As a result of this adoption, the Company reclassified $73 of debt issuance costs as of December 31, 2015 from other current assets to senior secured notes.

 

ASU No. 2014-15, Presentation of Financial Statements (Topic 205): Going Concern

During the three monthsix-month period ended March 31,June 30, 2016, the Company adopted the standard that provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.

 

ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity

During the three monthsix-month period ended March 31,June 30, 2016, the Company adopted the standard that clarifies how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.

  

(d) Reclassification

On November 27, 2015, the Company implemented the Reverse Stock Split, which became effective at the opening of trading on the NASDAQ on that date. As of November 27, 2015, every 10 shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the nominal par value per share of $0.01.$0.01 and the Company’s authorized shares.

 

Certain balances have been reclassified to conform to presentation requirements, including to retroactively present the effect of the Reverse Stock Split. All references to the number of shares of common stock, price per share and weighted average shares of common stock have been adjusted to reflect the Reverse Stock Split on a retroactive basis for all periods presented, unless otherwise noted.

 

As a result of the adoption by the Company ofASU No. 2015-03on a retrospective basis, during the three monthsix-month period ended March 31,June 30, 2016, the Company reclassified $73 of debt issuance costs as of December 31, 2015 from other current assets to senior secured notes.

(e) Intangible assets

Intangible assets include purchased patents, which are recorded based on the cost to acquire them, as well as trade names, customer relationships and technology, which were acquired as part of the acquisition of International Development Group Limited (“IDG”) in the fourth quarter of 2015 and are recorded based on the estimated fair value in purchase price allocation. The intangible assets are amortized over their estimated useful lives, which are periodically evaluated for reasonableness.

The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of the Company’s intangible assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, the Company may be required to record impairment charges related to its intangible assets.

11

(f) Deferred revenue

Deferred revenue includes (i) payments received from customers in advance of providing the product and (ii) amounts deferred if other conditions of revenue recognition have not been met. The Company accounts for funds raised from crowdfunding campaigns and pre-sales as deferred revenue.

 

Note 3. Net Loss per Share of Common ShareStock

 

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. However, as the Company generated net lossesloss in all periods presented, some potentially dilutive securities, including certain warrants and stock options, were not reflected in diluted net loss per share because the impact of such instruments was anti-dilutive.

9

  

The table below presents the computation of basic and diluted net lossesloss per share of common share:stock:

 

  Three months ended March 31, 
  2016  2015 
Basic Numerator:        
Net loss attributable to shares of common stock $(3,955) $(6,976)
         
Basic Denominator:        
Weighted average number of shares of common stock outstanding during the period  14,158,680   9,340,490 
Basic common stock shares outstanding  14,158,680   9,340,490 
Basic net loss per common stock share $(0.28) $(0.75)
         
Diluted Numerator:        
Diluted net loss attributable to shares of common stock $(3,955) $(6,976)
         
Diluted Denominator:        
Basic common stock shares outstanding  14,158,680   9,340,490 
Diluted common stock shares outstanding  14,158,680   9,340,490 
Diluted net loss per common stock share $(0.28) $(0.75)
         
Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:        
Both vested and unvested options to purchase an equal number of shares of common stock of the Company  862,484   920,235 
Unvested RSUs to issue an equal number of shares of common stock of the Company  25,620   67,656 
Warrants to purchase an equal number of shares of common stock of the Company  1,006,679   1,740,265 
Conversion feature of Notes  318,924    
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share  2,213,707   2,728,156 

10
  Three months ended June 30,  Six months ended June 30, 
  2016  2015  2016  2015 
Basic Numerator:                
Loss from attributable to shares of common stock $(10,807) $(8,509) $(14,762) $(15,485)
Net loss attributable to shares of common stock $(10,807) $(8,509) $(14,762) $(15,485)
Basic Denominator:                
Weighted average number of shares of common stock outstanding during the period  14,993,686   9,469,162   14,576,183   9,405,181 
Basic common stock shares outstanding  14,993,686   9,469,162   14,576,183   9,405,181 
Basic net loss per common stock share $(0.72) $(0.90) $(1.01) $(1.65)
                 
Diluted Numerator:                
Net loss attributable to shares of common stock $(10,807) $(8,509)  (14,762) $(15,485)
Increase in net loss attributable to derivative liabilities and interest expense            
Diluted net loss attributable to shares of common stock $(10,807) $(8,509)  (14,762) $(15,485)
                 
Diluted Denominator:                
Basic common stock shares outstanding  14,993,686   9,469,162   14,576,183   9,405,181 
Weighted average number of derivative liabilities in the money            
Diluted common stock shares outstanding  14,993,686   9,469,162   14,576,183   9,405,181 
Diluted net loss per common stock share $(0.72) $(0.90)  (1.01) $(1.65)
                 
Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as they had an anti-dilutive impact:                
Vested and unvested options outstanding to purchase an equal number of shares of common stock of the Company  1,492,434   888,047   1,492,434   888,047 
Unvested RSUs to issue an equal number of shares of common stock of the Company  7,808   60,990   7,808   60,990 
Warrants to purchase an equal number of shares of common stock of the Company  1,006,679   956,679   1,006,679   956,679 
Conversion feature of senior secured notes     1,250,000   159,462   1,250,000 
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share  2,506,921   3,155,716   2,666,383   3,155,716 

 

Note 4. Business Combination

 

On October 15, 2015, the Company acquired IDG. Pursuant to the Purchase Agreement, the Company acquired 100% of the capital stock of IDG. Fli Charge, in which IDG ownedGroup Mobile and 70% of the capital stock and control of its operations, and the wholly-owned Group MobileFLI Charge were also acquired through the purchase of IDG. FliGroup Mobile is a company with full-service customer support in rugged computers, mobile devices and accessories. FLI Charge owns patented conductive wire-freewireless charging technology and is focused on innovation, sales, manufacturing and licensing its technology in various industries, such as automotive, furniture and others. Group Mobile is a company with full-service customer support in rugged computers, mobile devices and accessories.

12

 

As consideration for the acquisition, the Company issued an equivalent of 1,666,667 common sharesstock (after giving effect to the Reverse Stock Split), which were issued as follows: (i) 1,604,167 shares of the Company’s newly designated Series B Convertible Preferred Stock (“Series B Preferred”), convertible into 1,604,167 shares of the Company’s common stock, , (ii) 57,500 shares of the Company’s unregistered common stock issued to one of the sellers, who is a former Chief Executive Officerchief executive officer and Director,director of IDG, in consideration of his forgiveness of debt and (iii) 5,000 shares of the Company’s common stock for transaction related services. A total of 240,625 Series B Preferred shares were placed in escrow to secure certain of the sellers’ indemnity obligations under the Purchase Agreement for a period of up to 12 months. On November 27, 2015, all Series B Preferred outstanding shares were converted into unregistered common stock of the Company, resulting in the issuance of 1,604,167 shares of common stock. On April 20, 2016, 85,121 shares of common stock were released from escrow.

 

Purchase consideration value was determined based on the market value of the Company’s common sharesstock at the date of the transactions, discounted for the fact that the shares are restricted as to their marketability for a period of six months from the issuance date.

 

The transaction has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values at the closing date. The purchase price consideration was as follows:

October 15, 2015 Acquisition: Fair
Value
 
Series B Preferred Stock $5,378 
Debt assumed, settled in shares  193 
Total share value issued $5,571 

 

October 15, 2015 Acquisition: Fair Value 
Series B Preferred Stock $5,378 
Debt assumed, settled in shares  193 
Total share value issued $5,571 

The purchase price for the acquisition was allocated to the net tangible and intangible assets based on their fair values as of the closing date. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The purchase price allocation was as follows:

  Fair Value 
Assets:    
Cash and cash equivalents $144 
Accounts receivable  245 
Inventory  234 
Prepaid expenses  18 
Current Assets  641 
Intangible assets  2,146 
Goodwill  4,863 
Total Assets  7,650 
     
Liabilities:    
Accounts payable  464 
Credit line  270 
Accrued expenses  44 
Other current liabilities  173 
Deferred tax liabilities  866 
Total liabilities  1,817 

Noncontrolling interest in Fli Charge

  262 
Total $5,571 

  Fair Value 
Assets:    
Cash and cash equivalents $144 
Accounts receivable  245 
Inventory  234 
Prepaid expenses  18 
Current Assets  641 
Intangible assets  2,146 
Goodwill  4,863 
Total Assets  7,650 
     
Liabilities:    
Accounts payable  464 
Credit line  270 
Accrued expenses  44 
Other current liabilities  173 
Deferred tax liabilities  866 
Total liabilities  1,817 
Non-controlling interest in FLI Charge  262 
Total $5,571 

 

The allocation of the purchase price was based upon a valuation and the Company's estimates and assumptions, which are subject to change within the measurement period (up to one year from the acquisition dates). The principal area of potential purchase price adjustments relate to the shares placed in escrow.

 

 1113 

 

In connection with the acquisition, the Company also entered into a Consulting Agreement with IDG’s former Chief Executive Officerchief executive officer and director for a term of six months and payment of $9 per month. The Company also issued to a finder a warrant to purchase up to an aggregate of 50,000 shares of common stock of the Company, at an exercise price of $5.00 per share, expiring on April 15, 2021. The fair value of the warrant was $114 and was recorded as an expense in general and administrative expenses.

 

On December 28, 2015, the Company acquired the remaining 30% interest in FliFLI Charge from third parties. In conjunction with the transaction, the Company issued 110,000 shares of its unregistered common stock for total consideration of $262. The fair value of the consideration for financial reporting purposes was determined based on the market value of the shares at the date of the transaction, discounted due to the restricted nature of the shares and the effect this has on their marketability. The issuance of these shares have no impact on the allocation of the purchase consideration pursuant toFASB ASC 810 and was recorded as an equity transaction.

  

Note 5. Intangible Assets

 

The following table provides information regarding the Company’s intangible assets, which consist of the following:

 

 March 31, 2016 December 31, 2015    June 30, 2016  December 31, 2015    
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Carrying
Amount
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Carrying
Amount
 Weighted average
amortization period
(years)
  Gross
Carrying
Amount
  Accumulated
Amortization  
and Impairment
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
and Impairment
  Net
Carrying
Amount
  Weighted average
amortization period
(years)
 
Patents $28,213  $(14,512) $13,701  $28,213  $(13,782) $14,431   8.60  $28,213  $(26,741)  1,472  $28,213  $(13,782) $14,431   8.60 
Customer relationships  1,163   (136)  1,027   1,163   (62)  1,101   3.91   1,163   (210)  953   1,163   (62)  1,101   3.91 
Trade name  504   (47)  457   504   (21)  483   4.90   504   (73)  431   504   (21)  483   4.90 
Technology  479   (39)  440   479   (18)  461   5.68   479   (60)  419   479   (18)  461   5.68 
Additions during the year:                            
Additions:                            
Software  86      86                151      151             
Total intangible assets $30,445  $(14,734) $15,711  $30,359  $(13,883) $16,476      $30,510  $(27,084) $3,426  $30,359  $(13,883) $16,476     

 

The Company’s patentsCompany recorded customer relationships, trade name and technology as part of the acquisition of Group Mobile and FLI Charge completed on October 15, 2015. Additionally, during 2016, the Company has capitalized costs for software related to the build-out of Group Mobile’s new website. Amortization has not been recorded for the software as it has not yet been placed into service. The patent assets consist of threeseveral major patent portfolios, which were acquired from third parties, as well as a number of internally-developed patents. The costs related to internally-developed patents are expensed as incurred. The Company recorded customer relationships, trade name and technology as part of the acquisition of Group Mobile and Fli Charge that was completed on October 15, 2015.  

 

The Company’s intangible assets are amortized over their expected useful lives. During the three monththree-month periods ended March 31,June 30, 2016 and 2015, the Company recorded amortization expense of $851$413 and $804,$813, respectively. During the six-month periods ended June 30, 2016 and 2015, the Company recorded amortization expense of $1,264 and $1,617, respectively.

During the three-month period ended June 30, 2016, the Company determined that there were impairment indicators related to certain of its patents. A significant factor considered when making this determination occurred on May 6, 2016, when “Vringo, Inc.” changed its name to “FORM Holdings Corp.” and concurrently announced its repositioning as a holding company of small and middle market growth companies. The Company concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, the Company determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, the Company utilized its projections of future undiscounted cash flows based on the Company’s existing plans for the patents. As a result, it was determined that the Company’s projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, the Company performed the second step of the impairment test to measure the impairment by calculating the asset group’s fair value as of May 6, 2016.

14

As a result, following amortization for the month of April, the Company recorded an impairment charge of $11,937, or 88.7% of the carrying value of the patents prior to impairment. This resulted in a new carrying value of $1,526 on May 6, 2016. The impairment charge is included in amortization and impairment of intangible assets in the condensed consolidated statements of operations. Following the impairment, the Company reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of the Company’s other amortizable intangible assets during the periodsperiod ended March 31, 2016 and 2015.June 30, 2016.

 

The following table provides information regarding the Company’s goodwill, which relates to the purchase of IDG completed on October 15, 2015. There were no indicators of impairment of goodwill as of March 31,June 30, 2016.

Fli Charge  757 
Group Mobile  4,106  $4,106 
FLI Charge  757 
Total Goodwill $4,863  $4,863 

  

Note 6. Segment Information

 

The Company currently has three operating segments, Group Mobile, FLI Charge and intellectual property that accumulate revenue and expenses. Additionally, the Company allocates certain expenses to its non-operating corporate segment. The corporate segment represents general and administrative expenses as well as net non-operating income (expense) that are not specific to any of FORM’s operating segments, but represent expenses incurred on behalf of the parent company, a holding company.

  Three months ended March 31, 
  2016  2015 
Revenue:        
Intellectual Property $750  $150 
Fli Charge  17    
Group Mobile  1,277    
Total Revenue $2,044  $150 
         
Segment operating loss:        
Intellectual Property $(2,505) $(6,753)
Fli Charge  (779)   
Group Mobile  (322)   
Total segment operating loss $(3,606) $(6,753)
         
Non-operating expense, net  (349)  (223)
Net loss $(3,955) $(6,976)

  Three months ended June 30,  Six months ended June 30, 
  2016  2015  2016  2015 
Revenue:                
Group Mobile $2,450  $  $3,727  $ 
FLI Charge  12      29    
Intellectual property  8,900      9,650   150 
Total Revenue $11,362  $  $13,406  $150 
                 
Segment operating loss:                
Group Mobile $(326) $  $(648) $ 
FLI Charge  (998)     (1,777)   
Intellectual property  (7,577)  (6,276)  (8,280)  (10,032)
Corporate  (1,814)  (2,299)  (3,616)  (5,296)
Total segment operating loss  (10,715)  (8,575)  (14,321)  (15,328)
                 
Corporate non-operating income (expense), net  (92)  66   (441)  (157)
Net loss $(10,807) $(8,509) $(14,762) $(15,485)

 

  March 31,
2016
  December 31,
2015
 
Assets:        
Intellectual Property $36,864  $42,648 
Fli Charge  1,286   1,583 
Group Mobile  6,725   6,228 
Total Assets $44,875  $50,459 

 1215 

 

  June 30,
2016
  December 31,
2015
 
Assets:        
Group Mobile $7,013  $6,228 
FLI Charge  1,734   1,583 
Intellectual property  2,654   17,528 
Corporate  26,346   25,120 
Total Assets $37,747  $50,459 

General

The corporate segment’s assets are mainly comprised of cash and administrative costs are allocated to the Intellectual Property segment.cash equivalents.

 

Note 7. Senior Secured Notes

 

On May 4, 2015 (the “Closing Date”), the Company entered into a securities purchase agreement with certain institutional investors (the “Investors”)Investors in a registered direct offering of $12,500 of Senior Secured Convertible Notes (the “Notes”) and warrants (the “MayMay 2015 Warrants”)Warrants to purchase 537,500 shares of the Company’s common stock (after giving effect to the Reverse Stock Split). On the Closing Date, the Company issued the Notes, which were convertible into shares of the Company’s common stock at $10.00 per share, had 8% interest and matured in 21 months from the date of issuance, unless earlier converted. In addition, the Company issued the May 2015 Warrants to purchase shares of the Company’s common stock, which were exercisable at $10.00 per share for a period of five years, beginning on November 4, 2015. In connection with the issuance of the Notes and the May 2015 Warrants, the Company received net cash proceeds of $12,425. The Company also incurred third party costs directly associated with the issuance of Notes of $218, which arewere capitalized as debt issuance costs and reported as a reduction in senior secured notes, and are amortized over the term of the Note. The Company’s obligations under the outstanding Notes are secured by a first priority perfected security interest in substantially all of the Company’s U.S. assets. In addition, stock of certain subsidiaries of the Company were pledged. The outstanding Notes contain customary events of default, as well as covenants which include restrictions on the assumption of new debt by the Company. As of December 31, 2015,June 30, 2016, all covenants were met and there were no events of default.

 

As of December 31, 2015, total outstanding principal was $4,206. Between January 1, 2016 and March 9, 2016, the Company made two principal payments in the aggregate amount of $1,190. The Company elected to make these principal payments in shares of the Company’s common stock, which are issued at a 15% discount to the market price data. As such, the Company issued 1,032,332 shares in lieu of principal payments and recorded $210 as extinguishment of debt expense onin the condensed consolidated statements of operations.

  

On March 9, 2016, the Company and the Investors entered into the Exchange Note Agreement. Pursuant to the Exchange Note Agreement, the Company issued to the Investors an aggregate of 703,644 shares of its common stock in exchange for the reduction of $1,267 of the outstanding aggregate principal amount of the Notes and $49 of accrued interest. As a result, the outstanding aggregate principal amount under the Notes was reduced from $3,016 to $1,749 as of March 9, 2016.

 

In addition, on March 9, 2016, the Company, with the consent of each of the Investors, agreed to amend the Notes. Pursuant to the Amended Notes and the Indenture dated May 4, 2015, as supplemented by a First Supplemental Indenture dated May 4, 2015 and further supplemented by the Second Supplemental Indenture dated March 9, 2016: (i) the Amended Notes are no longer convertible into shares of the Company’s common stock and will be payable by the Company on the Maturity Date in cash only, (ii) the Maturity Date of the Amended Notes will extend to June 30, 2017, (iii) the Company will discontinue the payment of principal prior to the Maturity Date (subject to certain exceptions), (iv) the interest rate increased from 8% to 10% per annum and will accrue on the outstanding aggregate principal amount of the Amended Notes, payable monthly, and (v) the Company will pay to the Investors on the Maturity Date 102% of the outstanding aggregate principal amount of the Amended Notes. The Company also agreed to maintain a cash balance (including cash equivalents) of not less than $2,900.

In addition, the Company agreed to reduce the exercise price of the May 2015 Warrants from $10.00 to $3.00 per share and the parties also agreed to remove from the May 2015 Warrants certain anti-dilution features. Other terms of the May 2015 Warrants remained the same. Furthermore, in connection with the Amended Notes, the Company paid a restructuring fee of $50 to the Investors.

16

 

The Company has concluded that the Exchange Note Agreement does not constitute a troubled debt restructuring as it has not experienced financial difficulty. As such, the Company applied the guidance in ASC 470-50, Modifications and Extinguishments. The accounting treatment is determined by whether (1) the Investors remain the same and (2) the change in the debt terms is considered substantial.

SinceFurthermore, since the Investors remained the same before and after the Exchange Note Agreement, the Company has made a quantitative test, in order to determine whether the Amended Notes are substantially different from the original Notes. According to ASC 470-50-40-10, from the debtor’s perspective, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent, the debt instruments are not considered to be substantially different.

 

Based on the accounting analysis performed and considering various scenarios for the cash flow test, the Company concluded that the Amended Notes were not substantially different from the original Notes and, as such, accounted for the Exchange Note Agreement as a modification:

 

 ·No gain or loss is recorded and a new effective interest rate is established based on the carrying value of the Notes and the revised cash flows of the Notes. Immediately before the Exchange Note Agreement, the fair value of the conversion option of the Notes was $10.00 per share. As such, the cancellation of this conversion option didn't affect the 10 percent test.

 

 ·The change in the fair value of the May 2015 Warrants is capitalized similar to certain debt issuance costs. The fair value of the May 2015 Warrants increased by $281 as a result of the reduction of the exercise price from $10.00 to $3.00. Other terms of the May 2015 Warrants remain the same and continue to be recorded as derivative warrant liabilities. The capitalized amount of $281, along with any existing unamortized debt discount or premium, is amortized to interest expense over the remaining term of the Notes.

 

 ·Pursuant to the Exchange Note Agreement, on March 9, 2016, 703,644 shares were issued in exchange for the reduction of $1,267 of the outstanding principal amount and $49 of accrued interest and are also considered a noncash consideration. The fair value of the shares issued was $1,499. As such, the Company capitalized the fair value difference of $183 similar to certain debt issuance costs, which is amortized to interest expense over the remaining term of the Notes.

 

 ·The original transactions cost as of March 9, 2016, in the amount of $49, continue to be deferred. New transaction costs paid to the Investors, in the amount of $50, are capitalized and recorded as an offset to the debt. New transaction costs, in the amount of $65, paid to third parties are recognized as an expense and are included in the general and administrative expense.

13

 

The table below summarizes changes in the book value of the Notes from December 31, 2015 to March 31,June 30, 2016:

 

Book value as of December 31, 2015 (net of unamortized portion of debt issuance costs of $73) $3,111 
Debt repayments in January and February 2016  (1,190)
Amortization of debt discount and debt issuance costs, included in interest expense  356 
Book value of Notes before the Exchange Note Agreement on March 9, 2016  2,277 
     
Fair value of the considerations provided to the Investors, including:    
Increase in fair value of May 2015 Warrants due to reduced exercise price  281 
Repayment of Notes in shares of common stock  1,267 
Repayment of $1,267 of Notes in shares of common stock at a discount to the market  183 
Restructuring fee paid to the Investors  50 
Total fair value of the considerations provided to the Investors  1,781 
     
Book value of Amended Notes after the Exchange Note Agreement on March 9, 2016  496 
Amortization of debt discount and debt issuance costs, included in interest expense  304 
Book value of Amended Notes as of June 30, 2016 $800 

Book value of Notes as of December 31, 2015 (net of unamortized portion of debt issuance costs of $73) $3,111 
Debt repayments in January and February 2016  (1,190)
Amortization of debt discount and debt issuance costs, included in interest expense  356 
Book value of Notes before the Exchange Note Agreement on March 9, 2016  2,277 
     
Fair value of the considerations provided to the Investors, including:    
Increase in fair value of May 2015 Warrants due to reduced exercise price  281 
Repayment of Notes in shares of common stock  1,267 
Repayment of $1,267 of Notes in shares of common stock at a discount to the market  183 
Restructuring fee paid to the Investors  50 
Total fair value of the considerations provided to the Investors  1,781 
     
Book value of Amended Notes after the Exchange Note Agreement on March 9, 2016  496 
Amortization of debt discount and debt issuance costs, included in interest expense  58 
Book value of Amended Notes as of March 31, 2016 $554 
17

On July 1, 2016, the Company prepaid in full its Amended Notes that were due on June 30, 2017. As required by the terms of the Amended Notes, notice of prepayment was delivered to the Investors on June 30, 2016. The Company repaid the Amended Notes in full, including repayment of the principal and accrued interest as well as an additional 15% for early repayment. The Company used an aggregate of $2,011 of cash on hand for repayment of the Amended Notes. As a result of the repayment in full of the Amended Notes, all liens on the Company’s assets, including its intellectual property, were released by the Investors.

 

Note 8. Fair Value Measurements

 

The following table presents the placement in the fair value hierarchy of liabilities measured at fair value on a recurring basis as of March 31,June 30, 2016 and December 31, 2015:

 

   Fair value measurement at reporting date using     Fair value measurement at reporting date using 
   Quoted prices in        Quoted prices in      
   active markets Significant other Significant    active markets Significant other Significant 
   for identical observable unobservable    for identical observable unobservable 
 Balance assets (Level 1) inputs (Level 2) inputs (Level 3)  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
March 31, 2016:         
June 30, 2016:                
May 2015 Warrants $428  $  $  $428  $329  $  $  $329 
                                
December 31, 2015:                                
May 2015 Warrants $416  $  $  $416  $416  $  $  $416 
Conversion feature $1  $  $  $1  $1  $  $  $1 

 

The Company measures its derivative liabilities at fair value. The May 2015 Warrants were classified within Level 3 because they were valued using the Black-Sholes-MertonBlack-Scholes-Merton model, which utilizes significant inputs that are unobservable in the market. They are recorded as derivative warrant liabilities as they are freestanding instruments and there are several features within the warrants that may require the Company to cash settle or partially cash settle. In particular, the Company may have to cash settle, partially cash settle, or make cash payments to the Investors including cash settlement upon exercise when insufficient shares are authorized to be issued, and that the Company is obligated to issue registered shares when the warrants are exercised. The derivative warrant liabilities are initially measured at fair value and marked to market at each balance sheet date.

 

In addition to the above, the Company’s financial instruments as of March 31,June 30, 2016 and December 31, 2015 consisted of cash, cash equivalents, receivables, accounts payable, deposits and Notes. The carrying amounts of all the aforementioned financial instruments approximate fair value because of the short-term maturities of these instruments.

18

 

 

The following table summarizes the changes in the Company’s liabilities measured at fair value using significant unobservable inputs (Level 3) during the three monthsix-month period ended March 31,June 30, 2016:

 

 May 2015
Warrants
 Conversion
feature
  May 2015
Warrants
  Conversion
feature
 
December 31, 2015 $416  $1  $416  $1 
Decrease in fair value of the warrants and conversion feature  (269)  (1)  (368)  (1)
Increase in fair value as a result of debt modification $281     281    
March 31, 2016 $428  $ 
June 30, 2016 $329  $ 

 

Valuation processes for Level 3 Fair Value Measurements

 

Fair value measurement of the derivative warrant liabilities falls within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.

14

March 31,June 30, 2016:

 

Description Valuation technique Unobservable inputs Range 
May 2015 Warrants Black-Scholes-Merton Volatility  83.3659.55%
    Risk freeRisk-free interest rate  1.100.88%
    Expected term, in years  4.093.84 
    Dividend yield  0.00%

 

December 31, 2015:

 

DescriptionValuation techniqueUnobservable inputsRange
Conversion featureMonte-Carlo modelVolatility82.46%
Risk free interest rate0.46%
Expected term, in years0.51
Conversion price$10.00
May 2015 WarrantsBlack-Scholes-MertonVolatility79.13%
Risk free interest rate1.68%
Expected term, in years4.34
Dividend yield0.00%
Description Valuation technique Unobservable inputs Range 
Conversion feature Monte-Carlo model Volatility  82.46%
    Risk free interest rate  0.46%
    Expected term, in years  0.51 
    Conversion price $10.00 
         
May 2015 Warrants Black-Scholes-Merton Volatility  79.13%
    Risk free interest rate  1.68%
    Expected term, in years  4.34 
    Dividend yield  0.00%

 

Sensitivity of Level 3 measurements to changes in significant unobservable inputs

 

The inputs to estimate the fair value of the Company’s derivative warrant liabilities and conversion feature were the current market price of the Company’s common stock, the exercise price of the warrants and conversion feature, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

 

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the warrants and conversion feature would each result in a directionally similar change in the estimated fair value of the Company’s warrants. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the differential between the warrants’ and conversion feature’s exercise prices and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock, and as such, there is no change in the estimated fair value of the warrants and conversion feature due to the dividend assumption.

19

The following table presents the placement in the fair value hierarchy of intangible assets measured at fair value on a non-recurring basis as of June 30, 2016 due to impairment. There was no impairment of intangible assets for the period ended December 31, 2015 and, as such, no fair value measurement was performed:

     Fair value measurement at reporting date using 
     Quoted prices in       
     active markets  Significant other  Significant 
     for identical  observable  unobservable 
  Balance  assets (Level 1)  inputs (Level 2)  inputs (Level 3) 
June 30, 2016:                
Patents $1,472  $  $  $1,472 

During the six-month period ended June 30, 2016, the Company recorded a noncash impairment charge of $11,937 to reduce the net carrying value of its patent assets to its estimated fair value of $1,526. Following the impairment charge, the net carrying value of the patent assets was reduced to $1,472 as of June 30, 2016 due to additional amortization expense during the period. The fair value of these assets were classified as Level 3 of the fair value hierarchy using an income-based approach.

 

Note 9. Warrants

 

The following table summarizes information about warrant activity during the three monthsix-month period ended March 31,June 30, 2016:

 

 No. of warrants Weighted average
exercise price
 Exercise
price range
  No. of warrants Weighted average
exercise price
 Exercise
price range
 
December 31, 2015  1,006,679  $12.92   $5.00 - $17.60   1,006,679 $12.92  $5.00 - $17.60 
Granted             
Exercised             
Expired                
March 31, 2016  1,006,679  $9.18   $3.00 - $17.60 
June 30, 2016  1,006,679 $9.18  $3.00 - $17.60 

  

On March 9, 2016, the Company modified the exercise price of the May 2015 Warrants, which are recorded as derivative warrant liabilities, from $10.00 to $3.00. There were no changes to other terms of the May 2015 Warrants (see Note 7). The change in fair value of the May 2015 Warrants as a result of the exercise price modification was accounted for as a debt discount to be amortized over the remaining term of the Amended Notes.

 

Certain of the Company’s outstanding warrants are classified as equity warrants and certain are classified as derivative warrant liabilities. The Company’s outstanding equity warrants as of March 31,June 30, 2016 consist of the following:

 

  No. outstanding  Exercise price  Remaining
contractual life
 Expiration Date
Series 1 Warrants  149,025  $17.60  1.30 years July 19, 2017
Series 2 Warrants  194,352  $17.60  1.30 years July 19, 2017
Reload Warrants  75,802  $17.60  0.85 years February 6, 2017
October 2015 Warrants  50,000  $5.00  5.04 years April 15, 2021

Outstanding as of March 31, 2016

  469,179         

15
  No. outstanding  Exercise price  Remaining
contractual life
 Expiration Date
Series 1 Warrants  149,025  $17.60  1.05 years July 19, 2017
Series 2 Warrants  194,352  $17.60  1.05 years July 19, 2017
Reload Warrants  75,802  $17.60  0.61 years February 6, 2017
October 2015 Warrants  50,000  $5.00  4.79 years April 15, 2021
Outstanding as of June 30, 2016  469,179         

  

The Company’s outstanding derivative warrants as of March 31,June 30, 2016 consist of the following:

 

  No. outstanding  Exercise price  Remaining
contractual life
 Expiration Date
May 2015 Warrants  537,500  $3.00  4.09 years May 4, 2020
  No. outstanding  Exercise price  Remaining
contractual life
 Expiration Date
May 2015 Warrants  537,500  $3.00  3.84 years May 4, 2020

20

 

Note 10. Stock-based Compensation

 

The Company has a stock-based compensation plan available to grant stock options and restricted stock units (“RSUs”) to the Company’s directors, employees and consultants. Under the 2012 Employee, Director and Consultant Equity Incentive Plan (the “Plan”), a maximum of 1,560,000 shares of common stock may be awarded (after giving effect to the one-for-ten reverse stock split). In 2015, the Company amended its Plan, so that a maximum of shares of common stock that may be awarded was increased to 2,100,000. As of March 31,June 30, 2016, 932,460302,510 shares were available for future grants under the Plan. Total stock-based compensation expense for the three-month periods ended March 31,June 30, 2016 and 2015 was $463$499 and $1,872,$1,253, respectively. Total stock-based compensation expense for the six-month periods ended June 30, 2016 and 2015 was $962 and $3,125, respectively.

  

The following table illustrates the RSUs granted during the three monthsix-month period ended March 31, 2016. There were no stock options granted during the three month period ended March 31,June 30, 2016.

Title Grant date No. of RSUs  Exercise price  Fair market
value at grant date
  Vesting term
Consultant March 9, 2016  10,000     $2.13  Over 0.33 years

Title Grant date No. of RSUs  Exercise price  Fair market
value at grant date
  Vesting term
Consultant March 9, 2016  10,000     $2.13  0.33 years

 

The activity related to stock options and RSUs during the three monthsix-month period ended March 31,June 30, 2016 consisted of the following:

 

  RSUs  Options 
  No. of
RSUs
  Weighted average
grant date fair
value
  No. of
options
  Weighted average
exercise price
  Exercise price
range
  Weighted average
grant date fair
value
 
Outstanding at January 1, 2016  53,280  $36.31   871,484  $30.65  $    5.10 - 55.00  $20.49 
Granted  10,000  $2.13              
Vested/Exercised  (37,660) $35.94              
Forfeited                   
Expired        (9,000) $55.00  $55.00  $26.20 
Outstanding at March 31, 2016  25,620  $23.51   862,484  $30.40  $  5.10 - 55.00  $20.43 

Exercisable at March 31, 2016

        819,358  $31.13  $  5.10 - 55.00     

  RSUs  Options 
  No. of
RSUs
  Weighted average
grant date fair
value
  No. of
options
  Weighted average
exercise price
  Exercise price
range
  Weighted average
grant date fair
value
 
Outstanding at January 1, 2016  53,280  $36.31   871,484  $30.65  $5.10 - 55.00  $20.49 
Granted  10,000  $2.13   730,000  $1.66  $1.55 - 1.92  $0.89 
Vested/Exercised  (55,472) $30.03             
Forfeited        (100,050) $27.88  $5.90 – 41.00  $17.04 
Expired        (9,000) $55.00  $55.00  $26.20 
Outstanding at June 30, 2016  7,808  $37.20   1,492,434  $16.51  $1.55 – 55.00  $10.64 
Exercisable at June 30, 2016        880,767  $26.03  $1.55 – 55.00     

 

The Company did not recognize tax benefits related to its stock-based compensation as there is a full valuation allowance recorded.

 

Note 11. Other Current Assets

As of March 31, 2016 and December 31, 2015, the Company’s other current assets were comprised of the following:

  March 31,
2016
  December 31,
2015
 
Prepaid expenses $439  $674 
Inventory  475   379 
Other  20   24 
  $934  $1,077 

 1621 

 

Note 12. Accounts Payable, Accrued Expenses and Other Current Liabilities

As of March 31, 2016 and December 31, 2015, the Company’s accounts payable, accrued expenses and other current liabilities were comprised of the following:

  March 31,
2016
  December 31,
2015
 
Accounts payable and accrued liabilities $2,503  $4,885 
Tax liabilities  538   538 
Other  680   607 
  $3,721  $6,030 

On July 12, 2015, Group Mobile amended its existing loan agreement with Oklahoma Fidelity Bank, a division of Fidelity Bank. The total amount of the loan is $300 and it bears a variable interest, which is the lower of the Wall Street Journal prime rate plus 1% or 5% annually. The maturity date of the loan is July 12, 2016. The outstanding balance on the loan as of March 31, 2016 and December 31, 2015 was $266 and $268, respectively, and is included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets.

Note 13.11. Income Taxes

 

As of March 31,June 30, 2016, deferred tax assets generated from the Company’s U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in the Company’s estimation, is not more likely than not to be generated before such net operating loss carryforwards expire.

 

The Company did not have any material unrecognized tax benefits as of March 31,June 30, 2016. The Company does not expect to record any additional material provisions for unrecognized tax benefits within the next year.

 

Note 14.12. Commitments and Contingencies

FLI Charge

FLI Charge launched its consumer product line on Indiegogo, a crowdfunding platform, on June 15, 2016; the campaign was ongoing as of June 30, 2016, at which time funds raised from the crowdfunding campaign was $177. FLI Charge expects to deliver products to the participants in the fourth quarter of 2016.

 

Litigation and legal proceedings

 

ZTE

 

On December 7, 2015, the Company entered into the Settlement Agreementa confidential settlement and license agreement (the “Settlement Agreement”) with ZTE Corporation and its affiliates (collectively, “ZTE”), pursuant to which the parties withdrew all pending litigations and proceedings against each other and the Company granted ZTE a non-exclusive, non-transferable, worldwide perpetual license to certain patents and patent applications owned by the Company.

 

Pursuant to the Settlement Agreement, the parties have taken steps to withdraw all pending litigations and proceedings against one another. To date, proceedings in Romania have yet to be formally closed, though the parties are currently working together to cause those proceedings to be formally closed.

 

In several jurisdictions, though ZTE requested that government organizations close proceedings against Vringo,FORM, those organizations make such determinations on their own volition. In China, ZTE requested that the National Developmental and Reform Commission (“NDRC”) conclude its investigation against Vringo;FORM; however, the NDRC has not yet closed its investigation. In addition, ZTE requested that the European Commission close its file on Vringo following ZTE’s withdrawal of its complaint against Vringo. On February 1, 2016, the European Commission confirmed that it would close its file on ZTE’s complaint against Vringo.

 

In addition, in China and the Netherlands, VringoFORM continues to appeal patent invalidity rulings issued in connection with proceedings originally brought by ZTE. In each instance, ZTE has indicated that it will not oppose Vringo’sFORM’s appeals, though VringoFORM must still plead its case before the respective adjudicatory body in each jurisdiction. In addition,On August 3, 2016, the European Patent Office has not yet dismissed an opposition action filed on one of Vringo’sFORM’s recently issued European patents, and has requested that Vringo defend this action even though ZTE has indicated that it would not continue to pursue the action.patents. No contingent liability is expected or recorded for the ZTE relatedZTE-related legal proceedings.

 

ASUS

 

VringoFORM had filed patent infringement lawsuits against ASUSTeK Computer Inc. and its subsidiaries (collectively, “ASUS”) in Germany, India, and Spain. In March 2016, the parties settled their disputes and ended all litigations between them. However, Google, Inc. (“Google”) intervened as a party in FORM’s litigation against ASUS in India, and, notwithstanding the settlement between FORM and ASUS, the lawsuit remains pending with respect to FORM and Google. As such, as of March 31,June 30, 2016, the Company had reversed $222 of contingent liabilities related to potential legal fees that were previously accrued for proceedings.the proceedings related to this matter.

Other

The Company is also engaged in additional litigation, for which no contingent liability is recorded as the Company does not expect any material negative outcome.

 

Deposits with courts

 

The Company made deposits with courts during 2015 and 2014, related to its proceedings in Germany, Brazil, Romania and Malaysia. Deposits with courts paid in local currency are remeasured on the balance sheet date based on the related foreign exchange rate on that date. As of March 31, 2016 and December 31, 2015, deposits with courts, which are recorded as current assets, totaled $831 and $1,930, respectively. During the three month period ended March 31, 2016, $1,173 of the deposits with courts and $192 of court fees were returned back to the Company.$1,930. As of May 5,June 30, 2016, all deposits that had been posted with the courts in connection with its litigation with ZTE have been returned to the Company.

22

 

Other

The Company is also engaged in additional litigation, for which no contingent liability is recorded, as the Company does not expect any material negative outcome.

The Company is currently in discussions with the previous owner of some of its patents regarding whether the entirety of the payment received from ZTE in December 2015 is subject to the royalty rate under the Confidential Patent Purchase Agreement dated August 9, 2012.

Leases

 

In January 2014, the Company entered into an amended lease agreement for its corporate executive office in New York for the lease of a different office space within the same building. The initial annual rental fee for this new office iswas approximately $403 (subject to certain future escalations and adjustments) beginning on August 1, 2014, which was the date when the new office space wasbecame available. This lease will expire in October 2019. Group Mobile has a lease for its office space in Chandler, AZ. The annual rental fee is approximately $72; the current lease, which originally was due to expire on June 30, 2016, was amended in February 2016 and extended until July 31, 2019. Rent expense for operating leases for the three monthand six-month periods ended March 31,June 30, 2016 and 2015 were $109 and $218, respectively. Rent expense for operating leases for the three and six-month periods ended June 30, 2015 were $91 and $183, respectively.

 

Note 15.13. Subsequent Events

 

On April 25,August 8, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with FHXMS, LLC, a Confidential License AgreementDelaware limited liability company and wholly-owned subsidiary of the Company (the “License Agreement”“Merger Sub”), XpresSpa Holdings, LLC, a Delaware limited liability company (“XpresSpa”), the unitholders of XpresSpa who are parties thereto (the “Unitholders”) and Mistral XH Representative, LLC, as representative of the Unitholders (the “Representative”), pursuant to which the Merger Sub will merge with and into XpresSpa, with XpresSpa being the surviving entity and a wholly-owned subsidiary of the Company (the “Surviving Entity”) and the Unitholders becoming stockholders of FORM (the “Merger”). Pursuant

XpresSpa is a leading airport retailer of spa services and related products, and also sells spa products through its internet site. Services and products include: (i) massage services for the neck, back, feet and whole body, (ii) nail care, such as pedicures, manicures and polish changes, (iii) beauty care services such as waxing and facials, (iv) hair care, such as haircuts and blow outs, (v) spa products such as massagers, lotions and aromatherapy aids and (vi) travel products such as neck pillows and eye masks.

Upon completion of the Merger, (i) the then-outstanding common units of XpresSpa (other than those held by the Company, which will be cancelled without any consideration) and (ii) the then-outstanding preferred units of XpresSpa (other than those held by the Company, which will be cancelled without any consideration) will be automatically converted into the right to receive an aggregate of:

(a)2,500,000 shares of FORM common stock, par value $0.01 per share (“FORM Common Stock”),

(b)494,792 shares of newly designated Series D Convertible Preferred Stock, par value $0.01 per share, of FORM (“FORM Preferred Stock”) with an aggregate initial liquidation preference of $23,750, and

(c)five-year warrants to purchase an aggregate of 2,500,000 shares of FORM Common Stock, at an exercise price of $3.00 per share, each subject to adjustment in the event of a stock split, dividend or similar events.

The FORM Preferred Stock shall be initially convertible into an aggregate of 3,958,336 shares of FORM Common Stock, which equals a $6.00 per share conversion price, and each holder of FORM Preferred Stock shall be entitled to vote on an as converted basis. The FORM Preferred Stock is senior to the FORM Common Stock and the terms of the License Agreement,FORM Preferred Stock contain no restrictions on the LicenseeCompany’s ability to issue additional senior preferred securities or the Company’s ability to incur additional preferred securities in the future. The Company has the right, but not the obligation, upon ten trading days’ notice to convert the outstanding shares of FORM Preferred Stock into FORM Common Stock at the then applicable conversion ratio, at any time or from time to time, if the volume weighted average price per share of the FORM Common Stock exceeds $9.00 for over any 20 days in a 30 consecutive trading day period. The term of the FORM Preferred Stock is seven years, after which time FORM can repay the holders in shares of FORM Common Stock or cash at the Company’s election. FORM Preferred Stock will payaccrue interest at 9% per annum, or $4.32 per share of FORM Preferred Stock.

In addition, the Company entered into subscription agreements to sell 750,574 shares of its unregistered Common Stock to certain holders of XpresSpa, at a one-time lump sum paymentpurchase price of $8,900 within 30 days$2.31 per share, for an aggregate purchase price of $1,734.

On August 8, 2016, FORM agreed to purchase from XpresSpa an aggregate of 1,733,826 of Series C Preferred Units of XpresSpa, at a per unit purchase price of $1.00 per unit, for an aggregate purchase price of $1,734. The Series C Preferred Units of XpresSpa will have a preference in the amount of its initial investment and shall bear 12% interest until the closing of the anticipated merger agreement.

Immediately following the executioncompletion of the License AgreementMerger (without taking into account any shares of FORM Common Stock held by XpresSpa equity holders prior to the completion of the Merger), the former Unitholders of XpresSpa are expected to own approximately 18% of the outstanding FORM Common Stock (or 33% of the outstanding FORM Common Stock calculated on a fully diluted basis) and the current stockholders of the Company will grantare expected to own approximately 82% of the Licenseeoutstanding FORM Common Stock (or 67% of the outstanding FORM Common Stock calculated on a non-exclusive, non-transferable, worldwide perpetual licensefully diluted basis). 

The Company engaged various third parties to perform legal, financial and tax due diligence associated with the Merger. In addition, the Company engaged a third-party valuation firm to perform a valuation of the purchase considerations and purchase price allocation. Among the service providers, the Company engaged Redridge Lender Services LLC to perform financial due diligence. The Company’s CEO and certain patentsmembers of his family own a minority equity position in Redridge Lender Services LLC, which may be considered a related party. The fee for this engagement is $101, of which approximately $10 was incurred in the three-month period ended June 30, 2016 and patent applications owned byis reflected in general and administrative expenses for the Company.

three- and six-month periods ended June 30, 2016 in the condensed consolidated statements of operations. 

 

 1723 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipates,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “will be,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” and similar expressions or variations 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 risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 10, 2016 (the “2015 Annual Report”) and this Quarterly Report on Form 10-Q and any future reports we file with the Securities and Exchange Commission (“SEC”). The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by law.

All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Vringo,FORM Holdings Corp. (prior to May 5, 2016, known as “Vringo, Inc.”), a Delaware corporation, and its consolidated subsidiaries.

 

Overview

 

On May 6, 2016, we changed the name of our company from Vringo, Inc. to FORM Holdings Corp. (“Vringo”FORM” or the “Company”) and concurrently announced our repositioning as a holding company of small and middle market growth companies. Our focus is engagedon acquiring and building companies that would benefit from:

additional capital
exposure to visibility from the public markets
talent recruiting
rebranding and
implementation of best practices.

Our management team is committed to execute on our strategy. We are industry agnostic, but limit the scope of our pipeline by looking only at companies with a clear path to grow in excess of $100,000,000 in revenue.

Our common stock, par value $0.01 per share, which was previously listed on The NASDAQ Capital Market under the innovation, development and monetization of intellectual property, as well astrading symbol “VRNG,” has been listed under the commercialization and distribution of wire-free power and rugged computing devices. Our company hastrading symbol “FH” since May 9, 2016.

We currently have three operating segments:

 

Intellectual PropertyGroup Mobile

 

FliFLI Charge

 

Group MobileIntellectual property

On July 19, 2012, we consummated a merger with Innovate/Protect, Inc., then a privately held Delaware corporation.

On August 9, 2012, we acquired a patent portfolio from Nokia Corporation (“Nokia”), comprised of 124 patent families with counterparts in certain jurisdictions worldwide, for $22,000,000. Under the terms of the purchase agreement, to the extent that the gross revenue as defined by agreement exceeds $22,000,000, we are obligated to pay a royalty of 35% of such excess.

On October 15, 2015, we acquired 100% of International Development Group Limited (“IDG”), a holding company including its two subsidiaries: fliCharge International Ltd. (“Fli Charge”) and Group Mobile International LLC (“Group Mobile”). IDG owned 70% of Fli Charge and 100% of Group Mobile. The purchase was a stock purchase whereby we acquired the entire interest in IDG in exchange for shares in Vringo. The total value of the consideration was $5,571,000. On December 28, 2015, we acquired the remaining 30% of Fli Charge from third party shareholders in exchange for 110,000 shares in Vringo.

 

Prior to December 31, 2013, we operated a global platform for the distribution of mobile social applications and services. On February 18, 2014, we sold our mobile social application business to InfoMedia Services Limited (“InfoMedia”), receiving an 8.25% ownership interest in InfoMedia as consideration and a seat on the board of directors of InfoMedia. As part of the transaction, we have the opportunity to license certain intellectual property assets and work with InfoMedia to identify and protect new intellectual property.

24

 

Segments

 

We operate in three operating segments: Intellectual Property, FliGroup Mobile, FLI Charge and Group Mobile.intellectual property.

 

Our Strategy and Outlook

 

Our strategy for our Intellectual Property operating segment is to continue to monetize our existing portfolio of intellectual property through licensing and strategic partnerships. In addition, we plan to continue to enhance our intellectual property rights around our Fli Charge technology and products.Fli Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers.Group Mobile is a supplier of built-to-order rugged computers, mobile devices and accessories. We plan to increase Group Mobile’s revenue, which we believe can be achieved by adding new products, exploring new distribution verticals, such as military and government, and increasing the sales team’s geographic coverage.

18

Intellectual Property

In addition, we plan to continue to enhance our intellectual property rights around our FLI Charge technology and products.FLI Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers. Our Intellectual Propertystrategy for our intellectual property operating segment is engaged in the innovation, development and monetizationto continue to monetize our existing portfolio of intellectual property. Our portfolio consists of over 600 patents and patent applications covering telecom infrastructure, internet search, ad-insertion and mobile technologies.

We are currently focused on monetizing our technology portfolioproperty through a variety of value enhancing initiatives, including, but not limited to licensing litigation and strategic partnerships. For further information regarding our intellectual property enforcement activities, refer to Part II, Item 1, Legal Proceedings, in this Quarterly Report on Form 10-Q.

Fli Charge

Fli Charge is a wire-free power company dedicated to making it easier for people to power and charge the multitude of mobile electronic devices they use on a daily basis. By eliminating the need to search and compete for outlets and charging cables, we are improving the powering and charging experience for all battery and DC powered devices.

Fli Charge designs, develops, licenses, manufactures and markets wire-free conductive power and charging solutions. Fli Charge is currently working with partners in several verticals to bring products to market. These verticals include education, office, hospitality, automotive and consumer electronics among others. To date, we have not yet generated any substantial revenue from our products. We believe that Fli Charge’s patented technology is the only wire-free power solution that is fully interoperable between different mobile devices ranging from smartphones to power tools, and many more. Fli Charge’s wire-free power solution can simultaneously power multiple devices on the same pad no matter their power requirements or positions on the pad.

The Fli Charge ecosystem consists of power pads or surfaces as well as devices that are connected to or embedded with Fli Charge enabling technology. Fli Charge pads and surfaces are connected to a power source or battery. The surface of the pad has conductive contact strips that provide power and are constantly monitored by control circuitry that immediately halts power transfer if an unapproved load or short-circuit condition is detected. Fli Charge-enabled devices are embedded with the Fli Charge contact enablement that consists of four contact points, known as the Fli Charge “constellation.” The constellation is designed to make an immediate and continuous electrical connection with the contact strips regardless of the device’s orientation on the pad. The enablement monitors the power coming from the pad and ensures that the correct amount of power goes to the device. Once an approved Fli Charge device is placed on a pad, power is transferred immediately to charge or power the device.

There are several competing wire-free charging technologies on the market or under development today. The most popular competing technology is inductive wireless charging, in which magnetic induction uses a magnetic coil to create resonance, which can transmit energy over a relatively short distance. The amount of power delivered is a function of the size of the coils, and the coils must be aligned and paired within a typical distance of less than one inch. Products utilizing magnetic induction have been available for 10+ years in products such as rechargeable electronic toothbrushes and pace makers. The leading inductive technologies deliver a maximum of 10-15 watts. Other competing technologies include magnetic resonance, RF harvesting, laser and ultrasound.

19

As compared to each of the competing wire-free technologies above, we believe that our conductive technology exhibits many competitive advantages including:

charge rates/efficiency – Fli Charge pads charge devices nearly as fast as plugging them into a wall outlet;

multiple devices – Fli Charge pads can charge or power multiple devices at the same time without reducing the charging speed;

safety – Fli Charge’s technology is as safe as plugging devices into a wall outlet;

maximum power – Fli Charge pads can supply as much as 150 watts of power, which is enough to charge or power devices with relatively high power requirements such as power tool batteries and flat screen monitors;

positioning freedom – Fli Charge’s technology allows for devices to be placed in any orientation, anywhere on the pad, without sacrificing any charging speed; and

compatibility – all Fli Charge enabled electronic devices are compatible with all Fli Charge pads.

 

Group Mobile

 

Group Mobile is a growing and innovative full, end-to-end solution provider of rugged, mobilefor project lifecycle services including system integration, hardware service support, pre- and field-use computing products, serving customers worldwide.post-deployment and customer support helpdesk. Group Mobile provides total hardware solutions, carryingincluding rugged laptops, tablets, and handheld computers. Group Mobile also markets rugged mobile printers, vehicle computer docking and mounting gear, power accessories, wireless communication products, antennas, carrying cases and all theother peripherals, accessories and add-ons needed to maximize productivity in a mobile- or field-computing environment. Group Mobile’s professional service offerings are evolving into project lifecycle services including technology consultations, development and deployment, project and asset management, equipment installation, break-fix, hardware service technical support, 24-7 helpdesk and more.

Group Mobile operates a full-service e-commerce website with live chat, up-to-date product information,is moving aggressively to provide industry leading Law Enforcement In-Vehicle “Video and computer system configuration capabilities.Body Worn” camera solutions to meet the complex mobile technology demands of thousands of law enforcement agencies and officers in the United States (“U.S.”) market. Key to the Group Mobile long-term strategy is the complete professional services, post deployment services and lifecycle management of Group Mobile offerings to bring stability to the customer mobile technology platforms.

 

Group Mobile purchases rugged mobile computing equipment and complementary products from its primary distribution and manufacturing partners and sells them to enterprise, reseller,enterprises, resellers, and retail customers. Our primary customers range from corporations to local governments, emergency first responders and healthcare organizations. We believe that Group Mobile’s business is characterized by gross profits as a percentage of revenue slightly higher than is commonly found in resellers of computing devices. The market for rugged mobile computing products is trending towards an increase in the volume of unit sales combined with declining unit prices as the business transitions from primarily being comprised of laptops to one primarily comprised of rugged tablets. As this transition has occurred, Group Mobile is seeing shortened product life cycles and industry specific devices for segments such as healthcare. Group Mobile sets sale prices based on the market supply and demand characteristics for each particular product. Group Mobile is highly dependent on the end-market demand for rugged mobile computing products, which is influenced by many factors including the introduction of new IT products by OEM, replacement cycles for existing rugged mobile computing products, overall economic growth, local and state budgets, and general business activity.

 

Product costs represent the single largest expense and product inventory is one of the largest working capital investments for Group Mobile. Group Mobile’s primary suppliers include Synnex Corporation, Ingram Micro Inc., and Xplore Technologies Corporation, Flextronics International Ltd. and Trimble Navigation Ltd., which, combined, represent approximately 80% of Group Mobile’s inventory purchases. We have reseller agreements with most of our OEM and distribution partners. These agreements usually provide for nonexclusive resale and distribution rights. The agreements are generally short-term, subject to periodic renewal, and often contain provisions permitting termination by either our supplier or us without cause upon relatively short notice. Furthermore, product procurement from the OEM suppliers is a highly complex process and as such, efficient and effective purchasing operations are critical to Group Mobile’s success.

FLI Charge

FLI Charge is a wireless power company dedicated to making it easier for people to power and charge the multitude of mobile electronic devices they use on a daily basis. By eliminating the need to search and compete for outlets and charging cables, we are improving the powering and charging experience for all battery and DC powered devices.

FLI Charge designs, develops, licenses, manufactures and markets wireless conductive power and charging solutions. FLI Charge is currently working with partners in several verticals to bring products to market. These verticals include education, office, hospitality, automotive and consumer electronics among others. To date, we have not yet generated any substantial revenue from our products. We believe that FLI Charge’s patented technology is the only wireless power solution that is fully interoperable between different mobile devices ranging from smartphones to power tools, and many more. FLI Charge’s wireless power solution can simultaneously power multiple devices on the same pad no matter their power requirements or positions on the pad.

25

The FLI Charge ecosystem consists of power pads or surfaces as well as devices that are connected to or embedded with FLI Charge enabling technology. FLI Charge pads and surfaces are connected to a power source or battery. The surface of the pad has conductive contact strips that provide power and are constantly monitored by control circuitry that immediately halts power transfer if an unapproved load or short-circuit condition is detected. FLI Charge-enabled devices are embedded with the FLI Charge contact enablement that consists of four contact points, known as the FLI Charge “constellation.” The constellation is designed to make an immediate and continuous electrical connection with the contact strips regardless of the device’s orientation on the pad. The enablement monitors the power coming from the pad and ensures that the correct amount of power goes to the device. Once an approved FLI Charge device is placed on a pad, power is transferred immediately to charge or power the device.

There are several competing wireless charging technologies on the market or under development today. The most popular competing technology is inductive wireless charging, in which magnetic induction uses a magnetic coil to create resonance, which can transmit energy over a relatively short distance. The amount of power delivered is a function of the size of the coils, and the coils must be aligned and paired within a typical distance of less than one inch. Products utilizing magnetic induction have been available for 10+ years in products such as rechargeable electronic toothbrushes and pace makers. The leading inductive technologies deliver a maximum of 10-15 watts. Other competing technologies include magnetic resonance, RF harvesting, laser and ultrasound.

As compared to each of the competing wireless technologies above, we believe that our conductive technology exhibits many competitive advantages including:

charge rates/efficiency – FLI Charge pads charge devices nearly as fast as plugging them into a wall outlet;

multiple devices – FLI Charge pads can charge or power multiple devices at the same time without reducing the charging speed;

safety – FLI Charge’s technology is as safe as plugging devices into a wall outlet;

maximum power – FLI Charge pads can supply as much as 150 watts of power, which is enough to charge or power devices with relatively high power requirements such as power tool batteries and flat screen monitors;

positioning freedom – FLI Charge’s technology allows for devices to be placed in any orientation, anywhere on the pad, without sacrificing any charging speed; and

compatibility – all FLI Charge enabled electronic devices are compatible with all FLI Charge pads.

FLI Charge launched its consumer product line on Indiegogo, a crowdfunding platform, on June 15, 2016; the campaign was ongoing as of June 30, 2016, at which time funds raised from the crowdfunding campaign was $177,000. FLI Charge expects to deliver products to the participants in the fourth quarter of 2016.

Intellectual Property

Our intellectual property operating segment is engaged in the innovation, development and monetization of intellectual property. Our portfolio consists of over 600 patents and patent applications covering telecom infrastructure, internet search, ad-insertion and mobile technologies.

We are currently focused on monetizing our technology portfolio through a variety of value enhancing initiatives including, but not limited to, licensing, litigation and strategic partnerships. For further information regarding our intellectual property enforcement activities, refer to Part II, Item 1, Legal Proceedings, in this Quarterly Report on Form 10-Q.

26

  

Recent Developments

 

Senior Secured NotesName Change

 

On March 9,May 6, 2016, we entered into an exchange note agreement (the “Exchange Note Agreement”) withchanged the holders (the “Investors”)name of our $12,500,000 Senior Convertible Notes (the “Notes”company from Vringo, Inc. to FORM Holdings Corp. (“FORM” or the “Company”), which we originally issued in and concurrently announced our repositioning as a registered direct offeringholding company of small and middle market growth companies. Our focus is on May 4, 2015. Pursuantacquiring and building companies that would benefit from:

additional capital
exposure to visibility from the public markets
talent recruiting
rebranding and
implementation of best practices.

Our management team is committed to execute on our strategy. We are industry agnostic, but limit the Exchange Note Agreement, we issued to the Investors an aggregate of 703,644 sharesscope of our common stock, par value $0.01 per share,pipeline by looking only at companies with a clear path to grow in exchangeexcess of $100,000,000 in revenue.

Impairment of Patents

Our name change and repositioning as a holding company was deemed a triggering event, which required our patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the reduction of $1,267,000 of the outstanding aggregate principal amount of the Notes and $49,000 of accrued interest.patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the outstanding aggregate principal amount undercarrying value of the Notes was reduced from $3,016,000asset group. Accordingly, we performed the second step of the impairment test to $1,749,000measure the potential impairment by calculating the asset group’s fair value as of March 9,May 6, 2016.

In addition, As a result, following amortization for the month of April, we recorded an impairment charge of $11,937,000, which resulted in a new carrying value of $1,526,000 on March 9, 2016, withMay 6, 2016. Following the consent of each ofimpairment, we reevaluated the Investors, we agreed to amendremaining useful life and concluded that there were no changes in the Notes. Pursuant to the Amended and Restated Senior Secured Notes (the “Amended Notes”) and the Indenture dated May 4, 2015, as supplemented by a First Supplemental Indenture dated May 4, 2015 and further supplemented by a Second Supplemental Indenture (the “Second Supplemental Indenture”) dated March 9, 2016: (i) the Amended Notes are no longer convertible into shares of our common stock and will be payable by us on the Maturity Date (as defined below) in cash only, (ii) the Maturity Date of the Amended Notes will extend to June 30, 2017 (the “Maturity Date”), (iii) we will discontinue the payment of principal prior to the Maturity Date (subject to certain exceptions), (iv) the interest rate increased from 8% to 10% per annum and will accrue on the outstanding aggregate principal amount of the Amended Notes, payable monthly, and (v) we will pay to the Investors on the Maturity Date 102% of the outstanding aggregate principal amount of the Amended Notes. We also agreed to maintain a cash balance (including cash equivalents) of not less than $2,900,000.

In addition, we agreed to reduce the exercise price of the warrants to purchase an aggregate of 537,500 shares of our common stock granted as part of the initial agreement (the “May 2015 Warrants”) from $10.00 to $3.00 per share and the parties also agreed to remove from the May 2015 Warrants certain anti-dilution features. Other terms of the May 2015 Warrants remained the same. Furthermore, in connection with the Amended Notes, we paid a restructuring fee of $50,000 to the Investors.

estimated useful life.

 

Shareholder Rights Plan

On March 18, 2016, we announced that our Board of Directors adopted a shareholder rights plan in the form of a Section 382 Rights Agreement designed to preserve our tax assets. As a part of the plan, our Board of Directors declared a dividend of one preferred-share-purchase right for each share of our common stock outstanding as of March 29, 2016. Effective on March 18, 2016, if any group or person acquires 4.99% or more of our outstanding shares of common stock, or if a group or person that already owns 4.99% or more of our common stock acquires additional shares representing 0.5% or more of our common stock, then, subject to certain exceptions, there would be a triggering event under the plan. The rights would then separate from our common stock and would be adjusted to become exercisable to purchase shares of our common stock having a market value equal to twice the purchase price of $9.50, resulting in significant dilution in the ownership interest of the acquiring person or group. Our Board of Directors has the discretion to exempt any acquisition of our common stock from the provisions of the plan and has the ability to terminate the plan prior to a triggering event. In connection with this plan, we filed a Certificate of Designation of Series C Junior Preferred Stock with the Secretary of State of the State of Delaware on March 18, 2016.

 

Senior Secured Notes

20

 

On March 9, 2016, we entered into an exchange note agreement (the “Exchange Note Agreement”) with the holders (the “Investors”) of our $12,500,000 Senior Secured Notes (the “Notes”), which we originally issued in a registered direct offering on May 4, 2015. Pursuant to the Exchange Note Agreement, we issued to the Investors an aggregate of 703,644 shares of our common stock, par value $0.01 per share, in exchange for the reduction of $1,267,000 of the outstanding aggregate principal amount of the Notes and $49,000 of accrued interest. As a result, the outstanding aggregate principal amount under the Notes was reduced from $3,016,000 to $1,749,000 as of March 9, 2016.

In addition, on March 9, 2016, with the consent of each of the Investors, we agreed to amend the Notes. Pursuant to the Amended and Restated Senior Secured Notes (the “Amended Notes”) and the Indenture dated May 4, 2015, as supplemented by a First Supplemental Indenture dated May 4, 2015 and further supplemented by a Second Supplemental Indenture (the “Second Supplemental Indenture”) dated March 9, 2016: (i) the Amended Notes are no longer convertible into shares of our common stock and will be payable by us on the Maturity Date (as defined below) in cash only, (ii) the Maturity Date of the Amended Notes will extend to June 30, 2017 (the “Maturity Date”), (iii) we will discontinue the payment of principal prior to the Maturity Date (subject to certain exceptions), (iv) the interest rate increased from 8% to 10% per annum and will accrue on the outstanding aggregate principal amount of the Amended Notes, payable monthly, and (v) we will pay to the Investors on the Maturity Date 102% of the outstanding aggregate principal amount of the Amended Notes. We also agreed to maintain a cash balance (including cash equivalents) of not less than $2,900,000.

In addition, we agreed to reduce the exercise price of the warrants to purchase an aggregate of 537,500 shares of our common stock granted as part of the initial agreement (the “May 2015 Warrants”) from $10.00 to $3.00 per share and the parties also agreed to remove from the May 2015 Warrants certain anti-dilution features. Other terms of the May 2015 Warrants remained the same. Furthermore, in connection with the Amended Notes, we paid a restructuring fee of $50,000 to the Investors.

On July 1, 2016, we prepaid in full our Amended Notes that were due on June 30, 2017. As required by the terms of the Amended Notes, notice of prepayment was delivered to the Investors on June 30, 2016. We repaid the Amended Notes in full, including repayment of the principal and accrued interest as well as an additional 15% for early repayment. We used an aggregate of $2,011,000 of cash on hand for repayment of the Amended Notes. As a result of the repayment in full of the Amended Notes, all liens on our assets, including intellectual property, were released by the Investors.

Reverse Stock Split

 

On November 27, 2015, we implementedUnless otherwise noted, the information contained in this Quarterly Report on Form 10-Q gives effect to a one-for-ten reverse split of our issued and outstanding shares of common stock (the "Reverse Stock Split"), as authorized at a special meeting of our stockholders held on November 16, 2015. The Reverse Stock Split became effective at the opening of trading on NASDAQ on November 27, 2015. As of November 27, 2015, every 10 shares of our issued and outstanding common stock were combined into one sharesplit of our common stock except to the extent that the Reverse Stock Split resulted in any of our stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the nominal par value per share of $0.01.

All references to number of shares of common stock, price per share and weighted average shares of common stock have been adjusted to reflect the Reverse Stock Spliteffected on November 27, 2015 on a retroactive basis for all periods presented, unless otherwise noted.presented.

27

  

Results of Operations

 

Revenue

Revenue from patent licensing and enforcement is recognized if collectability is reasonably assured, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. We use management's best estimate of selling price for individual elements in multiple-element arrangements, where vendor specific evidence or third party evidence of selling price is not available.

Currently, revenue arrangements related to intellectual property provide for the payment of contractually-determined fees and other consideration for the grant of certain intellectual property rights related to our patents. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patents, (ii) the release of the licensee from certain claims, and (iii) the dismissal of any pending litigation. The intellectual property rights granted typically extend until the expiration of the related patents. Pursuant to the terms of these agreements, we have no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on our part to maintain or upgrade the related technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the upfront payment. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, upon receipt of the upfront fee, and when all other revenue recognition criteria have been met.

We record revenue from the product sales of Fli Charge and Group Mobile when title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Our shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the customer. At the time of sale of hardware products, we record an estimate for sales returns and allowances based on historical experience. Hardware products sold by us are warranted by the vendor.

Group Mobile uses drop-shipment arrangements with many of its hardware vendors and suppliers to deliver products directly to customers. Revenue for drop-shipment arrangements is recorded on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. Revenue is recognized on a gross basis as Group Mobile is the principal in the transaction as the primary obligor in the arrangement, assumes the inventory risk if the product is returned by the customer, sets the price of the product to the customer, assumes credit risk for the amounts invoiced, and works closely with the customers to determine their hardware specifications.

Freight billed to customers is recognized as net product revenue and the related freight costs as a cost of goods sold.

Deferred revenue includes payments received from customers in advance of providing the product.

Operating legal costs

Operating legal costs mainly include expenses incurred in connection with our patent licensing and enforcement activities, patent-related legal expenses paid to external patent counsel (including contingent legal fees), licensing and enforcement related research, consulting and other expenses paid to third parties, as well as related internal payroll expenses and stock-based compensation. In addition, amounts received by us for reimbursements of legal fees in connection with our litigation campaigns are recorded in operating legal costs as an offset to legal expense.

Amortization of intangibles

Amortization of our acquired patent portfolios and other intangible assets is recognized on a straight-line basis over the remaining useful life of the intangible assets (i.e., through the expiration date of the patent).

General and administrative expenses

General and administrative expenses include management and administrative personnel, public and investor relations, overhead/office costs and various professional fees, as well as insurance, non-operational depreciation and amortization.

21

Non-operating income (expenses)

Non-operating income (expenses) includes transaction gains (losses) from foreign exchange rate differences, interest on the Notes, deposits, bank charges, as well as fair value adjustments related to our derivative warrant liabilities and conversion feature. The value of such derivative liabilities is highly influenced by assumptions used in its valuation, as well as by our stock price at the period end (revaluation date).

Income taxes

As of March 31, 2016, deferred tax assets generated from our U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in our estimation, is not more likely than not to be generated before such net operating loss carryforwards expire.

We did not have any material unrecognized tax benefits as of March 31, 2016. We do not expect to record any additional material provisions for unrecognized tax benefits within the next year.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance. We conduct our business through three operating segments, which are also our reportable segments: Intellectual Property, Fli Charge and Group Mobile.

Organizing our business through three operating segments allows us to align our resources and manage the operations. We determine our operating segments based on a number of factors our management uses to evaluate and run our business operations, including similarities of customers, products and technology. Our Chief Executive Officer is our CODM, who regularly reviews operating segment revenue and operating income (loss) when assessing financial results of operating segments and allocating resources.

We measure the performance of our operating segments based upon operating segment revenue and operating income (loss). Operating segment operating income (loss) includes revenue and expenses incurred directly by the operating segment, including material legal costs, cost of goods sold, selling, marketing, and administrative expenses. All corporate overhead expenses have been allocated into the Intellectual Property operating segment. No revenue from transactions between our operating segments was recorded.

22

Three monthThree-month period ended March 31,June 30, 2016 compared to the three monththree-month period ended March 31,June 30, 2015

 

Revenue

 

We generate revenue through our three operating segments: Intellectual Property,FliGroup Mobile, FLI Charge and Group Mobileintellectual property.

 

  Three months ended March 31, 
  2016  2015  Change 
Intellectual Property $750,000  $150,000  $600,000 
Fli Charge  17,000      17,000 
Group Mobile  1,277,000      1,277,000 
Total Revenue $2,044,000  $150,000  $1,894,000 
  Three months ended June 30, 
  2016  2015  Change 
Licensing revenue $8,912,000  $  $8,912,000 
Product revenue  2,450,000      2,450,000 
Total revenue $11,362,000  $  $11,362,000 

 

During the three monththree-month period ended March 31,June 30, 2016, we recorded total revenue of $2,044,000, which represents an increase of $1,894,000 (or 1,262.7%) compared to$11,362,000. There was no revenue recognized for the three monththree-month period ended March 31,June 30, 2015. The increase was attributable to each of our operating segments. Our Intellectual PropertyGroup Mobile recognized $2,450,000 of product revenue, FLI Charge recognized $12,000 of licensing revenue in connection with an ongoing license agreement with a customer, and our intellectual property operating segment experiencedrecognized a $600,000 increase for the amount receivedone-time lump sum payment of $8,900,000 in connection with an executed confidential license agreement for a total of $750,000 and our Fli Charge and Group Mobile operating segments combined for total product revenue of $1,294,000.agreement. We did not recognize any revenue from Fli Charge orgenerated by Group Mobile or FLI Charge prior to their acquisition on October 15, 2015. During the three month period ended March 31, 2015, we recorded total licensing revenue of $150,000 for our Intellectual Property segment, which was due to a one-time payment in connection with a settlement and license agreement for certain of our owned intellectual property.

 

We intend to continue to monetize our existing portfolio of intellectual property through licensing and strategic partnerships. In addition, we plan to enhance our intellectual property rights around our Fli Charge technology and products.Fli Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers.We also believe that growth in Group Mobile’s revenue can be achieved by adding new products, exploring new distribution verticals, such as military and government, and increasing the sales team’s geographic coverage.In addition, we plan to enhance our intellectual property rights around our FLI Charge technology and products.FLI Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers. We intend to continue to monetize our existing portfolio of intellectual property through licensing and strategic partnerships.

28

 

Cost of goods sold

 

We incur cost of goods sold through two of our operating segments:Fli Charge and Group Mobile and FLI Charge.

 

  Three months ended March 31, 
  2016  2015  Change 
Fli Charge $3,000      3,000 
Group Mobile  1,124,000      1,124,000 
Total cost of goods sold $1,127,000      1,127,000 
  Three months ended June 30, 
  2016  2015  Change 
Cost of goods sold $2,179,000  $  $2,179,000 

 

During the three monththree-month period ended March 31,June 30, 2016, we recorded total cost of goods sold of $1,127,000,$2,179,000, which represents the costs of products sold by Fli Charge and Group Mobile for the period. We did not recognize any cost of goods sold for FliFLI Charge orduring the three-month period ended June 30, 2016 and we did not recognize any expenses incurred by Group Mobile or FLI Charge prior to their acquisition on October 15, 2015. We expect the cost of goods sold to increase over time as we incur the full results of operations of bothFli Charge and Group Mobile in the periods subsequent to the acquisition. We expect our cost of goods sold to increase as our product revenue increases.

 

Operating legal costs

 

We incur operatingOperating legal costs throughrelate to our Intellectual Propertyintellectual property operating segment only.segment.

 

  Three months ended March 31, 
  2016  2015  Change 
Operating legal costs $720,000  $3,101,000  $(2,381,000)

  Three months ended June 30, 
  2016  2015  Change 
Operating legal costs $4,243,000  $5,464,000  $(1,221,000)

During the three monththree-month period ended March 31,June 30, 2016, our operating legal costs were $720,000,$4,243,000, which represents a decrease of $2,381,000$1,221,000 (or 76.8%22.3%) from operating legal costs recorded for the three monththree-month period ended March 31,June 30, 2015. This decrease was primarily due to the timing and nature of consulting and patent litigation costs related to legal proceedings against ZTE and ASUS, especially as costs pertaining to our ZTE campaign declined significantly following the execution of the confidential settlement and license agreement in December 2015.

Costs in 2016 also include royalty expenses to a previous owner of some of our patents.

 

We expect that our legal costs will continue to significantly decrease over time.

23

Amortization and impairment of intangiblesintangible assets

 

  Three months ended March 31, 
  2016  2015  Change 

Amortization of intangibles

 $851,000  $804,000  $47,000 
  Three months ended June 30, 
  2016  2015  Change 
Amortization and impairment of intangible assets $12,350,000  $813,000  $11,537,000 

 

During the three monththree-month period ended March 31,June 30, 2016, amortization expenseand impairment expenses related to our intangible assets totaled $851,000,$12,350,000, which represents an increase of $47,000$11,537,000 (or 5.8%1,419.1%), compared to the amortization expense recorded during the three monththree-month period ended March 31,June 30, 2015. There was no impairment expense recorded during the three-month period ended June 30, 2015. The increase in amortization expense was due to the additionimpairment of our patents asset group.

During the three-month period ended June 30, 2016, we determined that there were impairment indicators related to certain of our patents. A significant factor considered when making this determination occurred on May 6, 2016, when we changed the name of our company from “Vringo, Inc.” to “FORM Holdings Corp.” and concurrently announced our repositioning as a holding company of small and middle market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value as of May 6, 2016. As a result, following amortization for the month of newly acquiredApril, we recorded an impairment charge of $11,937,000, or 88.7% of the carrying value of the patents prior to impairment, which resulted in a new carrying value of $1,526,000 on May 6, 2016. Following the impairment, we reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of our other amortizable intangible assets identified in our acquisition of IDG on October 15, 2015.during the three-month period ended June 30, 2016.

29

General and administrative

 

  Three months ended March 31, 
  2016  2015  Change 
General and administrative $2,952,000  $2,998,000  $(46,000)
  Three months ended June 30, 
  2016  2015  Change 
General and administrative $3,305,000  $2,298,000  $1,007,000 

 

During the three monththree-month period ended March 31,June 30, 2016, general and administrative expenses decreasedincreased by $46,000$1,007,000 (or 1.5%43.8%), to $2,952,000,$3,305,000, compared to $2,998,000$2,298,000 that was recorded during the three monththree-month period ended March 31,June 30, 2015. The overall decreaseincrease was primarily a direct result of our acquisition of Group Mobile and FLI Charge on October 15, 2015. Following the acquisition, we experienced increases in salaries and benefits due to our expanded workforce, advertising and marketing for Group Mobile and FLI Charge’s product lines, and product development as we continue to develop and improve FLI Charge’s product line. Additionally, we experienced an increase in legal and consulting costs related to potential acquisitions resulting from our repositioning to a holding company of small and middle market growth companies. These increases in general and administrative expenses were offset by a decrease in stock-based compensation expense, of approximately $1,159,000, which was a result of many of the equity awards granted in 2012 and 2013 becoming fully vested during the latter half of 2015.

Non-operating expense, net

  Three months ended June 30, 
  2016  2015  Change 
Non-operating income (expense), net $(92,000) $66,000  $(158,000)

During the three-month period ended June 30, 2016, we recorded net non-operating expense in the amount of $92,000 compared to net non-operating income in the amount of $66,000 recorded during the three-month period ended June 30, 2015.

For the three-month period ended June 30, 2016, we recorded interest expense of $272,000 for the amortization of the debt discount and debt issuance costs.

The decrease in stock-based compensation expensenon-operating expenses reported during the three-month period ended June 30, 2016 were reduced by a gain of $99,000 on the revaluation of the derivative warrant liabilities related to the Amended Notes.

The total non-operating income, net, of $66,000 for the three-month period ended June 30, 2015 was primarily comprised of a $695,000 gain on the revaluation of warrants and conversion feature related to the Notes offset by increasesinterest expense of $465,000 and loss on extinguishment of debt of $210,000.

Six-month period ended June 30, 2016 compared to the six-month period ended June 30, 2015

Revenue

We generate revenue through our three operating segments:Group Mobile, FLI Charge and intellectual property.

  Six months ended June 30, 
  2016  2015  Change 
Licensing revenue $9,675,000  $150,000  $9,525,000 
Product revenue  3,731,000      3,731,000 
Total Revenue $13,406,000  $150,000  $13,256,000 

During the six-month period ended June 30, 2016, we recorded total revenue of $13,406,000, which represents an increase of $13,256,000 (or 8,837.3%) as compared to $150,000 recorded in the six-month period ended June 30, 2015. The increase was attributable to each of our operating segments. Group Mobile recognized $3,727,000 and FLI Charge recognized $4,000 of product revenue, FLI Charge also recognized $25,000 of licensing revenue in connection with an ongoing license agreement with a customer, and our intellectual property operating segment recognized $9,650,000 of revenue for the amounts received in connection with two separate executed confidential license agreement. We did not recognize any revenue generated by Group Mobile or FLI Charge prior to their acquisition on October 15, 2015. Revenue during the six-month period ended June 30, 2015 of $150,000 was due to a one-time payment in connection with a license and settlement agreement for certain of our owned intellectual property.

30

We believe that growth in Group Mobile’s revenue can be achieved by adding new products, exploring new distribution verticals, such as military and government, and increasing the sales team’s geographic coverage.In addition, we plan to enhance our intellectual property rights around our FLI Charge technology and products.FLI Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers. We intend to continue to monetize our existing portfolio of intellectual property through licensing and strategic partnerships.

Cost of goods sold

We incur cost of goods sold through two of our operating segments:Group Mobile and FLI Charge.

  Six months ended June 30, 
  2016  2015  Change 
Cost of goods sold $3,306,000  $���  $3,306,000 

During the six-month period ended June 30, 2016, we recorded total cost of goods sold of $3,306,000, which mainly represents the costs of products sold by Group Mobile during the period. We did not recognize any cost of goods sold for Group Mobile or FLI Charge prior to their acquisition on October 15, 2015. We expect the cost of goods sold to increase over time as our product revenue increases.

Operating legal costs

Operating legal costs relate to our intellectual property operating segment.

  Six months ended June 30, 
  2016  2015  Change 
Operating legal costs $4,963,000  $8,565,000  $(3,602,000)

During the six-month period ended June 30, 2016, our operating legal costs were $4,963,000, which represents a decrease of $3,602,000 (or 42.1%) from operating legal costs recorded for the six months ended June 30, 2015. This decrease was primarily due to the timing and nature of consulting and patent litigation costs related to legal proceedings against ZTE and ASUS, especially as costs pertaining to our ZTE campaign declined significantly following the execution of the confidential settlement and license agreement in December 2015. Costs in 2016 also include royalty expenses to a previous owner of some of our patents.

We expect that our legal costs will continue to significantly decrease over time.

Amortization and impairment of intangible assets

  Six months ended June 30, 
  2016  2015  Change 
Amortization and impairment of intangible assets $13,201,000  $1,617,000  $11,584,000

During the six-month period ended June 30, 2016, amortization and impairment expenses related to our intangible assets totaled $13,201,000, which represents an increase of $11,584,000 (or 716.4%) compared to the amortization expense of $1,617,000 recorded during the six-month period ended June 30, 2015. There was no impairment expense recorded during the six-month period ended June 30, 2015. The increase was due to the impairment of our patents asset group.

31

During the six-month period ended June 30, 2016, we determined that there were impairment indicators related to certain of our patents. A significant factor considered when making this determination occurred on May 6, 2016, when we changed the name of our company from “Vringo, Inc.” to “FORM Holdings Corp.” and concurrently announced our repositioning as a holding company of small and middle market growth companies. We concluded that this factor was deemed a “triggering” event, which required the related patent assets to be tested for impairment. In performing this impairment test, we determined that the patent portfolios, which together represent an asset group, were subject to impairment testing. In the first step of the impairment test, we utilized our projections of future undiscounted cash flows based on our existing plans for the patents. As a result, it was determined that our projections of future undiscounted cash flows were less than the carrying value of the asset group. Accordingly, we performed the second step of the impairment test to measure the potential impairment by calculating the asset group’s fair value as of May 6, 2016. As a result, following amortization for the month of April, we recorded an impairment charge of $11,937,000, or 88.7% of the carrying value of the patents prior to impairment, which resulted in a new carrying value of $1,526,000 on May 6, 2016. Following the impairment, we reevaluated the remaining useful life and concluded that there were no changes in the estimated useful life. There were no impairment indicators related to any of our other amortizable intangible assets during the six-month period ended June 30, 2016.

General and administrative

  Six months ended June 30, 
  2016  2015  Change 
General and administrative $6,257,000  $5,296,000  $961,000 

During the six-month period ended June 30, 2016, general and administrative expenses which wereincreased by $961,000 (or 18.1%), to $6,257,000, compared to $5,296,000 that was recorded during the six-month period ended June 30, 2015. The overall increase was primarily a direct result of our acquisition of IDGGroup Mobile and FLI Charge on October 15, 2015, such as2015. Following the acquisition, we experienced increases in salaries and benefits due to our expanded workforce, advertising and marketing for our Fli Charge and Group Mobile operating segments,and FLI Charge’s product lines, and product development as we continue to develop and improve FliFLI Charge’s product line. Additionally, we experienced an increase in legal and consulting costs related to potential acquisitions resulting from our repositioning to a holding company of small and middle market growth companies. These increases in general and administrative expenses were offset by a decrease in stock-based compensation expense, which was a result of equity awards granted in 2012 and 2013 becoming fully vested during the latter half of 2015.

Non-operating expense, net

 

  Three months ended March 31, 
  2016  2015  Change 
Non-operating income (expense), net $(349,000) $(223,000) $(126,000)

Non-operating income (expense), net

  Six months ended June 30, 
  2016  2015  Change 
Non-operating income (expense), net $(441,000) $(157,000) $(284,000)

 

During the three monthsix-month period ended March 31,June 30, 2016, we recorded totalnet non-operating expense net, in the amount of $349,000$441,000 compared to totalnet non-operating expense net, in the amount of $223,000$157,000 recorded during the three monthsix-month period ended March 31,June 30, 2015.

 

For the three monthsix-month period ended March 31,June 30, 2016, we recorded interest expense of $476,000$748,000 for the interest recorded related to the Notes, which includesmonthly interest payments and the amortization of the debt discount amortization ofand debt issuance costs and couponas well as accrued interest calculated using the effective interest method. In addition, we elected to repay principal installments for January and February 2016 in shares of our common stock, which were issued at a discount of 15% to market prices. Thisprices, which resulted in $210,000 recorded as a loss on the extinguishment of debt.

 

The net non-operating expenses reported during the three monthsix-month period ended March 31,June 30, 2016 were reduced by a gain of $270,000$369,000 on the revaluation of the derivative warrant liabilities and conversion feature related to the Amended Notes. Also reducing the current period expense were foreign exchange gains in connection with our deposits with courts.

 

The totalnet non-operating expense net, of $223,000$157,000 for the three monthsix-month period ended March 31,June 30, 2015 was primarily related tocomprised of interest expense of $465,000, loss on extinguishment of debt of $210,000 and foreign exchangeexchanges losses in connection with our deposits with courts. These expenses were partially offset by a $695,000 gain on the revaluation of warrants and conversion feature related to the Notes.

32

We expect that our non-operating income (expense) will remain highly volatile, and we may choose to fund our operations through additional financing. In particular, non-operating income (expense) will be affected by the adjustments to the fair value of our derivative instruments. Fair value of these derivative instruments depends on a variety of assumptions, such as estimations regarding triggering of down-round protection and estimated future share price. An estimated increase in the price of our common stock increases the value of the warrants and thus results in a loss on our statements of operations. In addition, high estimated probability of a down-round protection increases the value of the warrants and again results in a loss on our statements of operations.

 

Liquidity and Capital Resources

 

As of March 31,June 30, 2016, we had a cash balance of $20,560,000,$27,449,000, which represents a decreasean increase of $4,391,000$2,498,000 compared to our cash balance as of December 31, 2015. Of the decrease in liquidity, 45% was due to payments made to litigation vendors for costs incurred during 2015, 5% was due to payments made to general and administrative vendors for services provided during 2015, and approximately 50% was due to cash used in each of our three operating segments, Intellectual Property, Fli Charge, and Group Mobile, during the three month period ended March 31, 2016. We anticipate that our need for capital will continue to decline as litigation costs continue to decline and project-based activities related to the improvement of systems and digital marketing attributed to Group Mobile near completion.completion and litigation costs for our intellectual property operating segment continue to decline. Cash expenditures during the three monthsix-month period ended March 31,June 30, 2016 were offset by cash received for refunds of court fees and our deposits with the courtcourts in Germany, Brazil, and Romania, as well as cash received by our Group Mobile and intellectual property operating segments during the normal course of business.

As of June 30, 2016, all bonds posted with the courts in connection with our litigation with ZTE have been returned back to the Company.

 

Our average monthly net cash spent inprovided by operations for the three month periodssix-month period ended March 31,June 30, 2016 and 2015 was approximately $1,838,000 and $1,167,000, respectively. Cash spent$116,000 compared to net cash used in operations forof approximately $1,285,000 during the three monthsix-month period ended March 31, 2016 included payments of $3,000,000 for litigation activities that have since been withdrawn or dismissed.June 30, 2015.

 

Based on current operating plans, we expect to have sufficient funds for at least the next 12 months and beyond. In addition, we may choose to raise additional funds in connection with potential acquisitions of operating assets, patent portfolios or other businesses that we may pursue. There can be no assurance, however, that any such opportunities will materialize.

In addition, we made deposits with courts during 2015 and 2014 related to our proceedings in Germany, Brazil, Romania and Malaysia. Deposits with courts paid in local currency are remeasured on the balance sheet date based on the related foreign exchange rate on that date. Following the execution of the confidential settlement and license agreement with ZTE on December 7, 2015, we began the process of working to receive refunds from the foreign courts. As of March 31, 2016, our remaining deposits with courts in Romania and Brazil totaled $831,000. As of May 5, 2016 all bonds posted with the courts in connection with our litigation with ZTE have been returned.

24

Our operating plans for our Intellectual Property operating segment include further monetization of our existing portfolio of intellectual property through licensing and strategic partnerships. In addition, we plan to continue to enhance our intellectual property rights around our Fli Charge technology and products.Fli Charge plans to strengthen and develop partnerships in numerous markets including automotive, education, office, healthcare, power tools and vaporizers.We believe that growth in Group Mobile’s revenue can be achieved by adding new products, exploring new distribution verticals, such as military and government, and increasing the sales team’s geographic coverage.

 

On March 9, 2016, pursuant to the Exchange Note Agreement, we issued to the Investors an aggregate of 703,644 shares of our common stock, par value $0.01 per share, in exchange for the reduction of $1,267,000 of the outstanding principal amount of the Notes and $49,000 of accrued interest. As a result, the outstanding aggregate principal amount under the Notes was reduced from $3,016,000 to $1,749,000 as of March 9, 2016.

 

On July 1, 2016, we prepaid in full our Amended Notes that were due on June 30, 2017. As required by the terms of the Amended Notes, notice of prepayment was delivered to the Investors on June 30, 2016. We repaid the Amended Notes in full, including repayment of the principal and accrued interest as well as an additional 15% for early repayment. We used an aggregate of $2,011,000 of cash on hand for repayment of the Amended Notes. As a result of the repayment in full of the Amended Notes, all liens on our assets, including intellectual property, were released by the Investors.

On August 8, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with FHXMS, LLC, a Delaware limited liability company and ones of our wholly-owned subsidiaries (the “Merger Sub”), XpresSpa Holdings, LLC, a Delaware limited liability company (“XpresSpa”), the unitholders of XpresSpa who are parties thereto (the “Unitholders”) and Mistral XH Representative, LLC, as representative of the Unitholders (the “Representative”), pursuant to which the Merger Sub will merge with and into XpresSpa, with XpresSpa being the surviving entity and one of our wholly-owned subsidiaries (the “Surviving Entity”) and the Unitholders becoming our stockholders the “Merger”).

XpresSpa is a leading airport retailer of spa services and related products, and also sells spa products through its internet site. Services and products include: (i) massage services for the neck, back, feet and whole body, (ii) nail care, such as pedicures, manicures and polish changes, (iii) beauty care services such as waxing and facials, (iv) hair care, such as haircuts and blow outs, (v) spa products such as massagers, lotions and aromatherapy aids and (vi) travel products such as neck pillows and eye masks.

Upon completion of the Merger, (i) the then-outstanding common units of XpresSpa (other than those held by us, which will be cancelled without any consideration) and (ii) the then-outstanding preferred units of XpresSpa (other than those held by us, which will be cancelled without any consideration) will be automatically converted into the right to receive an aggregate of:

(a)2,500,000 shares of our common stock, par value $0.01 per share (“FORM Common Stock”),
(b)494,792 shares of our newly designated Series D Convertible Preferred Stock, par value $0.01 per share, (“FORM Preferred Stock”) with an aggregate initial liquidation preference of $23,750,000, and
(c)five-year warrants to purchase an aggregate of 2,500,000 shares of FORM Common Stock, at an exercise price of $3.00 per share, each subject to adjustment in the event of a stock split, dividend or similar events.

The FORM Preferred Stock shall be initially convertible into an aggregate of 3,958,336 shares of FORM Common Stock, which equals a $6.00 per share conversion price, and each holder of FORM Preferred Stock shall be entitled to vote on an as converted basis. The FORM Preferred Stock is senior to the FORM Common Stock and the terms of the FORM Preferred Stock contain no restrictions on our ability to issue additional senior preferred securities or our ability to incur additional preferred securities in the future. We have the right, but not the obligation, upon ten trading days’ notice to convert the outstanding shares of FORM Preferred Stock into FORM Common Stock at the then applicable conversion ratio, at any time or from time to time, if the volume weighted average price per share of the FORM Common Stock exceeds $9.00 for over any 20 days in a 30 consecutive trading day period. The term of the FORM Preferred Stock is seven years, after which time we can repay the holders in shares of FORM Common Stock or cash at our election. FORM Preferred Stock will accrue interest at 9% per annum, or $4.32 per share of FORM Preferred Stock.

In addition, pursuantwe entered into subscription agreements to the Exchange Note Agreement, the Amended Notes are no longer convertible intosell 750,574 shares of our unregistered common stock and we will pay the outstandingto certain holders of XpresSpa, at a purchase price of $2.31 per share, for an aggregate principal amount on the Maturity Date, which was extended to June 30, 2017, in cash only and at ratepurchase price of 102%, which is equal to $1,784,000. The interest rate was increased from 8% to 10% per annum and is payable monthly beginning on April 1, 2016. In addition,$1,734,000.

On August 8, 2016, we agreed to reduce the exercisepurchase from XpresSpa an aggregate of 1,733,826 of Series C Preferred Units of XpresSpa, at a per unit purchase price of $1.00 per unit, for an aggregate purchase price of $1,734,000. The Series C Preferred Units of XpresSpa will have a preference in the May 2015 Warrants from $10.00 to $3.00 per shareamount of its initial investment and shall bear 12% interest until the parties also agreed to certain anti-dilution features. Other termsclosing of the May 2015 Warrants remainedanticipated merger agreement.

Immediately following the same. Furthermore, in connection withcompletion of the Exchange Note Agreement, we paid a restructuring feeMerger (without taking into account any shares of $50,000FORM Common Stock held by XpresSpa equity holders prior to the Investors.completion of the Merger), the former Unitholders of XpresSpa are expected to own approximately 18% of the outstanding FORM Common Stock (or 33% of the outstanding FORM Common Stock calculated on a fully diluted basis) and our current stockholders of the Company are expected to own approximately 82% of the outstanding FORM Common Stock (or 67% of the outstanding FORM Common Stock calculated on a fully diluted basis).

Cash flows

 

  Three months ended March 31, 
  2016  2015  Change 
Net cash used in operating activities $(5,429,000) $(3,502,000) $(1,927,000)
Net cash provided by (used in) investing activities $1,087,000  $(278,000) $1,365,000 
Cash used in financing activities $(50,000) $  $(50,000)

  Six months ended June 30, 
  2016  2015  Change 
Net cash provided by (used in) operating activities $698,000  $(7,713,000) $8,411,000 
Net cash provided by (used in) investing activities $1,850,000  $(287,000) $2,137,000 
Net cash provided by (used in) financing activities $(50,000) $12,207,000  $(12,257,000)

 

25

Operating activities

 

During the three monthsix-month period ended March 31,June 30, 2016, net cash used inprovided by operating activities totaled $5,429,000$698,000 compared to net cash used in operating activities of $3,502,000$7,713,000 during the three monthsix-month period ended March 31,June 30, 2015. The increase of $1,927,000$8,411,000 was mainly due to payments made to vendors, which led to both a significant decrease in accounts payablecash received from our Group Mobile and accrued liabilities and an increase in other current assets inintellectual property operating segments during the current period as compared to the prior period.

normal course of business.

 

Our net cash used in operating activities could increase if we engage in future business development activities. As we expect to move towards greater revenue generation in the future, we expect that these amounts will be offset over time by operating expenses. There is no assurance that our licensing efforts will be successful in the collection of revenue. Therefuture. Furthermore, there is no guarantee that we will generate sufficient revenue to offset future operating expenses and our ability to raise additional capital may be limited.

33

 

Investing activities

 

During the three monthsix-month period ended March 31,June 30, 2016, we received net proceeds of $1,173,000 fromcash provided by investing activities totaled $1,850,000, mainly attributable to the refundrefunds of our deposits with the German, court.Brazilian and Romanian courts. These proceeds were offset by $86,000$151,000 net cash used to acquire software related to Group Mobile’s website. During the three monthsix-month period ended March 31,June 30, 2015, net cash used in investing activities totaled $278,000 and$287,000, which represents the deposit we made to a Romanian court to enforce an injunction against ZTE in Romania.

Romania and the deposit we made in Germany to enforce review of ZTE’s accounting records.

 

We expect that net cash used in investing activities will increase as we intend to continue to acquire additional intellectual property assets and invest surplus cash, according todevelop supporting infrastructure and systems for our investment policy.operating segments.

 

Financing activities

During the three monthsix-month period ended March 31,June 30, 2016, net cash used in financing activities totaled $50,000, which is the amount paid to the Investors related to their expenses incurred as a result of the debt modification. During the three monthsix-month period ended March 31,June 30, 2015, therewe received net proceeds of $12,425,000 from a securities purchase in a registered direct offering of $12,500,000 of Notes and warrants to purchase up to 537,500 shares of our common stock. This amount was no cash providedoffset by or usedthe $218,000 of debt issuance costs that were paid in financing activities.relation to the agreement.

 

A significant portion of our issued and outstanding warrants, for which the underlying shares of common stock held by non-affiliates are freely tradable, are currently “out of the money.” Therefore, the potential of additional incoming funds from exercises by our warrant holders is currently very limited. To the extent that any of our issued and outstanding warrants were “in the money,” it could be used as a source of additional funding if the warrant holders choose to exercise their warrants for cash.

 

We may also choose to raise additional funds in connection with any acquisitions of patent portfolios or other assets patent portfolios or other businesses that we may pursue. There can be no assurance, however, that any such opportunity will materialize. Moreover, any such financing would most likely be dilutive to our current stockholders.

Off-Balance Sheet Arrangements

 

We have no obligations, assets or liabilities whichthat would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

Critical Accounting Estimates

 

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 10, 2016, which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results. While there have been no material changes to our critical accounting policies as to the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

 

Item 3.Item 3.Quantitative and Qualitative Disclosures About Market Risk.

 

Not required as we are a smaller reporting company.

 

Item 4.Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-1513a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q.

 

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31,June 30, 2016, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

On October 15, 2015, we acquired International Development Group Limited (“IDG”).IDG. During the three monthsix-month period ended March 31,June 30, 2016, IDG's processes and systems did not significantly impact internal control over financial reporting at our other subsidiaries.reporting. Our management performed due diligence procedures associated with the acquisition of IDG.

 

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 2634 

 

 

Part II- OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Infrastructure Patents

 

ZTE

 

On December 7, 2015, we entered into the Settlement Agreementa confidential settlement and license agreement (the “Settlement Agreement”) with ZTE Corporation and its affiliates (collectively, “ZTE”), pursuant to which: (i) ZTE paid us a total of $21,500,000, net of all withholding, value added or other taxes; (ii) the parties withdrew all pending litigations and proceedings against each other including the litigations related to ZTE’s breach of its non-disclosure agreement with Vringo;us; and (iii) we granted ZTE certain rights with respect to our patents including a non-exclusive, non-transferable, worldwide perpetual license to certain of our owned patents and patent applications.

 

Pursuant to the Settlement Agreement, the parties have taken steps to withdraw all pending litigations and proceedings against one another. To date, proceedings in Romania have yet to be formally closed, though the parties are currently working together to cause those proceedings to be formally closed.

 

In several jurisdictions, though ZTE requested that government organizations close proceedings against Vringo,FORM, those organizations make such determinations on their own volition. In China, ZTE requested that the National Developmental and Reform Commission (“NDRC”) conclude its investigation against Vringo;FORM; however, the NDRC has not yet closed its investigation. In addition, ZTE requested that the European Commission close its file on Vringo following ZTE’s withdrawal of its complaint against Vringo. On February 1, 2016, the European Commission confirmed that it would close its file on ZTE’s complaint against Vringo.

 

In addition, in China and the Netherlands, VringoFORM continues to appeal patent invalidity rulings issued in connection with proceedings originally brought by ZTE. In each instance, ZTE has indicated that it will not oppose Vringo’sFORM’s appeals, though VringoFORM must still plead its case before the respective adjudicatory body in each jurisdiction. In addition, the European Patent Office has not yet dismissed an opposition action filed on one of Vringo’s recently issued European patents, and has requested that Vringo defend this action even though ZTE has indicated that it would not continue to pursue the action.

 

ASUS

 

VringoFORM had filed patent infringement lawsuits against ASUSTeK Computer Inc. and its subsidiaries (collectively, “ASUS”) in Germany, India, and Spain. In March 2016, the parties settled their disputes and ended all litigations between them.

In Germany, on January 22, 2015, the Düsseldorf Regional Court found that ASUS does not infringe either of the patents-in-suit. Vringo filed notices of appeal for each patent. ASUS filed nullity suits with respect to those patents-in-suit However, Google, Inc. (“Google”) intervened as a party in the Federal Patents Court in Munich, Germany, during the second quarter of 2014. On January 28, 2016, the Court found one of the patents-in-suit invalid. In March 2016, the parties have withdrawn all cases rendering the nullity rulings without legal effect.

Vringo’s suit against ASUS has been settled and a formal dismissal is pending before the High Court of Delhi, New Delhi.

In Spain, Vringo awaits the ruling of the Commercial Court of Barcelona in Vringo’s lawsuit against ASUS, alleging infringement of one of same patents-in-suit in Vringo’sFORM’s litigation against ASUS in Germany. On February 4, 2016,India, and, notwithstanding the Court held its hearing in ASUS’ lawsuit seeking to invalidate that same patent and on March 1, 2016, the Court found the patent invalid and later in March Vringo appealed the ruling. Both Vringosettlement between FORM and ASUS, withdrew all claims in Spainthe lawsuit remains pending with respect to FORM and ASUS will not be contesting Vringo’s appealGoogle.

Confidential License Agreement

On April 25, 2016, we entered into a Confidential License Agreement (the “License Agreement”). Pursuant to the terms of the nullity finding.License Agreement, the licensee paid us a one-time lump sum payment of $8,900,000 on May 30, 2016. As a result, we granted to the licensee a non-exclusive, non-transferable, worldwide perpetual license to certain patents and patent applications we own.

 

Content Distribution

 

In 2012, we purchased a portfolio of patents invented by Tayo Akadiri relating to content distribution. The portfolio includes seven patents as well as several pending patent applications. As one of the means of realizing the value of these patents, on October 20, 2015, we filed suit against DirecTV in the United States District Court for the Southern District of New York.

On May 25, 2016, Iron Gate Security, Inc. (“Iron Gate”), one of our subsidiaries, filed a Second Amended Complaint (the “Complaint”) against Lowe’s Companies, Inc. (“Lowe’s”) in the U.S. District Court for the Southern District of New York. In the Complaint, Iron Gate alleged that Lowe’s infringes U.S. Patent No. 7,203,693 (“the ’693 Patent”). On June 13, 2016, Lowe’s filed a motion to dismiss under 35 U.S.C. Section 101 asserting that the claims of the ‘693 Patent were directed to subject matter that was not patentable. On July 27, 2016, the Court held a hearing on the motion and, on August 3, 2016, the Court denied Lowe’s motion.

 

Item 1A. Risk Factors.

 

There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015, except as follows:

35

 

Anti-takeover provisions of Delaware law, provisions in our charter and bylaws and our stockholder rights plan could delay, discourage or make more difficult a third-party acquisition of control of us.

We are a Delaware corporation and, as such, certain provisions of Delaware law could delay, discourage or make more difficult a third-party acquisition of control of us, even if the change in control would be beneficial to stockholders or the stockholders regard it as such. We are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which prohibits certain “business combination” transactions (as defined in Section 203) with an “interested stockholder” (defined in Section 203 as a 15% or greater stockholder) for a period of three years after a stockholder becomes an “interested stockholder,” unless the attaining of “interested stockholder” status or the transaction is pre-approved by our Board of Directors, the transaction results in the attainment of at least an 85% ownership level by an acquirer or the transaction is later approved by our Board of Directors and by our stockholders by at least a 66 2/3 percent vote of our stockholders other than the “interested stockholder,” each as specifically provided in Section 203. We have also adopted a shareholder rights plan in the form of a Section 382 Rights Agreement (the “NOL rights plan”), designed to help protect and preserve our substantial tax attributes primarily associated with our NOLs and research tax credits under Sections 382 and 383 of the Internal Revenue Code and related U.S. Treasury regulations. Although this is not the purpose of the NOL rights plan, it could have the effect of making it uneconomical for a third party to acquire us on a hostile basis.

 

These provisions of the DGCL, our certificate of incorporation and bylaws, and the NOL rights plan may delay, discourage or make more difficult certain types of transactions in which our stockholders might otherwise receive a premium for their shares over the current market price, and might limit the ability of our stockholders to approve transactions that they think may be in their best interest.

 

We may not be able to maintain compliance with NASDAQ’s continued listing requirements.Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition and results of operations.

On March 16, 2016, we receivedWe strive to be a letter from NASDAQ advisingdiversified holding company that owns interests in a number of different businesses. We have in the past, and may in the future, acquire businesses or make investments, directly or indirectly through our subsidiaries, that involve unknown risks, some of which will be particular to the industry in which the investment or acquisition targets operate, including risks in industries with which we are no longernot familiar or experienced. Although we intend to conduct appropriate business, financial and legal due diligence in complianceconnection with NASDAQ Listing Rule 5605(c)(2), which requires listed companies to have at least three audit committee members. NASDAQ has provided us with 45 calendar days, during which time we are required to submit a plan to regain compliance. Once the plan is accepted, NASDAQ can grant us an extensionevaluation of up to 180 days from March 16, 2016 to regain compliance. If we are unsuccessful in maintaining our NASDAQ listing, then trading in our common stock after a delisting would likely be conducted in the over-the-counter markets and could also be subject to additional restrictions. Therefuture investment or acquisition opportunities, there can be no assurance that weour due diligence investigations will meet the continued listing requirements for the NASDAQ Capital Market, oridentify every matter that we will not be delisted from the NASDAQ Capital Market in the future. The delisting of our common stock could have a material adverse effect on us. We may be unable to adequately address the trading price, liquidity,financial, legal and operational risks raised by such investments or acquisitions, especially if we are unfamiliar with the relevant industry. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the investments or acquisitions, which could adversely affect our financial condition and liquidity.

Future acquisitions and investments are possible, changing the components of our assets and liabilities, and, if unsuccessful, could reduce the value and marketability of our common stock. We intend to regain compliance with the NASDAQ Listing Rule

Any future acquisitions may result in significant changes in the near termcomposition of our assets and retain two additional qualified independent directors toliabilities. Consequently, our financial condition, results of operations and the audit committee.

trading price of our common stock may be affected by factors different from those affecting our financial condition, results of operations and trading price.

 

We may be unsuccessful in identifying suitable acquisition candidates, which may negatively impact our growth strategy.

On April 29, 2016,

There can be no assurance given that we submittedwill be able to NASDAQ a plan detailingimplement our strategy and identify suitable acquisition candidates or consummate future acquisitions on acceptable terms. Our failure to regain compliance with their audit committee requirements for listed companies. Assuccessfully identify suitable acquisition candidates or consummate future acquisitions on acceptable terms could have an adverse effect on our prospects, business activities, cash flow, financial condition, results of May 5, 2016, we have yet to receive a response from NASDAQ as to whether or not our plan has been accepted.

operations and stock price.

 

 2736 

 

Failure to complete the Merger or delays in completing the Merger could negatively impact our business, financial condition, or results of operations or our stock price.

The completion of the Merger is subject to a number of conditions and there can be no assurance that the conditions to the completion of the Merger will be satisfied at all or satisfied in a timely manner. If the Merger is not completed or is delayed, we will be subject to several risks, including: 

·the current trading price of our common stock may reflect a market assumption that the Merger will occur, meaning that a failure to complete the Merger or delays in completing the Merger could result in a decline in the price of our common stock;

·certain of our executive officers and/or directors or XpresSpa’s may seek other employment opportunities, and the departure of any of our or XpresSpa’s executive officers and the possibility that we would be unable to recruit and hire experienced executives could negatively impact our future business;

·our board of directors will need to reevaluate our strategic alternatives, such alternatives will include other merger and acquisition opportunities;

·under certain circumstances, if the Merger is terminated by either us or XpresSpa in connection with or due to our entering into an alternate transaction constituting a superior proposal, then we are required to pay to XpresSpa a fee equal to $750,000, plus an amount in cash equal to XpresSpa’s reasonable out-of-pocket fees and expenses incurred in connection with the Merger, in an amount not to exceed $500,000;

·we are expected to incur substantial transaction costs in connection with the Merger whether or not the Merger is completed; and

·we would not realize any of the anticipated benefits of having completed the Merger. 

If the Merger is not completed or is delayed, these risks may materialize and materially and adversely affect our business, financial condition, results of operations, and our stock price.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

37

 

Item 6. Exhibits.

 

Exhibit
No.
 Description
10.1
2.1Agreement and Plan of Merger by and among FORM Holdings Corp., FHXMS, LLC, XpresSpa Holdings, LLC, the unitholders of XpresSpa who are parties thereto and Mistral XH Representative, LLC, as representative of the unitholders, dated as of August 8, 2016 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on August 8, 2016).
3.1*Amended and Restated Certificate of Incorporation, as amended by the Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on May 5, 2016.
3.2Second Amended and Restated Bylaws of the Company, effective May 6, 2016 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on May 5, 2016).
3.3 Form of Exchange NoteCertificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on August 8, 2016).
10.1Amendment No. 2 to Employment Agreement, dated June 27, 2016, by and between FORM Holdings Corp. and David L. Cohen (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 9,July 1, 2016).
   
10.2 Subscription Agreement, dated as of August 8, 2016, by and between FORM Holdings Corp. and Mistral Spa Holdings, LLC (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on August 8, 2016).
10.3Subscription Agreement and Joinder, dated as of AmendedAugust 8, 2016, by and Restated Senior Secured Notesbetween XpresSpa Holdings, LLC and FORM Holdings Corp (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on March 9,August 8, 2016)
10.3Form of Second Supplemental Indenture (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on March 9, 2016).
   
31.1* Certification of Principal Executive Officer pursuant to Exchange Act, Rules 13a - 14(a) and 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2* Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a - 14(a) and 15d - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32** Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS* XBRL Instance Document
   
101.SCH* XBRL Taxonomy Extension Schema Document
   
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
   
* Filed herewith.
** Furnished herein.

 

 2838 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 5th15th day of MayAugust 2016.

 

VRINGO, INC.FORM Holdings Corp.
 
By:/s/ ANASTASIA NYRKOVSKAYA
 Anastasia Nyrkovskaya
 Chief Financial Officer
 (Principal Financial and Accounting Officer)

 2939