The accompanying notes
form an integral part of these condensed consolidated financial statements.
The accompanying notes form an integral
part of these condensed consolidated financial statements.
The accompanying notes form an integral
part of these condensed consolidated financial statements.
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. (“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.
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:
|
•
|
Group Mobile
|
|
|
|
|
•
|
FLI Charge
|
|
|
|
|
•
|
Intellectual property
|
Group 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 high-quality customer service and support for those products.
FLI Charge owns a patented conductive wireless
charging technology and focuses 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. FLI Charge is currently working with partners
that are interested in implementing FLI Charge technology for smart furniture, Original Equipment Manufacturers, or “OEM,”
and after-market automobiles and vaporizers. FLI Charge’s business model is based on licensing its technology in exchange
for recurring licensing revenue as well as manufacturing and commercializing its own conductive charging pads and associated cases
for phones, tablets and laptops.
The intellectual property operating segment
is focused 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.
Prior to December 31, 2013, the 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.
Group Mobile
Group Mobile is
a growing and innovative full, end-to-end solution provider for project lifecycle services including system integration, hardware
service support, pre- and 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 products 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 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 Group 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, 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 the 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.
Intellectual Property
The intellectual property operating segment
is focused 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.
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
On 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.
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.
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 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 its 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 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 recorded an impairment charge
of $11,937, which resulted in a new carrying value of $1,526 on May 6, 2016. Following the impairment, the Company reevaluated
the remaining useful life and concluded that there were no changes in the estimated useful life.
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.
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
Unless 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 on a retroactive basis for all periods presented.
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 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 as required by Regulation S-X, Rule 10-01. Such adjustments
are of a normal, recurring nature. The results of operations for the six-month period ended 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.
(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 six-month period ended 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 sheets 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 six-month period ended 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 six-month period ended 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 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
of
ASU No. 2015-03
on a retrospective basis, during the six-month period ended 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.
(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 Stock
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 loss 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.
The table below presents the computation
of basic and diluted net loss per share of common stock:
|
|
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. Group Mobile and 70% of FLI Charge
were also acquired through the purchase of IDG. Group Mobile is a company with full-service customer support in rugged computers,
mobile devices and accessories. FLI Charge owns patented conductive wireless charging technology and is focused on innovation,
sales, manufacturing and licensing its technology in various industries, such as automotive, furniture and others.
As consideration for the acquisition, the
Company issued an equivalent of 1,666,667 common stock (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 officer and 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 stock 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
|
|
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
|
|
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.
In connection with the acquisition, the
Company also entered into a Consulting Agreement with IDG’s former chief 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 FLI 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 to
FASB 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:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
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
|
|
|
$
|
(26,741
|
)
|
|
|
1,472
|
|
|
$
|
28,213
|
|
|
$
|
(13,782
|
)
|
|
$
|
14,431
|
|
|
|
8.60
|
|
Customer relationships
|
|
|
1,163
|
|
|
|
(210
|
)
|
|
|
953
|
|
|
|
1,163
|
|
|
|
(62
|
)
|
|
|
1,101
|
|
|
|
3.91
|
|
Trade name
|
|
|
504
|
|
|
|
(73
|
)
|
|
|
431
|
|
|
|
504
|
|
|
|
(21
|
)
|
|
|
483
|
|
|
|
4.90
|
|
Technology
|
|
|
479
|
|
|
|
(60
|
)
|
|
|
419
|
|
|
|
479
|
|
|
|
(18
|
)
|
|
|
461
|
|
|
|
5.68
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
151
|
|
|
|
—
|
|
|
|
151
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total intangible assets
|
|
$
|
30,510
|
|
|
$
|
(27,084
|
)
|
|
$
|
3,426
|
|
|
$
|
30,359
|
|
|
$
|
(13,883
|
)
|
|
$
|
16,476
|
|
|
|
|
|
The Company 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 several 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’s intangible assets are
amortized over their expected useful lives. During the three-month periods ended June 30, 2016 and 2015, the Company recorded amortization
expense of $413 and $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.
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 period ended 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 June 30, 2016.
Group Mobile
|
|
$
|
4,106
|
|
FLI Charge
|
|
|
757
|
|
Total Goodwill
|
|
$
|
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 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
|
)
|
|
|
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
|
|
The corporate segment’s assets are
mainly comprised of cash and cash equivalents.
Note 7. Senior Secured Notes
On May 4, 2015 (the “Closing Date”),
the Company entered into a securities purchase agreement with certain Investors in a registered direct offering of $12,500 of Notes
and May 2015 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 were 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 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 in 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.
The Company has concluded that the
Exchange Note Agreement does not constitute a troubled debt restructuring as it has not experienced financial difficulty.
Furthermore, 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.
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.
|
|
·
|
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 general and administrative expense.
|
The table below summarizes changes in the
book value of the Notes from December 31, 2015 to 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
|
|
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 June 30, 2016 and December 31, 2015:
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2015 Warrants
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2015 Warrants
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
416
|
|
Conversion feature
|
|
$
|
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-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 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.
The following table summarizes the changes
in the Company’s liabilities measured at fair value using significant unobservable inputs (Level 3) during the six-month
period ended June 30, 2016:
|
|
May 2015
Warrants
|
|
|
Conversion
feature
|
|
December 31, 2015
|
|
$
|
416
|
|
|
$
|
1
|
|
Decrease in fair value of the warrants and conversion feature
|
|
|
(368
|
)
|
|
|
(1
|
)
|
Increase in fair value as a result of debt modification
|
|
|
281
|
|
|
|
—
|
|
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.
June 30, 2016:
Description
|
|
Valuation technique
|
|
Unobservable inputs
|
|
Range
|
|
May 2015 Warrants
|
|
Black-Scholes-Merton
|
|
Volatility
|
|
|
59.55
|
%
|
|
|
|
|
Risk-free interest rate
|
|
|
0.88
|
%
|
|
|
|
|
Expected term, in years
|
|
|
3.84
|
|
|
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
December 31, 2015:
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.
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 six-month period ended June 30, 2016:
|
|
No. of warrants
|
|
|
Weighted average
exercise price
|
|
|
Exercise
price range
|
|
December 31, 2015
|
|
|
1,006,679
|
|
|
$
|
12.92
|
|
|
|
$5.00 - $17.60
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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 June 30, 2016 consist of the following:
|
|
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 June
30, 2016 consist of the following:
|
|
No. outstanding
|
|
|
Exercise price
|
|
|
Remaining
contractual life
|
|
Expiration Date
|
May 2015 Warrants
|
|
|
537,500
|
|
|
$
|
3.00
|
|
|
3.84 years
|
|
May 4, 2020
|
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 June 30, 2016,
302,510 shares were available for future grants under the Plan. Total stock-based compensation expense for the three-month periods
ended June 30, 2016 and 2015 was $499 and $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 six-month period ended 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
|
|
|
0.33 years
|
The activity related to stock options and
RSUs during the six-month period ended 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
|
|
|
|
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. Income Taxes
As of 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 June 30, 2016. The Company does not expect to record any additional material provisions for unrecognized tax
benefits within the next year.
Note 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 a 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.
In several jurisdictions, though ZTE requested
that government organizations close proceedings against 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
FORM; however, the NDRC has not yet closed its investigation.
In addition, in China and the Netherlands,
FORM 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 FORM’s appeals, though FORM must still plead its case before the respective adjudicatory
body in each jurisdiction. On August 3, 2016, the European Patent Office dismissed an opposition action filed on one of FORM’s
recently issued European patents. No contingent liability is expected or recorded for the ZTE-related legal proceedings.
ASUS
FORM 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 June 30, 2016, the Company had reversed $222 of contingent liabilities
related to potential legal fees that were previously accrued for the proceedings related to this matter.
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 December 31, 2015, deposits
with courts, which are recorded as current assets, totaled $1,930. As of 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.
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 was approximately $403 (subject to certain future escalations
and adjustments) beginning on August 1, 2014, which was the date when the new office space became 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 and six-month periods ended June 30, 2016 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 13. Subsequent Events
On August 8, 2016, the Company entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with FHXMS, LLC, a Delaware limited liability company
and wholly-owned subsidiary of the Company (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 a wholly-owned subsidiary of the Company (the
“Surviving Entity”) and the Unitholders becoming stockholders of FORM (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 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 FORM Preferred Stock contain no restrictions on the Company’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 accrue 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 purchase price of $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 completion of the
Merger (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 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).
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 members 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 is reflected in
general and administrative expenses for the three- and six-month periods ended June 30, 2016 in the condensed consolidated statements
of operations.