10-Q 1 v358065_10q.htm FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
¨
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.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
20-4988129
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
780 3rd Ave. 15th 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.    Yes  x    No  ¨
 
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).    Yes  x     No  ¨
 
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 company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x 
 
As of November 5, 2013, 84,125,738 shares of the registrant’s common stock were outstanding.
 
 
 
VRINGO, INC.
 
Table of Contents
 
 
 
 
Page
 
 
 
 
PART I. FINANCIAL INFORMATION
 
3
 
 
 
 
Item 1.
Financial Statements
 
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
27
Item 4.
Controls and Procedures
 
28
 
 
 
 
PART II. OTHER INFORMATION
 
28
 
 
 
 
Item 1.
Legal Proceedings
 
28
Item 1A.
Risk Factors
 
31
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
37
Item 3.
Defaults Upon Senior Securities
 
37
Item 4.
Mine Safety Disclosures
 
37
Item 5.
Other Information
 
37
Item 6.
Exhibits
 
37
 
 
2

 
Part I — FINANCIAL INFORMATION 
 
Item 1.    Financial Statements 
 
  Vringo, Inc. and Subsidiaries
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
   
 
 
September 30, 
2013
 
December 31, 
2012
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
40,436
 
$
56,960
 
Short-term investments
 
 
673
 
 
 
Accounts receivable
 
 
98
 
 
151
 
Prepaid expenses and other current assets
 
 
656
 
 
318
 
 
 
 
 
 
 
 
 
Total current assets
 
 
41,863
 
 
57,429
 
 
 
 
 
 
 
 
 
Long-term deposit
 
 
46
 
 
54
 
Property and equipment, at cost, net of $119 and $47 accumulated depreciation and
    amortization, as of September 30, 2013 and December 31, 2012, respectively
 
 
249
 
 
294
 
Intangible assets, net
 
 
30,360
 
 
34,044
 
Goodwill
 
 
65,965
 
 
65,965
 
 
 
 
 
 
 
 
 
Total assets
 
$
138,483
 
$
157,786
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
4,011
 
$
1,444
 
Accrued employee compensation
 
 
256
 
 
398
 
 
 
 
 
 
 
 
 
Total current liabilities
 
 
4,267
 
 
1,842
 
 
 
 
 
 
 
 
 
Long-term liabilities
 
 
 
 
 
 
 
Derivative liabilities on account of warrants
 
 
4,126
 
 
7,612
 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
Series A Convertible Preferred stock, $0.01 par value per share; 5,000,000 authorized; none
    issued and outstanding
 
 
 
 
 
Common stock, $0.01 par value per share 150,000,000 authorized; 84,120,724 and
    81,889,226 issued and outstanding as of September 30, 2013 and December 31, 2012, respectively
 
 
841
 
 
819
 
Additional paid-in capital
 
 
186,308
 
 
171,108
 
Deficit accumulated during the development stage
 
 
(57,059)
 
 
(23,595)
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
 
 
130,090
 
 
148,332
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
138,483
 
$
157,786
 
  
The accompanying notes form an integral part of these consolidated financial statements.
 
 
3

 
  Vringo, Inc. and Subsidiaries
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
Cumulative
from Inception
to September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
Revenue
 
$
50
 
$
266
 
$
1,276
 
$
266
 
$
1,645
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs and Expenses*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
 
6,725
 
 
3,415
 
 
19,557
 
 
5,976
 
 
33,630
 
Research and development
 
 
700
 
 
997
 
 
2,110
 
 
997
 
 
3,850
 
Marketing, general and administrative
 
 
3,801
 
 
6,364
 
 
11,806
 
 
7,508
 
 
23,876
 
Total operating expenses
 
 
11,226
 
 
10,776
 
 
33,473
 
 
14,481
 
 
61,356
 
Operating loss
 
 
(11,176)
 
 
(10,510)
 
 
(32,197)
 
 
(14,215)
 
 
(59,711)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-operating income
 
 
30
 
 
82
 
 
76
 
 
82
 
 
114
 
Non-operating expense
 
 
(30)
 
 
(12)
 
 
(76)
 
 
(19)
 
 
(104)
 
Gain (loss) on revaluation of derivative warrants
 
 
645
 
 
7,240
 
 
(1,220)
 
 
7,240
 
 
5,627
 
Issuance of warrants
 
 
 
 
 
 
 
 
 
 
(2,883)
 
Loss before taxes on income
 
 
(10,531)
 
 
(3,200)
 
 
(33,417)
 
 
(6,912)
 
 
(56,957)
 
Income tax benefit (expense)
 
 
(29)
 
 
76
 
 
(47)
 
 
76
 
 
(102)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(10,560)
 
$
(3,124)
 
$
(33,464)
 
$
(6,836)
 
$
(57,059)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net loss per common share
 
$
(0.13)
 
$
(0.06)
 
$
(0.40)
 
$
(0.27)
 
$
(1.23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted net loss per common share
 
$
(0.13)
 
$
(0.18)
 
$
(0.40)
 
$
(0.40)
 
$
(1.26)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares used in computing net loss per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
83,538,767
 
 
48,790,819
 
 
82,882,405
 
 
25,611,159
 
 
46,339,586
 
Diluted:
 
 
86,101,857
 
 
58,227,100
 
 
82,972,082
 
 
35,047,440
 
 
47,800,063
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* Includes stock-based compensation expense, as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
$
298
 
$
318
 
$
894
 
$
318
 
$
1,417
 
Research and development
 
 
177
 
 
452
 
 
613
 
 
452
 
 
1,305
 
Marketing, general and administrative
 
 
2,383
 
 
4,592
 
 
7,468
 
 
4,762
 
 
14,814
 
 
 
$
2,858
 
$
5,362
 
$
8,975
 
$
5,532
 
$
17,536
 
 
The accompanying notes form an integral part of these consolidated financial statements.
 
 
4

 
Vringo, Inc. and Subsidiaries
(a Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
  (In thousands)
 
 
 
 
Common 
stock
 
 
Additional
paid-in capital
 
 
Deficit 
accumulated 
during the 
development 
stage
 
 
Total
 
Balance as of June 8, 2011 (Inception)
 
$
 
$
 
$
 
$
 
Issuance of shares of common stock
 
 
170
 
 
4,975
 
 
 
 
5,145
 
Stock-based compensation
 
 
 
 
474
 
 
 
 
474
 
Net loss for the period
 
 
 
 
 
 
(2,754)
 
 
(2,754)
 
Balance as of December 31, 2011
 
 
170
 
 
5,449
 
 
(2,754)
 
 
2,865
 
Conversion of Series A Preferred Convertible Preferred stock,
    classified as mezzanine equity
 
 
8
 
 
68
 
 
 
 
76
 
Stock-based compensation, including grant of shares to consultants
 
 
3
 
 
8,084
 
 
 
 
8,087
 
Recording of equity instruments upon Merger, net of fair value
    of issued warrants $21,954 and issuance cost of $463
 
 
152
 
 
54,809
 
 
 
 
54,961
 
Issuance of warrants
 
 
 
 
2,883
 
 
 
 
2,883
 
Conversion of Series A Preferred Convertible Preferred stock,
    classified as equity
 
 
201
 
 
(201)
 
 
 
 
 
Exercise of warrants
 
 
76
 
 
22,856
 
 
 
 
22,932
 
Exercise of stock options
 
 
8
 
 
501
 
 
 
 
509
 
Issuance of shares in connection with a financing round, net of
    issuance cost of $52
 
 
96
 
 
31,052
 
 
 
 
31,148
 
Shares issued for acquisition of patents
 
 
2
 
 
748
 
 
 
 
 
750
 
Issuance of shares in connection with a financing round, net of
    issuance cost of $39
 
 
103
 
 
44,859
 
 
 
 
44,962
 
Net loss for the year
 
 
 
 
 
 
(20,841)
 
 
(20,841)
 
Balance as of December 31, 2012
 
 
819
 
 
171,108
 
 
(23,595)
 
 
148,332
 
Exercise of stock options and vesting of Restricted Stock Units (“RSU”)
 
 
18
 
 
955
 
 
 
 
973
 
Exercise of warrants
 
 
4
 
 
1,352
 
 
 
 
1,356
 
Conversion of derivative warrants into equity warrants
 
 
 
 
3,918
 
 
 
 
3,918
 
Stock-based compensation
 
 
 
 
8,975
 
 
 
 
8,975
 
Net loss for the period
 
 
 
 
 
 
(33,464)
 
 
(33,464)
 
Balance as of September 30, 2013
 
$
841
 
$
186,308
 
$
(57,059)
 
$
130,090
 
 
The accompanying notes form an integral part of these consolidated financial statements.
 
 
5

 
Vringo, Inc. and Subsidiaries
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
Nine months ended September 30,
 
Cumulative from  
Inception to  
September 30,
 
 
 
2013
 
2012
 
2013
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(33,464)
 
$
(6,836)
 
$
(57,059)
 
Adjustments to reconcile net cash flows used in operating activities:
 
 
 
 
 
 
 
 
 
 
Items not affecting cash flows
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
3,856
 
 
1,211
 
 
6,686
 
Change in deferred tax assets and liabilities
 
 
1
 
 
(162)
 
 
(57)
 
Stock-based compensation
 
 
8,975
 
 
5,532
 
 
17,536
 
Issuance of warrants
 
 
 
 
 
 
2,883
 
Assignment of patents
 
 
(100)
 
 
 
 
(100)
 
Change in fair value of warrants
 
 
1,220
 
 
(7,240)
 
 
(5,627)
 
Exchange rate (gain) losses
 
 
11
 
 
(6)
 
 
19
 
Changes in current assets and liabilities
 
 
 
 
 
 
 
 
 
 
Increase in receivables, prepaid expenses and other current assets
 
 
(283)
 
 
(504)
 
 
(517)
 
Increase in payables and accruals
 
 
2,400
 
 
2,043
 
 
2,856
 
Net cash used in operating activities
 
 
(17,384)
 
 
(5,962)
 
 
(33,380)
 
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Acquisition of property and equipment
 
 
(27)
 
 
(151)
 
 
(244)
 
Deposit in short-term investments
 
 
(673)
 
 
 
 
(673)
 
Acquisition of patents
 
 
 
 
(22,548)
 
 
(25,944)
 
Decrease (increase) in deposits
 
 
8
 
 
(46)
 
 
(38)
 
Cash acquired as part of acquisition of Vringo (1)
 
 
 
 
3,326
 
 
3,326
 
Net cash used in investing activities
 
$
(692)
 
$
(19,419)
 
$
(23,573)
 
 
The accompanying notes form an integral part of these consolidated financial statements.
 
 
6

 
Vringo, Inc. and Subsidiaries
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
Nine months ended September 30,
 
Cumulative from 
Inception to 
September 30,
 
 
 
2013
 
2012
 
2013
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock, net of issuance cost of $52
 
$
 
$
31,148
 
$
31,148
 
Proceeds from issuance of common stock, net of issuance cost of $39
 
 
 
 
 
 
44,962
 
Repayment of note payable—related party
 
 
 
 
(3,200)
 
 
 
Proceeds from issuance of preferred stock
 
 
 
 
 
 
1,800
 
Proceeds from issuance of common stock
 
 
 
 
 
 
5,145
 
Exercise of stock options
 
 
973
 
 
171
 
 
1,482
 
Exercise of warrants
 
 
566
 
 
1,598
 
 
12,841
 
Net cash provided by financing activities
 
 
1,539
 
 
29,717
 
 
97,378
 
Effect of exchange rate changes on cash and cash equivalents
 
 
13
 
 
1
 
 
11
 
Increase (decrease) in cash and cash equivalents
 
 
(16,524)
 
 
4,337
 
 
40,436
 
Cash and cash equivalents at beginning of period
 
 
56,960
 
 
5,212
 
 
 
Cash and cash equivalents at end of period
 
$
40,436
 
$
9,549
 
$
40,436
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flows information
 
 
 
 
 
 
 
 
 
 
Interest paid
 
 
 
 
9
 
 
17
 
Income taxes paid
 
 
22
 
 
10
 
 
32
 
Non-cash investing and financing transactions
 
 
 
 
 
 
 
 
 
 
Conversion of Series A preferred stock to common stock shares
 
 
 
 
 
 
39
 
Exercise of derivative warrants
 
 
790
 
 
596
 
 
11,447
 
Non cash acquisition of patents through issuance of common stock shares
 
 
 
 
 
 
750
 
Conversion of derivative warrants into equity warrants
 
 
3,918
 
 
 
 
3,918
 
Conversion of Series A Convertible Preferred stock, classified as
    mezzanine equity, into common stock, prior to the Merger
 
 
 
 
76
 
 
76
 
Conversion of Series A Convertible Preferred stock, classified as
    mezzanine equity, into common stock, upon Merger
 
 
 
 
1,724
 
 
1,724
 
Conversion of Series A Convertible Preferred stock, classified as
    equity, into common stock, post-Merger
 
 
 
 
201
 
 
201
 
 
 
 
 
 
 
 
 
 
 
 
(1) Cash acquired as part of acquisition of Vringo
 
 
 
 
 
 
 
 
 
 
Working capital (excluding cash and cash equivalents)
 
 
 
 
 
 
 
$
740
 
Long term deposit
 
 
 
 
 
 
 
 
(8)
 
Fixed assets, net
 
 
 
 
 
 
 
 
(124)
 
Goodwill
 
 
 
 
 
 
 
 
(65,965)
 
Technology
 
 
 
 
 
 
 
 
(10,133)
 
Fair value of Legal Parent’s shares of common stock and vested $0.01 options
 
 
 
 
 
 
 
 
58,211
 
Fair value of warrants and vested stock options
 
 
 
 
 
 
 
 
17,443
 
Long-term liabilities
 
 
 
 
 
 
 
 
3,162
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,326
 
 
The accompanying notes form an integral part of these consolidated financial statements.
 
 
7

 
Vringo, Inc. and Subsidiaries
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except for share and per share data)
 
Note 1. General
 
Vringo, Inc., together with its consolidated subsidiaries (the “Company”), is engaged in the development and monetization of intellectual property worldwide. The Company's intellectual property portfolio consists of over 500 patents and patent applications covering telecom infrastructure, internet search and mobile technologies. The Company’s patents and patent applications have been developed internally and acquired from third parties. The Company operates a global platform for the distribution of mobile social applications and services it develops.
 
On July 19, 2012, Vringo, Inc., a Delaware corporation (“Vringo” or “Legal Parent”), closed a merger transaction (the “Merger”) with Innovate/Protect, Inc., a privately held Delaware corporation (“I/P”), pursuant to an Agreement and Plan of Merger, dated as of March 13, 2012 (the “Merger Agreement”), by and among Vringo, I/P and VIP Merger Sub, Inc., a wholly-owned subsidiary of Vringo (“Merger Sub”). Pursuant to the Merger Agreement, I/P became a wholly-owned subsidiary of Vringo through a merger of I/P with and into Merger Sub, and the former stockholders of I/P received shares of Vringo that constituted a majority of the outstanding shares of Vringo.
 
Immediately following the Merger, approximately 67.61% of the combined company was owned by I/P stockholders on a fully diluted basis, and as a result of this and other factors, I/P was deemed to be the acquiring company for accounting purposes and the transaction was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, the Company’s financial statements for periods prior to the Merger reflect the historical results of I/P, and the Company’s financial statements for all periods from July 19, 2012 reflect the results of the combined company. Unless specifically noted otherwise, as used throughout these consolidated financial statements, the term “Company” refers to the combined company after the Merger, and the business of I/P before the Merger. The terms I/P and Vringo or Legal Parent refer to such entities’ standalone businesses prior to the Merger.

Note 2. Significant Accounting and Reporting Policies
 
(a) Basis of presentation
 
The accompanying consolidated financial statements include the accounts of the Legal Parent, I/P and their wholly-owned subsidiaries, and are presented in accordance with instructions to Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2012 included in the Company's Annual Report on Form 10-K. The results of operations for the three and nine month periods ended September 30, 2013 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) Development stage enterprise
 
The Company’s principal activities to date have been focused on development and enforcement of its intellectual property, and on the research and development of its products. To date, the Company has not generated significant revenues from its principal operations. Accordingly, the Company’s financial statements are presented as those of a development stage enterprise.
 
(c) Translation into U.S. dollars
 
  The Company conducts significant transactions in foreign currencies, which are recorded at the exchange rate as of the transaction date. All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected as non-operating income or expense in the statement of operations, as they arise.
 
(d) Use of estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include valuation of assets acquired and liabilities assumed as part of the Merger, useful lives of the Company’s tangible and intangible assets, valuation of its October 2012 Warrants and derivative warrants, valuation of stock-based compensation, deferred tax assets and liabilities, income tax uncertainties and other contingencies.
 
(e) Cash and cash equivalents
 
The Company invests its cash in commercial paper, money market deposits and money market funds with financial institutions. The Company has established guidelines relating to diversification and maturities of its investments, in order to minimize credit risk and maintain high liquidity of funds. All highly liquid investments with original maturities of three months or less are considered cash equivalents.
 
 
8

 
(f) Revenue recognition
 
Revenue from patent licensing and enforcement, subscription services and software development is recognized if collection is probable, persuasive evidence of an arrangement exists, the sales price is fixed or determinable and delivery of the service has been rendered. The Company uses management's best estimate of selling price for individual elements in multiple-element arrangements, where other sources of evidence are unavailable.
 
(g) Cost of revenue
 
Cost of revenue mainly includes expenses incurred in connection with the Company’s patent enforcement activities, such as legal fees, consulting costs, patent maintenance and other related expenses, as well as the amortization of acquired patents and technology. Legal costs incurred in connection with ongoing litigation are expensed as incurred. Cost of revenue also includes expenses directly related to providing mobile services in launched markets. In addition, these costs include royalty fees for content sales and amortization of prepaid content licenses. Cost of revenue does not include expenses related to product development, integration or support, as these are included in research and development expenses.
 
(h) Net loss per share data
 
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. Such dilutive shares consist of incremental shares that would be issued upon exercise of the Company’s derivative warrants. The table below presents the computation of basic and diluted net losses per common share for the periods presented:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from Inception
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
to September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
Basic Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to shares of common stock
 
$
(10,560)
 
$
(3,124)
 
$
(33,464)
 
$
(6,836)
 
$
(57,059)
 
Basic Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares of common stock outstanding during the period
 
 
83,450,697
 
 
48,437,587
 
 
82,757,899
 
 
25,493,415
 
 
46,229,656
 
Weighted average number of penny stock options
 
 
88,070
 
 
353,232
 
 
124,506
 
 
117,744
 
 
109,930
 
Basic common stock shares outstanding
 
 
83,538,767
 
 
48,790,819
 
 
82,882,405
 
 
25,611,159
 
 
46,339,586
 
Basic net loss per common stock share
 
$
(0.13)
 
$
(0.06)
 
$
(0.40)
 
$
(0.27)
 
$
(1.23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to shares of common stock
 
$
(10,560)
 
$
(3,124)
 
$
(33,464)
 
$
(6,836)
 
$
(57,059)
 
Increase in net loss attributable to derivative warrants
 
 
(758)
 
$
(7,240)
 
$
(53)
 
$
(7,240)
 
$
(3,387)
 
Diluted net loss attributable to shares of common stock:
 
$
(11,318)
 
$
(10,364)
 
$
(33,517)
 
$
(14,076)
 
$
(60,446)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic common shares outstanding
 
 
83,538,767
 
 
48,790,819
 
 
82,882,405
 
 
25,611,159
 
 
46,339,586
 
Weighted average number of derivative warrants outstanding during the period
 
 
2,563,090
 
 
9,436,281
 
 
89,677
 
 
9,436,281
 
 
1,460,477
 
Diluted common stock shares outstanding
 
 
86,101,857
 
 
58,227,100
 
 
82,972,082
 
 
35,047,440
 
 
47,800,063
 
Diluted net loss per common stock share
 
$
(0.13)
 
$
(0.18)
 
$
(0.40)
 
$
(0.40)
 
$
(1.26)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share data presented excludes from the calculation of diluted net loss the following potentially dilutive securities, as of September 30 of the applicable period, as they had an anti-dilutive impact:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Both vested and unvested options at $0.96-$5.50 exercise price, to purchase an equal number of shares of common stock of the Company
 
 
10,225,387
 
 
9,160,429
 
 
10,225,387
 
 
9,160,429
 
 
10,225,387
 
Unvested penny options to purchase an equal number of shares of common stock of the Company
 
 
 
 
30,250
 
 
 
 
30,250
 
 
 
Unvested RSUs to issue an equal number of shares of common stock of the Company
 
 
2,411,771
 
 
3,126,667
 
 
2,411,771
 
 
3,126,667
 
 
2,411,771
 
Common stock shares granted, but not yet vested
 
 
45,762
 
 
108,625
 
 
45,762
 
 
108,625
 
 
45,762
 
Warrants to purchase an equal number of shares of common stock of the Company
 
 
15,829,262
 
 
12,814,533
 
 
18,289,611
 
 
12,814,533
 
 
15,115,357
 
Total number of potentially dilutive instruments, excluded from the calculation of net loss per share:
 
 
28,512,182
 
 
25,240,504
 
 
30,972,531
 
 
25,240,504
 
 
27,798,277
 
 
 
9

 
  Note 3. Intangible Assets
 
 
 
As of September 30, 
2013
 
As of December 31, 
2012
 
Weighted average 
amortization period (years)
 
Acquired technology (see Note 5)
 
$
10,133
 
$
10,133
 
6.0
 
Patents
 
 
26,794
 
 
26,694
 
8.5
 
Total
 
 
36,927
 
 
36,827
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: accumulated amortization
 
 
(6,567)
 
 
(2,783)
 
 
 
 
 
$
30,360
 
$
34,044
 
 
 
 
In June 2011, prior to the Merger, the Company’s subsidiary acquired patents from Lycos, Inc. The gross carrying amount of those patents is comprised of the original purchase price of $3,200 and $196 of associated patent acquisition costs.
 
In August 2012, the Company purchased from Nokia Corporation a portfolio consisting of various patents and patent applications. The portfolio encompasses a broad range of technologies relating to telecom infrastructure, including communication management, data and signal transmission, mobility management, radio resources management and services. The total consideration paid for the portfolio was $22,000. In addition, the Company capitalized certain costs related to the acquisition of patents in the total amount of $548. Under the terms of the purchase agreement, to the extent that the gross revenue generated by such portfolio exceeds $22,000, the Company is obligated to pay a royalty of 35% of such excess. The Company has not recorded any amounts in respect of this contingent consideration, as both the amounts of future potential revenue, if any, and the timing of such revenue cannot be reliably estimated.
 
In October 2012, the Company’s subsidiary entered into an additional patent purchase agreement. As partial consideration, the Company issued 160,600 shares of common stock to the seller with a fair value of $750. In addition, under the terms of the purchase agreement, 20% of the gross revenue collected will be payable to the seller as a royalty. The Company has not recorded any amounts in respect of this contingent consideration, as both the amounts of future potential revenue, if any, and the timing of such revenue cannot be reliably estimated.
 
During the three and nine month periods ended September 30, 2013, the Company recorded amortization expense of $1,269 and $3,784, respectively. During the three and nine month periods ended September 30, 2012, the Company recorded amortization expense of $880 and $1,190, respectively. During the period from June 8, 2011 (“Inception”) through September 30, 2013, total amortization expense of $6,567 was recorded. Estimated amortization expense for each of the five succeeding years, based upon intangible assets owned at September 30, 2013 is as follows:
 
Period ending December 31,
Amount
2013 (three months ending December 31, 2013)
$
1,257
2014
 
5,009
2015
 
5,009
2016
 
4,618
2017 and thereafter
 
14,467
 
$
30,360
  
 
10

 
 
Note 4. Fair Value Measurements
 
The Company measures fair value in accordance with ASC 820-10, “Fair Value Measurements and Disclosures” (formerly SFAS 157, “Fair Value Measurements”). ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
 
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
 
Level 2 Inputs: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
 
The Company measures its derivative liabilities at fair value. The Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and majority of Series 1 Warrants (as they are defined in Note 6) are classified within Level 3 because they are valued using the Black-Scholes-Merton and the Monte-Carlo models (as these warrants include down-round protection clauses), which utilize significant inputs that are unobservable in the market.
 
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, aggregated by the level in the fair-value hierarchy within which those measurements fall:
 
 
 
 
 
 
Fair value measurement at reporting date using
 
 
 
 
 
 
Quoted prices in
 
 
 
 
 
 
 
 
 
 
 
active markets
 
Significant other
 
Significant
 
 
 
 
 
 
for identical
 
observable
 
unobservable
 
Derivative liabilities on account of warrants
 
Balance
 
assets (Level 1)
 
inputs (Level 2)
 
inputs (Level 3)
 
As of September 30, 2013
 
$
4,126
 
 
 
$
4,126
 
As of December 31, 2012
 
$
7,612
 
 
 
$
7,612
 
 
In addition to the above, the Company’s financial instruments at September 30, 2013 and December 31, 2012 consisted of cash, cash equivalents, short-term investments, accounts receivable, accounts payable and long term deposits. The carrying amounts of all the aforementioned financial instruments approximate fair value. The following table summarizes the changes in the Company’s liabilities measured at fair value using significant unobservable inputs (Level 3) during the period from Inception through September 30, 2013:
 
 
 
Level 3
 
Balance at Inception
 
$
 
Balance at December 31, 2011
 
 
 
Derivative warrants issued to I/P’s shareholders in connection with the Merger, July 19, 2012
 
 
21,954
 
Fair value of derivative warrants issued by Legal Parent
 
 
3,162
 
Fair value adjustment, prior to exercise of warrants, included in statement of operations
 
 
156
 
Exercise of derivative warrants
 
 
(10,657)
 
Fair value adjustment at end of period, included in statement of operations
 
 
(7,003)
 
Balance at December 31, 2012
 
 
7,612
 
Net impact of removal of down-round clause in Series 1 Warrant (see Note 6)
 
 
(2,300)
 
Fair value adjustment, prior to exercise of warrants, included in statement of operations
 
 
15
 
Exercise of derivative warrants
 
 
(790)
 
Fair value adjustment at end of period, included in statement of operations
 
 
(411)
 
Balance at September 30, 2013
 
$
4,126
 
 
 
11

 
Valuation processes for Level 3 Fair Value Measurements
 
Fair value measurement of the derivative liability on account of Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and Series 1 Warrants (as defined in Note 6) fall 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.
 
Description
 
Valuation technique
 
Unobservable inputs
 
Range
 
 
 
 
 
Volatility
 
51.91% – 57.04%
 
 
 
 
 
Risk free interest rate
 
0.16% – 0.98%
 
Special Bridge Warrants, Conversion Warrants,
 
Black-Scholes-Merton and the
 
Expected term, in years
 
1.24 – 3.80
 
Preferential Reload Warrants and the derivative Series 1 Warrants
 
Monte-Carlo models
 
Dividend yield
 
0%
 
 
 
 
 
Probability and timing of down-round triggering event
 
5% occurrence in December 2013
 
 
Sensitivity of Level 3 measurements to changes in significant unobservable inputs
 
The inputs to estimate the fair value of the Company’s derivative warrant liability are the current market price of the Company’s shares of common stock, the exercise price of the warrant, its remaining expected term, the volatility of the Company’s common stock market price, the Company’s estimations regarding the probability and timing of a down-round protection triggering event and the risk-free interest rate. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement. Generally, a positive change in the market price of the Company’s common stock, and an increase in the volatility of the Company’s shares of common stock, or an increase in the remaining term of the warrant, or an increase of a probability of a down-round triggering event would each result in a directionally similar change in the estimated fair value of the Company’s warrants and thus an increase in the associated liability and vice-versa. An increase in the risk-free interest rate or a decrease in the positive differential between the warrant’s exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement of the warrants and thus a decrease in the associated liability. The Company has not, nor plans to, declare dividends on its shares of common stock, and thus, there is no change in the estimated fair value of the warrants due to the dividend assumption.

Note 5. Business Combination
 
On July 19, 2012, I/P consummated the Merger with the Legal Parent, as also described in Note 1. The consideration consisted of various equity instruments, including: shares of common stock, preferred stock, options and warrants. The purpose of the Merger was to increase the combined company's intellectual property portfolio and array of products, to gain access to capital markets, among other reasons. Upon completion of the Merger, (i) all then outstanding 6,169,661 common stock shares of I/P, par value $0.0001 per share, were exchanged for 18,617,569, shares of the Company’s common stock, par value $0.01 per share, and (ii) all then outstanding shares of Series A Convertible Preferred Stock of I/P, par value $0.0001 per share, were exchanged for 6,673 shares of the Legal Parent’s Series A Convertible Preferred Stock, par value $0.01 per share, which shares were convertible into 20,136,445 shares of common stock of the Legal Parent. In addition, the Legal Parent issued to the holders of I/P capital stock an aggregate of 15,959,838 warrants to purchase an aggregate of 15,959,838 shares of the Company’s common stock with an exercise price of $1.76 per share. The Company recorded such warrants as a derivative long-term liability in the total amount of $21,954. In addition, all outstanding and unexercised options to purchase I/P common stock, whether vested or unvested, were converted into 41,178 options to purchase the Company’s common stock. Immediately following the completion of the Merger, the former stockholders of I/P owned approximately 55.04% of the outstanding common stock of the combined company (or 67.61% of the outstanding shares of the Company’s common stock, calculated on a fully diluted basis), and the Legal Parent’s stockholders prior to the Merger owned approximately 44.96% of the outstanding common stock of the combined company (or 32.39% of the outstanding shares of its common stock calculated on a fully diluted basis). For accounting purposes, I/P was identified as the accounting “acquirer”, as it is defined in FASB Topic ASC 805. The total purchase price of $75,654 was allocated to the assets acquired and liabilities assumed of the Legal Parent. Registration and issuance cost, in the total amount of $463, was recorded against the additional paid-in capital.
 
 
 
Allocation of purchase price
 
 
Current assets, net of current liabilities
 
$
2,586
 
 
Long-term deposit
 
 
8
 
 
Property and equipment
 
 
124
 
 
Technology
 
 
10,133
 
 
Goodwill
 
 
65,965
 
 
Total assets acquired, net
 
 
78,816
 
 
 
 
 
 
 
 
Fair value of outstanding warrants granted by Legal Parent prior to the Merger, classified as a long-term derivative liability
 
 
(3,162)
 
 
Total liabilities assumed, net
 
 
(3,162)
 
 
 
 
 
 
 
 
 
 
 
75,654
 
 
Measurement of consideration:
 
 
 
 
 
Fair value of vested stock options granted to employees, management and consultants, classified as equity
 
 
7,364
 
 
Fair value of outstanding warrants granted by the Legal Parent prior to the Merger, classified as equity
 
 
10,079
 
 
Fair value of Vringo shares of common stock and vested penny options granted to employees, management and consultants
 
 
58,211
 
 
Total estimated purchase price
 
$
75,654
 
 
 
 
12

 
The fair values of the identified intangible assets were estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. The goodwill recognized as a result of the acquisition is primarily attributable to the value of the workforce and other intangible asset arising as a result of operational synergies, products, and similar factors which could not be separately identified. The useful life of the intangible assets for amortization purposes was determined considering the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive economic or other factors that may limit the useful life of intangible assets. Goodwill recognized is not deductible for income tax purposes. Had the acquisition taken place on Inception, the revenue in the consolidated statement of operations and the consolidated net loss would have been as follows:
 
 
 
Cumulative from Inception 
to September 30, 2013
 
Nine month period ended  
September 30, 2012
 
Three month period ended  
September 30, 2012
 
 
 
Revenue
 
Net Loss
 
Revenue
 
Net Loss
 
Revenue
 
Net Loss
 
Total amount
 
$
2,285
 
$
(73,855)
 
$
487
 
$
(18,298)
 
$
281
 
$
(6,632)
 
 
The pro forma adjustment consists of amortization of acquired technology. The amortization, for the period from Inception through September 30, 2013 would have been $3,964. The amortization for the three and nine month period ended September 30, 2012 would have been $422 and $1,267, respectively. The above pro forma disclosure excludes the possible impact of valuation of equity and derivative instruments valued in connection with the Merger.

Note 6. Stockholders’ Equity
 
Pre-Merger common stock share amounts and balance sheet disclosures were retrospectively restated to reflect Vringo’s equity instruments after the Merger.
 
(a) Common Stock
  
The following table summarizes information about the Company's issued and outstanding common stock from Inception through September 30, 2013:
 
 
 
Shares of common stock
 
Balance as of June 8, 2011 (Inception)
 
 
 
Grant of shares at less than fair value to officers, directors and consultants
 
 
8,768,014
 
Issuance of shares of common stock
 
 
8,204,963
 
Balance as of December 31, 2011
 
 
16,972,977
 
Conversion of Series A Preferred Convertible Preferred stock, classified as mezzanine equity
 
 
890,192
 
Grant of shares to consultants
 
 
265,000
 
Legal Parent’s shares of common stock, recorded upon Merger
 
 
15,206,118
 
Exercise of 250,000 warrants, issued and exercised prior to the Merger
 
 
754,400
 
Post-Merger exercise of warrants
 
 
6,832,150
 
Exercise of stock options and vesting of RSUs
 
 
726,346
 
Conversion of Series A Preferred Convertible Preferred stock, classified as equity
 
 
20,136,445
 
Issuance of shares of common stock in connection with $31,148 received in a private financing round, net of issuance cost of $52
 
 
9,600,000
 
Issuance of shares of common stock in connection with $44,962 received in a private financing round, net of issuance cost of $39
 
 
10,344,998
 
Shares issued for acquisition of patents, see Note 3
 
 
160,600
 
Balance as of December 31, 2012
 
 
81,889,226
 
Exercise of warrants
 
 
421,493
 
Exercise of stock options and vesting of RSUs
 
 
1,810,005
 
Balance as of September 30, 2013
 
 
84,120,724
 
 
(b) Equity Incentive Plan
 
In August 2011, I/P adopted its 2011 Equity and Performance Incentive Plan (the “I/P 2011 Plan”). The I/P 2011 Plan provided for the issuance of stock options and restricted stock to the Company’s directors, employees and consultants. Cancelled, expired or forfeited grants may be reissued under the I/P 2011 Plan. The number of shares available under I/P 2011 Plan was subject to adjustments for certain changes. Following the Merger with the Legal Parent, the I/P 2011 Plan was assumed by the Company.
 
On July 19, 2012, following the Merger with the Legal Parent, the Company’s stockholders approved the 2012 Employee, Director and Consultant Equity Incentive Plan (“2012 Plan”), replacing the existing 2006 Stock Option Plan of the Legal Parent, and the remaining 9,100,000 authorized shares thereunder were cancelled. The Company’s 2012 Plan was approved in order to ensure full compliance with legal and tax requirements under U.S. law. The number of shares subject to the 2012 Plan is the sum of: (i) 15,600,000 shares of common stock, which constitutes 6,500,000 new shares and 9,100,000 previously authorized but unissued shares under the 2006 Stock Option Plan and (ii) any shares of common stock that are represented by awards granted under the Legal Parent’s 2006 Stock Option Plan that are forfeited, expired or are cancelled without delivery of shares of common stock or which result in the forfeiture of shares of common stock back to the Company, or the equivalent of such number of shares after the administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the 2012 Plan; provided, however, that no more than 3,200,000 shares shall be added to the 2012 Plan. As of September 30, 2013, 4,802,211 shares were available for future grants under the 2012 Plan.
 
 
13

 
(c) Stock options and RSUs
 
The following table illustrates the common stock options granted for the nine month period ended September 30, 2013:
 
Title
 
Grant date
 
No. of
options
 
Exercise price
 
Share price at
grant date
 
Vesting terms
 
Assumptions used in Black-Scholes option pricing
model
 
Management, Directors and Employees
 
 
January-September 2013
 
 
3,090,833
 
 
$2.85-$3.24
 
 
$2.85-$3.24
 
 
Over 0.67-3 years
 
 
Volatility
 
61.93%-70.51%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk free interest rate
 
0.85%-2.06%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected term, in years
 
5.71-10.00
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend yield
 
0.00%
 
Consultants
 
 
January-June 2013
 
 
132,500
 
 
$2.90-$3.30
 
 
$2.90-$3.30
 
 
Over 0-2.5 years
 
 
Volatility
 
63.87%-65.96%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk free interest rate
 
2.16%-2.62%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining expected term, in years
 
9.25-9.75
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend yield
 
0.00%
 
 
The following table illustrates the RSUs granted for the nine month period ended September 30, 2013:
 
Title
 
Grant date
 
No. of RSUs
 
Exercise price
 
Share price at grant
date
 
Vesting terms
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management, directors and employees
 
 
February-May 2013
 
 
656,250
 
 
 
 
$2.95-$3.18
 
 
Over 0.67-3 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consultants
 
 
January 2013
 
 
33,000
 
 
 
 
$3.26
 
 
Over 0.75 years
 
 
Certain options granted to officers, directors and certain key employees are subject to acceleration of vesting of 75% - 100% (according to the agreement signed with each optionee), upon a subsequent change of control.
 
The following table summarizes information about RSU and stock option activity for the nine month period ended September 30, 2013:
 
 
 
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, 2013
 
 
3,125,000
 
$
3.72
 
 
9,149,105
 
$
3.33
 
 
$0.01 – $5.50
 
$
2.57
 
Granted
 
 
689,250
 
$
3.17
 
 
3,223,333
 
$
3.14
 
 
$2.85 – $3.30
 
$
2.22
 
Vested/Exercised
 
 
(1,092,270)
 
$
3.62
 
 
(717,735)
 
$
1.36
 
 
$0.01 – $3.18
 
$
2.96
 
Forfeited
 
 
(310,209)
 
$
3.66
 
 
(417,821)
 
$
3.51
 
 
$0.01 – $5.50
 
$
2.44
 
Expired
 
 
 
 
 
 
(954,868)
 
$
5.04
 
 
$0.01 – $5.50
 
$
1.58
 
Outstanding at September 30, 2013
 
 
2,411,771
 
$
3.61
 
 
10,282,014
 
$
3.24
 
 
$0.01 – $5.50
 
$
2.53
 
Exercisable at September 30, 2013
 
 
 
 
 
 
5,099,098
 
$
3.04
 
 
$0.01 – $5.50
 
 
 
 
   
The Company cumulatively did not create tax benefits related to its stock-based compensation due to a full valuation allowance.
 
 
14

 
(d) Warrants
 
The following table summarizes information about warrant activity for the nine month period ended September 30, 2013: 
 
 
 
No. of warrants
 
Weighted average
exercise price
 
Exercise
price range
 
Outstanding at January 1, 2013
 
 
18,863,261
 
$
3.11
 
 
$0.94 – $5.06
 
Exercised
 
 
(421,493)
 
$
1.34
 
 
$0.94 – $1.76
 
Outstanding at September 30, 2013
 
 
18,441,768
 
$
3.15
 
 
$0.94 – $5.06
 
  
The Company’s outstanding warrants consisted of the following:
 
(1) Series 1 and Series 2 Warrants
 
As part of the Merger, on July 19, 2012, the Legal Parent issued to I/P’s stockholders 8,299,115 warrants at an exercise price of $1.76 per share and contractual term of 5 years (“Series 1 Warrant”). These warrants bear down-round protection clauses and as a result, they were initially classified as a long-term derivative liability and recorded at fair value. In addition, I/P’s stockholders received another 7,660,722 warrants at an exercise price of $1.76 per share and contractual term of 5 years (“Series 2 Warrant”). As the Series 2 Warrants do not have down-round protection clauses, they were classified as equity.
 
As part of the issuance of October 2012 Warrants, the down-round protection clause in 2,173,852 then outstanding Series 1 Warrants was removed. Because such warrants were no longer subject to down-round protection they were re-measured at fair value and classified as equity instruments. The overall impact of the removal of the down-round warrant protection, which was not material, was recorded during the nine month period ended September 30, 2013. As a result, during the nine month period ended September 30, 2013 the Company recorded an additional non-operating expense of $1,617, and re-classified $3,918 from derivative liabilities on account of warrants to stockholders’ equity.
 
During the nine month period ended September 30, 2013, 152,157 Series 1 Warrants and 45,190 Series 2 Warrants were exercised. From Inception and through September 30, 2013, 4,807,257 Series 1 Warrants and 1,326,060 Series 2 Warrants were exercised.
 
(2) Conversion Warrants, Special Bridge Warrants and Reload Warrants
 
On July 19, 2012, the date of the Merger, Legal Parent’s outstanding warrants included: (i) 148,390 derivative warrants, at an exercise price of $0.94 per share, with a remaining contractual term of 2.44 years (the “Special Bridge Warrants”); (ii) 101,445 derivative warrants, at an exercise price of $0.94 per share, with a remaining contractual term of 2.44 years (the “Conversion Warrants”); (iii) 887,330 derivative warrants, at an exercise price of $1.76 per share, with a remaining contractual term of 4.55 years (the “Preferential Reload Warrants”); and (iv) 814,408 warrants, classified as equity, at an exercise price of $1.76 per share, with a remaining contractual term of 4.55 years (the “non-Preferential Reload Warrants”). During both the nine month period ended September 30, 2013, and from Inception through September 30, 2013, 127,192 Special Bridge Warrants and 86,954 Conversion Warrants were exercised. During the nine month period ended September 30, 2013, 10,000 non-Preferential Reload Warrants were exercised. From Inception and through September 30, 2013, 179,520 non-Preferential Reload Warrants and 726,721 Preferential Reload Warrants were exercised.
  
(3) Initial Public Offering Warrants
 
Upon completion of its initial public offering, in June 2010, the Legal Parent issued 4,784,000 warrants at an exercise price of $5.06 per share. These warrants are publicly traded and are exercisable until June 21, 2015, at an exercise price of $5.06 per share. As of September 30, 2013, all of these warrants were outstanding and classified as equity instruments.
 
(4) October 2012 Warrants
 
On October 12, 2012, the Company entered into an agreement with certain of its warrant holders, pursuant to which, on October 23 and 24, 2012, the holders exercised in cash 3,721,062 of their outstanding warrants, with an exercise price of $1.76 per share. In exchange, the Company granted such warrant holders unregistered warrants of the Company to purchase an aggregate of 3,000,000 shares of the Company’s common stock, par value $0.01 per share, at an exercise price of $5.06 per share (the “October 2012 Warrants”). The contractual life of these warrants is 2.66 years and because such warrants do not bear any down-round protection clauses they were classified as equity instruments. October 2012 Warrants were valued using the following assumptions: volatility: 68.1%, share price: $3.50-$3.77, risk free interest rate: 0.724% and dividend yield: 0%. The fair value of warrants issued in exchange for the exercise of the Company’s derivative warrants was accounted for as an inducement, therefore an amount of $2,883, was recorded as a non-operating expense. As of September 30, 2013, all October 2012 warrants were outstanding. 

Note 7. Revenue from Settlement and Licensing Agreement
 
On May 30, 2013, the Company’s subsidiary entered into a settlement and license agreement with Microsoft Corporation to resolve its patent litigation pending in the U.S. District Court for the Southern District of New York (I/P Engine, Inc. v. Microsoft Corporation, Case No. 1:13-cv-00688 (SDNY)). According to the agreement, Microsoft Corporation paid the Company $1,000 and agreed to pay 5% of any future amount Google pays for its use of the patents acquired from Lycos. The parties also agreed to a limitation on Microsoft Corporation's total liability, which would not impact the Company unless the amounts received from Google substantially exceed the judgment previously awarded. In addition, the parties also entered into a patent assignment agreement, pursuant to which Microsoft Corporation assigned six patents to I/P Engine. The assigned patents relate to telecommunications, data management, and other technology areas.
 
 
15

 
Note 8. Commitments and Contingencies
 
(a)   Litigation and legal proceedings
 
The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved and the fees can be reasonably estimated.
 
From October 2012 through October 7, 2013, the Company’s subsidiaries filed patent infringement lawsuits against the subsidiaries of ZTE Corporation in the United Kingdom, France, Germany and Australia and against ASUSTeK Computer, Inc. and ASUS Computer GmbH in Germany.
 
In such jurisdictions, an unsuccessful plaintiff may be required to pay a portion of the other party’s legal fees. Pursuant to negotiation with ZTE’s United Kingdom subsidiary, the Company placed two guarantees, in November 2012 and May 2013, to ensure payment should a liability by Vringo Infrastructure arise as a result of the two cases it filed. Defendants estimated the total possible liability to be no more than $2,900 for each case.
 
In addition, the Company may be required to grant additional guarantees, as necessary, in connection with its commenced proceedings against ZTE Corporation and its subsidiaries in Europe and Australia. It should be noted, however, that if the Company were successful on any court applications or the entirety of any litigation, ZTE Corporation would be responsible for a substantial portion of the Company’s legal fees.
 
(b)   Leases
 
The Company has entered into various operating lease agreements. Rent expense, which is primarily for its office spaces, for the nine month periods ended September 30, 2013 and 2012, was $175 and $62, respectively. Rent expense for the three month periods ended September 30, 2013 and 2012 was $68 and $40, respectively. The cumulative expense for the period from Inception until September 30, 2013, was $306.
 
Future minimum lease payments under non-cancelable operating leases for office space, as of September 30, 2013, are as follows:
 
Period ending December 31,
 
Amount
 
2013 (three months ending December 31, 2013)
 
$
56
 
2014
 
 
179
 
2015
 
 
104
 
 
 
$
339
 

Note 9. Risks and Uncertainties
 
(a)
 
New legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, could negatively affect the Company’s current business model. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect the Company’s ability to assert its patent or other intellectual property rights.
 
 
 
(b)
 
As part of the Company’s ongoing legal proceedings, the validity and/or enforceability of its patents is often challenged in a court or an administrative proceeding, as it is almost universal practice for the defendant in a patent litigation to seek to challenge the validity of the patent asserted in the same or a parallel proceeding and/or in an administrative proceedings before the relevant jurisdiction’s patent office. Currently, several of the Company’s patents are being challenged in several jurisdictions.
 
 
 
(c)
 
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains its cash, cash equivalents and short-term investments with various major financial institutions. These major financial institutions are located in the United States, Germany and Israel, and the Company’s policy is designed to limit exposure to any one institution.
 
(d)
 
A portion of the Company’s expenses are denominated in NIS, British Pound and Euro. If the value of the U.S. dollar weakens against the value of these currencies, there will be a negative impact on the Company’s operating costs. In addition, the Company is subject to the risk of exchange rate fluctuations to the extent it holds monetary assets and liabilities in these currencies.
 
 
16

 
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 (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “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 filed on March 21, 2013 and any future reports we file with the Securities and Exchange Commission. 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. In this report, “Vringo,” the “Company,” “we,” “us,” and “our” refer to Vringo, Inc.
 
Overview
 
All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Vringo, Inc., a Delaware corporation, and its consolidated subsidiaries for periods after the closing of the Merger, and to I/P and its consolidated subsidiaries for periods prior to the closing of the Merger unless the context requires otherwise. 
 
We were incorporated in Delaware on January 9, 2006 and commenced operations during the first quarter of 2006. In March 2006, we formed a wholly-owned subsidiary, Vringo (Israel) Ltd., for the primary purpose of providing research and development services. On July 19, 2012, Innovate/Protect, Inc., (“I/P”) merged with us through an exchange of equity instruments of I/P for those of Vringo. The Merger was accounted for as a reverse acquisition under which I/P was considered the accounting acquirer of Vringo. As such, the financial statements of I/P are treated as the historical financial statements of the combined company, with the results of Vringo included from July 19, 2012.
 
Our business strives to develop, acquire, license and protect innovation worldwide. Our attempts currently are focused on identification, acquisition and generation of economic benefits of intellectual property assets. We plan to continue to further expand our portfolio of intellectual property assets through acquisition and internal development of new technologies. We intend to monetize our rights in innovative technologies through a variety of value enhancing initiatives, including, but not limited to:
 
 
licensing,
 
 
strategic partnerships, and
 
 
litigation.
 
We are a development stage company. From the inception of I/P on June 8, 2011 (“Inception”) to date, we have raised approximately $97,378,000. These amounts have been used to finance our operations, as until now, we have not yet generated any significant revenues. From Inception through September 30, 2013, we recorded losses of approximately $57,059,000 and net cash used in operations was approximately $33,380,000. Our average monthly use of cash from operations for the nine month period ended September 30, 2013 was approximately $1,931,000. This is not necessarily indicative of the future use of our working capital. 
 
Intellectual Property
 
Search Patents
 
Upon Inception in June 2011, I/P acquired its initial patent assets from Lycos, Inc. (“Lycos”) through its wholly-owned subsidiary, I/P Engine, Inc. Such assets were comprised of eight patents relating to information filtering and search technologies. As one means of realizing the value of the patents acquired from Lycos, on September 15, 2011, I/P initiated (through its wholly-owned subsidiary I/P Engine) litigation in the United States District Court, Eastern District of Virginia, against AOL Inc. (“AOL”), Google, Inc. (“Google”), IAC Search & Media, Inc. (“IAC”), Gannett Company, Inc. (“Gannett”), and Target Corporation (“Target”) (collectively, the “Defendants”) for infringement regarding two of the patents acquired from Lycos (U.S. Patent Nos. 6,314,420 and 6,775,664) (collectively the “Patents”). The case number is 2:11 CV 512-RAJ/FBS. The court docket for the case, including the parties’ briefs, is publicly available on the Public Access to Court Electronic Records website (“PACER”), www.pacer.gov, which is operated by the Administrative Office of the U.S. Courts.
 
Trial commenced on October 16, 2012, and the case was submitted to the jury on November 1, 2012. On November 6, 2012, the jury unanimously returned a verdict as follows: (i) I/P Engine had proven by a preponderance of the evidence that the Defendants infringed the asserted claims of the patents; and (ii) Defendants had not proven by clear and convincing evidence that the asserted claims of the patents are invalid by anticipation. The jury also found certain specific facts related to the ultimate question of whether the patents are invalid as obvious. Based on such facts, on November 20, 2012, the court issued a ruling that the patents-in-suit were not obvious. The jury found that reasonable royalty damages should be based on a "running royalty", and that the running royalty rate should be 3.5%. The jury also found that the following sums of money, if paid now in cash, would reasonably compensate I/P Engine for the Defendants past infringement: Google: $15,800,000, AOL: $7,943,000, IAC: $6,650,000, Gannett: $4,322, Target: $98,833. On August 1, 2013, the District Court found that I/P Engine is entitled to supplemental damages from October 1, 2012 to November 20, 2012, in an amount to be determined; prejudgment interest from September 15, 2011 to November 20, 2012 in an amount to be determined; and post-judgment interest for Defendants' infringement in an amount to be determined. I/P Engine's motion for an award of post-judgment royalties is pending in the District Court.
 
 
17

 
Motions by I/P Engine for awards of pre-judgment interest, post-judgment interest, supplemental damages, and post-judgment royalties are pending in U.S. District Court. I/P Engine and Defendants have filed appeals with the Court of Appeals for the Federal Circuit. The docket numbers for the appealable cases are 13-1307 and 13-1311. The parties' filings are available on PACER.
 
As part of our ongoing legal proceedings, the validity and/or enforceability of the patents is often challenged in a court or an administrative proceeding, as it is almost universal practice for the defendant in a patent litigation to seek to challenge the validity of the patent asserted in the same or parallel proceeding and/or in an administrative proceedings before the relevant patent office. Currently, several of our patents are being challenged in several jurisdictions.
 
On March 15, 2012, Google submitted a request to the USPTO for ex parte reexamination of certain claims of U.S. Patent No. 6,314,420. On July 18, 2012, the USPTO issued a determination ordering a reexamination. On September 25, 2012, the USPTO issued a first, non-final office action where it adopted the rejections proposed by Google. Our response was filed on November 26, 2012. A final, appealable office action maintaining the rejections was mailed on May 3, 2013. An interview was held with the Examiner and on July 3, 2013 we filed a response. On September 13, 2013, the USPTO issued a certificate confirming that all of the claims in the '420 patent challenged by Google remain valid and unchanged. On September 20, 2013, the USPTO ordered a second reexamination of certain claims of the '420 patent based on a reference not relied upon by Google in the first reexamination. To date, the USPTO has not determined whether to reject the claims of the '420 patent.
 
On November 20, 2012, Google submitted a request to the USPTO for ex parte reexamination of certain claims of U.S. Patent No. 6,775,664 based on four prior art references. On January 17, 2013, the USPTO ordered reexamination based on only one of the four references submitted by Google. On February 8, 2013, Google filed a second request for reexamination based on the three references not adopted by the USPTO in the first proceeding. On March 7, 2013, the USPTO ordered a second reexamination proceeding. On May 10, 2013, the USPTO issued a first, non-final office action in the first reexamination. On June 13, 2013, the USPTO decided to merge the two reexamination proceedings. On June 25, 2013, the May 10 office action was rescinded and a new non-final office action was issued, rejecting the challenged claims based on two of the four references originally cited by Google. Our response was timely filed on August 26, 2013. An interview was subsequently held with the Examiner on September 16, 2013. On November 5, 2013, the USPTO mailed a notice that it will issue a certificate confirming that all of the claims in the 6,775,664 patent challenged by Google remain valid and unchanged.
 
To further realize the value of the patents acquired from Lycos, on January 31, 2013, I/P Engine filed an action asserting infringement of U.S. Patent Nos. 6,314,420 and 6,775,664 in the United States District Court, Southern District of New York, against Microsoft Corporation (“Microsoft”). On May 30, 2013, our subsidiary entered into a settlement and license agreement with Microsoft to resolve its patent litigation pending in the U.S. District Court for the Southern District of New York (I/P Engine, Inc. v. Microsoft, Case No. 1:13-cv-00688 (SDNY)). According to the agreement, Microsoft paid us $1,000,000 and agreed to pay 5% of any future amount Google pays for its use of the patents acquired from Lycos. The parties also agreed to a limitation on Microsoft's total liability, which would not impact us unless the amounts received from Google substantially exceed the judgment previously awarded. In addition, the parties also entered into a patent assignment agreement, pursuant to which Microsoft assigned six patents to I/P Engine. The assigned patents relate to telecommunications, data management, and other technology areas.
 
Infrastructure Patents
 
On August 9, 2012, we entered into a patent purchase agreement with Nokia Corporation ("Nokia"), pursuant to which Nokia sold us a portfolio consisting of over 500 patents and patent applications worldwide, including over 100 issued United States patents. We agreed to compensate Nokia with a cash payment and certain ongoing rights in revenues generated from the patent portfolio. The portfolio encompasses technologies relating to telecom infrastructure and handsets, including communication management, data and signal transmission, mobility management, radio resources management and services. Declarations have been filed by Nokia indicating that 31 of the 124 patent families acquired may be essential to wireless communications standards. Standards represented in the portfolio are commonly known as 2G, 2.5G, 3G and 4G and related technologies and include GSM, WCDMA, T63, T64, DECT, LTE, and SAE. The purchase price for the portfolio was $22,000,000, and in addition we capitalized acquisition costs of $548,000. To the extent that the gross revenue (as defined in the purchase agreement) generated by such portfolio exceeds $22 million, a royalty of 35% of such excess would be payable to Nokia. The $22 million cash payment was made to Nokia on August 10, 2012. The purchase agreement provides that Nokia and its affiliates will retain a non-exclusive, worldwide and fully paid-up license (without the right to grant sublicenses) to the portfolio for the sole purpose of supplying (as defined in the purchase agreement) Nokia’s products. The purchase agreement also provides that if we bring a proceeding against Nokia or its affiliates within seven years, Nokia shall have the right to re-acquire the patent portfolio for a nominal amount. Further, if we either sell to a third party any assigned essential cellular patent, or more than a certain portion of the other assigned patents (other than in connection with a change of control of our company), or file an action against a telecom provider to enforce any of the assigned patents (other than in response to any specified action filed by a telecom provider against us or our affiliate) which action is not withdrawn after notice from Nokia, then we will be obligated to pay to Nokia a substantial impairment payment. 
 
As one of the means of realizing the value of the patents on telecom infrastructure, our wholly-owned subsidiaries, Vringo Infrastructure, Inc. (“Vringo Infrastructure”) and Vringo Germany GmbH (“Vringo Germany”) have filed a number of suits in European jurisdictions and in Australia, alleging infringement of certain U.S., European and Australian patents.
 
ZTE
 
On October 5, 2012, Vringo Infrastructure, filed a suit in the UK High Court of Justice, Chancery Division, Patents Court, alleging infringement of European Patents (UK) 1,212,919; 1,166,589; and 1,808,029. ZTE (UK) Ltd.’s formal response to the complaint was received on December 19, 2012 and included a counterclaim for invalidity of the patents in suit. Vringo Infrastructure responded to the defense on January 16, 2013. Vringo Infrastructure filed a further UK suit on December 3, 2012, alleging infringement of European Patents (UK) 1,221,212; 1,330,933; and 1,186,119. ZTE (UK) Ltd.’s response to this claim was received on February 27, 2013 and included a counterclaim for invalidity of the patents in suit. Vringo Infrastructure’s reply was filed on March 20, 2013. The UK complaints allege that ZTE’s cellular network elements fall within the scope of all six patents, and ZTE’s GSM/UMTS multi-mode wireless handsets also fall within the scope of at least the 1,808,029 patent. Declarations have been filed at the European Telecommunications and Standards Institute (ETSI) that cover all the patent applications from which the patents in suit are derived. On June 5, 2013, the Court held a case management conference and on June 6, 2013, made an order governing the schedule of the two UK suits. The first UK case will hold a trial with the trial period commencing on October 27, 2014 and the second UK case will hold a trial with the trial period commencing on June 8, 2015.
 
 
18

   
Germany has a split-infringement system where patent infringement cases are heard in district courts of general jurisdiction and nullity cases (where the validity of patents is adjudicated) are heard in a different proceeding in the Federal Patents Court. Appeals from the district courts and the Federal Patents Court are heard by distinct appellate courts. Appeals from the district courts are heard by the Higher Regional Court, decisions of which can be appealed to the Supreme Court. Appeals from the Federal Patents Court are heard by the Supreme Court. Infringement actions are typically decided by the trial court within 8 to 13 months (although, depending upon the venue, they can take as long as 18 months). Nullity cases are typically decided by the trial court within 18 to 22 months. If the district court finds a patent infringed, absent specific factors, it will generally issue an injunction. Where there is a pending nullity action and the accused infringer has not sufficiently rebutted the asserted patent’s presumption of validity, the district court will generally issue an injunction upon payment of a security. Where the presumption of validity has been sufficiently rebutted, the district court will generally stay proceedings pending the outcome of the nullity case if infringement is established at trial. Typically, in German infringement proceedings each party is allowed to make two filings to the Court prior to trial. After the plaintiff files its complaint, the defendant is given time to file its response. The parties are then given dates for the plaintiff to file its second filing (often called a “Replica”) and for the defendant to file its second filing (often called a “Rejoinder”). Typically there are no additional filings or documents allowed.
 
On November 15, 2012, Vringo  Germany filed a suit in the Mannheim Regional Court in Germany, alleging infringement of European Patent (DE) 1,212,919. The litigation was expanded to include a second patent on February 21, 2013, alleging infringement of European Patent (DE) 1,186,119. At the Mannheim Court’s request, both cases were scheduled to be heard on the same day, October 15, 2013. On October 9, 2013, Vringo Germany was notified that the hearing on infringement that was scheduled for October 15, 2013 will now take place on November 12, 2013. On November 4, 2013, Vringo filed a further brief in the 1,212,919 proceedings introducing an additional independent patent claim and asserting infringement by ZTE eNode B infrastructure equipment used in 4G networks. In light of the additional products accused, the court has moved the hearing date for the 1,212,919 case to early next year, while the 1,186,119 case will still be heard on November 12, 2013.
 
To date, ZTE has not made an Orange Book offer with respect to either European Patent (DE) 1,212,919 or European Patent (DE) 1,186,119. Under German law, where a defendant alleges: (a) plaintiff has a dominant position under the relevant competition (a/k/a anti-trust) laws, for example, because of plaintiff’s assertion of a patent that is essential to a technical standard, and (b) plaintiff is not willing to license under fair, reasonable and non-discriminatory terms (FRAND), and if the defendant’s allegation is accepted by the Court, the Court may decide not to grant an injunction. It is a condition of this defense in Germany that the defendant must make a binding, unconditional offer to the plaintiff to conclude a license on FRAND terms and stay bound by that offer. Furthermore, the Orange Book offer must be such that its rejection by the plaintiff would amount to an abuse of a dominant position. Finally, defendant must behave like a licensee and provide regular royalty reports and remit payment to plaintiff or pay a sufficient amount of the royalties for prior infringement into escrow.
 
On February 14, 2013, ZTE filed a nullity suit with respect to European Patent (DE) 1,212,919 in the Federal Patents Court, Munich, Germany, alleging invalidity of the patent. Vringo filed its responsive pleading on July 25, 2013 and Vringo received ZTE’s responsive pleading on September 13, 2013. The Court has not set a deadline for Vringo’s next brief. Trial in the nullity suit has not been scheduled and is not anticipated before July 1, 2014.
 
On May 3, 2013, ZTE filed a nullity suit with respect to European Patent (DE) 1,186,119 in the Federal Patents Court in Munich, Germany. Vringo filed its intent to defend the validity of the patent on July 11, 2013. Vringo’s first responsive pleading is due on November 11, 2013. Trial in the nullity suit has not been scheduled and is not anticipated before July 1, 2014.
 
On September 13, 2013, Vringo Germany filed a suit in the Regional Court of Düsseldorf, alleging infringement of European Patent (DE) 0,748,136. Complaints in this action were filed against both ZTE Germany and ZTE China. A case management hearing is scheduled to take place on December 3, 2013.
 
In November and December 2012, ZTE initiated invalidity proceedings in China against Chinese Patents ZL00806049.5; ZL 00812876.6; and ZL200480044232.1, before the Patent Reexamination Board of the Patent Office of the People’s Republic of China. These patents are the Chinese equivalents of European Patents 1,212,919; 1,166,589; and 1,808,029. Vringo Infrastructure filed responses to these actions in January and February 2013. The oral hearing for ZL200480044232.1 (equivalent to European Patent 1,808,029) occurred on April 10, 2013. On July 3, 2013, our patent rights were upheld. We are currently awaiting information as to whether or not ZTE will appeal this decision. An oral hearing for ZL00806049.5 (equivalent to European Patent 1,166,589) occurred on May 9, 2013 and a ruling is still pending.
 
On March 29, 2013, Vringo Infrastructure filed a patent infringement lawsuit in France against ZTE, China and its French subsidiary, ZTE France SASU, in the Tribunal de Grande Instance de Paris, alleging infringement of the French part of European Patents 1,186,119 and 1,221,212 by ZTE devices, which are believed to fall within the scope of these patents. Vringo Infrastructure filed the lawsuit based on particular information uncovered during a seizure to obtain evidence of infringement, known as a saisie-contrefaçon, which was executed at two of ZTE's facilities in France.
 
French litigations follow a similar filing structure to German litigations (save that validity is not separated from infringement), with each side typically allotted two filings on the merits. Scheduling conferences occurred on June 25 and 27, 2013. The oral hearing in relation to European Patents (FR) 1,186,119 and 1,221,212 has been scheduled to take place on December 8, 2014 before the 3rd division of the 3rd chamber of the Tribunal de Grande Instance de Paris (specializing in IP matters). ZTE filed its first responsive pleading on the merits on October 29, 2013 and held a third scheduling conference on that same date. Subsequent pleadings are due for us on February 4, 2014 and for ZTE on May 20, 2014. The closing of the proceeding is set for June 10, 2014 and the oral hearing has been scheduled for December 8, 2014.
 
 
19

 
On June 11, 2013, Vringo Infrastructure filed a patent infringement lawsuit against ZTE (Australia) Pty Ltd. (ZTE Australia), an Australian subsidiary of ZTE Corporation. The lawsuit filed in the Federal Court of Australia in the New South Wales registry, alleges infringement by ZTE Australia of Australian Standard Patents AU 2005/212,893 and AU 773,182. The proceeding has been assigned Case No. NSD1010/2013. The patents in suit relate to telecommunications infrastructure equipment and mobile devices. The pleadings were completed on October 21, 2013 and a further directions conference (similar to a US Rule 16 conference) was held on November 4, 2013. We currently anticipate that the Court will set a trial date in the second half of 2014.
 
On September 6, 2013, Vringo Infrastructure filed a preliminary inquiry order against ZTE entities Sociedad Anonima de Comunicaciones Zhong Xing ZTE Corporation, Sucursal en Espana, and ZhongXing Corporation, S.L. in the Commercial Court of Madrid, Spain, requiring the respondent companies to provide discovery relating to alleged infringement of Spanish Patent 2220484 (EP (ES) 1,186,119). ZTE refused service of the preliminary inquiry order and failed to oppose the order by the deadline of September 16, 2013. The Court will hold a hearing on November 11, 2013, at which time the respondent companies must produce financial, commercial, bank, and customs documents related to sales of certain ZTE base station products.
 
ASUS
 
On October 4, 2013, Vringo Germany filed a patent infringement lawsuit against ASUSTeK Computer, Inc. and ASUS Computer GmbH. The lawsuit, filed in the Düsseldorf Regional Court, alleges infringement of European Patent (DE) 0,748,136. The patent in suit relates to devices, including those with hotspot functionality, that provide data services between two different wireless/cellular networks. The schedule hearing for the rest of the case is set for December 3, 2013. The patent in suit relates to devices, including those with hotspot functionality, that provide data services between two different wireless/cellular networks. The schedule hearing for the rest of the case is set for December 3, 2013.
 
ADT/Tyco
 
On September 12, 2013, Vringo Infrastructure filed a patent infringement lawsuit against The ADT Corporation, ADT LLC, ADT Security Services, Inc., and Tyco Integrated Security, LLC in the United States District Court for the Southern District of Florida. The lawsuit alleges infringement of U.S. Patent No. 6,288,641, entitled "Assembly, and Associated Method, for Remotely Monitoring a Surveillance Area".
 
Mobile Social Applications
 
We have developed a platform for the distribution of mobile applications which enable direct to consumer and business-to-business delivery models. We continue to leverage these technologies and integrate these tools with mobile operators, content providers, and handset manufacturers.
 
Our Video Ringtone product, a client-server based suite of mobile tools, enables users to create, download and share video ringtones and provides our business partners with a consumer-friendly and easy-to-integrate monetization platform. The standard revenue model for our video ringtone service offered through the carriers is a subscription-based model where users pay a monthly fee for access to our service and additional fees for premium content. Our free version has been released as an advertisement-supported applicatio