Annual Report 2017
A Globally Recognized Leader
in Cybersecurity
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
(650) 282 3228
www.finjan.com
In 1995, Shlomo Touboul, Finjan’s founder and lead inventor on a number of our patents, became
intrigued with the Java programming language. While the commercial success of Java, at the time
was unknown, it has become one of the most widely used software technologies to deliver content
and information over networks and the internet. Shlomo immediately recognized that this program
would require a new type of security to protect it from hackers.
In fact the name “Finjan” is derived from the word used in the Middle East to describe a vessel or
small cup that contains or “protects” the coffee - or java. Shlomo believed the name was appropriate
because the idea for the company and the associated technology came from his realization that
with the introduction of the Java programming language, the existing security software would not
be able to contain or protect against the possible threats to a computer using Java.
Executive Officers
Board of Directors
Stock Listing
Phil Hartstein
President and Chief Executive Officer
Julie Mar-Spinola
Chief Intellectual Property Officer
and VP, Legal Ops
Michael Noonan
Chief Financial Officer and Treasurer
Eric Benhamou 1
Chairman and CEO of Benhamou
Global Ventures, LLC
Daniel Chinn
Partner at Tulchinsky Stern Marciano
Cohen Levitski & Co.
Glenn Daniel 1,2
Former Managing Director
Houlihan Lokey
Harry Kellogg 2,3
Vice Chairman, Emeritus
Silicon Valley Bank
Gary Moore
Former Co-President and COO
Cisco Systems
Alex Rogers 2,3
Managing Director of HarbourVest
Partners LLC
Michael Southworth 1
General Manager
Verint Systems, Inc
¹ Audit Committee
² Compensation Committee
³ Nominating and Corporate Governance Committee
The NASDAQ Capital Market
Ticker Symbol: FNJN
Offices
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
Email: investors@finjan.com
www.finjan.com
Independent
Registered
Public Accounting
Firm
Marcum LLP
750 Third Avenue, 11th Floor
New York NY, 10017
Phone: 212-485-5500
Transfer Agent and
Registrar
Computershare Investors Services
250 Royall Street
Canton, MA 02021
Phone: 877-373-6474
Annual Meeting
June 20, 2018, 9:00 a.m. PST
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
CORPORATE GOVERNANCE INFORMATION: We are committed to maintaining the highest standards of business conduct and corporate
governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining our integrity
in the marketplace. Accordingly, our Board has adopted and maintains a Code of Business Conduct and Ethics, a Code of Ethics for
Principal and Senior Financial Officers, and Charters for each of the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee. Please visit our website at www.finjan.com to view or obtain a copy of the current version of any
of these documents.
ADDITIONAL INFORMATION: We file annual, quarterly and periodic reports, proxy statements and other information with the Securities
and Exchange Commission. You may request a copy of any of these documents, at no cost to you, by writing or telephoning us at: Finjan
Holdings, Inc., 2000 University Avenue, Suite 600, East Palo Alto, CA 94303 Attention: Investor Relations, telephone (650) 282-3228. We
will not send exhibits to these reports unless the exhibits are specifically requested and you pay a modest fee for duplication and delivery.
Dear Shareholders,
2017 was a year of growth, validation, and investment, never losing site of the fact that at our core, Finjan is an
innovator with a culture and deep roots in the cyber security sector. With the strategic initiatives and best practices
implemented in 2014, the Company is, today, financially the strongest it has ever been with significant revenue
growth year-over-year and a balance sheet that has provided us the luxury of evaluating several capital allocation
strategies. This is all in an effort to continue enhancing shareholder value.
One of the key ingredients of our success in 2017 was continued momentum in our licensing and enforcement
programs. More specifically, we had a number of successful settlements in our longstanding litigation cases which
not only highlights the strength of our patent portfolio, but also underscores our willingness to work individually
with each licensee to arrive at a fair negotiated license. Today we have more than 20 licensees to the Finjan patent
portfolio with aggregate license value that exceeds $350 million. This is an enormous accomplishment that could
not be achieved without the talented team and strategy that was set in place years ago.
From where we sit today, we estimate that we have achieved licenses with approximately 35% of the total address-
able market, which includes our recent settlements. We are currently engaged with another 40% of the total market
opportunity, which includes current discussions with over 20 potential licensees as well as pending litigations.
Beyond that, we estimate approximately 25% of the total market opportunity remains untapped leaving plenty of
runway for future growth.
Phil Hartstein
President and CEO
Finjan Holdings, Inc.
Moreover Finjan’s portfolio of patents has been proven time and time again to be valuable and durable. Over the
past several years our patents have been challenged in more than 70 administrative proceedings, and unlike other
portfolios that have suffered through negative outcomes as a result of those proceedings, Finjan’s patents have
emerged virtually unscathed by these challenges. Just a few months back in Finjan’s patent infringement suit
against Blue Coat Systems, the Federal Circuit not only confirmed Finjan’s patent as valid and infringed, it also ex-
plicitly recognized Finjan “pioneered” behavior-based threat detection. This proclamation from the Federal Circuit
on the merits of Finjan’s patents is probably the most powerful to-date and has already served us well in both our
current licensing discussions as well as our recent settlements.
While the successful execution of our core licensing and settlement initiatives has resulted in significant financial
growth, we continue to wrestle with the fact that our revenues are often not predictable and often not recurring.
As such, we continue to explore opportunities to invest in partnerships that
lead us to a more predictable revenue stream. Our Finjan Blue subsidiary
with IBM is one example. This investment and strategic partnership has of-
fered us leverage and incremental value in our current licensing discussions.
In fact, we have already offset the initial investment expense as a result of
early licensing activity with that portfolio, specifically.
$50,484
Another area of investment is through our subsidiary, Finjan Mobile. While we
formed this subsidiary back in 2015, we spent the last two years developing
our mobile browsing and security offerings under the VitalSecurity® brand with
regular releases of new, feature rich, versions of our popular VPN application.
This product offers consumers a - top of the line – secured browser and the
embedded ability to connect privately to unsecured Wi-Fi and other risky ac-
cess points to the internet. We believe this offering is one of the strongest in the
market as it takes Finjan’s 20-year enterprise grade technology know-how and
puts it in the hands of the consumer. We remain optimistic about our Mobile
prospects and as such we are investing in both a rebranding of our app as well
as significant marketing resources to ultimately drive future conversions to paid
subscribers. We are also actively in the market exploring inorganic pathways
towards growth and we look forward to reporting back on our progress.
$41,169
$18,115
$13,678
$6,101
$4,687
2015
2016
2017
Strong Momentum Heading into 2018
• Cash
• Revenue
$80M*
$65M
1Q
2018
As we look toward the remainder of 2018 and beyond, our capital allocation strategy is underway. Together with
our esteemed Board of Directors, we are evaluating several options, which includes continuing to focus on our
core competency in monetizing our intellectual property assets, synergistic M&A opportunities to complement our
cybersecurity licensing and enforcement business and a longer-term view on returning value to shareholders. While
no decision has been made, this process is thoughtful and in the capable hands of management, advisors and the
board, who are all passionate about the future of Finjan.
I would like to thank our shareholders for their continued support as we move into future endeavors within the
Company. I would also like to acknowledge our employees, my talented colleagues on the executive team, as well
as the thoughtful insights from our experienced Board of Directors.
Sincerely,
*Includes redemption and retirement of $13.6M remaining Series A-1 Preferred Shares
Finjan Annual Report 2017 1
The Best-In-Class Mobile
Privacy And Security Products
Mobile Apps + Partnered Development + Patent Licensing + Enterprise Security
Given the uptrend in mobile device usage coupled with the amount of transient corporate
data, the average mobile user presents and represents higher risks of data loss through
hacking. The consumer mobile device has become so convenient that we often forget
about online security. We blindly agree to terms of service, purchase products, pay bills,
connect to free Wi-Fi, not thinking twice about our personal data stored on our devices.
Given this, in June of 2015, Finjan returned to the research and development world with
the creation of security products for mobile devices.
The goal of Finjan’s first product, the Finjan Mobile Secure Browser was to make it simple
to access and ensure that it’s easy to use as it protects your mobile device from malicious
content from the Internet. More importantly, unlike most mobile applications, the Finjan
Secure Browser is intended to bring transparency to users who search for anything on the
internet with the promise of not collecting user data – your data.
Our Gen4.0 mobile secure browser “FinjanMobile VitalSecurityTM” is built-off patented
Finjan technology. It features, among other things new branding, passcode access, menu
bar, settings, browsing history and detailed virus information. Protecting mobile devices
in the workplace and securing data so it doesn’t leave the network is next on our radar.
25%
OF MOBILE
DEVICES
ENCOUNTER A
THREAT EACH
MONTH
5M
SMARTPHONES
WERE LOST OR
STOLEN IN THE
U.S. IN 2014
75%
OR MORE MOBILE
APPS WOULD FAIL
BASIC SECURITY
TESTS
2 Finjan Annual Report 2017
Finjan Mobile fortifies your mobile device to defend
against spies, phish and malware so your datastream
is safe wherever you go.
Strategic Innovation
Fund Investment
Cyber strategic partners in JVP Fund VII
• Research & development, investment and incubation globally
• Access to a pool of innovative technology and valuable cybersecurity
patent assets
• 11 active cybersecurity investments to-date
• 2 early exits
Fund Exits
PAYPAL ACQUISITION
HUAWEI ACQUISITION
Finjan Annual Report 2017 3
2017 Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
___________
Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended: December 31, 2017
OR
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: 001-33304
___________
FINJAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
___________
Delaware
(State or other jurisdiction of
incorporation or organization)
2000 University Avenue, Suite 600, East Palo Alto, CA
(Address of principal executive offices)
Registrant’s telephone number, including area code: 650-282-3228
20-4075963
(I.R.S. Employer
Identification No.)
94303
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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
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 (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
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 the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2017, there were 26,890,677 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding. Of
these, 21,506,948 shares were held by non-affiliates of the registrant. The market value of securities held by non-affiliates was $70,542,789 as
of June 30, 2017, based on the closing price of $3.28 for the registrant’s common stock on June 30, 2017.
As of March 7, 2018, there were 27,719,828 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Finjan Holdings, Inc.’s Proxy Statement in connection with its Annual Meeting of Stockholders to be held in 2018 are
incorporated by reference into Part III of this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
PART I
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
LEGAL PROCEEDINGS
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
SELECTED FINANCIAL DATA
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16.
FORM 10-K SUMMARY
SIGNATURES
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26
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37
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following discussion includes forward-looking statements about the Company’s business, financial condition and
results of operations, including discussions about management’s expectations for the business. These statements include statements
regarding our expectations, intentions, beliefs and projections about our future results, performance, prospects and opportunities.
These statements can be identified by the fact that they do not relate strictly to historical or current facts or by the use of words
such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “potential,” “should,” “will,”
“will be,” “would,” and the negative of these terms and similar expressions, but this is not an exclusive way of identifying such
statements. Readers are cautioned that forward-looking statements are not guarantees of future performance. Our actual results,
performance and achievements may differ materially from those expressed in, or implied by, the forward-looking statements
contained in this report as a result of various risks, uncertainties and other factors. Important factors that could cause our actual
results to differ materially from our expectations include, without limitation, our ability to execute our business plan, the outcome
of pending or future enforcement actions, our ability to expand our technology portfolio, the enforceability of our patents, our
ability to raise additional capital on acceptable terms, our ability to continue to meet listing requirements of the NASDAQ Capital
Market, the continued use of our technologies in the market, the development or continuation of a liquid trading market for our
securities, regulatory developments and other factors described under Item 1A. “Risk Factors,” as set forth in this Annual Report
on Form 10-K, and any subsequent quarterly or current reports. The following discussion should also be read in conjunction with
the audited and unaudited consolidated financial statements and notes thereto as set forth in this Annual Report on Form 10-K,
and in any subsequent quarterly or current reports.
The Company will continue to file annual, quarterly and current reports, proxy statements and other information with
the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the dates specified in such
filings. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not undertake
any obligation to update any forward-looking statements to reflect events or circumstances arising after any such date, whether
as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements
included in this report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements
attributable to us are expressly qualified by these cautionary statements.
3
ITEM 1. BUSINESS.
Overview
PART I
Finjan Holdings, Inc. (the “Company” or “Finjan Holdings”) is a cybersecurity company focused in four business lines; intellectual
property licensing and enforcement, mobile security application development, advisory services, and investing in cybersecurity
technologies and intellectual property. Licensing and enforcement of the Company's cybersecurity patent portfolio is operated by
its wholly-owned subsidiary Finjan, Inc. (“Finjan”).
Finjan Holdings was incorporated in Delaware in January of 2006, with Finjan becoming a wholly owned subsidiary of Finjan
Holdings in June of 2013 after a merger transaction resulting in the public trading of our common stock. Our common stock has
been trading on the NASDAQ Capital Market ("NASDAQ") since May 2014.
Founded in 1997, Finjan developed software and hardware-based web and network security technologies capable of detecting
previously unknown and emerging threats on a real-time, behavior-based, basis, in contrast to signature-based methods of
intercepting only known threats to computers. The older, signature-based methods were standard in the web and network security
industry during the 1990s. Finjan invested heavily in both research and development of its technologies and in protecting its
innovations by securing patents covering them. As the web and endpoint security industries - known as cybersecurity - have
transitioned to behavior-based detection of malicious code, we believe that our patented technologies continue to be widely used,
without license, by third parties in a number of market segments.
During the years ended December 31, 2017, 2016 and 2015, we generated revenue from our cybersecurity business of approximately
$50.5 million, $18.4 million and $4.7 million, respectively.
During the years ended December 31, 2017 and 2016 our net income was approximately $22.8 million and $0.3 million, respectively,
compared to a net loss of $12.6 million during the year ended December 31, 2015.
As used in this Annual Report, references to the “Company,” “we,” “us,” and “our” are used to refer collectively to Finjan Holdings,
Inc. and it subsidiaries, unless otherwise indicated or the context requires.
Finjan Holdings Corporate Operating History
Finjan, Inc., our subsidiary, was founded in 1997 as a wholly-owned subsidiary of Finjan Software Ltd (“FSL”), an Israeli
corporation, to cultivate proprietary technologies that focused on proactively detecting threats to web and network traffic by
identifying patterns and behavior of web and network viruses and other malicious code, rather than relying on lists of threats known
within the web and network security industry. These technologies proactively scan and repel the latest, and often unknown, threats
to network, web, and endpoint devices on a real-time basis. Following the development of its patented technologies, FSL, together
with its subsidiaries, provided secure web gateway solutions, including software and hardware, to the enterprise and endpoint
markets both directly and through technology partners and original equipment manufacturers ("OEMs").
In 2002, FSL engaged in a reorganization in which Finjan Software, Inc. (“FSI”), a Delaware corporation, was formed to acquire
and hold all of the capital stock of Finjan. Between 2002 and 2009, FSI focused its efforts on research and development and sales
and marketing activities in an effort to bolster its position in the security industry and enhance its platform of web and network
inspection technologies. Throughout that time period, FSI’s activities were funded primarily by venture capital and private equity
firms with experience providing capital and management expertise to software security firms, some with investment and operational
experience within Israel’s cybersecurity and technology sectors. Finjan also received financial backing from multi-national software
and technology companies.
Between approximately 2002 and 2006, competitors in the web and network security industry began moving towards real-time,
behavior-based, proactive threat detection, at times in violation of Finjan’s patent rights. As a result, and beginning in 2005, Finjan
commenced its licensing program around its patents. The first license, issued in 2005, was to Microsoft. In 2006, Finjan also
initiated its first patent infringement litigation against a third party it believed was infringing its patents.
4
In October 2009, FSI transferred its portfolio of intellectual property to Finjan (its wholly-owned subsidiary at the time). Thereafter,
in November 2009, FSI sold certain assets, including certain of its operating subsidiaries, not including Finjan, and its sales and
marketing assets to M86 Security ("M86"). Finjan also granted a fully-paid, non-exclusive patent license to M86, in consideration
for which M86 issued shares of its common stock to Finjan and FSI. In connection with that transaction, and subsequent to
November 2009, FSI and its remaining subsidiaries (including Finjan) ceased the development, manufacture, marketing and sale
of its products, as well as research conducted through its Malicious Code Research Center as part of a confidential non-compete
provision. Finjan retained ownership of its patents and all related rights. In March 2012, M86 merged with Trustwave Holdings,
Inc. ("Trustwave") through which M86’s license from Finjan was renewed with Trustwave to include an expanded scope and an
extension of the aforementioned non-compete for the development of software and hardware security products. In September
2015, Trustwave was acquired by Singapore Telecom ("SingTel").
Following the M86 and related transactions, and during an intervening period between 2009 and 2013, Finjan's existing investors
financed its activities, which consisted primarily of enforcing its intellectual property in the security sector while the non-compete
provision with M86 and Trustwave was in place.
In April 2013, Finjan distributed all securities it held in two unaffiliated entities to FSI and made a payment of cash in an amount
sufficient to repay and satisfy in full a pre-existing intercompany loan from FSI to Finjan. Following that distribution, the board
of directors and stockholders of FSI approved the dissolution of, and a plan of liquidation for FSI that resulted in, among other
things, the distribution of Finjan common stock to certain of FSI’s stockholders.
Finjan Holdings was capitalized with more than $30 million from Finjan's shareholders who, at the time of the listing on NASDAQ,
owned approximately 91.5% of the Company’s public equity. Finjan’s shareholders outlined a vision as a public company to
continue the licensing and enforcement of Finjan’s patented technologies as well as continuing to invest in new cybersecurity
technologies and services.
In November 2013, Finjan Holdings made its first investment into an innovation fund focused on new cybersecurity technologies.
The Company committed $5 million as a strategic limited partner to a fund managed by Jerusalem Venture Partners ("JVP"). JVP’s
newly created Cyber Strategic Partners Fund VII was co-invested by the Company and three other multi-national companies. To
date, there are eleven portfolio investments made through the JVP fund and the Company has already received distributions from
its investment with JVP as two of the portfolio companies exited through an acquisition in 2015 and 2016.
In March 2015, the non-compete and confidentiality provisions related to the M86 and Trustwave transactions expired. Within
three months the Company had announced it was launching an advisory services business and entering mobile security development.
Today the Company operates its advisory services business through its subsidiary CybeRisk Security Solutions, Ltd ("CybeRisk")
and its mobile security business through its subsidiary Finjan Mobile, Inc. ("Finjan Mobile"). CybeRisk delivers global advanced
cyber risk and cyber security advisory services. Finjan Mobile fortifies mobile devices against spies, phishing and malware attacks.
In August 2017, Finjan Holdings formed Finjan Blue, Inc. ("Finjan Blue") to support development and licensing efforts relating
to the IBM Security Patents obtained by Finjan Blue through the Patent Assignment and Support Agreement with IBM. The
Agreement, includes pathways for Finjan and IBM to consider development efforts in the future and provides for the sharing of
pertinent institutional knowledge and resources by IBM to Finjan Blue.
Licensing and Enforcement – Licensing Best Practices
Under U.S. patent law, a patent owner has the right to exclude others from making, selling or using the owner’s patented technology
without a license to do so. Through Finjan, we generate revenues and related cash flows by granting intellectual property licenses
for the use of patented technologies that we own. We actively license and enforce our patent rights against unauthorized use of
our patented technologies (i.e. potential infringers). Many of our license agreements, whether entered into via negotiated
transactions (i.e. licensing transactions) or through a settlement or court ordered judgment (i.e. litigation action) or otherwise, are
structured on a fully paid-up basis (often referred to as a “global peace license”). For such licenses, we generally agree to a lump
sum license fee to be paid upon entering into the license or in accordance with a mutually agreed installment schedule. Some of
our license agreements, however, provide for future royalty payments in the event the licensee achieves certain milestones specified
in the applicable license agreement. Our license agreements largely contemplate recovery of fees for sales made prior to the
effective date of the license, as well as for future sales through a defined termination date, in an amount related to the royalties we
would have received had a license been in effect at the time of such sales.
How we conduct our licensing programs and enforcement actions is generally guided by our “Licensing Best Practices,” which
we adopted in March 2014 to demonstrate our commitment to ethical, transparent and consistent business practices for intellectual
property licensing. These Licensing Best Practices are based on the Company’s core values. In an effort to encourage meaningful
5
discussion and drive real change in the licensing practices of entities that license (and may or may not directly manufacture or sell
products) their respective patent portfolios, we called upon the IP industry to adopt similar initiatives that support technological
advancements, investments in innovation and continued job creation, while preserving a strong patent system. We continue to be
involved in industry efforts in this area, we regularly receive feedback on our Licensing Best Practices, and we remain open to
modifying our position based on potential adoption by broader industry groups.
Our Licensing Best Practices include seven actionable elements:
•
•
•
•
•
•
•
Ensure focused licensing and enforcement programs pursue the provider of the patented technology and not its
customers, consumers or end users.
Conduct reasonable diligence to determine a patent's enforceability and use with respect to prospective licensees and
make that information available to them.
Respect procedural rights and judicial efficiency in the courts and in the prosecution and protection of IP behind the
innovation.
Be transparent with the intent in each discussion and articulate the cause and effect scenarios which would prompt
a shift in communication and an escalation of each discussion.
Provide useful facts to prospective licensees and defendants to foster productive business discussions early and often
to aid in informed decision-making.
Offer fair value licenses or settlements based on legitimate factors and considerations.
Commit to keeping lines of communications open between the patent owner and prospective licensee to preserve a
path for the parties to find an amicable solution or resolution for their respective businesses.
In some cases, notwithstanding our pursuit of negotiated license transactions based on our Licensing Best Practices, unlicensed
users of our technologies may be unwilling, at least initially, to negotiate or pay reasonable royalties for their use (i.e. infringement)
of our patented technologies and often dispute any allegations of patent infringement. If we believe a party is infringing one or
more of our patents and such party refuses to take a license, we may institute legal action against such party. In a patent infringement
lawsuit, we typically seek damages for past infringement and an injunction against future infringement. We evaluate, on a case-
by-case basis, whether to commence litigation to preserve our patent rights, the value of our portfolio and the value of the licenses
to our existing licensees. Even if litigation is commenced, however, we endeavor to keep the option for early resolution of the
dispute between the parties available to the extent practicable.
Licensing and Enforcement – Legacy Activities, Prior to 2013
In June 24, 2005, Finjan’s then parent, FSL, entered into a patent license agreement with Microsoft Corporation for $8 million in
cash as well as other valuable financial and non-financial consideration. The license grant includes, among other things, a
worldwide, non-exclusive, nontransferable royalty-free license for Microsoft and its affiliates to make, have made, use, sell, offer
for sale, import and distribute licensed products, among other rights.
In June 2006, Finjan, as successor to its parent FSI, filed a patent infringement lawsuit against Secure Computing Corp. ("Secure")
and its subsidiaries in the United States District Court for the District of Delaware, resulting in a judgment of approximately $37.3
million, including interest and enhancements. In September 2011, Finjan received proceeds of approximately $28.0 million, net
of $9.3 million contingency legal fees, from Secure including $3.1 million of interest, in satisfaction of the judgment. In July 2010,
Finjan filed a patent infringement lawsuit against five additional software and technology companies in the U.S. District Court of
Delaware, which we refer to as the “2010 Litigation.” In April 2012, Finjan entered into a binding memorandum of understanding
with one of the parties to the 2010 Litigation pursuant to which Finjan agreed to withdraw its claims against such party and grant
it a license to use Finjan’s patents in exchange for equity in such party and other consideration. The license is fully paid up unless
the holder of the license has aggregate annual net sales to third-party distributors or re-sellers in excess of $10 million (which has
not been achieved to date). In addition, Finjan signed a confidential settlement, release and license agreement with another party
to the 2010 Litigation in November 2012. Pursuant to such agreement, Finjan received $85 million in exchange for a one-time
fully paid-up license, comprising a perpetual, non-exclusive worldwide license to Finjan’s patent portfolio as of the date of such
agreement and patents with a first effective priority date occurring at any time prior to November 2022 that Finjan or its affiliates
may own or control after the date of such agreement.
6
Licensing and Enforcement – Current Activities, Post 2013
Since completing the merger in June 2013, we have commenced preliminary discussions with numerous potential licensees and
have filed a number of patent infringement lawsuits in the Northern District of California, where such lawsuits were warranted. In
each case, we endeavor to adhere to our high standards and stated Licensing Best Practices. For additional information regarding
pending litigation, see “Item 3. Legal Proceedings.”
On June 30, 2014, Finjan filed a patent infringement lawsuit against Symantec Corporation (“Symantec”) in the United States
District Court for the Northern District of California, asserting that Symantec is directly and indirectly infringing certain of Finjan’s
patents, which Complaint was amended on September 11, 2014.
On September 24, 2014, Finjan entered into a license agreement with a third party against whom Finjan had filed a patent
infringement lawsuit in the Northern District of California, in settlement of such suit. Pursuant to this agreement, the parties
mutually agreed to dismiss the infringement litigation, and each party gave the other a general release for all claims that it might
have against the other, known or unknown, based on the actions of either party on or before the date of the settlement. Under the
license agreement, a third party agreed to pay Finjan a license fee of $8 million payable in four installments. The first installment
of $3 million was paid upon execution of the agreement and filing of the dismissal with prejudice, the second installment of $2
million was paid on January 16, 2015, the third installment of $2 million was paid on January 14, 2016, and the fourth and final
installment of $1 million was paid on January 13, 2017.
On April 7, 2015, Finjan entered into a Confidential Asset Purchase and Patent License Agreement, effective as of April 7, 2015,
with F-Secure Corporation, a company incorporated in Finland (“F-Secure”). The agreement provides for F-Secure to pay Finjan
the sum of $1.0 million in cash, of which $0.7 million was received and recognized as revenues in 2015 and the remaining balance
of $0.3 million received and recorded as revenue on March 31, 2016, in accordance with the Company’s revenue recognition
policy, as described in Note 2 of our Financial Statements. The agreement also provided for the assignment by F-Secure to Finjan
of two patents, U.S. Patent Nos. 8,474,048 and 7,769,991, including among other things, all progeny applications or patents, foreign
counterparts and reissues (the “F-Secure Patents”). In exchange for the foregoing and other valuable consideration, Finjan agreed
to, subject to certain restrictions, limits and other conditions, grant F-Secure a worldwide, fully-paid, non-exclusive field of use
license to Finjan patents owned as of the effective date or acquired by Finjan or its affiliates within two years from the effective
date, as well as to the F-Secure Patents.
On August 4, 2015, a jury in the Northern District of California returned a verdict that Blue Coat Systems, Inc. ("Blue Coat")
infringed 5 Finjan patents and awarded Finjan approximately $39.5 million in damages. Prior to the conclusion of this lawsuit,
Finjan filed a second separate action against Blue Coat alleging infringement of Finjan patents by new products and services sold
by Blue Coat. On October 14, 2016, Finjan filed a third case against Blue Coat in Germany. The second case against Blue Coat
went to trial in February 2018. On March 6, 2018, Blue Coat withdrew their nullity action in Germany.
On November 15, 2015, Finjan and Avast Software s.r.o., a company organized under the laws of the Czech Republic ("Avast")
entered into a Confidential Patent License, Settlement and Release Agreement, under which Avast licenses from Finjan a worldwide,
fully-paid up, non-exclusive, perpetual, irrevocable license under the identified Finjan patents and related patent rights to use,
make, have made, sell, offer to sell, import, export, and/or otherwise distribute Avast covered products through multiple tiers of
distribution. In consideration of the agreement, Avast agreed to pay Finjan $2.975 million in cash which was recorded as revenue
in the fourth quarter of 2015 in accordance with the Company’s revenue recognition policy, as described in Note 2 of our Financial
Statements. On January 19, 2017, Finjan filed a complaint against Avast and AVG Technologies B.V. (“AVG”) as Avast's acquisition
of AVG triggered certain terms in the Patent License Agreement that excludes an acquired company’s products as licensed. On
March 24, 2017, Finjan and Avast entered into an amendment to the license agreement whereupon Finjan dismissed its breach of
contract and patent infringement claims against Avast and AVG with prejudice in exchange for the payment by Avast to Finjan of
$7.745 million, which was received on March 24, 2017 and was recorded as revenue in the first quarter of 2017, in accordance
with the Company's revenue recognition policy, as described in Note 2 of our Financial Statements. Specific terms of the amendment
to the agreement are confidential.
On December 30, 2015, Finjan and a U.S.-based network security company ("Licensee") entered into a Confidential Patent License,
Settlement and Release Agreement under which Licensee received from Finjan a worldwide, non-exclusive, irrevocable license
under the identified Finjan patents and related patent rights to use, make, have made, sell, offer to sell, import and otherwise dispose
of any and all Licensee products or services, alone or in combination with other Licensee products and services. In consideration
for the license, Licensee agreed to pay Finjan $3.65 million. A first payment of $1.0 million on December 31, 2015 was recorded
as revenue in the fourth quarter of 2015 and the remaining $2.65 million was recorded as revenue in 2016, in accordance with the
Company’s revenue recognition policy, as described in Note 2 of our Financial Statements.
7
On June 3, 2016, Finjan entered into a Confidential Patent License, Settlement and Release Agreement (“June 3, 2016 License”)
with Proofpoint, Inc. (“Proofpoint”) and Armorize Technologies, Inc. As part of the June 3, 2016 License, Case No. 3:15-cv-5808-
HSG, entitled Finjan, Inc. v. Proofpoint, Inc. and Armorize Technologies, Inc., pending before the Honorable Haywood S. Gilliam,
Jr. in the U.S. District Court for the Northern District of California, was dismissed with prejudice on June 7, 2016. The June 3,
2016 License provides for Proofpoint to pay Finjan the sum of $10.9 million in cash, of which $4.3 million was received on June
6, 2016, $3.3 million was received on December 28, 2016, and $3.3 million was received on December 29, 2017. The Company
recognized $7.6 million of the $10.9 million license as revenues as of December 31, 2016, as such amount was determined to be
fixed and determinable, in accordance with the Company’s revenue recognition policy as described in Note 2 of our Financial
Statements. The remaining balance of $3.3 million under the terms of the June 3, 2016 License was recognized as revenues as of
December 31, 2017. In exchange for the foregoing and other valuable consideration, Finjan agreed to, subject to certain restrictions,
limits and other conditions, grant Proofpoint a worldwide, non-royalty bearing, fully paid-up (as of the final payment), nonexclusive,
perpetual, irrevocable (except in the case of non-payment by Proofpoint or other material breach) license under Finjan’s patents
as specified in the June 3, 2016 License. Certain portions of the June 3, 2016 License are subject to Confidential Treatment pursuant
to a Confidential Treatment request filed with the Securities and Exchange Commission (“SEC”) on August 8, 2016 and Confidential
Treatment Order granted by the SEC on September 26, 2016.
On June 30, 2016, Finjan entered into a Confidential Patent License Agreement (the “June 30, 2016 License”) with a European
cloud-based network security firm (the “2016 European Licensee”). The June 30, 2016 License provides for the 2016 European
Licensee to pay Finjan $565,000 in cash, which was paid on or about the time of execution of the June 30, 2016 License. Finjan
recognized all of the $565,000 license as revenue as of December 31, 2016, as such amount was determined to be fixed and
determinable, in accordance with the Company’s revenue recognition policy as described in Note 2 of our Financial Statements.
In exchange for the foregoing and other valuable consideration, Finjan agreed to, subject to certain restrictions, limits and other
conditions, grant the 2016 European Licensee a nonexclusive, term license in the United States under Finjan’s U.S. patents as
specified in the June 30, 2016 License.
On September 21, 2016, following a two-week trial, a Jury in the Northern District of California returned a verdict that all five
Finjan Patents were found literally infringed by Sophos, Inc. ("Sophos"). The jury verdict, decided that Finjan was entitled to $15
million in damages for Sophos’ infringement. On March 30, 2017, Finjan Holdings, Finjan and Finjan Mobile entered into a
Confidential Master Agreement (the “Master Agreement”) with Sophos and certain of its affiliated companies providing for full
releases by the parties and covenants not to sue and a Confidential Patent License Agreement between Finjan and Sophos Limited
where Sophos Limited and its affiliates obtained a fully paid up license to the Finjan patent portfolio and paid a license fee of
$15.0 million in cash, which Finjan received on March 31, 2017. The Company recognized $15.0 million as revenues as of March
31, 2017, in accordance with the Company’s revenue recognition policy as described in Note 2 of our Financial Statements. Finally,
on March 30, 2017, Finjan Mobile entered into a Confidential Patent Cross License Agreement with Sophos Limited pursuant to
which the parties granted patent cross licenses in exchange for the payment by Sophos Limited to Finjan Mobile of $2.5 million
in cash to be paid as follows: (A) $1.25 million on or before March 31, 2018, and (B) $1.25 million on or before March 31, 2019,
of which $1.25 million was recognized as revenues as of December 31, 2017, in accordance with the Company’s revenue recognition
policy as described in Note 2 of our Financial Statements.
On December 28, 2016, Finjan entered into a Confidential Patent License Agreement (the “December 2016 License”) with F5
Networks, Inc. (“F5”). The December 2016 License provides for F5 to pay a license fee of $4.0 million in cash, which Finjan
received on December 30, 2016. Finjan recognized all of the $4.0 million license as revenue as of December 31, 2016, as such
amount was determined to be fixed and determinable, in accordance with the Company’s revenue recognition policy as described
in Note 2. In exchange for the foregoing and other valuable consideration, Finjan agreed to, subject to certain restrictions, limits
and other conditions, grant F5 a nonexclusive, irrevocable (except in the case of non-payment by F5), worldwide paid-up license
under Finjan’s patents as specified in the December 2016 License.
On March 2, 2017, Finjan entered into a Confidential Patent License Agreement (the “Veracode Agreement”) with Veracode, Inc.,
a Delaware corporation (“Veracode”). Pursuant to the Veracode Agreement, Veracode obtained a license to the Finjan patent
portfolio and agreed to pay a license fee of $2.0 million in cash, which Finjan received on March 2, 2017 and was recorded as
revenue in the first quarter of 2017, in accordance with the Company's revenue recognition policy, as described in Note 2 of our
Financial Statements. Such license does not grant Veracode any right to transfer, sublicense or grant any rights under the Veracode
Agreement to a third party except as specifically provided under the Veracode Agreement. Such license also has certain provisions
relating to certain unlicensed products of any company that acquires Veracode, or is acquired by Veracode or its affiliates, in which
case additional license fees may apply. The specific terms of the Veracode Agreement are confidential.
8
On April 21, 2017, Finjan entered into a Confidential Patent License Agreement (the “EU Agreement”) with a European corporation
("EU Licensee"). Pursuant to the EU Agreement, EU Licensee obtained a license to our patent portfolio and agreed to pay Finjan
$4.9 million cash, in license fees, paid as follows: (i) $2.3 million to be paid within 10 days after the effective date of the EU
Agreement, (ii) $1.3 million on or before January 31, 2018, and (iii) $1.3 million on or before January 31, 2019. Finjan recognized
$2.3 million of the $4.9 million license as revenues as of June 30, 2017 and $1.3 million as revenues as of December 31, 2017, in
accordance with the Company’s revenue recognition policy as described in Note 2 of our Financial Statements. Such license does
not grant EU Licensee any right to transfer, sublicense or grant any rights under the EU Agreement to a third party except as
specifically provided under the EU Agreement. Such license also has certain provisions relating to certain unlicensed products of
any company that acquires EU Licensee, or is acquired by EU Licensee or its affiliates, in which case additional license fees may
apply. The specific terms of the EU Agreement are confidential.
On December 29, 2017, Finjan entered into a Confidential Patent License and Settlement Agreement (the “Finjan License”) with
FireEye, Inc. whereby the companies resolved all pending litigation matters and together with a contemporaneous license agreement
from FireEye to Finjan and its affiliates (the “FireEye License” and collectively with the Finjan License, the “Agreements”), the
parties granted each other cross-licenses going forward. Under the terms of the Finjan License, FireEye agreed to pay Finjan $17.5
million in license fees, as follows: (a) $12.5 million the Effective Date of the Finjan License, which amount was paid on December
29, 2017 and recognized as revenues as of December 31, 2017, in accordance with the Company’s revenue recognition policy as
described in Note 2, and (b) $5.0 million which was offset by $5 million in license fees from Finjan to FireEye under the FireEye
License, granting a perpetual license for the use of FireEye's patents. The FireEye License was determined not to be an intangible
asset since it had no defined future benefit. Therefore, the FireEye License was expensed under SG&A.
Subsequent to December 31, 2017, Finjan Holdings, Inc. (the “Company”), including its wholly-owned subsidiary, Finjan, Inc.
(“Finjan” and collectively with the Company and its affiliated companies, the “Finjan Parties”), announced on March 1, 2018 that
the Finjan Parties and the Symantec Corporation (“Symantec”) and its subsidiary, Blue Coat Systems, LLC (“Blue Coat”)
(collectively, the “Symantec Parties”) entered into a Confidential Patent License and Settlement Agreement (the “License and
Settlement Agreement”) effective as of February 28, 2018 (“Effective Date”). Specifically, the Parties have resolved and settled
all claims between them. As part of the settlement, the Symantec Parties will obtain a license to, among others, the Finjan patents
and pay the Finjan Parties $65.0 million in cash within twenty (20) days of the Effective Date of the License and Settlement
Agreement. Further, if Symantec acquires certain entities within four years from the Effective Date, the Symantec Parties will
pay additional license fees of up to $45.0 million to the Finjan Parties, unless otherwise mutually agreed to by the Company and
Symantec. The remaining terms of the License and Settlement Agreement are confidential.
Future Growth Strategy
Our mission, for the foreseeable future, is to build a diversified cybersecurity company benefiting from historical investments in
technology and patents while expanding into new product and service offerings. We believe our patented technologies continue
to hold significant value and we intend to vigorously protect our investment, the value of our existing licensees’ investments, and
the value that technology and intellectual property represents for our shareholders. We are pursuing and will continue to pursue
our growth through the following strategies:
•
•
Develop and Expand Existing Patent Portfolio - We have obtained and endeavor to continue to obtain new patents
relating to security technologies through research and development and/or acquisition in the cybersecurity space.
For example, on: January 24, 2017, our subsidiary, Finjan Mobile, Inc., was issued a U.S. Patent No. 9,554,279 titled
“Authorized Areas of Authentication.”
Expand our IP Assets through Acquisitions and Strategic Partnerships - We intend to acquire and develop new
patents, technologies or other business assets or companies and invest in intellectual property through strategic
partnerships, acquisitions of technology-focused companies, IP portfolios or other assets and other initiatives. We
endeavor to identify relevant security technologies and patents that have been, or are anticipated to be, widely adopted
by third parties in connection with the manufacture or sale of products and services, and to which we can bring
enforcement actions (i.e., licensing or litigation) and other expertise. We may also broaden our technology and patent
holdings by working with inventors and universities, acquiring technology companies, investing in research
laboratories, start-ups, and by creating strategic partnerships with companies, large and small, seeking to effectively
and efficiently monetize their technology and patent assets. Our experience with monetizing both technologies and
patents may be considered valuable by potential acquisition candidates and strategic partners who may lack resources
or know-how to effectively and efficiently generate a return for those investments.
Through Finjan Blue, we entered into a Patent Assignment and Support Agreement with IBM, effective August 24,
2017. Pursuant to the Patent Assignment Agreement, Finjan Blue acquired select IBM patents in the security sector
9
in exchange for $8.5 million cash, payable as follows: (i) $2.0 million upon execution of the Patent Assignment
Agreement and (ii) $6.5 million over the subsequent four years, final payment due August 24, 2021. IBM will support
Finjan Blue in its development and licensing of the IBM Security Patents and provide assistance for such efforts as
needed for the term of the Agreement and Finjan Blue will reimburse IBM for reasonable time and out of pocket
costs for such assistance, however IBM will not receive further proceeds from such efforts. IBM has reservation of
rights with respect to the IBM Security Patents for its current licensees and open source initiatives. Finjan Blue and
IBM also agreed to explore further development and licensing opportunities.
•
•
Continue to Demonstrate Best Practices in Pursuing Licensing Relationships and Enforcing our Patent Rights - In
March 2014, we adopted Best Practices to demonstrate our commitment to ethical, transparent and consistent business
practices for intellectual property licensing. We called upon and continue to promote industry-wide adoption of a set
of best practices through leadership organizations such as the Licensing Executive Society (LES) and the Open
Register of Patent Owners that support technological advancements, investments in innovation, and continued job
creation while protected by a robust patent system. In February of 2017, the American National Standards Institute
or ANSI had approved LES' application to receive accreditation to become a Standards Development Organization
or SDO. With this new endorsement and governance from ANSI, Finjan is moving swiftly to build industry consensus
for IP and patent related matters in a number of disciplines. We intend to continue pursuing a proactive campaign
that adheres to our best practices guidelines while rigorously protecting our intellectual property rights. We have
entered into preliminary discussions with numerous potential licensees in accordance with these Best Practices but
acknowledge that it takes many discussions and many months for preliminary discussions to culminate in a license
agreement, if at all. While it is our preference to resolve our patent-related disputes through amicable business
solutions, protecting the value of our patented technology is paramount
Invest in Internal Research & Development through Finjan Mobile - We continue to pursue internal research and
development of security technologies that both relate to Finjan's existing patented inventions as well as new concepts
to meet an ever-expanding market need. Since we do not yet have sufficient internal personnel to engage in large-
scale research and development, we currently operate this business with limited internal staff focused on strategy
and market development while software development is completed under contract with external developers. Products
currently available include our Finjan Mobile Secure Browser and a Virtual Private Network (VPN) which can be
used within the Finjan Browser or separately to encrypt data and keep consumers secure.
On September 6, 2017, Finjan Mobile released VitalSecurity™ Gen 4.0 Secure Mobile Browser (VitalSecurity 4.0).
The patented VitalSecurity 4.0 is a fully functional browser as well as a VPN for use on Apple and Android platforms,
and now available for Mac and Windows desktop applications. This VitalSecurity product builds upon the
incorporation of Finjan, Inc.'s, core security patented technology.
VitalSecurity 4.0 is available for download on the IOS and Android platforms in the iTunes and Google Play stores
and the VPN can be downloaded for Mac and Windows on FinjanMobile.com
The Company continues to explore inorganic growth and acquisition opportunities to complement the vision for
Finjan Mobile.
•
Continue to Analyze Opportunities to Leverage Investment in CybeRisk - CybeRisk provides services to enterprise
customers on a wide variety of threats, current and future issues, and prevention. We intend to further analyze how
best to leverage our investment in CybeRisk and our cybersecurity advisory services business.
Although we currently pursue growth initiatives through the above strategies, unforeseen market and industry conditions and new
developments may necessitate changes in our strategies. We intend to remain resilient, flexible, and open to new opportunities that
benefit our shareholders.
Competition
One of our strategic goals is to leverage the operational platform we have built to realize value inherent in not only our existing
patent portfolio and cybersecurity technologies, but also technologies and other assets to be developed and acquired in the future. We
expect, however, to encounter significant competition in the area of technology and intellectual property acquisitions given the
highly competitive nature of the cybersecurity sector. In certain cases, we may partner with venture capital firms, strategic corporate
buyers and various industry leaders to effectuate a technology acquisition or realize new licensing opportunities. In other situations,
these same venture capital firms, corporate buyers and industry players may be our direct competitors for the technology and
intellectual property assets.
10
We also face competitive pressures in the sense that companies may develop competing technologies that offer better or less
expensive alternatives to our patented technologies (i.e. “design arounds”). Technological advances or entirely different approaches
developed by one or more of our competitors could render certain of the technologies owned or controlled by our operating
subsidiaries obsolete and/or materially reduce their value.
Patented Technologies
Through Finjan and Finjan Blue, we currently have 29 and 24 U.S. patents, respectively and Finjan Mobile has 1 U.S. patent. Finjan’s
current U.S. issued patents began expiring in 2017. Finjan also has 2 U.S. patent applications pending and 38 international patents
and one international patent application pending, Finjan Blue has 7 international patents and 4 international patents pending, as
of the date of this report. Although we may, from time to time, focus on monetizing certain of these patents, we consider all of our
patents to be “core” patents for our business.
The following table sets forth a brief description of issued and pending U.S. patents, including their respective titles:
U.S. Patent No.
Title
FINJAN'S ISSUED U.S. PATENTS
6,092,194 *
6,154,844 *
6,804,780 *
6,965,968
7,058,822
7,418,731
7,613,918 *
7,613,926 *
7,647,633
7,756,996
7,757,289
7,769,991
7,930,299
7,975,305
8,015,182
System and Method for Protecting a Computer and a Network from Hostile Downloadables
System and Method for Attaching a Downloadable Security Profile to a Downloadable
System and Method for Protecting a Computer and a Network from Hostile Downloadables
Policy-Based Caching
Malicious Mobile Code Runtime Monitoring System and Methods
Method and System for Caching at Secure Gateways
System and Method for Enforcing a Security Context on a Downloadable
Method and System for Protecting a Computer and a Network from Hostile Downloadables
Malicious Mobile Code Runtime Monitoring System and Methods
Embedding Management Data Within HTTP Messages
System and Method for Inspecting Dynamically Generated Executable Code
Automatically Executing an Anti-Virus Application on a Mobile Communication Device
System and Method for Appending Security Information to Search Engine Results
Method and System for Adaptive Rule-Based Content Scanners for Desktop Computers
System and Method for Appending Security Information to Search Engine Results
8,079,086 *
Malicious Mobile Code Runtime Monitoring System and Methods
8,087,079
8,141,154
8,225,408
8,474,048
8,566,580
8,677,494 *
9,141,786 *
9,189,621 *
9,219,755 *
9,294,493
9,444,844
9,525,680
9,554,279
Byte-Distribution Analysis of File Security
System and Method for Inspecting Dynamically Generated Executable Code
Method and System for Adaptive Rule-Based Content Scanners
Website Content Regulation
Splitting an SSL Connection Between Gateways
Malicious Mobile Code Runtime Monitoring System and Methods
Malicious Mobile Code Runtime Monitoring System and Methods
Malicious Mobile Code Runtime Monitoring System and Methods
Malicious Mobile Code Runtime Monitoring System and Methods
Computer Security Method and System with Input Parameter Validation
Malicious Mobile Code Runtime Monitoring System and Methods
Splitting an SSL Connection Between Gateways
Authorized Areas of Authentication
* Indicates that such patent expired in 2017.
11
FINJAN'S PENDING U.S. PATENT APPLICATIONS
Application No.
14/941,911
15/383,641
Malicious Mobile Code Runtime Monitoring System and Methods
Splitting an SSL Connection Between Gateways
Title
U.S. Patent No.
Title
FINJAN BLUE'S ISSUED U.S. PATENTS
6,199,204
6,202,207
6,314,428
6,907,531
7,346,929
7,770,225
8,381,242
8,495,357
8,640,252
8,683,599
8,694,786
8,782,351
8,788,763
8,793,800
8,935,794
9,003,480
9,160,756
9,160,762
9,172,717
9,189,625
9,231,970
9,271,146
9,317,697
9,536,085
9,679,159
Distribution of Software Updates via a Computer Network
Method and a Mechanism for Synchronized Updating of Interoperating Software
Method and Apparatus for Application Management in Computer Networks
Method and Systems for Identifying, Fixing and Updating Security Vulnerabilities
Method and Apparatus for Auditing Network Security
Method and Apparatus for Auditing Network Security
Static Analysis for Verification of Software Program Access to Secure Resources for
Computer Systems
Data Security Policy Enforcement
Obfuscating Entry of Sensitive Information
Static Analysis for Verification of Software Program Access to Secure Resources for
Computer Systems
Virtual Machine Images Encryption Using Trusted Computing Group Sealing
Protecting Memory of a Virtual Guest
Protecting Memory of a Virtual Guest
Static Analysis for Verification of Software Program Access to Secure Resources for
Computer Systems
Verifying Applications Security Vulnerabilities
Classifying Files on a Mobile Computer Device
Method and Apparatus for Protecting Markup Language Document Against Cross-Site
Scripting Attack
Verifying Applications Security Vulnerabilities
Security-Aware Admission Control of Requests in a Distributed System
Data Management of Potentially Malicious Content
Security-Aware Admission Control of Requests in a Distributed System
Mobile Privacy Information Proxy
Processing of Restricted Access Data
Data Management of Potentially Malicious Content
Mobile Privacy Information Proxy
Employees
As of December 31, 2017, we had 10 full-time employees, on a consolidated basis and across all of our business lines. We have
budgeted to hire additional full-time employees (not including additional consultants or independent contractors) in the near future
to expand our licensing and enforcement, mobile security and advisory services businesses. Personnel in our licensing and
enforcement business are responsible for the execution of our licensing and enforcement strategy, including analyzing licensing
opportunities and enforcement requirements, making tactical decisions related to our strategy, identifying new applications for our
existing technologies and pursuing opportunities to invest in new technologies through strategic partnerships and
acquisitions. Although our management dictates and controls our overall litigation strategy for each case we litigate (or settle), we
use outside legal counsel to execute certain aspects of our strategies. We also use consultants, including Finjan’s founder and
former Chief Technology Officer, Shlomo Touboul, to assess opportunities related to our technologies and additional technologies
we may pursue in the future. We also expect to hire additional full-time employees into Finjan Blue to support our development
and licensing efforts of the patents obtained through our Patent Assignment Agreement, our mobile security business, operated
12
through our subsidiary Finjan Mobile and our advisory services business, operated through our subsidiary CybeRisk. We do not
expect to hire any full-time employees to manage our investment in the JVP innovation fund.
Neither we nor any of our subsidiaries is a party to any collective bargaining agreement. We consider our employee relations to
be good.
Corporate Information
Our principal executive offices are located at 2000 University Avenue, Suite 600, East Palo Alto, CA 94303. Our telephone number
is (650) 282-3228 and our web address is www.finjan.com. Financial and other information can be accessed on the “Investors”
section of our website. We make available through our website, free of charge, copies of our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it
to the Securities and Exchange Commission (the “SEC”). Also posted on our website are certain corporate governance documents,
including our Code of Business Conduct and Ethics. The reference to our website is textual in reference only, and the information
included or referred to on, or accessible through, our website does not constitute part of, and is not incorporated by reference into,
this report or any other filing.
We also file periodic reports, proxy statements and other information with the SEC. Such reports may be obtained by visiting the
Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at (800) SEC-0330. In addition, the SEC maintains an internet site at http://
www.sec.gov that contains reports, proxy and information statements and other information.
ITEM 1A. RISK FACTORS.
Investing in our common stock involves a high degree of risk. You should consider carefully the risks, uncertainties and other
factors described below, in addition to the other information set forth in this Form 10-K, before making an investment decision.
Any of these risks, uncertainties and other factors could materially and adversely affect our business, financial condition, results
of operations, cash flows or prospects. In that case, the market price of our common stock could decline, and you may lose all or
part of your investment in our common stock. See also “Cautionary Statement Regarding Forward-Looking Statements.”
Risks Related to Our Cybersecurity Business
We are presently substantially reliant on a limited number of patented technologies that we own through Finjan that have
begun to expire.
We derive substantially all of our income from a relatively small number of patented technologies. As of December 31, 2017, our
assets consisted primarily of Finjan's 29 U.S. and 38 international patents, and Finjan Blue’s 24 patents acquired from IBM with
additional pending applications we are processing in patent offices around the world. Finjan’s current U.S. issued patents began
expiring in 2017, and we currently have 2 U.S. patent applications and 1 international patent application pending as of the date of
the filing of this Annual Report on Form 10-K. As new technological advances occur, many of the patented technologies we own
through Finjan may become obsolete before they are completely monetized. The monetization of our patented technologies through
Finjan Blue has been limited to date. There can be no certainty that we will be able to monetize our Finjan Blue patents sufficiently
to recoup the cost of acquiring such patents. If we are unable to monetize our current patent assets for any reason, including
obsolescence of our technologies, the expiration of our patents, or challenges to the enforceability of our patents through patent
office ex parte re-examination or Inter Partes Reviews ("IPRs") or any other reason, our business and prospects would be materially
harmed.
We have a history of significant legal expense and this may increase in the future.
We reported net income from operations of $22.8 million and $0.3 million for the years ended December 31, 2017 and 2016
respectively and a net loss of $12.6 million for the year ended December 31, 2015. As of December 31, 2017, we had approximately
$41.2 million in cash and cash equivalents and short-term investments and working capital of $36.3 million. Although we reported
net income from operations for the years ended December 31, 2017 and 2016, we expect to continue incurring significant legal
and other selling, general and administrative expenses in connection with our operations. We believe, however, that our existing
revenue opportunities, balances of cash and cash equivalents and investments will be sufficient to finance our anticipated capital
and operating requirements for the next twelve months from the date of filing this annual report. Such belief is based on current
forecasts and assumptions regarding licensing of our technology, which are currently at various stages of negotiation (which may
not be successfully completed), our emerging business, as well as other financing and revenue sources. We may not be successful
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in finalizing such licensing efforts and even if successful, may need to raise additional capital in order to provide sufficient funds
to support and grow our business.
Any failure to protect or enforce our patents or other intellectual property rights could materially impair our business.
Our ability to successfully operate our business depends largely on the validity and enforceability of our patents and the relevance
of our patent rights to commercially viable products or services. Third parties have challenged, and we expect will continue to
challenge, the infringement, validity and enforceability of certain of our patents. In some instances, our patent claims could be
substantially narrowed or declared invalid, unenforceable, not essential, not infringed or a combination of the foregoing. We
cannot assure you that the validity and enforceability of our patents will be maintained or that our patent claims will be applicable
to any particular product or service. In addition, the U.S. Patent and Trademark Office (the “USPTO”) could invalidate or render
unenforceable our patents or materially narrow the scope of the patent claims during the course of USPTO post-grant proceedings
such as, for example, re-examinations or IPRs. Any significant adverse finding by the USPTO or adverse verdict of a court as to
the validity, enforceability or scope of certain of our patents and/or any successful design around certain of our patents could
materially and adversely affect our ability to secure future settlements or licenses on favorable terms, if at all, and otherwise harm
our business.
Under the American Invents Act (“AIA”), patents previously granted by the USPTO may be reviewed through post-patent grant
proceedings such as reexaminations or IPRs. The basic characteristics of Ex Parte reexamination are: the patent owner or a third
party may request the USPTO to reexamine an issued U.S. patent based on patents and printed publications that the requester
submits for the USPTO’s consideration. The requester must establish that the submitted prior art establishes a substantial and new
question of patentability, and if the requester meets such burden, the USPTO will grant the request and order reexamination of the
patent at issue. Unless the requester of the reexamination is the patent owner, the requester’s participation terminates following
such reexamination order and only the patent owner may proceed. The patent owner can appeal the final decision of the Central
Reexamination Unit (“CRU”) of the USPTO to the Patent Trial and Appeal Board (“PTAB”) and may further appeal a negative
decision to the Court of Appeals for the Federal Circuit (“CAFC”).
Generally, the grounds on which a petition for IPR is granted is whether the claimed invention is patentable strictly in light of prior
art consisting of patents or printed publications. The petitioner must demonstrate that there is a reasonable likelihood that he/she/
it will prevail as to at least one of the patent claims challenged to trigger the IPR. The PTAB decides on petitions and can reject
them if the prior art is the same or substantially the same prior art or arguments previously presented to the USPTO. If the petition
is granted, an IPR is statutorily required to be completed within one year of institution, which is extendable for up to six months
for good cause. Unlike reexaminations, the third party petitioner may stay involved in the proceedings. IPRs are handled at the
outset by the PTAB and do not go through the CRU of the USPTO. Final decisions of the PTAB are immediately appealable to
the CAFC, either by the patent owner or the third party. It is becoming a trend, if not a practice, for accused infringers to petition
for reexaminations or IPRs of asserted patents as these proceedings may give the petitioner “two bites at the apple”. Parties to
our enforcement actions may initiate IPRs with respect to our patents in the future. Although we believe our patents are patentable
in light of prior art, these proceedings are relatively new and unpredictable. The outcome of the proceedings can range from
decisions favorable to the patent holder, favorable to both parties, or favorable to the petitioner. If the outcome is the latter, the
value of the challenged patent can be materially reduced or extinguished.
Our licensing cycle is lengthy and costly, and our licensing efforts may be unsuccessful.
The process of engaging a potential licensee to adopt a license can be lengthy and may not always result in a license agreement.
It may take many months or longer to identify potential licensees, prepare marketing, technical or other materials, educate potential
licensees on the benefits of entering into a license and agree, if at all, to licensing terms, conditions and price. Even after expending
significant time and resources into licensing efforts, we may be unsuccessful in entering into a licensing agreement with a potential
licensee. As such, we may incur significant losses in any particular period before any associated revenue stream begins, if at all.
We currently are, and expect to continue to be involved in costly, time-consuming and uncertain litigation and administrative
actions to enforce our patents, which may adversely affect our financial condition and our ability to operate our business.
If we believe a third party is infringing one or more of our patents and refuses to obtain a license to use our patented technologies,
we may be compelled to commence legal or administrative action against those third parties. For example, due to the breakdown
in licensing discussions, we initiated patent infringement litigation against Juniper Networks, Bitdefender, and Zscaler in the
second half of 2017. Patent litigation is inherently uncertain and we cannot predict the outcome of any litigation or administrative
action. Moreover, many of the parties we believe infringe our patents are large and well-funded companies with substantially
greater resources than we have and may devote substantial resources toward avoiding or limiting liability and the amount of
associated damages for infringing our patents. We could also face counterclaims that challenge the essential nature, validity,
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enforceability or infringement of our patents. Regardless of whether legal action is successful, legal and expert fees and other costs
associated with enforcement action are significant.
Our cash flows can be unpredictable, and this may harm our financial condition or the market price for our common stock.
The amount and timing of cash flows from our licensing and enforcement activities are subject to uncertainties stemming primarily
from uncertainties regarding the rates of adoption of our patented technologies, our lengthy license negotiation cycles, the growth
rates of our licensees, the outcome of enforcement actions and certain other factors. As such, our income and cash flows may vary
significantly from period to period, which could make our business difficult to manage, adversely affect our business and operating
results, cause our annual or quarterly results to fall below market expectations and adversely affect the market price of our common
stock.
Our cash flows and income have been derived from a limited number of sources.
Our net income in recent years has been derived from a limited number of license agreements and settlements, and we expect that,
in the near term, any income that we generate will be derived from a limited number of sources. In 2017, we derived approximately
$50.4 million of income from license agreements with six licensees. In 2016, we derived approximately $18.4 million of income
from license agreements with six licensees. In 2015, we derived approximately $4.7 million of income from license agreements
with three licensees. If we are unable to reach settlements and license agreements with a sufficient number of identified third
parties who use our technologies, our future income and cash flow could be adversely affected.
We may raise additional capital to support our present business plan and our anticipated business growth and such capital may
not be available on acceptable terms, or at all, which would adversely affect our ability to operate.
During 2017, we raised net proceeds of $14.4 million through the issuance of Series A-1 Preferred Stock and net proceeds of
$12.0 million through the public offering and sale of our common stock. Based on our current operating plans (which includes
our expectation of signing additional license agreements in 2018, which may not occur), our current resources are expected to be
sufficient to fund our planned operations for the coming twelve months. We nonetheless may raise additional financing to fund
licensing and enforcement actions, planned research and development activities and to better solidify our financial position. We
may also need to raise additional funds in connection with any acquisitions of technology or intellectual property assets that we
pursue. Such additional capital may not be available on acceptable terms, or at all, which would adversely affect our operations.
If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available,
may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing
that we raise may contain terms that are not favorable to us or our stockholders.
Further, if we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of
our business plans, which would harm our operating results.
Any debt we incur in the future in capital raising efforts may limit our flexibility to obtain further financing and to pursue
other business opportunities.
If our anticipated capital raising efforts involve debt financing, we will have limitations on our ability to raise additional debt
financing or incur liens, as well as other limitations. Such limitations may limit our flexibility to pursue other business opportunities.
Additionally, our future level of indebtedness could have important consequences to us, including the following:
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our ability to obtain additional financing, if necessary, for working capital, or other purposes may be impaired or
such financing may not be available on favorable terms;
our funds available for operations, future business opportunities and distributions to stockholders will be reduced by
that portion of our cash flow required to make future interest payments on any debt incurred; and
we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally.
Our ability to service any debt raised in the future will depend upon, among other things, our successful monetization of our patents,
which will be affected by prevailing economic conditions and financial, business, and other factors, some of which are beyond
our control.
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If we are unable to successfully commercialize our new business or identify additional sources of revenue, our financial
condition and operations may be materially adversely impacted.
We generate substantially all of our revenue from license and settlement agreements related to our patented technologies. In 2015,
we launched our new cybersecurity advisory business, CybeRisk, and our mobile security business, Finjan Mobile. In 2017 Finjan
Blue was founded to support our development and licensing efforts of the IBM Security Patents obtained by Finjan Blue through
the Patent Assignment and Support Agreement with IBM. The Agreement, the terms of which are confidential, includes pathways
for Finjan and IBM to consider development efforts in the future and provides for the sharing of pertinent institutional knowledge
and resources by IBM to Finjan Blue. Since such businesses are relatively new and unproven, they may not yield any viable new
revenue, inventions or technology, which would lead to a loss of our investment in such activities. Such activities could also
distract our management team from its present business initiatives, which could have a material and adverse effect on our business.
If we are unable to generate sufficient revenue from such businesses or invent or acquire new technologies or products, our financial
condition and operations may be materially impacted.
If we suffer a cyber-security event, we may lose Finjan Mobile customer data and incur liabilities, any of which would harm
our business and operating results.
As cyber-security threats develop and evolve, it may be necessary to make further investments to protect data and infrastructure.
A security breach or unauthorized access or loss of data could result in a disruption to our Finjan Mobile service, litigation, the
triggering of indemnification and other contractual obligations, regulatory investigations, government fines and penalties,
reputational damage, loss of sales and customers, mitigation and remediation expenses among other liabilities. At this time, such
a cyber-security event would be immaterial, however as we continue to grow our Finjan Mobile business, such an event could
result in significant liability.
We may have to invest more resources in research and development than anticipated, which could increase our operating
expenses and negatively impact our operating results.
If new competitors, technological advances by existing competitors, and/or development of new technologies or other competitive
factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating
expenses could increase significantly. If we are required to invest significantly greater resources than anticipated in research and
development efforts without an increase in revenue, our operating results would decline. We expect research and development
expenses to increase in the foreseeable future as our technology development efforts continue.
We may be unable to achieve the financial or other goals intended at the time of any potential acquisition.
Our growth strategy includes the potential acquisition of patent, technology or other business assets or companies to further diversify
our assets and business operations. We may not be successful in identifying or funding acquisitions that are consistent with our
strategy or in completing such acquisitions. Acquisitions of patent, technology or other business assets or companies are subject
to numerous potential risks, including the following:
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our inability to enter into a definitive agreement with respect to any potential acquisition, or if we are able to enter
into such agreement, our inability to consummate the potential acquisition;
our inability to achieve the anticipated financial and other benefits of a specific acquisition;
our inability to obtain the necessary financing, on favorable terms or at all, to finance any or all of our potential
acquisitions;
risks of entering markets in which we have no or limited direct prior experience and where competitors in such
markets have stronger market positions;
our inability to retain key personnel from an acquired company, if necessary;
difficulty in maintaining controls, procedures and policies during the transition and integration process;
our inability to integrate the target company’s technologies, products or businesses with ours;
diversion of our management’s attention from other business concerns; and
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failure of our due diligence processes to identify significant issues, including issues with respect to patented
technologies and patent portfolios, and other legal and financial contingencies.
If we are unable to manage these risks effectively as part of any acquisition, our business and prospects could be adversely
affected. Depending upon the nature and structure of future acquisitions, our stockholders may not have the ability to vote on, or
consent to, the consummation of any such acquisition.
Technologies we acquire in the future, if any, may not be commercially successful.
We may acquire patents and technologies that are in the early stages of adoption in the commercial and consumer markets. Demand
for some of these technologies may be untested and subject to fluctuation based upon the rate at which such patents and technologies
are adopted in products and services. These technologies may require long development cycles and a substantial investment before
we can determine their commercial viability. As a result, there can be no assurance as to whether technologies we acquire will
have value that can be timely monetized, if at all. Through Finjan Blue, we entered into a Patent Assignment and Support Agreement
with IBM, effective August 24, 2017. Under the Patent Assignment Agreement, IBM is to support Finjan Blue in its development
and licensing of the IBM Security Patents. However, there can be no assurance that we will be successful in our efforts to develop
and license the IBM Security Patents or that we will recoup our investment in the IBM Security Patents.
Failures in our due diligence and/or inaccuracies of representations and warranties made by third parties may expose us to
material liabilities, write-downs or write-offs in the future.
We expect to conduct due diligence investigations of the patent technology or other intellectual property assets of companies we
seek to acquire in the future. Due diligence is time consuming and expensive and at times, we may also rely on opinions or
representations or warranties of third parties to supplement, replace or support our own independent due diligence. Even if we
conduct extensive due diligence on particular patent technology or other intellectual property assets or companies, this diligence
may not reveal all material issues that affect the acquisition. If our diligence fails to identify issues related to the applicable patent,
technology or other intellectual property assets or companies or industry to which they relate, or opinions, representations or
warranties prove to be inaccurate, we may be forced to later write-down or write-off assets or incur impairment or other charges
that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on
our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our common
stock. In addition, we may acquire patent technologies or other intellectual property assets or companies from a seller who does
not have proper title to those assets. In those cases, we could lose part or all of our investment in the assets.
Our acquisitions of patents, technology and other assets or companies may be time consuming, complex and costly, which
could adversely affect our operating results.
Acquisitions of patent, technology or other intellectual property assets or companies may be time consuming, complex and costly
to consummate. As a result, we expect to incur significant operating expenses and use a substantial portion of our cash resources.
We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition
of any patent, technology or other intellectual property assets or companies or, if consummated, proves to be unprofitable for us.
These costs could adversely affect our operating results, and if we incur losses, the value of our securities could decline.
Our acquisitions of patents, technology or other assets or companies may involve issuing capital that would be dilutive to our
stockholders, cause our stock price to drop, or involve raising capital on unfavorable terms, if available.
Acquisitions of patent, technology or other intellectual property assets or companies may require us to raise capital during the
negotiations even if the acquisition is ultimately not consummated. If we raise additional funds through the issuance of equity,
equity-linked or debt securities, including those pursuant to a registered offering, those securities may have rights, preferences, or
privileges senior to the rights of our common stock, and our existing stockholders may experience dilution. Sales of a substantial
number of shares of our common stock in the public market, the perception that these sales or other financings might occur, could
depress the market price of our common stock and could also impair our ability to raise capital through the sale of additional equity
securities. If we issue debt securities or incur indebtedness, the incurrence of indebtedness would result in increased fixed payment
obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt, limitations on
our ability to acquire, sell or license patents, technology or other intellectual property assets or companies and other operating
restrictions that could adversely impact our ability to conduct our business. If we are unable to obtain additional capital, or are
unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to
business opportunities, challenges, or other circumstances could be adversely affected, and our business may be harmed.
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It may be difficult for us to verify royalty amounts that we are owed under licensing agreements, and this may cause us to lose
revenues.
We anticipate that the terms of future license agreements may require licensees to document their use of our technologies and
report related data to us on a periodic basis. Although license terms may give us the right to audit books and records of
licensees to verify this information, audits can be expensive and time consuming, and may not be cost-effective based on our
understanding of a licensee’s business. Furthermore, any license compliance program that we establish to audit certain licensees
in order to review the accuracy of the information contained in their royalty reports may not be effective to ensure that we
receive royalties to which we are entitled.
We depend on key senior management, engineering, patent and licensing resources.
Our future success depends largely upon the continued contributions of our directors, executive officers and other key management
and technical personnel. Our success also depends on our ability to continue to attract, retain and motivate qualified personnel
with specialized patent, licensing, and other skills (particularly in the cybersecurity field). The loss of members of our management
or key personnel could adversely affect our business. The market for such talent in our industry is extremely competitive, especially
in Silicon Valley. In particular, competition exists for qualified individuals with expertise in patents and in licensing and the ability
to identify and acquire technologies and patent assets. The failure to attract and retain such persons with relevant and appropriate
experience could interfere with our ability to enter into new license agreements, acquire new technologies or otherwise meet our
strategic objectives.
The success of our cybersecurity business depends in part upon our ability to retain the best legal counsel to represent us in
patent litigation and our ability to manage the costs of such services.
The success of our licensing and enforcement business depends upon our ability to retain the best legal counsel to advise us and
manage our enforcement and litigation activities and our ability to manage the costs of such services. As our licensing and
enforcement actions increase, it may become more difficult to find the best legal counsel to handle our active litigation cases, as
conflicts may prevent them from representing us. Also, since the cost of litigation can be very uncertain, we may underestimate
the cost of legal counsel and related activities, in relation to the value of the enforcement activity.
Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer and becoming more
costly.
Since patent disputes involving infringement, validity, and enforceability are governed by federal law, our patent enforcement
actions are decided within the federal court system. The federal court calendars are often congested with other civil and criminal
proceedings, giving rise to the risk of delays in our patent enforcement actions. Such delays may have a negative impact on
resolution of our disputes, adversely affect the timing of our cash flow projections and therefore, have a negative impact on our
business. Further, lengthening of the litigation process increases the cost of litigation thereby harming our business.
Any reductions in the funding of the USPTO could have an adverse impact on the cost of processing pending patent applications
and the value of those pending patent applications.
Our business plan includes the possible acquisition of patent applications pending before the USPTO. The value of any patent
application we acquire will be dependent upon the issuance of patents in a timely manner, and any reductions in the funding of
the USPTO could materially delay the process by which the USPTO issues patents and consequently any income that may be
derived for the technologies claimed in the patent application. Further, reductions in funding from Congress could result in higher
patent application filing and maintenance fees charged by the USPTO, causing an unexpected increase in our expenses.
Competition for patent rights and patent portfolios is intense.
We expect to encounter significant competition in the areas of cybersecurity technology and intellectual property acquisitions. This
includes a growing number of competitors seeking to acquire the same companies or similar patents and technologies that we may
seek to acquire. We also compete with venture capital firms, strategic corporate buyers and various industry leaders for technology
acquisitions and licensing opportunities.
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The markets served by our cybersecurity technologies are subject to rapid technological change, and if we are unable to acquire
new technologies and patents, our ability to generate income could be substantially impaired.
The markets served by our cybersecurity technologies and our licensees frequently undergo transitions in which products rapidly
incorporate new features and performance standards on an industry-wide basis. Cybersecurity products are based on continually
evolving consumer demands. This will require continued efforts and success in acquiring new patent portfolios with licensing and
enforcement opportunities. If we are unable to acquire new patented technologies and patent portfolios, or to identify and ensure
compliance with evolving industry standards, our ability to generate income could be substantially impaired and our business and
financial condition could be materially harmed.
Our public company disclosure obligations may have unintended adverse consequences on our licensing and patent enforcement
strategy.
As a public company, we are subject to the disclosure and reporting requirements under the Securities Exchange Act of 1934, as
amended, and other applicable U.S. securities laws, as well as the rules and regulations of the SEC and NASDAQ. In order to
comply with such laws, rules and regulations, we may be required to disclose certain information that may be detrimental to our
current or future licensing and enforcement programs. In addition, our disclosure obligations may adversely affect our ability to
enter into license or settlement agreements with third parties who are reluctant to have the monetary value and terms of such
agreements publicly disclosed. In such instances, we may seek confidential treatment of certain information reflected in our license
or settlement agreements, which requests may be denied by the SEC or limited to a greater extent than requested, which would
harm our relationship with current and future licensees. Also, we may incur additional costs and expenses seeking confidential
treatment of certain information reflected in such license or settlement agreements, which would negatively impact our operations.
We are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis
of our internal control over financial reporting in a timely manner, or this internal control may not be determined to be effective,
which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
While we were able to determine in our management’s report for fiscal 2017 that our internal control over financial reporting is
effective, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion, may be unable
to assert that our internal controls are effective in the future. In the event that our chief executive officer, chief financial officer,
or independent registered public accounting firm determines in the future that our internal control over financial reporting is not
effective as defined under Section 404, we could be subject to one or more investigations or enforcement actions by state or federal
regulatory agencies, stockholder lawsuits or other adverse actions requiring us to incur defense costs, pay fines, settlements or
judgments and causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of
our stock.
New legislation, regulations, executive orders, or rules related to obtaining patents or enforcing patents could significantly
increase our operating costs and decrease our income.
If new legislation, regulations or rules are implemented either by Congress, the USPTO, other regulatory agencies or the courts,
or if the President of the United States issues executive orders that impact the patent application process, the patent enforcement
process or the rights of patent holders, these changes could materially and negatively affect our revenue and expenses. For example,
relatively new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our
enforcement actions, and new standards or limitations on liability for patent infringement or limitations on the ability to bring
patent enforcement claims could negatively impact our income derived from such enforcement actions. Similarly, recent judicial
decisions relating to fee shifting in patent infringement actions and limitations relating to software patents may make patent
licensing and enforcement activities more difficult and costly, though it is unclear what the precise impact of these judicial decisions
will be.
Furthermore, U.S. patent laws have been amended by the Leahy-Smith America Invents Act, or the AIA, certain sections of which
became effective in September 2011. The AIA includes a number of significant changes to U.S. patent law. In general, the legislation
attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things,
establishing new procedures for patent litigation. For example, the AIA changes the way that parties may be joined in patent
infringement actions, increasing the likelihood that such actions will need to be brought individually against parties allegedly
infringing by their respective allegations of infringement. In practice, however, many courts have consolidated separate actions
asserting the same patent for the purposes of case management and discovery, although individual trials remain separate. In addition,
accused infringers may now choose to attack patent validity by instituting an IPR process before the PTAB. In 2015, in In Re
Cuozzo Speed Techs., 793 F.3d 1268 (Fed. Cir. 2015), the Federal Circuit upheld a decision permitting the PTAB to evaluate patent
claims under a “broadest reasonable interpretation” (“BRI”) standard. This standard used by the PTAB is higher than the “plain
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and ordinary meaning” standard used in federal district courts, and has led to an arguably higher incidence of the PTAB finding
claims invalid in light of prior art. In January 2016, the Supreme Court agreed to hear the appeal on this issue as well as the issue
of what decisions by the PTAB are appealable to the traditional appellate court system. It remains unclear what, if any, impact the
AIA will have on the operation of our patent monetization and enforcement business. However, the AIA and its implementation
could increase the uncertainties and costs surrounding the enforcement of our patented technologies, which could have a material
adverse effect on our business and financial condition.
In addition, the United States Department of Justice ("DOJ") has conducted reviews of the patent system to evaluate the impact
of patent assertion entities on industries in which those patents relate. It is possible that the findings and recommendations of the
DOJ could impact the ability to effectively license and enforce standards-essential patents and could increase the uncertainties and
costs surrounding the enforcement of any such patented technologies.
Furthermore, in various pending litigation and appeals in the United States Federal courts, various arguments and legal theories
are being advanced to potentially limit the scope of damages a patent licensing company might be entitled to. Any one of these
pending cases could result in new legal doctrines that could make our existing or future patent portfolios less valuable or costlier
to enforce.
On April 29, 2014, the United States Supreme Court ("Supreme Court") issued a decision, Octane Fitness, LLC v. Icon Health &
Fitness, Inc., 134 S. Ct. 1749 (2014), relaxing the standard for awarding attorneys’ fees to prevailing parties in patent cases. While
the Supreme Court maintained the standard that a case must be deemed “exceptional” under 35 U.S.C. § 285 for an award of
attorneys’ fees, it held that district courts were to consider the “totality of the circumstances” in making that determination, that it
was not necessary for a court to find independently sanctionable conduct or both objective baselessness and subjective bad faith,
and that clear and convincing evidence was not required. Although we are committed to litigating our patent cases in the court
room with the highest standard of professional conduct and on the merits of our claims, litigation is unpredictable. We, therefore,
cannot guarantee that we will prevail in our litigation matters or that we will not be ordered to pay the prevailing party’s attorneys’
fees, which may be substantial.
On June 19, 2014, the Supreme Court issued a landmark decision in which it significantly tightened the standard for patentability
of software patents. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). Specifically, the Supreme Court stated that if
you have an idea so abstract that it cannot be patented, simply tying it to a “generic computer cannot transform a patent-ineligible
abstract idea into a patent-eligible invention.” The Supreme Court further stated that tying the abstract idea to “purely functional
and generic” hardware would, similarly, not make the idea patentable. Arguably, the Alice decision is intended to limit the validity
of poor quality software patents. The Alice decision may provide accused infringers of software patents new arguments to challenge
the validity of such patents. Since Alice, however, the Court of Appeals for the Federal Circuit (“Federal Circuit”) has addressed
a handful of decisions regarding patent eligibility of software and user interfaces in relation to electronic devices. Pertinent to our
business are Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., LG Electronics Mobilecomm U.S.A., Inc., __F.3d __ (Case
No. 2016-2684, 2017-1922, Fed. Cir. 2018) and Finjan, Inc. v. Blue Coat Systems, Inc., __ F.3d__ (Case No. 2016-2520, Fed. Cir.
2018). In both cases, the Federal Circuit found the subject claimed inventions patent eligible and not abstract because they each
recited “specific improvement[s] over prior systems.” Practically, the effects of the Alice decision are still being assessed as patent
holders, attorneys, the USPTO, and courts, are trying to determine the proper bounds of the Alice decision. We cannot guarantee
that the Alice decision and ensuing developments will not have a negative impact on our business.
On June 16, 2015, the Federal Circuit issued an opinion which may lead to more patents being challenged on indefiniteness grounds.
Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015). One type of patent claim is a “means-plus-function” claim.
Section 112(f) of the Patent Act requires that means-plus-function claims include a “corresponding structure,” described in the
specification, for performing the function. Previous cases had held that if a claim did not include the word “means,” there was a
strong presumption that the requirements of section 112(f) did not apply. The Williamson court removed the word “strong” from
the presumption, as well as the requirement for a heightened evidentiary showing. Williamson may result in an increase in accused
infringers challenging patent claims on indefiniteness grounds. Such result could have a material adverse effect on our business
and operations.
On June 13, 2016, the Supreme Court issued Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. ___ (No. 14-1513, June
13, 2016), in which a unanimous Supreme Court rejected the 2007 Federal Circuit decision, In re Seagate Technology LLC, 497
F.3d 1360 (Fed. Cir. 2007) (en banc), which established a stringent standard for proving willful patent infringement (aka the
“Seagate test”. The Supreme Court instead held that the Seagate test was inconsistent with 35 USC § 284, that provides that “a
court may increase the damages up to three times” the amount awarded in a lower court, and “is unduly rigid, and it impermissibly
encumbers the statutory grant of discretion to district courts.” Accordingly, the district court judges and juries now have greater
latitude to decide the willfulness question and award the prevailing patentee enhanced damages, with the caveat that such a finding
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should be made only in “egregious” cases. Notwithstanding Halo, enhanced damages for willful infringement is not guaranteed,
and we, therefore, cannot guarantee that Halo will not have a negative impact on our business.
On May 22, 2017, the Supreme Court issued TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S.Ct. 1514 (No. 16-341,
May 22, 2017). This decision focused on the question of where a domestic corporate defendant can be sued, i.e., the patent venue
under 28 USC §1400(b). Where the Federal Circuit had held in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574
(Fed.Cir. 1990), that patent cases could be brought in any district having personal jurisdiction over the defendant, the Supreme
Court in TC Heartland determined that for purposes of patent venue, a domestic corporate defendant only resides in its state of
incorporation. The impact of TC Heartland has shown, among other things, a dramatic decrease in new patent actions filed in the
Eastern District of Texas (which accounted for nearly 40% of patent cases filed in the US), while the District of Delaware, where
more than half of all publicly traded domestic companies are incorporated had a significant increase in the number of new patent
cases filings. The District Court for the Northern District of California - which is where the majority of our cases are filed -- has
also gained noticeable increase in new patent filings. Although most of our cases are filed in the Northern District of California,
we cannot guarantee that we will not have to file in another venue or that filing in another venue will not have a negative impact
on our business.
Further, and in general, it is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may
be proposed, or whether any of the proposals will become enacted as laws. Compliance with any new or existing laws or regulations
could be difficult and expensive, affect the manner in which we conduct our business and negatively impact our business, prospects,
financial condition and results of operations.
Our operations are subject to risks of natural disasters, acts of war, terrorism or widespread illness, any one of which could
result in a business stoppage and negatively affect our operating results.
Our business operations depend on our ability to maintain and protect our facility, computer systems and personnel, which are
primarily located in East Palo Alto. Our business operations are in close proximity to known earthquake fault zones. Our facility
and transportation for our employees are susceptible to damage from earthquakes and other natural disasters such as fires, floods
and similar events. Should earthquakes or other catastrophes such as fires, floods, power outages, communication failures or similar
events disable our facilities, we do not have readily available alternative facilities from which we could conduct our business,
which stoppage could have a negative effect on our operating results. Acts of terrorism, widespread illness and war could also
have a negative effect at our international and domestic facilities and on our operating results.
Risks Related to Our Common Stock
Concentration of ownership among our existing executive officers, directors and their affiliates, and others who beneficially
own at least 10% of our outstanding common stock, may prevent new investors from influencing significant corporate decisions.
Our executive officers, directors and their affiliates, together with others who own at least 10% of our outstanding common stock,
beneficially own or control approximately 20% of our common stock. Accordingly, these persons, acting individually or as a group,
will have substantial influence over the outcome of a corporate action requiring stockholder approval, including the election of
directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction.
These stockholders may also exert influence in delaying or preventing a change in control of our company, even if such change
in control would benefit our other stockholders. In addition, the significant concentration of stock ownership may adversely affect
the market value of our common stock due to investors’ perception that conflicts of interest may exist or arise.
Future sales by us or our existing stockholders could dilute our stockholders and depress the market price of our common
stock.
Based on information contained in Schedule 13D/A and Form 4 filings made throughout 2017 and in January and February 2018,
two of our significant stockholders sold a significant number of shares of our common stock. While it is not easy to quantify how
such sales may have depressed our share price, if these stockholders continue to sell (which we expect), or other existing stockholders
sell a large number of shares of our common stock, or if we sell additional common stock or securities that are convertible into
common stock, in the future, the market price of our common stock could decline. Further, even the perception in the public
market that we or our existing stockholders might sell shares of common stock could depress the market price of our common
stock.
In addition, the issuance of additional shares by us, including (i) 4,140,000 shares of our common stock in a public offering in
2017 and (ii) the issuance of 2,196,836 shares of our common stock underlying outstanding stock options and restricted stock
units, 1,280,979 of which were vested as of December 31, 2017, could dilute our stockholders’ ownership and voting interests in
21
the Company and increase the number of shares of our common stock eligible for resale in the public market. Further, following
approval of our stockholders at our 2017 annual meeting of stockholders, we (i) increased the number of shares reserved under
our 2014 Incentive Compensation Plan (“2014 Plan”) by 1,000,000 shares and (ii) added an “evergreen” feature which provides
for the annual replenishment of shares to the 2014 Plan share reserve without stockholder approval (equal to 5.0% of our outstanding
shares of Common Stock as of the end of our immediately preceding fiscal year). The issuance of shares of our common stock
underlying stock options and restricted stock units to be issued following such increase will dilute our stockholders’ ownership
and voting interests in the Company and increase the number of shares of our common stock eligible for resale in the public market.
Finally, in 2017 the Company issued to Soryn HLDR a fully vested common stock warrant to purchase 2,355,506 shares of common
stock, at an exercise price of $3.18 per share, with a term of three years in connection with the Series A-1 Preferred Stock financing.
The exercise of such warrant will further dilute our stockholders’ ownership and voting interests in the Company and increase the
number of shares of our common stock eligible for resale in the public market.
Our Common Stock may be affected by trading volume and price fluctuations, which could adversely impact the value of our
Common Stock.
The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry
factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance.
Market prices for public companies whose principle revenues are derived from the licensing of intellectual property have been
particularly volatile. We believe that various factors may cause the market price of our common stock to fluctuate, perhaps
substantially, and the factors include, among others, the following:
•
•
•
•
•
•
•
•
•
•
•
•
quarterly variations in our operating results compared to market expectations;
our raising or failure to raise additional capital;
the risk of our inability to continue to meet listing requirements of the NASDAQ;
developments in relationships with licensees;
our or our competitors’ technological innovations;
announcements of developments in our patent enforcement actions
our failure to meet or exceed securities analysts’ expectations of our financial results;
a change in financial estimates or securities analysts’ recommendations;
changes in management’s or securities analysts’ estimates of our financial performance;
changes in market valuations of similar companies;
regulatory developments and court decisions that negatively impact the ability of patent owners to protect their assets.
actual or expected sales of our common stock by our stockholders, including any of our significant stockholders.
Our common stock may be considered a “penny stock.”
The SEC has adopted regulations, which generally define “penny stock” to be an equity security that has a market price of less
than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and
therefore may be a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your
ability to sell shares of our common stock in the future.
22
Our stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire
complementary businesses.
Our authorized capital stock consists of eighty million (80,000,000) shares of common stock and ten million (10,000,000)
shares of blank check preferred stock, of which one hundred fifty three thousand (153,000) shares have been designated Series
A-1 Preferred Stock. If we engage in capital raising activities in the future as we did in May 2016 and June 2017, including
issuances of common stock or securities that are convertible into, or exercisable for, our common stock, to fund the growth of
our business, our stockholders could experience significant dilution. In addition, securities issued in connection with future
financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of our
common stock. We have adopted an equity incentive plan pursuant to which equity awards may be granted to eligible
employees (including our executive officers), directors and consultants, if our board of directors determines that it is in the best
interest of the Company and our stockholders to do so. The issuance of shares of our common stock upon the exercise of any
such equity awards may result in dilution to our stockholders and adversely affect our earnings.
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market,
or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by whether industry or securities analysts publish research and reports
about us, our business, our market or our competitors and if any analysts do publish such reports, what they publish in those reports.
We may not obtain analyst coverage in the future. Any analysts that do cover us may make adverse recommendations regarding
our stock, adversely change their recommendations from time to time, and/or provide more favorable relative recommendations
about our competitors. If any analyst who may cover us in the future were to cease coverage of our company or fail to regularly
publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose, or never gain, visibility in the
financial markets, which in turn could cause our stock price or trading volume to decline.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or
prevent fraud and our stock price may be adversely affected.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, our operating results could be harmed. Any system of internal control over
financial reporting, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance
that its objectives will be met. We have experienced material weaknesses in the past and we cannot be certain that in the future
material weaknesses or significant deficiencies will not exist or otherwise be discovered. Any weaknesses or deficiencies could
result in misstatements of our results of operations, restatements of our consolidated financial statements, inability to timely file
periodic reports, a decline in our stock price and investor confidence, or other material effects on our business, reputation, results
of operations, financial condition or liquidity.
Anti-takeover provisions in our charter and bylaws may prevent or frustrate attempts by stockholders to change the board of
directors or current management and could make a third-party acquisition of our company difficult.
Our certificate of incorporation and bylaws contain provisions that may discourage, delay or prevent a merger, acquisition or other
change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive
a premium for their shares. These provisions include the following:
•
•
•
•
our certificate of incorporation authorizes our board of directors, without the approval of our stockholders, to establish
classes or series of preferred stock with such rights, privileges and preferences as our board determines (i.e., “blank check”
preferred stock), including rights that may be senior to those of our common stockholders, which could be used to
discourage an unsolicited acquisition proposal;
our certificate of incorporation provides for a classified board of directors with staggered terms, which could delay or
otherwise make it more difficult for an outsider to gain control of our board of directors;
our certificate of incorporation requires supermajority voting to approve certain amendments to our certificate of
incorporation and bylaws;
our certificate of incorporation prohibits stockholders from acting by written consent or calling a special meeting, which
could make it more difficult for stockholders to wage a proxy contest for control of our board of directors or to vote to
repeal any of the antitakeover provisions contained in our certificate of incorporation and bylaws;
23
•
•
our certificate of incorporation provides that directors may only be removed for cause by a supermajority vote of our
stockholders; and
our bylaws contain advance notice provisions with respect to nominees for election to our board of directors.
If we issue shares of preferred stock, investments in common stock could be diluted or subordinated to the rights of the holders
of preferred stock.
Our board of directors is authorized by our Certificate of Incorporation to establish classes or series of preferred stock and fix the
designation, powers, preferences and rights of the shares of each such class or series without any further vote or action by our
stockholders. Any shares of preferred stock so issued could have priority over our common stock with respect to dividend or
liquidation rights. For instance, we issued 153,000 shares of Series A-1 Preferred Stock in June 2017. Under the terms of such
Series A-1 Preferred Stock, with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the shares of the Series A-1 Preferred Stock shall rank senior to all other
classes of securities of the Company. Further, the issuance of shares of preferred stock, or the issuance of rights to purchase such
shares, could be used to discourage an unsolicited acquisition proposal. For instance, the issuance of a series of preferred stock
might impede a business combination by including class voting rights that would enable a holder to block such a transaction. In
addition, under certain circumstances, the issuance of preferred stock could adversely affect the voting power of holders of our
common stock. Although our board of directors is required to make any determination to issue preferred stock based on its judgment
as to the best interests of our stockholders, our board of directors could act in a manner that would discourage an acquisition attempt
or other transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which such
stockholders might receive a premium for their stock over the then-market price of such stock. Presently, our board of directors
does not intend to seek stockholder approval prior to the issuance of currently authorized preferred stock, unless otherwise required
by law or applicable stock exchange rules. Although we have no plans to issue any additional shares of preferred stock or to adopt
any new series, preferences or other classification of preferred stock, any such action by our board of directors or issuance of
preferred stock by us could dilute your investment in our common stock and warrants or subordinate your holdings to such shares
of preferred stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2. PROPERTIES.
Our headquarters are located at 2000 University Avenue, Suite 600, East Palo Alto, CA 94303, which we lease pursuant to a
sublease entered into in January 2015. Finjan, Finjan Mobile and CybeRisk are based at the headquarters location. The initial
term of the sublease terminates in September 2018. In December 2016, the Company entered into a monthly lease agreement in
Tel Aviv, Israel, where it is conducting operations in support of CybeRisk. The Company also has office leases in New York, NY,
which is subleased for the remainder of the lease term.
We believe that the facilities described above are suitable and adequate for our present purposes and needs in the near future.
ITEM 3. LEGAL PROCEEDINGS
See "NOTE 8 - Litigation, Claims, and Assessments" to our Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES.
None
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock has been trading on the NASDAQ under the symbol “FNJN” since May 12, 2014. The following table sets
forth the high and low sales prices for our common stock, as reported on the NASDAQ, for each of the periods listed below.
24
No dividends were declared or paid.
Year Ending December 31, 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ending December 31, 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended December 31, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Holders
High
Low
2.71
3.50
4.06
1.78
1.90
2.24
2.35
1.26
1.93
2.80
2.22
3.25
$
$
$
$
$
$
$
$
$
$
$
$
1.66
2.06
1.68
1.21
1.00
1.28
0.87
0.81
1.14
1.28
1.16
1.76
$
$
$
$
$
$
$
$
$
$
$
$
As of March 7, 2018, there were approximately 36 holders of record of our common stock. As many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
Dividend Policy
We have not paid any cash dividends on our common stock to date. The payment of dividends in the future will be contingent
upon our revenues and earnings, if any, capital requirements and general financial condition, and will be within the discretion of
our then-existing board of directors.
Recent Sales of Unregistered Securities
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to
provide the information under this item.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to
historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report on Form
10-K. See Cautionary Statement Regarding Forward-Looking Statements.”
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is organized as
follows:
Overview. A discussion of our business and overall analysis of financial and other highlights in order to provide
context for the remainder of MD&A.
Significant Developments. We highlight significant developments in our business and operations during the past
year.
Industry Trends & Outlook. A discussion of notable industry trends and how such trends might affect our business
and operations as well as an outlook on developments we see on the horizon.
Comparability to Future Results. We discuss areas of our historical business and operations that may not be indicative
of future results.
Results of Operations. A discussion of the nature and trends in our financial results and an analysis of our financial
results comparing fiscal 2017 to 2016, and 2016 to 2015.
Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and a discussion of
our financial condition and our ability to meet cash needs.
Contractual Obligations. An overview of our contractual obligations outstanding as of December 31, 2017, including
expected payment schedules.
Critical Accounting Policies and Estimates. A discussion of our accounting policies that require critical estimates,
assumptions, and judgments.
Recent Accounting Pronouncements. A discussion of expected impacts of impending accounting changes on financial
information to be reported in the future.
26
Overview
We operate a cybersecurity business, focused on licensing and enforcement, developing mobile security applications, providing
advisory services, and investing in emerging cybersecurity technologies and intellectual property.
We operate our cybersecurity business through subsidiaries including, Finjan, Finjan Blue, Finjan Mobile and CybeRisk.
Through Finjan, we own a portfolio of patents, related to software and hardware technologies that proactively detect malicious
code and thereby protect end users from identity and data theft, spyware, malware, phishing, trojans and other web and network
threats. Founded in 1997, Finjan developed and patented technologies that are capable of detecting previously unknown and
emerging threats on a real-time, behavior-based, basis, in contrast to signature-based methods of intercepting only known threats
to computers. The older signature-based methods, were standard in the web and network security industry during the 1990s. As
the web and endpoint security industries - known as cybersecurity - have transitioned to behavior-based detection of malicious
code, we believe that our patented technologies continue to be widely used by third parties in a number of market segments. We
intend to maximize the economic benefits of our technologies through further licensing and to broaden our technologies and patent
holdings through acquisitions and strategic partnerships.
As a core element of our continued patent licensing and enforcement business, our management team, having expertise with
technology and IP monetization, monitors a number of markets and assesses and observes the adoption of our patented technologies
in these markets. Our management team, in conjunction with outside legal, technical, and financial experts concludes on a case-
by-case basis whether or not they believe that Finjan’s patented technologies are being used. Based on these observations, we
continue to believe our patented technologies are highly relevant in specific cybersecurity technology areas including, but not
limited to endpoint/cloud software, web gateway/internet infrastructure, networking equipment markets, and mobile security. From
that basis, the Company pursues unlicensed entities through licensing, assertion of claims or both to preserve the value of our
portfolio in general. This also reinforces the value to existing licensees of the Finjan patent portfolio.
Since the sale of its hardware and software operations in 2009, Finjan’s primary source of income and related cash flows has been
the enforcement of its patent rights against unauthorized use and to a lesser extent, income derived from intellectual property
licenses granted to third parties for the use of patented technologies that are owned by Finjan.
Finjan Blue was founded to support our development and licensing efforts of the IBM Security Patents obtained by Finjan Blue
through the Patent Assignment and Support Agreement with IBM. The Agreement, the terms of which are confidential, includes
pathways for Finjan and IBM to consider development efforts in the future and provides for the sharing of pertinent institutional
knowledge and resources by IBM to Finjan Blue.
Finjan Mobile was founded to ensure that consumers data as well as their mobile devices are protected against spies, phishing and
malware attacks. Given the uptrend in mobile device usage coupled with the amount of transient corporate data, the average mobile
user presents and represents higher risks of data loss through hacking. The consumer mobile device has become so convenient
that consumers often forget about online security and download apps and blindly agree to terms of service, purchase products,
pay bills, connect to free Wi-Fi, and not think twice about personal data and photos stored on their devices. As such, in June of
2015, the Company returned to the research and development world with the creation of security products for mobile devices.
CybeRisk was founded to deliver global advanced cyber risk and cyber security advisory services. We continue to analyze how
best to leverage our investment in CybeRisk and our cybersecurity advisory services business.
As of December 31, 2017, we had 10 employees. We intend to hire or engage additional full-time professionals, employees, and/
or consultants in alignment with our growth strategy. Although the market is highly competitive for attracting and retaining highly
qualified professionals in our industry, we continue our endeavor to find such candidates for our Company. Our management team
and additional personnel that we may hire in the future will be primarily responsible for executing and implementing our licensing
and enforcement strategy, including analyzing licensing and enforcement opportunities, making tactical decisions related to our
strategy, identifying new applications for our existing cybersecurity technologies and pursuing opportunities to invest in new
technologies through strategic partnerships and acquisitions.
27
Significant Developments During 2017 and early 2018
Retired Series A Preferred Stock
During 2017, the Company redeemed $13.8 million or 83,502 shares of the Company's Series A Preferred stock; $8.4 million
reduced the original recorded value of the Series A Preferred stock and $5.4 million reduced the accreted value. As a result, as of
April 3, 2017 the Company retired all shares of Series A Preferred Stock issued in its $10.2 million Series A Preferred Stock
financing.
Equity Raise of $15.3 Million in Preferred Stock
In June 2017 Finjan Holdings entered into a Redeemable Preferred Stock Purchase Agreement with Soryn HLDR Vehicle II LLC,
pursuant to which the Company agreed to issue to Soryn HLDR in a private placement an aggregate of 153,000 shares of the
Company’s Series A-1 Preferred Stock at a purchase price of $100.00 per share, for aggregate proceeds of $15.3 million.
The Company also agreed to issue to Soryn HLDR a fully vested common stock warrant to purchase 2,355,506 shares of common
stock, at an exercise price of $3.18 per share, with a term of three years.
In January 2018, the Company redeemed $6.2 million or 48,076 shares of the Company's Series A-1 Preferred stock; $4.8 million
reduced the original recorded value of the Series A-1 Preferred stock and $1.4 million reduced the accreted value.
Common Share Raise
In June 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC
(the “Underwriter”) pursuant to which the Company agreed to issue and sell an aggregate of 3,600,000 shares of its common stock,
par value $0.0001 per share (the “Common Stock”), at a public offering price of $3.15 per share gross proceeds, with net proceeds
to the Company of $2.90 per share, for a total of $10.4 million. Under the terms of the Underwriting Agreement, the Company
also granted the Underwriters a 30-day over-allotment option to purchase an additional 540,000 shares of Common Stock, which
was exercised July 21, 2017. The Company received $1.6 million net proceeds from the exercise of the over-allotment.
Patent Assignment and support Agreement
In August 2017, the Company and Finjan Blue entered into a Patent Assignment and Support Agreement (the “Patent Assignment
Agreement”) with IBM effective August 24, 2017. Pursuant to the Patent Assignment Agreement, Finjan Blue acquired select
IBM patents in the security sector (the “IBM Security Patents”) in exchange for $8.5 million cash, payable as follows: (i) $2.0
million upon execution of the Patent Assignment Agreement and (ii) $6.5 million over the subsequent four years. The Company’s
initial $2.0 million payment was made on August 24, 2017. For the period ended December 31, 2017, the Company recorded $0.7
million in amortization expense of these intangible assets.
Finjan Mobile Launched Gen4 Mobile Secure Browser, VitalSecurityTM
In September 2017 Finjan Mobile, Inc. launched Gen4 Mobile Secure Browser, VitalSecurity, a fully functional browser that offers
protection for both mobile and tablet devices. Using VitalSecurity, users can safely browse the internet and be warned that sites
might contain malicious or suspicious content.
For the IOS and Android operating systems, Finjan Mobile VitalSecurity Browser educates users by identifying potential
vulnerabilities on websites. The app can identify URL’s that have been flagged by industry leading cyber companies and protect
you from viruses and malicious content.
The Gen4 mobile secure browser is completely redesigned and is built from Finjan’s patented technology.
Type in a search term and Finjan Mobile VitalSecurity will scan search results and present informative notifications - Safe, Caution
or Danger. If a site is considered dangerous, you can choose to click and go right to the website or learn about potential privacy
and phishing vulnerabilities. Educating users on privacy and potential vulnerabilities is our main objective.
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New Patent
In January 2017, our subsidiary, Finjan Mobile received its first US patent, U.S. Patent No. 9,554,279. The patent relates to
authorizing a mobile device to access a secure server based in part on whether the mobile device is currently located within an
authorized geographical area.
JVP Capital Call
In February 2018, the Company made a payment to the JVP fund of $0.5 million, reducing the commitment outstanding to $2.2
million.
Settlement with Symantec
In March 2018, the Company, including its wholly-owned subsidiary, Finjan, Inc. (“Finjan” and collectively with the Company
and its affiliated companies, the “Finjan Parties”), announced that Finjan Parties and Symantec Corporation (“Symantec”) and its
subsidiary, Blue Coat Systems, LLC (“Blue Coat”) (collectively, the “Symantec Parties”) entered into a Confidential Patent License
and Settlement Agreement (the “License and Settlement Agreement”) effective as of February 28, 2018 (“Effective Date”).
Specifically, the Parties have resolved and settled all claims between them. As part of the settlement, the Symantec Parties will
obtain a license to, among others, the Finjan patents and pay the Finjan Parties $65.0 million in cash within twenty (20) days of
the Effective Date of the License and Settlement Agreement. Further, if Symantec acquires certain entities within four years from
the Effective Date, the Symantec Parties will pay additional license fees of up to $45.0 million to the Finjan Parties, unless otherwise
mutually agreed to by the Company and Symantec. The remaining terms of the License and Settlement Agreement are confidential.
Inter Partes Reviews
See "NOTE 8 - Litigation, Claims, and Assessments" to our Consolidated Financial Statements.
Patent Litigations
See "NOTE 8 - Litigation, Claims, and Assessments" to our Consolidated Financial Statements.
Industry Trends and Outlook
We believe cybersecurity will be a very active sector in 2018. Cybersecurity is not just another technology but a critical business
issue that intersects government, corporations and individual citizens. We have recently seen a number of devastatingly successful
cybersecurity breaches targeting high profile government offices and corporations. The full extent of the cost and damage associated
with these attacks may not be known for some time. Nonetheless, these attacks are expected to continue, along with their associated
and sometimes unprecedented costs. In many cases, it is not just the government or corporation that suffers losses or damages but
their clients and customers, who can also fall victim by the breach of their personal and otherwise confidential data. These issues
have forced both government and corporations to take a serious look at their vulnerabilities, which will lead to increased spending
on cybersecurity infrastructure, including hardware and software, as well as cybersecurity consulting services.
Given our 20-year history in the cybersecurity market we have had the benefit of actively participating in the progression on how
technology has moved to meet the new threats and demands. We believe this puts us in a unique position to make observations
and determine the best course of action in order to make investments in new developing technologies. There is still a limited
appreciation for how much personal data is being pushed out over the internet for anyone to capture and unlike desktops and laptop
computers, mobile devices do not have the same kind of access to security. We believe this represents a unique opportunity for
Finjan to develop products for consumer mobile devices that were once only available to our enterprise customers. As such, we
are building upon our current patented technology and migrating it into the mobile platform so consumers can have greater control
of their security and personal information.
We believe that there are some proponents of patent law reform, largely made up of an individual or coalitions of technology
corporations that continue to seek statutory limitations on how companies can enforce their patents. In an effort to ensure fair and
balanced protections for all good faith patent owners, our executives have dedicated time and resources to actively educate our
lawmakers and existing and prospective stakeholders on how certain proposed reforms could harm individual inventors, startups,
small companies, the licensing industry and therefore, U.S. innovation and the economy as a whole.
Further, since the enactment of the Leahy-Smith America Invents Act ("AIA") on September 16, 2011, several aspects of the patent
law have been interpreted by the courts, including what constitutes patentable subject matter, inducement of infringement, and
29
(attorney) fee-shifting to the non-prevailing party in the context of litigation, among other issues. Moreover, under AIA, patents
previously granted by the USPTO may be reviewed through post-patent grant proceedings such as reexamination or IPR. It is
becoming a trend, if not a practice, for accused infringers to petition for reexaminations or IPRs of asserted patents as these
proceedings may give the petitioner “two bites at the apple.” The outcome of the proceedings can range from decisions favorable
to the patent holder, favorable to both parties, or favorable to the petitioner. If the outcome is the latter, the value of the challenged
patent can be materially reduced or extinguished. Thus, patent rights, including enforcement of such rights against unauthorized
use is inherently subject to uncertainties.
Comparability to Future Results
We have set forth below selected factors that we believe have had, or can be expected to have, a significant effect on the comparability
of our recent or future results. In addition to the factors described below, please see Item 1A. “Risk Factors” for additional factors
that may affect our operating results.
Fluctuations of Income, Expenses and Cash Flows Related to Licensing and Enforcement
Our licenses and judgments may not be recurring and are not necessarily indicative of the income or cash flows that we expect to
generate in the future from our existing technology portfolio or otherwise. We expect income, expenses and cash flows related to
patent enforcement to be unpredictable and to fluctuate significantly from period to period. A number of factors, many of which
are beyond our control, may affect the timing and amount of our income and cash flows related to patent licensing and enforcement
actions, including, but not limited to, trial dates, the strength of our claims and likelihood of achieving an acceptable license on
settlement, the timing and nature of any appeals and our ability to collect on any favorable judgments. Significant fluctuations in
our income and cash flows may make our business difficult to manage and adversely affect our business and operating results.
We do not recognize income from our licensing and enforcement actions until the terms are fixed and determinable or litigation
is finalized (whether resolved at trial or in a settlement).
Our expenses, principally with respect to litigation costs, may also vary significantly from period to period depending upon a
number of factors, including, but not limited to, whether fees of outside legal counsel are paid on an hourly, contingent or other
basis, the timing of depositions, discovery and other elements of litigation, costs of expert witnesses and other consultants, and
other costs incurred in support of enforcement actions.
As a result of the factors described above and other known and unknown risks affecting our business, our historical operating
performance may not be indicative of our future results.
Stock-Based and Other Executive Compensation
Our Board of Directors has adopted the Finjan Holdings Amended and Restated 2014 Incentive Compensation Plan (“2014 Restated
Plan”), which our shareholders approved at our 2014 annual meeting of stockholders on July 10, 2014, pursuant to which 2,196,836
shares of common stock are authorized for issuance and on June 21, 2017, at our 2017 annual meeting of stockholders, the
Company's shareholders approved (i) an increase of 1,000,000 shares to the Finjan Holdings, Inc. Restated 2014 Plan and (ii) the
addition of an “evergreen” feature which provides for the annual replenishment of shares to the Restated 2014 Plan share reserve
without stockholder approval (equal to 5.0% of our outstanding shares of Common Stock as of the end of our immediately preceding
fiscal year). A total of 438,712 restricted stock units and 2,341,340 options remain outstanding as of December 31, 2017, under
the Restated 2014 Plan. We expect that future equity-based awards will continue to be made under the Restated 2014 Plan to our
directors, officers and other employees and consultants. As a result, to the extent relevant, we may incur non-cash, stock-based
compensation expenses in future periods that may not be comparable to past periods.
We expect to increase the number of employees and consultants to help execute our strategy in the cybersecurity business and
support our public company functions. Accordingly, we will continue to incur compensation expenses in future periods that we
did not incur during the historical periods presented in our financial statements.
30
Results of Operations
We operate a cybersecurity business, focused on licensing and enforcement, providing advisory services, developing mobile
security applications, and investing in emerging cybersecurity technologies and intellectual property. The following table
summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on
our consolidated statement of operations data. The year to year comparison of results of operations is not necessarily indicative
of results of operations for future periods.
For the Years Ended December 31,
2016
2015
2017
% of
% of
Amount
Revenue Amount
Revenue Amount
% of
Revenue
(In thousands, except percentages)
$ 50,484
100 % $ 18,387
100% $
4,687
100 %
6,008
12 %
3,037
17%
814
17 %
44,476
88 %
15,350
83%
3,873
83 %
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales, general and administrative (1)
Research and development
Total operating expenses
Other income
28,596
1,473
30,069
2,244
57 %
3 %
60 %
4 %
Income (loss) before income taxes
16,651
33 %
Income tax provision (benefit)
(6,160)
(12)%
14,427
570
14,997
—
353
3
78%
3%
82%
—
17,362
391
17,753
371 %
8 %
379 %
1,283
27 %
2%
(12,597)
(269)%
—%
5
— %
Net income (loss)
$ 22,811
45 % $
350
2% $ (12,602)
(269)%
(1) Includes stock based compensation
$
843
2 % $
872
5% $
766
16 %
31
Year ended December 31, 2017 compared with the year ended December 31, 2016:
For the Years Ended December 31,
2017
2016
Change
% Change
Revenues
Cost of revenues
Gross profit
Gross margin
Operating expenses:
Sales, general and administrative
Research and development
Total operating expenses
Other income
Income before income taxes
Income tax provision (benefit)
(In thousands, except percentages)
$
50,484
$
18,387
$
32,097
6,008
3,037
2,971
44,476
15,350
29,126
88%
83%
28,596
1,473
30,069
2,244
16,651
(6,160)
14,427
570
14,997
—
353
3
14,169
903
15,072
2,244
16,298
(6,163)
Net income
$
22,811
$
350
$
22,461
175%
98%
190%
98%
158%
101%
100%
NM
NM
NM
Revenue in 2017 is derived from multiple license agreements that we entered into with third-parties following negotiations pursuant
to our patent licensing and enforcement program. The revenue increase is primarily due to licensing revenues, as further described
in "Item 1. Business" - "Licensing and Enforcement - Current Activities, Post 2013".
Cost of revenues includes contingent legal fees directly associated with our licensing and enforcement programs. Cost of revenues
increased largely in proportion to increased revenues.
Gross profit as a percentage of revenues increased in 2017 in relation to the increase in revenues.
Operating expenses consists of sales and marketing, general and administrative, and research and development. Sales, general and
administrative expenses ("SG&A") consisted primarily of legal fees incurred in operations and employee headcount related
expenses. These comprise approximately 60% of total SG&A expense. Litigation expenses increased $6.0 million to $12.3 million
in 2017 compared to 2016 and are primarily due to the timing of various outstanding litigation actions. See "Item 3. Legal
Proceedings". Employee headcount related expenses increased $1.0 million to $4.6 million in 2017 compared to 2016. In addition,
in 2017 we signed a patent license agreement with FireEye for $5.0 million and increased efforts focusing on the growth of the
business. The balance of the increase includes other SG&A expenses including consulting, other professional fees, facilities and
other administrative fees and expenses.
Operating expenses from the Company’s Finjan Mobile security business increased by $1.0 million to $1.5 million in 2017
compared to 2016, as we added resources to grow this market.
Other income is the change in fair value of the warrant liability.
We recognized a reduction in the valuation allowance based on the anticipated benefit of $6.2 million from utilizing previous net
operating losses.
32
Year ended December 31, 2016 compared with the year ended December 31, 2015:
For the Years Ended December 31,
2016
2015
Change
% Change
Revenues
Cost of revenues
Gross profit
Gross margin
Operating expenses:
Sales, general and administrative
Research and development
Total operating expenses
Other income
Income before income taxes
Income tax provision
Net income (loss)
(In thousands, except percentages)
$
18,387
$
4,687
$
13,700
3,037
814
15,350
83%
3,873
83%
17,362
391
17,753
2,223
11,477
(2,935)
179
(2,756)
292 %
273 %
296 %
(17)%
46 %
(16)%
1,283
(1,283)
(100)%
(12,597)
12,950
(103)%
5
(2)
(40)%
$
350
$
(12,602)
$
12,952
(103)%
14,427
570
14,997
—
353
3
Revenue in 2016 was derived from multiple license agreements that we entered into with third-parties following negotiations
pursuant to our patent licensing and enforcement program. In addition, our consulting business started in 2015. Our revenue
increase is primarily due to licensing revenues, as further described in "Item 1. Business" - "Licensing and Enforcement - Current
Activities, Post 2013".
Cost of revenues includes legal fees directly associated with our licensing and enforcement program. Cost of revenues increased
largely in proportion to increased revenues.
Gross profit as a percentage of revenues remained consistent in 2016 compared to 2015 at approximately 83%, with gross margin
growing 296%, in relation to the increase in revenues between years, largely due to the timing of legal costs directly associated
with enforcement of our intellectual property.
Operating expenses consists of sales and marketing, general and administrative, and research and development. Sales, general and
administrative expenses ("SG&A") consisted primarily of legal fees incurred in pursuing our revenues and employee headcount
related expenses. These comprise approximately 70% of total SG&A expense. Litigation expenses decreased $1.7 million to $6.3
million in 2016 compared to 2015 and is primarily due to the timing of various outstanding actions. See "Item 3. Legal Proceedings".
Employee headcount related expenses remained consistent year over at approximately $4.5 million. In addition, SG&A expenses
include consulting and other professional fees, facilities and other administrative expenses and fees; decreased by over $1.0 million,
primarily due to the cost of relocating to California in 2015.
Other income of $1.3 million for the year ended December 31, 2015 was primarily from our gain on investing activities through
a liquidity event in a cybertechnology fund.
33
Liquidity and Capital Resources
As of December 31, 2017, we had approximately $41.2 million of cash and cash equivalents, an increase of approximately $27.5
million from $13.7 million in 2016.
On December 22, 2017, the 2017 Tax Cut and Jobs Act (the Act) was enacted into law and the new legislation contains several
key tax provisions, including a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are
required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax
assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities. The re-
measurement of our deferred tax asset resulted in a reduction of approximately $2.8 million.
Subsequent to December 31, 2017, the Company redeemed $6.2 million or 48,076 shares of the Series A-1 Preferred stock. This
redemption is related to the license fee received in late December 2017.
In addition, on November 21, 2013, we made a $5 million commitment to invest in an innovation fund through JVP to invest in
early-stage cyber technology companies, of which $2.7 million of the commitment remains unfunded. The fund can make a call
on our remaining commitment at any time. We expect to make payments to honor this commitment if and when capital calls are
made by the fund.
Subsequent to December 31, 2017, the Company made a payment to the JVP fund of $0.5 million pursuant to a capital call,
reducing the commitment outstanding to $2.2 million.
Cash & cash equivalents
Cash flows for the year ended December 31, 2017, 2016 and 2015
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
December 31,
2017
2016
(in thousands)
$
41,169
$
13,678
For the Years Ended December 31,
2017
2016
2015
(in thousands)
16,586
$
1,328
$
(11,259)
(1,873) $
(559) $
(199)
12,778
$
6,808
$
54
$
$
$
Operating Activities: Net cash provided by operating activities was $16.6 million for the year ended December 31, 2017 and is
comprised of $22.8 million in net income, $0.8 million in stock-based compensation, $0.8 million in depreciation and amortization,
$0.6 million change in net operating assets and liabilities, offset by $2.2 million change in the warrant liability and a change in
deferred income taxes of $6.2 million.
Net cash provided by operating activities was $1.3 million for the year ended December 31, 2016 and is comprised of $0.4 million
in net income, $0.9 million in stock-based compensation, $0.1 million in depreciation, offset by $0.1 million change in net operating
assets and liabilities.
Net cash used in operating activities was $11.3 million for the year ended December 31, 2015. This is comprised of a net loss
of $12.6 million and a $1.3 million return on investment, offset by $0.8 million in stock-based compensation and $1.8 million
change in net operating assets and liabilities.
34
Investing Activities: During the year ended December 31, 2017, cash used in investing activities of $2.0 million was related to
the purchase of assets under the Patent Purchase Agreement, offset by $0.1 million in cash distribution received from our investment
in the JVP fund.
During the year ended December 31, 2016, cash used by investing activities primarily related to the $0.6 million cash call by JVP.
During the year ended December 31, 2015, cash used by investing activities primarily related to the $0.8 million cash call by JVP
and $0.2 million related to the purchase of property, plant and equipment, offset by proceeds of $0.8 million in cash from the exit
of one of JVP's portfolio companies.
Financing Activities: During the year ended December 31, 2017, net cash provided by financing activities of $12.8 million was
primarily from the Series A-1 Preferred Stock Financing totaling $14.4 million and a Common Share offering for $12.0 million,
offset by redeeming and retiring Series A Preferred Stock Financing of $13.8 million.
During the year ended December 31, 2016, net cash provided by financing activities was $6.8 million. Cash provided by financing
activities of $6.8 million during 2016 primarily resulted from the Series A Preferred Stock Financing in May 2016 of $6.7 million,
net comprised of the initial financing of $9.5 million, net, offset by subsequent redemptions of $2.8 million.
During the year ended December 31, 2015, net cash provided by financing activities was deemed immaterial.
Contractual Obligations
The following table summarizes, as of December 31, 2017, the Company's contractual obligations over the next four years for the
property leases entered into during the years ended 2015, 2014, and 2013, the Company's investment in JVP, the VPN arrangement
with Avira and the asset purchase from IBM:
Contractual Obligations
Operating Lease Obligations:
Other Long-Term Liabilities:
Capital Commitments not Called
Finjan Mobile future commitment
Finjan Blue future commitment
Payments due by Period (In thousands)
Less Than 1
Year
2-4 Years
Total
$
459
$
— $
459
750
1,300
1,000
1,950
1,950
5,500
2,700
3,250
6,500
Total
$
3,509
$
9,400
$
12,909
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or “U.S. GAAP.” The
preparation of these financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, assumptions and judgments, including those related to revenue
recognition, bad debts, inventories, warranties and income taxes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and our revenue recognition. Actual results may differ from these
estimates under different assumptions or conditions and the impact of such differences may be material to our consolidated financial
statements.
Critical accounting policies are those policies that, in management’s view, are most important in the portrayal of our financial
condition and results of operations. The methods, estimates and judgments that we use in applying our accounting policies have
a significant impact on the results that we report in our financial statements. These critical accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
Those critical accounting policies and estimates that require the most significant judgment are discussed further below. We consider
35
our most critical accounting policies and estimates to be revenue recognition, gain on settlements, valuation of long lived assets,
derivative liabilities, stock based compensation and accounting for business combinations-acquisition method accounting.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product or service has occurred and
all obligations have been performed pursuant to the terms of the agreement, the sales price is fixed or determinable, and collectability
is reasonably assured.
Depending on the complexity of the underlying revenue arrangement and related terms and conditions, significant judgments,
assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether
any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate
period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific
revenue arrangements, if different judgments, assumptions and estimates are made regarding contracts executed in any specific
period, our periodic financial results may be materially affected.
Monetization of patented technologies by licensing through a negotiated agreement and/or enforcement of such patented
technologies by a court of law is the main source of our income. Licenses achieved by ordinary business negotiations where a fair
value of the license is determined by the Company is recognized as revenue. Due to our unique business, it is often necessary to
file patent infringement litigation against users of our patented technologies as part of the licensing and enforcement activities.
We may enter into certain settlements of patent infringement disputes once litigation commences. The amount of consideration
received upon any settlement or judgment is allocated to each element of the settlement based on the fair value of each element
using the residual method. Elements with fair values related to licensing agreement, royalty revenues, net of contingent legal fees,
are recognized as revenue. When the Company is unable to determine the fair value of a license agreement or a settlement, the
value of the license agreement or settlement is recognized as contra expense or gain on settlements in other income.
Stock-based Compensation Expense
Stock-based compensation payments to employees, non-employee consultants and directors are recognized as expense in the
statements of income. The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of
the award (determined using a Black-Scholes option pricing model for stock options and intrinsic value on the date of grant for
non-vested restricted stock), and is recognized as an expense over the employee’s requisite service period (generally the vesting
period of the equity award). Determining the fair value of stock-based awards at the grant date requires significant estimates and
judgments, including estimating the market price volatility of our common stock, future employee stock option exercise behavior
and requisite service periods.
Stock-based compensation expense is recorded only for those awards expected to vest using an estimated pre-vesting forfeiture
rate. As such, we are required to estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated
pre-vesting option forfeitures on compensation expense recognized. Estimates of pre-vesting forfeitures must be periodically
revised in subsequent periods if actual forfeitures differ from those estimates. We consider several factors in connection with our
estimate of pre-vesting forfeitures, including types of awards, employee class, and historical pre-vesting forfeiture data. The
estimation of stock awards that will ultimately vest requires judgment, and to the extent that actual results differ from our estimates,
such amounts will be recorded as cumulative adjustments in the period the estimates are revised. The Company granted options
to a small number of employees and consultants.
Off-Balance Sheet Arrangements
In connection with the investment in JVP, we have a commitment balance outstanding of approximately $2.7 million, which can
be called at any time.
In connection with our Distribution Agreement with Avira, we have approximately $3.3 million outstanding, which is payable
quarterly over the next three years, final payment due April 1, 2019.
Recent Accounting Pronouncements
See "NOTE 2 - Summary of significant accounting policies, - Recently issued accounting pronouncements"
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates primarily to our holdings of cash and cash equivalents. Our cash
and cash equivalents as of December 31, 2017, totaled $41.2 million and consisted primarily of cash and money market funds
with original maturities of three months or less from the date of purchase. Our primary exposure to market risk is interest income
sensitivity, which is affected by changes in the general level of the interest rates in the United States. However, because of the
short-term nature of the instruments in our portfolio, a sudden change in market interest rates of 10% would not be expected to
have a material impact on our financial condition or results of operations. We do not have any foreign currency or other derivative
financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data of the Company required by this Item are described in Item 15 of
this Annual Report on Form 10-K and are presented beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the
end of the period covered by this report. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective, as of December 31, 2017, to provide reasonable assurances that
information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported accurately and within the time periods specified in the Securities and Exchange Commission rules and forms and
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting of operations as of December 31, 2017.
In making this assessment, management used the criteria in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on this assessment, our management
concluded that, as of December 31, 2017, our internal controls over financial reporting was effective.
37
This Annual Report on Form 10-K does not include an audit or attestation report from our registered public accounting firm regarding
our internal control over financial reporting. Our management’s report was not subject to audit or attestation by our registered
public accounting firm since we are not an accelerated filer or a large accelerated filer as defined in Rule 12b-2 under the Securities
Exchange Act of 1934.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange
Act that occurred during the fourth quarter of the year ended December 31, 2017 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item regarding directors, executive officers and corporate governance is hereby incorporated by
reference to the material appearing in the Proxy Statement for the Annual Stockholders Meeting to be held in 2018 (the “Proxy
Statement”) under the caption “Directors, Management and Corporate Governance.” The information required by this item
regarding compliance with Section 16(a) of the Exchange Act, is hereby incorporated by reference to the material appearing in
the Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” The information required
by this Item 10 with respect to the availability of our code of ethics is provided in Item 1 of this Annual Report on Form 10-K.
See “Item 1. Business — Corporate Information.”
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under
the caption “Executive Compensation.”
ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
The information regarding security ownership of certain beneficial owners and management required by this item is hereby
incorporated by reference to the material appearing in the Proxy Statement under the captions “Voting Securities of Certain
Beneficial Owners and Management” and “Executive Compensation—Outstanding Equity Awards at Fiscal Year End.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under
the captions “Certain Relationships and Related Transactions” and “Directors, Management and Corporate Governance —Director
Independence.”
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under
the caption “Proposal 3 – Ratification of Appointment of Independent Registered Public Accounting Firm – Disclosure of Marcum
LLP Fees for the Years Ended December 31, 2017, 2016 and 2015” and “- Pre-Approval Policies and Procedures.”
38
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
Exhibit
Number
Exhibit Description
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Amended and Restated Certificate of Incorporation of the Company, effective July 10, 2014 (incorporated
by reference to Exhibit 3.1 to our current report on Form 8-K filed July 11, 2014)
Certificate of Designation of Series A-1 Preferred Stock dated June 19, 2017 (incorporated by reference to
Exhibit 3.1 to our current report on Form 8-K filed on June 20, 2017)
Amended and Restated Bylaws, adopted July 10, 2014 (incorporated by reference to Exhibit 3.1 to our current
report on Form 8-K filed July 11, 2014)
Form of Warrant in favor of Soryn HLDR Vehicle II LLC (incorporated by reference to Exhibit 4.1 to our
current report on Form 8-K filed on June 20, 2017)
Form of Registration Rights Agreement, dated as of June 3, 2013, by and between the Company and certain
stockholders of the Company (incorporated by reference to Exhibit 10.3 to our current report on Form 8-K
filed June 3, 2013)
Amended and Restated Employment Agreement, dated January 14, 2015, between Finjan Holdings, Inc. and
Philip Hartstein (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed January
16, 2015)#
Employment Agreement, dated as of July 5, 2013, by and between the Company and Philip Hartstein
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed July 12, 2013)#
Amended and Restated Employment Agreement, dated November 11, 2014, between Finjan Holdings, Inc.
and Michael Noonan (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K
filed November 12, 2014)#
Employment Agreement, dated January 19, 2014, between Finjan Holdings, Inc. and Julie Mar-Spinola
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed March 31, 2015)#
Finjan Holdings, Inc. 2013 Global Share Option Plan (incorporated by reference to Exhibit 10.7 to our current
report on Form 8-K filed June 3, 2013)#
Form of Option Award under the Finjan Holdings, Inc. 2013 Global Share Option Plan (incorporated by
reference to Exhibit 10.8 to our annual report on Form 10-K filed March 14, 2014)#
Finjan Holdings, Inc. Amended and Restated 2014 Incentive Compensation Plan, dated July 10, 2014, as
amended and restated June 21, 2017*#
Form of Finjan Holdings, Inc. 2014 Incentive Compensation Plan Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.2 to our quarterly report on Form 10-Q filed August 11, 2014)#
Form of Finjan Holdings, Inc. 2014 Incentive Compensation Plan Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.3 to our quarterly report on Form 10-Q filed August 11, 2014)#
Summary of Director Compensation (incorporated by reference to our Current Report on Form 8-K filed April
8, 2014)#
Finjan Holdings, Inc. Israeli Appendix to the 2014 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed June 26, 2015)#
Form of Israeli Option Award Agreement (incorporated by reference to Exhibit 10.2 to our Current Report
on Form 8-K filed June 26, 2015)#
Sublease Agreement, dated January 7, 2015, between Finjan Holdings, Inc. and Tribune Media Company
(incorporated by reference to Exhibit 10.1 to our current report on form 8-K filed February 25, 2015)
39
Exhibit
Number
10.15
21.1
23.1
31.1
31.2
32.1
32.2
Series A-1 Preferred Stock Purchase Agreement, dated June 15, 2017, between Finjan Holdings, Inc. and
Soryn HLDR Vehicle II LLC (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K
filed on June 20, 2017)
Exhibit Description
Subsidiaries of Finjan Holdings, Inc.*
Consent of Marcum LLP.*
Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*†
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*†
101.INS
XBRL Instance Document*+
101.SCH
XBRL Taxonomy Extension Schema Document*+
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*+
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*+
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*+
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*+
*
%
†
+
#
Filed herewith.
Confidential treatment has been obtained with respect to certain omitted portions of this exhibit. Omitted
portions have been filed separately with the Securities and Exchange Commission.
This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18
of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent
that the registrant specifically incorporates it by reference.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not
filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of
1934, as amended, and otherwise are not subject to liability under those sections.
Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY.
None.
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 14, 2018
Date: March 14, 2018
FINJAN HOLDINGS, INC.
By:
By:
/s/ Philip Hartstein
Philip Hartstein
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Michael Noonan
Michael Noonan
Chief Financial Officer & Treasurer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Philip Hartstein and Michael Noonan, and each of them, jointly and severally, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file
the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name
/s/ Eric Benhamou
Eric Benhamou
/s/ Daniel Chinn
Daniel Chinn
/s/ Glenn Daniel
Glenn Daniel
/s/ Harry Kellogg
Harry Kellogg
/s/ Michael Southworth
Michael Southworth
/s/ Alex Rogers
Alex Rogers
/s/ Gary Moore
Gary Moore
/s/ Philip Hartstein
Philip Hartstein
/s/ Michael Noonan
Michael Noonan
Title
Director
Date
March 14, 2018
Chairman
March 14, 2018
Director
Director
Director
Director
Director
March 14, 2018
March 14, 2018
March 14, 2018
March 14, 2018
March 14, 2018
President & Chief Executive Officer
March 14, 2018
(Principal Executive Officer)
Chief Financial Officer & Treasurer
March 14, 2018
(Principal Financial and Accounting
Officer)
41
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FINJAN HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Finjan Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Finjan Holdings, Inc. (the “Company”) as of December 31,
2017, and 2016, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Marcum LLP
/s/ Marcum LLP
We have served as the Company’s auditor since 2012.
New York, NY
March 14, 2018
F-2
FINJAN HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Investments
Intangible assets, net
Other assets, non-current
Deferred income taxes, non-current
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accounts payable, related parties
Accrued expenses
Accrued income taxes
Warrant liability
Other liabilities, current
Total current liabilities
Other liabilities, non-current, patent purchase
Total Liabilities
Commitments and contingencies (Note 7)
Redeemable Preferred Stock
December 31,
2017
2016
$
41,169
$
$
$
2,606
765
44,540
140
2,618
7,748
—
6,201
61,247
$
4,646
$
112
1,303
13
1,096
1,086
8,256
5,500
13,756
13,678
1,066
292
15,036
203
2,745
—
321
—
18,305
1,858
88
1,832
3
—
33
3,814
119
3,933
Series A Preferred stock - $0.0001 par value, no shares and 83,502 shares issued and
outstanding at December 31, 2017 and 2016, respectively (Liquidation preference of
$13,778 at December 31, 2016)
Series A-1 Preferred stock - $0.0001 par value, 153,000 and no shares issued and
outstanding at December 31, 2017 and 2016, respectively (Liquidation preference of
$19,890 at December 31, 2017)
Stockholders’ Equity
Preferred stock - $0.0001 par value; 10,000,000 shares authorized; no shares issued and
outstanding (which excludes 153,000 and 83,502 shares of Redeemable Preferred Stock
at December 31, 2017 and 2016, respectively) at December 31, 2017 and 2016
Common stock - $0.0001 par value; 80,000,000 shares authorized; 27,707,328 and
23,102,728 shares issued and outstanding at December 31, 2017 and 2016
Additional paid-in capital
Retained earnings (accumulated deficit)
Total Stockholders’ Equity
—
13,486
18,965
—
3
22,968
5,555
28,526
—
—
2
18,140
(17,256)
886
Total Liabilities and Stockholders’ Equity
$
61,247
$
18,305
The accompanying notes are an integral part of these Consolidated Financial Statements
F-3
FINJAN HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
Revenues
Cost of revenues
Gross profit
Operating Expenses:
Selling, general and administrative
Research and development
Total operating expenses
For the Years Ended December 31,
2017
2016
2015
$
50,484
$
18,387
$
6,008
44,476
3,037
15,350
28,596
1,473
30,069
14,427
570
14,997
4,687
814
3,873
17,362
391
17,753
Income (loss) from operations
14,407
353
(13,880)
Other Income
Return on investment
Interest income
Change in fair value of warrant liability
Total other income
—
27
2,217
2,244
—
—
—
—
1,271
12
—
1,283
Income (loss) before provision for income taxes
16,651
353
(12,597)
Income tax provision (benefit)
(6,160)
3
5
Net Income (Loss)
22,811
350
(12,602)
Accretion of preferred stock
Net income (loss) attributable to common stockholders
Net income (loss) per share, basic
Net income (loss) per share, diluted
Net income (loss) per share applicable to common stockholders, basic
Net income (loss) per share applicable to common stockholders, diluted
(4,882)
17,929
0.90
0.87
0.71
0.68
$
$
$
$
$
$
$
$
$
$
(6,789)
(6,439) $
—
(12,602)
0.02
0.02
$
$
(0.28) $
(0.28) $
(0.56)
(0.56)
(0.56)
(0.56)
Weighted average common shares outstanding, basic
Weighted average common shares outstanding, diluted
25,353,966
22,837,263
22,548,932
26,269,727
22,837,263
22,548,932
The accompanying notes are an integral part of these Consolidated Financial Statements
F-4
FINJAN HOLDINGS, INC.
Consolidated Statement of Changes in Stockholders’ Equity
For the Years Ended December 31, 2017, 2016 and 2015
(In thousands, except share and per share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings /
(Accumulated
Deficit)
Total
Balance - December 31, 2014
22,448,098
$
Stock based compensation expense
Proceeds from exercise of stock options
Net loss
Balance – December 31, 2015
Stock based compensation expense
Proceeds from exercise of stock options
Accretion of Series A preferred stock
Net income
Balance – December 31, 2016
Stock based compensation expense
Proceeds from exercise of stock options
Accretion of Series A preferred stock
Accretion of Series A-1 preferred stock
Issuance of warrants classified as a liability
Sale of Common Stock
Net income
Balance – December 31, 2017
—
192,513
—
22,640,611
—
462,117
—
—
23,102,728
—
464,600
—
—
—
4,140,000
—
27,707,328
$
2
—
—
—
2
—
—
—
—
2
—
—
—
—
—
1
—
3
$
23,126
$
766
54
—
23,946
872
111
(6,789)
—
18,140
843
229
(292)
(4,590)
(3,313)
11,951
—
(5,004) $
—
—
(12,602)
(17,606)
—
—
—
350
(17,256)
—
—
—
—
—
—
22,811
$
22,968
$
5,555
$
18,124
766
54
(12,602)
6,342
872
111
(6,789)
350
886
843
229
(292)
(4,590)
(3,313)
11,952
22,811
28,526
The accompanying notes are an integral part of these Consolidated Financial Statements
F-5
FINJAN HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net Income (Loss)
Adjustments to reconcile net gain (loss) to net cash provided by (used in)
operating activities
For the Years Ended December 31,
2017
2016
2015
$
22,811
$
350
$
(12,602)
Return on investment
Depreciation and amortization
Loss on disposal of assets
Change in fair value of warrant liability
Deferred income taxes
Stock-based compensation expense
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accrued expenses
Accounts payable
Accounts payable - related parties
Accrued income taxes
Other liabilities
Net Cash Provided by (used in) Operating Activities
Cash Flows From Investing Activities
Purchase of intangible assets
Purchases of additional investment
Proceeds from investment
Distribution from investment
Purchase of property and equipment
Net Cash Used in Investing Activities
Cash Flows From Financing Activities
Proceeds from the sale of Series A Preferred shares, net of issuance costs
Proceeds from the sale of Series A-1 Preferred shares, net of issuance costs
Redemption of Series A Preferred shares
Proceeds from Common share offering, net of issuance costs
Proceeds from exercise of stock options
—
815
—
(2,217)
(6,201)
843
(1,540)
(152)
(529)
2,788
24
10
(66)
16,586
(2,000)
—
—
127
—
(1,873)
—
14,375
(13,778)
11,952
229
—
63
—
—
—
872
(1,066)
34
1,382
(362)
71
(6)
(10)
1,328
—
(550)
—
—
(9)
(559)
9,490
—
(2,793)
—
111
Net Cash Provided by Financing Activities
12,778
6,808
(1,271)
50
34
—
—
766
2,016
(535)
(350)
545
(83)
9
162
(11,259)
—
(750)
826
—
(275)
(199)
—
—
—
—
54
54
Net Increase (Decrease in) Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
27,491
13,678
7,577
6,101
(11,404)
17,505
Cash and Cash Equivalents - Ending
$
41,169
$
13,678
$
6,101
F-6
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for income taxes
Non-cash investing and financing activities:
Distribution of investment held by investee
Accretion of Series A Preferred Stock
Accretion of Series A-1 Preferred Stock
Series A-1 warrant liability
Patent purchase in exchange for payable
$
30
$
— $
—
292
4,590
3,313
6,500
—
6,789
—
—
—
7
445
—
—
—
—
The accompanying notes are an integral part of these Consolidated Financial Statements
F-7
FINJAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND OPERATIONS
ORGANIZATION
Finjan Holdings, Inc. (the “Company” or “Finjan Holdings”), a Delaware corporation, and its wholly owned subsidiaries, Finjan,
Finjan Blue, Finjan Mobile and CybeRisk operates a cybersecurity business focused in four business lines: intellectual property
licensing and enforcement, advisory services, mobile security application development and investing in cybersecurity technologies
and intellectual property. Revenues and operations from the Company’s Finjan Mobile security business and the Company’s
CybeRisk advisory services were immaterial to the consolidated financial statements for the years ended December 31, 2017, 2016
and 2015. Licensing and enforcement of the Company's cybersecurity patent portfolio is operated, through its wholly-owned
subsidiary Finjan, Inc. The Company’s common stock has been trading on the NASDAQ Capital Market ("NASDAQ") since May
2014.
Finjan was founded in 1997 as a wholly-owned subsidiary of Finjan Software Ltd. (“FSL”). FSL, together with its subsidiaries,
sold enterprise web security solutions, including real-time and behavior-based malware prevention. In October 2003, FSL
transferred all of its shares in Finjan to Finjan Software, Inc. (“FSI”). As a result of this transfer, Finjan became a wholly-owned
subsidiary of FSI (the “Former Parent”). On December 8, 2010, Finjan, Inc. changed its name to FI Delaware, Inc. On October 22,
2012, FI Delaware, Inc. changed its name back to Finjan, Inc.
In October 2009, FSI transferred its portfolio of intellectual property to Finjan (its wholly-owned subsidiary at the time). Thereafter,
in November 2009, FSI sold certain assets, including certain of its operating subsidiaries, not including Finjan, and its sales and
marketing assets to M86 Security (“M86”). Finjan also granted a fully-paid, non-exclusive patent license to M86, in consideration
for which M86 issued shares of its common stock to Finjan and FSI. In connection with that transaction, and subsequent to
November 2009, FSI and its remaining subsidiaries (including Finjan) ceased the development, manufacture, marketing and sale
of its products, as well as research conducted through its Malicious Code Research Center as part of a confidential non-compete
provision. Finjan retained ownership of its patents and all related rights. In March 2012, M86 merged with Trustwave Holdings,
Inc. (“Trustwave”) through which M86’s license from Finjan was renewed with Trustwave to include an expanded scope and an
extension of the non-compete for the development of software and hardware security products. In September 2015, Trustwave
was acquired by Singapore Telecom (“SingTel”). Finjan’s agreement with Trustwave includes extended royalty obligations upon
achievement of certain sales milestones. To date, Finjan has not received any additional payments under the license.
In February 2013, Finjan distributed all securities it held in two unaffiliated entities to FSI and made a payment of cash in an
amount sufficient to repay and satisfy in full a pre-existing intercompany loan from FSI to Finjan. Following that distribution, the
board of directors and stockholders of FSI approved the dissolution of, and a plan of liquidation for, FSI that resulted, among other
things, in the distribution of Finjan's common stock to certain of FSI’s stockholders, whereby Finjan ceased to be a subsidiary of
the Former Parent.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Where applicable, certain prior period amounts have been reclassified for comparative purposes to conform to the current
presentation. These reclassifications have no impact on the previously reported loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with US Generally Accepted Accounting Principles ("US GAAP"), requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, the Company evaluates its estimates, including those related to derivative liabilities, stock-based
F-8
compensation expense, impairment of long-lived assets, the determination of the economic useful life of property and equipment,
income taxes and valuation allowances against net deferred tax assets. Management bases its estimates on historical experience
or on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly liquid instruments with original maturities of three
months or less when purchased to be cash equivalents. Included in cash and cash equivalents are demand deposits and money
market accounts.
CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash and cash equivalents in financial institutions located in the United States and Israel. At times, the
Company’s cash and cash equivalent balances may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance
Corporation (“FDIC”) insurance limits. The Company has not experienced any losses in such accounts. As of December 31, 2017,
and 2016, substantially all of the Company’s cash and cash equivalents are uninsured.
During 2017, revenues generated by the Company were derived from five license agreements that the Company entered into with
third parties in 2017 and existing agreements from 2016 and 2015, that had agreed upon future payment terms.
See “Note 9 - License, Settlement and Release Agreement.”
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company
does not currently require any collateral for accounts receivable. The Company regularly reviews the allowance by considering
factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions
that may affect a customer’s ability to pay. The Company did not record an allowance for doubtful accounts as of December 31,
2017 and 2016, respectfully. Bad debt expense for the years ended December 31, 2017, 2016 and 2015 was nil.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on the straight-line method
over the estimated useful lives of the related assets, which range from 3 to 7 years. Leasehold improvements are amortized on the
straight-line method over the shorter of the remaining lease term or the estimated useful economic lives of the related assets using
the straight-line method. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are
expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is included in income.
INVESTMENTS
Investments that are not controlled, and over which the Company does not have the ability to exercise significant influence are
accounted for under the cost method. All of the Company’s investments as of December 31, 2017 and 2016 and are accounted for
under the cost method.
IMPAIRMENT OF LONG-LIVED ASSETS
Intangible assets with finite lives are amortized over their estimated useful lives. The Company reviews these assets for impairment
periodically or whenever potential indicators of impairment exist. The Company continually evaluates whether events or changes
in circumstances might indicate that the remaining estimated useful life of long-lived assets may warrant revision, or that the
remaining balance may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment,
the estimate of fair value is based on the best information available as of the date of the assessment, is subjective and requires
judgment, including management assumptions as deemed appropriate and would be based on generally accepted valuation
methodologies.
F-9
REVENUE RECOGNITION
Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product or service has occurred, all
obligations have been performed pursuant to the terms of the agreement, the sales price is fixed or determinable, and collectability
is reasonably assured.
Revenue results from grants of licenses to its patented cyber-security technology and settlements reached from legal enforcement
of the Company’s patent rights. The Company does not grant, at this time, technology or software end-user licenses. Revenue is
recognized when the arrangement with the licensee has been signed and the license has been delivered and made effective, provided
license fees are fixed or determinable and collectability is reasonably assured. The fair value of licenses achieved is recognized
as revenue.
The amount of consideration received upon any settlement or judgment is allocated to each element of the settlement based on the
fair value of each element. Elements related to licensing agreements and royalty revenues, is recognized as revenue in the
consolidated statement of operations. Elements that are not related to license agreements and royalty revenue in nature will be
reflected as a separate line item within the Other Income section of the consolidated statements of operations. Elements provided
in either settlement agreements or judgments include, the value of a license, legal release, and interest. When settlements or
judgments are achieved at discounts to the fair value of a license, the Company allocates the full settlement or judgment, excluding
specifically named elements as mentioned above, to the value of the license agreement or royalty revenue under the residual method
relative to full license fair value prior to the discount. Legal release as part of a settlement agreement is recognized as a separate
line item in the consolidated statements of operations when value can be allocated to the legal release. When the Company reaches
a settlement with a defendant, no value is allocated to the legal release since the existence of a settlement removes legal standing
to bring a claim of infringement, and without a legal claim, the legal release has no economic value. The element that is applicable
to interest income will be recorded as a separate line item in Other Income.
RESEARCH AND DEVELOPMENT EXPENSE
The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily
of professional services costs associated with the development of mobile security application products.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise
marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when
a product is available for general release to customers. In most instances, the Company’s products are released soon after
technological feasibility has been established. Software development costs incurred subsequent to achievement of technological
feasibility were not material and were expensed as incurred during the years ended December 31, 2017, 2016 and 2015.
FOREIGN CURRENCY
Foreign currency denominated assets and liabilities of foreign subsidiaries, where the local currency is the functional currency,
are translated into U.S. dollars using the exchange rates in effect at the balance sheet dates, and income and expenses are translated
using average exchange rates during the period. Foreign currency translation gains (losses) were immaterial for the years ended
December 31, 2017, 2016 and 2015.
Foreign currency transaction gains (losses) were immaterial for the years ended December 31, 2017, 2016 and 2015, and are
included as general and administrative expense, in the accompanying consolidated statements of operations.
PREFERRED STOCK
The Company accounts for the redemption premium and issuance costs on its preferred stock by recognizing changes in the
redemption value immediately as they occur and adjusting the carrying value of the security to equal the redemption value at the
end of each reporting period. This method views the end of the reporting period as if it were also the redemption date for the
security.
F-10
ACCOUNTING FOR WARRANTS
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company
a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies
as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if
an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement
or settlement in shares (physical settlement or net-share settlement).
DERIVATIVE LIABILITIES
In connection with the issuance of Series A-1 Preferred Stock in June 2017, the Company issued a warrant with variable
consideration. The Company determined that this instrument is an embedded derivative pursuant to ASC 815, “Derivatives and
Hedging.” The accounting treatment of derivative financial instruments requires that the Company record the warrant, at its fair
value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value
is recorded as a change in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company
reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the
contract is reclassified as of the date of the event that caused the reclassification.
The Monte Carlo Valuation model is used to estimate the fair value of the warrant. The model was developed for use in estimating
the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time
equal to the weighted average life of the instrument granted.
The risk-free interest rate used is the United States Treasury rate for the day of the grant having a term equal to the life of the
equity instrument. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to
fluctuate. The dividend yield is zero percent as the Company has not made any dividend payment and has no plans to pay dividends
in the foreseeable future. The Company determines the expected term of its warrant awards by using the contractual term.
The principal assumptions used in applying the model were as follows:
Assumptions:
Risk-free interest rate
Expected life
Expected volatility
Dividends
For the Year Ended
December 31, 2017
1.5% - 2.0%
2.5 - 3 years
50% - 60%
0.0%
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, approximate their fair value due to their short maturities.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and
reported on a fair value basis.
Where available, fair value is based on observable market prices or is derived from such prices. The Company uses the market
approach valuation technique to value its investments. The market approach uses prices and other pertinent information generated
from market transactions involving identical or comparable assets or liabilities. The types of factors that the Company may take
into account in fair value pricing the investments include available current market data, including relevant and applicable market
quotes.
Based on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the
fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
F-11
Level 1 - Observable inputs such as quoted prices in active markets.
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the
assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair
value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or liability.
The fair value measurement of the warrant issued in conjunction with the Series A-1 Preferred Stock is a derivative liability based
on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based
on unobservable inputs that are supported by little or no market activity. For fair value measurements categorized within Level 3
of the fair value hierarchy, the Company’s Controller who reports to the Chief Financial Officer, determines valuation policies and
procedures, which are reflected in the the Company's assumptions in measuring fair value.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is based upon the weighted-average number of common shares outstanding. Diluted
net income (loss) per common share is based on the weighted-average number of common shares outstanding and potentially
dilutive common shares outstanding.
Years Ended
December 31,
2017
2015
2016
(In thousands, except share and per
share data)
Numerator:
Net income (loss) attributable to common stockholders
$
17,929
$
(6,439) $
(12,602)
Denominator:
Weighted-average common shares, basic
Weighted-average common shares, diluted*
Net income (loss) per common share:
Basic:
Diluted:
25,353,966
22,837,263
22,548,932
26,269,727
22,837,263
22,548,932
$
$
0.71
0.68
$
$
(0.28) $
(0.28) $
(0.56)
(0.56)
* The diluted earnings per common share included 438,712 unvested Restricted Stock Units and the weighted average effect of
477,048 stock options that are potentially dilutive to earnings per share for the twelve months ended December 31, 2017, since
the exercise price of such securities was less than the average market price during the period.
Potentially dilutive common shares from employee equity plans and warrants are determined by applying the treasury stock method
to the assumed exercise of warrants and share options and were excluded from the computation of diluted net loss per share because
their inclusion would be anti-dilutive and consist of the following:
Stock options
Restricted stock units
Warrants
Total
2017
2,341,340
438,712
2,355,506
5,135,558
December 31,
2016
1,607,347
185,260
—
1,792,607
2015
1,510,832
408,710
—
1,919,542
F-12
STOCK-BASED COMPENSATION
The Company measures compensation cost for all employee stock-based awards at their fair values on the date of grant. Stock-
based awards issued to non-employees are measured at their fair values on the date of grant and are re-measured at each reporting
period through their vesting dates. When a non-employee becomes an employee and continues to vest in the award, the fair value
of the individual’s award is re-measured on the date that he becomes an employee, and then is not subsequently re-measured at
future reporting dates. The fair value of stock based awards is recognized as expense over the service period, net of estimated
forfeitures, using the straight-line method for stock options and restricted stock. The Company uses the Black-Scholes option-
pricing model to estimate the fair value of its stock-based awards.
INCOME TAXES
The Company files consolidated income tax returns in the U.S. federal jurisdiction and is headquartered in California, formerly
in New York. The federal and state income tax returns for the tax years 2013 and after remain subject to examination for federal
and state taxes. The Company files state income tax returns for California and New York.
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The income tax provision or benefit is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets and liabilities.
The benefit of tax positions taken or expected to be taken in income tax returns are recognized in the financial statements if such
positions are more likely than not of being sustained. As of December 31, 2017, 2016 and 2015, an immaterial or no liability for
unrecognized tax benefits was required to be reported. The Company does not expect its unrecognized tax benefit position to
change during the next twelve months.
The Company’s policy is to classify assessments, if any, for tax-related interest as interest expense and penalties as general and
administrative expenses. There were no amounts accrued for penalties or interest as of, or during the years ended December 31,
2017, 2016 and 2015.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue
from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company
to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects
to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods
beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016.
Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent
considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing, which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing
implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company
has completed its analysis of the new revenue standards and has established an implementation plan and believes the systems in
place are adequate to support application of this guidance. The Company has adopted the new standard effective January 1, 2018,
using the modified retrospective transition method. However, as the Company’s revenues in 2017 were from Licensing and
Enforcement activities, which does not change significantly under the new standard, adoption via the full retrospective approach
or the modified retrospective approach on January 1, 2018 would not have a material impact on the Company’s consolidated
financial statements and the internal controls over financial reporting.
In February 2016, FASB issued ASU No. 2016-02 “Leases” that requires a lessee to recognize the assets and liabilities that arise
from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12
months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease
F-13
assets and lease liabilities. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of the standard on
its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-
based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures.
ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The adoption
of this standard did not have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments.” ASU No. 2016-15 clarifies and provides specific guidance on eight cash flow classification issues that are
not currently addressed by current GAAP and thereby reduce the current diversity in practice. ASU No. 2016-15 is effective for
public business entities for annual periods, including interim periods within those annual periods, beginning after December 15,
2017, with early application permitted. This guidance is applicable to the Company's fiscal year beginning January 1, 2018. The
Company is currently evaluating the standard to determine the impact of its adoption on the Company's consolidated financial
statements.
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480)
and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception". Part I of this update addresses the complexity
of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked
instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings.
Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and
convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion
option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of
the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of
the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities
and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting
effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early
adoption is permitted. The Company is currently evaluating the effect of the standard on its consolidated financial statements and
related disclosures.
Other recent accounting standards that have been issued or proposed by FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material impact on the Company's consolidated financial statements upon
adoption.
NOTE 3 - INTANGIBLE ASSETS
Patents
The Company owns or possesses licenses to use its patents. The costs of maintaining the patents are expensed as incurred.
Intangible Assets
The Company and Finjan Blue entered into a Patent Assignment and Support Agreement (the “Patent Assignment Agreement”)
with IBM effective as of August 24, 2017 (see "Note 7 - Commitments and Contingencies"). Pursuant to the Patent Assignment
Agreement, Finjan Blue acquired select IBM patents in the security sector (the “IBM Security Patents”). In accordance with ASC
350-30-35-2 through 35-4, Intangibles-Goodwill and Other, the Company determined that the useful life of the patents acquired
under the Patent Assignment and Support Agreement should be amortized over the four-year term of the agreement. Management
did not identify any triggering events which would have necessitated an impairment change.
F-14
The components of these intangible assets are as follows:
Patents
Less accumulated amortization
Intangible assets, net
As of December 31,
2016
2017
$
(in thousands)
26,552
(18,804)
$
18,052
(18,052)
7,748
$
—
Amortization expense for the year ended December 31, 2017 was approximately $752,000 and $0 for the years ended December
31, 2016 and 2015.
Future amortization costs of $2.1 million annually will be recognized over the next 3.75 years.
NOTE 4 – ACCRUED EXPENSES AND WARRANT LIABILITY
Accrued expenses
The components of accrued expenses are as below:
Legal - licensing & litigation
Compensation
Other
Warrant Liability
As of December 31,
2016
2017
(In thousands)
$
$
— $
1,195
1,233
70
560
77
1,303
$
1,832
A summary of the Company's Level 3 derivative liabilities for the twelve months ended December 31, 2017 is as follows (in
thousands):
Balance, December 31, 2016
Fair value of derivative liabilities at issuance
Change in the fair value of derivative liabilities
Balance, December 31, 2017
NOTE 5 – PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
Office equipment, leasehold improvements and furniture
Less accumulated depreciation
Property and equipment, net
$
$
—
3,313
(2,217)
1,096
As of December 31,
2016
2017
(In thousands)
$
$
319
(179)
140
$
$
319
(116)
203
Depreciation expense for the years ended December 31, 2017 and 2016 was approximately $63,000 for both years, respectively
and $50,000 in 2015.
F-15
NOTE 6 – INVESTMENTS
On November 21, 2013, the Company made a $5 million commitment to invest in Jerusalem Venture Partners (“JVP Fund”). As
of December 31, 2017, $2.7 million remains outstanding on this commitment. If and when the Company funds the entire amount
of the investment, the investment will be less than a 10% limited partnership interest in which the Company will not be able to
exercise control over the fund. Accordingly, the Company has accounted for this investment under the cost method of accounting.
On June 8, 2015, the Company received a cash distribution of $826,000 as a portion of a gross entitlement of approximately
$1,271,000 from its investment in the JVP Fund. This distribution represents a portion of the gross proceeds allocated to the
Company’s investment, with the remaining amount to be retained by the JVP Fund to fund future investment activities. The retained
proceeds did not reduce the Company's future capital commitment to the venture capital fund.
There were no identified events or changes in circumstances that are believed to have had a significant adverse effect on the fair
value of the investments as of December 31, 2017, 2016 and 2015.
Subsequent to December 31, 2017, the Company made a payment to the JVP fund of $0.5 million pursuant to a capital call, reducing
the commitment outstanding to $2.2 million.
The following is a summary of the Company’s investments (in thousands):
Balance - January 1, 2015
Investment made during 2015
Proceeds retained and reinvested in fund
Balance - December 31, 2015
Investment made during 2016
Balance - December 31, 2016
Cash distribution during 2017
Balance - December 31, 2017
NOTE 7 – COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Venture Capital
Fund
$
$
1,000
750
445
2,195
550
2,745
(127)
2,618
On September 9, 2013, the Company entered into a lease for its former corporate headquarters in New York, NY for a period of
five years beginning October 1, 2013. Under the terms of the lease, the Company owed an initial annual rent of approximately
$139,000, payable in monthly installments of approximately $12,000, unless earlier terminated in accordance with the lease. As
of December 31, 2017, the total future minimum lease payments to be paid under the agreement, which expires in September 2018,
was $115,000. The agreement also required an initial security deposit of $69,000 which is included in other current assets. The
annual rental rate, beginning after the first year, is subject to an increase, on a cumulative basis, at a rate of 2.5% per annum
compounded annually.
In May 2015, the Company entered into a sublease agreement for its former corporate headquarters in New York, NY. As of
December 31, 2017, the total future minimum lease payments to be received under the sublease agreement, which expires in
September 2018, was $127,000.
On March 20, 2014, the Company received the consent of the master landlord for a sublease agreement dated March 10, 2014,
pursuant to which the Company subleased office space in Menlo Park, CA through November 30, 2017. From the commencement
date, the Company owed an initial annual rent of approximately $165,000, payable in equal monthly installments, unless earlier
terminated by either party in accordance with the lease. The lease term expired November 2017.
On January 7, 2015, the Company entered into a sublease agreement to sublease office space in East Palo Alto, CA through
September 2018, to serve as its new Company headquarters. The annual rent is approximately $450,000, payable in equal monthly
installments, unless earlier terminated by either party in accordance with the lease. The annual rent is subject to an approximate
F-16
3.0% increase at each anniversary of the commencement date during the term of the sublease agreement. The agreement also
required an initial security deposit of $231,000 which is included in other current assets. As of December 31, 2017, the total future
minimum lease payments to be paid under the agreement, which expires in September 2018 is $344,000.
On December 1, 2016, the Company entered into a monthly lease agreement in Tel Aviv, Israel, where it is conducting operations
in support of CybeRisk. The annual rent is approximately $12,000, payable in equal monthly installments, unless earlier terminated
by either party in accordance with the lease.
The Company accounted for its “Cease-Use Liability” in accordance with ASC 420 “Exit or Disposal Cost Obligations”, and
accounts for its leases under the straight line method of accounting
The following table sets forth the Company’s aggregate future minimum payments under its operating lease commitments as of
December 31, 2017 (in thousands):
Year ending December 31,
2018
Total
$
$
459
459
For the years ended December 31, 2017, 2016 and 2015, rent expense was approximately $754,000, $782,000 and $667,000,
respectively.
The Company accounts for its leases under the straight-line method of accounting. Deferred rent payable was $36,000 and $69,000
as of December 31, 2017 and December 31, 2016, respectively, and is included in other current liabilities on the consolidated
balance sheets.
Rental income for the years ended December 31, 2017, 2016 and 2015 was $350,000, $349,000 and $132,000, respectively.
Sublease income is recorded as a reduction in rental expense. Future minimum lease payments to be received under existing
sublease agreements as of December 31, 2017 are as follows (in thousands):
Year ending December 31,
2018
CONTRACTUAL OBLIGATIONS
Finjan Mobile
$
127
127
On April 21, 2017, the Company and Finjan Mobile, a wholly-owned subsidiary of the Company, entered into a Confidential Avira
VPN Platform Distribution Agreement (the “Distribution Agreement”) with Avira, Inc., a Delaware corporation (“Avira”). Pursuant
to the Distribution Agreement, Avira will provide its Virtual Private Network (“VPN”) platform and technical support (“VPN
Platform”) to Finjan Mobile, and Finjan Mobile will use the VPN Platform as part of its Vital Security™ suite of product offerings.
Avira also granted Finjan Mobile related license rights in connection with the Distribution Agreement and starting July 1, 2017,
Finjan Mobile will pay Avira $3.9 million in fees under the Distribution Agreement, payable in 12 quarterly installments of $325,000
over the next 3 years. The Company has analyzed the terms of the agreement and has accounted for the transaction as a service
agreement, to be expensed over the service period. As of December 31, 2017, the Company has a $3.3 million contractual obligation
due over the next 10 quarters.
Finjan Blue
As described in Note 3, pursuant to the Patent Assignment Agreement, Finjan Blue acquired select IBM patents in the security
sector (the “IBM Security Patents”) in exchange for $8.5 million cash, payable as follows: (i) $2.0 million upon execution of the
Patent Assignment Agreement and (ii) $6.5 million over the subsequent four years. The Company’s initial $2.0 million payment
was made on August 24, 2017.
F-17
IBM will support Finjan Blue in its development and licensing of the IBM Security Patents and provide assistance for such efforts
as needed for the term of the Agreement and Finjan Blue will reimburse IBM for reasonable time and out of pocket costs for such
assistance, however IBM will not receive further proceeds from such efforts. IBM does have reservation of rights with respect to
the IBM Security Patents for its current licensees and open source initiatives.
NOTE 8 - LITIGATION, CLAIMS AND ASSESSMENTS
A. United States District Court Actions
Finjan, Inc. v. FireEye, Inc., Case No. 13-cv-03133SBA, (N.D. Cal)
Finjan filed a patent infringement lawsuit against FireEye, Inc. (“FireEye”) in the United States District Court for the Northern
District of California on July 8, 2013, asserting that FireEye, Inc. is directly and indirectly infringing certain claims of Finjan’s
U.S. Patent Nos. 6,804,780, 7,058,822, 7,647,633, 7,975,305, 8,079,086, and 8,225,408, through the manufacture, use, importation,
sale, and/or offer for sale of its products and services, including but not limited to FireEye’s Threat Protection Platform, including
the FireEye Malware Protection System, the FireEye Dynamic Threat Intelligence, and the FireEye Central Management System.
Finjan amended its Complaint on August 16, 2013, to add U.S. Patent No. 6,154,844 to the list of asserted patents. The principal
parties in this proceeding are Finjan, Inc. and FireEye, Inc. Finjan seeks entry of judgment that FireEye, Inc. has infringed, is
infringing, and has induced infringement of the above-listed patents, a preliminary and permanent injunction from infringing, or
inducing the infringement of the above-listed patents, an accounting of all infringing sales and revenues, damages of no less than
a reasonable royalty and consistent with proof, enhanced damages, and enhanced damages for willful infringement, costs, interest,
and reasonable attorneys’ fees under 35 U.S.C. §285. FireEye, Inc. answered Finjan's Amended Complaint on September 3, 2013,
by denying Finjan's allegations of infringement and counterclaiming that the asserted patents are invalid under 35 U.S.C. §§ 101,
102, 103 and/or 112. Both parties have demanded a jury trial. On June 2, 2014, the Honorable Saundra Brown Armstrong entered
an Order Granting Motion to Stay Pending Reexamination of U.S. Patent Nos. 7,058,822 (“the ‘822 Patent”) and 7,647,633 (“the
‘633 Patent”). Accordingly, the action was placed off calendar until the U.S. Patent and Trademark Office ("USPTO") completed
its administrative reexamination proceedings. On February 16, 2016, the USPTO issued an Ex Parte Reexamination Certificate
confirming the validity of claims 1-8 and 16-27 of the ‘822 Patent. On May 31, 2016, pursuant to the Court’s Order Granting
Motion to Stay Pending Reexamination, the parties filed a joint status report regarding the status of reexamination proceedings
of the ‘822 and ‘633 Patents. On September 16, 2016, the USPTO issued an Ex Parte Reexamination Certificate confirming the
validity of claims 1-7 and 28-33 of the ‘633 Patent. On October 4, 2016, the Court directed the parties that if FireEye intends to
file a Renewed Motion to Stay, it must do so by November 4, 2016. On November 3, 2016, FireEye filed its Renewed Motion for
Stay. Finjan's response to the motion was filed November 17, 2016, and FireEye filed a reply on November 23, 2016. The Court
vacated the hearing on the Motion to stay scheduled for December 14, 2016 and stated that the Motion will be decided on the
pleadings. On March 28, 2017, the Court denied FireEye’s Renewed Motion to Stay the case. On April 20, 2017, the Court
conducted a case management conference. On May 1, 2017, the Court issued a Scheduling order setting a claim construction
hearing for January 28, 2018. On May 31, 2017, FireEye filed an Amended Answer to Finjan’s First Amended Complaint, and
Finjan filed a Second Amended Complaint to add claims of willful infringement and claims of infringement of U.S. Patent No.
8,141,154. On June 14, 2017, Finjan filed an answer and counterclaims to FireEye’s Amended Counterclaims and FireEye filed
an answer to Finjan’s Second Amended Complaint. On June 29, 2017, Finjan filed an answer to FireEye's Amended Counterclaims.
On January 12, 2018, the parties stipulated that all claims in the case be dismissed with prejudice pursuant to a confidential patent
license and settlement agreement.
Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 13-cv-03999-BLF (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Blue Coat Systems, Inc., (“Blue Coat”) in the United States District Court for
the Northern District of California on August 28, 2013, asserting that Blue Coat is directly and indirectly infringing certain claims
of Finjan’s U.S. Patent Nos. 6,154,844, 6,804,780, 6,965,968, 7,058,822, 7,418,731, and 7,647,333. The principal parties in this
proceeding are Finjan and Blue Coat. This action is before the Honorable Judge Beth Labson Freeman. The Court held a claim
construction hearing, or Markman Hearing, for this matter on August 22, 2014. The Court entered its Markman Order entitled
“Order Construing Claims in U.S. Patent Nos. 6,154,844, 7,058,822, 7,418,731, and 7,647,633," on October 20, 2014, which is
available on PACER (www.pacer.gov), as Docket No. 118. Trial for this action took place from July 20, 2015 through August 4,
2015. On August 4, 2015, the jury returned a unanimous verdict that each of the Finjan asserted patents are valid and enforceable.
Further, the jury returned a unanimous verdict that Finjan’s U.S. Patent Nos. 6,154,844, 6,804,780, 6,965,968, and 7,418,731
were literally infringed by Blue Coat, and that U.S. Patent No. 7,647,633 was infringed by Blue Coat under the Doctrine of
Equivalents. Upon the findings of infringement, the jury also awarded Finjan approximately $39.5 million in damages as reasonable
royalties for Blue Coat's infringement. On September 9, 2015, the Court held a bench trial on non-jury legal issues and issued
findings of fact and conclusions of law on November 20, 2015. On November 20, 2015, the Court entered Judgment in favor of
F-18
Finjan. On January 29, 2016, the Court taxed costs against Blue Coat. A hearing for the parties’ post-trial motions was held on
April 28, 2016. On July 18, 2016, the Court issued an order upholding the jury’s verdict of infringement, validity, and damages,
and denying Blue Coat’s motion to amend the Court’s findings of fact and conclusions of law, denying Blue Coat’s motion for
judgment as a matter of law, granting Blue Coat’s motion to amend the judgment to show infringement under the doctrine of
equivalents is moot for U.S. Patent Nos. 6,154,844, 6,804,780, and 6,965,968, denying Blue Coat’s motion for a new trial, denying
Finjan’s motion for enhanced damages, granting Finjan’s motion for pre-and post-judgment interest, and denying Finjan’s motion
for attorneys’ fees. Blue Coat filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit on August
17, 2016, and an Amended Notice of Appeal on August 22, 2016. On September 2, 2016, the parties submitted a joint stipulation
for approval of a supersedeas bond and a stay of enforcement of the judgment pending the resolution of Blue Coat’s appeal. On
September 7, 2016, the Court approved Blue Coat’s bond in the amount of $40,086,172.78. Blue Coat filed its Opening Appellant
Brief on December 20, 2016, and appealed the patent eligibility of U.S. Patent No. 6,154,844, infringement of U.S. Patent Nos.
6,154,844, 6,965,968, and 7,418,731, and the jury’s damages award. Finjan filed its Response Brief on January 30, 2017. Blue
Coat filed its Reply Appeal Brief on February 13, 2017. The hearing before the Federal Circuit was held on September 8, 2017.
On January 10, 2018, the Federal Circuit affirmed that: (1) the ‘844 Patent is patent eligible subject matter; (2) substantial evidence
supported the jury’s verdict that Blue Coat infringed the ‘844 and ‘731 Patents; (3) substantial evidence supported the jury’s
damages awards for infringement of the ‘731 and ‘633 Patents. The Federal Circuit reversed the denial of judgment as a matter
of law of non-infringement with regard to the ‘968 Patent and remanded to the district court to determine the damages for the ‘844
Patent. On February 2, 2018, Blue Coat filed a motion to extend time to file a petition for rehearing, which the Federal Circuit
granted on February 6, 2018. On March 2, 2018, the Federal Circuit issued a mandate in accordance with its judgment, and the
parties filed a stipulation with the district court that all claims in the case be dismissed with prejudice pursuant to a confidential
settlement agreement. On March 5, 2018, the Court ordered, pursuant to stipulation between the parties, that all claims in the
case be dismissed with prejudice.
Finjan, Inc. v. Sophos Inc., Case No. 14-cv-01197-WHO (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Sophos Inc. (“Sophos”) in the United States District Court for the Northern
District of California on March 14, 2014, asserting that Sophos is directly and indirectly infringing certain claims of Finjan’s U.S.
Patent Nos. 6,154,844, 6,804,780, 7,613,918, 7,613,926, 7,757,289, and 8,141,154. Finjan amended the Complaint on April 8,
2014 to add U.S. Patent Nos. 8,677,494 and 8,566,580 to the list of asserted patents. Finjan asserts infringement against Sophos
through the manufacture, use, importation, sale, and/or offer for sale of its products and services, including but not limited to End
User Protection Suites, Endpoint Antivirus, Endpoint Antivirus - Cloud, Sophos Cloud, Unified Threat Management, Next-Gen
Firewall, Secure Web Gateway, Secure Email Gateway, Web Application Firewall, Network Storage Antivirus, Virtualization
Security, SharePoint Security, Secure VPN, Secure Wi-Fi and Server Security. The principal parties in this proceeding are Finjan
and Sophos. This action is before the Honorable William H. Orrick. Finjan seeks entry of judgment that Sophos has infringed
and is infringing the above-listed patents, a judgment that Sophos has induced infringement of U.S. Patent Nos. 6,804,780,
7,613,918, 7,613,926, 7,757,289, 6,154,844, and 8,667,494, a judgment that Sophos has contributorily infringed U.S. Patent
No. 8,566,580, a preliminary and permanent injunction from infringing, inducing, or contributorily infringing the same patents,
an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty and consistent with proof, enhanced
damages, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. §285. A claim construction or Markman Hearing occurred
on February 13, 2015. The Court entered its Markman Order entitled “Claim Construction Order” on March 2, 2015, which is
available on PACER (www.pacer.gov), as Docket No. 73. On April 9, 2015, Finjan filed a Second Amended Complaint that
included a certificate of correction for the ‘154 Patent. On November 17, 2015, Finjan filed a Third Amended Complaint to add
claims of Sophos’s willful infringement. Sophos filed an answer to Finjan’s Third Amended Complaint on December 4, 2015.
On May 24, 2016, the Court issued an order on the parties’ motions to strike, motions for summary judgment, and discovery
matters. In its Order, the Court granted Sophos’ motion for summary judgment of non-infringement for U.S. Patent Nos. 7,757,289
and 7,613,918, denied the remainder of Sophos’ motion for summary judgment, denied Finjan’s motion for summary judgment
of infringement for U.S. Patent Nos. 7,613,926 and 8,677,494, granted Finjan’s motion for summary judgment that certain prior
art references were not publicly accessible, granted Finjan’s motion to strike in part to exclude certain prior art, granted Sophos’s
motion to strike in part to exclude portions of Finjan’s expert reports on infringement, and deferred ruling on Finjan’s motion for
summary judgment of validity for U.S. Patent Nos. 8,141,154, 8,677,494, 6,804,780, 8,154,844 and 7,613,926 after reviewing
supplemental filings to be submitted with the parties’ pre-trial filings. The Court also precluded Sophos from relying on documents
that were produced after the close of fact discovery. A mandatory settlement conference was held on July 25, 2016 with no
settlement. On August 26, 2016, the parties stipulated to withdrawing allegations in the case, including Finjan’s claim of
infringement of U.S. Patent No. 8,566,580.
Trial for this action took place from September 6, 2016 through September 21, 2016. On September 21, 2016, the jury returned
a unanimous verdict that each of the Finjan asserted patents are valid and enforceable. Further, the jury returned a unanimous
verdict that Sophos literally infringed U.S. Patent Nos. 6,154,844, 8,677,494, 6,804,780, 7,613,926 and 8,141,154 and awarded
Finjan $15 million in damages. The jury found that Sophos did not willfully infringe Finjan’s patents. On October 31, 2016, the
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Court entered Judgment in favor of Finjan. Sophos filed post-trial motions on December 20, 2016, asking the Court to overturn
jury’s determination and to find that there was no infringement, that U.S. Patent Nos. 6,154,844 and 8,677,494 are not patent
eligible, the damages were improper, and that collateral estoppel should apply, or, in the alternative, grant a new trial. The Court
held a hearing on the post-trial motions on January 18, 2017, and on March 14, 2017, the Court issued an order denying Sophos’
request to overturn the jury’s determination and to find that there was no infringement, held that U.S. Patent Nos. 6,154,844 and
8,677,494 are patent eligible, that damages were proper, that collateral estoppel was not applicable, and denied the request for a
new trial. The Court also granted Finjan’s request for pre- and post-judgment interest. On March 30, 2017, the parties entered
into a settlement agreement, see Note 9 and on April 4, 2017, the Court ordered, pursuant to stipulation between the parties, that
all claims in the case be dismissed with prejudice.
Finjan, Inc. v. Blue Coat Systems LLC, Case No. 5:15-cv-03295-BLF (N.D. Cal.)
Finjan filed a second patent infringement lawsuit against Blue Coat Systems LLC (“Blue Coat”) in the United States District Court
for the Northern District of California on July 15, 2015, asserting that Blue Coat is directly infringing certain claims of Finjan’s
U.S. Patent Nos. 6,154,844, 6,965,968, 7,418,731, 8,079,086, 8,225,408, 8,677,494, and 8,566,580 (collectively, the “asserted
patents”), through the manufacture, use, importation, sale, and/or offer for sale of its products and services, including but not
limited to the Web Security Service, WebPulse Cloud Service, ProxySG Appliances and Software, Blue Coat Systems SV2800
and SV3800, Malware Analysis Appliances and Software, Security Analytics Platform, Content Analysis System, and Mail Threat
Defense, S400-10 and S400-20. Finjan seeks entry of judgment that Blue Coat has infringed and is infringing the above-listed
patents, a preliminary and permanent injunction from the infringement of the same patents, an accounting of all infringing sales
and revenues, damages of no less than a reasonable royalty consistent with proof, and enhanced damages for willful infringement,
costs, interest, and reasonable attorneys’ fees under 35 U.S.C. §285. Blue Coat filed its Answer to the Complaint with Jury Demand
and Counterclaim with Jury Demand against Finjan on September 8, 2015. On September 29, 2015, Finjan filed its Answer to
Blue Coat’s Counterclaim. This second Blue Coat action is also assigned to the Honorable Beth Labson Freeman. On December
15, 2015, Blue Coat filed a Motion to Stay the case pending final resolution of Case 5:13-cv-03999-BLF, and Motions for Joinder
of several Petitions for Inter Partes review (“IPR”) on five of seven asserted patents, and Ex Parte Reexamination requests for
two asserted patents, filed previously by other defendants. A case management conference was held on December 17, 2015. On
March 1, 2016 Finjan filed an amended Complaint to add existing Finjan U.S. Patent No. 9,141,786 and two newly issued Finjan
U.S. Patent Nos. 9,189,621 (issued November 17, 2015) and 9,219,755 (issued December 22, 2015). On March 18, 2016, Blue
Coat filed its Answer to the Amended Complaint and Counterclaims with Jury Demand. On April 8, 2016, Finjan filed its Answer
to Blue Coat’s Counterclaims. On April 28, 2016, the Court held a hearing on Blue Coat’s motion to stay. On June 10, 2016,
Finjan notified the Court on the status of the IPR and Ex Parte Reexamination proceedings for the asserted patents. On June 27,
2016, Finjan filed an Amended Answer to Blue Coat’s counterclaims, adding an affirmative defense of collateral estoppel. On
June 27, 2016, Blue Coat filed an Amended Answer to Finjan’s Amended Complaint. On July 11, 2016, Finjan filed a motion to
strike certain affirmative defenses in Blue Coat’s Amended Answer, and a reply to Blue Coat’s counterclaims. On July 26, 2016
the Court denied Blue Coat's motion to stay the second case pending proceedings before the USPTO and the United States Patent
Trial and Appeal Board’s (“PTAB”). On July 28, 2016 Finjan filed a motion for preliminary injunction against Blue Coat. The
preliminary injunction would prohibit Blue Coat from making, using, offering to sell or selling within the U.S. or import into the
U.S. the Dynamic Real-Time Rating component of Blue Coat’s WebPulse product. On August 12, 2016, the parties filed a joint
claim construction statement setting forth the parties’ undisputed and disputed claim terms. On August 19, 2016, the Court issued
an Order setting a schedule for discovery relating to Finjan’s preliminary injunction motion. On August 23, 2016, Blue Coat filed
a motion to strike Finjan’s infringement contentions on the grounds of collateral estoppel and res judicata, which Finjan opposed
on September 27, 2016. On September 16, 2016, Blue Coat filed a motion for judgment on the pleadings under 35 U.S.C. § 101,
claiming that the asserted claims of the ‘494 patent are ineligible for lack of patentable subject matter. The Court held a claim
tutorial hearing on February 3, 2017, but canceled the Markman hearing when Finjan and Blue Coat agreed to the meaning of all
terms. The hearing on Finjan's Motion to Strike Blue Coat's Sixth, Ninth and Tenth Affirmative Defenses, Finjan's Motion for
Preliminary Injunction and Blue Coat's Motion for Judgment on the Pleadings was heard on November 10, 2016. On November
14, 2016, the Court granted-in-part Finjan’s Motion to Strike Blue Coat’s Affirmative Defenses. On November 22, 2016, the
Court denied Finjan’s Motion for a Preliminary Injunction. On December 13, 2016, the Court denied Blue Coat’s Motion for
Judgment on the Pleadings. On January 31, 2017, the Court granted-in-part and denied-in-part Finjan’s motion to compel discovery
from Blue Coat. On February 7, 2017, Finjan supplemented its infringement contentions. On February 2, 2017, the Court granted-
in-part and denied-in-part Blue Coat’s Motion to Strike Finjan’s Infringement Contentions. On April 18, 2017, Blue Coat filed a
Motion to Strike Portions of Finjan’s Expert Reports. Finjan filed its opposition brief on May 2, 2017. On May 9, 2017, Blue Coat
filed its reply brief in support of its Motion to Strike Portions of Finjan’s Expert Reports. The Court scheduled Blue Coat’s motion
to strike to be heard on July 20, 2017. On May 17, 2017, Finjan filed a Motion for Summary Judgment of Infringement and
Validity and Blue Coat filed a Motion for Summary Judgment of Noninfringement. The Parties filed their opposition briefs to the
summary judgment motions on May 31, 2017, and their reply briefs on June 7, 2017. A summary judgment hearing was held on
June 22, 2017. On July 28, 2017, the Court granted in part and denied in part Blue Coat’s motion to strike Finjan’s infringement
expert reports. The Court also issued an order regarding the parties’ motions for summary judgment on July 28, 2017. In its Order,
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the Court granted Blue Coat’s motion for summary judgment of non-infringement of certain products for U.S. Patent Nos. 8,566,580
and certain products for U.S. Patent No. 9,141,786; denied the remainder of Blue Coat’s motion for summary judgment; granted
Finjan’s motion for summary judgment of validity of U.S. Patent Nos. 7,418,731, 8,677,494, 8,566,580, 8,154,844, and 6,965,968;
and denied the remainder of Finjan’s motion for summary judgment. A pretrial conference was held on October 5-6, 2017. On
October 31, 2017, the Court granted the parties’ stipulation to narrow issues for trial. In the stipulation, the parties stipulated to
withdraw Blue Coat’s affirmative defenses of invalidity and laches and counterclaims of invalidity, and Finjan’s affirmative
defenses of waiver and collateral estoppel-issue preclusion as those defenses relate to invalidity. The parties also stipulated to
withdraw Finjan’s claims of infringement regarding the ‘086 Patent, the ‘755 Patent, claims 1 and 7 of the ‘844 Patent, claim 2
of the ‘731 Patent, and claims 14 and 16 of the ‘494 Patent, and all accused product combinations containing the Security Analytics,
ProxySG, and Content Analysis System products, and Blue Coat’s counterclaims and affirmative defenses of non-infringement
regarding the ‘086 Patent, the ‘755 Patent, claims 1 and 7 of the ‘844 Patent, claim 2 of the ‘731 Patent, claims 14 and 16 of the
‘494 Patent, and all accused product combinations containing the Security Analytics, ProxySG, and Content Analysis System
products. The parties also stipulated to withdraw the ‘086 Patent and jointly seek termination of the inter partes review concerning
the ‘086 Patent with respect to Blue Coat (IPR2016-01444) as well as dates damages commence for the asserted patents for the
purpose of the jury calculating damages. Trial began October 31, 2017. On November 20, 2017, the jury returned a verdict that
Blue Coat literally infringes the ‘731 and ‘968 Patents and does not infringe the ‘408 and ‘621 Patents. The jury was unable to
reach a verdict on infringement related to the ‘844 and ‘494 Patents. Upon the findings of infringement of the ‘731 and ‘968
Patents, the jury awarded Finjan $490,000 as reasonable royalties for Blue Coat’s infringement. A hearing for the post-trial motions
was heard on January 5, 2018. On January 8, 2018, the Court issued an order denying Finjan’s motion for judgment as a matter
of law, denying Blue Coat’s motion for judgment as a matter of law with respect to literal and willful infringement of the ‘844
and ‘494 Patents and worldwide damages for the ‘494 Patent, and granting Blue Coat’s motion for judgment as a matter of law
with respect to no infringement under the doctrine of equivalents of the ‘844 and ‘494 Patents and no worldwide damages of the
‘844 Patent.
A retrial concerning Finjan’s claims of infringement of the ‘844 and ‘494 Patents and damages began on January 8, 2018. Based
on the Federal Circuit decision relating to Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 13-cv-03999-BLF (N.D. Cal.) that
issued on January 10, 2018, the Court declared a mistrial. The Court bifurcated the retrial and the infringement retrial was scheduled
for February 12, 2018, and the retrial on damages and willful infringement was scheduled for December 10, 2018. On February
9, 2018, the Court vacated the retrial. On March 2, 2018, the parties filed a stipulation with the district court that all claims in the
case be dismissed with prejudice pursuant to a confidential settlement agreement. On March 5, 2018, the Court ordered, pursuant
to stipulation between the parties, that all claims in the case be dismissed with prejudice.
Finjan, Inc. v. Symantec Corporation., Case No. 14-cv-02998-HSG (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Symantec Corporation (“Symantec”) in the United States District Court for the
Northern District of California on June 30, 2014, asserting that Symantec is directly and indirectly infringing certain claims of
Finjan’s U.S. Patent Nos. 7,756,996, 7,757,289, 7,930,299, 8,015,182, and 8,141,154, through the manufacture, use, importation,
sale, and/or offer for sale of certain products and services. Finjan amended the Complaint on September 11, 2014 to add U.S.
Patent Nos. 6,154,844, 7,613,926 and 8,677,494. The accused products and services include Symantec Endpoint Protection,
Symantec Endpoint Protection Small Business Edition, Network Access Control, Norton Internet Security, Norton Anti-Virus,
Norton 360, Safe-Web Lite, Norton Safe Web, Messaging Gateway, Messaging Gateway for Service Providers, Messaging Gateway
Small Business Edition Managed Security Services-Advance Threat Protection, Advanced Threat Protection Solution, Symantec
Protection Engine for Cloud Services, Symantec Protection Engine for Network Attached Storage, Symantec Mail Security for
Domino, Symantec Mail Security for Microsoft Exchange, Symantec Scan Engine for Windows, Web Security.cloud, Email
Security.cloud, AntiVirus/Filtering for Domino, AntiVirus for Linux, Mail Security for SMTP, Scan Engine for Linux/Solaris,
AntiVirus for Caching/Messaging/NAS for Linux/Solaris, Protection Engine for Linux/Solaris, AntiVirus for Caching/Messaging/
NAS for Windows, Web Gateway and Norton Security. The principal parties in this proceeding are Finjan and Symantec. Finjan
seeks entry of judgment that Symantec has infringed and is infringing the asserted patents, has contributorily infringed and is
contributorily infringing U.S. Patent No. 8,015,182, and has induced infringement, and/or is inducing infringement of U.S. Patent
Nos. 6,154,844, 7,613,926, 7,756,996, 7,757,289, 7,930,299, and 8,677,494, a preliminary and permanent injunction from
infringing, contributorily infringing, or inducing the infringement of the same patents, an accounting of all infringing sales and
revenues, damages of no less than a reasonable royalty and consistent with proof, enhanced damages, and enhanced damages for
willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. §285. Symantec answered the Amended
Complaint on September 25, 2014, by denying Finjan’s allegations of infringement and counterclaiming that the asserted patents
are invalid under 35 U.S.C. §§ 101, 102, 103 and/or 112. Symantec filed an Amended Answer on October 31, 2014, removing
its Fourteenth Affirmative Defense of unenforceability. Both parties have demanded a jury trial. This matter is assigned to the
Honorable Haywood S. Gilliam, Jr., United States District Judge. A Markman Hearing was heard on June 29, 2015.
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On July 3, 2015, Symantec filed petitions for IPR before the PTAB for all asserted claims of U.S. Patent Nos. 8,015,182, 8,141,154,
7,757,289, 7,930,299, and 7,756,996. On September 10, 2015, Symantec filed a total of 11 IPR petitions for all asserted claims
of asserted patents. On August 20, 2015, Symantec filed a motion to stay the case pending completion of these eight IPR petitions.
The motion was heard on October 1, 2015 and on October 9, 2015, the Court stayed the case pending the PTAB’s decision on
whether to institute IPR of the claims that are the subject of Symantec’s petitions. On January 14, 2016, the PTAB denied institution
of six IPRs of five asserted patents. On January 21, 2016, the parties filed a joint status report giving the Court an update regarding
the status of the IPR petitions. On February 26, 2016 the PTAB denied institution of an additional two IPRs filed on separate
patents, denying a total of eight petitions as of February 26, 2016. On March 11, 2016 the PTAB denied two more IPR's on patents
against Symantec, denying a total of 10 petitions to date. On March 18, 2016, the PTAB granted institution on the 11th Petition
by Symantec, relating to U.S. Patent No. 8,677,494 (IPR2015-01892). On March 29, 2016, the parties jointly requested the Court
lift the stay, and on March 30, 2016, the Court lifted the stay. On April 15, 2016, the parties jointly submitted a proposed schedule
to the Court for the remainder of the case. On August 1, 2016, the Court issued a Scheduling Order indicating a timeline to trial
but without specifically identifying a trial date. On August 31, 2016, the parties filed a joint stipulation requesting that the Court
set a date for a settlement conference. There was a settlement conference that took place on March 3, 2017, and the parties provided
an update on settlement discussions on March 17, 2017.
On August 25, 2016, Symantec filed an administrative motion requesting leave to submit supplemental authority regarding various
claim construction issues and requesting the Court take judicial notice of statements made during and in connection with the IPR
proceedings. Finjan opposed the motion on August 28, 2016. On August 24, 2016, Finjan filed a request that the Court take
judicial notice of the PTAB’s construction of certain claim terms in connection with its denial to institute inter partes review with
respect to U.S. Patent Nos. 7,613,926 and 8,677,494. On August 25, 2016, Finjan filed a request that the Court take judicial notice
of the PTAB’s construction of certain claims in connection with its granting-in-part of inter partes review of U.S. Patent No.
8,677,494 and denial of inter partes review of U.S. Patent No. 7,613,926. Following a hearing on November 3, 2016, the Court
granted the Motion and ordered the parties to file a joint statement by no later than November 11, 2016, proposing an expedited
schedule for disclosures, briefs, and a Markman hearing if "deemed necessary by the Court". Finjan filed an opening supplemental
claim construction brief on November 29, 2016, Symantec filed a responsive supplemental claim construction brief on December
13, 2016, and Finjan filed a reply brief on December 20, 2016. A supplemental Markman Hearing was held on January 20, 2017.
The Court issued a Claim Construction Order on February 10, 2017. The Court issued an Order denying Symantec’s Motion to
Strike Finjan’s Infringement Contention and Sanctions on February 15, 2017. A case management conference was held on February
21, 2017 to discuss the schedule of the case. On March 14, 2017, the Court issued an order scheduling summary judgment motions
to be filed by September 22, 2017, the pretrial conference to be held on February 27, 2018, and a 10-day trial to commence on
April 9, 2018. On March 24, 2017 and May 26, 2017, the parties provided updates on settlement discussions to the Court. On July
28, 2017, Symantec filed a Motion to Strike Finjan’s Doctrine of Equivalents Infringement Contentions. Finjan’s opposition to
Symantec’s Motion to Strike was filed on August 11, 2017, and Symantec’s Reply was filed on August 18, 2017. On September
13, 2017, the Court issued an order denying Symantec’s Motion to Strike Finjan’s Doctrine of Equivalents Infringement
Contentions. On August 18, 2017, IAC Search & Media, Inc. (“IAC”) filed a Motion to Intervene and Sever with respect to claims
related to the ‘182 Patent. Finjan and Symantec filed their respective Opposition to IAC’s Motion to Intervene on September 1,
2017, and IAC filed its Reply on September 8, 2017. On September 29, 2017, the Court granted IAC’s request to intervene and
extend the case schedule and declined to sever the claims related to the ‘182 Patent. On October 10, 2017, the Court issued an
order scheduling summary judgment motions to be filed on January 11, 2018, the summary judgment hearing on February 15,
2018, and a pretrial conference on June 5, 2018. Trial is scheduled for July 9, 2018. On October 19, 2017, Finjan filed a motion
to amend its answer to add collateral estoppel as an affirmative defense, and Symantec filed its opposition on November 2, 2017.
Finjan filed its reply in support of its motion to amend its answer to add collateral estoppel as an affirmative defense on November
9, 2017. On December 7, 2017, the Court issued an order granting Finjan’s Motion to Amend its Answer to include the Collateral
Estoppel Affirmative Defense. On November 29, 2017, Finjan filed a motion to strike prior art references and invalidity theories
from Symantec’s expert reports and Symantec filed a motion to strike sections of Finjan’s expert reports. The parties filed their
oppositions to the motions to strike expert report reports on December 18, 2017, and their replies on January 3, 2018. A hearing
for the motions to strike was held on January 25, 2018. On January 30, 2018, the Court issued an order granting in part and denying
in part Symantec and Finjan’s motions to strike. On January 11, 2018, the parties filed their motions for summary judgment, and
on January 25, 2018, the parties filed their oppositions to the motions for summary judgments and filed their replies on February
1, 2018. On February 12, 2018, the Court continued the hearing on the pending motions for summary judgment to March 2, 2018,
and vacated the hearings set for February 15, 2018. On February 13, 2018, Finjan and Symantec stipulated to stay the case for
30 days, which the Court granted. On March 5, 2018, the Court ordered, pursuant to stipulation between the parties, that all claims
in the case be dismissed with prejudice.
Finjan, Inc. v. Palo Alto Networks, Inc., Case No. 3:14-cv-04908 PJH (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Palo Alto Networks, Inc. (“Palo Alto Networks”) in the United States District
Court for the Northern District of California on November 4, 2014, asserting that Palo Alto Networks is directly and indirectly
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infringing certain claims of Finjan’s U.S. Patent Nos. 6,804,780, 6,965,968, 7,058,822, 7,418,731, 7,613,918, 7,613,926, 7,647,633,
8,141,154, 8,225,408, and 8,677,494, through the manufacture, use, importation, sale, and/or offer for sale of its products and
services, including but not limited to Next-Generation Security Platform, Next-Generation Firewall, Virtualized Firewall, WildFire
Subscription, WildFire Platform, URL Filtering Subscription, Threat Prevention Subscription, and Advanced EndPoint Protection.
Palo Alto Networks failed to timely respond to the Complaint and Finjan submitted an application for Entry of Default. On Palo
Alto Networks’ request, Finjan stipulated to an extension of time for Palo Alto Networks to respond. The principal parties in this
proceeding are Finjan and Palo Alto Networks. Finjan seeks entry of judgment that Palo Alto Networks has infringed and is
infringing the above-listed patents, and has induced infringement and is inducing infringement of U.S. Patent Nos. 6,804,780,
6,965,968, 7,058,822, 7,418,731, 7,613,918, 7,613,926, 7,647,633, 8,141,154, 8,225,408, and 8,677,494, a preliminary and
permanent injunction from infringing, or inducing the infringement the same patents, an accounting of all infringing sales and
revenues, damages of no less than a reasonable royalty consistent with proof, and enhanced damages for willful infringement,
costs, interest, and reasonable attorneys’ fees under 35 U.S.C. §285. Palo Alto Networks filed its Answer and Counterclaims on
December 31, 2015, by denying Finjan's allegations of infringement and counterclaiming that the asserted patents are invalid
under 35 U.S.C. §§ 101, 102, 103 and/or 112. Both parties have demanded a jury trial. On October 8, 2015, the Honorable Edward
M. Chen recused himself from the case and requested the case be reassigned to another judge. Also, on October 8, 2015, the case
was reassigned to the Honorable Phyllis J. Hamilton in the Oakland division of the District Court for the Northern District of
California. On September 25, 2015, Palo Alto Networks filed a petition for IPR before the PTAB of U.S. Patent No. 8,141,154.
On September 30, 2015, Palo Alto Networks filed petitions for IPR of U.S. Patent Nos. 7,058,822, 7,418,731, 7,647,633 and
8,225,408. On November 4, 2015, Palo Alto Networks filed an IPR petition of U.S. Patent Nos. 7,613,926. On November 5, 2015,
Palo Alto Networks filed IPR petitions of U.S. Patent Nos. 6,965,968 and 8,141,154. On November 6, 2015, Palo Alto Networks
filed IPR petitions of U.S. Patent Nos. 6,804,780, 7,613,918, 8,225,408 and 8,667,494. On December 10, 2015, the matter was
stayed pending a decision by the PTAB on whether to institute IPR of Finjan's claims of its ten patents asserted against Palo Alto
Networks. On March 21, 2016, the PTAB instituted trial on claims 1-8, 10 and 11 of U.S. Patent No. 8,141,154, and on April 20,
2016, the PTAB instituted trial on the same claims from a separate petition. On March 29, 2016, the PTAB instituted trial on U.S.
Patent No. 8,225,408, claims 14 and 19 of U.S. Patent No. 7,647,633, and denied institution of inter partes review for U.S. Patent
Nos. 7,058,822 and 7,418,731. On May 9, 2016, the PTAB denied institution of trial on U.S. Patent Nos. 7,613,926, 6,965,968,
6,804,780, and 7,613,918. On May 13, 2016, the PTAB instituted trial on U.S. Patent No. 8,677,494. On May 26, 2016, the Court
ordered the stay to remain in effect until the PTAB’s final determination of the instituted IPRs. There can be no assurance that
Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v ESET, LLC et al., Case No. 3:16-cv-03731-JD (N.D. Cal.)
Finjan filed a patent infringement lawsuit against ESET, LLC ("ESET, LLC") and ESET SPOL S.R.O. (“ESET SPOL”) (collectively
"ESET") in the United States District Court for the Northern District of California on July 1, 2016, asserting that ESET infringes
Finjan’s U.S. Patent Nos. 6,154,844, 6,804,780, 7,975,305, 8,079,086, 9,189,621, and 9,219,755, through the manufacture, use,
importation, sale, and/or offer for sale of its products and services, including but not limited to, ESET ThreatSense, ESET Advanced
Heuristic, ESET DNA Signature, Host-based Intrusion Prevention System (HIPS), and ESET LiveGrid technologies including
ESET’S Home Protection, Small Office, and Business product lines and ESET Services. Finjan seeks entry of a judgment that
ESET has infringed and is infringing the asserted patents, a preliminary and permanent injunction from the infringement of the
same patents, an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty consistent with
proof, and enhanced damages for willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. § 285. On
July 14, 2016, this case was assigned to the Honorable James Donato in the San Francisco division. On July 27, 2016, ESET, LLC
filed a motion to dismiss or stay this action on the grounds that ESET, LLC first filed a declaratory judgment action in the Southern
District of California (ESET, LLC v. Finjan, Inc., Case No. 16-cv-01704 (S.D. Cal.)). A hearing was held on this motion on August
31, 2016, during which the Court stayed this matter pending the Southern District’s resolution of Finjan’s motion to dismiss ESET,
LLC’s declaratory judgment action. On September 16, 2016, the Southern District dismissed ESET LLC’s declaratory judgment
action without prejudice. On September 27, 2016, Finjan filed a notice of supplemental authority informing the Court that ESET’s
declaratory judgment action in the Southern District of California was dismissed without prejudice and requesting that the Court
lift the stay. A Case Management Conference was held on October 6, 2016, wherein the Court granted Finjan's request to lift the
stay, referred the matter to a settlement conference, and ordered service of the Complaint on ESET's counsel on behalf of ESET
SPOL under Federal Rules of Civil Procedure 4(f). On January 27, 2017, the Court ordered that this Case be transferred to the
Southern District of California under 28 U.S.C. § 1404(a). This case was transferred to the Southern District of California on
January 30, 2017 and was assigned to the Honorable Cathy Ann Bencivengo on February 8, 2017, Case No. 3-17-cv-00183 (S.D.
Cal.). There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. ESET, LLC et al., Case No. 3:17-cv-00183 (S.D. Cal.)
Finjan filed a patent infringement lawsuit against ESET, LLC (“ESET, LLC”) and ESET SPOL S.R.O. (“ESET SPOL”)
(collectively, “ESET”) in the United States District Court for the Northern District of California on July 1, 2016 (Case No. 3:16-
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cv-03731-JD (N.D. Cal.)), which was transferred to the Southern District of California on January 31, 2017. This action is currently
before the Honorable Cathy Ann Bencivengo. A Case Management Conference was held on March 20, 2017. On October 20,
2016, defendant ESET, LLC filed a motion to dismiss Finjan’s Complaint for failure to state a claim for patent infringement. On
November 2, 2016, defendant ESET SPOL filed a motion to dismiss Finjan’s Complaint for lack of personal jurisdiction and for
failure to state a claim for patent infringement. A hearing regarding ESET’s motions to dismiss was held on March 20, 2017. On
March 21, 2017, the Court denied the motions to dismiss. On April 3, 2017, ESET SPOL S.R.O. and ESET, LLC filed Answers
to Finjan’s Complaint, by denying Finjan's allegations of infringement and asserting counterclaims of non-infringement and
invalidity, unenforceability, and invalidity under 35 U.S.C. §§ 101, 102, 103, 112, and/or 116. Both parties have demanded a jury
trial. On April 10, 2017, the Court issued an order regarding claim construction briefing and discovery, and scheduled a Markman
hearing for September 25, 2017. On April 24, 2017, Finjan filed (i) a motion to strike Defendants' affirmative defenses and to
dismiss Defendants' counterclaims; and (ii) answers to Defendants' counterclaims. On May 16, 2017, ESET filed its Opposition
to Finjan’s motion to strike and motion to dismiss, and on May 23, 2017, Finjan filed its Reply in support of its motion to strike
and motion to dismiss. On June 12, 2017, the Parties filed a Joint Claim Construction and Hearing Statement. On July 24, 2017,
the Court granted Finjan’s motion to strike ESET’s affirmative defenses and dismiss counterclaims with leave to amend. ESET
filed its Amended Answer and Counterclaims on August 4, 2017. On August 28, 2017, Finjan filed a Motion to Strike ESET’s
Amended Affirmative Defenses and Dismiss Amended Counterclaims, ESET filed its Opposition on September 18, 2017, and on
September 25, 2017, Finjan filed its Reply. The Court denied Finjan’s Motion to Strike ESET’s Amended Affirmative Defenses
and Dismiss Amended Counterclaims on October 2, 2017. The Court held a Markman hearing on September 25 and 26, 2017.
On October 2, 2017, the Court issued a preliminary claim construction order and an order requesting the parties submit supplemental
information and briefing related to claim construction for certain terms. Finjan filed a Motion for Reconsideration regarding the
Preliminary Claim Construction Order on October 19, 2017, ESET filed its response on November 9, 2017, and Finjan filed its
reply on November 16, 2017. On October 16, 2017, Finjan filed its Answer to ESET’s Amended Counterclaims. The Court entered
its Markman order entitled “Claim Construction Order” on November 14, 2017. On December 19, 2017, the Court entered an
order denying Finjan’s Motion for Reconsideration. Finjan filed a Motion for Reconsideration in Light of Recent Federal Circuit
Authority on January 22, 2018. ESET’s opposition to Finjan’s Motion for Reconsideration is due on February 12, 2018, and
Finjan’s Reply is due on February 16, 2018. On February 26, 2018, a hearing for the Motion for Reconsideration was and the
Court denied Finjan’s Motion for Reconsideration.On January 25, 2018, the Court issued an order setting the following dates:
November 16, 2018, for summary judgment and Daubert hearings, January 7, 2019, for the final pretrial conference, and February
4, 2019, for trial. On February 20, 2018, ESET filed a motion to stay pending inter partes review. Finjan’s opposition is due on
March 13, 2018, and ESET’s reply is due on March 20, 2018. There can be no assurance that Finjan will be successful in settling
or litigating these claims.
ESET, LLC v. Finjan, Inc., Case No. 16-cv-01704 (S.D. Cal.)
ESET, LLC (“ESET”) filed a Complaint for Declaratory Judgment against Finjan, Inc. (“Finjan”) in the United States District
Court for the Southern District of California on July 1, 2016, asserting that there is an actual controversy between the parties to
declare that ESET does not infringe any claim of U.S. Patent No. 7,975,305 (“the ‘305 Patent”). ESET sought an entry of judgment
that it has not infringed any claim of the ’305 Patent, an injunction against Finjan from asserting any of the claims in the ‘305
Patent against ESET or any of its customers or suppliers, and a finding that the case is exceptional and an award of fees and costs
under 35 U.S.C. § 285. On July 11, 2016, ESET filed an Amended Complaint for Declaratory Judgment, seeking entry of judgment
that it does not infringe any claim of the U.S. Patent Nos. 6,154,844, 6,804,780, 7,975,305, 8,079,086, 9,189,621, and 9,219,755.
ESET seeks an injunction against Finjan from asserting infringement of these patents against ESET or any of its customers or
suppliers, and a finding that the case is exceptional and an award of fees and costs under 35 U.S.C. § 285. On July 26, 2016,
Finjan filed a motion to dismiss the action pursuant to the first-to-file rule, asserting that Finjan was first to file an action in the
Northern District of California with respect to five of the six patents at issue between the parties (Finjan, Inc. v ESET, LLC et al.,
Case 3:16-cv-03731-JD (N.D. Cal.). In the alternative, Finjan sought to have the case transferred to the Northern District of
California on the basis that it is the most appropriate venue. On September 26, 2016, the Court granted Finjan’s motion and
dismissed this action without prejudice. ESET has appealed the dismissal to the Court of Appeals for the Federal Circuit. The
Federal Circuit dismissed this Appeal to the Federal Circuit on February 2, 2017 after the Court in Finjan, Inc. v. ESET, LLC et
al., Case 3:16-cv-03731-JD, transferred that case to the Southern District of California.
Finjan, Inc. v. Cisco Systems, Inc., Case No. 17-cv-00072-BLF (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Cisco Systems, Inc. (“Cisco”) in the United States District Court for the Northern
District of California on January 6, 2017, asserting that Cisco infringes Finjan’s U.S. Patent Nos. 6,154,844, 6,804,780, 7,647,633,
8,141,154 and 8,677,494 through the manufacture, use, importation, sale, and/or offer for sale of its products and services, including
but not limited to, Cisco’s Advanced Malware Protection, Cisco Collective Security Intelligence, Cisco Outbreak Filters, Talos
Security Intelligence and Research Group, and AMP Threat Grid technologies, including Cisco AMP for Endpoints, Cisco AMP
for Networks (also referred to by Cisco as “NGIPS”), Cisco AMP for ASA with FirePOWER Services, Cisco AMP Private Cloud
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Virtual Appliance, Cisco AMP for CWS, ESA, or WSA, Cisco AMP for Meraki MX, Cisco AMP Threat Grid. Finjan seeks entry
of a judgment that Cisco has infringed and is infringing the asserted patents, a preliminary and permanent injunction from the
infringement of the same patents, an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty
consistent with proof, and enhanced damages for willful infringement, costs, interest, and reasonable attorneys’ fees under 35
U.S.C. § 285. Finjan filed a Proof of Service for January 12, 2017 on January 18, 2017. This matter is assigned to the Honorable
Beth Labson Freeman, United States District Judge. On March 6, 2017, Cisco answered Finjan’s Complaint by denying Finjan’s
allegations of infringement, and alleging a counterclaim of breach of contract. On March 27, 2017, Finjan filed an amended
complaint. On April 7, 2017, the Court granted the parties’ stipulation that Cisco has until April 24, 2017 to answer or otherwise
respond to Finjan’s First Amended Complaint. On April 24, 2017, the Court granted the parties’ stipulation for Cisco to answer
or otherwise respond to Finjan’s First Amended Complaint by April 26, 2017. On April 26, 2017, Cisco filed a motion to dismiss
Finjan's first amended complaint for failure to state a claim for willful infringement. On May 10, 2017, Finjan filed an opposition
brief to Cisco’s motion to dismiss, and Cisco filed a reply brief to its motion to dismiss on May 17, 2017. On June 1, 2017, the
parties filed a joint case management statement. On June 7, 2017, the Court granted Cisco’s motion to dismiss with leave to
amend. A case management conference was held on June 8, 2017, during which the Court set the following dates: October 31,
2019 for summary judgment hearings, March 26, 2020 for Daubert hearings, April 23, 2020 for the final pretrial conference and
June 1, 2020 for trial. The Court also set dates for the claim construction tutorial and hearing, which were later moved to June 7,
2018 for the tutorial and June 15, 2018 for the hearing. On June 16, 2017, the Court granted the parties’ stipulation for Cisco to
answer or otherwise respond to Finjan’s complaint within 14 days of Finjan’s deadline to file a second amended Complaint. On
July 7, 2017, Finjan filed a Second Amended Complaint. On July 21, 2017, Cisco filed a motion to dismiss Finjan’s Second
Amended Complaint. Finjan’s opposition to Cisco’s motion to dismiss was filed on August 4, 2017, Cisco filed its reply on August
15, 2017 and the hearing was held on December 14, 2017. On February 6, 2018, the Court issued an order denying Cisco’s motion
to dismiss. The last date to hear dispositive motions is October 31, 2019. On February 20, 2018, Cisco filed an answer and
affirmative defenses to Finjan’s Amended Complaint. There can be no assurance that Finjan will be successful in settling or
litigating these claims.
Finjan, Inc. v. ESET SPOL S.R.O. et al., Docket Nos. 2 Ni 53/16 (EP). 4c O 33/16 (Düsseldorf District Court and Munich Court)
Finjan filed a patent infringement lawsuit against ESET SPOL. S.R.O. (ESET SPOL"), a Slovak Republic Corporation, and ESET
Deutschland GmbH (collectively “ESET”) in the Düsseldorf District Court of Germany on July 1, 2016, asserting that ESET
infringes Finjan’s European Patent No. 0 965 094 B1 (“the ‘094 Patent”), through the offering and/or delivering to customers in
the Federal Republic of Germany software covered by the ‘094 Patent, including but not limited to ESET’s ThreatSense, ESET
Advanced Heuristic, ESET DNA Signature, ESET LiveGrid technologies, including ESET’s Home Users, Small Office, and
Business product lines and ESET services. Finjan seeks a judgment sentencing ESET to a fine for each violation of patent
infringement or, alternatively imprisonment of ESET directors, cease and desist orders for offering or delivering infringing software,
providing Finjan with profit information for offering or delivering infringing software, damages, which Finjan has suffered or
shall suffer as a result of ESET offering or delivering infringing software since November 1, 2008. The infringement hearing was
held on October 5, 2017. No decision has been entered into to date. On November 24, 2016, ESET filed a nullity action. Finjan
responded to the nullity action contesting the nullity action completely and requesting the Court to reject the action and impose
the cost of the proceedings to the claimant. There can be no assurance that Finjan will be successful in settling or litigating these
claims.
Finjan, Inc. v. Blue Coat Systems, Inc., and Blue Coat Systems GmbH., Docket Nos. 2 Ni 22/17 (EP), 4c O 57/16 (Dusseldorf
District Court and Munich Court)
Finjan filed a third patent infringement lawsuit against Blue Coat Systems, Inc., which is its first patent infringement suit against
Blue Coat’s subsidiary Blue Coat Systems GmbH, located in Munich Germany in the Dusseldorf District Court of Germany on
October 14, 2016. Finjan asserts that Blue Coat infringes Finjan’s European Patent No. 0 965 094 B1 (“the ‘094 Patent”), through
the offering and/or delivering to customers in the Federal Republic of Germany software covered by the ‘094 Patent, including
but not limited to Blue Coat’s ProxySG Secure Web Gateway, Blue Coat’s Content Analysis System, Blue Coat’s Malware Analysis
Appliance, Webpulse, Security Analytics, Web Security Service, and Advanced Secure Gateway. Finjan seeks a judgment
sentencing Blue Coat to a fine for each violation of patent infringement or, alternatively imprisonment of Blue Coat’s directors,
cease and desist orders for offering or delivering infringing software, providing Finjan with profit information for offering or
delivering infringing software, damages, which Finjan has suffered or shall suffer as a result of Blue Coat offering or delivering
infringing software since November 1, 2008. Blue Coat filed a nullity action. Finjan responded to the nullity action contesting
the nullity action completely and requesting the Court to reject the action and impose the cost of the proceedings to the claimant.
The infringement hearing was held November 27, 2017. On March 2, 2018, the parties entered into a confidential settlement
agreement. On March 6, 2018, Blue Coat withdrew their nullity action in Germany.
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Finjan, Inc. v. SonicWall, Inc., Case No. 5:17-cv-04467 (N.D. Cal.)
Finjan filed a patent infringement lawsuit against SonicWall, Inc. (“SonicWall”) in the United States District Court for the Northern
District of California on August 4, 2017, asserting that SonicWall is directly and indirectly infringing certain claims of Finjan’s
U.S. Patent Nos. 6,154,844, 7,058,822, 6,804,780, 7,613,926, 7,647,633, 8,141,154, 8,677,494, 7,975,305, 8,225,408, and
6,965,968, through the manufacture, use, sale, importation, and/or offer for sale of its products and services, including but not
limited to, Appliance Products utilizing Capture ATP and/or Gateway Security Services and Email Security Products utilizing
Capture ATP and/or Gateway Security Services. Finjan seeks entry of a judgment that SonicWall has infringed and is infringing
the asserted patents, a preliminary and permanent injunction from the infringement of the same patents, an accounting of all
infringing sales and revenues, damages of no less than a reasonable royalty consistent with proof, and enhanced damages for
willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. § 285. This matter is assigned to the Honorable
Beth Labson Freeman, United States District Judge. On October 13, 2017, SonicWall filed a Motion to Dismiss Finjan’s Complaint
for Failure to State a Claim for Willful Infringement. Finjan filed its Opposition on October 27, 2017, and SonicWall’s Reply was
due November 3, 2017. A hearing regarding the Motion to Dismiss is scheduled for March 29, 2018. On December 14, 2017, the
Court issued a Case Management Order scheduling a claim construction tutorial on October 5, 2018, claim construction hearing
on October 12, 2018, the last day to hear dispositive motions on January 14, 2021, a final pretrial conference on March 18, 2021,
and trial on May 3, 2021. On February 1, 2018, the Court entered an order setting the following dates: a Markman hearing on
October 12, 2018; a summary judgment hearing on January 14, 2021; a pretrial conference on March 18, 2021, and trial on May
3, 2021. There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Bitdefender Inc., et al., Case No. 5:17-cv-04790 (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Bitdefender Inc. and Bitdefender S.R.L. (“Bitdefender”) in the United States
District Court for the Northern District of California on August 16, 2017, asserting that Bitdefender is directly and indirectly
infringing certain claims of Finjan’s U.S. Patent Nos. 6,804,780, 7,930,299, 8,141,154, and 8,677,494, through the manufacture,
use, sale, importation, and/or offer for sale of its products and services, including but not limited to, Total Security, Family Pack,
Internet Security, Antivirus Plus, Security for XP and Vista, Antivirus for Mac, Mobile Security, GravityZone Enterprise Security,
GravityZone Elite Security, GravityZone Advanced Business Security, GravityZone Business Security, Hypervisor Introspection,
Security for AWS, Cloud Security for MSP, GravityZone for xSP, and BOX. Finjan seeks entry of a judgment that Bitdefender
has infringed and is infringing the asserted patents, a preliminary and permanent injunction from the infringement of the same
patents, an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty consistent with proof,
and enhanced damages for willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. § 285. This matter
is assigned to the Honorable Haywood S. Gilliam, Jr., United States District Judge. A case management conference was held
November 21, 2017. Bitdefender filed its answer and counterclaims on November 22, 2017. On November 27, 2017, the Court
issued a Scheduling Order setting the claim construction hearing for June 6, 2018. On December 13, 2017, Finjan filed a Motion
to Strike Bitdefender’s Answer, Counterclaims, and Affirmative Defenses. Bitdefender filed its Opposition to the Motion to Strike
on December 27, 2017, and on January 3, 2018, Finjan filed its Reply. A hearing for the Motion to Strike is scheduled for March
8, 2018. On December 21, 2017, Bitdefender S.R.L. filed a Motion to Dismiss or, in the Alternative, to Quash the Return of
Service of Summons, Finjan filed its Opposition on January 4, 2018. On January 11, 2018, the parties stipulated that Bitdefender
agrees to accept service of Finjan’s Complaint through counsel, that Bitdefender would withdraw its Motion to Dismiss, and that
Bitdefender would file its responsive pleading no later than January 26, 2018. Bitdefender filed its answer and counterclaim
against Finjan on January 26, 2018. On February 5, 2018, Bitdefender filed a Motion to Stay. Finjan filed its opposition February
20, 2018, and Bitdefender’s reply was filed on February 27, 2018. A hearing for the Motion to Stay is set for May 10, 2018. On
March 1, 2018, the Court granted the parties’ stipulation extending Finjan’s time to respond to Bitdefender S.R.L.’s Answer and
Counterclaims until two weeks after the Court issues an order resolving Finjan’s motion to strike portions of Bitdefender Inc.’s
Answer. There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Juniper Networks, Inc., Case No. 4:17-cv-05659 (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Juniper Networks, Inc. (“Juniper”) in the United States District Court for the
Northern District of California on September 29, 2017, asserting that Juniper is directly and indirectly infringing certain claims
of Finjan’s U.S. Patent Nos. 6,154,844, 6,804,780, 7,647,633, 7,613,926, 8,141,154, 8,677,494, 7,975,305, and 8,225,408, through
the manufacture, use, sale, importation, and/or offer for sale of its products and services, including but not limited to, SRX Gateways,
SRX Gateways using Sky ATP, and Contrail. Finjan seeks entry of a judgment that Juniper has infringed and is infringing the
asserted patents, has and is inducing infringement, a preliminary and permanent injunction from the infringement of the same
patents, an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty consistent with proof,
and enhanced damages for willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. § 285. This matter
is assigned to the Honorable William H. Alsup, United States District Judge. A case management conference is set for February
22, 2018. On November 8, 2017, the parties filed a stipulation that Juniper shall respond to Finjan’s Complaint by December 22,
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2017, Finjan shall respond to Juniper’s counterclaims, if any, by January 26, 2018, and Finjan shall file its opposition to Juniper’s
pleading motions, if any, by January 19, 2018. On November 9, 2017, the Court granted the stipulation. Juniper filed a Motion
to Dismiss Finjan’s claims of willfulness and induced infringement for failure to state a claim on December 22, 2017, Finjan filed
its Opposition on January 5, 2018, and Juniper filed its Reply on January 12, 2018. A hearing for the Motion to Dismiss was held
on February 1, 2018. On February 14, 2018, the Court granted the motion to dismiss Finjan’s claims of willfulness and induced
infringement for failure to state a claim. On February 28, 2018, Juniper filed its answer and counterclaims against Finjan. There
can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. ZScaler, Inc., Case No. 3:17-cv-06946 (N.D. Cal.)
Finjan filed a patent infringement lawsuit against ZScaler, Inc. (“ZScaler”) in the United States District Court for the Northern
District of California on December 5, 2017, asserting that ZScaler is directly and indirectly infringing certain claims of Finjan’s
U.S. Patent Nos. 6,804,780 (the “’780 Patent”), 7,647,633 (the “’633 Patent”), 8,677,494 (the “’494 Patent”), 7,975,305 (the “’305
Patent”), through the manufacture, use, sale, importation, and/or offer for sale of its products and services, including, but not
limited to, ZScaler’s Internet Access Bundles (including Professional, Business, and Transformation), Private Access Bundle
(including Professional Business, and Enterprise), ZScaler Enforcement Node (“ZEN”), Secure Web Gateway, Cloud Firewall,
Cloud Sandbox, and Cloud Architecture products and services. Finjan seeks entry of a judgment that ZScaler has and continues
to infringe the asserted patents, has and continues to induce infringement, a preliminary and permanent injunction from the
infringement of the same patents, an accounting of all infringing sales and revenues, damages of no less than a reasonable royalty,
enhanced damages for willful infringement, costs, interest, and reasonable attorneys’ fees under 35 U.S.C. § 285. This matter is
assigned to the Honorable Jon S. Tigar, United States District Judge. A case management conference is set for March 5, 2018.
ZScaler filed its answer and counterclaims against Finjan on February 12, 2018. On March 5, 2018, Finjan filed a motion to strike
Zscaler's fifth affirmative defense. A hearing for the motion to strike is set for April 19, 2018.
B. Proceedings before the United States Patent & Trademark Office (USPTO)
Ex Parte Reexamination Proceedings
As defined by the USPTO, an Ex Parte Reexamination is a “proceeding in which any person may request reexamination of a U.S.
Patent based on one or more prior patents or printed publications. A requester who is not the patent owner has limited participation
rights in the proceedings.”
U.S. Patent No. 8,079,086 (Assignee, Finjan, Inc.)
A first third-party request for Ex Parte Reexamination of U.S. Patent No. 8,079,086 was filed on October 7, 2013, on behalf of
FireEye, Inc. and assigned Reexamination Control Number 90/013,015. The USPTO denied FireEye’s request on November 19,
2013, and the reexamination proceedings terminated on January 14, 2014.
A second third-party request by FireEye, Inc., for Ex Parte Reexamination of U.S. Patent No. 8,079,086 was filed on February 7,
2014, and assigned Reexamination Control Number 90/013,147. The USPTO denied FireEye’s second request on March 27, 2014,
and the reexamination proceedings terminated on April 29, 2014.
A third third-party request for Ex Parte Reexamination of Claims 17 and 24 of U.S. Patent No. 8,079,086 was filed on December
9, 2015 by Proofpoint, Inc. and assigned Reexamination Control Number 90/013,654. The reexamination request was partially
granted on February 2, 2016. Requester’s petitioned the Director to reconsider the partial denial and the petition was granted on
March 21, 2016. A response to non-final Office Action was filed on August 10, 2016. On November 23, 2016, the Patent Office
issued a Reexamination Certificate confirming the patentability of all claims.
U.S. Patent No. 7,975,305 (Assignee, Finjan, Inc.)
A third-party request for Ex Parte Reexamination of Claims 1, 2, 5 and 13 of U.S. Patent No. 7,975,305 was filed on December
11, 2015 by Proofpoint, Inc. and assigned Reexamination Control Number 90/013,660. The request for reexamination was granted
on January 19, 2016 and a non-final Office Action was mailed on April 12, 2016. A response to the non-final Office Action was
filed on June 13, 2016. A Final Action was mailed on August 24, 2016 with a response due October 24, 2016. A response to the
Final Action was filed on October 24, 2016 and a second interview with the Patent Office was conducted. The Patent Office issued
an Advisory Action maintaining the rejections. A Notice of Appeal was filed on November 11, 2016 and an Appeal Brief was
filed on January 23, 2017. An Examiner’s Answer was mailed on March 29, 2017. Finjan’s Reply Brief and Request for Oral
Hearing were filed on May 30, 2017. Oral Hearing was held December 12, 2017 and we now await a decision on Appeal. There
can be no assurance that Finjan will be successful in rebutting the patentability challenge before the USPTO.
F-27
U.S. Patent No. 7,647,633 (Assignee, Finjan, Inc.)
A third-party request for Ex Parte Reexamination of Claims 1-7 and 28-33 of U.S. Patent No. 7,647,633 was filed on October 7,
2013, on behalf of FireEye, Inc. and assigned Reexamination Control Number 90/013,016. The request for reexamination was
granted and a non-final Office Action was mailed November 19, 2013. The non-final Office Action included rejections of Claims
1-7 and 28-33 under various prior art (including previously considered and disclosed prior art) under 35 U.S.C. §§ 102 and/or
103. An in-person Examiner interview was conducted at the USPTO on February 4, 2014, and a timely response to non-final
Office Action was filed on February 19, 2014. The response to non-final Office Action included arguments and a supporting
declaration by Finjan showing commercial success, industry praise, and copying by others of products covered by pending claims;
a declaration by a technology expert rebutting improper technical interpretations of the prior art and the invention; and additional
new claims for consideration. Additionally, a renewed petition to accept an unintentionally delayed priority claim was also
submitted and the petition was granted on January 23, 2015. An updated filing receipt reflecting the priority claim was issued. A
final Office Action was issued May 22, 2015, and a Notice of Appeal was filed by Finjan on May 22, 2015. Finjan’s appeal brief
was filed August 24, 2015, appealing the rejections of Claims 1-7, 28-33 and 42-52. An Examiner’s Answer was received on
December 18, 2015. Finjan filed its Reply Brief requesting reversal of the rejections and a Request for Oral Hearing February 18,
2016. An Oral Hearing was conducted on June 22, 2016 and a decision reversing the Examiner’s rejections of claim 1-7, 28-33,
42, 44, 48 and 49 was mailed on June 29, 2016. An amendment canceling rejected claims 43, 45-47 and 50-52 was filed on July
5, 2016 to move the application to Notice of Intent to Issue Reexamination Certificate (NIRC). A Reexamination Certificate
confirming the patentability of original claims 1-7 and 28-33 and new claims 42, 44, 48 and 49 was issued on September 16, 2016.
A second third-party request for Ex Parte Reexamination of Claims 8 and 12 of U.S. Patent No. 7,647,633 was filed on December
9, 2015 by Proofpoint, Inc. and assigned Reexamination Control Number 90/013,652. The reexamination request was granted on
February 3, 2016. On May 10, 2016, the USPTO terminated the reexamination and mailed a Notice of Intent to Issue a Reexamination
Certificate and on May 26, 2016, a Reexamination Certificate was issued confirming the patentability of all claims.
U.S. Patent No. 7,058,822 (Assignee, Finjan, Inc.)
A third-party request for Ex Parte Reexamination of Claims 1-8 and 16-27 of U.S. Patent No. 7,058,822 was filed on October 7,
2013, on behalf of FireEye, Inc. and assigned Reexamination Control Number 90/013,017. The request for reexamination was
granted and a non-final Office Action was mailed December 6, 2013. The non-final Office Action included rejections of Claims
1-8 and 16-27 under various prior art (including previously considered and disclosed prior art) under 35 U.S.C. §§ 102 and/or
103. An in-person Examiner interview was conducted at the USPTO on February 4, 2014, and a timely response to non-final
Office Action was filed on March 6, 2014. A final Office Action was mailed on September 8, 2014 and a response thereto was
filed on October 8, 2014, which included proposed claims amendments and arguments rebutting the various prior rejections. On
October 23, 2014, an Advisory Action was issued by the Patent Office maintaining the rejections from the final Office Action and
indicating that Finjan’s proposed claims amendments would not be entered. On December 8, 2014, Finjan: (1) filed a petition to
the Director of the Central Reexamination Unit (CRU) under 37 CFR 1.181 challenging the Examiner’s failure to enter the
amendments and requesting entry; and (2) a notice of appeal to the Patent Trial and Appeal Board. Finjan filed an appeal brief on
February 8, 2015. The Examiner filed a brief on March 30, 2015. Finjan filed a Reply Brief and a Request for Oral Hearing on
June 1, 2015, and the Appeal was docketed at the PTAB and assigned Appeal No. 2015-006304. An oral hearing before the PTAB
took place on November 3, 2015. On December 30, 2015, the PTAB issue a decision reversing the Examiner’s rejection of Claims
1-8 and 16-27 and new claims 37 and 40 added during prosecution of the reexamination. On February 16, 2016, an Ex Parte
Reexamination Certificate (Certificate No. US 7,058,822 C1) was issued to Finjan by the USPTO. Finjan was granted U.S. Patent
Nos. 9,141,786 and 9,219,755 containing additional claims on September 22, 2015 and December 2, 2015, respectively.
U.S. Patent No. 6,154,844 (Assignee, Finjan, Inc.)
A third-party request for ex parte reexamination of claims 32 and 42 of U.S. Patent No. 6,154,844 was filed on December 9, 2015
by Proofpoint, Inc. and assigned Reexamination Control Number 90/013,653. The request for reexamination was granted on
January 13, 2016. On March 30, 2016, the Patent Office terminated the reexamination and mailed a Notice of Intent to Issue a
Reexamination Certificate. On May 13, 2016, a Reexamination Certificate was issued confirming the patentability of all claims.
U.S. Patent No. 7,930,299 (Assignee, Finjan, Inc.)
A third-party request for ex parte reexamination of claims 13, 14-18, 20 of U.S. Patent No. 7,930,299 was filed on September 16,
2016 and assigned Reexamination Control Number 90/013,811. The request for reexamination was granted on November 14,
2016. On January 17, 2017, Finjan filed a petition to consider pre-institution argument requesting, inter alia, that the Director
rescind and/or terminate the reexamination pursuant to 35 U.S.C. § 325(d). A decision dismissing Finjan’s petition to vacate the
reexamination order was mailed on March 27, 2017. A Petition for Writ of Mandamus was filed with the Court of Appeal for the
Federal Circuit (CAFC) requesting review of the Office’s Dismissal. A non-final Office Action was received and a response was
filed on January 30, 2018. There can be no assurance that Finjan will be successful in rebutting the patentability challenge before
the USPTO.
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U.S. Patent No. 8,015,182 (Assignee, Finjan, Inc.)
A third-party request for ex parte reexamination of claims 8-11, 13 of U.S. Patent No. 8,015,182 was filed on September 16, 2016
and assigned Reexamination Control Number 90/013,812. The request for reexamination was granted on October 17, 2016. On
December 19, 2016, Finjan filed a petition to consider pre-institution argument requesting, inter alia, that the Director rescind
and/or terminate the reexamination pursuant to 35 U.S.C. § 325(d). A decision dismissing Finjan’s petition to vacate the
reexamination order was mailed on March 27, 2017. A Petition for Writ of Mandamus was filed with the Court of Appeal for the
Federal Circuit (CAFC) requesting review of the Office’s Dismissal. The CAFC denied the petition. A non-final Office Action
rejecting claims 8-11 and 13 was issued on April 13, 2017. An Examiner Interview was conducted on May 23, 2017 and a response
to the non-final Office Action was filed on June 13, 2017. A final Office Action was mailed November 9, 2017 and a response
was filed January 8, 2018. An Advisory Action was mailed February 8, 2018 and a Notice of Appeal was filed February 12, 2018.
An Appeal Brief is due April 12, 2018. There can be no assurance that Finjan will be successful in rebutting the patentability
challenge before the USPTO.
U.S. Patent No. 7,756,996 (Assignee, Finjan, Inc.)
A third-party request for ex parte reexamination of claims 1-7 of U.S. Patent No. 7,756,996 was filed on September 16, 2016 and
assigned Reexamination Control Number 90/013,813. The request for reexamination was granted on November 14, 2016. On
January 17, 2017, Finjan filed a petition to consider pre-institution argument requesting, inter alia, that the Director rescind and/
or terminate the reexamination pursuant to 35 U.S.C. § 325(d). A decision dismissing Finjan’s petition to vacate the reexamination
order was mailed on March 27, 2017. A Petition for Writ of Mandamus was filed with the Court of Appeal for the Federal Circuit
(CAFC) requesting review of the Office’s Dismissal. The CAFC denied the petition. A non-final Office Action was mailed February
1, 2018 and a response is due April 1, 2018. There can be no assurance that Finjan will be successful in rebutting the patentability
challenge before the USPTO.
Inter Partes Reexamination Proceedings
As defined by the USPTO, an Inter Partes Reexamination is a “proceeding in which any person who is not the patent owner and
is not otherwise estopped may request examination of a U.S. Patent issued from an original application filed on or after November 29,
1999, based on one or more prior patents or printed publications. Both patent owner and third party requester have participation
rights throughout the proceeding, including appeal rights.” Effective September 16, 2012, the American Invents Act (“AIA”)
replaced Inter Partes Reexaminations with proceedings referred to as post-grant review and Inter Partes Review (“IPR”). Post-
grant proceedings are generally available immediately after patent issuance. For patents filed under the pre-AIA first to invent
rules (i.e., applications filed prior to March 16, 2013, IPRs can be initiated immediately following issuance of patent. For patents
examined under the AIA first-to-file rules (i.e., applications filed on or after March 16, 2013), IPRs can be initiated after the nine-
month window of eligibility for post-grant review.
U.S. Patent No. 6,480,962 (Assignee, Finjan, Inc.)
A third-party request for Inter Partes Reexamination of all Claims 1-55 of U.S. Patent No. 6,480,962 was filed on November 29,
2011, on behalf of Symantec Corporation, and assigned Reexamination Control Number 95/001,836. The request for reexamination
was granted and a non-final Office Action was mailed January 25, 2012. The non-final Office Action included rejections of claims
1-55 under numerous prior art references and combinations of such references (including previously considered and disclosed
prior art) under 35 U.S.C. §§ 102 and/or 103. Finjan filed a response to non-final Office Action and the USPTO mailed an Action
Closing Prosecution (ACP) on October 2, 2013. Finjan responded to the ACP on December 2, 2013, which included proposed
claim amendments for consideration. Symantec responded on January 2, 2014. On June 27, 2014, the USPTO stated that the
proposed claim amendments would not be entered and issued a Right of Appeal Notice. On July 1, 2014, Finjan filed a Notice
of Appeal of the rejection of Claims 1-55 followed by an Appeal Brief on September 2, 2014. The Requester Symantec filed a
respondent brief on October 2, 2014. The Examiner filed a brief on March 25, 2015. Finjan filed a Rebuttal Brief on April 27,
2015 and a Request for Oral Hearing on May 26, 2015. The Rebuttal Brief maintained Finjan’s request to review the rejections
of Claims 2-4, 7-11, 13-14, 16-20, 22-32, 34-36, 39-44, 46-51, 53 and 54. Claims 1, 5, 6, 12, 15, 21, 33, 37, 38, 45, 52 and 55
were withdrawn from appeal in view the final invalidity decision issued on September 15, 2014 by the Federal Circuit. The Appeal
was forwarded to the PTAB in accordance with the Notice mailed June 2, 2015. Finjan also sought examination of additional
claims through multiple Track I expedited continuation applications. Finjan was granted U.S. Patent Nos. 9,189,621 and 9,291,755
containing those additional claims on November 17, 2015 and December 22, 2015, respectively. Oral argument was heard on
February 17, 2016. On February 29, 2016, the PTAB issued a decision affirming the rejections of the Examiner. On March 29,
2016, Finjan filed a request for rehearing regarding the rejection of claims 22-32 and 46 and the Requester filed comments on
April 28, 2016. The PTAB denied Finjan’s Request for Rehearing on August 5, 2016. Finjan did not appeal the PTAB decision to
the Federal Circuit. A Reexamination Certificate canceling the rejected claims 2-4, 7-11, 13-14, 16-20, 22-32, 34-36, 39-44, 46-51,
53 and 54 was issued on January 12, 2017.
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Inter Partes Review Proceedings
As defined by the USPTO, Inter Partes Review (“IPR”) is a trial proceeding conducted at the Patent and Trial and Appeal Board
(PTAB or Board) to review the patentability of one or more claims in a patent only on a ground that could be raised under §§ 102
or 103, and only on the basis of prior art consisting of patents or printed publications. For first-inventor-to-file patents IPR process
begins with a third party (a person who is not the owner of the patent) filing a petition after the later of either: (1) nine months
after the grant of the patent or issuance of a reissue patent; or (2) if a post grant review is instituted, the termination of the post
grant review. These deadlines do not apply to first-to-invent patents. The patent owner may file a preliminary response to the
petition. An IPR may be instituted upon a showing that there is a reasonable likelihood that the petitioner would prevail with
respect to at least one claim challenged. If the proceeding is instituted and not dismissed, a final determination by the Board will
be issued within one year (extendable for good cause by six months). The procedure for conducting IPR took effect on September
16, 2012, and applies to any patent issued before, on, or after September 16, 2012.
U.S. Patent No. 7,613,926 (the “’926 Patent”)
On March 19, 2015, Sophos, Inc. filed a petition for IPR of U.S. Patent No. 7,613,926 (IPR2015-00907). Finjan filed a Patent
Owner’s Preliminary Response (“POPR”) to the petition on June 26, 2015. The PTAB denied Sophos’ petition to institute the
IPR proceeding on the ‘926 Patent on September 24, 2015. On October 26, 2015, Sophos filed a Request for Rehearing, and on
December 4, 2015, the PTAB denied Sophos’ Request for Rehearing.
U.S. Patent No. 8,677,494 (the “’494 Patent”)
On April 8, 2015, Sophos, Inc. filed a petition for IPR of U.S. Patent No. 8,677,494 (IPR2015-01022). Finjan filed a POPR to
the petition on July 14, 2015. The PTAB denied Sophos’ petition to institute the IPR proceeding on the ‘494 Patent on September
24, 2015. On October 26, 2015, Sophos filed a Request for Rehearing, and on January 28, 2016, the PTAB denied Sophos’ Request
for Rehearing.
U.S. Patent No. 7,756,996 (the “’996 Patent”)
On July 3, 2015, Symantec Corporation filed two (2) separate petitions for IPR of U.S. Patent No. 7,756,996
(IPR2015-01545/01546). Finjan filed POPRs to the petitions October 19 and 20, 2015. The PTAB denied both of Symantec’s
petitions to institute IPR proceedings on the ‘996 Patent on January 14, 2016. On February 16, 2016, Symantec filed a Request
for Rehearing, and on February 25, 2016, the PTAB denied Symantec’s Request for Rehearing.
U.S. Patent No. 7,757,289 (the “’289 Patent”)
On July 3, 2015, Symantec Corporation filed a petition for IPR of U.S. Patent No. 7,757,289 (IPR2015-01552). Finjan filed a
POPR to the petition on October 19, 2015. The PTAB denied Symantec’s petition to institute IPR proceedings on the ‘289 Patent
on January 14, 2016.
U.S. Patent No. 7,930,299 (the “’299 Patent”)
On July 3, 2015, Symantec Corporation filed a petition for IPR of U.S. Patent No. 7,930,299 (IPR2015-01549). Finjan filed a
POPR to the petition October 20, 2015. The PTAB denied Symantec’s petition to institute IPR proceedings on the ‘299 Patent on
January 14, 2016.
U.S. Patent No. 8,015,182 (the “’182 Patent”)
On July 3, 2015, Symantec Corporation filed a petition for IPR of U.S. Patent No. 8,015,182 (IPR2015-01548). Finjan filed a
POPR to the petition on October 20, 2015. The PTAB denied Symantec’s petition to institute IPR proceedings on the ‘182 Patent
on January 14, 2016.
U.S. Patent No. 8,141,154 (the “’154 Patent”)
On July 3, 2015, April 19, 2016, and May 26, 2016, Symantec Corporation filed three (3) separate petitions for IPR of U.S. Patent
No. 8,141,154 (IPR2015-01547; IPR2016-00919; IPR2016-01071), and moved to join the petition for IPR filed by Palo Alto
Networks with respect to the ‘154 Patent (IPR2016-00151). Finjan filed a POPR to the petition in IPR2015-01547 on October
19, 2015. The PTAB denied Symantec’s petition to institute IPR proceedings in IPR2015-01547 on January 14, 2016. On February
16, 2016, Symantec filed a Request for Rehearing with respect to IPR2015-01547, and on February 25, 2016, the PTAB denied
Symantec’s Request for Rehearing. With respect to IPR2016-00919 and IPR2016-01071 on the ‘154 Patent, the PTAB granted
Symantec’s motions for joinder on September 8, 2016. On March 15, 2017, the PTAB issued a final written decision maintaining
the validity of the instituted claims in both IPR2016-00919 and IPR2016-01071.
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U.S. Patent No. 8,677,494 (the “’494 Patent”)
On September 10, 2015, Symantec filed a petition for inter partes review of the ’494 Patent (IPR2015-01892). Finjan filed a
POPR to the petition on December 28, 2015. On March 18, 2016, the PTAB granted Symantec’s petition to institute the IPR
proceeding on claims 1, 2, 5, 6, 10, 11, 14, and 15 of the ’494 Patent. On April 1, 2016, Finjan filed a request for rehearing. The
PTAB denied the request for rehearing on May 23, 2016. On March 15, 2017, the PTAB issued a final written decision maintaining
the validity of claims 5, 10, 11, 14, and 15 and invalidating claims 1, 2, and 6 of the ’494 Patent. Symantec filed a Notice of Appeal
to the United States Court of Appeals for the Federal Circuit on May 16, 2017, and on May 18, 2017, Finjan filed its Notice of
Appeal to the United States Court of Appeals for the Federal Circuit (Case No. 17-2034 and 2017-2047). Symantec and Blue Coat
filed its Opening Appellant Brief on August 25, 2017. The Federal Circuit consolidated Case No. 17-2543 filed by Palo Alto
Networks and Blue Coat Systems with Case No. 17-2034. Palo Alto Networks’ and Blue Coat Systems’ Opening Appellant Brief
filed its Opening Appellant Brief on December 29, 2017. Finjan filed its Cross-Appellant Principal and Response Brief on February
7, 2018. Appellant’s Reply Brief is due on March 19, 2018. On March 8, 2018, Symantec and Blue Coat filed a motion to withdraw
from appeal numbers 2017-2543, 2623.
On September 11, 2015, Symantec Corp. filed a petition for inter partes review of the ’494 Patent (IPR2015-01897). Finjan filed
a POPR to the petition on December 28, 2015. The PTAB denied Symantec’s petition to institute the IPR proceeding on the ’494
Patent on February 26, 2016.
U.S. Patent No. 6,154,844 (the “’844 Patent”)
On September 11, 2015, Symantec Corporation filed a petition for IPR of U.S. Patent No. 6,154,844 (“the ‘844 Patent”)
(IPR2015-01894). Finjan filed a POPR to the petition on December 17, 2015. The PTAB denied institution of the IPR proceeding
on the ‘844 Patent on March 11, 2016.
U.S. Patent No. 7,613,926 (the “’926 Patent”)
On September 11, 2015, Symantec, Corp. (“Symantec”) filed two petitions for IPR of the ’926 Patent (IPR2015-01893,
IPR2015-01895). Finjan filed its POPRs to the Petition on December 17, 2015. The PTAB denied Symantec’s petition to institute
the IPR proceeding for IPR2015-01895 on February 26, 2016. The PTAB denied Symantec’s petition to institute the IPR proceeding
for IPR2015-01893 on March 11, 2016.
U.S. Patent No. 8,141,154 (the “’154 Patent”)
On September 25, 2015 and November 5, 2015, Palo Alto Networks Inc. filed two (2) separate petitions for IPR of U.S. Patent
No. 8,141,154 and a Motion for Joinder to Symantec’s Petition for IPR of the ‘154 Patent (IPR2015-01547). (IPR2015-01979;
IPR2016-00151). Finjan filed a POPR to the first petition in IPR2015-01979 on December 29, 2015. With respect to
IPR2015-01979, the PTAB granted institution of IPR proceedings on the ‘154 Patent on March 21, 2016. On April 5, 2016, Finjan
filed a partial request for rehearing, and on April 19, 2016, the PTAB denied Finjan’s partial request for rehearing. On July 12,
2016, Finjan submitted a Patent Owner Response to the Petition. With respect to IPR2016-00151 on the ‘154 Patent, Finjan filed
a POPR on February 17, 2016, and on April 20, 2016, the PTAB instituted trial on claims 1-8, 10, and 11, denied institution on
the remaining claims and denied Palo Alto Network’s Motion for Joinder. On May 4, 2016, Finjan filed a partial request for
rehearing, and on June 2, 2016, the PTAB denied Finjan’s Request for Rehearing. On June 16, 2016, the parties filed a joint notice
to amend the Scheduling Order. On August 31, 2016, Finjan filed its Patent Owner Response to Palo Alto Network’s Petition in
IPR 2016-00151. The parties had an oral hearing for IPR2016-00151 on January 24, 2017 and on March 15, 2017, the PTAB
issued a final written decision maintaining the validity of all instituted claims. The parties had an oral hearing for IPR2015-01979
on December 15, 2016 and on March 15, 2017, the PTAB issued a final written decision maintaining the validity of all instituted
claims. On April 14, 2017, Palo Alto Networks filed a request for rehearing. On May 19, 2017, the PTAB denied Palo Alto
Networks’ request for rehearing. Palo Alto Networks and Symantec Corp. filed Notice of Appeals for IPR2016-00151,
IPR2015-01979, IPR2016-00919, and IPR2016-01071 to the United States Court of Appeals for the Federal Circuit on July 19,
2017 (Case No. 17-2315 and 17-2314). On July 24, 2017, the Federal Circuit consolidated the two appeals. On October 30, 2017,
Palo Alto Networks and Symantec Corp. filed their Opening Appellant Brief. Finjan’s Responsive Brief was filed on December
20, 2017. Palo Alto Network and Symantec Corp.’s Reply Brief was filed on January 25, 2018. On March 8, 2018, Symantec and
Blue Coat filed a motion to withdraw from appeal numbers 2017-2314, 2315.
U.S. Patent No. 7,647,633 (the “’633 Patent”)
On September 30, 2015, Palo Alto Networks, Inc. filed a petition for IPR of U.S. Patent No. 7,647,633 (IPR2015-01974). Finjan
filed a POPR to the petition on January 7, 2016. On March 29, 2016, the PTAB granted institution of IPR proceedings with respect
to claims 14 and 19 of the ‘633 Patent, and denied institution with respect to all other challenged claims. On April 12, 2016, Palo
Alto Networks filed a request for rehearing. On May 18, 2016, the PTAB denied Palo Alto Networks’ Request for Rehearing. On
June 1, 2016, the parties filed a joint notice to amend the Scheduling Order. On August 9, 2016, Finjan filed its Patent Owner
Response to Palo Alto Network’s Petition in IPR 2015-01974. The parties had an oral hearing on January 5, 2017, and on March
16, 2017, the PTAB issued a final written decision maintaining the validity of all instituted claims.
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U.S. Patent No. 7,058,822 (the “’822 Patent”)
On September 30, 2015, Palo Alto Networks Inc. filed a petition for IPR of United States Patent No. 7,058,822 (IPR2015-01999).
Finjan filed a POPR to the petition on January 6, 2016. The PTAB denied institution of IPR proceedings on the ‘822 Patent on
March 29, 2016. On April 28, 2016, Palo Alto Networks filed a Request for Rehearing, and on May 18, 2016, the PTAB granted
Palo Alto Networks’ Request for Rehearing but did not alter its Decision denying institution.
U.S. Patent No. 7,418,731 (the “’731 Patent”)
On September 30, 2015, Palo Alto Networks Inc. filed a petition for IPR of United States Patent No. 7,418,731 (IPR2015-02000).
Finjan filed a POPR to the petition on January 8, 2016. The PTAB denied institution of IPR proceedings on the ‘731 Patent on
March 23, 2016. On April 22, 2016, Palo Alto Networks filed a Request for Rehearing. On May 20, 2016, the PTAB denied Palo
Alto Networks’ Request for Rehearing.
U.S. Patent No. 8,225,408 (the “’408 Patent”)
On September 30, 2015 and November 6, 2015, Palo Alto Networks Inc. filed two (2) separate petitions for IPRs of United States
Patent No. 8,225,408 (IPR2015-02001; IPR2016-00157). Finjan filed POPRs to the petitions on January 6, 2016, and February
17, 2016, respectively. On March 29, 2016, the PTAB granted institution of the IPR proceedings in IPR2015-02001 and
IPR2016-00157 and consolidated the two IPR proceedings. On April 12, 2016, Finjan filed requests for rehearing. On May 16,
2016, the PTAB denied Finjan’s Requests for Rehearing. On June 27, 2016, the parties filed a joint notice to amend the Scheduling
Order. On August 9, 2016, Finjan filed its Patent Owner Response to Palo Alto Network’s Petition in IPR 2015-02001 and IPR
2016-00157. The parties had an oral hearing on January 5, 2017, and on March 17, 2017, the PTAB issued a final written decision
maintaining the validity of all instituted claims. Palo Alto Networks and Blue Coat Systems LLC filed a Notice of Appeal to the
United States Court of Appeals for the Federal Circuit on May 22, 2017 (Case No. 17-2059). Palo Alto Networks and Blue Coat
Systems LLC filed their Opening Appellant Brief on September 15, 2017. Finjan filed its Response Brief on November 27, 2017,
and Palo Alto Networks and Blue Coat Systems LLC filed their Reply Brief on January 11, 2018.
U.S. Patent No. 7,613,926 (the “’926 Patent”)
On November 4, 2015, Palo Alto Networks, Inc. filed a petition for IPR of the ’926 Patent (IPR2016-00145). Finjan filed its
POPR on February 17, 2016. The PTAB denied Palo Alto Networks’ petition to institute the IPR proceeding on the ’926 Patent
on May 9, 2016.
U.S. Patent No. 6,965,968 (the “’968 Patent”)
On November 5, 2015, Palo Alto Networks Inc. filed two (2) separate petitions for IPR of United States Patent No. 6,965,968
(IPR 2016-00149, IPR2016-00150). Finjan filed POPRs to the petitions on February 17, 2016. On May 16, 2016, the PTAB
denied institution of IPR proceedings on both petitions.
U.S. Patent No. 6,804,780 (the “’780 Patent”)
On November 6, 2015, Palo Alto Networks Inc. filed a petition for IPR of United States Patent No. 6,804,780 (IPR 2016-00165).
Finjan filed a POPR to the petition on February 17, 2016. On April 21, 2016, the PTAB denied institution of IPR.
U.S. Patent No. 7,613,918 (the “’918 Patent”)
On November 6, 2015, Palo Alto Networks Inc. filed a petition for IPR of United States Patent No. 7,613,918 (IPR 2016-00164).
Finjan filed a POPR to the petition on February 17, 2016. On May 5, 2016, the PTAB denied institution of IPR.
U.S. Patent No. 8,677,494 (the “’494 Patent”)
On November 6, 2015, Palo Alto Networks Inc. filed a petition for IPR of United States Patent No. 8,677,494 (IPR 2016-00159).
Finjan filed a POPR to the petition on February 17, 2016. On May 13, 2016, the PTAB granted institution of IPR. On May 27,
2016, Finjan filed a Request for Rehearing, and on June 23, 2016 the PTAB denied Finjan’s Request for Rehearing. On June 27,
2016, the parties filed a joint notice to amend the Scheduling Order. On August 12, 2016, Finjan filed its Patent Owner Response
to Palo Alto Network’s Petition in IPR 2016-00159. The parties had an oral hearing on February 16, 2017. On April 11, 2017,
the PTAB issued a final written decision stating that claims 3 - 5 and 10 - 15 have not been shown to be unpatentable, and claims
1, 2, and 6 have been shown to be unpatentable. Finjan filed a request for rehearing on May 11, 2017, and on July 17, 2017, the
PTAB denied Finjan's request. Palo Alto Networks and Blue Coat Systems LLC filed a Notice of Appeal for IPR2016-00159 and
IPR2016-01174 to the United States Court of Appeals for the Federal Circuit on September 14, 2017, and on September 28, 2017,
Finjan filed its Notice of Appeal (Case No. 17-2543). The Federal Circuit consolidated the appeal with Case No. 17-2034.
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U.S. Patent No. 6,965,968 (the “’968 Patent”)
On January 19, 2016, Blue Coat Systems, Inc. filed two petitions for IPR of the ‘968 Patent (IPR2016-00478; IPR2016-00479)
and a Motion for Joinder to Palo Alto Networks’ Petition for IPR of the ‘968 Patent (IPR2015-00149; IPR2015-00150). On April
22, 2016, Finjan filed a POPR to the petitions. On June 20, 2016, the PTAB denied institution of IPR proceedings on both petitions.
U.S. Patent No. 7,647,633 (the “’633 Patent”)
On January 20, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 7,647,633 (“the ‘633 Patent”)
(IPR2016-00480) and a Motion for Joinder to Palo Alto Networks’ Petition for IPR of the ‘633 Patent (IPR2015-01974). On April
22, 2016, Finjan filed a POPR to the petition. On June 24, 2016, the PTAB instituted IPR, and granted Blue Coat’s Motion for
Joinder. On March 16, 2017, the PTAB issued a final written decision maintaining the validity of all instituted claims.
U.S. Patent No. 7,418,731 (the “’731 Patent”)
On January 21, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 7,418,731 (“the ‘731 Patent”)
(IPR2016-00493) and a Motion for Joinder to Palo Alto Networks’ Petition for IPR of the ‘731 Patent (IPR2015-02000). On April
29, 2016, Finjan filed a POPR to the petition. On June 8, 2016, the PTAB denied institution of IPR.
U.S. Patent No. 6,804,780 (the “’780 Patent”)
On January 21, 2016, Blue Coat Systems, Inc. filed a petition for IPR of U.S. Patent No. 6,804,780 (IPR2016-00492) and a Motion
for Joinder to Palo Alto Networks’ Petition for IPR of the ‘780 Patent (IPR2016-00165). On April 29, 2016, Finjan filed a POPR
to the petition. On June 8, 2016, the PTAB denied institution of IPR.
U.S. Patent No. 6,154,844 (the “’844 Patent”)
On January 25, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 6,154,844 (IPR2016-00498) and a Motion
for Joinder to Symantec Corp.’s Petition for IPR of the ‘844 Patent (IPR2015-01894). On April 29, 2016, Finjan filed a POPR to
the petition. On June 20, 2016, the PTAB dismissed the Petition and motion for joinder pursuant to Blue Coat’s motion to dismiss.
U.S. Patent No. 8,225,408 (the “’408 Patent”)
On April 27, 2016, Blue Coat Systems, Inc. filed two (2) separate petitions for IPRs of United States Patent No. 8,225,408
(IPR2016-00955; IPR2016-00956), and Motion for Joinder to Palo Alto Networks, Inc.’s Petitions for IPR of the ‘408 Patent
(IPR2015-02001 and IPR2016-00157). On August 30, 2016, the PTAB granted Blue Coat Systems, Inc.’s Motions for Joinder.
On March 17, 2017, the PTAB issued a final written decision maintaining the validity of all instituted claims in IPR2015-02001
and IPR2016-00157.
U.S. Patent No. 8,677,494 (the “494 Patent”)
On April 14, 2016 and on June 10, 2016, Blue Coat Systems, Inc. filed two Petitions for IPR of United States Patent No. 8,677,494
(IPR2016-00890; IPR2016-01174) and a Motion for Joinder to Symantec Corp.’s Petition for IPR of the ‘494 Patent
(IPR2015-01892) and Palo Alto Networks, Inc.’s Petition for IPR of the ‘494 Patent (IPR2016-00159). The PTAB granted Blue
Coat’s motions for joinder. On March 15, 2017, the PTAB issued a final written decision maintaining the validity of claims 5, 10,
11, 14, and 15 and invalidating claims 1, 2, and 6 of the ’494 Patent in IPR2015-01892.
U.S. Patent No. 8,141,154 (the “’154 Patent”)
On April 21, 2016, Proofpoint, Inc. and Armorize Technologies, Inc. filed a Petition for IPR of U.S. Patent No. 8,141,154
(IPR2016-00937) and a Motion for Joinder to Palo Alto Networks, Inc.’s Petition for IPR of the ‘154 Patent (IPR2015-01979).
On June 24, 2016, the PTAB terminated the IPR proceedings pursuant to a joint motion.
U.S. Patent No. 7,647,633 (the “’633 Patent”)
On April 29, 2016, Proofpoint, Inc. and Armorize Technologies, Inc. filed a Petition for IPR of U.S. Patent No. 7,647,633 (“the
‘633 Patent”) (IPR2016-00966) and a Motion for Joinder to Palo Alto Networks’ Petition for IPR of the ‘633 Patent
(IPR2015-01974). On June 24, 2016, the PTAB terminated the IPR proceedings pursuant to a joint motion.
U.S. Patent No. 8,225,408 (the “’408 Patent”)
On April 29, 2016, Proofpoint, Inc. and Armorize Technologies, Inc. filed two separate Petitions for IPR of U.S. Patent No.
8,225,408 (the “’408 Patent”) (IPR2016-00967; IPR2016-00970) and a Motion for Joinder to Palo Alto Networks’ Petition for
IPR of the ‘408 Patent (IPR2015-02001; IPR2016-00157). On June 24, 2016, the PTAB terminated the IPR proceedings pursuant
to a joint motion.
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U.S. Patent No. 8,079,086 (the “’086 Patent”)
On July 15, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 8,079,086 (the “’086 Patent”) (IPR2016-01444).
Finjan filed its POPR on November 18, 2016. The PTAB denied institution of IPR on February 16, 2017. Blue Coat Systems,
Inc. filed a request for hearing on March 20, 2017 and July 18, 2017 the PTAB granted Blue Coat Systems, Inc's request and
instituted IPR. On November 27, 2017, Finjan and Blue Coat filed a joint motion to terminate. On December 1, 2017, the PTAB
granted the joint motion to terminate with respect to Blue Coat.
U.S. Patent No. 8,225,408 (the “’408 Patent”)
On July 15, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 8,225,408 (the “’408 Patent”) (IPR2016-01441).
On November 18, 2016, Finjan filed a POPR. On December 13, 2016, the PTAB authorized Blue Coat to file a Reply to the POPR
and Finjan a sur-reply to respond to the arguments in Petitioner’s Reply. On January 23, 2017, the PTAB denied institution of
IPR.
U.S. Patent No. 8,677,494 (the “’494 Patent”)
On July 15, 2016, Blue Coat Systems, Inc. filed a Petition for IPR of U.S. Patent No. 8,677,494 (the “’494 Patent”) (IPR2016-01443).
On January 23, 2017, the PTAB denied Blue Coat’s petition to institute the IPR proceeding on the ’494 Patent.
U.S. Patent No. 8,225,408 (“’408 Patent”)
On October 28, 2016, FireEye, Inc. filed a Petition for IPR of the ‘408 Patent (IPR2017-00157) and a Motion for Joinder to Blue
Coat Systems, Inc.’s Petition for IPR of the ‘408 Patent (IPR2016-01441). Finjan filed its POPR on February 3, 2017 and the
PTAB denied institution of IPR of Blue Coat’s Petition for IPR on January 23, 2017. On April 13, 2017, the PTAB denied the
Petition and Motion for Joinder.
U.S. Patent No. 8,079,086 (the “’086 Patent”)
On October 28, 2016, FireEye, Inc. filed a petition for IPR of the ’086 Patent (IPR2017-00155) and a Motion for Joinder to Blue
Coat’s Petition for IPR of the ’086 Patent (IPR2016-01444). Finjan filed its POPR on February 3, 2017 and on May 1, 2017, the
PTAB denied institution of IPR. FireEye filed a request for rehearing on May 31, 2017. The PTAB denied institution of IPR of
Blue Coat’s Petition for IPR in IPR2016-014444 on February 16, 2017. Blue Coat filed a request for hearing on March 20, 2017
and on July 18, 2017, the PTAB granted Blue Coat Systems, Inc's request and instituted IPR. On July 19, 2017, the PTAB granted
FireEye's request and joined it as a party to the Blue Coat proceeding. On November 27, 2017, Finjan and Blue Coat filed a joint
motion to terminate. On December 1, 2017, the PTAB granted the joint motion to terminate with respect to Blue Coat and ordered
that the proceeding shall continue with respect to FireEye. On January 12, 2018, Finjan and FireEye filed a joint motion to
terminate. On February 16, 2018, the PTAB issued an order terminating the proceeding with respect to all parties.
U.S. Patent No. 9,189,621 (the “’621 Patent”)
On March 1, 2017, Blue Coat Systems LLC filed a petition for IPR of the ’621 Patent (IPR2017-00995). Finjan filed its POPR
on June 22, 2017. On September 5, 2017, the PTAB instituted IPR for claims 1, 4-6, 9, 12-14, 17, 24, 35, 37, and 42. Finjan filed
its Patent Owner Response on December 11, 2017. Petitioner’s Reply is due on March 5, 2018. Oral argument is scheduled for
May 23, 2018.
U.S. Patent No. 9,141,786 (the “’786 Patent”)
On March 1, 2017, Blue Coat Systems LLC filed a petition for IPR of the ’786 Patent (IPR2017-00996). Finjan filed its POPR
on June 14, 2017. On September 5, 2017, the PTAB denied institution of IPR.
U.S. Patent No. 9,219,755 (the “’755 Patent”)
On March 1, 2017, Blue Coat Systems LLC filed a petition for IPR of the ’755 Patent (IPR2017-00997). Finjan filed its POPR
on June 15, 2017. On September 5, 2017, the PTAB denied institution of IPR.
U.S Patent No. 7,975,305 (the “’305 Patent”)
On July 4, 2017, ESET, LLC and ESET SPOL S.R.O. filed a petition for IPR of the '305 Patent (IPR2017-01738). Finjan filed its
POPR on November 3, 2017. On January 31, 2018, the PTAB instituted IPR on claims 1-25 of the ’305 Patent. Finjan’s Patent
Owner Response is due on April 30, 2018, and Petitioner’s Reply is due on July 30, 2018. Oral argument is scheduled for October
24, 2018.
U.S. Patent No. 8,079,086 (the “’086 Patent”)
On August 16, 2017, ESET, LLC and ESET SPOL S.R.O. filed a petition for IPR of the ’086 Patent and motion for joinder to
Blue Coat Systems, Inc. v. Finjan, Inc. IPR2016-01444 (IPR2017-01969). On November 3, 2017, Finjan filed its POPR. On
January 9, 2018, the PTAB denied institution of IPR. On February 6, 2018, ESET filed a request for rehearing. On February 15,
2018, the PTAB denied ESETs’ request for rehearing.
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U.S. Patent No. 6,154,844 (the “’844 Patent”)
On September 22, 2017, Cisco Systems, Inc. filed a petition for IPR of the ’844 Patent (IPR2017-02154). Finjan filed its POPR
on January 6, 2018.
U.S. Patent No. 8,677,494 (the “’494 Patent”)
On September 22, 2017, Cisco Systems, Inc. filed a petition for IPR of the ’494 Patent (IPR2017-02155). Finjan filed its POPR
on January 8, 2018.
U.S. Patent No. 7,647,633 (the “’633 Patent”)
On December 22, 2017, Cisco Systems, Inc. (“Cisco”) filed a petition for IPR of the ‘633 Patent (IPR2018-00391). Finjan’s
POPR is due on March 28, 2018.
Except for the foregoing disclosures, Finjan is not presently aware of any other material pending legal proceedings, to which
Finjan or any of its subsidiaries are a party or of which any of its property is the subject.
Litigation, including patent litigation, is inherently subject to uncertainties. As such, there can be no assurance that Finjan will be
successful in litigating and/or settling any of these claims.
NOTE 9 – LICENSE, SETTLEMENT AND RELEASE AGREEMENTS
Subsequent to December 31, 2017, the Company, including its wholly-owned subsidiary, Finjan, Inc. (“Finjan” and collectively
with the Company and its affiliated companies, the “Finjan Parties”), announced on March 1, 2018, that Finjan Parties and Symantec
Corporation (“Symantec”) and its subsidiary, Blue Coat Systems, LLC (“Blue Coat”) (collectively, the “Symantec Parties”) entered
into a Confidential Patent License and Settlement Agreement (the “License and Settlement Agreement”) effective as of February
28, 2018 (the "Effective Date"). Specifically, the Parties have resolved and settled all claims between them. As part of the settlement,
the Symantec Parties will obtain a license to, among others, the Finjan patents and pay the Finjan Parties $65.0 million in cash
within twenty (20) days of the Effective Date of the License and Settlement Agreement. Further, if Symantec of acquires certain
entities within four years from the Effective Date, the Symantec Parties will pay additional license fees of up to $45.0 million to
the Finjan Parties, unless otherwise mutually agreed to by the Company and Symantec. The remaining terms of the License and
Settlement Agreement are confidential.
On December 29, 2017, Finjan entered into a Confidential Patent License and Settlement Agreement (the “Finjan License”) with
FireEye, Inc. whereby the companies resolved all pending litigation matters and together with a contemporaneous license agreement
from FireEye to Finjan and its affiliates (the “FireEye License” and collectively with the Finjan License, the “Agreements”), the
parties granted each other cross-licenses going forward. Under the terms of the Finjan License, FireEye agreed to pay Finjan $17.5
million in license fees, as follows: (a) $12.5 million on the Effective Date of the Finjan License, which amount was paid on
December 29, 2017 and recognized as revenues as of December 31, 2017, in accordance with the Company’s revenue recognition
policy as described in Note 2, and (b) $5.0 million which was offset by $5 million in license fees from Finjan to FireEye under
the FireEye License, granting a perpetual license for the use of FireEye's patents. The FireEye License was determined not to be
an intangible asset since it had no defined future benefit. Therefore, the FireEye License was expensed under SG&A.
On April 21, 2017, the Company entered into a Confidential Patent License Agreement (the “EU Agreement”) with a European
corporation (“EU Licensee”). Pursuant to the EU Agreement, EU Licensee obtained a license to our patent portfolio and agreed
to pay Finjan $4.9 million cash, in license fees, paid as follows, (i) $2.3 million to be paid within 10 days after the effective date
of the April 2017 Agreement, (ii) $1.3 million on or before January 31, 2018, and (iii) $1.3 million on or before January 31, 2019.
The Company recognized $2.3 million of the $4.9 million license as revenues as of June 30, 2017, in accordance with the Company’s
revenue recognition policy as described in Note 2. The second installment of $1.3 million was received on February 1, 2018 and
recognized as revenues as of December 31, 2017, in accordance with the Company’s revenue recognition policy as described in
Note 2. Such license does not grant EU Licensee any right to transfer, sublicense or grant any rights under the EU Agreement to
a third party except as specifically provided under the EU Agreement. Such license also has certain provisions relating to certain
unlicensed products of any company that acquires EU Licensee, or is acquired by EU Licensee or its affiliates, in which case
additional license fees may apply. The specific terms of the EU Agreement are confidential.
On March 30, 2017, Finjan entered into a Confidential Master Agreement (the “Master Agreement”) with Sophos Group plc, a
public limited company organized and existing under the laws of England and Wales, Sophos Limited, a corporation organized
and existing under the laws of England and Wales (“Sophos Limited”), and Sophos Inc. (“Sophos Inc.”), a Massachusetts corporation
(collectively, “Sophos”). Pursuant to the Master Agreement, Finjan and Sophos Inc. agreed to dismiss the suit Finjan, Inc. v.
Sophos, Inc. before the United States District Court of the Northern District of California (case no. 3:14cv1197-WHO) with
F-35
prejudice. The Master Agreement also provides for full releases by the parties and covenants not to sue. Under the terms of the
Sophos Agreement, on March 30, 2017, Sophos obtained a fully paid up license to the Finjan patent portfolio and agreed to pay
a license fee of $15.0 million in cash, which Finjan received on March 31, 2017. The Company recognized $15.0 million as
revenues as of March 31, 2017, in accordance with the Company’s revenue recognition policy as described in Note 2. Finally, in
connection with the Sophos Agreement, on March 30, 2017, Finjan Mobile entered into a Confidential Patent Cross License
Agreement (the “Finjan Mobile Cross License Agreement”) with Sophos Limited. Pursuant to the terms of the Finjan Mobile
Cross License Agreement, the parties granted patent cross licenses in the Field of Use and Sophos Limited agreed to pay Finjan
Mobile $2.5 million cash, $1.25 million on or before March 31, 2018, and $1.25 million on or before March 31, 2019, of which
$1.25 million was recognized as revenues as of December 31, 2017, in accordance with the Company's revenue recognition policy
as described in Note 2 of our consolidated financial statements.
On March 24, 2017, Finjan entered into a Patent License, Settlement and Release Agreement (the "Avast Agreement") with Avast
Software s.r.o., a company organized under the laws of the Czech Republic ("Avast"), which provided that upon Avast's satisfaction
of certain terms, Finjan would dismiss its breach of contract and patent infringement claims, filed in the U.S. District Court for
the Northern District of California (Case No. 3:17-cv-00283-BLF), against Avast and its newly acquired subsidiary, AVG
Technologies, with prejudice. Under the terms of the Avast Agreement, Avast agreed to pay Finjan $7.745 million in cash on or
before March 24, 2017. Payment was received on March 24, 2017 and was recorded as revenue in the first quarter of 2017, in
accordance with the Company's revenue recognition policy, as described in Note 2. As provided in the Avast Agreement, specific
terms of the agreement are confidential.
On March 2, 2017, Finjan entered into a Confidential Patent License Agreement (the “Veracode Agreement”) with Veracode, Inc.,
a Delaware corporation (“Veracode”). Pursuant to the Veracode Agreement, Veracode obtained a license to the Finjan patent
portfolio and agreed to pay a license fee of $2.0 million in cash, which Finjan received on March 2, 2017 and was recorded as
revenue in the first quarter of 2017, in accordance with the Company's revenue recognition policy, as described in Note 2. Such
license does not grant Veracode any right to transfer, sublicense or grant any rights under the Veracode Agreement to a third party
except as specifically provided under the Veracode Agreement. Such license also has certain provisions relating to certain unlicensed
products of any company that acquires Veracode, or is acquired by Veracode or its affiliates, in which case additional license fees
may apply. The specific terms of the Veracode Agreement are confidential.
On December 28, 2016, Finjan entered into a Confidential Patent License Agreement (the “December 2016 License”) with F5
Networks, Inc. (“F5”). The December 2016 License provides for F5 to pay a license fee of $4.0 million in cash, which Finjan
received on December 30, 2016. Finjan recognized all of the $4.0 million license as revenue as of December 31, 2016, as such
amount was determined to be fixed and determinable, in accordance with the Company’s revenue recognition policy as described
in Note 2. In exchange for the foregoing and other valuable consideration, Finjan agreed to, subject to certain restrictions, limits
and other conditions, grant F5 a nonexclusive, irrevocable (except in the case of non-payment by F5), worldwide paid-up license
under Finjan’s patents as specified in the December 2016 License.
On June 30, 2016, Finjan entered into a Confidential Patent License Agreement (the “June 30, 2016 License”) with a European
cloud-based network security firm (the “2016 European Licensee”). The June 30, 2016 License provides for the 2016 European
Licensee to pay Finjan $565,000 in cash, which was paid on or about the time of execution of the June 30, 2016 License. Finjan
recognized all of the $565,000 license as revenue as of December 31, 2016, as such amount was determined to be fixed and
determinable, in accordance with the Company’s revenue recognition policy as described in Note 2. In exchange for the foregoing
and other valuable consideration, Finjan agreed to, subject to certain restrictions, limits and other conditions, grant the 2016
European Licensee a nonexclusive, term license in the United States under Finjan’s U.S. patents as specified in the June 30, 2016
License.
On June 3, 2016, Finjan entered into a Confidential Patent License, Settlement and Release Agreement (“June 3, 2016 License”)
with Proofpoint, Inc. (“Proofpoint”). As part of the June 3, 2016 License, Case No. 3:15-cv-5808-HSG, entitled Finjan, Inc. v.
Proofpoint, Inc. and Armorize Technologies, Inc., pending before the Honorable Haywood S. Gilliam, Jr. in the U.S. District Court
for the Northern District of California, was dismissed with prejudice on June 7, 2016. The June 3, 2016 License provides for
Proofpoint to pay Finjan the sum of $10.9 million in cash, in which $4.3 million was received on June 6, 2016, $3.3 million was
received in December 28, 2016, and $3.3 million was received on December 29, 2017. The Company recognized $7.6 million of
the $10.9 million license as revenues as of December 31, 2016, as such amount was determined to be fixed and determinable, in
accordance with the Company’s revenue recognition policy as described in Note 2. The Company recognized $3.3 million under
the terms of the June 3, 2016 License as revenues as of December 31, 2017, in accordance with the Company's revenue recognition
policy as described in Note 2. In exchange for the foregoing and other valuable consideration, Finjan agreed to, subject to certain
restrictions, limits and other conditions, grant Proofpoint a worldwide, non-royalty bearing, fully paid-up (as of the final payment),
nonexclusive, perpetual, irrevocable (except in the case of non-payment by Proofpoint or other material breach) license under
Finjan’s patents as specified in the June 3, 2016 License. Certain portions of the June 3, 2016 License are subject to Confidential
F-36
Treatment pursuant to a Confidential Treatment request filed with the Securities and Exchange Commission (“SEC”) on August
8, 2016 and Confidential Treatment Order granted by the SEC on September 26, 2016.
On December 30, 2015, Finjan entered into a Confidential Patent License, Settlement and Release Agreement (“December 30,
2015 License”), effective December 29, 2015, with a United States-based third party (“Licensee”). The December 30, 2015 License
provides for Licensee to pay Finjan the sum of $3.65 million in cash, in which $1.0 million was received on December 30, 2015,
$1.65 million was received on June 27, 2016, and $1.0 million was received on September 1, 2016. The Company recognized
$1.0 million of the $3.65 million license as revenues as of December 31, 2015. The remaining balance of $2.65 million under the
terms of the December 30, 2015 License was recognized as revenues as of December 31, 2016. In exchange for the foregoing
and other valuable consideration, Finjan agreed to, subject to certain restrictions, limits and other conditions, grant Licensee a
non-exclusive, irrevocable (except in the case of non-payment by Licensee or other material breach), worldwide license under
Finjan Patents during the Term as specified in the December 30, 2015 License.
On April 7, 2015, Finjan entered into a Confidential Asset Purchase and Patent License Agreement (the “April 7, 2015 License”),
effective as of April 7, 2015, with F-Secure Corporation, a company incorporated in Finland (“F-Secure”). The April 7, 2015
License provides for F-Secure to pay Finjan the sum of $1.0 million in cash, of which $700,000 was received on April 22, 2015
and $300,000 received on March 31, 2016. The Company recognized $700,000 of the $1.0 million license as revenues as of
September 30, 2015, as such amount was determined to be fixed and determinable, in accordance with the Company’s revenue
recognition policy as described in Note 2. The remaining balance of $300,000 under the terms of the April 7, 2015 License, was
recognized as revenues as of March 31, 2016. Finjan agreed to, subject to certain restrictions, limits and other conditions, grant
F-Secure a worldwide, fully-paid, non-exclusive field of use license to Finjan patents owned as of the effective date or acquired
by Finjan or its affiliates within two years from the effective date, as well as to the F-Secure Patents.
On September 24, 2014, Finjan entered into a Confidential Patent License, Settlement and Release Agreement (the “September
24, 2014 License”) with Websense, Inc. (“Websense”) against whom Finjan had filed a patent infringement lawsuit. Pursuant to
this September 24, 2014 License, Websense and Finjan also agreed to dismiss the infringement litigation, and each party gave the
other a general release for all claims that it might have against the other, known or unknown, based on the actions of either party
on or before the date of the settlement. Under the September 24, 2014 License, Websense paid Finjan a license fee of $8.0 million
payable in four installments. $3.0 million was received on execution of the agreement, $2.0 million was received on January 16,
2015, $2.0 million was received on January 14, 2016 and $1.0 million was received on January 13, 2017 and recognized as revenues
in accordance with the Company's revenue recognition policy as described in Note 2.
NOTE 10 – STOCKHOLDERS’ EQUITY
AUTHORIZED CAPITALIZATION
The Company’s capital structure is comprised of preferred stock and common stock. The Company’s authorized capitalization
consists of (i) 80,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of Preferred Stock,
$0.0001 par value per share.
The Company’s certificate of incorporation authorizes the Board of Directors to establish one or more classes or series of preferred
stock. Unless required by law or by any stock exchange on which our common stock is listed in the future, the authorized shares
of preferred stock will be available for issuance at the discretion of our Board of Directors without further action by our stockholders.
The Board of Directors is able to determine, with respect to any class or series of preferred stock, the terms and rights of that
series.
PREFERRED STOCK
Series A
On May 6, 2016, Finjan entered into a Series A Preferred Stock Purchase Agreement with Halcyon LDRII, pursuant to which the
Company agreed to issue to Halcyon LDRII in a private placement an aggregate of 102,000 shares of the Company’s Series A
Preferred Stock Shares at a purchase price of $100.00 per share, for aggregate proceeds of $10.2 million. The closing of the Private
Placement occurred on May 20, 2016. The Company incurred issuance costs of $0.7 million which are recorded as an offset to
the redeemable preferred stock.
The Series A Preferred Stock was accounted under Section 480-10-S99 - Distinguishing Liabilities from Equity (FASB Accounting
Standards Codification 480) as amended by ASU 2009-04 - Accounting for Redeemable Equity Instruments (“ASU 2009-04”).
Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable a) at a
F-37
fixed or determinable price on a fixed or determinable date, b) at the option of the holder, or c) upon the occurrence of an event
that is not solely within the control of the issuer. The Company’s financing is redeemable at the option of the holder. Therefore,
the Company classified the Series A Preferred Stock as temporary equity in the consolidated balance sheet.
During 2016, the Company redeemed $2.8 million or 18,498 shares; $1.8 million reducing the original recorded value of the Series
A Preferred stock and $1.0 million reducing the accretion value.
During 2017, the Company retired all shares of the Series A Preferred stock with a final redemption of $13.8 million or 83,502
shares; $8.4 million reduced the original recorded value of the Series A Preferred stock and $5.4 million reduced the accreted
value.
Series A-1
In June 2017, Finjan entered into a Series A-1 Preferred Stock Purchase Agreement with Soryn HLDR Vehicle II LLC, a Delaware
limited liability company (“Soryn HLDR”), pursuant to which the Company agreed to issue to Soryn HLDR in a private placement
an aggregate of 153,000 shares of the Company’s Series A-1 Preferred Stock at a purchase price of $100.00 per share, for aggregate
proceeds of $15.3 million. The closing of the private placement occurred on June 19, 2017. The Company incurred issuance costs
of $1.0 million which were recorded as an offset to the preferred stock. Such costs will be recognized as a deemed dividend upon
the earlier of redemption or the date at which the Preferred Stock can be redeemed.
The accounting for the Series A-1 Preferred Stock is similar to the Series A accounting (see above) and classified as temporary
equity in the consolidated balance sheet since it is redeemable at the option of the holder.
The Series A-1 Preferred Stock have redemption features at the option of the Company that have a determinable price and
determinable date based on the following liquidation preferences:
The lesser of:
2.8x the original purchase price (OPP); or the following:
•
•
•
•
•
1.2375x the OPP if redeemed within 180 days of closing - December 16, 2017; or
1.3x the OPP if redeemed between 180 and 270 days of closing - March 16, 2018; or
1.34x the OPP if redeemed between 270 days and 360 days of closing - June 14, 2018; or
1.575x the OPP if redeemed between 360 days and 720 days of closing - June 9, 2019; or
Thereafter, 1.75x the OPP plus 0.125x the OPP for every 90 day period the preferred remains outstanding.
The redemption feature is also at the option of the holder in accordance with the terms and conditions set forth in the Certificate
of Designation and is redeemable as a percentage of certain revenues, which varies by type of revenue as well as date received.
These revenues include monetary awards, damages, fees, recoveries, judgments in a suit, as well as monies received from gross
licensing, royalty or similar revenue. The Company accretes changes in redemption value over the period from the date of issuance
to the earliest redemption dates of the security. The increase in the redemption value is a deemed dividend that increases the
carrying value of the Series A-1 Preferred Stock to equal the redemption value at the end of each reporting period with an offsetting
decrease to additional paid-in-capital. During the twelve months ended December 31, 2017, the Company recorded a deemed
dividend of $4.6 million, representing an increase to the Series A-1 Preferred Stock's redemption (liquidation) value, net of costs.
The Company also agreed to issue to Soryn HLDR a fully vested common stock warrant (the “Warrant”), to purchase 2,355,506
shares of common stock, $0.0001 par value per share of the Company at an exercise price of $3.18 per share, the Warrant has a
term of three years. The closing of 2,000,000 shares occurred on June 19, 2017, 309,136 occurred June 30, 2017 and 46,370 on
July 25, 2017. The Warrant has the rights to acquire a variable amount of common stock at a fixed price for the first 15 months.
Under ASC 815-40-15-8A, the Warrant is not considered indexed to the Company’s stock, and thus it has a derivative feature and
has been classified as a liability. The Company has valued the Warrant at inception using a Monte Carlo valuation model, recording
a $3.3 million Warrant liability at inception. The warrant was revalued at December 31, 2017, reducing the Warrant liability by
$2.2 million to $1.1 million, the change in the fair value of the warrant was recorded in Other Income. As of December 31, 2017
the aggregate intrinsic value of the warrant was $0, with a weighted average contracted term of 2.5 years.
Subsequent to December 31, 2017, the Company redeemed $6.2 million or 48,076 shares of the Series A-1 Preferred stock; $4.8
million reducing the original recorded value of the Series A Preferred stock and $1.4 million reducing the accreted value.
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COMMON STOCK
Holders of the Company’s common stock are entitled to one vote on each matter submitted to a vote at a meeting of stockholders.
The Company’s common stock does not have cumulative voting rights, which means that the holders of a majority of voting shares
voting for the election of directors can elect all of the members of the Board of Directors. The Company’s common stock has no
preemptive rights and no redemption or conversion privileges. The holders of the outstanding shares of the Company’s common
stock are entitled to receive dividends out of assets legally available at such times and in such amounts as the Board of Directors
may, from time to time, determine, and upon liquidation and dissolution are entitled to receive all assets available for distribution
to the stockholders. A majority vote of shares represented at a meeting at which a quorum is present is sufficient for all actions
that require the vote of stockholders.
On June 30, 2017, the Company completed an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co.,
LLC (the “Underwriter”) pursuant to which the Company agreed to issue and sell an aggregate of 3,600,000 shares of its common
stock, par value $0.0001 per share (the “Common Stock”), at a public offering price of $3.15 per share gross proceeds, with net
proceeds to the Company of $2.90 per share, for a total of $10.4 million. Under the terms of the Underwriting Agreement, the
Company also granted the Underwriters a 30-day over-allotment option to purchase an additional 540,000 shares of Common
Stock, which was exercised July 21, 2017. The Company received $1.6 million net proceeds from the exercise of the over-allotment.
On June 30, 2017, as a result of the common stock offering, pursuant to the terms and conditions of the Warrant issued to Soryn
HLDR, the number of shares of Common Stock exercisable under the Warrant increased from 2.0 million to 2.4 million. On July
21, 2017, upon the exercise of the over-allotment option the number of shares of Common Stock for which such Warrant is
exercisable increased an additional 0.05 million shares. The Warrant is exercisable at $3.18 per common share for all such shares,
for a period of 3 years.
NOTE 11 – STOCK-BASED COMPENSATION
On July 10, 2014, the Company’s stockholders approved the Finjan Holdings, Inc. 2014 Incentive Compensation Plan (the "2014
Plan"), upon shareholder approval of the 2014 Plan, the Finjan Holdings, Inc. 2013 Global Share Option Plan and Israeli Sub-Plan
(the "2013 Option Plan") were terminated, other than respect to the 1,489,532 shares of common stock underlying options
outstanding under such plan.
The Company shareholders approved the 2014 Plan at the annual meeting of stockholders held July 10, 2014, pursuant to which
2,196,836 shares of common stock are authorized for issuance. On June 21, 2017, at the annual meeting of stockholders, the
Company's shareholders approved an increase of 1,000,000 shares to the Finjan Holdings, Inc. 2014 Plan. As of December 31,
2017, the Company has 749,443 shares available for issuance under the 2014 Plan.
During 2016, the Company issued 200,000 RSU's and granted an aggregate of 295,000 options to purchase shares of our common
stock to certain employees in connection with their employment with the Company.
During 2017, the Company issued 576,212 RSU's and granted an aggregate of 898,334 options to purchase shares of our common
stock to certain employees in connection with their employment with the Company.
During the year ended December 31, 2017, the Company issued 141,840 shares of common stock and received proceeds of $0.2
million from the exercise of stock options.
During the year ended December 31, 2016, the Company issued 67,000 shares of common stock and received proceeds of $0.1
million from the exercise of stock options.
Total stock-based compensation for stock options and restricted stock awards, of $0.8 million, $0.9 million and $0.8 million was
recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations for the years
ended December 31, 2017, 2016 and 2015, respectively. The stock-based compensation expense is for options and restricted stock
awards granted to certain employees, consultants, and members of the Board of Directors.
F-39
STOCK OPTIONS
The following is a summary of stock option activity during the years ended December 31, 2017 and 2016:
Outstanding – December 31, 2015
Options granted
Options exercised
Options forfeited
Outstanding – December 31, 2016
Options granted
Options exercised
Options forfeited
Outstanding – December 31, 2017
Exercisable – December 31, 2017
Exercisable – December 31, 2016
Number of
Options
Outstanding
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
(thousands)
1,510,832
295,000
67,000
131,486
1,607,346
898,334
141,840
22,500
2,341,340
1,280,979
1,229,704
$
$
$
$
$
$
$
1.63
1.12
0.76
0.97
0.83
2.13
1.60
1.78
1.77
1.60
0.77
$
—
7.07
$
—
5.78
5.78
6.48
$
$
$
1,087
815
—
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. For
the years ended December 31, 2017 and 2016, the assumptions used in the Black-Scholes option pricing model, which was used
to estimate the grant date fair value per option, were as follows:
2017
2016
Employee
Grants
Employee
Grants
138.90%
148.68%
6
2.00%
0.0%
7
1.26%
0.0%
1.15
Weighted-average Black-Scholes option pricing model assumptions:
Volatility
Expected term (in years)
Risk-free rate
Expected dividend yield
Weighted average grant date fair value per share
$
2.05
$
The risk-free interest rate is the United States Treasury rate for the day of the grant having a term equal to the life of the equity
instrument. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate.
Since the Company’s common stock was not publicly traded, or was not publicly traded for an extended duration at the time of
the grant, an average of the historic volatilities of comparative companies was used. The dividend yield is zero percent as the
Company has not made any dividend payment and has no plans to pay dividends in the foreseeable future. Due to the limited
historical information, the Company determines the expected term of its stock option awards by using the simplified method,
which assumes each vesting tranche of the award has a term equal to average of the contractual term and the vesting period.
As of December 31, 2017, total compensation cost not yet recognized related to unvested stock options was approximately $1.7
million, which is expected to be recognized over a weighted-average period of 5.9 years.
F-40
RESTRICTED STOCK UNITS
The following is a summary of non-vested RSUs award activity for the years ended December 31, 2017 and 2016:
Non-vested
Shares granted
Shares vested
Shares forfeited
Non-vested
2017
2016
Weighted
Average
Grant
Date
Fair Value
Number of
Shares
Weighted
Average
Grant
Date
Fair Value
Number of
Shares
185,260
$
576,212
322,760
—
2.67
1.95
1.92
—
408,710
$
200,000
395,117
28,333
2.66
1.20
1.99
1.74
438,712
$
2.28
185,260
$
2.67
The Company estimates the fair value of the granted shares using the market price of the Company’s stock price at the grant date.
For the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.6 million, $0.7 million and $0.5 million,
respectively of stock-based compensation expense related to the RSUs.
NOTE 12 – RELATED PARTY TRANSACTIONS
In the course of business, the Company obtains legal services from a firm in which an executive of Finjan and member of the
Company’s board is a member. The Company incurred approximately $240,000, $227,000 and $228,000 in legal fees to the firm
during the years ended December 31, 2017, 2016 and 2015 respectively. As of December 31, 2017 and 2016 the Company had
balances due to this firm amounting to approximately $113,000 and $88,000, respectively.
The Company obtained social media and investor related services from a firm in which the Company’s Chief Financial Officer
holds a 50% interest. The Company incurred approximately $22,000 and $80,000 in fees to the firm during the years ended
December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, the Company has balances due to this firm
amounting to $0 and $4,000, respectively. The Company canceled this service agreement effective June 30, 2016.
NOTE 13 – INCOME TAX
The domestic and foreign components of loss before income taxes from operations for the years ended December 31, 2017, 2016
and 2015 are as follows:
Domestic
Foreign
For the Years Ended December 31,
2015
2016
2017
(in thousands)
$
17,120
(469)
$
1,097
(744)
(11,996)
(601)
16,651
$
353
$
(12,597)
$
$
F-41
The provision (benefit) for income tax for the years ended December 31, 2017, 2016 and 2015, consist of the following:
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
For the Years Ended December 31,
2015
2016
2017
(in thousands)
$
— $
7,694
— $
416
—
(3,868)
43
269
—
(129)
3
(380)
—
(174)
5
488
—
(159)
7,877
(135)
(3,534)
Change in valuation allowance
Income tax provision (benefit)
(14,037)
(6,160) $
$
138
3
$
3,539
5
The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense (benefit) as follows:
U.S. Federal statutory rate
State rate, net of federal benefit
Permanent differences:
Change in tax rate
Impact of tax reform
Deferred tax adjustment
Stock based compensation
Foreign tax rate difference
Fair value measurement of warrants
Other
Change in valuation allowance
Income tax provision (benefit)
For the Years Ended December 31,
2015
2016
2017
34.0 %
2.8 %
16.4 %
(16.4)%
(0.3)%
0.1 %
0.3 %
(4.5)%
(1.6)%
(67.9)%
(37.1 )%
34.0 %
7.8 %
34.0 %
1.3 %
(113.0)%
— %
(19.1)%
28.9 %
19.3 %
— %
3.0 %
40.0 %
0.9 %
— %
— %
— %
(1.1)%
(0.4)%
— %
— %
(33.9)%
(0.1)%
F-42
The approximate tax effects of temporary differences, which give rise to significant deferred tax assets and liabilities, are as follows:
Deferred tax assets
Net operating losses
Stock-based compensation
Intangible assets
Other
Total deferred tax assets
Valuation allowance
Deferred tax asset, net of valuation allowance
Deferred tax liability
Net deferred tax assets
2017
As of December 31,
2016
(in thousands)
2015
$
3,912
$
10,032
$
572
2,190
115
6,789
(462)
6,327
(126)
6,201
$
949
3,748
77
14,806
(14,497)
309
(309)
$
— $
9,666
890
3,752
50
14,358
(14,358)
—
—
—
As of December 31, 2017, 2016 and 2015, the Company had net operating losses ("NOL") carryforwards of approximately $12.7
million, $26.1 million and $25.5 million, respectively. The federal and state net operating loss carryforwards will begin to expire
in 2026.
The use of NOL and tax credit carryfowards may be subject to a substantial annual limitation due to the ownership change
limitations provided by Section 382 and 383 of the U.S. Internal Revenue Code (“IRC”), and similar state provisions. The annual
limitation may result in the expiration of NOL and tax credit carryforwards before they are used. The Company completed an IRC
Section 382 analysis through December 31, 2017 and determined that no ownership changes, within the meaning of Section 382
of the Code, had occurred for the loss making periods that could place significant limitations to the use of NOL or tax credit
carryforwards. As such, the NOL and tax credit carryforwards presented are not expected to expire unused, unless there is a future
ownership change as determined by Section 382 and 383 of the IRC.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, carryback potential, projected future taxable income and
tax planning strategies in making this assessment. Management has considered both positive and negative evidence in evaluating
the need for a valuation allowance and has given more weight to the objective evidence available. At the end of 2017, the Company
now has three-year cumulative profit and as a result of recent events is now projecting significant income for 2018. Based on its
assessment, management has determined a valuation allowance against all of the domestic deferred tax assets in excess of the
deferred tax liabilities is no longer needed, since it is more likely than not that the deferred tax assets will be realized. The Company’s
foreign subsidiary had generated book and tax losses since its inception. Management has determined that it is not more likely
than not that the foreign deferred tax assets will be realized. As such, the Company has maintained the valuation allowance against
its foreign deferred tax assets. The change in valuation allowance for the years ended December 31, 2017, 2016 and 2015, is $14.0
million, $0.1 million and $3.5 million, respectively.
On December 22, 2017, the 2017 Tax Cut and Jobs Act (the "Act") was enacted into law and the new legislation contains several
key tax provisions, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate
income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in
the period of enactment, such as determining the estimated transition tax, re-measuring our U.S. deferred tax assets and liabilities
at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities. The one-time transition tax does
not generate a deemed distribution as the Company has no foreign deferred income. The provisional amount related to the re-
measurement of our deferred tax balance is a reduction of approximately $2.8 million.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act ("SAB 118") which allows companies to record provisional amounts during a measurement period not to extend
beyond one year of the enactment date. Since the Act was passed late in the fourth quarter of 2017, and ongoing guidance and
accounting interpretation are expected over the next 12 months, we are still analyzing certain aspects of the Act and refining our
calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
F-43
We expect to complete our analysis within the measurement period in accordance with SAB 118. We do not expect any material
subsequent adjustment to these amounts.
NOTE 14 – SUBSEQUENT EVENTS
On January 4, 2018, the Company redeemed $6.2 million or 48,076 shares of the Series A-1 Preferred stock; $4.8 million reducing
the original recorded value of the Series A-1 Preferred stock and $1.4 million reducing the accreted value.
On February 1, 2018, the Company received its second installment of $1.3 million under the April 2017 Agreement. This was
recognized as revenues as of December 31, 2017, in accordance with the Company’s revenue recognition policy as described in
Note 2.
On February 23, 2018, the Company made a payment to the JVP fund of $0.5 million pursuant to a capital call, reducing the
commitment outstanding to $2.2 million.
On March 1, 2018, the Company, including its wholly-owned subsidiary, Finjan, Inc. (“Finjan” and collectively with the Company
and its affiliated companies, the “Finjan Parties”), announced that Finjan Parties and Symantec Corporation (“Symantec”) and its
subsidiary, Blue Coat Systems, LLC (“Blue Coat”) (collectively, the “Symantec Parties”) entered into a Confidential Patent License
and Settlement Agreement (the “License and Settlement Agreement”) effective as of February 28, 2018. Specifically, the Parties
have resolved and settled all claims between them. As part of the settlement, the Symantec Parties will obtain a license to, among
others, the Finjan patents and pay the Finjan Parties $65.0 million in cash within twenty (20) days of the Effective Date of the
License and Settlement Agreement. Further, if Symantec acquires certain entities within four years from the Effective Date, the
Symantec Parties will pay additional license fees of up to $45.0 million to the Finjan Parties, unless otherwise mutually agreed to
by the Company and Symantec. The remaining terms of the License and Settlement Agreement are confidential.
F-44
In 1995, Shlomo Touboul, Finjan’s founder and lead inventor on a number of our patents, became
intrigued with the Java programming language. While the commercial success of Java, at the time
was unknown, it has become one of the most widely used software technologies to deliver content
and information over networks and the internet. Shlomo immediately recognized that this program
would require a new type of security to protect it from hackers.
In fact the name “Finjan” is derived from the word used in the Middle East to describe a vessel or
small cup that contains or “protects” the coffee - or java. Shlomo believed the name was appropriate
because the idea for the company and the associated technology came from his realization that
with the introduction of the Java programming language, the existing security software would not
be able to contain or protect against the possible threats to a computer using Java.
Executive Officers
Board of Directors
Stock Listing
Phil Hartstein
President and Chief Executive Officer
Julie Mar-Spinola
Chief Intellectual Property Officer
and VP, Legal Ops
Michael Noonan
Chief Financial Officer and Treasurer
Eric Benhamou 1
Chairman and CEO of Benhamou
Global Ventures, LLC
Daniel Chinn
Partner at Tulchinsky Stern Marciano
Cohen Levitski & Co.
Glenn Daniel 1,2
Former Managing Director
Houlihan Lokey
Harry Kellogg 2,3
Vice Chairman, Emeritus
Silicon Valley Bank
Gary Moore
Former Co-President and COO
Cisco Systems
Alex Rogers 2,3
Managing Director of HarbourVest
Partners LLC
Michael Southworth 1
General Manager
Verint Systems, Inc
¹ Audit Committee
² Compensation Committee
³ Nominating and Corporate Governance Committee
The NASDAQ Capital Market
Ticker Symbol: FNJN
Offices
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
Email: investors@finjan.com
www.finjan.com
Independent
Registered
Public Accounting
Firm
Marcum LLP
750 Third Avenue, 11th Floor
New York NY, 10017
Phone: 212-485-5500
Transfer Agent and
Registrar
Computershare Investors Services
250 Royall Street
Canton, MA 02021
Phone: 877-373-6474
Annual Meeting
June 20, 2018, 9:00 a.m. PST
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
CORPORATE GOVERNANCE INFORMATION: We are committed to maintaining the highest standards of business conduct and corporate
governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining our integrity
in the marketplace. Accordingly, our Board has adopted and maintains a Code of Business Conduct and Ethics, a Code of Ethics for
Principal and Senior Financial Officers, and Charters for each of the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee. Please visit our website at www.finjan.com to view or obtain a copy of the current version of any
of these documents.
ADDITIONAL INFORMATION: We file annual, quarterly and periodic reports, proxy statements and other information with the Securities
and Exchange Commission. You may request a copy of any of these documents, at no cost to you, by writing or telephoning us at: Finjan
Holdings, Inc., 2000 University Avenue, Suite 600, East Palo Alto, CA 94303 Attention: Investor Relations, telephone (650) 282-3228. We
will not send exhibits to these reports unless the exhibits are specifically requested and you pay a modest fee for duplication and delivery.
Annual Report 2017
A Globally Recognized Leader
in Cybersecurity
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
(650) 282 3228
www.finjan.com