Pioneer in
Cybersecurity
2018 Annual Report
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
(650) 282 3228
www.finjan.com
$82.3M2018 Revenue
50+Organically-derived Finjan patents issued and pending worldwide
$350M+
22 licensees and over $350M in license fees generated to-date
90+Acquisiti on of 90+ complementary patents from IBM
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 ti mewas unknown, it has
become one of the most widely used soft ware technologies to deliver
content and informati on 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 coff ee - or
java. Shlomo believed the name was appropriatebecause the idea for the
company and the associated technology came from his realizati on that with
the introducti on of the Java programming language, the existi ng security
soft ware would notbe able to contain or protect against the possible
threats to a computer using Java.
Executi ve Offi cers
Board of Directors
Stock Listi ng
Phil Hartstein
Eric Benhamou 1
The NASDAQ Capital Market
President and Chief Executi ve Offi cer
Chairman and CEO of Benhamou
Ticker Symbol: FNJN
Global Ventures, LLC
Julie Mar-Spinola
Chief Intellectual Property Offi cer
Daniel Chinn
and VP, Legal Ops
Partner at Tulchinsky Stern Marciano
Michael Noonan
Chief Financial Offi cer and Treasurer
Glenn Daniel 1,2
Cohen Levitski & Co.
Former Managing Director
Houlihan Lokey
Harry Kellogg 2,3
Vice Chairman, Emeritus
Silicon Valley Bank
Managing Director of HarbourVest
Former Co-President and COO
Gary Moore
Cisco Systems
Alex Rogers 2,3
Partners LLC
Michael Southworth 1
General Manager
Verint Systems, Inc
Offi ces
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
Email: investors@fi njan.com
www.fi njan.com
Independent Registered
Public Accounti ng 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 Meeti ng
June 19, 2019, 9:00 a.m. PST
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
¹ Audit Committ ee
² Compensati on Committ ee
³ Nominati ng and Corporate Governance Committ ee
CORPORATE GOVERNANCE INFORMATION: We are committ ed to maintaining the highest standards of business conduct and corporate
governance, which we believe are essenti al to running our business effi ciently, 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 Offi cers, and Charters for each of the Audit Committ ee, the Compensati on Committ ee, and the Nominati ng and Corporate
Governance Committ ee. Please visit our website at www.fi njan.com to view or obtain a copy of the current version of any of these documents.
ADDITIONAL INFORMATION: We fi le annual, quarterly and periodic reports, proxy statements and other informati on with the Securiti es
and Exchange Commission. You may request a copy of any of these documents, at no cost to you, by writi ng or telephoning us at: Finjan
Holdings, Inc., 2000 University Avenue, Suite 600, East Palo Alto, CA 94303 Att enti on: Investor Relati ons, telephone (650) 282-3228. We
will not send exhibits to these reports unless the exhibits are specifi cally requested and you pay a modest fee for duplicati on and delivery.
Dear Shareholders,
I’d like to open with a continuing theme as 2018 marked our
third year of consecutive revenue growth, increasing 63%
year-over-year. We continue to monetize our intellectual
property portfolio and position ourselves strategically for
future revenue generation. We are executing our licensing
pipeline, and progressing on a number of litigations, all while
staying true to our strategic objectives of receiving fair
value for our assets. Shareholder value was top of mind as
we selectively explored options to best position Finjan for
future growth and expansion. Finjan enjoys a unique position
of having one of the most important, proven and durable
cybersecurity patent portfolios in the industry, a best-in-
class Board, and a strong balance sheet we have carefully
maintained throughout our operating history.
The first half of 2018 was highlighted by sustained
momentum in our licensing program with the resolution of
one of our longest running disputes over patent infringement
resulting in one of our largest settlements to-date. While
diligently managing our litigation pipeline, we would always
prefer arriving at a negotiated license as opposed to engaging
the Courts, which not only extends the process, but is
expensive and often not the most efficient use of resources.
We signed a license in which we acquired a number of notable
IBM patents to add to our Finjan Blue portfolio, a prime
example of how we look at each individual case differently
and are flexible with how we arrive at fair value in a license.
Today we have 22 licensees to the Finjan patent portfolio
with an aggregate license value that exceeds $350 million.
Finjan’s patent portfolio has endured more than its share of
validity challenges, a strategy defendants can only employ for
so long. At this point in our program, we now more regularly
see these administrative challenges to our patents being
outright dismissed and our claim construction orders largely
favoring Finjan’s interpretations. 2019 is demonstrating to be
a year of strength with a number of positive outcomes from
the district courts and the U.S. Patent and Trademark Office’s,
Patent Trial and Appeal Board, which speak to the merits of our
pending cases. While we remain optimistic about our prospects,
one thing that remains out of our influence – generally - is
the timing of each matter. While we continue to work closely
with licensees to reach a mutual agreement we are unwilling
to arbitrarily discount license rates, as such, we did not close
any licenses to close the year. We believe staying true to the
strength of our patents and not discounting the value that we
have proven time and time again is the appropriate choice for
the future of Finjan and the value of our shareholders.
As our revenues are challenging to predict and in some cases
are not recurring, we continue to look to expand our business
through new investments and growing existing partnerships.
Our Finjan Blue subsidiary has helped to not only broaden
and deepen our portfolio in cybersecurity, but offers the
prospect of increased value during our licensing discussions.
We also have the opportunity, in time, to develop alongside
one of the biggest innovators of our time. We remain
committed to this subsidiary and the number of pathways
that could lead to future growth.
Another subsidiary that we have invested our time and energy
into is Finjan Mobile. In September of 2018 we rebranded and
relaunched our mobile security browser and VPN application
to appeal to our core audience, the consumer. Through
this launch we have succeeded in offering a more feature
rich, user-friendly application and built upon our customer
loyalty. Offering Finjan’s enterprise-grade technology to
help consumers protect their personal data and security on
their mobile device remains a top priority for us. We recently
joined the “Signals of Trust” an elite group of VPN providers
through the Center of Democracy and Technology (CDT) to
demonstrate our commitment to privacy. The privacy advocacy
group developed a series of questions and recommendations
for VPN providers that, when addressed completely, serve as
a guideline to assess whether the VPN can be trusted with a
user’s personal browsing information and web traffic. We will
continue to build opportunities to build upon our customer
base and explore inorganic paths to drive future growth
through our Finjan Mobile subsidiary.
As we look toward the remainder of 2019 and beyond
we remain optimistic about our future and the number of
possibilities that could help drive the future of Finjan. We
remain engaged and committed to our core competency of
monetizing intellectual property, open to exploring strategic
business options, and ultimately keep the interest and value
of our shareholders top of mind. We want to thank our
shareholders, the thoughtfulness of the board and the
insights of our executive team as we move forward into
2019 and beyond.
Sincerely,
Phil Hartstein
President & CEO, Finjan Holdings, Inc.
1
2018 Annual Report
The Best-In-Class Mobile
Privacy & Security Products
MOBILE APPS
PARTNERED DEVELOPMENT
PATENT LICENSING
ENTERPRISE SECURITY
Given the uptrend in mobile device usage coupled with the amount of transient
corporatedata, the average mobile user presents and represents higher risks of data loss
throughhacking. The consumer mobile device has become so convenient that we oft en
forgetabout 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 withthe creati on of security products for mobile devices.
The goal of Finjan’s fi rst product, The Finjan Mobile Secure Browser was to make it
simpleto access and ensure that its easy to use as it protects your mobile device from
maliciouscontent from the Internet. More importantly, unlike most mobile applicati ons,
the FinjanSecure Browser is intended to bring transparency to users who search for
anything on theinternet with the promise of not collecti ng user data – your data.
INVINCIBULL®
InvinciBull is part of the Finjan Vital Security family of products and was launched in
September of 2018 as a rebranded consumer off ering using Finjan’s enterprise-grade
technology. InvinciBull includes an integrated VPN, tracker and ad blocking, and allows
users to quickly assess potenti al risks from malicious content when searching on
the internet. The InvinciBull VPN protects you online by disguising your acti vity with
patented, military-grade encrypti on to keep your identi ty and data safe.
25%
of mobile devices
encounter a threat
each month.
5M
smartphones were
lost or stolen in the
United States in 2014.
75%
or more mobile apps
would fail basic
security tests.
2
Broadening and Deepening
Our Position in the
Cybersecurity Market
OVER 20 YEARS AT THE
CENTER OF CYBERSECURITY
Finjan Blue, Inc., is a wholly owned subsidiary of Finjan Holdings initiated by a patent
acquisition and development agreement with IBM in August of 2017 which includes
pathways for the two companies to collaborate on development efforts in the future.
It included the transfer of select cybersecurity patent assets from IBM and provides for
the sharing of pertinent institutional knowledge and resources by IBM to Finjan Blue.
90+
patents in Finjan BIue
“ This Agreement sets the
foundation for us to work
cooperatively with IBM
now and into the future,
bolsters our growth, and
fits squarely within our
strategic objectives.”
Phil Hartstein,
President and CEO,
Finjan Holdings
3
Finjan Cybersecurity 2018 Annual Report
Investi ng in the CyberSecurity
of the Future
CYBER STRATEGIC PARTNERS
IN JVP FUND VII
• Research & development, investment and incubati on globally
• Access to a pool of innovati ve technology and valuable cybersecurity
patent assets
• 11 acti ve cybersecurity investments to-date
• 2 early exits
FUND EXITS
PAYPAL ACQUISITION
HUAWEI ACQUISITION
2015 exit
2016 exit
4
2018 Form 10-K
1
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, 2018
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 every Interactive Data File required to be submitted 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 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, smaller reporting company,
or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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, 2018, there were 27,172,924 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding. Of
these, 20,952,568 shares were held by non-affiliates of the registrant. The market value of securities held by non-affiliates was $71,238,731 as
of June 30, 2018, based on the closing price of $3.40 for the registrant’s common stock on June 30, 2018.
As of March 7, 2019, there were 27,595,840 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 2019 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.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16.
FORM 10-K SUMMARY
SIGNATURES
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42
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 pioneer in cybersecurity focused in three business lines; intellectual
property licensing and enforcement, mobile security application development, and investing in cybersecurity technologies and
intellectual property. Licensing and enforcement of the Company's cybersecurity patent portfolio is operated by its wholly-owned
subsidiaries Finjan, Inc. (“Finjan”) and Finjan Blue, Inc. ("Finjan Blue"). The Company’s mobile security business is operated
through its wholly-owned subsidiary Finjan Mobile, Inc. ("Finjan Mobile").
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 research and development of its technologies as well as 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, 2018, 2017 and 2016, we generated revenue from our cybersecurity business of approximately
$82.3 million, $50.5 million and $18.4 million, respectively.
During the years ended December 31, 2018, 2017 and 2016 our net income was approximately $20.7 million, $22.8 million and
$0.4 million, respectively.
As used in this Annual Report, references to the “Company,” “we,” “us,” and “our” are used to refer collectively to Finjan Holdings,
Inc. and its subsidiaries, unless otherwise indicated or the context requires.
Finjan Holdings Corporate Operating History
Finjan 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 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). 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.
In June 2013, we became publicly traded company and renamed the company Finjan Holdings, Inc. 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 entering mobile security application development and launching an advisory
services business. Today the Company operates its mobile security business through its subsidiary Finjan Mobile. CybeRisk
Security Solutions, Ltd ("CybeRisk") was formed to deliver cyber security advisory services, however in 2018 the Company exited
this business. Revenues and operations from CybeRisk were immaterial to the consolidated financial statements for the years ended
December 31, 2018, 2017 and 2016.
In August 2017, Finjan Holdings formed 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. The relationship with IBM was further expanded on May 15, 2018 with a second
Patent Assignment and Support Agreement.
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.
5
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 ("IP") licensing. These Licensing Best Practices are based on the Company’s core values. In an effort to encourage
meaningful 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
On 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
6
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.
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.”
During 2014, Finjan entered into a license agreement:
• With a confidential 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, the
third party agreed to pay Finjan a license fee of $8 million.
During 2015, Finjan entered into three license agreements:
•
•
•
A Confidential Asset Purchase and Patent License Agreement, 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 and 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”).
A license agreement with 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.
A Confidential Patent License, Settlement and Release Agreement with a network security company ("Licensee") 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.
During 2016, Finjan entered into three license agreements:
•
•
•
A Confidential Patent License, Settlement and Release Agreement (“June 2016 License”) with Proofpoint, Inc.
(“Proofpoint”) and Armorize Technologies, Inc. The June 2016 License provides for Proofpoint to pay Finjan the sum of
$10.9 million in cash. Certain portions of the June 2016 License are subject to Confidential Treatment pursuant to a
Confidential Treatment request filed with the Securities and Exchange Commission (“SEC”).
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.
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. 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, worldwide paid-up license under Finjan’s patents as specified in the December 2016 License.
During 2017, Finjan entered into five license agreements:
•
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. Such license does not grant Veracode any right to transfer, sublicense or grant
7
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.
•
•
•
•
Subsequent to the Avast license agreement entered into during 2015, in March 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 a payment by Avast to Finjan of $7.745 million.
A Confidential Agreement with Sophos and certain of its affiliated companies providing for full releases by the parties
and covenant 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 for a license fee of $15.0 million
in cash. Additionally, Finjan Mobile entered into a Confidential Patent Cross License Agreement with Sophos Limited
pursuant to which the parties granted patent cross licenses in which Sophos agreed to pay Finjan Mobile $2.5 million in
cash.
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.
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.
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, detailed as follows: (a) $12.5 million in cash, and (b) $5.0 million 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.
During 2018, Finjan entered into three license agreements:
•
•
•
Finjan and collectively with the Company and its affiliated companies, (the “Finjan Parties”), announced 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 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. Further, if Symantec acquires certain entities within four years from
February 28, 2018, 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.
A Confidential Patent License and Settlement Agreement (the “2018 Finjan License”) with Carbon Black, Inc., a Delaware
corporation (“Carbon Black”), whereby the companies have resolved all pending litigation matters. In addition, Finjan
Mobile, a wholly-owned subsidiary of the Company and Carbon Black have entered into a separate Confidential Patent
Cross License Agreement (the “Cross License”), which serves to ensure the parties’ freedom to operate under the other’s
patent portfolio. The terms of each agreement are confidential. Under the terms of the 2018 Finjan License, Carbon Black
agreed to pay Finjan $3.9 million in license fees. Further, upon acquisition of Carbon Black or acquisitions by Carbon
Black, additional one-time license fees will be due to Finjan equal to eight percent (8%) of the gross revenues of certain
qualifying products and services for the four (4) concluded quarters immediately preceding the acquisition.
A Confidential Patent License Agreement (the “June 2018 License Agreement”) with Trend Micro Incorporated (K.K.),
a Japanese corporation (“Trend Micro Japan”) and Trend Micro, Inc., a California corporation (“Trend Micro U.S. and
collectively with Trend Micro Japan, the “Trend Micro Parties”). The June 2018 License Agreement provides that the
Trend Micro Parties will obtain a license to, among others, the Finjan patents and pay the Finjan parties $13.4 million in
cash. Further, upon acquisition by the Trend Micro Parties of certain entities, the Trend Micro Parties will pay additional
license fees to Finjan, unless otherwise mutually agreed to by the Company and the Trend Micro Parties. Further, the
June 2018 License Agreement has additional provisions relating to certain unlicensed products of any company that
8
acquires a Trend Micro Party, in which case additional license fees may apply. The parties also entered into related
agreements with respect to their respective patents, including the transfer of 18 select issued security-related patent assets
from the Trend Micro Parties to the Finjan Parties. In accordance with ASC-845-10-30, the Company determined that
the acquired assets are non-monetary with no defined future benefit, resulting in the conclusion that they are not assets.
The remaining terms of the June 2018 License 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:
•
•
•
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 International Business
Machines Corporation, a New York corporation (“IBM”), effective August 24, 2017 ("Patent Assignment
Agreement"). Pursuant to the Patent Assignment Agreement, Finjan Blue acquired 41 select issued and pending IBM
patents in the security sector 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, with a 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.
The relationship with IBM was further expanded on May 15, 2018 with a second Patent Assignment and Support
Agreement (the “May 2018 Patent Assignment Agreement”). Pursuant to the May 2018 Patent Assignment
Agreement, Finjan Blue acquired 56 select issued and pending IBM patents in the security sector. The terms of the
May 2018 Patent Assignment Agreement are confidential.
On June 29, 2018, the Company including its wholly-owned subsidiaries, entered into the June 2018 License
Agreement with Trend Micro Japan and Trend Micro Parties. The June 2018 License Agreement provides that the
Trend Micro Parties will obtain a license to, among others, the Finjan patents and pay Finjan $13.4 million. Further,
upon acquisition by the Trend Micro Parties of certain entities, the Trend Micro Parties will pay additional license
fees to Finjan, unless otherwise mutually agreed to by the Company and the Trend Micro Parties. Further, the June
2018 License Agreement has additional provisions relating to certain unlicensed products of any company that
acquires a Trend Micro Party, in which case additional license fees may apply. The parties also entered into related
agreements with respect to their respective patents, including the transfer of 18 select issued security-related patent
assets from the Trend Micro Parties to Finjan. The remaining terms of the June 2018 License Agreement are
confidential.
Develop and Expand Existing Patent Portfolio - We have obtained and continue our efforts to obtain new patents
relating to security technologies through research and development and/or acquisition in the cybersecurity space.
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
9
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 and enforcement actions are sometimes
required.
•
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), recently re-
branded as InvinciBull, which can be used within the Finjan Browser or separately to encrypt data and keep consumers
secure.
Finjan Mobile released InvinciBull VPN in September of 2018. The new and improved VPN is available for use on
Apple and Android mobile platforms and Mac and Windows desktop applications. The InvinciBull VPN sits in the
VitalSecurity family of products and builds upon the incorporation of Finjan's core security patented technology.
InvinciBull VPN is available for download on the Apple and Android platforms in the iTunes and Google Play stores
and desktop versions for Mac and Windows can be downloaded from InvinciBull.io.
The Company continues to explore inorganic growth and acquisition opportunities along with additional marketing
efforts to complement the vision for Finjan Mobile.
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.
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.
10
Patented Technologies
Through Finjan and Finjan Blue, we currently have 31 and 72 issued U.S. patents, respectively, and Finjan Mobile has 5 issued
U.S. patents. Finjan’s current U.S. issued patents began expiring in 2017. Finjan also has 2 U.S. patent applications pending, 38
international issued patents, and one international patent application pending. Finjan Blue has 39 pending and issued international
patents and applications. Finjan Mobile has 4 U.S. patent applications pending, and has 6 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 tables set forth a brief description of issued and pending U.S. patents, including their respective titles:
U.S. Patent No.
6,092,194 *
6,154,844 *
6,167,520*
6,480,962*
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
8,079,086 *
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
9,800,553
FINJAN'S ISSUED U.S. PATENTS
Title
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 Client During Runtime from Hostile Downloadables
System and Method for Protecting A Client During Runtime from Hostile Downloadables
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
Malicious Mobile Code Runtime Monitoring System and Methods
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
Splitting an SSL Connection Between Gateways
* Indicates that such patent has expired.
FINJAN'S PENDING U.S. PATENT APPLICATIONS
Application No.
14/941,911
15/708,719
Malicious Mobile Code Runtime Monitoring System and Methods
Splitting an SSL Connection Between Gateways
Title
11
U.S. Patent No.
6,199,204*
6,202,207*
6,314,428*
6,584,569
6,779,021
6,785,732
6,826,716
6,907,531
7,084,760
7,140,041
7,177,937
7,237,265
7,340,776
7,346,929
7,437,760
7,475,427
7,487,543
7,490,354
7,739,739
7,770,225
7,779,474
7,895,340
7,945,957
7,996,905
8,006,289
8,261,354
8,381,242
8,458,793
8,495,357
8,510,842
8,572,750
8,640,252
8,646,086
8,683,599
8,694,786
8,695,098
8,752,182
8,782,351
8,788,763
8,793,800
8,800,047
FINJAN BLUE'S ISSUED U.S. PATENTS
Title
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
System for Determining Web Application Vulnerabilities
Method and System for Predicting and Managing Undesirable Electronic Mail
Web Server Apparatus and Method for Virus Checking
Test Programs for Enterprise Web Applications
Method and Systems for Identifying, Fixing and Updating Security Vulnerabilities
System, Method and Program Product for Managing an Intrusion Detection System
Detecting Dissemination of Malicious Programs
Web Server Apparatus And Method For Virus Checking
System for Determining Web Application Vulnerabilities
Method and System for Configuring And Scheduling Security Audits of a Computer Network
Method and Apparatus for Auditing Network Security
Antiviral Network System
Apparatus, Methods and Computer Programs for Identifying or Managing Vulnerabilities
Within a Data Processing Network
Method and Apparatus For The Automatic Determination of Potentially Worm-Like Behavior
of a Program
Virus Detection in a Network
Antiviral Network System
Method and Apparatus for Auditing Network Security
Virus Detection in a Network
Web Server Apparatus and Method for Virus Checking
Antiviral Network System
Method and Apparatus for the Automatic Determination of Potentially Worm-Like Behavior of
a Program
Method And System For Extending Authentication Methods
System, Method and Program Product for Dynamically Performing an Audit and Security
Compliance Validation in an Operating Environment
Static Analysis for Verification of Software Program Access to Secure Resources for
Computer Systems
Methods, Computer Program Products and Data Structures for Intrusion Detection, Intrusion
Response and Vulnerability Remediation Across Target Computer Systems
Data Security Policy Enforcement
Pinpointing Security Vulnerabilities in Computer Software Applications
Web Application Exploit Mitigation in an Information Technology Environment
Obfuscating Entry of Sensitive Information
Image Vulnerability Repair in a Networked Computing Environment
Static Analysis for Verification of Software Program Access to Secure Resources for
Computer Systems
Virtual Machine Images Encryption Using Trusted Computing Group Sealing
Detecting Security Vulnerabilities in Web Applications
Pinpointing Security Vulnerabilities in Computer Software Applications
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
System, Method and Program Product for Dynamically Performing an Audit and Security
Compliance Validation in an Operating Environment
12
8,910,291
8,935,794
8,943,599
8,949,995
8,955,094
8,984,642
9,003,480
9,032,528
9,032,529
9,094,446
9,124,624
9,160,756
9,160,762
9,172,717
9,189,625
9,231,970
9,256,511
9,264,443
9,271,146
9,317,697
9,460,291
9,471,787
9,497,209
9,530,016
9,536,085
9,544,327
9,679,159
9,762,606
9,838,412
9,876,816
9,882,926
Black-Box Testing of Web Applications with Client-Side Code Evaluation
Verifying Applications Security Vulnerabilities
Certifying Server Side Web Applications Against Security Vulnerabilities
Certifying Server Side Web Applications Against Security Vulnerabilities
User Session Management for Web Applications
Detecting Security Vulnerabilities in Web Applications
Classifying Files on a Mobile Computer Device
Black-Box Testing of Web Applications With Client-Side Code Evaluation
Detecting Vulnerabilities in Web Applications
Image Vulnerability Repair in a Networked Computing Environment
Detecting Vulnerabilities in Web Applications
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
Computer Software Application Self-Testing
Browser Based Method of Assessing Web Application Vulnerability
Mobile Privacy Information Proxy
Processing of Restricted Access Data
Detecting Stored Cross-Site Scripting Vulnerabilities in Web Applications
Detecting Stored Cross-Site Scripting Vulnerabilities in Web Applications
Image Vulnerability Repair in a Networked Computing Environment
Using Source Taint Analysis to Reduce False Positives in an Advanced Persistent Threat (Apt)
Protection Solution
Data Management of Potentially Malicious Content
Prioritizing Security Findings in a SAS Tool Based on Historical Security Analysis
Mobile Privacy Information Proxy
Image Vulnerability Repair in a Networked Computing Environment
Computer Software Application Self-Testing
Detecting Stored Cross-Site Scripting Vulnerabilities in Web Applications
Detecting Stored Cross-Site Scripting Vulnerabilities in Web Applications
* Indicates that such patent has expired.
U.S. Patent No.
9,554,279
9,749,867
10,003,975
10,069,858
10,091,214
Application No.
15/784,139
16/012,044
16/111,143
16/149,080
FINJAN MOBILE'S ISSUED U.S. PATENTS
Title
Authorized Areas Of Authentication
Authorized Areas Of Authentication
Authorized Areas Of Authentication
Secure And Private Mobile Web Browser
Malware Warning
FINJAN MOBILE'S PENDING U.S. PATENT APPLICATIONS
Title
Detection and Blocking of Web Trackers for Mobile Browsers
Authorized Areas of Authentication
Secure and Private Mobile Web Browser
Malware Warning
13
Employees
As of December 31, 2018, 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 and our mobile security business, operated
through our subsidiary Finjan Mobile. 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. The SEC maintains an internet site at http://
www.sec.gov that contains reports, proxy and information statements and other information regarding us and other issuers that
file electronically with the SEC.
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, 2018, our
assets consisted primarily of Finjan's 31 U.S. and 38 international patents, and Finjan Blue’s 91 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.
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We have a history of significant cash needs and this may increase in the future.
As of December 31, 2018, we had approximately $43.3 million in cash and cash equivalents and short-term investments and
working capital of $46.0 million. Although we reported net income for the years ended December 31, 2018, 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 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 Leahy-Smith 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.
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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. In 2018 we initiated patent infringement litigation against Check Point Software Technologies, Inc. and its
affiliates, Fortinet, Inc., Rapid7, Inc., and Qualys, Inc. 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, 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 2018, we derived approximately
$82.3 million of income from license agreements with three licensees. In 2017, we derived approximately $50.5 million of income
from license agreements with six licensees. In 2016, we derived approximately $18.4 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 a sale of our common stock. Based on our current operating plans (which includes our expectation of signing
additional license agreements in 2019, 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:
•
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;
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•
•
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.
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 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.
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:
•
•
•
•
•
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;
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•
•
•
•
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
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. On May 15, 2018, we further expanded the IBM relationship by entering into a second
Patent Assignment and Support Agreement. 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, or 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
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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.
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 qualified 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 qualified legal counsel to advise us and
manage our enforcement and litigation activities and our ability to manage the costs of such services. 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.
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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.
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 2018 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 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
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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 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.
21
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 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 37% 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.
22
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 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 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, 1,450,458 of which were vested as of December 31, 2018, could 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. 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.
23
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.
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. 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;
24
•
•
•
•
•
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;
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. 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 lease
entered into in June 2018. The lease term ends June 2023.
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
25
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.
No dividends were declared or paid.
Year Ended December 31, 2018
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
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
Holders
High
Low
$
$
$
$
$
$
$
$
$
$
$
$
5.54
5.07
3.51
3.60
2.71
3.50
4.06
1.78
1.90
2.24
2.35
1.26
$
$
$
$
$
$
$
$
$
$
$
$
2.11
3.38
2.71
1.69
1.66
2.06
1.68
1.21
1.00
1.28
0.87
0.81
As of March 1, 2019, 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.
26
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 2018 to 2017, and 2017 to 2016.
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, 2018, 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.
27
Overview
We operate a cybersecurity business, focused on licensing and enforcement, developing mobile security applications, and investing
in emerging cybersecurity technologies and intellectual property.
We operate our cybersecurity business through our wholly-owned subsidiaries including, Finjan, Finjan Blue, and Finjan Mobile.
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, and networking equipment markets. From that basis, we
pursue 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, our 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 and the May 2018 Patent Assignment Agreement with IBM. The
Agreements, 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 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 ignore
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. We started research and development of security products
for mobile devices which benefit from technologies developed and patented by Finjan but also include the invention of new mobile
technologies that will help expand our existing patent portfolio. Products currently available include our Finjan Mobile Secure
Browser and a Virtual Private Network (VPN), recently re-branded as InvinciBull, which can be used within the Finjan Browser
or separately to encrypt data and keep consumers secure.
As of December 31, 2018, 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.
28
Significant Developments During 2018
Redemption of Preferred Stock
In January 2018, we redeemed $6.2 million or 48,076 shares of our Series A-1 Preferred stock.
JVP Capital Call
During 2018, we made payments to the JVP fund totaling $0.9 million, reducing the commitment outstanding to $1.8 million.
Settlements with:
Symantec
In March 2018, we announced that the Finjan Parties and the Symantec Parties had entered into a 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 obtained a license to, among others, the Finjan patents and paid the Finjan Parties $65.0 million
in cash, and if Symantec acquires certain entities within four years from February 28, 2018, the Symantec Parties will pay additional
license fees of up to $45.0 million to the Finjan Parties, unless otherwise mutually agreed to by us and Symantec. The remaining
terms of the License and Settlement Agreement are confidential.
Carbon Black
On April 6, 2018, we entered into a 2018 Finjan License with Carbon Black, Inc., a Delaware corporation, whereby the companies
have resolved all pending litigation matters. In addition, Finjan Mobile and Carbon Black have entered into a separate Cross
License, which serves to ensure the parties’ freedom to operate under the other’s patent portfolio. The terms of each agreement
are confidential. Under the terms of the license, Carbon Black agreed to pay Finjan $3.9 million in license fees. Further, upon
acquisition of Carbon Black or acquisitions by Carbon Black, additional one-time license fees will be due to Finjan equal to eight
percent (8%) of the gross revenues of certain qualifying products and services for the four (4) concluded quarters immediately
preceding the acquisition.
Trend Micro
On June 29, 2018, we entered into the June License Agreement with the Trend Micro Parties. The June License Agreement provides
that the Trend Micro Parties will obtain a license to, among others, the Finjan patents and pay the Finjan parties $13.4 million in
cash. Further, upon acquisition by the Trend Micro Parties of certain entities, the Trend Micro Parties will pay additional license
fees to Finjan, unless otherwise mutually agreed to by us and the Trend Micro Parties. Further, the June License Agreement has
additional provisions relating to certain unlicensed products of any company that acquires a Trend Micro Party, in which case
additional license fees may apply. The parties also entered into related agreements with respect to their respective patents, including
the transfer of 18 select issued security-related patent assets from the Trend Micro Parties to the Finjan Parties.
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
Cybersecurity has been a very active sector in 2018 and we believe this trend will continue in 2019. 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 plus years of 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
29
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 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 (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, our
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 315,292 restricted stock units and 2,486,647 options remain outstanding as of December 31, 2018, under the
Restated 2014 Plan. We expect that future equity-based awards will continue to be made under the Restated 2014 Plan to our
30
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.
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.
2018
For the Years Ended December 31,
2017
2016
Amount
% of
Revenue
Amount
% of
Revenue
Amount
% of
Revenue
(In millions, except percentages)
$
82.3
100 % $
50.5
100 % $
18.4
100%
15.3
67.0
32.2
2.1
34.3
(4.0)
28.7
8.0
20.7
1.6
$
$
19 %
81 %
39 %
2 %
41 %
(5)%
35 %
10 %
6.0
44.5
28.6
1.5
30.1
2.2
16.6
12 %
88 %
57 %
3 %
60 %
4 %
33 %
(6.2)
(12)%
25 % $
22.8
45 % $
2 % $
0.8
2 % $
3.0
15.4
14.4
0.6
15.0
—
0.4
—
0.4
0.9
16%
84%
79%
3%
82%
—
2%
—%
2%
5%
Revenues
Cost of revenues
Gross profit
Operating expenses:
Selling, general and administrative (1)
Research and development
Total operating expenses
Other income / (expense)
Income before income taxes
Income tax provision (benefit)
Net income (loss)
(1) Includes stock based compensation
31
Year ended December 31, 2018 compared with the year ended December 31, 2017:
Revenues
Cost of revenues
Gross profit
Gross margin
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Other income (expense)
Income before income taxes
Income tax provision (benefit)
For the Years Ended December 31,
2018
2017
Change
% Change
(In millions, except percentages)
$
82.3
$
50.5
$
15.3
67.0
81%
32.2
2.1
34.3
(4.0)
28.7
8.0
6.0
44.5
88%
28.6
1.5
30.1
2.2
16.6
(6.2)
31.8
9.3
22.5
3.6
0.6
4.2
63 %
155 %
51 %
13 %
40 %
14 %
(6.2)
(282)%
12.1
14.2
73 %
(229)%
Net income
$
20.7
$
22.8
$
(2.1)
(9)%
Revenue in 2018 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 increase in revenues.
Gross profit as a percentage of revenues decreased in 2018 due to the legal fees paid on settlement.
Selling, general and administrative expenses ("SG&A") consisted primarily of legal fees incurred in operations and employee
headcount related expenses. These comprise approximately 74% of total SG&A expense. Litigation expenses increased $4.2
million to $16.5 million in 2018 compared to 2017 and are primarily due to the timing of various outstanding litigation actions.
See "Item 3. Legal Proceedings". Employee headcount related expenses increased $1.8 million to $7.2 million in 2018 compared
to 2017, and is primarily due to incentive bonuses earned during the year. The balance of SG&A expenses include consulting,
other professional services, facilities and other administrative fees and expenses.
Research and Development expenses ("R&D") are primarily from our Finjan Mobile security business and increased by $0.6
million to $2.1 million in 2018 compared to 2017, as we continue to position this business for future growth.
Other income (expense) is primarily due to changes in the fair value of the warrant liability of $3.4 million in 2018 versus a benefit
of $2.2 million in 2017, and interest expense of $0.6 million in 2018, net.
We recognized an income tax expense of $8.1 million on pre-tax income of $28.7 million in 2018 as compared to a benefit from
the reduction in the valuation allowance of $6.2 million in 2017.
32
Year ended December 31, 2017 compared with the year ended December 31, 2016:
For the Years Ended December 31,
2017
2016
Change
% Change
(In millions, except percentages)
Revenues
Cost of revenues
Gross profit
Gross margin
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Other income
Income before income taxes
Income tax provision (benefit)
$
50.5
$
18.4
$
6.0
44.5
88%
28.6
1.5
30.1
2.2
16.6
(6.2)
3.0
15.4
84%
14.4
0.6
15.0
—
0.4
—
32.1
3.0
29.1
14.2
0.9
15.1
2.2
16.2
(6.2)
Net income
$
22.8
$
0.4
$
22.4
174%
100%
189%
99%
150%
101%
NM
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. Selling, 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 our 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 represents 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.
33
Liquidity and Capital Resources
As of December 31, 2018, we had approximately $43.3 million of cash and cash equivalents and short term investments, an increase
of approximately $2.1 million from $41.2 million in 2017.
During 2018, we retired all shares of the Series A-1 Preferred stock, $19.9 million or 153,000 shares.
During 2018, our board of directors authorized the repurchase of issued and outstanding shares of our common stock having an
aggregate value of up to $10.0 million pursuant to a share repurchase program. Under the share repurchase program, we repurchased
686,492 shares of our common stock, for an aggregate purchase price of approximately $2.0 million. As of December 31, 2018,
we have a remaining authorization of $8.0 million for future share repurchases.
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 $1.8 million of the commitment remains unfunded as of December 31, 2018.
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.
Cash & cash equivalents
Short term investments
Cash flows for the year ended December 31, 2018, 2017 and 2016
December 31,
2018
2017
(in thousands)
$
$
32,011
11,303
43,314
$
$
41,169
—
41,169
2018
For the Years Ended December 31,
2017
(in thousands)
2016
Net cash provided by operating activities
$
25,601
$
16,586
$
1,328
Net cash used in investing activities
(13,203)
(1,873)
(559)
Net cash provided by (used in) financing activities
(21,556)
12,778
6,808
Operating Activities: Net cash provided by operating activities was $25.6 million for the year ended December 31, 2018 and is
comprised of $20.7 million in net income, $1.6 million in stock-based compensation, $1.8 million in depreciation and amortization,
$3.4 million change in warrant liability and a change in deferred income taxes of $2.5 million, offset by a $4.4 million change in
net operating assets and liabilities.
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.
Investing Activities: During the year ended December 31, 2018, cash used in investing activities of $13.2 million was related to
purchase of investments of $11.3 million, the purchase of assets under the May 2018 Patent Assignment Agreement of $1.0 million
and a $0.9 million investment in the JVP fund.
34
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 first Patent Assignment 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 in investing activities primarily related to the $0.6 million cash call by JVP.
Financing Activities: During the year ended December 31, 2018, net cash used in financing activities of $21.6 million was primarily
from the redemption of Series A-1 Preferred Stock totaling $19.9 million, $2.0 million related to the share repurchase program,
offset by $0.3 million of proceeds received from the exercise of stock options.
During the year ended December 31, 2017, net cash provided by financing activities of $12.8 million was primarily from the
issuance of Series A-1 Preferred Stock 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.
Contractual Obligations
The following table summarizes, as of December 31, 2018, our contractual obligations over the next five years for the property
lease entered into during the year ended 2018, our 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
Total
Critical Accounting Policies and Estimates
Payments due by Period (In thousands)
Less Than 1
Year
2-5 Years
Total
747
$
2,828
$
3,575
800
1,300
1,500
4,347
$
1,000
650
4,000
8,478
$
1,800
1,950
5,500
12,825
$
$
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
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.
35
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods and services. The amount of revenue recognized reflects
the consideration to which the Company expects to be entitled to receive in exchange for these goods and services.
The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
To achieve that core principle, we apply the following five step model:
Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when (or as) each performance obligation is satisfied.
Revenue from our cybersecurity business results from grants of licenses to its patented cybersecurity technology and settlements
reached from legal enforcement of our patent rights. Revenue is recognized upon execution of the agreement, including any future
dated payments, which often spread over several quarters or years
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 us 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 we are 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.
36
Off-Balance Sheet Arrangements
In connection with the investment in JVP, we have a commitment balance outstanding of approximately $1.8 million, which can
be called at any time.
In connection with our Distribution Agreement with Avira, we have approximately $2.0 million outstanding, which is payable
quarterly over the next two years, with a final payment due April 1, 2020.
Recent Accounting Pronouncements
See "NOTE 2 - Summary of significant accounting policies, - Recently issued accounting pronouncements"
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 and short
term investments. Our cash and cash equivalents and short term investments as of December 31, 2018, totaled $43.3 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, 2018, 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.
37
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, 2018.
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, 2018, our internal controls over financial reporting were effective.
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, 2018 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 2019 (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.”
38
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, 2018, 2017 and 2016” and “- Pre-Approval Policies and Procedures.”
39
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number
Exhibit Description
PART IV
3.1
3.2
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)
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)
Second Amended and Restated Employment Agreement, dated August 1, 2018, between Finjan Holdings,
Inc. and Philip Hartstein (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed
August 3, 2018)#
Second Amended and Restated Employment Agreement, dated August 1, 2018, by and between the Company
and Julie Mar-Spinola (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed
August 3, 2018)#
Second Amended and Restated Employment Agreement, dated August 3, 2018, between Finjan Holdings,
Inc. and Michael Noonan (incorporated by reference to Exhibit 10.3 to our current report on Form 8-K
filed August 3, 2018)#
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)#
Summary of 2017 Executive Incentive Compensation Plan (incorporated by reference to our Current Report
on Form 8-K filed March 28, 2017)#
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)#
Office Lease Agreement, dated July 5, 2018, between Finjan Holdings, Inc. and Colombia REIT - University
Circle. L.P. (incorporated by reference to Exhibit 10.1 to our current report on form 8-K filed August 3, 2018)
40
Exhibit
Number
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of Finjan Holdings, Inc.*
Consent of Marcum LLP.*
Exhibit Description
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.
41
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 13, 2019
Date: March 13, 2019
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/ John Greene
John Greene
/s/ Philip Hartstein
Philip Hartstein
/s/ Michael Noonan
Michael Noonan
Title
Director
Date
March 13, 2019
Chairman
March 13, 2019
Director
Director
Director
Director
Director
Director
President & Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer & Treasurer
(Principal Financial and Accounting Officer)
42
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
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,
2018, and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Adoption of Accounting Pronouncement
As discussed in Note 2, on January 1, 2018, the Company has adopted Accounting Standards Codification Topic 606 as its method
of accounting for revenue.
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.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2012.
New York, NY
March 13, 2019
F-2
FINJAN HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Short term investments
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Investments
Intangible assets, net
Deferred income taxes
Other assets, 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
Total Liabilities
Commitments and contingencies (Note 7)
Redeemable Preferred Stock
December 31,
2018
2017
$
32,011
$
41,169
$
$
11,303
2,550
6,580
52,444
99
3,518
5,507
2,811
214
—
2,606
765
44,540
140
2,618
7,748
6,201
—
64,593
$
61,247
$
4,394
163
394
—
—
1,500
6,451
3,463
9,914
4,646
112
1,303
13
1,096
1,086
8,256
5,500
13,756
Series A-1 Preferred stock - $0.0001 par value, no shares and 153,000 issued and
outstanding at December 31, 2018 and 2017, respectively (Liquidation preference of $0
and $19,890 at December 31, 2018 and 2017 respectively)
—
18,965
Stockholders’ Equity
Preferred stock - $0.0001 par value; 10,000,000 shares authorized; no shares issued and
outstanding (which excludes 0 and 153,000 shares of Redeemable Preferred Stock at
December 31, 2018 and 2017, respectively) at December 31, 2018 and 2017
Common stock - $0.0001 par value; 80,000,000 shares authorized; 27,568,656 and
27,707,328 shares issued and outstanding at December 31, 2018 and 2017
Additional paid-in capital
Retained earnings
Total Stockholders’ Equity
—
3
28,534
26,142
54,679
—
3
22,968
5,555
28,526
Total Liabilities and Stockholders’ Equity
$
64,593
$
61,247
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
Income from operations
Other Income / (Expense)
Interest and other income
Interest expense
Change in fair value of warrant liability
Total other income (loss)
Income before provision for income taxes
Income tax provision (benefit)
Net Income
Accretion of preferred stock
Net income (loss) attributable to common stockholders
Net income per share, basic
Net income per share, diluted
Net income (loss) per share applicable to common stockholders, basic
Net income (loss) per share applicable to common stockholders, diluted
For the Years Ended December 31,
2018
2017
2016
$
82,300
$
50,484
$
15,271
67,029
6,008
44,476
32,190
2,094
34,284
28,596
1,473
30,069
18,387
3,037
15,350
14,427
570
14,997
32,745
14,407
353
319
(829)
(3,445)
(3,955)
27
—
2,217
2,244
28,790
16,651
8,052
(6,160)
20,738
22,811
—
—
—
—
353
3
350
(925)
19,813
0.75
0.73
0.72
0.70
$
$
$
$
$
(4,882)
17,929
0.90
0.87
0.71
0.68
$
$
$
$
$
$
$
$
$
$
(6,789)
(6,439)
0.02
0.02
(0.28)
(0.28)
Weighted average common shares outstanding, basic
Weighted average common shares outstanding, diluted
27,484,655
25,353,966
22,837,263
28,416,512
26,269,727
22,837,263
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, 2018, 2017 and 2016
(In thousands, except share and per share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings /
(Accumulated
Deficit)
Balance – December 31, 2015
Stock-based compensation expense
Issuance of common stock from exercise of stock options
Accretion of Series A preferred stock
Net income
Balance – December 31, 2016
Stock-based compensation expense
Exercise of stock options and RSUs
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
Stock-based compensation expense
Exercise of stock options and RSUs
Accretion of Series A-1 preferred stock
Warrant liability reclassifications
ASC 606 adjustment
Shares repurchase
Net income
22,640,611
$
—
462,117
—
—
23,102,728
—
464,600
—
—
—
4,140,000
—
27,707,328
—
547,820
—
—
—
(686,492)
—
Balance – December 31, 2018
27,568,656
$
2
—
—
—
—
2
—
—
—
—
—
1
—
3
—
—
—
—
—
—
—
3
$
23,946
$
872
111
(6,789)
—
18,140
843
229
(292)
(4,590)
(3,313)
11,951
—
22,968
1,593
357
(925)
4,541
—
—
—
Total
6,342
872
111
(6,789)
350
886
(17,606)
—
—
—
350
(17,256)
—
—
—
843
229
(292)
(4,590)
(3,313)
— 11,952
—
—
22,811
5,555
—
—
—
—
1,872
(2,023)
20,738
22,811
28,526
1,593
357
(925)
4,541
1,872
(2,023)
20,738
$
28,534
$
26,142
$ 54,679
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
Adjustments to reconcile net income to net cash provided by operating
activities
For the Years Ended December 31,
2018
2017
2016
$
20,738
$
22,811
$
350
Depreciation and amortization
Accretion of intangible 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 Operating Activities
Cash Flows From Investing Activities
Purchase of intangible assets
Purchases of additional investment
Purchases of marketable securities
Proceeds from investments
Purchase of property and equipment
1,800
1,483
3,445
2,712
1,593
2,606
(6,029)
(909)
(252)
51
(13)
(1,624)
25,601
(1,000)
(900)
(11,303)
—
—
815
—
(2,217)
(6,201)
843
(1,540)
(152)
(529)
2,788
24
10
(66)
16,586
(2,000)
—
—
127
—
Net Cash Used in Investing Activities
(13,203)
(1,873)
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 Preferred shares
Proceeds from Common share offering, net of issuance costs
Repurchase of Finjan Holdings shares
Proceeds from exercise of stock options
—
—
(19,890)
—
(2,023)
357
—
14,375
(13,778)
11,952
—
229
Net Cash (Used in) Provided by Financing Activities
(21,556)
12,778
Net Increase Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
(9,158)
41,169
27,491
13,678
63
—
—
—
872
(1,066)
34
1,382
(362)
71
(6)
(10)
1,328
—
(550)
—
—
(9)
(559)
9,490
—
(2,793)
—
—
111
6,808
7,577
6,101
Cash and Cash Equivalents - Ending
$
32,011
$
41,169
$
13,678
F-6
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes
Non-cash investing and financing activities:
Accretion of Series A Preferred Stock
Accretion of Series A-1 Preferred Stock
Series A-1 warrant liability
Patent purchase in exchange for payable
Changes in accounts receivable, adoption of ASC606
Changes in deferred tax, adoption of ASC606
Reclassification of warrant liability to equity
For the Years Ended December 31,
2016
2017
2018
$
10,700
$
30
$
—
—
925
—
—
2,550
678
4,541
292
4,590
3,313
6,500
—
—
—
6,789
—
—
—
—
—
—
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,
Inc. (“Finjan”), Finjan Blue, Inc. ("Finjan Blue") and Finjan Mobile, Inc. ("Finjan Mobile") operates a cybersecurity business
focused in three business lines: intellectual property licensing and enforcement, mobile security application development and
investing in cybersecurity technologies and intellectual property. Licensing and enforcement of the Company's cybersecurity patent
portfolio is operated, through its wholly-owned subsidiaries Finjan and Finjan Blue. Revenues and operations are concentrated in
Finjan; other subsidiaries were immaterial to the consolidated financial statements for the years ended December 31, 2018, 2017
and 2016. Our subsidiary CybeRisk was formed in 2015 to deliver cyber security advisory services, however in 2018, the Company
exited this business. Revenues and operations from CybeRisk were immaterial to the consolidated financial statements for the
years ended December 31, 2018, 2017 and 2016. The Company’s common stock has been trading on the NASDAQ Capital Market
("NASDAQ") since May 2014.
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.
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
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 Consolidated Statements 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.
SHORT TERM INVESTMENTS
Investments consist of U.S. Treasury Bills, which are classified as held-to-maturity, Certificates of Deposit and other Corporate
Debt Securities. The Company determines the appropriate balance sheet classification of its investments at the time of purchase
and evaluates the classification at each balance sheet date. All of the Company’s investments mature within the next twelve months.
Unrealized gains and losses are de minimis. As of December 31, 2018, the carrying value of the Company’s U.S. Treasury Bills
approximates their fair value due to their short-term maturities.
CONCENTRATIONS OF CREDIT RISK
The Company maintains substantially all of its cash and cash equivalents in financial institutions located in the United States. The
Company also has certain bank accounts with minimal balances in 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, 2018, and 2017, substantially all of
the Company’s cash and cash equivalents and short term investments are uninsured.
F-8
During 2018, revenues generated by the Company were derived from three license agreements that the Company entered into with
third parties in 2018. Two licenses comprised 95% of the Company's revenue for 2018.
During 2017, revenues generated by the Company were derived from six license agreements that the Company entered into with
third parties in 2017. Two licenses comprised 67% of the Company's revenue for 2017.
During 2016, revenues generated by the Company were derived from 3 license agreements that the Company entered into with
third parties in 2016. One license comprised 59% of the Company's revenue for 2016.
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,
2018 and 2017, respectfully. Bad debt expense for the years ended December 31, 2018, 2017 and 2016 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, 2018 and 2017 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.
REVENUE RECOGNITION
Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09")
Under Accounting Standards Codification ("ASC") 605, revenues were 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. This guidance was followed prior to January 1,
2018,
Under ASU 2014-09 revenue is recognized when a customer obtains control of promised goods and services. The amount of
revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods
and services. In addition, ASU 2014-09 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers.
F-9
The core principle of the standard is that the Company should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods
or services. To achieve that core principle, the Company should apply the following five step model:
Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when (or as) each performance obligation is satisfied.
Revenue from the Company’s cybersecurity business results from grants of licenses to its patented cybersecurity technology and
settlements reached from legal enforcement of the Company’s patent rights. Revenue is recognized when the arrangement with
the licensee has been signed and the license has been delivered and made effective, provided the license fees are fixed or determinable
and collectability is reasonably assured.
The total amount of the consideration received upon any settlement or judgment is allocated to each element based on the fair
value of each element. Elements provided in either settlement agreements or judgments include, the value of a license, legal release
and interest. Fair value of licensing agreements and royalty revenues, are recognized as revenues in the condensed consolidated
statement of operations. Elements not related to license agreements and royalty revenue in nature will be reflected in other income
(expense), net in the condensed consolidated statements of operations. Legal release as part of a settlement agreement is recognized
as a separate line item in the condensed 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 in other income (expense), net.
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.
The Company adopted ASU 2014-09 using the modified retrospective method effective January 1, 2018. For further details, see
"Recently Issued Accounting Pronouncements adopted January 1, 2018" below.
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, 2018, 2017 and 2016.
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, 2018, 2017 and 2016.
F-10
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.
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
through September 2018. 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 through
the expiration of the variable consideration. 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. Upon expiration of the variable consideration the warrant liability at that time of $4.5 million was reclassified to
equity.
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
Upon 2018
Expiration
2.3% - 2.5%
1.8 - 2.2 Years
65% - 70%
0%
December 31, 2017
1.5% - 2.0%
2.5 - 3 Years
50% - 60%
0%
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of the Company’s financial instruments, including cash and cash equivalents, short term investments,
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
F-11
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:
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 Company classifies short term investments as available-for-sale investments within Level 2 in the fair value hierarchy as it
uses alternative pricing sources and models using market observable inputs to determine their fair value. These include financial
and industrial securities of $10.2 million and asset backed securities of $1.1 million at December 31, 2018. Unrealized gains were
immaterial as of December 31, 2018. The Company had no short term investments at December 31, 2017.
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 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 and computed as follows:
F-12
Years Ended
December 31,
2018
2016
2017
(In thousands, except share and per
share data)
Numerator:
Net income (loss) attributable to common stockholders
$
19,813
$
17,929
$
(6,439)
Denominator:
Weighted-average common shares, basic
Weighted-average common shares, diluted*
Net income (loss) per common share:
Basic:
Diluted:
27,484,655
25,353,966
22,837,263
28,416,512
26,269,727
22,837,263
$
$
0.72
0.70
$
$
0.71
0.68
$
$
(0.28)
(0.28)
* The diluted earnings per common share included the weighted average effect of 215,196 unvested Restricted Stock Units and
716,661 stock options that are potentially dilutive to earnings per share for the twelve months ended December 31, 2018, 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 income (loss) per
share because their inclusion would be anti-dilutive and consist of the following:
Stock options
Restricted stock units
Warrants
Total
STOCK-BASED COMPENSATION
2018
822,269
13,333
2,355,506
3,191,108
December 31,
2017
1,864,292
—
2,355,506
4,219,798
2016
1,607,347
185,260
—
1,792,607
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.
F-13
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, 2018, 2017 and 2016, an immaterial 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,
2018, 2017 and 2016.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted 2018:
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09. 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 adopted ASU 2014-09 January 1, 2018 using the modified retrospective method. This method required retrospective
application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the
reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and
continue to be reported in accordance with our historic accounting under Topic 605.
The change to the current revenue policy is the timing of revenue recognition. Under the guidance ASC 605, the Company recognized
revenue upon receipt of funds related to an executed agreement or funds which were received within 90 days of receipt. Under
the guidance ASU 2014-09, all revenue is recognized upon execution of the agreement, including any future dated payments,
which often spread over several quarters or years.
The Company recorded $2.6 million to opening retained earnings of $5.6 million as of January 1, 2018 due to the cumulative
impact of adopting Topic 606, with the impact primarily related to existing contracts that had 2019 payment dates.
The cumulative effect of the changes made to the condensed consolidated balance sheet as of January 1, 2018 under current assets
for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows (in thousands):
Balance Sheet
Current Assets
Accounts Receivable
Liabilities and Stockholders' Equity
Retained Earnings
Balance at December
31, 2017
Adjustments due to
ASU 2014-09
Balance at January 1,
2018
$
$
2,606
$
2,550
$
5,156
5,555
$
2,550
$
8,105
F-14
In accordance with the new revenue recognition standards, the impact of adoption of ASC-606 to the consolidated statement of
operations and balance sheet for the period ended December 31, 2018 was as follows (in thousands):
Income Statement
Year ended December 31, 2018
Balance
without
adoption -
ASC606
Effect of
change
As reported
Revenue
$
82,300
$
82,300
$
Provision for income taxes
Net income (loss)
Balance Sheet
Current Assets
Accounts Receivable
Other long-term assets(1)
Prepaid tax
Liabilities and Stockholders' Equity
Retained Earnings
(1) Deferred tax assets related to the adoption of ASC606
8,052
8,052
20,738
20,738
—
—
—
December 31, 2018
Balance
without
ASC-606
Effect of
Change
As reported
$
$
$
2,550
678
5,429
— $
— $
$
5,429
(2,550)
(678)
—
26,142
$
22,914
$
3,228
The Company also adopted the following standards during 2018, none of which had a material impact on the Company's consolidated
financial statements:
STANDARD
DESCRIPTION
EFFECTIVE DATE
2016-09
2016-15
2018-07
Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-
Based Payment Accounting
Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash
Payments
Compensation - Stock Compensation (Topic 718): Improvements to
Nonemployee Share
Based Payment Accounting
January 1, 2018
January 1, 2018
June 1, 2018
Not Yet Adopted as of December 31, 2018
ASU No. 2016-02 “Leases” ("ASU 2016-02")
In February 2016, the FASB issued ASU 2016-02 which requires lessees to recognize almost all leases on their balance sheet as
a leased asset and a lease liability. Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or
less) off- balance sheet, consistent with current operating lease accounting. For income statement purposes, the FASB retained a
dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely
similar to those applied in current lease accounting, but without explicit bright lines.
F-15
The Company has decided to adopt ASU 2016-02 using the modified retrospective approach with a cumulative-effect adjustment
recorded at the beginning of the period of adoption (January 1, 2019). Therefore, the Company will recognize and measure
operating leases on the consolidated balance sheet without revising comparative period information or disclosure. The Company
elected the package of practical expedients permitted under the transition guidance within the standard, which eliminates the
reassessment of past leases, classification and initial direct costs.
The Company elected the available practical expedients and implemented internal controls and key system functionality to enable
the preparation of financial information on adoption. The new standard is expected to result in the recording of leased assets and
lease liabilities for the Company’s operating leases of approximately $2.7 - $2.9 million and approximately $2.8 - $2.9 million,
respectively, as of January 1, 2019. The difference between the leased assets and lease liabilities primarily represents the existing
deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which was effectively reclassified
upon adoption to reduce the measurement of the leased assets. The adoption of ASU 2016-02 is not anticipated to have an impact
on Company’s results from operations and cash flows. The adoption of new standard will result in additional disclosures around
amount, timing and uncertainty of cash flows arising from leases including quantitative and qualitative information including
significant judgments in applying the new standard.
ASU 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and
Hedging (Topic 815) ("ASU 2017-11")
In July 2017, the FASB issued ASU 2017-11, 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. The
adoption of this standard is not expected to have a material impact on the consolidated financial statements and related disclosures.
ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU
2018-13”)
In August 2018, the FASB issued ASU 2018-13, which eliminates, adds and modifies certain disclosure requirements for fair value
measurements as part of the FASB’s disclosure framework project. Adoption of this guidance is required for fiscal years and interim
periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating this guidance and the
impact of this update on its condensed consolidated financial statements.
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.
F-16
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS & PATENTS AND INTANGIBLE ASSETS
Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets are as presented below:
As of December 31,
2018
2017
Prepaid income taxes
Other prepaid expenses and other current assets
Patents and Intangible Assets
$
$
$
(in thousands)
5,429
1,151
6,580
$
—
765
765
The Company owns or possesses licenses to use its patents. The costs of maintaining the patents are expensed as incurred.
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. 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.
On May 15, 2018, Finjan Blue, entered into a second agreement with IBM (the “May 2018 Patent Assignment Agreement”).
Pursuant to the May 2018 Patent Assignment Agreement, Finjan Blue acquired 56 select issued and pending IBM patents in the
security sector. The terms of the May 2018 Patent Assignment Agreement are confidential. 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 May
2018 Patent Assignment Agreement should be amortized over five years as the covenants between the parties are effective for that
period.
Management did not identify any triggering events which would have necessitated an impairment change.
The components of these intangible assets are as follows:
Patents
Less accumulated amortization
Intangible assets, net
As of December 31,
2017
2018
(in thousands)
26,069
(20,562)
$
26,552
(18,804)
5,507
$
7,748
$
$
Amortization expense for the years ended December 31, 2018 and 2017 was approximately $1.8 million and $0.8 million,
respectively, and nil for the year ended December 31, 2016.
Future amortization costs of $5.5 million will be recognized ratably over the next 4.5 years.
F-17
NOTE 4 – PROPERTY AND EQUIPMENT, NET
The components of property and equipment were as follows:
Office equipment, leasehold improvements and furniture
Less accumulated depreciation
Property and equipment, net
As of December 31,
2017
2018
(In thousands)
$
$
308
(209)
99
$
$
319
(179)
140
Depreciation expense for the year ended December 31, 2018 was approximately $30,000 and approximately $63,000 for both
years ended December 31, 2017 and 2016.
NOTE 5 – INVESTMENTS
On November 21, 2013, the Company made a $5 million commitment to invest in Jerusalem Venture Partners (“JVP Fund”). 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 or significant influence over the fund. Accordingly, the Company
has accounted for this investment under the cost method of accounting.
As of December 31, 2018, $1.8 million remains outstanding on this commitment. The December 31, 2018 balance includes $0.3
million from net distribution by the JVP fund that was retained to fund future investment activities. The retained proceeds did not
reduce the Company's future capital commitments to the 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, 2018, 2017 and 2016.
The following is a summary of the Company’s investments (in thousands):
Balance - January 1, 2016
Investment made during 2016
Balance - December 31, 2016
Cash distribution during 2017
Balance - December 31, 2017
Investment made during 2018
Balance - December 31, 2018
NOTE 6 – ACCRUED EXPENSES AND WARRANT LIABILITY
Accrued expenses
The components of accrued expenses are as below:
Compensation
Other
F-18
JVP Fund
$
$
$
2,195
550
2,745
(127)
2,618
900
3,518
As of December 31,
2017
2018
(In thousands)
$
$
336
58
394
$
$
1,233
70
1,303
Warrant Liability
A roll forward of the Company’s Level 3 derivative liabilities 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
Change in fair value of warrant liability
Reclassification to additional paid-in capital
Balance, December 31, 2018
NOTE 7 – COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
$
$
—
3,313
(2,217)
1,096
3,445
(4,541)
—
On July 19, 2018, the Company entered into an office lease agreement for its headquarters commencing October 1, 2018 through
June 2023. The annual rent is approximately $0.7 million, payable in equal monthly installments, unless earlier terminated by
either party in accordance with the lease. The annual rent is subject to an approximate 3.5% increase at each anniversary of the
commencement date during the term of the agreement. The agreement also required a security deposit of $214,000, which is
included in other non-current assets in the accompanying condensed consolidated balance sheets.
The following table sets forth the Company’s aggregate future minimum payments under its operating lease commitments as of
December 31, 2018 (in thousands):
Year ending December 31,
2019
2020
2021
2022
2023
Total
$
$
$
$
$
$
747
773
801
829
425
3,575
The Company was also party to certain office lease agreements in New York, NY and Menlo Park CA, which expired during 2018
and 2017, respectively.
For the years ended December 31, 2018, 2017 and 2016, aggregate rent expense was approximately $632,000, $754,000 and
$782,000, respectively.
The Company accounts for its leases under the straight-line method of accounting. Deferred rent payable was $74,000 and $36,000
as of December 31, 2018 and 2017, respectively, and is included in other current liabilities on the consolidated balance sheets.
Rental income for the years ended December 31, 2018, 2017 and 2016 was $244,000, $350,000 and $394,000, 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, 2018 is immaterial.
F-19
CONTRACTUAL OBLIGATIONS
Finjan Mobile
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, 2018, the Company has a $2.0 million contractual obligation
due over the next 6 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 and a second payment on August 24, 2018. As of December 31, 2018, the Company has a $5.5
million obligation due over the next 3 years, which has been recorded at its present value as a component of other liabilities on
the accompanying consolidated balance sheets.
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. 4:13-cv-03133-SBA (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 was 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; 8,225,408; and 6,154,844 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. 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 executed December 29, 2017.
Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 5:13-cv-03999-BLF (N.D. Cal.) ("Blue Coat I")
Finjan filed a patent infringement lawsuit against Blue Coat Systems, Inc., (“Blue Coat I”) in the United States District Court for
the Northern District of California on August 28, 2013, asserting that Blue Coat was 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 7,647,633 (the “Asserted Patents”)
through the manufacture, use, importation, sale, and/or offer for sale of its products and services. This action was before the
Honorable Judge Beth Labson Freeman. Trial commenced July 20, 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. The jury also awarded Finjan approximately $39.5
million in damages as reasonable royalties for Blue Coat's infringement, and such finding was appealed by Blue Coat to the Court
of Appeals for the Federal Circuit ("Federal Circuit"). On March 5, 2018, the Court ordered, pursuant to stipulation between the
parties following entry into a confidential patent license and settlement agreement, that all claims in the case be dismissed with
prejudice.
F-20
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 II”) in the United States District
Court for the Northern District of California on July 15, 2015, asserting that Blue Coat was 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; 8,566,580; 9,141,786; 9,189,621;
and 9,219,755 through the manufacture, use, importation, sale, and/or offer for sale of its products and services. This action was
before the Honorable Judge Beth Labson Freeman. A trial was held on October 31, 2017, that resulted in a partial verdict, followed
by a retrial on certain issues on January 8, 2018. The Court declared a mistrial following the Federal Circuit’s January 10, 2018
issuance of its decision related to Blue Coat I. The Court ordered, among other things, a second retrial for February 12, 2018,
which it later vacated on February 9, 2018. On March 5, 2018, the Court ordered, pursuant to stipulation between the parties
following entry into a confidential patent license and settlement agreement, dismissal of all claims with prejudice.
Finjan, Inc. v. Symantec Corporation, Case No. 4:14-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 was 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; 8,141,154; 6,154,844; 7,613,926; and 8,677,494 through
the manufacture, use, importation, sale, and/or offer for sale of certain products and services. This action was before the Honorable
Haywood S. Gilliam, Jr. On March 5, 2018, the Court ordered, pursuant to stipulation between the parties following entry into a
confidential patent license and settlement agreement dated February 28, 2018, that all claims in the case be dismissed with prejudice.
Finjan, Inc. v. Palo Alto Networks, Inc., Case No. 4:14-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
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 (the "Asserted Patents") 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. Finjan seeks entry of judgment that Palo Alto Networks has infringed, is infringing, has induced
infringement and is inducing infringement of the Asserted Patents, a preliminary and permanent injunction from infringing, or
inducing the infringement the Asserted 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 action is before the Honorable Phyllis J. Hamilton. Palo Alto Networks filed several petitions for
IPR's before the PTAB. The PTAB instituted review of certain patents and denied institution on other challenged patents. In
particular, the PTAB instituted and subsequently determined that the challenged claims of U.S. Patent Nos. 8,141,154 and 8,225,408
were not unpatentable; upon which Palo Alto Networks appealed to the Federal Circuit. Oral argument before the Federal Circuit
regarding the ‘154 and ‘408 Patents was heard June 6, 2018. On September 19, 2018, the Federal Circuit affirmed the PTAB’s
holding that Palo Alto Networks failed to demonstrate that the instituted claims of the ‘408 Patent are unpatentable. On November
19, 2018, the Federal Circuit affirmed the PTAB’s holding that Palo Alto Networks failed to demonstrate that the instituted claims
of the ‘154 Patent are unpatentable for IPR2015-01979, and vacated the PTAB’s decision in IPR2016-00151 and remanded the
proceeding to be consistent with the Supreme Court’s decision in SAS Institute. The PTAB also instituted and subsequently
determined that certain of the challenged claims of U.S. Patent No. 8,677,494 were not unpatentable, which is pending before the
Federal Circuit. On May 26, 2016, the Court ordered a stay to remain in effect until the PTAB’s final determination of the instituted
IPRs and the matter remains stayed pending appeal. 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-CAB (S.D. Cal.)
Finjan filed a patent infringement lawsuit against ESET, LLC and ESET SPOL S.R.O. (collectively "ESET") in the United States
District Court for the Northern District of California (Case No. 3:16-cv-03731-JD (N.D. Cal.)) 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; 9189,621; and 9,219,755 (the "Asserted
Patents") 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 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. The case was transferred to the Southern District of California on January 30, 2017. ESET filed a
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Complaint for Declaratory Judgment against 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. This action is before
the Honorable Cathy Ann Bencivengo. Details on procedures prior to February 2018 are disclosed in Note 8 of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2017. On February 20, 2018, ESET filed a Motion to Stay Pending Inter
Partes Review, which Finjan opposed. On May 7, 2018, the Court granted ESET’s Motion to Stay with regard to the ‘305 Patent
only. The Court’s Scheduling Order was amended on October 4, 2018, January 4, 2019 and February 25, 2019, such that the
following dates are now in effect: close of expert discovery is March 15, 2019; opening dispositive and Daubert motions are due
April 23, 2019, with oppositions due on May 14, 2019, replies due on May 28, 2019, and hearings on dispositive and Daubert
motions are to be determined; the final pretrial conference is scheduled for September 13, 2019; and the trial is to commence
October 29, 2019. There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Cisco Systems, Inc., Case No. 5:17-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 certain claims of Finjan’s U.S. Patent Nos. 6,154,844;
6,804,780; 7,647,633; 8,141,154; and 8,677,494 (the "Asserted Patents") 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 Virtual Appliance, Cisco AMP for CWS, ESA, or WSA, Cisco AMP for Meraki
MX, Cisco AMP Threat Grid. Finjan seeks entry of judgment that Cisco has infringed and is infringing the Asserted Patents, a
preliminary and permanent injunction from infringing the Asserted 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 action is before the Honorable Beth Labson Freeman. Details on
procedures prior to March 2018 are disclosed in Note 8 of our Annual Report on Form 10-K for the fiscal year ended December
31, 2017. On August 16, 2017, the Court issued a scheduling order that set opening summary judgment briefs for September 12,
2019, with oppositions due on October 3, 2019, replies due on October 17, 2019, and a hearing for the motions for summary
judgment on October 31, 2019, a final pretrial conference for April 23, 2020, and trial to commence on June 1, 2020. On April 2,
2018, Finjan filed a Motion to Strike Cisco’s Affirmative Defenses of prosecution laches, ensnarement doctrine, and inequitable
conduct, to which a hearing was held on August 30, 2018. On June 7, 2018, the Court held a claim construction tutorial, and on
June 15, 2018, the Court held a claim construction hearing. An Order Construing Claims in U.S. Patent No's 6,154,844; 6,804,780;
7,647,633; 8,141,154; and 8,677,494 was issued on July 23, 2018. The Court held a case management conference on August 30,
2018 and confirmed the jury trial to commence on June 1, 2020. On September 13, 2018, the Court granted Finjan’s Motion to
Strike Cisco’s Affirmative Defenses of prosecution laches and ensnarement doctrine, and a portion of Cisco’s inequitable conduct
defense, with leave to amend. On October 4, 2018, Cisco filed its Second Amended Answer and Affirmative Defenses. On February
5, 2019, the Court issued an Order Construing Additional Claims in U.S. Patent Nos. 6,154,844; 6,804,780; and 7,647,633. 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., 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, and 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. 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. The nullity order
is pending.
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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 was its first patent infringement suit against
Blue Coat’s subsidiary Blue Coat Systems GmbH (collectively "Blue Coat"), located in Munich Germany in the Dusseldorf District
Court of Germany on October 14, 2016. Finjan asserted that Blue Coat infringed 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. Blue Coat filed a nullity (invalidity) action in Munich, Germany. On March 2, 2018, the parties entered into a
confidential settlement agreement. On March 6, 2018, Blue Coat withdrew their nullity action in Germany.
Finjan, Inc. v. SonicWall, Inc., Case No. 5:17-cv-04467-BLF (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 (the "Asserted Patents") 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 judgment that SonicWall has infringed
and is infringing the Asserted Patents, a preliminary and permanent injunction from infringing the Asserted 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 action is before the Honorable
Beth Labson Freeman. On October 13, 2017, SonicWall filed a Motion to Dismiss Finjan’s Complaint for Failure to State a Claim
for Willful Infringement. On May 16, 2018, the Court denied Sonicwall’s Motion to Dismiss. On May 30, 2018, SonicWall filed
its Answer to Complaint. On June 20, 2018, Finjan filed a Motion to Strike SonicWall’s Seventh Affirmative Defense of inequitable
conduct. Defendant’s opposition was filed on July 5, 2018, and Finjan’s reply was filed on July 12, 2018. Finjan’s Motion to Strike
was heard on December 6, 2018. On September 11, 2018, the Court amended its scheduling order pursuant to the parties’ stipulation
such that the claim construction hearing was held on March 1, 2019. Pursuant to the Court’s December 14, 2017 Case Management
Order, a final pretrial conference is set for March 18, 2021, and a jury trial to commence on May 3, 2021. On November 2, 2018,
the Court granted the parties’ stipulation to withdraw Finjan’s Motion to Strike and grant SonicWall leave to amend its answer.
On November 9, 2018, SonicWall filed its Amended Answer and Affirmative Defenses. 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. 4:17-cv-04790-HSG (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 (the "Asserted Patents")
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 judgment that Bitdefender has infringed and is infringing the Asserted Patents, a preliminary and permanent injunction from
infringing the Asserted 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 action is before the Honorable Haywood S. Gilliam, Jr. On December 13, 2017, Finjan filed a Motion to Strike
Bitdefender’s Answer, Counterclaims, and Affirmative Defenses, for which a hearing was held on March 8, 2018. On December
21, 2017, Bitdefender filed a Motion to Dismiss, Or In the Alternative, to Quash the Return of Summons. Finjan filed its opposition
on January 4, 2018. On January 11, 2018, the parties submitted a proposed order stipulating to Bitdefender withdrawing its Motion
to Dismiss as moot, which the Court entered into on January 12, 2018. On April 17, 2018, the Court granted in part and denied in
part Finjan’s Motion to Strike affirmative defenses. Specifically, the Court granted Finjan’s motion to strike defenses of prosecution
laches, waiver, estoppel, unclean hands, and denied the motion to strike the affirmative defenses of inequitable conduct and
prosecution history estoppel. On February 5, 2018, Bitdefender filed a Motion to Stay, which it withdrew by stipulation with Finjan
on May 8, 2018. On April 5, 2018, the parties filed a Joint Claim Construction statement. Bitdefender filed its First Amended
Answer and Counterclaims on May 8, 2018, and Finjan filed its Answer to Counterclaim on May 22, 2018. A claim construction
hearing was held on June 6, 2018. A Claim Construction Order issued on February 14, 2019 and a further case management
conference is currently set for March 12, 2019. There can be no assurance that Finjan will be successful in settling or litigating
these claims.
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Finjan, Inc. v. Juniper Networks, Inc., Case No. 3:17-cv-05659-WHA (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 (the
“Asserted Patents”) 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 judgment that Juniper has
infringed and is infringing the Asserted Patents, has and is inducing infringement, a preliminary and permanent injunction from
infringing the Asserted 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 action is before the Honorable William H. Alsup. On February 23, 2018, the Court set the following dates: (1)
on June 7, 2018, the parties to file early motions for summary judgment, for the one asserted claim each have selected as its
compelling case for noninfringement or invalidity, with oppositions due June 28, 2018, and replies due July 12, 2018; and on July
26, 2018, a hearing for the summary judgment motions; (2) the last day for dispositive motions (other than the early motions for
summary judgment) is April 11, 2019; (3) a pretrial conference on June 5, 2019; and (4) jury trial on July 8, 2019. On February
28, 2018, Juniper filed its Answer and Counterclaims against Finjan. On March 21, 2018, Finjan filed its Answer to Juniper’s
Counterclaim. On May 31, 2018, Finjan filed a Motion for Leave to File a Second Amended Complaint to assert U.S. Patent No.
7,418,731 (“the ‘731 Patent”); after considering the parties’ briefs and oral argument, the Court granted Finjan’s Motion to File a
Second Amended Complaint on July 19, 2018. The parties filed their respective opening summary judgment briefs for one asserted
claim on June 7, 2018, their oppositions on June 28, 2018, and replies on July 12, 2018. Finjan moved for summary judgment of
infringement on the ‘494 Patent, and Juniper moved on summary judgment of invalidity, non-infringement, and limited damages
of the ‘780 Patent. A hearing on the parties’ summary judgment motions was held on July 26, 2018. Finjan also moved to dismiss
Juniper’s counterclaims and strike its affirmative defenses on June 15, 2018. On July 27, 2018, Finjan filed its Second Amended
Complaint to assert the ‘731 Patent. On August 9, 2018, the Court granted Juniper’s Motion for Summary Judgment of Non-
infringement of the ‘780 Patent. On August 21, 2018, the parties filed a response to the Court’s August 20, 2018, order requesting
supplemental briefing for summary judgment of the ‘494 Patent. On August 24, 2018, the Court granted in part Finjan’s Motion
for Summary Judgment of the ‘494 Patent. On August 31, 2018, the Court converted Finjan’s motion to dismiss to a judgment on
the pleadings and dismissed Juniper’s claims of prosecution laches, inequitable conduct for the ‘154 and ‘494 Patents, and
ensnarement doctrine, and ordered that Juniper may seek leave to amend, and denied Finjan’s motion to dismiss unclean hands.
On September 21, 2018, Juniper filed a Motion for Leave to File an Amended Answer (“Motion for Leave”). Finjan filed its
Opposition to the Motion for Leave on October 5, 2018, and Juniper’s Reply re the Motion for Leave was filed on October 12,
2018. On October 29, 2018, the Court granted Juniper leave to amend its complaint with regard to inequitable conduct of the ‘494
and ‘154 Patents and denied leave to amend with regard to Juniper’s claims of prosecution laches. Juniper filed its First Amended
Answer on November 5, 2018. On November 6, 2018, the Court ordered a second round of early motions for summary judgment
on one asserted claim for each party, with opening motions for summary judgment filed on February 14, 2019, oppositions to be
filed by March 14, 2019, and replies by April 4, 2019, with a hearing on May 2, 2019. The Court also vacated the pretrial and trial
dates set for June 5, 2019, and July 8, 2019, in light of the briefing schedule for the second round of early summary judgment. A
final pretrial conference for trial on the ‘494 Patent was held on December 4, 2018, and a jury trial commenced on December 10,
2018. On December 14, 2018, the jury found no infringement of Claim 10 of the ‘494 Patent. On January 10, 2019, the parties
filed Motions for Judgment as a Matter of Law, Oppositions on January 24, 2019, and Replies on January 31, 2019. A trial for
Juniper’s equitable defenses, counterclaims, and Section 101 defense is set for July 29, 2019. 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-JST (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; 7,647,633; 8,677,494 and 7,975,305 (the "Asserted Patents") 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 judgment that ZScaler has and continues to infringe the Asserted Patents, has and continues to
induce infringement, a preliminary and permanent injunction from infringing the Asserted 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 action is before the Honorable Jon S. Tigar. On March 5, 2018, Finjan
moved to strike ZScaler’s affirmative defense. ZScaler filed an Amended Answer and Counterclaims on March 29, 2018, and
Finjan’s Motion to Strike was terminated as moot. On April 2, 2018, Finjan filed an Answer to ZScaler’s Counterclaim. The Court
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set a claim construction tutorial for May 14, 2019, and a claim construction hearing for May 28, 2019. There can be no assurance
that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Trustwave Holdings, Inc., C.A. No. N18C-04-006 WCC-CCLD (Del. Super. Ct.)
Finjan filed a breach of contract lawsuit against Trustwave Holdings, Inc. (“Trustwave”) in the Superior Court of Delaware on
April 4, 2018, asserting that Trustwave breached a patent licensing agreement with Finjan by failing to pay owed royalties, failing
to comply with audit procedures as provided by that licensing agreement, and for failing to pay for that audit. Finjan seeks entry
of judgment that Trustwave be ordered to pay damages due to the breach of the agreement and the cost of the audit, including
interest, and that Finjan be awarded attorneys’ fees. This action is before the Honorable William C. Carpenter, Jr. Trustwave moved
to dismiss the Complaint on June 8, 2018, and filed its opening brief on June 29, 2018. Finjan opposed the Motion to Dismiss on
July 30, 2018, and Trustwave filed its Reply on August 13, 2018. A hearing on the Motion to Dismiss was heard on November
19, 2018. On February 11, 2019, Judge Carpenter issued an Order denying Trustwave’s Motion to Dismiss and permitting Finjan’s
Breach of Contract suit to proceed. A schedule has not yet been set in the case. There can be no assurance that Finjan will be
successful in settling or litigating these claims.
Finjan, Inc. v. Check Point et al., Case No. 3:18-cv-02621-WHO (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Check Point Software Technologies Inc. and Check Point Software Technologies
Ltd. (“Check Point”) in the United States District Court for the Northern District of California on May 3, 2018, asserting that
Check Point is directly and indirectly infringing certain claims of Finjan’s U.S. Patent Nos. 6,154,844; 6,965,968; 7,418,731;
7,647,633; 8,079,086; 8,141,154; and 8,677,494 (the “Asserted Patents”) through the manufacture, use, sale, importation, and/or
offer for sale of its products and services, including, but not limited to, Check Point’s Next Generation Firewall and Security
Gateway products, Blade products, CloudGuard products, Endpoint Protection products, Advanced Threat Prevention products,
Mobile Security products, ZoneAlarm products, Threat Intelligence products, Security Management and Policy Management
products, ThreatCloud Managed Security Service products, Smart-1 Appliance products, products using SandBlast technology,
and products utilizing the Gaia Operating System. Finjan seeks entry of judgment that Check Point has infringed, is infringing,
has induced infringement and is inducing infringement of the Asserted Patents, a preliminary and permanent injunction from
infringing, or inducing the infringement of the Asserted 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 action is before the Honorable William H. Orrick. On July 16, 2018, Check
Point filed its Answer. A case management conference was held on August 14, 2018. On August 15, 2018, the Court issued its
Civil Pretrial Order setting a hearing for summary judgment motions on September 30, 2020, a pretrial conference on December
14, 2020, and a jury trial to commence on January 25, 2021. On November 21, 2018, Check Point filed its Amended Answer. On
December 5, 2018, Finjan filed a Motion to Strike Check Point’s Affirmative Defenses of lack of standing for the ‘154 Patent,
prosecution laches, and inequitable conduct for the ‘154 and ‘494 Patents. On January 25, 2019, the Court granted Finjan’s Motion
to Strike Check Point’s Affirmative Defenses of lack of standing and prosecution laches with leave to amend its prosecution laches
defense, and denied the Motion to Strike with respect to inequitable conduct. On February 12, 2019, Check Point filed a Motion
for Leave to Amend its Answer and Affirmative Defenses to include inequitable conduct defenses for the ‘086, ‘633, and ‘844
Patent, and unenforceability defense based on a terminal disclaimer filed for the ‘086 Patent. Finjan’s Opposition was filed on
February 26, 2019, and Check Point’s Reply was filed on March 5, 2019. On February 27, 2019, the Court scheduled a claim
construction tutorial for June 14, 2019 and a claim construction hearing for June 21, 2019. There can be no assurance that Finjan
will be successful in settling or litigating these claims.
Finjan, Inc. v. Rapid7, Inc. et al., Case No. 1:18-cv-01519-MN (D. Del)
Finjan filed a patent infringement lawsuit against Rapid7, Inc. (“Rapid7”) in the United States District Court for the District of
Delaware on October 1, 2018, asserting that Rapid7 is directly and indirectly infringing certain claims of Finjan’s U.S. Patent Nos.
7,975,305; 8,225,408; 7,757,289; 7,613,918; 8,079,086; 8,141,154; and 8,677,494 (the “Asserted Patents”) through the
manufacture, use, sale, importation, and/or offer for sale of its products and services, including, but not limited to, Rapid7’s
InsightIDR, InsightVM (Nexpose), InsightAppSec, AppSpider, Metaspliot and Komand technologies, including Rapid7 Insight
Platform products. Finjan seeks entry of judgment that Check Point has infringed, is infringing, has induced infringement and is
inducing infringement of the Asserted Patents, a preliminary and permanent injunction from infringing, or inducing the infringement
the Asserted 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 action is before the Honorable Maryellen Noreika. Rapid7 filed an Answer on December 5, 2018. On December 26, 2018,
Finjan filed a Motion to Strike Rapid7’s Affirmative Defenses of inequitable conduct for the ‘154, ‘494, and ‘086 Patents. Rapid7
filed its Opposition on January 9, 2019, and Finjan filed its Reply on January 16, 2019. On February 13, 2019, the Court issued
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a Scheduling Order that set a claim construction hearing for October 18, 2019, a pretrial conference for February 8, 2021, and
trial for February 22, 2021. There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Fortinet, Inc., Case No. 3:18-cv-06555-JD (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Fortinet, Inc. (“Fortinet”) in the United States District Court for the Northern
District of California on October 26, 2018, asserting that Fortinet infringes certain claims of Finjan’s U.S. Patent Nos. 6,154,844;
6,965,968; 7,058,822; 7,418,731; 7,647,633; 7,975,305; 8,079,086; 8,225,408; and 8,677,494 (the “Asserted Patents”) through
the manufacture, use, sale, importation, and/or offer for sale of its products and services, including, but not limited to, Fortinet’s
FortiGate, FortiManager, FortiAnalyzer, FortiSiem, FortiSandbox, FortiMail, FortiWeb, ForitCache, and FortiClient technologies,
including Fortinet Security Fabric products. Finjan seeks entry of judgment that Fortinet has infringed, is infringing, has induced
infringement and is inducing infringement of the Asserted Patents, a preliminary and permanent injunction from infringing, or
inducing the infringement the Asserted 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 action is before the Honorable James Donato. On December 17, 2018, the Court ordered Finjan
to show cause in writing by December 27, 2018, as to why the case should not be stayed pending resolution of the other actions
where overlapping patents are being actively litigated and permitted Fortinet to file a statement of its views by January 2, 2019.
Fortinet’s Answer and Counterclaims were filed on December 19, 2018. On December 27, 2018, Finjan filed its Response to Order
to Show Cause, opposing a stay, and Fortinet filed its Response requesting a stay on January 2, 2019, and on January 3, 2019, the
Court held a hearing regarding the stay. On January 7, 2019, the Court stayed the case until the next status conference, on February
21, 2019. At the February 21, 2019 status conference, and subsequently in its Minute Order dated February 25, 2019, the Court
directed the parties to file by February 28, 2019, a joint statement identifying the patents and claims at issue and unique in the
case. There can be no assurance that Finjan will be successful in settling or litigating these claims.
Finjan, Inc. v. Qualys Inc., Case No.4:18-cv-07229-YGR (N.D. Cal.)
Finjan filed a patent infringement lawsuit against Qualys Inc. (“Qualys”) in the United States District Court for the Northern
District of California on November 29, 2018, asserting that Qualys infringes certain claims of Finjan’s U.S. Patent Nos. 6,154,844;
8,677,494; 7,975,305; 8,225,408; 6,965,968; 7,418,731; and 8,141,154 (the “Asserted Patents”) through the manufacture, use,
sale, importation, and/or offer for sale of its products and services, including, but not limited to, Qualys’ products and services
that utilize Vulnerability Management, Threat Protection, Continuous Monitoring, Indicators of Compromise, Container Security,
Web App Firewall, Web App Scanning, and Compliance Monitoring, including Qualys Cloud Platform products. Finjan seeks
entry of judgment that Qualys has infringed, is infringing, has induced infringement and is inducing infringement of the Asserted
Patents, a preliminary and permanent injunction from infringing, or inducing the infringement the Asserted 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 action is before the Honorable
Yvonne Gonzalez Rogers. On January 23, 2019, Qualys filed its Answer and Counterclaims. On February 13, 2019, Finjan filed
its Answer to Qualys’ Counterclaim. An initial case management conference was held on March 4, 2019. There can be no assurance
that Finjan will be successful in settling or litigating these claims.
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. 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. On April 4, 2018, the Patent Office issued a Notice of Intent to Issue Ex Parte Reexamination Certificate
confirming the patentability of all claims. The Certificate was issued on April 30, 2018.
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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 was filed on April 12, 2018. An Examiner’s Answer was mailed on May 14, 2018 and a Reply Brief and Request
for Oral Hearing were filed on July 11, 2018. Oral arguments were presented before the PTAB on September 12, 2018 and a
Decision reversing the Examiner’s rejection of claims 8-11 and 13 was issued on October 1, 2018. A Notice of Intent to Issue Ex
Parte Reexamination Certificate confirming the patentability of claims 8-11 and 13 was mailed on January 24, 2019.
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 was filed on April 1, 2018. On June 21, 2018, a Notice of Intent to Issue Ex Parte Reexamination Certificate
confirming the patentability of all claims was issued by the Patent Office. A Reexamination Certificate was issued on July 27,
2018.
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. On July 2, 2018 the Patent Trial and Appeal Board
affirmed the Examiner in a 2-1 decision. A Notice of Appeal to the Federal Circuit was filed on September 4, 2018 (Case No.
18-2354). On December 21, 2018, Finjan filed its opening brief and on February 13, 2019, the appellee filed its responsive brief;
and on March 20, 2019, Finjan will file its reply brief. 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, Inter Partes Review (“IPR”) is a trial proceeding conducted at the Patent 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 35
U.S.C. §§ 102 or 103, and only on the basis of prior art consisting of patents or printed publications. For first-inventor-to-file
patents, the 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 ("POPR"). 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. 8,141,154 (Assignee, Finjan, Inc.)
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 (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
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Rehearing. With respect to IPR2016-00919 and IPR2016-01071, 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. Palo Alto Networks and Symantec Corp. filed Notices 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 Nos. 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 Networks and Symantec Corp.’s Reply Brief was filed on January 25, 2018. On March 7, 2018, Symantec
filed a motion to withdraw from appeal numbers 17-2314 and 017-2315. On March 13, 2018, the Federal Circuit granted Symantec’s
motion to withdraw. Oral argument was heard on June 6, 2018.
U.S. Patent No. 8,677,494 (Assignee, Finjan, Inc.)
On September 10, 2015, Symantec filed a Petition for IPR of U.S. Patent No. 8,677,494 (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. 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. 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 Nos. 17-2034 and 17-2047). Symantec and Blue Coat filed their 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 filed their Opening Appellant Brief on December 29, 2017. Finjan
filed its Cross-Appellant Principal and Response Brief on February 7, 2018. On March 8, 2018, Symantec and Blue Coat filed a
Motion to Withdraw from appeal numbers 17-2034, 17-2047, 17-2543 and 17-2623. On March 13, 2018, the Federal Circuit
granted Symantec and Blue Coat’s Motion to Withdraw and deconsolidated the appeal. On April 12, 2018, the Patent Office
intervened in the appeal. Palo Alto Networks filed its Reply Brief on April 18, 2018. The Patent Office’s Reply Brief was filed on
May 22, 2018, and Finjan’s Reply Brief was filed on June 5, 2018. Oral argument was heard on December 6, 2018.
U.S. Patent No. 8,141,154 (Assignee, Finjan, Inc.)
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 (IPR2015-01979; IPR2016-00151) and a Motion for Joinder to Symantec’s Petition for IPR (IPR2015-01547).
Finjan filed a POPR to the first Petition in IPR2015-01979 on December 29, 2015 and the PTAB granted institution of IPR
proceedings 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, 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. An oral hearing was held 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. An oral hearing was held 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 Nos. 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 Networks and Symantec Corp.’s Reply Brief was filed on January 25, 2018. On March 8, 2018, Symantec
filed a Motion to Withdraw from appeal numbers 17-2314 and 17- 2315. On March 13, 2018, the Federal Circuit granted Symantec’s
Motion to Withdraw. Oral argument was heard on June 6, 2018. On November 19, 2018, the Federal Circuit vacated the PTAB’s
decision in IPR2016-00151 and remanded the proceeding to be consistent with the Supreme Court’s decision in SAS Institute. On
January 23, 2019, the PTAB modified its institution decision to include review of dependent claims 9 and 12. Petitioner’s Institution
Response Brief is to be filed by February 13, 2019, Patent Owner’s Response is to be filed by March 6, 2019, Petitioner’s Reply
is to be filed by March 13, 2019, and Patent Owner’s Sur-reply is to be filed by March 20, 2019. Oral argument is scheduled for
March 26, 2019.
U.S. Patent No. 8,225,408 (Assignee, Finjan, Inc.)
On September 30, 2015 and November 6, 2015, Palo Alto Networks Inc. filed two (2) separate Petitions for IPR of U.S. 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 and consolidated the two. On April 12,
2016, Finjan filed Requests for Rehearing and 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
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to Palo Alto Network’s Petitions. An oral hearing was held 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 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 filed their Reply Brief on January 11, 2018. On March 7, 2018, Blue Coat filed a Motion
to Withdraw from the appeal. On March 13, 2018, the Federal Circuit granted Blue Coat’s Motion to Withdraw. Oral argument
was heard on June 6, 2018. On September 19, 2018, the Federal Circuit upheld the PTAB’s decision.
U.S. Patent No. 8,677,494 (Assignee, Finjan, Inc.)
On November 6, 2015, Palo Alto Networks Inc. filed a Petition for IPR of U.S. 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. An oral hearing was held 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 that 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. Palo Alto Networks and Blue
Coat Systems filed their Opening Appellant Brief on December 29, 2017. Finjan filed its Cross-Appellant Principal and Response
Brief on February 7, 2018. On March 8, 2018, Symantec and Blue Coat filed a Motion to Withdraw from appeal numbers 17-2543
and 17-2623. On March 13, 2018, the Federal Circuit granted Symantec and Blue Coat’s Motion to Withdraw and deconsolidated
the appeal. On April 12, 2018, the Patent Office intervened in the appeal. Palo Alto Networks filed its Reply Brief on April 18,
2018. The Patent Office’s Reply Brief was filed on May 22, 2018, and Finjan’s Reply Brief was filed on June 5, 2018. Oral
argument was heard on December 6, 2018.
U.S. Patent No. 8,225,408 (Assignee, Finjan, Inc.)
On April 27, 2016, Blue Coat Systems, Inc. filed two (2) separate Petitions for IPR of U.S. Patent No. 8,225,408 (IPR2016-00955;
IPR2016-00956), and Motion for Joinder to Palo Alto Networks, Inc.’s Petitions for IPR (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. 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 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 filed their Reply Brief on January 11,
2018. On March 7, 2018, Blue Coat filed a Motion to Withdraw from the appeal. On March 13, 2018, the Federal Circuit granted
Blue Coat’s Motion to Withdraw. Oral argument was heard on June 6, 2018. On September 19, 2018, the Federal Circuit upheld
the PTAB’s decision.
U.S. Patent No. 8,677,494 (Assignee, Finjan, Inc.)
On April 14, 2016 and on June 10, 2016, Blue Coat Systems, Inc. filed two Petitions for IPR of U.S. Patent No. 8,677,494
(IPR2016-00890; IPR2016-01174) and a Motion for Joinder to Symantec Corp.’s Petition for IPR (IPR2015-01892) and Palo Alto
Networks, Inc.’s Petition for IPR (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
in IPR2015-01892. 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. Palo
Alto Networks and Blue Coat Systems filed their Opening Appellant Brief on December 29, 2017. Finjan filed its Cross-Appellant
Principal and Response Brief on February 7, 2018. On March 8, 2018, Symantec and Blue Coat filed a Motion to Withdraw from
appeal numbers 17-2543 and 17-2623. On March 13, 2018, the Federal Circuit granted Symantec and Blue Coat’s Motion to
Withdraw and deconsolidated the appeal. On April 12, 2018, the Patent Office intervened in the appeal. Palo Alto Networks filed
its Reply Brief on April 18, 2018. The Patent Office’s Reply Brief was filed on May 22, 2018, and Finjan’s Reply Brief was filed
on June 5, 2018. Oral argument was heard on December 6, 2018.
U.S Patent No. 7,975,305 (Assignee, Finjan, Inc.)
On July 4, 2017, ESET, LLC and ESET SPOL S.R.O. filed a Petition for IPR of U.S. Patent No. 7,975,305 (IPR2017-01738).
Finjan filed its POPR on November 3, 2017. On January 31, 2018, the PTAB instituted IPR on claims 1-25. Finjan’s Patent Owner
Response was filed on August 21, 2018 and Petitioner’s Reply was filed on November 5, 2018. Oral argument was heard on
December 3, 2018. On January 24, 2019, the PTAB issued a Final Written Decision maintaining the validity of all instituted claims.
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U.S. Patent No. 8,079,086 (Assignee, Finjan, Inc.)
On August 16, 2017, ESET, LLC and ESET SPOL S.R.O. filed a Petition for IPR of U.S. Patent No. 8,079,086 (IPR2017-01969)
and a Motion for Joinder to Blue Coat Systems' Petition for IPR2016-01444. 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.
U.S. Patent No. 6,154,844 (Assignee, Finjan, Inc.)
On September 22, 2017, Cisco Systems, Inc. filed a Petition for IPR of U.S. Patent No. 6,154,844 (IPR2017-02154). Finjan filed
its POPR on January 6, 2018. On April 3, 2018, the PTAB denied institution of IPR.
U.S. Patent No. 8,677,494 (Assignee, Finjan, Inc.)
On September 22, 2017, Cisco Systems, Inc. filed a Petition for IPR of U.S. Patent No. 8,677,494 (IPR2017-02155). Finjan filed
its POPR on January 8, 2018. On April 3, 2018, the PTAB denied institution of IPR.
U.S. Patent No. 7,647,633 (Assignee, Finjan, Inc.)
On December 22, 2017, Cisco Systems, Inc. filed a Petition for IPR of U.S. Patent No. 7,647,633 (IPR2018-00391). Finjan’s
POPR was filed on March 28, 2018. On June 5, 2018, the PTAB instituted IPR on claims 1, 4, 8, and 11-14. Finjan’s Patent Owner
Response was filed on September 10, 2018, and Petitioner’s Reply was filed on December 10, 2018, and Finjan’s Sur-Reply was
filed on January 30, 2019. Oral argument is scheduled for March 6, 2019.
U.S. Patent No. 6, 154,844 (Assignee, Finjan, Inc.)
On October 2, 2018, Juniper Networks, Inc. filed a Petition for IPR of U.S. Patent No. 6,154,844 (IPR2019-00026). Finjan’s POPR
was filed on January 11, 2019.
U.S. Patent No. 8,141,154 (Assignee, Finjan, Inc.)
On October 3, 2018, Juniper Networks, Inc. filed a Petition for IPR of U.S. Patent No. 8,141,154 (IPR2019-00031). Finjan’s POPR
was filed on January 11, 2019.
U.S. Patent No. 7,647,633 (Assignee, Finjan, Inc.)
On October 10, 2018, Juniper Networks, Inc. filed a Petition for IPR of U.S. Patent No. 7,647,633 (IPR2019-00060). Finjan’s
POPR was filed on February 7, 2019.
U.S. Patent No. 7,613,926 (Assignee, Finjan, Inc.)
On October 11, 2018, Juniper Networks, Inc. filed a Petition for IPR of U.S. Patent No. 7,613,926 (IPR2019-00073). Finjan’s
POPR was filed on February 7, 2019.
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
On June 29, 2018, the Company including its wholly-owned subsidiaries, entered into a Confidential Patent License Agreement
(the “June 2018 License Agreement”) with Trend Micro Incorporated (K.K.), a Japanese corporation (“Trend Micro Japan”) and
Trend Micro, Inc., a California corporation (“Trend Micro U.S. and collectively with Trend Micro Japan, the “Trend Micro Parties”).
The June 2018 License Agreement provides that the Trend Micro Parties will obtain a license to, among others, the Finjan patents
and pay the Finjan parties $13.4 million in cash which Finjan received June 29, 2018. The Company recognized $13.4 million as
revenues in 2018. Further, upon acquisition by the Trend Micro Parties of certain entities, the Trend Micro Parties will pay additional
license fees to Finjan, unless otherwise mutually agreed to by the Company and the Trend Micro Parties. Further, the June 18
License Agreement has additional provisions relating to certain unlicensed products of any company that acquires a Trend Micro
Party, in which case additional license fees may apply. The parties also entered into related agreements with respect to their
respective patents, including the transfer of 18 select issued security-related patent assets from the Trend Micro Parties to the
Finjan Parties. In accordance with ASC-845-10-30, the Company determined that the acquired assets are non-monetary with no
defined future benefit, resulting in the conclusion that they are not assets. The remaining terms of the June 2018 License Agreement
are confidential.
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On April 6, 2018, the Company and its wholly-owned subsidiary Finjan, entered into a Confidential Patent License and Settlement
Agreement (the “Finjan 2018 License”) with Carbon Black, Inc., a Delaware corporation (“Carbon Black”), whereby the companies
resolved all pending litigation matters. In addition, Finjan Mobile, a wholly-owned subsidiary of the Company and Carbon Black
entered into a separate Confidential Patent Cross License Agreement (the “Cross License”), which serves to ensure the parties’
freedom to operate under the other’s patent portfolio. The terms of each agreement are confidential. Under the terms of the Finjan
2018 License, Carbon Black agreed to pay Finjan $3.9 million in license fees, as follows: (i) $1.3 million within five (5) business
days of the Effective Date of the Finjan 2018 License, which was received on April 9, 2018, (ii) $1.3 million on or before September
30, 2018, which was received on September 26, 2018, and (iii) $1.3 million on or before December 31, 2018, which was received
on December 28, 2018. The Company recognized $3.9 million as revenues in 2018. Further, upon acquisition of Carbon Black or
acquisitions by Carbon Black, additional one-time license fees will be due to Finjan equal to eight percent (8%) of the gross
revenues of certain qualifying products and services for the four (4) concluded quarters immediately preceding the acquisition.
On February 28, 2018, Finjan Holdings, Inc. and its subsidiaries, including its wholly-owned subsidiary, Finjan (collectively, the
“Finjan Parties”), entered into a Confidential Patent License and Settlement Agreement (the “Symantec License and Settlement
Agreement”) with Symantec and its subsidiary, Blue Coat Systems, LLC (collectively, the “Symantec Parties”). Pursuant to the
Symantec License and Settlement Agreement, the parties resolved and settled all claims between them. As part of the settlement,
the Symantec Parties obtained a license to, among others, the Finjan patents and agreed to pay the Finjan Parties $65.0 million in
cash within twenty (20) days of the Effective Date of the Symantec License and Settlement Agreement, which Finjan received on
March 19, 2018. The Company recognized $65.0 million as revenues in 2018. 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 Symantec 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 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 in 2017. The second installment of $1.3 million was
received on February 1, 2018 and recognized as revenues as of December 31, 2017. The third installment of $1.3 million was
received January 28, 2019 and recognized as revenues on January 1, 2018 upon adoption of ASU 2014-09 (topic 606). 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 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 in 2017. 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, which was recognized as revenues as of December 31, 2017 and
F-31
$1.25 million due on or before March 31, 2019, which was recognized as revenues on January 1, 2018 upon adoption of ASU
2014-09 (topic 606).
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. 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. 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 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 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. The
Company recognized $3.3 million under the terms of the June 3, 2016 License 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 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.
F-32
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 in 2015,
as such amount was determined to be fixed and determinable. The remaining balance of $300,000 under the terms of the April 7,
2015 License, was recognized as revenues in 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 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.
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.
STOCK REPURCHASE PROGRAM
On May 2, 2018, the Company’s board of directors authorized the repurchase of issued and outstanding shares of the Company’s
common stock having an aggregate value of up to $10.0 million pursuant to a share repurchase program. The authorization did
not specify an expiration date. The repurchases under the share repurchase program were made in the open market or in privately
negotiated transactions and were funded from the Company’s working capital. All shares of common stock repurchased under the
Company’s share repurchase program were retired and restored to authorized but unissued shares of common stock at December
31, 2018. During 2018, the Company repurchased 686,492 shares of its common stock under the share repurchase program, for
an aggregate purchase price of approximately $2.0 million, or a weighted average cost of $2.93 per share. In accordance with ASC
505-30-30-8, we charged the excess over the par value entirely to retained earnings in recognition of the fact that a corporation
can capitalize or allocate retained earnings for such purposes. As of December 31, 2018, the Company had a remaining authorization
of $8.0 million for future share repurchases.
PREFERRED STOCK
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.
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 accounting for the Series A-1 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
F-33
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 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 Series A-1 Preferred stock financing is redeemable at the option of the holder. Therefore, the Company classified
the Series A-1 Preferred Stock as temporary equity in the consolidated balance sheet.
During the quarter ended March 31, 2018, the Company retired all shares of the Series A-1 Preferred stock, $19.9 million or
153,000 shares; $15.3 million reduced the original recorded value of the Series A-1 Preferred stock and $4.6 million reduced the
accreted value. The Company incurred issuance costs of $1.0 million which were recorded as an offset to the preferred stock. Such
costs have been recognized as a deemed dividend upon the redemption and retirement of the Preferred stock. 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. The Company
recorded a deemed dividend of $4.6 million during the second half of 2017, representing an increase to the Series A-1 Preferred
Stock's redemption (liquidation) value.
WARRANTS
On issuance of the Series A-1 Preferred stock, the Company agreed to issue to Soryn HLDR Vehicle II LLC, a Delaware limited
liability company, a fully vested common stock warrant (the “Warrant”), to initially purchase 2.0 million shares of common stock,
$0.0001 par value per share of the Company at an exercise price of $3.18 per share, which increased to 2.4 million shares in
accordance with its terms. The Warrant has a term of three years. Upon the closing of the sale and issuance of the Series A-1
Preferred Stock on June 19, 2017, the Warrant was issuable for 2.0 million shares, increased by an additional 0.3 million shares
on June 30, 2017 and an additional 0.05 million shares on July 21, 2017.
The holder of the Warrant has the right 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 had a derivative feature and
was classified as a liability for the first 15 months. The Company valued the Warrant at inception using a Monte Carlo valuation
model, recording a $3.3 million warrant liability at inception, which was then marked-to-market at each reporting period with the
change in fair value recorded in the consolidated statements of operations. The change in fair value of the warrant liability during
2018 was a loss of $3.4 million and recorded in the consolidated statements of operations. On September 19, 2018, upon expiration
of the 15 month period, the Warrant was marked-to-market and its value increased to $4.5 million and reclassified such amounts
to equity.
As of December 31, 2018 the aggregate intrinsic value of the warrant was $0, with a weighted average contracted term of 1.5
years.
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.
F-34
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 3.6 million shares of its common
stock, par value $0.0001per 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 0.5 million 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.
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,
2018, the Company has 1,565,103 shares available for issuance under the 2014 Plan.
During 2018, the Company issued 200,000 RSUs and granted an aggregate of 376,667 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 RSUs 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, 2018, the Company issued 547,820 shares of common stock, comprising of 323,420 shares
from the exercise of RSUs and 224,400 from the exercise of stock options for which the Company received proceeds of $0.3
million.
During the year ended December 31, 2017, the Company issued 464,600 shares of common stock comprising of 322,760 shares
from the exercise of RSUs and 141,840 from the exercise of stock options for the which the Company received proceeds of $0.2
million.
Total stock-based compensation for stock options and restricted stock awards, of $1.6 million, $0.8 million and $0.9 million was
recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations for the years
ended December 31, 2018, 2017 and 2016, 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-35
STOCK OPTIONS
The following is a summary of stock option activity during the years ended December 31, 2018 and 2017:
Outstanding – December 31, 2016
Options granted
Options exercised
Options forfeited
Outstanding – December 31, 2017
Options granted
Options exercised
Options forfeited
Outstanding – December 31, 2018
Exercisable – December 31, 2018
Number of
Options
Outstanding
Weighted
Average
Exercise Price
1,607,346
898,334
141,840
22,500
2,341,340
376,667
224,400
6,961
2,486,646
1,450,458
$
$
$
$
0.83
2.13
1.60
1.78
1.77
2.41
1.59
1.42
1.89
1.66
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value
(thousands)
7.07
$
—
5.78
$
1,087
7.01
5.70
$
$
1,550
1,235
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, 2018 and 2017, 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:
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
2018
Employee
Grants
2017
Employee
Grants
82.00%
6
2.24%
0.0%
2.22
$
138.90%
6
2.00%
0.0%
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;
the Company used its common stock volatility along with the average of historic volatilities of comparative companies. 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, 2018, 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 2.3 years.
F-36
RESTRICTED STOCK UNITS
The following is a summary of non-vested RSUs award activity for the years ended December 31, 2018 and 2017:
Non-vested
Shares granted
Shares vested
Non-vested
2018
2017
Weighted
Average
Grant
Date
Fair Value
Number of
Shares
Weighted
Average
Grant
Date
Fair Value
Number of
Shares
438,712
$
200,000
323,420
2.28
3.16
2.84
185,260
$
576,212
322,760
2.67
1.95
1.92
315,292
$
2.26
438,712
$
2.28
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, 2018, 2017 and 2016, the Company recognized $0.9 million, $0.6 million and $0.7 million,
respectively of stock-based compensation expense related to the RSUs.
As of December 31, 2018, total compensation cost not yet recognized related to unvested RSUs was approximately $0.6 million,
which is expected to be recognized over a weighted-average period of 2.3 years.
NOTE 12 – RELATED PARTY TRANSACTIONS
In the course of business, the Company obtains legal services from firms in which a member of the Company’s board is a member.
The Company incurred approximately $302,000, $240,000 and $227,000 in legal fees to these firms during the years ended
December 31, 2018, 2017 and 2016 respectively. As of December 31, 2018 and 2017 the Company had balances due to these firms
amounting to approximately $163,000 and $112,000, 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. The Company canceled this service agreement effective June 30, 2016.
The Company entered into a sublease agreement at its headquarters, effective July 1, 2018 with Benhamou Global Ventures, a
company in which one of the Company's Directors serves as Chairman and CEO. Rental income from the sublease is approximately
$15,000 quarterly for an undefined term.
The Company entered into a second sublease agreement at its headquarters, effective July 1, 2018 with a portfolio company in
which one of the Company's Directors is an investor. Rental income from the sublease is approximately $45,000 quarterly for an
undefined term.
NOTE 13 – INCOME TAX
The domestic and foreign components of loss before income taxes from operations for the years ended December 31, 2018, 2017
and 2016 are as follows:
Domestic
Foreign
For the Years Ended December 31,
2017
2016
2018
(in thousands)
$
$
29,110
(320)
28,790
$
$
17,120
(469)
16,651
$
$
1,097
(744)
353
F-37
The provision (benefit) for income tax for the years ended December 31, 2018, 2017 and 2016, consist of the following:
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
Change in valuation allowance
Income tax provision (benefit)
For the Years Ended December 31,
2017
2016
2018
(in thousands)
$
4,010
$
— $
2,231
7,694
1,329
482
—
73
43
269
—
(129)
8,125
7,877
(73)
8,052
$
(14,037)
(6,160) $
$
—
416
3
(380)
—
(174)
(135)
138
3
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
§162(m) limited 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,
2016
2017
2018
21.0 %
5.0 %
— %
— %
0.5 %
(0.4)%
1.1 %
— %
2.5 %
(2.0)%
0.3 %
28.0 %
34.0 %
2.8 %
34.0 %
7.8 %
16.4 %
(16.4)%
(0.3)%
0.1 %
— %
0.3 %
(4.5)%
(1.6)%
(67.9)%
(37.1 )%
(113.0)%
— %
(19.1)%
28.9 %
— %
19.3 %
— %
3.0 %
40.0 %
0.9 %
F-38
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
2018
As of December 31,
2017
(in thousands)
2016
$
$
535
736
2,412
340
4,023
(535)
3,488
(677)
2,811
$
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)
—
$
As of December 31, 2018, the Company had nil federal and state net operating losses ("NOL"). As of December 31, 2017 and
2016, the Company had carryforwards NOL of approximately $12.7 million and $26.1 million, respectively. As of December 31,
2018 and 2017, the Company had foreign NOL carryforwards of approximately $2.3 million and $2.0 million, respectively.
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 rolled forward its IRC Section
382 analysis from the prior year and identified a potential ownership change during 2018, however, the Company believes there
is no material limitation on its ability to utilize its net operating losses and tax credits, all of which are expected to be utilized
during 2018 and therefore no tax attributes are expected to carry into future years.
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 2018, the Company
has three-year cumulative profit. At the end of 2018, management’s assessment is that no valuation allowance against its domestic
deferred tax assets is deemed necessary. 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, 2018, 2017 and 2016, is $0.1 million, $14.0 million and $0.1 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 provisional amount related
to the re-measurement of our deferred tax balance was estimated to be a reduction of approximately $2.8 million at December 31,
2017.
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 was yet to be issued, our accounting of the transition tax and deferred tax re-measurements were incomplete as of
December 31, 2017. The 2017 Federal corporate income tax return was filed in Q4 2018. The final analysis and impact of the Act
is reflected in the tax provision and related tax disclosures for the year ended December 31, 2018. There were no material differences
to the originally estimated $2.8 million remeasurement of deferred tax assets or transition tax liability.
F-39
FINJAN HOLDINGS, INC. SUBSIDIARIES
Exhibit 21.1
The following are the subsidiaries of Finjan Holdings, Inc.:
Finjan, Inc., a Delaware corporation
CybeRisk Security Solutions, Ltd, an Israeli company
Finjan Mobile, Inc., a Delaware corporation
CybeRisk Security Solutions, Inc., a Delaware corporation
Finjan Blue, Inc., a Delaware corporation
Exhibit 23.1
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in the Registration Statement of Finjan Holdings, Inc. on Form S-3
(333-197378), Form S-3 (333-189984), Form S-8 (333-195922), Form S-8 (333-197369), and Form S-8 (333-223665)
of our report dated March 13, 2019, with respect to our audits of the consolidated financial statements of Finjan Holdings,
Inc. as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017, and 2016, which report is
included in this Annual Report on Form 10-K of Finjan Holdings, Inc. for the year ended December 31, 2018.
/s/ Marcum LLP
Marcum LLP
New York, NY
March 13, 2018
I, Philip Hartstein, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Finjan Holdings, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 13, 2019
By:
/s/ Philip Hartstein
Philip Hartstein
President and Chief Executive Officer
Exhibit 31.2
I, Michael Noonan, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Finjan Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 13, 2019
By:
/s/ Michael Noonan
Michael Noonan
Chief Financial Officer and Treasurer
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, the undersigned, Philip Hartstein, hereby certifies that, to the best of his knowledge,
the Annual Report on Form 10-K of Finjan Holdings, Inc. for the fiscal year ended December 31, 2017 (i) fully complies
with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and (ii) that the
information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of Finjan Holdings, Inc.
Date: March 13, 2019
By:
/s/ Philip Hartstein
Philip Hartstein
President and Chief Executive Officer
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350, the undersigned, Michael Noonan, each hereby certifies that, to the best of his
knowledge, the Annual Report on Form 10-K of Finjan Holdings, Inc. for the fiscal year ended December 31, 2017 (i)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and (ii)
that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of Finjan Holdings, Inc.
Date: March 13, 2019
By:
/s/ Michael Noonan
Michael Noonan
Chief Financial Officer and Treasurer
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$82.3M2018 Revenue
50+Organically-derived Finjan patents issued and pending worldwide
$350M+
22 licensees and over $350M in license fees generated to-date
90+Acquisiti on of 90+ complementary patents from IBM
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 ti mewas unknown, it has
become one of the most widely used soft ware technologies to deliver
content and informati on 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 coff ee - or
java. Shlomo believed the name was appropriatebecause the idea for the
company and the associated technology came from his realizati on that with
the introducti on of the Java programming language, the existi ng security
soft ware would notbe able to contain or protect against the possible
threats to a computer using Java.
Executi ve Offi cers
Board of Directors
Stock Listi ng
Phil Hartstein
President and Chief Executi ve Offi cer
Julie Mar-Spinola
Chief Intellectual Property Offi cer
and VP, Legal Ops
Michael Noonan
Chief Financial Offi cer 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
The NASDAQ Capital Market
Ticker Symbol: FNJN
Offi ces
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
Email: investors@fi njan.com
www.fi njan.com
Independent Registered
Public Accounti ng 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 Meeti ng
June 19, 2019, 9:00 a.m. PST
Finjan Holdings, Inc.
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
Phone: (650) 282 3228
¹ Audit Committ ee
² Compensati on Committ ee
³ Nominati ng and Corporate Governance Committ ee
CORPORATE GOVERNANCE INFORMATION: We are committ ed to maintaining the highest standards of business conduct and corporate
governance, which we believe are essenti al to running our business effi ciently, 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 Offi cers, and Charters for each of the Audit Committ ee, the Compensati on Committ ee, and the Nominati ng and Corporate
Governance Committ ee. Please visit our website at www.fi njan.com to view or obtain a copy of the current version of any of these documents.
ADDITIONAL INFORMATION: We fi le annual, quarterly and periodic reports, proxy statements and other informati on with the Securiti es
and Exchange Commission. You may request a copy of any of these documents, at no cost to you, by writi ng or telephoning us at: Finjan
Holdings, Inc., 2000 University Avenue, Suite 600, East Palo Alto, CA 94303 Att enti on: Investor Relati ons, telephone (650) 282-3228. We
will not send exhibits to these reports unless the exhibits are specifi cally requested and you pay a modest fee for duplicati on and delivery.
Pioneer in
Cybersecurity
2018 Annual Report
2000 University Avenue
Suite 600
East Palo Alto, CA 94303
(650) 282 3228
www.finjan.com