Business context and reporting period
Entity mismatch: The supplied filing is Vringo, Inc.’s Form 10-Q for the quarter ended September 30, 2015; it is not an XWELL, Inc. filing. Figures below summarize Vringo’s filing.
Vringo focused on developing and monetizing intellectual property, principally through licensing and litigation. After quarter-end, it acquired IDG, which owns 70% of fliCharge, a wire-free charging business, and wholly owns Group Mobile, a rugged-device supplier.
Financial performance and position
Amounts are in millions of U.S. dollars except per-share data. The filing reports no revenue for Q3 2015 and $0.15 million for the first nine months of 2015.
| Metric | Three months ended Sep. 30, 2015 | Nine months ended Sep. 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $0.15 | $0.15 / $1.20 |
| Operating expenses | $9.69 | $25.17 | $15.35 / $36.57 |
| Operating loss | $(9.69) | $(25.02) | $(15.20) / $(35.37) |
| Net loss | $(11.87) | $(27.36) | $(12.38) / $(33.53) |
| Basic loss per share | $(0.12) | $(0.28) | $(0.13) / $(0.38) |
| Operating cash used | Not reported for quarter | $(13.55) | $(20.22) |
Operating margins are not meaningful because revenue was zero in Q3 and minimal year to date. Q3 expenses included $6.78 million of legal costs, $0.82 million of intangible amortization and $2.10 million of general and administrative costs. Nine-month non-operating expense was $2.34 million, including $2.17 million of interest expense and $1.25 million of debt-extinguishment expense, partly offset by a $1.41 million fair-value gain.
At September 30, cash and cash equivalents were $14.40 million; court deposits were $1.97 million. Total assets were $33.63 million, current liabilities $14.10 million, and stockholders’ equity $16.70 million. The senior secured convertible notes were carried at $4.09 million net of discount; they bear 8% interest and were expected to mature in July 2016 after accelerated installments. Nine-month financing cash inflow was $12.21 million, primarily from the May notes offering. Cash declined $1.62 million from year-end 2014.
Material changes versus prior comparable periods
- Nine-month revenue fell 87.5%, from $1.20 million to $0.15 million, reflecting fewer one-time license and settlement payments. Q3 revenue declined from $0.15 million to zero.
- Nine-month legal costs declined 22.2% to $15.34 million; general and administrative expense declined 41.3% to $7.39 million. Management attributed reductions to litigation timing, lower stock-based compensation, and cost savings.
- Nine-month operating cash use improved to $13.55 million from $20.22 million, while the company remained loss-making and dependent on external financing.
- The share count increased materially as Vringo elected to repay note principal in discounted shares: 16.9 million shares were issued for nine-month principal payments. Common shares outstanding were 110.6 million at September 30 and 112.7 million at November 9.
Outlook, risks and unusual items
- Management said cash was sufficient for at least the next 12 months, assuming continued operations and the ability to pay note principal and interest partly in shares. The filing also discusses substantial doubt about going concern, citing recurring losses, negative operating cash flow and reliance on financing; the cited auditor’s going-concern opinion was in the 2014 annual report.
- No revenue or earnings guidance was provided. Management expected legal costs in certain later-stage European proceedings to be lower, but warned litigation could continue for years and require substantial spending. It also said additional funding might be needed and could be unavailable or dilutive.
- Note repayments could require cash if equity conditions are not met. The notes are secured by substantially all U.S. assets and carry default provisions that can increase amounts due and raise the interest rate. Management reported that covenants were met and there were no defaults at September 30.
- NASDAQ had extended the deadline to December 14, 2015 for restoring the $1.00 minimum bid price. Vringo proposed a reverse stock split, subject to stockholder approval; failure to regain compliance could result in delisting.
- After quarter-end, Supreme Court review of the adverse patent ruling in the I/P Engine search-patent case was denied. Dutch and French court rulings in October 2015 also went against Vringo on patent validity or infringement issues; the company said it planned to appeal.
- The October 15 IDG acquisition consideration included 1.609 million Series B preferred shares convertible into 16.092 million common shares, 575,000 common shares issued for debt forgiveness, and a 500,000-share warrant. This represents significant potential dilution. The filing does not provide a clear acquisition purchase-price valuation in the supplied text.
- Other key exposures include patent validity challenges, counterclaims and possible opponents’ legal fees, court guarantees and deposits, foreign-exchange movements, and uncertain monetization of acquired patents and new operating businesses.
Important facts for investors to verify
- Confirm the correct issuer: the supplied filing identifies Vringo, Inc., not XWELL, Inc.
- Review current cash burn, note repayment terms and remaining principal, including whether share repayments remain available and whether equity conditions are satisfied.
- Assess dilution from the notes’ conversion feature, outstanding warrants and options, and the IDG preferred and common share consideration.
- Track NASDAQ bid-price compliance and the status and approval of the proposed reverse split.
- Check subsequent outcomes in the major patent cases, appeals, court guarantees and related potential legal-fee liabilities.
- Evaluate whether the acquired fliCharge and Group Mobile businesses generate enough revenue and cash flow to offset continuing losses and acquisition-related costs.