Finjan's (FNJN) CEO Phil Hartstein on Q1 2016 Results - Earnings Call Transcript

| About: Finjan Holdings, (FNJN)

Finjan Holdings, Inc. (NASDAQ:FNJN)

Q1 2016 Earnings Conference Call

May 16, 2016 4:30 PM ET

Executives

Vanessa Winter – Director-Investor Relations and Corporate Communications

Phil Hartstein – President and Chief Executive Officer

Michael Noonan – Chief Financial Officer and Treasurer

Analysts

Mike Crawford – B. Riley and Company

Lisa Thompson – Zacks Investor Research

Josh Silverman – Iroquois

David Harp – Private Investor

Operator

Thank you for standing by. This is the conference operator. Welcome to the Finjan Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. This is call is copyrighted material and owned by Finjan Holdings. Written permission must be given for any reproduction of this transcript. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Vanessa Winter, Investor Relations. Please go ahead.

Vanessa Winter

Hello, everyone, and thank you for joining us this afternoon for a review of our recently announced financing and our first quarter 2016 update. Joining me on today’s call is Phil Hartstein, Finjan’s President and CEO; and Michael Noonan, CFO. As a reminder, this call is being webcast and a replay of the webcast will be available on our website.

Before I begin, I would like to quickly make note of our Safe Harbor. During the course of this call, we may make statements related to our overall business outlook, future financial operating results, timing of redemption of shares of Series A preferred stock, accounting matters and future prospects. These are forward-looking statements based on certain assumptions and are subject to a number of risks and uncertainties that could cause future results to differ materially from our expectations.

You can learn more about these risks in our most recent Form 10-K filed the SEC on March 25, 2016, as well as our subsequent filing. These documents are available on the Investor Relations page of our website at www.finjan.com. We assume no obligation to update any forward-looking statements. I’d also like to mention that Finjan management will be attending a number of upcoming conferences, so we hope we get the opportunity to touch base with many of you in person.

We will be at the 17th Annual B. Riley Conference from May 24 through 26 at Los Angeles, California, the Marcum Microcap Conference taking place June 1 and 2 in New York, and finally LD Micro Invitational Conference from June 7 through 9 in Los Angeles. Please contact me vanessa@finjan.com to schedule a meeting. Finally, Finjan will host this Annual Meeting of Stockholders on June 22 at 9:00 a.m. Pacific Time at our headquarters in East Palo Alto.

With that, I would like to turn the call over to Phil Hartstein, Finjan’s President and CEO. Phil?

Phil Hartstein

Thank you, Vanessa, and thank you all for joining today’s call. There are number of catalysts impacting our business in the coming quarters and we saw this is an opportunity to update our stockholders. I would like to start with our progress and successes to the recent challenges against Finjan’s patent at the USPTO and PTAB, provide you an update on our litigation efforts including recent path and upcoming trials, and finally offer my perspective on our Series A preferred financing, which we announced last week before turning the call over to Michael, who will address financial and operational sides of our business.

As Finjan approaches its 20 year anniversary this coming November, I’d like to review our involvement in the cybersecurity sector. The state-of-the-art for current technology and address the headwinds present in the licensing side of our business. These includes legislative initiatives, presidential, judicial and court ruling and of course procedural changes at the U.S. Patent Office. These challenges are threading a number of business models and we’ve recently seen several companies significantly pivot just to survive.

That said Finjan has been successfully licensing our foundational technology and patents for more than 19 years. With the past three years, we journeyed into the public company realm, the last two years listed on NASDAQ. We continue to believe we are poised for growth with an average strengthening portfolio of patent, investments in the cybersecurity sector, and within our emerging business units.

Let’s start with the U.S. Patent Office and the recently created patent trial and appeals for PTAB. Through the USPTO and PTAB are several administrative processes to challenge the volatility of a patent, specifically with the newly created PTAB, nearly 80% of challenged patents failed to survive review, having the claims significantly limited if not completely cancelled. This leads to a highly unpredictable outcome with retroactive effect often forcing companies to walk away from their investments and innovation.

As you’ve most likely seen through our recent press releases, we are in the process of working through many of these same challenges including re-exams at the USPTO and Inter Partes Review, or IPRs, at the PTAB. The IPR process is relatively new and you might expect there are some fundamental things to work through. Finjan, however, has had early success in sending of these challenges with approximately 70% of challenges against its patents being denied institution or review versus the industry average of only 20% achieving this early dispositive outcome.

We believe this as an indication of the durability of Finjan’s patent. Looking at the numbers specifically, we are currently facing 40 IPRs with 17 out of 24 decisions being dined institution. This means that PTAB after reviewing the merits of each challenger’s petition concluded no review was necessary. Of these 40 IPRs, 14, or 35%, are jointers. What that means is that a third-party has effectively copied another challenger’s petition and ask the PTAB to allow them to tag along, this is like a me too IPR, it’s duplicative generally includes nothing new, and under the motion for jointer it’s also subject to the same outcome as the original challengers’ petition.

Today, only one jointer has been instituted. Of the 7 IPRs that have been instituted, they only challenged four of Finjan’s patent. Of course, now these entered the traditional, roughly a year long process, where we go before the PTAB in a many trial of sorts, limited to the validity of the patent. Finjan has asserted 22 of its issued patents across its litigations and there are still 16 IPRs pending. Again many of those are double counted due to jointer filings.

Moving onto the re-examination numbers; there has been nine re-exams filed with five out of six, or 83% being confirmed, meaning no changes to the claims as they were originally issued, one has been cancelled and three are pending. As litigants’ exhaustibility to challenge our patents, we continue to believe there will be an inflection point where licensing discussions and litigation settlement talks are less focused on an invalidity argument. It seems all too easy in the current licensing climate to erroneously state “your patents are invalid” and much less credible given the progress we're making at the USPTO and PTAB.

While we always prefer a licensing pathway, sometimes the need to enforce our inventions becomes necessary. Most of you are aware of our nearly 40 million verdict won against Blue Coat. After a two week trial, we received a verdict and award from the jury in August of 2015, a Judgment from the court in November of 2015, and we are still working through the post-trial motions process. One of the last stages is what's called a JMOL hearing, which occurred last week and we are waiting for the final district court order on that verdict amount, whether the court will grant pre and post-judgment interest and an answer on our request to recover fees and expenses in this case.

We are feeling optimistic about the future of this decision. But we expect Blue Coat will elect to challenge the case to the Federal Circuit. By our initial analysis, we would expect the appeals process to extend into the middle of 2017. We have also filed a second separate case against Blue Coat in front of the same Judge in the Northern District of California. Consistent with our licensing best practices, we do remain committed and hopeful that we can achieve a resolution with Blue Coat through licensing and settlement including both the first and second cases.

We have two additional trials, scheduled to take place over the next couple of months, the first is Proofpoint with a scheduled trial start date of June 13 and soon thereafter Sophos with a scheduled trial start date of September 6. First let’s talk about the Proofpoint trial. We will proceed with five asserted patents in the case. Also of note, there is a second name defendant, Armorize. Armorize was a separate technology company acquired by Proofpoint in 2013 right around the time we filed our lawsuit. Our infringement claim extends into both Proofpoint and Armorize as both technology platforms have been integrated over the last two years. The trial is expected to last seven days, and be completed by June 22nd.

Next, a brief update on our litigation with Sophos. This case was originally filed with 8th Finjan patents. We are at the point in the pre-trial planning where I would expect that number to be reduced either by the order of the court or through our own election to streamline the issues for the jury. The trial is presently scheduled to last about two weeks ending on September 16.

Before I turn the call over to Michael to go into the financial and operational details, I want to review our financing announced last week. We are thrilled that we have secured $10.2 million in secured in Series A preferred financing with Halcyon and Soryn. This was achieved through our banking relationship with B. Riley, who start out funding partners for us, and we believe this to be a deal of distinction in our industry. Principally, these Series A shares are in a preferred class and will dilute shareholders holding common stock shares.

The structure affords Finjan the option to retire the preferred securities when funds are available cannot be converted into common stock and does not include any word coverage nor evergreen revenue share after the securities are retired. Halcyon is a private diversified equity fund and Soryn IP Group serves as a patent advisory and finance firm that creates, manages, monetizes and finances the patent operations of clients.

On a professional note, when you’re out in the marketing considering raising money, you really have to appreciate that you’re interviewing financiers to become your partners, not just your investors. We believe the Halcyon and Soryn not only appreciate the complexities of our business, but we’re able to see through the risks and recognize all that Finjan has achieved through its licensing enforcement initiatives. This equity partnership represents Finjan’s first capital rise since becoming a public company three years ago, and offers renewed confidence in Finjan, our historical licensing and enforcement results and our long-term staying power.

I would now like to turn the call over to Michael to run through our first quarter results and our recently announced financing in more detail. Michael?

Michael Noonan

Well, thanks, Phil. I'd like to start by offering an update on our first quarter results. Now, please note that unless otherwise stated all comparisons are on a year-over-year basis. We have $2.3 million in revenues attributable to two licensing agreements in our quarter ended March 31, 2016, $2 million from the September 2014 license, and $300,000 from April 2015 licensing agreement. This compares to no revenue in the same period last year.

Operating expenses was primarily consists of SG&A decrease by 19% or $800,000 compared to one-year ago to $3.4 million. This was driven by a nearly $1 million decrease in litigation expenses as well as a $400,000 decrease in compensation expenses. These improvements were partially offset by a $300,000 increase for CybeRisk, our Advisory Services, which started in July of 2015 and an operation related expense increase of $200,000 partially related to our emerging Finjan Mobile business which was also launched in July of last year.

Despite our two emergences in businesses, Finjan Mobile and CybeRisk, prudent expense controls and revenue in the quarter led to a 70% reduction in our loss from operations over the same period a year ago. We ended the quarter with $5 million in cash and cash equivalents and $2.7 million of working capital, a $1.1 million decrease in our cash from December was driven by $3.4 million in operating expenses and was offset by the $2.3 million in licensing revenue discussed earlier.

Giving Phil offer an update on our current licensing and enforcement efforts, I would like to give an update on our emergence in businesses. Now turning to CybeRisk, while the business has taken sometime to ramp, we now have customers under contract and our pipeline was solid. Our cybersecurity becomes the top priority for enterprise companies. Cyberisk’s theme of the data room to the board room is resonating. I was recently in London, England attending the Data Risk Management in Financial Services Conference. Yoram Golandsky, CybeRisk CEO, was on a panel speaking on management, risk, integrity and security which focused on identifying key operational vulnerabilities for corporations. During the conference we discussed many aspects of the business and the team remains confident that we are moving in the right direction. Particularly as we see demand for the types of services we are offering. To that end, we can say the deals have been signed and we expect somewhere in the range of $150,000 to $300,000 of new client business in the second quarter.

Our things have taken a little longer than initially planned; we’ve remained committed to this business. In Finjan Mobile, we have launched an enhanced types of features our new and improved mobile secure browser with built off of Finjan’s patented technology. As we look towards the future unifying devices through MDM or mobile device management interfaces team to be the next trend in the mobile security arena.

This team was echoed at the RSA Conference in San Francisco and the Data Risk Management Conference I mentioned earlier. This includes protecting mobile devices, as we enter the workplace and securing data, so it doesn’t leave the network. We do not see our mobile platform as a significant revenue generating business in the near-term. However, we are excited to be back in the world of development and we’ll continue to look for ways to grow this business.

Finally, our investment in the cybersecurity of tomorrow through Jerusalem Venture Partners or JVP has proven to be fruitful. We’ve invested $1.7 million of the committed $5 million investment and received a growth entitlement of $1.3 million of which $800,000 was paid to us in cash and $0.5 million was reinvested in the front.

I’d now like to review our recently announced financing. As Phil mentioned this is a meaningful deal through which we are able to secure $10.2 million in financing with no dilution to our current common stockholders. The Series A preferred stock is not convertible into common stock and there are no warrants associated with this financing. These shares can be liquidated 1.5 times at the original purchase price within 90 days. 1.65 times the purchase price before year one and 1.75 times the purchase price between one and two years of closing.

There are some revenue sharing provisions which are capped at the liquidation preferences. A litigation event could trigger up to 50% through investors within one year closing and up to 70% to investors within two years of closing. On the licensing front, the Series A stockholders paid 20% within one year of closing and 40% within two years of closing. The financing is scheduled to be funded on or before May 20, 2016.

This financing not only helps to support our licensing and enforcement activities but general day-to-day operations but also represents something much larger.

licensing and sportsmanship activities, but general day-to-day operations but also represents something much larger. B. Riley along with Halcyon and Soryn, our senior portfolio strengthened through our $40 million win against Blue Coat and our successful navigation of both PTAB and USPTO challenges against our patents. We appreciate their confidence in Finjan and we look ahead to a promising future. Now we believe that the efforts of our litigation and license strategies along with our new businesses and investments will significantly improve shareholder value.

Now with that, I’d like to turn the call back over to Vanessa, to coordinate the Q&A.

Vanessa Winter

Thanks, Michael. Operator, can we please pull our first question?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Mike Crawford of B. Riley and Company. Please go ahead.

Mike Crawford

Thanks. Your SG&A expense last year was $17 million, $3.4 million in Q1, about how much of that is legal and ancillary to that, what would you expect to be a good range of legal expense before any contingency payout in 2016 given the known two trials and some anticipated IP challenge activity? Thank you.

Michael Noonan

Yes, Mike this is Michael Noonan here. So rough numbers is about 50% of our SG&A of 2015 if we look at litigation costs in 2016 its probably about the same, I’m going to say $7.5 million to $8 million that will of course depend go to trial with what depended on this year if we’re able to – regarding our settlement of course numbers will go down in terms of expenses.

Mike Crawford

Okay, thank you. And then regarding CybeRisk you now have some initial customers under contract. At what point would you anticipate that business start to be accretive to operations?

Michael Noonan

As you know there is revenue recognition issues as it applies to consulting business – consulting revenues. So we’re working through those with our accountants as well as Marcum. And I think its going to take a full year or full balance of the year for that to really get rolling. One of the challenges you have with consulting services businesses as you get more customers you have to have more people doing the work. However, economies scale will greatly assist there. So I think in the beginning not as accretive. I think towards the end of this year we’ll really start to get a better handle on that and I think we’ll see that those revenue numbers being accretive to the bottom line.

Mike Crawford

Okay. Thank you. And then last question from me, relates to any potential changes in IP that you are tracking given cases that Supreme Court is looking at. Thank you.

Phil Hartstein

Mike, this is Phil Hartstein. I’ll take that one. Certainly, we indicated that there is a number of headwind challenges that present themselves in the IP licensing side of our business. There is a political sort of reform initiatives, there is sort of as you refer to things that are going on in the Federal Court as well as at the Supreme Court. And then also we find that there is a tremendous amount of opportunities to use the administrative procedures to the patent office.

So I guess I’ll address sort of all three of those. On the political side, we're getting an understanding that given that this is an election year that intellectual property is not necessarily already representative itself as a key election year issue. So you may see some tweaking around the edges, but I don't expect anything significant there. And the Federal Court, you're starting to see a reversal or at least clarification, for example some may be familiar with the Supreme Court’s Alice decision and how that's getting applied.

So we now have as of Friday two cases that clarify that patents, which we don't believe really relate to us. But just starting to see a shift its software patents are not just now outright vague and abstract. Those two cases are DDR and Enfish, the Supreme Court as you indicated is also hearing a number of cases. I’d prefer to not comment necessarily on that except to say that we all in the industry are eagerly awaiting, the Supreme Court’s decisions, which if I had to look a little bit forward, I would generalize and say, we expect those to be positive for patent owners.

And finally, I would say the USPTO on the reexam side and that the PTAB for the IPR side, we do see they are becoming better framework for actually applying continuity in the review and exam process. We have been fortunate to upgrade examiners who reviewed our cases and we believe they’re reaching the right conclusions in determining that Finjan’s patents when issued were novel. And today as we are seeing through our cases continued to be state-of-the-art.

Mike Crawford

Great. Thank you very much.

Phil Hartstein

Thanks Mike.

Operator

The next question is from Lisa Thompson as Zacks Investor Research. Please go ahead.

Lisa Thompson

Hi, everyone. I guess, my first question is CybeRisk, the revenues that you’ve mentioned is that for like one-time projects or is that an ongoing contract or a year or so – what kind of contracts are they?

Phil Hartstein

Hi, Lisa. This is – Mike and I are looking at each other. I will take this one because we’ve recently been going through this. What we tend to find in the CybeRisk proposals and now with the recent contract deals that they have – is that there is a sort of an expected value of the contract. So for example, if the contract is a dollar that’s expected bookings, as we learned to understand more about servicing needs types of engagements.

We also see that in many cases the opportunity to generate revenues under that existing for example $1 contract. It sometimes extends 20% to 25% beyond which moves into the implementation phases. So we don’t count that as contract revenue but we do expect to see that there will be a greater than $1 performance for example for a contract.

Lisa Thomson

So it’s not something you’re trying to contract its – we will do a one year review of your company. And then you book it ratably it’s kind of like go in and do something for me and send me a bill for one-time effort?

Michael Noonan

Yes, Lisa. This is Mike. So a lot of these are initially project-based contact what we hope to achieve is that we'll see a revenue stream coming out of them after we do the initial project. So for example, penetration testing, red teaming, things along those lines where we put together a list of proposals and suggestions for what the customer should be doing. And then there may be an implementation phase in an ongoing servicing phase after that. So the initial ones though right now are project based one-off agreements.

Lisa Thomson

Okay, great. All right, and so back to those financing, this thing is something I've never seen before. So you're going to have to help me here. How was this going to show up on the income statement, you're going to have a preferred stock or change in value of loan payable or how is this going to work?

Michael Noonan

So Lisa, it’s Mike here again. Even though this is a preferred share because of preferred shares are redeemable we think our auditors will treat it more like debt. We're working through that with our auditors right now. You're right it is a unique deal and something that we’ll have to look at very carefully. But I think it will go something along these lines will have to determine the expected life will probably see the quarterly accrued interest number, which is the delta if you like between the principal and wherever the payout is based on a quarterly number. So that’s where I think will end up and it will be in other expenses on the income statement.

Lisa Thomson

Okay. So that’s what I thought. So what we trying to understand the math here so they – they gave you $10.2 million and then if somebody knocks on your door within the next –I don’t know 90 days, 60 days and gave you $30 million to license something you could tomorrow send them a cheque for their – you have to send them a cheque for $15.3 million?

Michael Noonan

That would be correct…

Lisa Thomson

That’s 20%? Okay.

Michael Noonan

No. We just say the 1.5 times the original principle, let’s just make a math a little easy and just say it was $10 million and if someone walks in the door and gives us $30 million we will pay them $15 million right, 1.5 times the 10, just to make the math easy.

Lisa Thomson

Right, okay. And so what’s that 20%, 40% thing do they get a piece of that too?

Michael Noonan

No, half…

Lisa Thomson

They get 20% but the 10.2?

Michael Noonan

So, think about it this way, let’s say no one walks in our door and gives us $30 million but tomorrow we get a license for - $1 million just to make the math again easy, we would pay them, we would pay the investors if the licensing revenue is 20% of that so they will get $200,000 to pay down and we will be redeeming some of those preferred shares. So it’s an A4 [ph] I mean we believe this note will be or the preferred shares will be around for let’s call it a couple of years, we will be getting licensing and litigation revenue throughout that two year timeframe that will be – that note then you will see that in our income statements going down as we are redeeming some of those preferred shares and then of course this gets us to the Blue Coat number. So think about the calendar like that, we expect Blue Coat to exhaust all of this court dealing with let’s call it second and third quarter of 2017, the two year anniversary of these notes will expire in the second quarter of 2018, so we’ve got good runway there to solve that issue with Blue Coat.

Lisa Thomson

And then, if that happened there, once you’ve maxed out you end up giving them $28 million.

Michael Noonan

No, no. The maximum, well its all depends in the timing, so if we pay the amount, if we pay the amount off before two years, if the $17.5 million and then maybe left in that depending on when some of these revenue streams come in. The only time it gets up to $28 million is if we go past two years.

Lisa Thomson

Right, so that’s the maximum.

Michael Noonan

Absolutely.

Lisa Thomson

That’s like to where it allow, but now you said this 20, so I get the 20% it’s like you sell the cake and you owe me $1 for every cake you sell, I get that.

Michael Noonan

There you go, that’s it, that’s it.

Lisa Thomson

I saw this on Shark Tank I know how to do this.

Michael Noonan

Very good.

Lisa Thomson

Okay. So now the other question is if you're giving them 20% of everything you take in, does that g up in costs of goods or does that go up net revenues now? And you have bottom note – okay.

Michael Noonan

No, it will go – yes, the only thing in costs of goods would typically be any contingency relationship that we have. This will be an expense line below – it will be down in SG&A and other expensive somewhere.

Lisa Thomson

And will it get its own line item like…

Michael Noonan

Yes, I would imagine.

Lisa Thomson

Okay. So that's not up in class because you don’t net it with revenues.

Michael Noonan

Correct.

Lisa Thomson

All right. Good for you. Okay. All right I think I kind of get it, but I'm sure we're going to have to talk about that when I…

Michael Noonan

Any time Lisa.

Lisa Thomson

Combine with the income statement. Great, thank you.

Michael Noonan

You bet, Lisa.

Lisa Thomson

Thank you for CybeRisk. I’m glad it’s making some progress. I’ll see you at Marcum.

Michael Noonan

Absolutely.

Lisa Thomson

All righty. Bye-bye. Thanks.

Michael Noonan

Sure.

Operator

The next question is from Josh Silverman of Iroquois. Please go ahead.

Josh Silverman

First, Phil, congratulations on the financing. I hope that will remove some financing overhang on the stocks, I think they’ve been feeling equally. But I have a quick question on Cisco. I see and I know they’ve been invested a lot, they’re shareholder, I just thought that they lost two similar patents in the Delaware court and I'm just wondering, are they a licensee or is there anything you could tell us about.

Phil Hartstein

It’s a good question. We actually follow a number of these litigations that are in a similar security space. So for those on the call, what Josh is referring to is the case outcome that came down last week on two security patents that were held by SRI in which Cisco is team to a friend. So the two questions in there Josh said that, the first is Cisco being a shareholder. I can confirm that Cisco is a reporting shareholder. I think they reported about 7.5% of our outstanding common equity. And the answer for your second question is that, no, they are not a licensee.

Josh Silverman

Okay. Thanks, Phil. That was all.

Operator

[Operator Instructions] The next question is from David Harp, a Private Investor. Please go ahead.

David Harp

Hi, good afternoon.

Phil Hartstein

Hi, David, how are you?

David Harp

Hey, I’m good. Just congratulations on the financing. Looks like there's also good news at the patent office on the 968 patent IPR from – I think it was Palo Alto.

Phil Hartstein

You are ahead of most folks on this call. Yes, there are e-mails coming in, yes.

David Harp

Just a quick question on that front. Is there an ability to go after some of these, I’ll call, a material IPR filer, where most of these have been kicked out and I’m sure you guys have spent considerable amount of resources, fighting these things. Is there something you can guys can possibly recover with outside of the litigation?

Phil Hartstein

It’s a good question. Let me just for the benefit of others on the call eliminate a little bit of out what David is referring to. In the IPR process you can challenge solidity of someone’s patent. And the basis for the IPR being instituted is whether or not there is a substantial new question of patent ability. So one of the things that that we are finding in our portfolio is that we see a lot of repetitive art meaning prior art that has been known about by the patent office for quite some time which they had showing up recurringly in vast majority of our IPRs in other words very little new prior art. And yet still we are burdened with the expense of having to fight these, one, and two, the delay, if you will, and trying to advance licensing and settlement discussion.

As part of the original process, the USPTO and the PTAB had conceptually thought that there would be more judicial efficiency by removing the technical question about a patent’s solidity from the court, moving it into the patent office to be determined. And in exchange for that sort of offloading of the technical side, you would not be able to bring what they call as stopple, those same arguments then into the court room.

Unfortunately David, I actually don't think that this stopple is applied as it should be, meaning that you're going to see these challenges continue to present themselves even though an IPR may have been denied at the patent office, we still expect to see continued IPR filings. We still expect to see similar arguments made in our trial. It's just the state of affairs until it gets worked out.

David Harp

Okay. I guess I’m rolling into my second question. Is there licensing opportunity with non-defendant? Maybe you can give us the number of standstill agreements that might be out there and in place. I’m trying to look at a licensing model that doesn't include all of the current litigation.

Phil Hartstein

That's a really great question. So I'll try and talk you at a high level. We generally don't describe our licensing pipeline, it is very active. You also alluded to something that that may not be known by most is that, one of the tools that you can use to engage in a constructive licensing discussion outside of litigation, is that you offer a potential licensee, a non-disclosure agreement and a standstill, which is just that, look, we are not here purely about litigation, we are here to have a conversation. We would like that conversation to start on the technical side and have a legal and technical discussion. And then from there we move into both value and pricing discussion. So we have a number of those conversations ongoing at any given time.

If you were looking to try and size and scope how many of those they are, I can share with you how I’ve described this publicly before is that, our job here is to license the industry which means wherever we find companies that are using Finjan’s patented inventions that we seek to license them under fair value term and to – best do that I think you would look at traditional market research, you can look in the endpoint software spaces, in the web infrastructure spaces and in some subset of the traditional networking segment really focused on perimeter defense technologies and maybe a fourth market vertical would be moving into mobile security, which is part of the reason why we have Finjan mobile and why we are moving in that direction on the development front ourselves. So I think if you just – if you look at the market research, you'd be able to see how many companies are out playing in this space.

David Harp

Okay. And there’s expectation that the company actively speaking with them. There might be a dozen opportunities out there?

Phil Hartstein

I would say you're shy on a dozen and yes we are actively discussing licensing deals with a number of partners, yes.

David Harp

Okay, I guess moving into the next question is should we – would there be an expectation that mediation sessions will now have a different tone to them where I would imagine they've been using your balance sheet as a – that's a weakness for you guys, now it's kind of been re-fortified, a lot of these IPRs have now gone away, you have very good Markman opinion, a trial that was already won. At some point some of these guys have to look at actually doing a licensing discussion. Is that a – you think that is feasible at this juncture or most these will need to go to trial?

Phil Hartstein

Well, we have – and some of you may know we have licensing best practices, and so internally we stay focused on trying to identify opportunities to resolve disputes. I think in most cases – actually I gave you a couple of examples, I think in most cases there's a significant disconnect between value, and in most of these we’re not seeking full value that's what a trial is for, trial gets you to full value. We're often trying to find what we call fair value, and that's at some discount understanding that there are risks to both side, we are willing to negotiate and be flexible on how we would get paid for a license. We've taken on a number of opportunities where we've taken equity. We've taken – as part of the cash competition we’ve taken intellectual property. And obviously cash, we’ve even structured cash payments over time. So we are not near impede the business in the growth of the cybersecurity market, but we are working to find fair value in licensing.

The second part of your question is do we think we are going to see a change. And my answer there is unfortunately – I wish that were the case. What we tend to find that that’s always some other minute detail or some other event before trial or something they get very easy for companies who are well down the road of litigation on their way to trial to not fully engage in that process, which is unfortunate. However, we do regularly meet for court-appointed and out of court mediations and settlements, discussions with parties, and some are more engaged than others. That’s that all I can tell you on that despite putting you in the room. So I might stop there.

David Harp

Okay. I guess my last question turns to the operating side. Is there opportunities outside of the company that you might be able to bring in, as an acquisition, it might be $1 million or $2 million deal, private companies that need a capital infusion and would benefit from, I guess experienced cybersecurity management team along with the patent. Is that something that the company is actively looking at and maybe the number of potential deal sizes or your pipeline that might be out there?

Michael Noonan

Yes, David, this is Michael Noonan. I think the sure answer to your question is yes, as we’re all depended on price and time. Currently right now we are focused on these two – these two court hearings coming up. We’ve got a lot of things that are in the pipeline right now from an organic perspective. But let’s say for example, we could find something in the mobile industry that will complement the areas that we’ve already started. Ideally maybe the company had some patents already that could enhance our portfolio. They would have an operating team wouldn’t necessarily have to be revenue generating or even certainly not break even. But quite frankly some of the companies we saw earlier in this period where the cost was very lofty.

So we are being patient right now. We are going to manage the M&A pipeline if you like or the M&A activities very carefully. But again, I think anything that’s in the mobile security area would be something that we would really be interested in. Again, depend and of course pricing issues and the like. As we said right now, again with our stock price works out even though it’s – we’ve seen some improvement in capital – capital allowance. We’ve made some announcement. I think we are still a little light there.

David Harp

Okay. That’s it from me. Thank you.

Michael Noonan

Thanks, David. I appreciate your question.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Vanessa Winter for closing remarks.

Vanessa Winter

Thank you all for joining us this afternoon. We look forward to seeing you at upcoming events and we will speak to you then.

Operator

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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