By Lisa Thompson
NASDAQ:FNJN
Oral arguments will be heard at the appeals court in DC on September 8, 2017. Finjan (FNJN) expects that the most likely outcome is a Rule 36 Affirmed Decision, which would be decided within two to four weeks. The big win for Finjan against Blue Coat happened on August 5, 2015 and the jury awarded the company $40 million. Since then, the district court granted Finjan pre and post judgment interest on the jury's award and Blue Coat has already put up a bond with the court for the $39.5 million and an incremental accounting for pretrial interest. With interest and royalties, the company estimates this could total $46 million by the time it is collected, of which, 20% will go to the litigating law firm. The results of this appeal process should change the dynamics of negotiating with future licensees as well as Blue Coat and Symantec in particular.
In addition to the this appeal, there is another suit against Blue Coat that encompasses seven patents and addresses new products that have been introduced by Blue Coat since the lawsuit since Blue Coat I was filed in 2013. Trial date for Blue Coat II is set for October 30, 2017.
Blue Coat III is a lawsuit against Blue Coat in Germany. It has a trial date set for November 27, 2017.
Symantec acquired blue Coat on August 1, 2016 for $4.5 billion; Finjan is also in litigation with Symantec with a trial date of April 9, 2018. Finjan is open to a combined resolution for the two entities.
Q2 Results: Company Issues Another Preferred and Sells Common to Hedge Trial Results
Finjan reported revenues of $2.3 million versus $6.5 million a year ago, as expected, since license agreements were pre-announced. Expenses were slightly ahead of our estimates, but the operating loss for the quarter was basically inline. The real news is the company’s change in capital structure. In order to hedge its bets on the outcome of Blue Coat’s appeal and raise money under favorable conditions, the company issued preferred stock, reducing per share earnings to common shareholders. In the quarter the net loss to common shareholders was increased by $3.9 million by the preferred. The loss to common shareholders was $6.9 million or -$0.29 per share.
On June 20, 2017, Finjan raised $15.3 million by issuing 153,000 shares of Series A-1 Preferred Stock at a price of $100 per share and warrants to purchase two million shares of common stock at an exercise price of $3.18 per common share to Soryn HLDR. A portion of the proceeds may be used to acquire or invest in intellectual property. The plan is to redeem the entire amount of this preferred with the Blue Coat proceeds if the company wins the appeal.
In Q2 2107, Finjan redeemed all of its remaining $6.6 million or 39,733 shares of the Series A Preferred stock. The new preferred series has much more favorable terms for the company.
The company has a pipeline of 30 deals and we expect it to continue to license additional cybersecurity companies throughout the course of the year with significant activity because of the end of the Blue Coat appeal process.
After Q2 2017 Ended:
In July, Finjan issued 4.14 million shares of common stock for gross proceeds of $13 million bringing the share count to 27.5 million today.
Finjan filed a complaint (Case No. CAND-5-17-cv-04467) on August 4, 2017, in the U.S. District Court for the Northern District of California, alleging that numerous SonicWall products and services infringe ten U.S. Finjan patents.
2017 Forecasts
For the 2017 year, we are adjusting fully diluted EPS estimates for 2017 to $1.03 from $1.70 to correct the fully diluted share count due to the secondary offering, the warrants from the preferred offering, as well as the earnings shortfall in Q2 due to the accretion of preferred stock of $3.9 million that was not in the model.
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