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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

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: 001-16073

 

 

UNWIRED PLANET, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   94-3219054

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

20 First Street, First Floor

Los Altos, California

  94022
(Address of principal executive offices)   (Zip Code)

(650) 518-7111

(Registrant’s telephone number, including area code)

 

170 South Virginia Street, Suite 201

Reno, Nevada

  89501
(Former Address of principal executive offices)   (Former Zip Code)

(775) 980-2345

(Former telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 9, 2015 there were 112,993,382 shares of the registrant’s Common Stock outstanding.

 

 

 


Table of Contents

UNWIRED PLANET, INC.

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

3

Item 1. Financial Statements:

 

3

Condensed Consolidated Balance Sheets

 

3

Condensed Consolidated Statements of Operations

 

4

Condensed Consolidated Statements of Comprehensive Loss

 

5

Condensed Consolidated Statements of Cash Flows

 

6

Notes to Condensed Consolidated Financial Statements

 

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

17

Item 4. Controls and Procedures

 

17

PART II. OTHER INFORMATION

 

18

Item 1. Legal Proceedings

 

18

Item 1A. Risk Factors

 

19

Item 2. Unregistered Sales of Securities and Use of Proceeds

 

20

Item 3. Defaults Upon Senior Securities

 

20

Item 4. Mine Safety Disclosures

 

20

Item 5. Other Information

 

20

Item 6. Exhibits

 

20

SIGNATURES

 

20

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNWIRED PLANET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

Unaudited

 

     September 30,
2015
    June 30,
2015
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 73,565      $ 73,755   

Short-term investments

     3,707        11,713   

Restricted cash

     30        27   

Prepaid and other current assets

     848        632   
  

 

 

   

 

 

 

Total current assets

     78,150        86,127   

Property and equipment, net

     110        110   

Initial direct license costs, net

     1,511        1,595   

Debt issuance costs and other assets, net

     1,070        1,052   
  

 

 

   

 

 

 

Total assets

   $ 80,841      $ 88,884   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 2,045      $ 678   

Fee share obligation

     500        500   

Deferred revenue

     5,005        5,005   

Accrued liabilities

     925        970   

Accrued legal expense

     3,647        3,152   

Accrued compensation

     378        433   
  

 

 

   

 

 

 

Total current liabilities

     12,500        10,738   

Long-term notes payable, related party

     31,026        29,874   

Deferred revenue, net of current portion

     23,311        24,562   

Other long-term liabilities

     203        206   
  

 

 

   

 

 

 

Total liabilities

     67,040        65,380   
  

 

 

   

 

 

 

Commitments and Contingencies (See Note 6)

    

Stockholders’ equity

    

Preferred stock, $0.001 par value; 5,000 shares authorized and zero outstanding

     —          —     

Common stock, $0.001 par value; 1,000,000 shares authorized and 112,810 and 112,479 issued; and 112,615 and 112,347 outstanding at September 30, 2015 and June 30, 2015, respectively

     112        112   

Treasury stock, 195 and 132 shares at September 30, 2015 and June 30, 2015, respectively

     (139     (93

Additional paid-in-capital

     3,245,540        3,244,946   

Accumulated other comprehensive income

     200        234   

Accumulated deficit

     (3,231,912     (3,221,695
  

 

 

   

 

 

 

Total stockholders’ equity

     13,801        23,504   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 80,841      $ 88,884   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

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Table of Contents

UNWIRED PLANET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Unaudited

 

     Three Months Ended September 30,  
             2015                     2014          

Net revenue

   $ 1,251      $ 1,251   
  

 

 

   

 

 

 

Operating costs and expenses:

    

Patent licensing expenses

     7,798        7,582   

General and administrative

     2,485        5,072   

Restructuring and other related costs

     —          2   
  

 

 

   

 

 

 

Total operating costs and expenses

     10,283        12,656   
  

 

 

   

 

 

 

Operating loss from continuing operations

     (9,032     (11,405

Interest income

     5        24   

Interest expense

     (1,203     (1,017

Other income, net

     40        292   
  

 

 

   

 

 

 

Loss from continuing operations

     (10,190     (12,106
  

 

 

   

 

 

 

Income tax

     (27     —     
  

 

 

   

 

 

 

Loss from continuing operations after income taxes

     (10,217     (12,106

Discontinued operations:

    

Loss from discontinued operations, net of tax

     —          (12
  

 

 

   

 

 

 

Net loss

   $ (10,217   $ (12,118
  

 

 

   

 

 

 

Basic and diluted net loss per share from:

    

Continuing operations

   $ (0.09   $ (0.11

Discontinued operations

     —          —     
  

 

 

   

 

 

 

Net loss

   $ (0.09   $ (0.11
  

 

 

   

 

 

 

Weighted average shares outstanding basic and diluted

     112,396        111,724   

See accompanying notes to condensed consolidated financial statements

 

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Table of Contents

UNWIRED PLANET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Unaudited

 

     Three Months Ended September 30,  
             2015                     2014          

Net loss

   $ (10,217   $ (12,118

Other comprehensive income

    

Change in unrealized gain on marketable securities

     —          2   

Foreign currency translation adjustment

     (34     —     
  

 

 

   

 

 

 

Other comprehensive income

     (34     2   
  

 

 

   

 

 

 

Comprehensive loss

   $ (10,251   $ (12,116
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

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Table of Contents

UNWIRED PLANET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Unaudited

 

     Three Months Ended September 30,  
             2015                     2014          

Cash flows from operating activities:

    

Net loss

   $ (10,217   $ (12,118

Adjustments to reconcile net loss to net used in operating activities:

    

Depreciation and amortization

     28        26   

Stock-based compensation

     594        467   

Non-cash restructuring charges

     —          2   

Amortization of premiums on investments, net

     3        27   

Realized (gain) on sale of investments

     (40     —     

Gain on change in fair value of consultant incentive award obligation

     —          (294

In-kind interest payments on notes payable

     1,038        914   

Amortization of debt discount and issuance costs

     165        103   

Changes in operating assets and liabilities:

    

Initial licensing costs

     84        228   

Prepaid assets, deposits, and other assets

     (296     (255

Accounts payable

     1,367        1,156   

Fee share obligation

     —          (20,032

Accrued liabilities

     393        970   

Deferred revenues

     (1,251     (1,251

Accrued restructuring costs

     —          (126

Restricted cash

     13        80   
  

 

 

   

 

 

 

Net cash (used in) operating activities

     (8,119     (30,103
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (28     —     

Proceeds from sales and maturities of investments

     8,003        10,000   
  

 

 

   

 

 

 

Net cash provided by investing activities

     7,975        10,000   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from exercise of stock options

     —          79   

Purchase of treasury stock

     (46     (76
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (46     3   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (190     (20,100

Cash and cash equivalents at beginning of period

     73,755        93,877   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 73,565      $ 73,777   
  

 

 

   

 

 

 

Non-cash financing activity

    
  

 

 

   

 

 

 

Retirement of treasury stock

   $ —        $ 884   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

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Table of Contents

UNWIRED PLANET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

(1) Organization and Basis of Presentation

Organization

Unwired Planet, Inc. (referred to as “Unwired Planet” or the “Company”) is the parent company of a group of intellectual property licensing subsidiaries with a portfolio of worldwide mobile technology patents and patent applications. Our patents are held in two subsidiaries, UP LLC, a Nevada corporation, and UP International Limited, an Irish company, and cover a wide range of technology in the mobile ecosystem.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2015 and June 30, 2015, and the results of its operations for the three months ended September 30, 2015 and 2014, and cash flows for the three months ended September 30, 2015 and 2014. The following information should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents consist primarily of exchange traded money market funds. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured by the FDIC or SIPC.

Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements that are expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

 

(2) Stockholders’ Equity

Common Stock

As of September 30, 2015, the Company had 112,809,935 shares of common stock issued and 112,614,671 shares of common stock outstanding.

During the three months ended September 30, 2015, the Company:

 

    issued 331,066 shares of common stock for vested restricted stock grants at par value

 

    acquired 63,032 shares of common stock at a cost of $46,000, which is included in treasury stock.

Employee and Director Stock Compensation

During the three months ended September 30, 2015 and 2014, the Company recognized stock based compensation for employees and directors of $0.5 million and $0.5 million, respectively.

 

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Table of Contents

Options

The Company granted a stock option to an officer to purchase 750,000 shares during the three months ended September 30, 2015. The fair value of options is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The following table illustrates the assumptions used in estimating the fair value of the options valued as of the grant date, July 30, 2015:

 

Expected volatility

     65.29

Expected dividends

     —     

Expected term (years)

     5.93   

Risk-free rate

     1.81

A summary of option activity from July 1, 2015 to September 30, 2015 is presented below (in thousands except per share and year amounts):

 

Options

   Shares      Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual Term
(years)
     Aggregate
Intrinsic
Value
 

Outstanding at July 1, 2015

     7,685       $ 1.02         

Options granted

     1,050         0.69         

Exercised

     —           —           

Forfeited, cancelled or expired

     (109      1.62         
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at September 30, 2015

     8,626       $ 0.97         7.61       $ 305   
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2015

     2,289       $ 1.66         1.99       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The estimated grant date fair value of options granted during the three months ended September 30, 2015 was $0.5 million. No options were granted during the three months ended September 30, 2014.

Restricted Stock Awards and Units

A summary of the activity of the Company’s restricted stock awards from July 1, 2015 to September 30, 2015 is presented below (in thousands except per share amounts):

 

Restricted Stock Awards

   Shares      Weighted Average
Grant Date Fair
Value Per Share
 

Outstanding July 1, 2015

     6       $ 1.29   

Vested

     —           —     
  

 

 

    

 

 

 

Outstanding September 30, 2015

     6       $ 1.29   
  

 

 

    

 

 

 

 

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Table of Contents

A summary of the activity of the Company’s restricted stock units from July 1, 2015 to September 30, 2015 is presented below (in thousands, except share amounts):

 

Restricted Stock Units

   Restricted Stock
Units
     Weighted Average
Grant Date Fair
Value
 

Outstanding at July 1, 2015

     1,393       $ 1.60   

Granted

     —           —     

Vested

     (331      1.63   

Forfeited

     (30      1.67   
  

 

 

    

 

 

 

Outstanding at September 30, 2015

     1,032       $ 1.59   
  

 

 

    

 

 

 

As of September 30, 2015, there was $3.2 million of total unrecognized compensation cost related to all unvested share awards and options.

Consultant Stock Compensation

The Company granted a non-employee stock option to purchase 300,000 shares to a consultant during the three months ended September 30, 2015. The fair value of options is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The following table illustrates the assumptions used in estimating the fair value of the options valued as of the grant date, September 30, 2015:

 

Expected volatility

     69.12

Expected dividends

     —     

Expected term (years)

     9.88   

Risk-free rate

     2.05

During the three months ended September 30, 2015 the Company recognized stock based compensation for non-employees of $46,000.

Adoption of replacement shareholder rights plan

On January 20, 2015, the Board of Directors of the Company adopted a Tax Benefits Preservation Agreement, between the Company and Computershare Trust Company, N.A., as Rights Agent (the “Agreement”) to replace the Company’s existing Tax Benefits Preservation Agreement, which expired on January 29, 2015, (the “Expired Agreement”). The Agreement is substantially the same as the Expired Agreement.

The Agreement is designed to preserve the Company’s substantial tax assets associated with net operating loss carry forwards (“NOLs”) and built in losses under Section 382 of the Internal Revenue Code. The Company’s ability to use its NOLs and built in losses would be limited if there was an “ownership change” under Section 382. This would occur if shareholders owning (or deemed under Section 382 of the Internal Revenue Code to own) 5% or more of the Company’s stock increase their collective ownership of the aggregate amount of outstanding shares of the Company by more than 50 percentage points over a rolling three-year period.

Pursuant to the terms of the Agreement, the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (a “Right”) for each outstanding share of common stock, par value $0.001 per share of the Company (the “Common Stock”) to stockholders of record as of the close of business on January 29, 2015 (the “Record Date”). In addition, one Right will automatically attach to each share of Common Stock issued between the Record Date and the Distribution Date (as defined in the Agreement). Each Right entitles the registered holder thereof to purchase from the Company a unit consisting of one ten-thousandth of a share (a “Unit”) of Series A Junior Participating Cumulative Preferred Stock, par value $0.001 per share, of the Company (the “Preferred Stock”) at a cash exercise price of $15.00 per Unit (the “Exercise Price”), subject to adjustment, under certain conditions specified in the Agreement. For additional information, please refer to the Company’s Registration Statement on Form 8-A and the Company’s Current Report on Form 8-K, both filed with the SEC on January 21, 2015.

The Rights are not exercisable until the Distribution Date (as defined in the Agreement) and will expire at the earlier of (i) January 29, 2018, (ii) the time when the Rights are redeemed as provided therein; (iii) the time when the Rights are exchanged as provided therein; (iv) the repeal of Section 382 of the Internal Revenue Code if the Independent Directors determine that this Agreement is no longer necessary for the preservation of Tax Benefits (as defined in the Agreement), (v) the beginning of the taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward, or (vi) the close of business on January 29, 2016, if stockholder approval of the Agreement has not been obtained prior to that time, unless previously redeemed or exchanged by the Company.

 

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(3) Borrowings

Senior Secured Notes

The Company’s Senior Secured Notes (“Notes”) are summarized below (in thousands):

 

     September 30,
2015
     June 30,
2015
 

Balance beginning of year

   $ 29,874       $ 25,693   

Issuance of in-kind notes

     1,038         3,837   

Amortization of discount

     114         344   
  

 

 

    

 

 

 

Balance end of period

   $ 31,026       $ 29,874   
  

 

 

    

 

 

 

For the three months ended September 30, 2015 and 2014, the Company recognized interest expense of approximately $1.2 million and $1.0 million, respectively, consisting of payment of “in-kind” notes and amortization of discount and debt issuance costs.

 

(4) Net Loss Per Share

The following table sets forth potential shares of Company common stock that are not included in the diluted net loss per share calculation because to do so would reduce net loss per share for the periods indicated below (in thousands):

 

     As of September 30,  
         2015              2014      

Potentially dilutive securities:

     

Non-vested restricted share units

     1,032         995   

Options outstanding and exercisable

     2,289         3,089   

Consultant stock award with market condition

     —           700   

Non-vested restricted share awards

     6         24   
  

 

 

    

 

 

 

Total

     3,327         4,808   
  

 

 

    

 

 

 

 

(5) Financial Instruments

(a) Investments

The Company’s investment policy is consistent with the definition of available-for-sale securities. From time to time, the Company may sell certain securities but the objectives are generally not to generate profits on short-term differences in price. The following table shows the Company’s available-for-sale investments which are included in investments in the Condensed Consolidated Balance Sheets (in thousands):

 

     Fair Value      Amortized Cost  
     September 30, 2015
Total
     September 30, 2015
Total
 

U.S. Govt. Obligations

   $ 3,207       $ 3,204   

Certificates of Deposit

     500         500   
  

 

 

    

 

 

 

Total

   $ 3,707       $ 3,704   
  

 

 

    

 

 

 

(b) Fair Value Measurement

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based upon the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability.

ASC 820 provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

 

    Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

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    Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

    Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended September 30, 2015.

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy (in thousands):

 

     Fair Value as of September 30, 2015  
     Level 1      Level 2      Level 3      Total  
Assets            

Money Market Funds (a)

   $ 71,948       $ —         $ —         $ 71,948   

U.S Government Obligations

     3,207         —           —           3,207   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 75,155       $ —         $ —         $ 75,155   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Included in cash and cash equivalents

 

     Fair Value as of June 30, 2015  
     Level 1      Level 2      Level 3      Total  
Assets            

Money Market Funds (a)

   $ 71,948       $ —         $ —         $ 71,948   

U.S Government Obligations

     9,962         —           —           9,962   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 81,910       $ —         $ —         $ 81,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Included in cash and cash equivalents

 

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Table of Contents

The following tables summarize the Company’s financial assets and liabilities that are not required to be carried at fair value on a recurring basis as of September 30, 2015 and June 30, 2015 (in thousands):

 

     Carrying
Value
     Fair Value as of September 30, 2015  
        Level 1      Level 2      Level 3      Total  
Financial Assets               

Financial assets for which carrying values equal or approximate fair value

              

Cash

   $ 73,565       $ 73,565       $ —         $ —         $ 73,565   

Certificates of deposit (a)

     500         500         —           —           500   

Restricted cash (b)

     30         30         —           —           30   
Financial Liabilities               

Financial liabilities carried at other than fair value

              

Long-term notes payable (c)

   $ 31,026       $ —         $ —         $ 27,529       $ 27,529   

 

(a) Included in investments
(b) Includes current and non-current restricted cash
(c) Includes payment in kind notes

 

     Carrying
Value
     Fair Value as of June 30, 2015  
        Level 1      Level 2      Level 3      Total  
Financial Assets               

Financial assets for which carrying values equal or approximate fair value

              

Cash

   $ 73,755       $ 73,755       $ —         $ —         $ 73,755   

Certificates of deposit (a)

     1,751         1,751         —           —           1,751   

Restricted cash (b)

     43         43         —           —           43   
Financial Liabilities               

Financial liabilities carried at other than fair value

              

Long-term notes payable (c)

   $ 29,874       $ —         $ —         $ 28,161       $ 28,161   

 

(a) Included in investments
(b) Includes current and non-current restricted cash
(c) Includes payment in kind notes

 

(6) Commitments and Contingencies

Contingent Legal Expenses

The Company has entered into several agreements for legal services rendered to Unwired Planet, Inc. and its subsidiaries on a blended fee basis for patent enforcement matters and are responsible for the current payment of out-of-pocket expenses incurred in connection with the patent enforcement matters. These agreements typically require payment of a fixed fee for a period of time or fixed fees on occurrence of milestones and payment of a contingency fee upon a settlement or collection of a judgment. The fixed fee portions of these agreements concluded on June 30, 2015. Contingency fees in the Company’s agreements are usually based upon a percentage of the amount of a settlement or a judgment and are expensed when they are contractually due and payable. Contingency fees range from 10% to 30%, and are generally based on proceeds net of Ericsson’s fee share under the terms of the Master Sale Agreement by and among Telefonaktiebolaget L M Ericsson, Cluster LLC, Unwired Planet, Inc., Unwired Planet IP Holdings, Inc., Unwired Planet IP Manager, LLC, and Unwired Planet, LLC dated January 10, 2013, as amended (the “MSA”). Some of the agreements contain dollar limits on the total contingency fee that may be earned.

 

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Other Legal Matters

From time to time, the Company may be involved in litigation or other legal proceedings, including those noted above, relating to or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain and the Company could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material adverse impact on its financial condition, results of operations, cash flows, or on its business for the period in which the ruling occurs and/or in future periods.

Operating Lease

In September 2015, the Company entered into a three year lease with a base monthly rent of $11,250 to move its corporate headquarters to Los Altos, California. Upon execution of the lease, the Company paid a $50,000 refundable deposit. For the periods ended September 30, 2016, 2017, and 2018 the Company is obligated to pay approximately $0.1 million per year.

 

(7) Ericsson Master Sales Agreement

In February 2013 under the terms of the MSA, the Company, through a wholly-owned subsidiary, acquired a patent portfolio from a wholly owned subsidiary of Telefonaktiebolaget L M Ericsson (“Ericsson”) that consisted of approximately 2,150 patents and patent applications and the right to receive 100 additional patents per year for five years beginning in 2014. The acquired patents cover technology utilized in telecommunications infrastructure and mobile devices including, among other things, signal processing, network protocols, radio resource management, voice/text applications, mobility management, software, hardware, and antennas and were acquired subject to existing encumbrances.

The Company is not entitled to royalty payments that are currently being received by Ericsson under third party license agreements on any patents included in the portfolio. Consideration to be paid to Ericsson consists of a nontransferable, limited license to the Company’s patents and a right to receive an amount equal to a percentage of future gross revenues generated by a combined patent portfolio including both the Ericsson Patents plus the Company’s mobility patents (“fee share”). The payments Ericsson will receive from the derived value of the patent portfolio are computed on a tiered basis. Specifically, Ericsson will receive an amount equal to 20% of the first $100 million of cumulative gross revenue, 50% of the next $400 million and 70% of any amounts above $500 million. The fee share has no termination date.

Until September 2017, the Company may elect to reduce Ericsson’s fee share percentage in the third tier for a price of $5 million per percentage point reduction. The maximum fee share reduction the Company may elect is limited to twenty percentage points, which would require payment to Ericsson of $100 million.

The MSA contains a number of restrictions on the Company’s future activities. The Company and its affiliates may engage in certain licensing and other patent activities related to non-wireless patents (as defined in the MSA) subject to certain conditions, including not diverting resources otherwise dedicated to Unwired Planet, LLC (“UP LLC”), a wholly-owned subsidiary, and its activities and not bundling any such acquired non-wireless patents in licensing activities, provided the Company made an additional $50 million equity contribution to UP LLC, which was completed in September 2014.

In addition, the Company is required to provide advance notice to Ericsson of potential future acquisitions that do not involve wireless patents, and Ericsson has the option to participate in such acquisitions upon mutually agreeable terms and conditions.

Under the MSA, any amounts withheld by governments on account of taxes on license arrangements would not be included in the calculation of “Gross Revenue”. The MSA requires the Company to use reasonable efforts to reclaim such withholdings. Additionally, Gross Revenues may only be recognized in the period the fees and revenues are due from UP LLC’s and/or its subsidiaries customers.

Under the MSA, Ericsson is entitled to at least $2.0 billion upon a change in control prior to February 13, 2017 and to $1.05 billion based upon the occurrence of a “trigger event”, which includes but is not limited to a default in payment under the MSA exceeding $5.0 million, the acceleration of any indebtedness exceeding $5.0 million or failure to pay indebtedness exceeding $5.0 million at maturity, and the failure to pay a final judgment exceeding $5.0 million, which is not covered by insurance. Both of the above potential payments to Ericsson based upon a change in control or occurrence of a “trigger event” are subject to reduction for cumulative fee share payments made by the Company.

 

(8) Patent License and Patent Purchase Agreements

In March 2014, the Company entered into a Patent License Agreement (“License Agreement”) with a subsidiary of Lenovo Group Limited (“Lenovo”). License fee revenue is recognized ratably over the estimated licensing term of seven years and the Ericsson fee share is 20% of the gross licensing revenue.

 

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The following table summarizes gross license revenue, fee share, and net revenue for the three month period ended September 30, 2015 (in thousands):

 

License fee revenue

   $  1,564   

Fee share

     (313
  

 

 

 

Net revenue

   $ 1,251   
  

 

 

 

The following table summarizes the licensing revenue recognition and Ericsson fee share for the License Agreement over the remaining term of the License Agreement:

 

     2016 (1)     2017     2018     2019     2020     2021     Total  

License Revenue Recognition

   $ 4,692      $ 6,256      $ 6,256      $ 6,256      $ 6,256      $ 4,468      $ 34,184   

Fee share

     (938     (1,251     (1,251     (1,251     (1,251     (926     (6,868
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue

   $ 3,754      $ 5,005      $ 5,005      $ 5,005      $ 5,005      $ 3,542      $ 27,316   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Remaining amount for the 2016 fiscal year

The net revenue amounts above are recorded as deferred revenue on the Condensed Consolidated Balance Sheets, in addition to the $1.0 million received from Google Inc. in May 2015.

 

(9) Subsequent Events

Appointment of New Board Members

On October 20, 2015, each of Dallas S. Clement, Mark E. Jensen, Gregory P. Landis and William E. Marino resigned from the board of directors of the Company, effective November 4, 2015.

In connection with each director’s resignation, the Board of Directors of the Company approved the following:

 

    all unvested stock options and restricted stock grants by the Company currently held by each of the directors will be accelerated and become fully vested and exercisable on the effective date of his resignation; and

 

    the post-termination exercise periods for all stock options of the Company held by each director as of his resignation date will be extended for an additional twelve (12) months beyond the effective date of his resignation (but in no event beyond the expiration date of the stock option).

Effective upon those resignations, Jess M. Ravich and Taylor O. Harmeling were appointed to the Board. The authorized number of directors was also reduced from eight directors to six directors effective on November 4, 2015.

Hiring of Chief Financial Officer

On November 2, 2015, the Company’s Interim Chief Financial Officer, Dean Witter III, resigned, and the Company appointed James D. Wheat to serve as its new Chief Financial Officer. The compensation terms and other details of Mr. Wheat’s employment are set forth in his Offer Letter dated as of October 30, 2015.

Extension of Maturity of Senior Secured Notes

In November 2015, the Company extended the maturity date, and corresponding payment, of its outstanding Notes from June 30, 2018 to June 30, 2019. No other material terms of the Original Notes were amended. The Company is currently evaluating the potential future effects of the maturity extension on its financial position, results of operations, and cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based upon current expectations and beliefs of our management and are subject to risks and uncertainties that may cause actual events and results of performance to differ materially from those indicated by these statements. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and similar expressions identify such forward-looking statements. Such statements address future events and conditions concerning intellectual property acquisition and development, licensing and enforcement activities, investment plans, capital expenditures, earnings, litigation, regulatory matters, markets for our services, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in demand for our technology, legislative, regulatory and competitive developments in markets in which we and our subsidiaries operate, results of litigation, and other circumstances affecting anticipated revenues and costs. The occurrence of the events described above or below could harm our business, results of operations, and financial condition. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements except as required by law. Readers should carefully review the risk factors described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 and additional risk factors disclosed in Part II., Other Information, Item 1A., Risk Factors in this Form 10-Q. 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, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q.

 

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Overview of Our Business

Unwired Planet, Inc. and, along with our subsidiaries, reporting on a consolidated basis, (referred to as “Unwired Planet”, the “Company”, “our”, “we”, or “us”) is an intellectual property licensing company with a portfolio of mobile technology patents and patent applications.

Our strategy includes direct licensing, litigation when necessary, sale of our patents, joint ventures, and partnering with one or more intellectual property specialists. We intend to generate revenue by licensing our patented innovations and technologies to companies that develop mobile communications, software infrastructure, or hardware, and/or develop mobile communications products. Our goal is to obtain compensation for the use of our patented ideas through fair and reasonable royalties on our intellectual property.

In addition, we continue to believe that a number of factors have made implementing our direct licensing strategy more challenging, including on-going uncertainty for intellectual property rights created largely by conflicting and evolving patent case law, such as the U.S. Supreme Court’s decision in Alice Corporation Pty. Ltd. v. CLS Bank International, which has resulted in divergent opinions regarding appropriate royalties created uncertainty as to the enforceability of our patents.

Significant Accounting Policies and Judgments

There have not been any material changes to the significant accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

Results of Operations

Overview of Financial Results During the Three Months Ended September 30, 2015 and September 30, 2014

Revenues

We anticipate generating revenue primarily from licensing our intellectual property, and from any other businesses we potentially may acquire in the future.

We recognized $1.3 million in net revenue during the three months ended September 30, 2015 consisting of the recognition of $1.6 million in license revenue from amounts previously recorded as deferred revenue under the Lenovo Licensing Agreement and incurred a related $0.3 million in fee share under the Ericsson MSA. These amounts were consistent with the Lenovo Licensing recognized in the prior comparable period.

Operating Expenses

The following table represents operating costs and expenses for the three months ended September 30, 2015 and 2014, respectively (in thousands):

 

     Three months ending September 30,  
     2015      2014      Percent Increase
(Decrease)
 

Patent licensing expense

   $ 7,798       $ 7,582         3

General and administrative

     2,485         5,072         -51

Restructuring and other costs

     —           2         N
  

 

 

    

 

 

    

 

 

 

Total operating expenses

   $ 10,283       $ 12,656         -19
  

 

 

    

 

 

    

 

 

 

Patent Licensing Expenses

Patent licensing expenses include legal and consulting costs related to technical and economic evaluation, licensing, maintaining, and defending or asserting our patents, as well as salary and benefit expenses and travel expenses for our employees engaged in these activities on a full-time basis. We need to react to legal developments as they occur and some of our licensing expenses are and will be related to the actions taken by defendant companies. Since our strategy focuses on enforcing our patent rights as necessary, we incur significant costs defending our patents and initiating litigation against entities we believe have infringed our patents.

During the three months ended September 30, 2015 patent licensing expenses increased by 3% or $0.2 million compared with the same period of the 2015 fiscal year. The increase in patent licensing expense is primarily due to the Company’s on-going patent litigation activities. We expect our quarterly patent licensing expenses to remain consistent going forward, unless and until there is a significant change in the Company’s on-going enforcement or defense activities.

General and Administrative Expenses

General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and facility costs for our finance, legal, information services, and executive personnel. General and administrative expenses also include outside accounting and corporate legal fees, public company costs, and expenses associated with the Board of Directors.

 

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General and administrative expense for the three months ended September 30, 2015 decreased approximately 51% or $2.6 million from the same period of the 2015 fiscal year. The decrease in general and administrative expense is primarily attributable to non-recurring expenses incurred in the prior period consisting of $1.9 million of expense related to the evaluation of several strategic options including evaluation of a potential acquisition candidate and plans to raise additional capital, a $1.0 million bonus payable to the Company’s Chairman pursuant to the terms of his bonus agreement, and $0.4 million of expense related to a severance agreement entered into with the Company’s former Officer. These higher expenses in the prior period were partially offset by $0.4 million higher outside services expenses and $0.3 million higher stock-based compensation expenses in the current period. We expect our quarterly general and administrative expenses to remain relatively consistent on a quarterly basis during fiscal 2016, excluding currently unknown significant transactions or other unique events.

Interest Expense

During the three months ended September 30, 2015, we incurred interest expense of $1.2 million compared to $1.0 million in the same period of the 2015 fiscal year. Interest expense on the Company’s Senior Secured Notes consists of in-kind interest payments and amortization of debt discounts and deferred issue costs. For the remainder of the 2016 fiscal year, we expect our interest expense to increase slightly as compared to the prior periods based upon the compounding nature of the in-kind interest payments.

Working Capital and Capital Resources

As of September 30, 2015, our working capital was approximately $65.7 million, a decrease of approximately $9.7 million from June 30, 2015. The decrease in our working capital was primarily due to the $8.1 million used in operations, during the quarter.

The following table presents our cash flows for the three months ended September 30, 2015 and 2014 (in thousands):

 

     Three months ending September 30,  
         2015              2014      

Cash (used in) operating expenses

   $ (8,119    $ (30,103

Cash provided by investing activities

     7,975         10,000   

Cash provided by (used in) financing activities

     (46      3   
  

 

 

    

 

 

 

Net decrease in cash and cash equivalents

   $ (190    $ (20,100
  

 

 

    

 

 

 

Cash Used In Operating Activities

Cash used in operating activities during the three months ended September 30, 2015 was approximately $8.1 million compared to cash used by operating activities of $30.1 million during the prior period. The change is primarily related to the settlement of a non-recurring fee obligation of approximately $20 million incurred during the three month period ended September 30, 2014 as well as a larger net loss recognized for the same period.

The Company’s operating cash during the current period was used in conducting its on-going patent licensing operations and other operating expenses, primarily off-set by non-cash compensation and interest payments in-kind (inclusive of discount amortization) totaling approximately $1.9 million.

Cash Provided by (Used in) Investing Activities

Cash provided by investing activities during the three months ended September 30, 2015 was approximately $8.0 million compared to cash provided in investing activities of $10.0 million during the same period of the 2015 fiscal year. The decrease during the current period is primarily related to the Company’s cash use in operations resulting in less cash available for investing activities. The Company does not anticipate significant changes in its investment activities for at least the next twelve months.

Cash Flows Provided by Financing Activities

During the three months ended September 30, 2015 and 2014 the Company did not conduct significant financing activities. Throughout the remainder of fiscal 2016 the Company expects to incur immaterial cash outflows associated with purchases of treasury stock as consistent with prior quarters.

While we believe that our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities to fund growth activities. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges, senior to current holders of our common stock and the terms of any debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our current stockholders and additional financing may not be available in amounts or on terms acceptable to us. We also may pursue contingency arrangements related to our legal cases and/or alternative litigation financing contracts.

 

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There is no assurance that we will be able to raise additional capital in amounts sufficient to meet our long-term requirements, if at all. If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned intellectual property activities, which could harm our business, financial condition, and operating results.

Long-Term Debt Obligations and Commitments

As of September 30, 2015 our principal long-term debt obligation consisted of the Notes. On June 28, 2013, the Company entered into a note purchase agreement for the sale of our Notes in the amount of $25.0 million with Indaba. From the date of issuance of the Notes up to and inclusive of March 31, 2015, the Notes bore interest at 12.875%, paid quarterly as payment-in-kind. Beginning in June 2015, the Company has an option every quarter to pay interest on the Notes in cash with an interest rate of 12.5% or as in-kind payments at a higher interest rate of 12.875%.

Beginning in June 2015, the Company has the option to redeem some or all of the Notes using net cash proceeds from the sale, lease, conveyance, transfer or other disposition of its patents at a redemption price equal to 110% of principal and accrued and unpaid interest. In addition, the Company may redeem some or all of the Notes at any time on or after June 28, 2015 at a redemption price initially equal to 110% of principal and declining over time plus accrued and unpaid interest.

The agreement provides that the Notes will be secured by substantially all assets of the Company other than certain excluded property. On the issue date, such excluded property included, among other property, all equity interests in the Company’s subsidiaries and all assets of the Company’s subsidiaries. The Agreement provides that certain newly-created domestic subsidiaries will become guarantors under that Agreement and pledge their assets as additional collateral securing the Notes in certain circumstances.

In the event of certain change of control transactions, which include the sale of patents that generate net proceeds to the Company equal to or greater than $150 million during the term of the Notes, each holder of the Notes may require the Company to purchase some or all of its Notes at a purchase price equal to 110% of the aggregate principal amount thereof if such redemption date occurs between the issue date and June 28, 2015, and declining thereafter, in each case, plus accrued and unpaid interest to the date of purchase.

The Indenture contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to: (1) incur debt; (2) pay dividends and make distributions on, or redeem or repurchase the Company’s equity interests; (3) make certain investments; (4) sell assets; (5) create liens; and (6) enter into transactions with affiliates. The Company is also required to maintain one or more accounts with an aggregate minimum cash and cash equivalents balance of $10 million, provided that this requirement will no longer be in effect at any time after the first time the volume weighted average trading price of a share of the Company’s common stock exceeds $3.00 for any period of 15 trading days in any 30 day trading day period occurring after June 28, 2015.

In May of 2015, the Company was notified that Indaba Capital Fund LP sold our Notes in their entirety to MAST Capital Management, LLC as part of a private transaction. Upon subsequent correspondence, we identified MAST Capital Management, LLC as a significant shareholder. The sale of the Notes did not have any impact on the original terms including the maturity date, in-kind interest accruals, or principal amount.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the market risks discussed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President as Principal Executive Officer and our Chief Financial Officer, as Principal Financial Officer, the effectiveness of our disclosure controls and procedures as of September 30, 2015. We identified a significant deficiency in our internal control over financial reporting during the period ending September 30, 2015, which we have taken steps that we believe will remediate the cause of the significant deficiency. We believe this significant deficiency does not change the effectiveness of our disclosure controls and procedures covered in this report. Based on the above evaluation, our President and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report was (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

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Changes in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, our Principal Executive and Principal Financial Officer and affected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

From time to time, the Company may be involved in litigation or other legal proceedings, including those noted below, relating to or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain and the Company could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material adverse impact on its financial condition, results of operations, cash flows, or on its business for the period in which the ruling occurs and/or in future periods.

Openwave Systems Inc.(Unwired Planet) v. Apple Inc. (“Apple”), Research in Motion Ltd, and Research in Motion Corp. (“RIM”) (now known as Blackberry)

In August 2011, the Company filed a complaint in the Federal District Court for the District of Delaware against Apple and RIM, alleging that Apple and RIM products infringe certain of the Company’s patents, seeking, among other things, a declaration that the Company’s patents cited in the complaint have been infringed by Apple and RIM (the “Defendants”) and that these patents are valid and enforceable, damages as a result of the infringement, and an injunction against further infringement. This matter was stayed pending a parallel case filed with the International Trade Commission (“ITC”), which the Company withdrew in October 2012. The Federal District Court in Delaware lifted the stay in January 2013, and a claims construction, or “Markman,” hearing on one claim was held in November 2013. In February 2014, the Court issued a Memorandum Opinion regarding the results of the claim construction hearing. Based on the results of the claim construction order, the parties stipulated to judgment of non-infringement and the Company has appealed to the Federal Circuit regarding the claim construction order issued by the District Court. The oral argument for the appeal was heard on November 3, 2015.

Unwired Planet LLC v. Apple Inc. (“Apple”)

In September 2012, the Company filed a complaint in the U.S. District Court for the District of Nevada. The case charges infringement of ten patents related to smart mobile devices, cloud computing, digital content stores, push notification technologies, and location-based services such as mapping and advertising. Five of these patents were dismissed without prejudice to simplify the case. In August 2013, the U.S. District Court for the District of Nevada granted Apple’s motion to transfer venue from the District of Nevada to the Northern District of California. A Markman hearing was held in August 2014 and a claim construction order was issued in November 2014. Based upon the claim construction order, the parties stipulated to non-infringement on one patent. A hearing on motions for summary judgment and other pre-trial motions was held in April 2015. On May 26, 2015, the Court granted summary judgment of non-infringement on three of the remaining four patents in the case, and partial summary judgment of non-infringement on the fourth patent in the case. Unwired Planet and Apple stipulated to dismiss the remaining elements of infringement related to the fourth patent. The Company has appealed the summary judgment ruling and Markman order to the Federal Circuit.

Unwired Planet LLC v. Google, Inc. (“Google”)

In September 2012, the Company filed a complaint in the U.S. District Court for the District of Nevada. The case charges infringement of ten patents related to cloud computing, digital content stores, push notification technologies, and location-based services such as mapping and advertising. Google filed an application in August 2013 for inter partes reexamination with the USPTO relating to three patents and sought and obtained a partial stay on those patents. In July 2014, the Company voluntarily dismissed infringement claims on three of ten patents (one of which was stayed pending reexamination). A Markman hearing on five patents was held in August 2014 and the Court issued a Markman order in December of 2014. Unwired Planet and Google stipulated to non- infringement on four of the patents based on the Markman results. Unwired Planet has appealed the Markman order to the Federal Circuit. The remaining two patents that were stayed have been invalidated by the Patent Trial and Appeal Board (PTAB). The Company is also appealing the invalidations to the Court of Appeals for the Federal Circuit.

Unwired Planet LLC v. Square Inc. (“Square”)

In October 2013, the Company filed a complaint in the U.S. District Court for the District of Nevada, charging Square with infringing three patents related to mobile payment technologies, and seeking unspecified monetary damages. A Markman hearing was held on September 22,

 

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2014 and a claim construction order was issued in October of 2014. Discovery is ongoing. Square petitioned for inter partes review of two of the asserted patents, and covered business method review of the third asserted patent. The USPTO/PTAB instituted the requested reviews, and Unwired Planet and Square agreed to stay the Nevada litigation pending the outcome of the PTAB reviews. The final hearings at the PTAB were conducted in August and September 2015. On October 30, 2015, the PTAB issued a final decision invalidating all of the challenged claims of one of the three asserted patents (US Patent No. 8,275,359). The PTAB has not yet issued final decisions on the other two asserted patents.

Unwired Planet International Ltd v. Samsung, Google, Huawei, et.al (collectively “EU Defendants”)

In March 2014, the Company filed parallel patent infringement actions in the United Kingdom (“UK”) and Germany, alleging that the EU Defendants infringe six patents originally granted by the European Patent Office and now effective in both the UK and Germany, and seeking unspecified monetary damages. Four of the patents at issue in both cases were acquired by the Company from Ericsson pursuant to the MSA; one patent lists Openwave Systems as the assignee and the last patent lists Unwired Planet as the assignee. The UK lawsuit alleges that Samsung, Google, and Huawei infringe all six UK patents related to technologies fundamental to wireless communications found in mobile devices and network equipment, including the use of LTE telecommunication standards and push notification technology underpinning the Android ecosystem. The German lawsuit alleges that Samsung, Google, Huawei, LG, and HTC infringe the six German equivalents. Due to the number of defendants and the number of patents, both the UK and German courts have scheduled several trial dates rather than litigating all of the patents against all of the defendants in one trial.

The first German trial took place in June 2015. Following the hearing, the court dismissed the action against Huawei only with respect to one patent (EP (DE) 2,229,744), and a second trial will commence in Germany on November 26, 2015 at which time three patents will tried against LG, Samsung and Huawei (EP (DE) 2,119,286, 2,385,514, and 1,230,818).

The first patent infringement case in the UK was held in October 2015. The trial addressed Huawei and Samsung’s infringement of Patent No. EP (UK) 2,229,744. We currently expect a judgment from the UK court in late November. The remaining patents asserted in the UK will be tried in November/December of 2015 (EP(UK) 2,119,287 and 2,485,514), and in February (EP (UK) 1,230,818), April (EP (UK) 1,105,991) and June (EP (UK) 0,989,712) of 2016. In the UK, the prevailing party is generally able to recover a majority of its costs incurred in litigating its case.

The defendants in both the German and UK actions have filed defenses and counterclaims against the Company in both courts alleging that the original transaction under the Ericsson MSA violates EU competition law and is void. Further, the defendants allege that the Company engaged in anticompetitive business practices that did not adhere to fair, reasonable and non-discriminatory (FRAND) standards. Samsung further alleges that even if the MSA is valid, it has a license to certain patents because of its existing license agreement with Ericsson. The claims by the defendants in the German lawsuit are currently expected to be adjudicated in the same proceedings as the underlying patent infringement cases. In the UK, these defenses and counterclaims will be adjudicated separately from the underlying infringement claims, in a trial scheduled for October 2016.

HTC has filed an appeal with the German Supreme Court seeking to overturn a decision by the trial court, which the decision has been affirmed by the regional appellate court, that Unwired Planet is not required to post a bond as security for costs in the event HTC is ultimately successful on the merits.

For a further discussion of the UK and German litigation, and the possible effects on the Company’s results, see the risk factors described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

Unwired Planet, Inc. v. Microsoft

In July 2014, the Company filed suit in the U.S. District Court of Delaware alleging Microsoft breached a patent license agreement the two companies entered into in September 2011. The Company is seeking a declaratory judgment and damages for breach of contract. The parties have stipulated to simplify the case and reduce some of the issues, and discovery is now underway with respect to the issues remaining in the case. Summary judgment motions are due to be filed with the Court in the fall of 2015. A hearing on Unwired Planet’s motion for summary judgement has been scheduled for February 12, 2016.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

 

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On-Going changes in our management and Board of Directors may continue to adversely impact our operating results.

In June 2015, we hired a new Chief Executive Officer. In July 2015, we hired a new Executive Vice President and General Counsel, and in October 2015 we hired a new Chief Financial Officer. In addition, four of our current directors, Dallas Clement, Mark Jensen, Greg Landis, and Bill Marino, will resign from the Board of Directors effective November 4, 2015, and the Board has nominated two new directors, to begin service prior to the Annual Meeting of Stockholders. Due to the number of new executives at the Company and directors on our Board, we may not be able to achieve operational results or strategic objectives as intended, or at all.

The newly-created Strategic Committee may not be able to achieve the goal of working with management to improve our operating results.

In September 2015, our Board of Directors created a Strategic Committee to work with management to explore potential acquisitions, possible sales or other dispositions of assets, as well as other possible transactions that would improve the overall results of the business. If we are unable to identify suitable acquisition candidates, purchasers of assets, or other entities interested in strategic business relationships, and if we are unable to consummate any one or more of those types of transactions, the failure to so could adversely affect our financial results.

A significant deficiency was recently identified in our internal control over stock option accounting, and although we have taken steps that we believe will remediate the cause of the significant deficiency, similar significant deficiencies may be identified in the future.

In connection with the preparation of the financial statements for the period ending September 30, 2015, our independent auditors along with management determined that a significant deficiency in our internal control over financial reporting of stock option expenses existed as a result of work performed by our former corporate controller that was not adequately communicated or understood by remaining financial personnel at the Company. Subsequent to the end of the period ending September 30, 2015, the Company has hired new personnel with experience in financial reporting, and intends to hire and train additional personnel. By taking these steps, we are working to remediate this significant weakness. However, even with these remedial measures underway, the effectiveness of any system of disclosure controls and procedures is subject to limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. Moreover, additional significant deficiencies in our internal control over financial reporting may be identified in the future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Index to Exhibits, which follows the signature page of this Quarterly Report on Form 10-Q and which is incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements 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.

Date: November 9, 2015

 

Unwired Planet, Inc.

/s/ Boris Teksler

Boris Teksler

Chief Executive Officer and President

(Principal Executive Officer)

/s/ Jim Wheat

Jim Wheat

Chief Financial Officer

(Principal Financial Officer)

 

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INDEX TO EXHIBITS

 

Exhibit
Number

  

Description

  10.1    Employement Offer Letter dated October 30, 2015 between Unwired Planet, Inc. and James D. Wheat.
  31.1    Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
  31.2    Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
  32.1    Certification of the Principal Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of the Principal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 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

The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

 

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