Form Holdings – Blockchain is Icing on the Cake

Ok this post requires some disclaimers and discussion:  I’m normally reluctant to write about stocks that represent meaningful weights in my portfolio, especially microcaps, because, I’m not a penny stock pumper, I’m not a chat-room scam artist, I’m not selling subscriptions to followers who I’m trying to plug SOLD TO YOU SUCKA trades on, and basically I don’t want to even give the most remote illusion of pumping small cap stocks that I may be trading.   You should understand that I may be trading the stock at hand: $FH, at any time, and will not update my readers as to my buys or sells.

Unless you’ve been living in a cave, you’ve probably seen the blockchain / Bitcoin / crypto-currency mania spill over from the coins and alt-coins themselves to microcap, low float stocks who put out Bitcoin or blockchain-related press-releases.   Past examples include stocks like $MARA, $RIOT, $LFIN, $NETE, $NXTD, $GROW, $DPW (feel free to pull up some charts of those gems).  Today, the insanity seemed to peak early this morning with the news that $LTEA – Long Island Iced Tea Company, would change its name to – I’m not making this up – “Long Blockchain Corp,” and they *LITERALLY* said (emphasis mine):

“The Company is already in the preliminary stages of evaluating specific opportunities involving blockchain technology.”

I mean, I feel like every company is in the preliminary stages of evaluating blockchain opportunities… but anyway, the stock reacted, trading up as much at 500% at one point pre-market and closing up almost 200% (that’s a near triple on the day):

LTEA Intraday 12/21/17

LTEA Intraday 12/21/17

Now, I don’t own $LTEA, I never have, I hopefully never will.  But I do own a significant position in $FH (Form Holdings), which I have been involved with for a number of years (footnote 1).   $FH was formerly known as $VRNG, and in its past life was a company seeking to monetize intellectual property:  patents.  Their most “valuable” patent in theory was related to internet search, and was invented by Ken Lang, a former Lycos executive and former $VRNG board member and Head of Technology.   As long-time followers of this stock know, the lawsuit $VRNG brought against $GOOG met an ignominious demise (some say, unjustly), although $VRNG did manage to later collect on a settlement with ZTE and used the cash to go in a new direction, becoming a holding company which bought (and later divested) FliCharge, a wireless charging company, XPresSpa: a company which does airport massages and spa business, and Group Mobile which makes rugged mobile computing devices.

Lately, $FH has been focusing on divesting non-core businesses: they’ve spun out FliCharge (while still maintaining royalty rights) and are currently working on divesting Group Mobile to focus on the XS business.  They also own a 8.25% stake in Infomedia.

The Company ($FH) has a bad rap as a stock that’s not been kind to shareholders in the past, but I think that many observers miss the shift in the company’s business:   bystanders mock “airport massage” but the business is steady, profitable, easy to model,  and offers a sizable cash-on-cash return on investment – contrary to the old volatile, risky, chunky and hard to model patent business.  Form Holdings’ XPresSpa (XS) segment is cash-flow positive, and their Group Mobile business is basically cash-flow neutral, but Form is working to divest it anyway to focus on the growth and profitability of XS.   After the current Q4 2017 quarter, the company aims to be cash-flow positive on a consolidated basis, including corporate overhead, and will then be able to reap the benefits of the cash-flow producing business they’ve built.   This past summer, $FH guided to $ 60MM in 2018 revenues from the Wellness (XpresSpa) Segment, which I am guessing will prove to be conservative.  They have some debt ($6.5MM) due in 2019 which they’ll likely look to re-finance after they complete the disposition of Group Mobile, and they’ll they have some preferred stock to deal with a few years later, although management has been completely confident in their ability to refinance or pay down these obligations in the numerous discussions I’ve had with them.

So why am I writing about $FH tonight?  Well, today, the message board pump crew took hold of my core holding and started pumping it as a crypto play.  I’m writing this post for one reason, and one reason only – it’s right in the title of the post:  you don’t need crypto or blockchain to make a case for $FH at current prices – that stuff is just gravy.  Icing on the cake.

Today the story related to a variety of items:

  1. $FH owns a 10% stake in Infomedia, who, last month,  signed a partnership with mobile payments processor Bango.  Excitement arose from the combination of Bango’s mobile payments biz and their list of big name platform partners.   From the description in the PR:

    Bango is the standard platform chosen by leading global stores to deliver mobile payments to everyone. As the next billion consumers adopt their first smartphone and look for universal payment methods, Bango will be there to unlock the world of apps, video, music, games and other content that brings those smartphones to life. Global stores plugging into the Bango Platform include Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), Samsung (005930: Korea SE) and Microsoft (NASDAQ: MSFT). Bango also partners with leading payment providers around the world to drive new users and revenues through its industry-leading mobile payment solutions. For more information, visit www.bango.com.”

  2. Ken Lang – remember the guy I mentioned above who was behind the patent that was at the core of the legacy $VRNG business?   Take a look at his LinkedIn page:

lang-linkedin

I talked to two people associated with $FH today who said that Ken Lang was a first-adopter of Bitcoin and blockchain technology.   They both mentioned to me that he had, years ago (2013!?) given them token amounts of bitcoin which are now worth multiple thousands of dollars, but that they’d of course forgotten their passwords to access their crypto-wallets.  So aside from Ken Lang being one of the core elements of the legacy $VRNG business behind $FH, how does he relate?  That brings us to:

3) An old $VRNG (now $FH) SEC filing describing a joint venture the company formed with Lang as he left the $VRNG board of directors (emphasis mine):

“Vringo, Inc. (NASDAQ: VRNG), a company engaged in the innovation, development and monetization of intellectual property, today announced that Andrew “Ken” Lang and Vringo will form a new company as a Vringo subsidiary.  “The intention of this new venture is to develop and commercialize innovative technologies in the mobile, security, digital currency, and trusted computing and communication infrastructure spaces,” said Andrew Lang, Head of Technology.”

and importantly (emphasis mine):

Vringo will retain a 51% ownership in the new venture and Mr. Lang will remain at Vringo in the capacity of Head of Technology. Mr. Lang resigns from the board of directors effective June 22, 2015 and has agreed to a significant reduction in salary, effective immediately. In addition, members of management have volunteered to defer vesting of restricted stock units to a later date in 2016.  Andrew Perlman, Chief Executive Officer of Vringo, said, “We are excited to partner with Ken on this new venture. It is directly in line with our goal to build shareholder value through partnerships to develop technology.”

The new Form Holdings divested the majority of their patent interests, but it is my understanding that they still retain this joint-venture stake with Ken Lang, and its associated intellectual property.

4) Some traders and analysts found this Ken Lang et all patent ($VRNG/$FH crew: Jason Charkow ($FH chief counsel), David Cohen (former $VRNG counsel) regarding some sort of mobile communications stuff.   I am not going to pretend that I have any idea what this patent is about.  I have no clue.  If you want to know how much I know about technology patents or the patent litigation process, all you have to do is read my old VRNG blog posts where I amply profess my own ignorance.   I have no idea if it’s related to potential blockchain applications, mobile crypto currency trading, or crypto wallets, or if it’s related to nothing of the sort.  I do know that Ken Lang was and remains a bitcoin/blockchain early adopter who tried, even years ago, to get his friends and colleagues interested in the space.

 

So what are these 4 numbered items above worth?  I have no idea.  None.  No clue.  I can tell you, though that my point here is that even if they’re worth ZERO, the underlying $FH (XS) business is reaching a turning point where it’s about to lead the consolidated company to positive cash flow.   In a world where companies quintuple in market cap because they announced that they’re in preliminary discussion to explore blockchain related activities, skyrocket because they add “blockchain” to their name, or tack on tens of millions of dollars in market cap because they’ve bought a few million dollars worth of bitcoin mining equipment, I consider all of these items to be icing on the cake – gravy – a free ride on the crypto mania.

I wrote this post because I often see comments mocking $FH for their abrupt shift from monetizing intellectual property to mastering the airport massage business.  I have sat down face to face with $FH’s CEO.  I have talked to him at length on the phone.  I think he is sharp as a tack and knows the new business inside out.  Although $VRNG was unkind to investors in the past, I believe that $FH management is doing everything they can to put the pieces in place for the company and the stock to create legitimate value for shareholders, with or without crypto gravy.  Do your own due diligence.  Read the company’s SEC filings.  Read their investor presentation.

Link to $FH Q3 2017 Investor Presentation

-KD

1: I owned $VRNG in the patent days, took a loss after the $GOOG patent lawsuit loss, and bought back in after they settled with ZTE and cleaned up their cap structure.  I sold my shares for a nice gain on the 2016 run-up, and bought back in as the stock came down on the subsequent sell-off which has been relentless since.