Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. IPASS INC (1053374) 10-Q published on Nov 13, 2018 at 4:38 pm
Reporting Period: Sep 29, 2018
On August 21, 2018, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation of iPass Inc. (the “Amendment”) to effect a one-for-ten reverse stock split of its outstanding common stock, effective as of August 23, 2018. A series of alternate amendments to effect a reverse stock split were approved by the Company's stockholders at its Annual Meeting of Stockholders held on June 13, 2018, and the specific one-for-ten ratio was subsequently approved by the board of directors on August 16, 2018. All share and per-share data in our unaudited condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect this reverse stock split.
In June 2018, through a newly formed special purpose entity ("SPE") that is consolidated within our financial statements, we entered into a credit arrangement with Fortress Credit Corp ("Fortress") pursuant to which we initially borrowed $10 million and may request additional $1 million installments up to an additional aggregate of $10 million, each such subsequent installment subject to Fortress’s consent. We assigned to the SPE our current and future intellectual property as first-priority security for the payment of all outstanding principal and interest. The credit agreement provides for principal payment beginning December 2019, and requires us to meet and maintain within specified levels and thresholds certain specific financial and operational covenants; require a December 31, 2018 audit report without a going concern emphasis of a matter paragraph; satisfy key employee retention requirements; maintain our current business and operations; satisfy certain working capital and debt limitations; and not undertake certain actions and transactions such as paying dividends or entering into a change of control transaction, without Fortress consent. Failure to meet and maintain any of these covenants and requirements, to repay principal and interest in a timely manner or to undertake any of the prohibited actions or transactions would result in an event of default and allow Fortress to accelerate and require mandatory prepayment of all outstanding principal and interest, including fees. There can be no assurance that we will be able to perform the obligations under the credit agreement, including the timely repayment of the amounts outstanding under the credit agreement, and upon the occurrence of an event of default under the credit agreement, if we are not able to perform our obligations and repay all outstanding amounts required when due, we would lose control over our assets, including our intellectual property, which would seriously harm our business and operations.
Our existing cash balances will not be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months. We intend to continue to make investments to support our business and require additional funds to respond to business challenges, which include the need to develop new solutions and partnerships or enhance existing solutions and partnerships, and enhance our operating infrastructure. Accordingly, we need additional equity or debt financing to secure funds. Equity and debt financing, however, is not readily available and, if becomes available, might not be available on terms satisfactory to us. If we raise additional funds through equity financing, our stockholders will experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt, as is the case with our credit arrangement with Fortress. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to continue to support our business and to respond to business challenges will be significantly limited and we will have to delay, reduce the scope of or eliminate initiatives, as well as significantly reduce operating expenses, which would harm our operating results. However, there is no assurance that we will be able to achieve these objectives; therefore, there is substantial doubt about our ability to continue as a going concern.
On November 5, 2018, we received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Nasdaq Hearings Panel (the “Panel”) has determined to delist our securities from the Nasdaq Capital Market based upon the Company’s non-compliance with the minimum $35 million market value of listed securities requirement. Nasdaq suspended trading of the Company’s shares effective November 7, 2018, and Nasdaq intends to complete the delisting process by filing a Form 25 “Notification of Delisting” with the Securities and Exchange Commission (“SEC”) after the applicable review periods have expired. In accordance with the Nasdaq Listing Rules, we may request that the Panel reconsider its decision or appeal the delisting determination to the Nasdaq Listing and Hearing Review Council, but we must do so within 7 or 15 days of the notice
date, respectively. We filed a request for reconsideration on November 12, 2018, and are awaiting a response from Nasdaq. In the meantime, our shares are eligible to trade “over-the-counter” in the OTC Markets system under the current symbol “IPAS.” We may also file an application to have our shares quoted on the OTCQB® Market tier (“OTCQB”), which is operated by OTC Market Groups Inc.
If we are unable to close the acquisition of our company by Pareteum Corporation, it could create unforeseen, adverse effects on our business operations.
On November 12, 2018, we entered into a definitive agreement to be acquired by Pareteum Corporation. However, the closing of the transaction is subject to closing conditions which, if not met or waived, could cause the transaction not to close. In addition, acquisitions expose us to litigation from our shareholders which could be costly to defend, serve as a distraction to management, and potentially cause the transaction not to close. If the acquisition of iPass by Pareteum does not close, there is substantial doubt about our ability to continue as a going concern beyond the targeted close date in the first fiscal quarter of 2019 due to our current financial condition and the resources and attention required through the acquisition process. Even if the transaction does close, holders of our common stock will hold Pareteum common stock and there is no guarantee that Pareteum common stock will do well due to the risk factors disclosed in Pareteum's filings with the SEC. Furthermore, Pareteum may not realize the desired benefits from the acquisition such as lower costs, increased revenues, synergies, and growth opportunities. Many factors could have adverse effects on the combined companies, including, but not limited to, the combination of potentially different company cultures, maintaining employee morale throughout the process, retaining key customers and employees, navigating the complexities of integrating two companies, and complying with applicable laws, rules, and regulations in multiple jurisdictions.