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

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "will," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K filed on March 30, 2012, our Quarterly Report on Form 10-Q filed on May 15, 2012 and other public reports we filed with the Securities and Exchange Commissions, or the SEC. The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. In this report, "Vringo," the "Company," "we," "us," and "our" refer to Vringo, Inc.

Overview

We provide a range of software products for mobile video entertainment, personalization and mobile social applications. Our comprehensive software platforms include applications that allow users to: (i) create, download and share mobile video entertainment content in the form of video ringtones for mobile phones, (ii) create social picture ringtone and ringback content, in the form of animated slideshows sourced from friends' social networks, (iii) create ReMixed video clips from artists and branded content, and (iv) utilize Fan Loyalty mobile applications for contestant based reality TV shows. Our applications and services have been launched with ten carriers in eight markets. The billing integrations that we have with these operators are of significant strategic value to our operations. In addition, we have deals in place with two of the four largest handset makers in the world. We believe that social network information and updates will be shared regularly when friends regularly communicate by voice and by text. Our video ringtone solutions and other mobile social and video applications, which encompass a suite of mobile and PC-based tools, enable users to create, download and share video and other social content with ease as part of the normal communication process, and provide our business partners with a consumer-friendly and easy-to-integrate monetization platform. While our current portfolio of applications and services represents what we believe to be cutting edge mobile technology that can work across many operating systems, we recognize that the pace at which the mobile landscape is changing has increased and the two most dominant operating systems are Google's Android and Apple's iOS. Moving forward, we intend to develop additional applications and services for these two key operating systems, as well as other dominant smartphone operating systems that may emerge. We believe that we can leverage our existing distribution and relationships to promote apps and services for these two operating systems.

We are a development stage company. From inception through June 30, 2012, we have raised approximately $35.9 million. These amounts have been used to finance our operations, as until now, we have not yet generated any significant revenues. From inception through June 30, 2012, we recorded losses of $48.4 million and net cash outflow from operations of $31.8 million. Our average monthly cash burn rate from operations for the six month period ended June 30, 2012 was approximately $0.4 million. For the six month period ended June 30, 2012, the operational cash burn also included amounts paid in connection with merger and acquisition activities, in the total amount of approximately $0.6 million.

As of June 30, 2012, we had approximately $3.4 million in cash and cash equivalents. Based on current operating plans, the current resources of the combined company and the $31.2 million received in a private registered direct offering, offset by $22 million paid for the acquisition of patent assets, as described below and in Note 8 to the accompanying financial statements, we expect to have sufficient funds for at least the next twelve months from the balance sheet date. In addition, we may need to raise additional funds in connection with possible acquisitions of patent portfolios or other intellectual property assets that we may pursue. Moreover, a significant portion of our issued and outstanding warrants are currently "in the money" and the shares of common stock underlying such warrants will become freely tradable upon exercise after registration, with the potential of up to $31 million of incoming funds for us. Provided that our stock price remains at or near its current level, we expect that the exercise of these instruments will generate substantial additional funds for our operations. There can be no assurance, however, that any such opportunities will materialize. All of our audited consolidated financial statements since inception have contained a "going concern" reference by our management, expressing substantial doubt about our ability to continue as a going concern.

Our financial statements were prepared using principles applicable to a going concern, which contemplate the realizations of assets and liquidation of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we are not able to continue as a going concern.

Recent Developments

Merger with Innovate/Protect

On July 19, 2012 (the "Closing Date"), Innovate/Protect, Inc., a Delaware corporation and an intellectual property firm founded in 2011, whose wholly-owned subsidiary, I/P Engine, holds eight patents that were acquired from Lycos Inc. ("Innovate/Protect"),merged with and into VIP Merger Sub, Inc. (which survived the Merger and changed its name to Innovate/Protect, Inc.) ("Merger Sub"), a Delaware corporation and our wholly-owned subsidiary, pursuant to the terms and conditions of the previously announced Agreement and Plan of Merger, dated as of March 12, 2012 (the "Merger Agreement"), by and among us, Merger Sub and Innovate/Protect (the "Merger"). Innovate/Protect is a holding company, incorporated under the laws of Delaware on June 8, 2011, as Labrador Search Corporation, which holds two wholly-owned subsidiaries: I/P Engine Inc. ("I/P Engine"), formed under the laws of Virginia on June 14, 2011, as Smart Search Labs Inc., which operates for the purpose of realizing economic benefits, and I/P Labs ("I/P Labs"), incorporated in Delaware on June 8, 2011 as Scottish Terrier Capital Inc., which operates to acquire and develop other patented technologies or intellectual property. The combination of the two companies is to substantially increase the Company's intellectual property portfolio, add significant talent in technological innovation, and position it to enhance its opportunities for revenue generation through the monetization of the combined company's assets, including a potential successful outcome of Innovate/Protect 's litigation.

In connection with the Merger, we issued, as of the Closing Date, our securities to Innovate/Protect's stockholders in exchange for the capital stock owned by Innovate/Protect's stockholders, as follows: (i) an aggregate of18,617,569 shares of our common stock, par value $0.01 per share, (ii) an aggregate of 6,673 shares of ourSeries A Preferred Stock, par value $0.01 per share, convertibleinto an aggregate of 20,136,445 shares of our common stock, with suchpowers, designations, preferences and other rights as set forth in the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock we filed with the Secretary of State of the State of Delaware,
(iii) an aggregate of 8,299,116 Series 1 warrants to purchase up to an aggregate 8,299,116 shares of our common stock, with an exercise price of $1.76 per share and expiring on July 19, 2017, and (iv) an aggregate of 7,660,722 Series 2 warrants to purchase up to an aggregate of 7,660,722 shares of our common stock, with an exercise price of $1.76 per share and expiring on July 19, 2017. In addition, we assumed an option to purchase an aggregate of 41,178shares of our common stock, in accordance with the terms of the Innovate/Protect 2011 Equity Incentive Plan, at an exercise price of $0.994 per share, in exchange for the outstanding and unexercised stock option to purchase shares of Innovate/Protect's common stock.

As a result of the consummation of the Merger, as of the closing date, the former stockholders of Innovate/Protect ownedapproximately 55.04% of the outstanding shares of our common stock (or 67.61% of the outstanding shares of our common stock calculated on a fully diluted basis) and our stockholders prior to the Merger owned approximately 44.96% of the outstanding shares of our common stock (or 32.39% of the outstanding shares of our common stock calculated on a fully diluted basis) and a change of control may be deemed to have occurred.

For accounting purposes, Innovate/Protect was identified as the accounting "Acquirer", as it is defined in FASB Topic ASC 805. As a result, in the post-combination consolidated financial statements, as of the third quarter 2012, Innovate/Protect's assets and liabilities will be presented at its pre-combination amounts, and our assets and liabilities will be recognized and measured in accordance with the guidance for business combinations in ASC 805. The full accounting implications of the Merger have not yet been determined.

Assumption of Debt

On July 19, 2012, in connection with the consummation of the Merger and in accordance with the Merger Agreement, we entered into an Amended and Restated Pledge and Security Agreement and an Amended and Restated Guaranty with each of our subsidiaries to guaranty the obligations of Innovate/Protect under that certain Amended and Restated Senior Secured Promissory Note (the "Secured Note"), dated July 19, 2012, by and between Innovate/Protect and its principal stockholder prior to the completion of the Merger, Hudson Bay Master Fund Ltd. ("Hudson Bay"). As of the Closing Date, the outstanding balance under the Secured Note is $3.2 million. The Secured Note accrues interest at 0.46% per annum and matures on June 22, 2013. From and after the date upon which (i) we and our subsidiaries have more than $15 million in the aggregate of cash and cash equivalents, Hudson Bay may require us to redeem up to 50% of the outstanding principal amount of the Secured Note, (ii) we and our subsidiaries have more than $20 million in the aggregate of cash and cash equivalents, Hudson Bay may require us to redeem up to 100% of the outstanding principal of the Secured Note, (iii) we and our subsidiaries receive proceeds in excess of $500 thousand in the aggregate from the issuance of any equity or indebtedness, Hudson Bay may require us to redeem the outstanding principal under the note in an amount equal to up to 20% of the proceeds of the issuance of any such equity or indebtedness. In addition, the Secured Note provides that in the event of a change of control, Hudson Bay may require us to redeem all or any portion of the Secured Note at a price in cash equal to 125% of the amount redeemed. Innovate/Protect has granted Hudson Bay a security interest in all of its tangible and intangible personal property (including the Lycos's patents) to secure its obligations under the Secured Note. In connection with the Merger, we have assumed the Secured Note and guarantied the obligations thereunder.

On June 1, 2012, Hudson Bay committed, subject to the terms and conditions of a commitment letter agreement (the "Commitment Letter Agreement"), that, at any time within 18 months following the closing of the Merger and upon the request of Innovate/Protect, it or, at its election, one or more of its affiliated funds or entities shall provide debt financing to Innovate/Protect in the aggregate principal amount of up to $6 million. Hudson Bay's commitment shall be reduced, on a dollar for dollar basis, by (i) any cash or capital raised by us, Innovate/Protect and/or any of their subsidiaries (each a "Vringo entity" and, together the "Vringo entities"), including, without limitation, through the issuance of any debt, equity and/or securities convertible, exercisable or exchangeable into equity of any of the Vringo entities or the incurrence of indebtedness by any of the Vringo entities and (ii) any cash received by any Vringo entity in connection with the exercise of any of its outstanding warrants. Following the fund raised in a registered direct offering, as it is described below and in Note 8(i), the commitment was rescinded, as per the terms of the agreement.

Termination of Hudson Bay Letter Agreement

Following the closing of the Merger, on July 19, 2012, we sent notice of termination to Hudson Bay to terminate that certain letter agreement, by and between us and Hudson Bay, dated as of March 12, 2012, which provided, among other things, restrictions on the number of shares of our common stock that Hudson Bay may sell and a right of Hudson Bay to participate in up to 25% of certain offerings conducted by us. Pursuant to the terms of such agreement, we must continue to comply with the provisions relating to Hudson Bay's participation in up to 25% of certain offerings until 30 days following the termination date.

Completion of Registered Direct Offering

On August 10, 2012, we completed the sale of 9.6 million shares of our common stock in a registered direct offering, at a purchase price of $3.25 per share, to certain investors in a privately negotiated transaction in which no party acted as an underwriter or placement agent. The total proceeds to us from the sale of our shares was $31.2 million.

Nokia Patent Purchase Agreement

On August 9, 2012, we entered into a Patent Purchase Agreement with Nokia pursuant to which Nokia agreed to sell us a portfolio consisting of over 500 patents and patent applications worldwide, including 109 issued United States patents. We agreed to compensate Nokia with a cash payment and certain ongoing rights in revenues generated from the patent portfolio. The portfolio encompasses a broad range of technologies relating to cellular infrastructure, including communication management, data and signal transmission, mobility management, radio resources management and services. Thirty-one of the 124 patent families to be acquired have been declared essential by Nokia to wireless communications standards. Standards represented in the portfolio are commonly known as 2G, 2.5G, 3G and 4G and related technologies and include GSM, WCDMA, T63, T64, DECT, IETF, LTE, SAE, and OMA. The purchase price for the portfolio is $22 million, plus to the extent that the gross revenue (as defined in the purchase agreement) generated by such portfolio exceeds $22 million, a royalty of 35% of such excess. The $22 million cash payment was made to Nokia on August 10, 2012. The purchase agreement provides that Nokia and its affiliates will retain a non-exclusive, worldwide and fully paid-up license (without the right to grant sublicenses) to the portfolio for the sole purpose of supplying (as defined in the purchase agreement) Nokia's products. The purchase agreement also provides that if we bring a proceeding against Nokia or its affiliates within seven years, Nokia shall have the right to re-acquire the patent portfolio for a nominal amount. Further, if we either sell to a third party any assigned essential cellular patent, or more than a certain portion of the other assigned patents (other than in connection with a change of control of our company), or file an action against a telecom provider to enforce any of the assigned patents (other than in response to any specified action filed by a telecom provider against us or our affiliate) which action is not withdrawn after notice from Nokia, then we will be obligated to pay to Nokia a substantial impairment payment. Because all of the foregoing actions are within our sole control, we do not expect to be obligated to pay any such impairment payment.

Grants of Stock Options and RSUs

On July 26, 2012, we granted to our directors, executive officers and certain of our employees options to purchase an aggregate of approximately 5.5 million shares of common stock and an aggregate of 3.2 million shares of common stock in the form of restricted stock units (RSUs) pursuant to our 2012 Employee, Director and Consultant Equity Incentive Plan ("2012 Plan"). Of such grants to our executive officers and directors, Andrew Perlman, our Chief Executive Officer and a director, received options to purchase 1,275 thousand shares and 675 thousand shares subject to RSUs; Andrew Kennedy Lang, our Chief Technology Officer, President and a director, received options to purchase 250 thousand shares and 125 thousand shares subject to RSUs; Alexander Berger, our Chief Operating Officer and a director, received options to purchase 1,275 thousand shares and 675 thousand shares subject to RSUs; and Ellen Cohl, our Chief Financial Officer, received options to purchase 200 thousand shares and 100 thousand shares subject to RSUs; Seth M. Siegel, our non-executive Chairman of the Board of Directors, received options to purchase 125 thousand shares and 300 thousand shares subject to RSUs; Donald E. Stout, a non-executive director, received options to purchase 125 thousand shares and 225 thousand shares subject to RSUs; H. Van Sinclair, a non-executive director, received options to purchase 125 thousand shares and 225 thousand shares subject to RSUs; and John Engelman, a non-executive director, received options to purchase 125 thousand shares and 225 thousand shares subject to RSUs. All of such options have an exercise price of $3.72 per share (the closing price of our common stock on July 26, 2012) and vest over a three year period, with 1/12 of the options vesting ratably over the three year period commencing on July 26, 2012. The RSUs granted to executive officers vest over a four year period, with 1/8 of the RSUs vesting on January 26, 2013 and 1/16 of the RSUs vesting ratably on a quarterly basis thereafter. The RSUs granted to our nonexecutive directors vest over a three year period, with 1/6 of the restricted stock units vesting on January 26, 2013 and 1/12 of the restricted stock units vesting ratably on a quarterly basis thereafter.

Business Strategy Following the Merger

Following the Merger, we intend to attempt to maximize the economic benefits of its intellectual property portfolio, add significant talent in technological innovation, and potentially enhance its opportunities for revenue generation through the monetization of the combined company's assets, including patents owned by Innovate/Protect and the outcome of the litigation against online search companies.

We expect to undergo changes in connection with the Merger. Prior to the Merger, we were engaged in developing software platforms and applications for mobile devices and Innovate/Protect's business was to maximize, for inventors and investors, the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets. Following the Merger, we will have enhanced technology capabilities to create, build and deliver mobile applications and services to its handset and mobile operator partners as well as directly to consumers. We believe that the value of each company's intellectual property portfolio will be enhanced through the combined company's ability to license and enforce its intellectual property rights.

We expect that the combined company will have two key areas of operation:

· delivery and monetization of mobile social applications, and

· maximization of the economic benefits of intellectual property

We have developed a platform for the distribution of mobile applications. Wey believe that its technology and business relationships will allow it to distribute new applications and services through:

· mobile operators,

· handset makers, and

· application storefronts

We intend to expand its intellectual property portfolio through both internal development and acquisition. We believe that the experience and liquidity of the combined company will enable it to expand its intellectual property portfolio as well as create additional intellectually property internally. We intend to monetize its intellectual property through:

· licensing,

· strategic partnerships, and

· litigation.

We continue to actively seek to broaden our intellectual property portfolio. Our philosophy is to seek to acquire intellectual property and technology. We are reviewing portfolio opportunities with a view toward acquiring those which we believe have potential for monetization through licensing opportunities or enforcement. On August 9, 2012, we entered into a Patent Purchase Agreement with Nokia Corporation ("Nokia") pursuant to which we have agreed to acquire a portfolio consisting of 124 patent families comprising over 500 patents and patent applications worldwide including 109 issued United States patents. Of the proceeds from this offering, $22 million will be used to make such acquisition. There is no assurance that we will succeed in acquiring any such additional portfolios, as to the terms of any such acquisition or that we will successfully monetize any portfolio that we acquire, including the patent portfolio that we acquire from Nokia.

Innovate/Protect's Business

Innovate/Protect is a company focused on the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets (or interests therein) and then monetize such assets through a variety of value enhancing initiatives, including, but not limited to:

• licensing,

• customized technology solutions,

• strategic partnerships; and

• litigation.

Innovate/Protect's management team and board of directors were comprised of accomplished inventors, experienced investors and persons it believes are leaders in the intellectual property enforcement industry. Innovate/Protect's management team has access to leading patent attorneys, patent brokers, company liquidators and others who will assist Innovate/Protect in exploring, acquiring, developing and monetizing intellectual property assets. Innovate/Protect believes that the depth and experience of its management provides Innovate/Protect with important competitive strengths as it seeks to execute and expand its business model.

While Innovate/Protect's present operations are limited to prosecuting its initial claims relating to the Lycos's patents, its plan of operation over the next 12 months, in addition to continuing the prosecution of such claims, will be to expand its business through acquisitions of additional patent and other intellectual property assets that it will seek to monetize.

Innovate/Protect was incorporated under the laws of the State of Delaware on June 8, 2011. On September 6, 2011, it changed its name from Labrador Search Corporation to Innovate/Protect, Inc. Innovate/Protect has two wholly-owned subsidiaries, I/P Engine and I/P Labs. I/P Engine was incorporated in Virginia on June 14, 2011 under the name Smart Search Labs, Inc. and its name was changed from Smart Search Labs, Inc. to I/P Engine, Inc. in September 2011. I/P Labs was incorporated in Delaware on June 8, 2011 under the name Scottish Terrier Capital, Inc. and its name was changed from Scottish Terrier Capital, Inc. to I/P Labs, Inc. in September 2011.

Upon formation in June 2011, Innovate/Protect acquired its initial patent assets from Lycos through its wholly-owned subsidiary, I/P Engine. Such assets were comprised of eight patents (the "Lycos Patents") relating to information filtering and search technologies. As described further below, Innovate/Protect is initially seeking to monetize the Lycos Patents through litigation.

In the mid-to-late 1990s, the amount of content (e.g., web pages) available on the Internet was relatively small compared to today. Users frequently accessed Internet web pages by visiting portal sites, which presented content categorized into directories through which the users could select links to available web pages. Lycos was one of the leading portal sites of this time, which initially launched its website in 1994. Lycos' website included a directory-based portal and a query-based search engine, pursuant to which both systems provided access to its content catalog. By 1996, Lycos' content catalog had grown substantially and it was one of the largest websites of its kind. Other large portal search sites at the time also maintained large content catalogs. As the volume of available Internet content continued to grow, manual categorization processes presented efficiency and resource challenges in terms of the amount of material to be categorized and the accuracy of such categorization.

Lycos engaged WiseWire Corporation, which was formed by Mr. Lang (after the Merger, the President and Chief Technology Officer at Vringo) in 1995 and also employed Mr. Kosak, to develop filtering techniques to more efficiently, and automatically, categorize content for Lycos' directories. Messrs. Lang and Kosak adapted their filtering techniques to apply to search systems and invented filtering systems and methods that filter items such as web pages and advertisements for content relevancy to a search query (known as a wire). Messrs. Lang and Kosak's inventions incorporate feedback information from prior users, and in filtering the items, combine the provided feedback information with the content relevancy information to determine whether (or where) an item should be included, or ranked, in a search results response to the query or the wire. After working together on several projects for Lycos' website, Lycos acquired WiseWire for $39.75 million. Messrs. Lang and Kosak then joined Lycos, with Mr. Lang as Chief Technology Officer and Mr. Kosak as Senior Director of Engineering. Mr. Kosak later became Lycos' Chief Technology Officer.

We believe that through the Merger we will create a company with enhanced technology capabilities to create, build and deliver mobile applications and services to its handset and mobile operator partners as well as directly to consumers. We believe that the value of each company's intellectual property portfolio will be enhanced through the combined company's ability to license and enforce its intellectual property rights.

Innovate/Protect's Initial Litigation

As one of the means of realizing the value of the Lycos Patents, on September 15, 2011, Innovate/Protect initiated (through I/P Engine) litigation in the United States District Court, Eastern District of Virginia, against AOL, Inc. ("AOL"), Google, Inc. ("Google"), IAC Search & Media, Inc. ("IAC"), Gannett Company, Inc. ("Gannett"), and Target Corporation ("Target") for patent infringement regarding two of the Lycos Patents (U.S. Patent Nos. 6,314,420 and 6,775,664). The case number is 2:11 CV 512-RAJ/FBS, and is pending in the Norfolk Division.

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