IPhone – My iPhone is protected by password, is it possible for the thief to restore factory setting

First sign in to https://icloud.com/find and see if you can remotely erase and then remove that device from the list of your controlled devices. That will quickly return the device to factory settings at the cost of having to set up the device again from a backup or from new.

If the device isn't connected to the internet, you may have to force the erase as follows by putting your device into Recovery mode to allow iTunes to restore the device.

1. Turn off the device by holding the Power button and sliding to power off.

2. Hold the Home button whilst connecting the device to your computer using the USB cable.

3. iTunes should detect a device in recovery mode.

4. Click the Restore button to restore the device.

   Once the device has been restored, you can go through the setup process, logging in with your Apple ID to disable Find my iPhone, and restoring from backup if you wish.

This and several items related to activation lock are covered in Apple FAQ and articles:

• http://support.apple.com/kb/HT5818

Lost mode combined with iOS 7 is extremely useful as long as th phone has cellular service or is connected to WiFi networks that it trusts. The device needs to connect to the Internet to be re activated after wiped, at which point it will enter lost mode and refuse to work again without your password for Apple ID.

Be sure to not remove that device from your account since that makes the device far more risky and expensive to sell, pawn or try to use by the thief or even someone that ends up with the device. Someone could desolder the CPU and try to reserialize or cannibalize the parts, but the quick hit of cash for a stolen device is defeated by Activation Lock and Lost Mode features.

The device shows as offline when it hasn't checked in recently to the Apple servers despite an attempt by the Apple Push Notification service attempting to send a check in request to the last active address of the device on the Internet.

If the device ever gets connected to Wifi or cellular data reconnects it, your Lock request will get sent, acknowledged and you'll get an email. If you are quick, you can log in to find my friends and see if the location data updates as well at that point.