As filed with the U.S. Securities and Exchange Commission on December 9, 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
_______________
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
_______________
SPHERIX INCORPORATED
(Exact name of registrant as specified in its charter)
_______________
Delaware | 2836 | 52-0849320 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification |
One Rockefeller Plaza, 11th Floor
New York, NY 10020
Phone:703-992-9325
(Address, including zip code, and telephone number,
Anthony Hayes
Chief Executive Officer
Spherix Incorporated
One Rockefeller Plaza, 11th Floor
New York, NY 10020
Phone:703-992-9325
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Robert F. Charron, Esq. Sarah E. Williams, Esq. Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas New York, New York 10105 Telephone: (212) 370-1300 | Richard A. Friedman, Stephen A. Cohen, Esq. Sheppard, Mullin, Richter & Hampton LLP 30 Rockefeller Plaza New York, NY Tel.: (212) |
_______________
Approximate date of commencement of proposed sale to the public:
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,”, “accelerated “accelerated filer,” “smaller reporting company,” and “smaller reporting company”“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to Be Registered | Amount to Be Registered (1) | Proposed Maximum Offering Price Per Unit | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | |||||||||
Common stock, $0.0001 par value per share | 902,055 shares | $ | 8.63 | (2) | $ | 7,784,734.65 | (2) | $ | 1,002.67 | ||||
Common stock, $0.0001 par value per share (3) | 1,400,560 shares | $ | 8.63 | (2) | 12,086,832.80 | (2) | 1,556.78 | ||||||
Total | 2,302,615 shares | 2,559.45 |
Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1)(2) (3) | Amount of Registration Fee | ||||||
Common Stock, $0.0001 par value per share | $ | $ | ||||||
Total | $ | 3,450,000 | $ | 399.86 |
(1) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule |
(2) | Includes the offering price of any additional shares that the underwriters have the right to purchase from the Registrant to cover over-allotments, if any. |
(3) | Pursuant to Rule 416(a), the securities being registered hereunder include such indeterminate number of additional securities as may |
The Registrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment thatwhich specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statementthe registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission declares our registration statementis effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | Subject to Completion | Dated July 3, 2017 |
Shares of Common Stock
We are offering shares of our common stock, including 1,400,560 shares of common stock issuable upon conversion of outstanding shares of Series D Convertible Preferred Stock, which the Company anticipates exchanging for shares of Series D-1 Convertible Preferred Stock on a one for one basis, prior to the effectiveness of this prospectus. Each share of Series D Convertible Preferred Stock is (and each share of Series D-1 Convertible Preferred Stock will be) convertible into ten shares of common stock, which are held by the selling stockholders named in this prospectus. One selling stockholder acquired the common stock from us in connection with our acquisition of a patent portfolio from the selling stockholder on July 24, 2013 and the balance of the selling stockholders will acquire shares of Series D-1 Convertible Preferred Stock in connection with the exchange of shares of Series D Convertible Preferred Stock held by them. The shares of Series D Convertible Preferred Stock held by such stockholders were originally issued to them in connection with our acquisition of North South Holdings, Inc. (“North South”) in exchange for securities of North South held by them. We are not selling any common stock under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholders. All references in this prospectus to Series D/Series D-1 Preferred Stock shall refer to shares of the Company’s Series D Preferred Stock which will be exchanged for shares of Series D-1 Preferred Stock on a one for one basis, prior to effectiveness of this prospectus.
Our common stock is tradedlisted on Thethe NASDAQ Capital Market under the symbol “SPEX.”“SPEX”. On December 6, 2013,June 29, 2017, the lastclosing price as reported sale price of our common stockon the NASDAQ Capital Market was $8.74$3.92 per share.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 311 of this prospectus for more information on these risks.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacydetermined if this prospectus is truthful or accuracy of this prospectus.complete. Any representation to the contrary is a criminal offense.
Per Share | Total(1) | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount (2) | $ | $ | ||||||
Proceeds, before expenses, to us (3) | $ | $ |
(1) The public offering price is $ per share of common stock.
(2) The underwriter will receive other compensation in addition to the underwriting discount. See “Underwriting” beginning on page 66 of this prospectus for a description of the compensation payable to the underwriter.
(3) We estimate the total expenses of this offering payable by us, excluding the underwriting discount, will be approximately $ .
We have granted the underwriters an option for a period of 45 days from the date of this prospectus is ________, 2013.to purchase up to an additional shares of common stock at the public offering price, less the underwriting discount.
We anticipate that delivery of the shares against payment will be made on or about , 2017.
Laidlaw & Company (UK) Ltd.
Prospectus dated , 2017
TABLE OF CONTENTS
PROSPECTUS SUMMARY | 5 |
29 | |
DILUTION | 30 |
USE OF PROCEEDS | 32 |
MARKET PRICE OF OUR COMMON STOCK | 33 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 35 |
42 | |
LEGAL PROCEEDINGS | 43 |
MANAGEMENT | 45 |
EXECUTIVE AND DIRECTOR COMPENSATION | 49 |
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS | 54 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 55 |
DESCRIPTION OF CAPITAL STOCK | 57 |
UNDERWRITING | 66 |
LEGAL MATTERS | 73 |
EXPERTS | 73 |
WHERE YOU CAN FIND MORE INORMATION AND INCORPORATION BY REFERENCE | 74 |
We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in or incorporated by reference in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in or incorporated by reference in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of common stock.
To the extent there is a conflict between the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference filed with the U.S. Securities and Exchange Commission (the “SEC”) before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent with a statement in another document incorporated by reference having a later date, the statement in the document having the later date modifies or supersedes the earlier statement.
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Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons who come into possession of this prospectus and any free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any free writing prospectus applicable to that jurisdiction.
This prospectus and the documents incorporated by reference in this prospectus contain market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe that these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware of any misstatements regarding the market and industry data presented or incorporated by reference in this prospectus, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and any related free writing prospectus. Accordingly, investors should not place undue reliance on this information.
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This summary highlights certain information about us, this offering and selected information contained elsewhere in this prospectus and in the documents incorporated by reference. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in our securities. For a more complete understanding of our company and this offering, we encourage you to read and consider carefully the more detailed information contained in or incorporated by reference in this prospectus, including the information contained under the heading “Risk Factors” beginning on page 11 of this prospectus, and the information included in any free writing prospectus that we have authorized for use in connection with this offering.
Throughout this prospectus, the terms “we,” “us,” “our,” and “our company” refer to Spherix Incorporated, (“we” ora Delaware corporation and its consolidated subsidiaries unless the “Company”) iscontext requires otherwise.
Company Overview
We are an intellectual property company that owns patented and unpatented intellectual property. We wereSpherix Incorporated was formed in 1967 as a scientific research company and for much of our history pursued drug development, including through Phase III clinical studies, which were largely discontinued in 2012. ThroughIn 2012 and 2013, we shifted our acquisitionfocus to being a firm that owns, develops, acquires and monetizes intellectual property assets.
In July 2013, we acquired 7 patents in the field of seven patentsmobile communications from Rockstar Consortium US LP (“Rockstar”) and. This acquisition of several hundred patents issuedrepresented the first transaction believed to Harris Corporationhave been completed by Rockstar with any publicly traded company. Rockstar was launched in 2011 as a result of our acquisition of North South, we have expanded our activities in wireless communications and telecommunication sectors including antenna technology, Wi-Fi, base station functionality, and cellular.
In September 2013, we acquired North South Holdings, Inc. (“North South”) and its 222 U.S. patents in the fields of wireless communications, satellite, solar, and radio frequency as well asand 2 U.S. patents in the field of pharmaceutical technology. Prior to the Merger,distribution. The 222 patents were developed by Harris Corporation, a leader in defense communications and electronics and acquired by North South acquired and developed patents through internal and/or external research and development and acquired issued U.S. and foreign patents and pending patent applications. We license our patents to companies seeking to develop products and processes that embodied our patented invention or to companies whose products and processes infringed our intellectual property. Priorprior to our acquisition of North South, North South commencedSouth.
In December 2013, we acquired an additional 101 patents and patent applications from Rockstar in consideration for approximately $60 million of our securities consisting of common stock and preferred stock. The patents had been developed by Nortel and acquired by Rockstar following Nortel’s bankruptcy in 2011. The December 2013 acquisition included patents covering internet access and video and data transmission, among other things. We believe that many of these Nortel/Rockstar patents are standard essential patents, meaning they potentially cover various industry standards in wide use (although there is no assurance that a court or third-party would agree with such description).
Since our shift in focus to an intellectual property monetization platform, we have not generated any significant revenues. We have incurred losses from operations for the years ended December 31, 2016 and commercialization efforts2015 of $8.6 million and $52.0 million, respectively. Our net income attributable to common stockholders was approximately $25.0 million, including $31.5 million of deemed capital contribution on extinguishment of preferred stock for the year ended December 31, 2016. Our accumulated deficit was $141.7 million at December 31, 2016.
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On November 23, 2015, we and RPX Corporation (“RPX”) entered into a Patent License Agreement (the “RPX License Agreement”) under which the Company granted RPX the right to sublicense various patent license rights to certain RPX clients. The consideration to the Company included: (i) the transfer to the Company for cancellation of its remaining outstanding Series I Redeemable Convertible Preferred Stock (the “Series I Preferred Stock”) then held by filingRPX, as to which a $5,000,000 mandatory redemption payment would have been due from the Company on or by December 31, 2015; (ii) the transfer to the Company for cancellation of 13%, or 57,076 shares, of its Series H Convertible Preferred Stock (the “Series H Preferred Stock”) then held by RPX, having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar; (iii) cancellation of the only outstanding security interest on 101 of the Company’s patents and patent infringement litigation against T-Mobile USA on geo-location technology ownedapplications acquired from Rockstar that originated at Nortel, which security interest had previously been transferred to RPX by North South, as well as two lawsuits on pharmaceutical distribution,Rockstar (“RPX Security Interest”); and (iv) $300,000 in cash to the Company.
In consideration of the above, we granted RPX the rights to grant: (i) to Juniper Networks, Inc. (“Juniper”), a non-sublicensable, non-transferrable sublicense solely to use the six patents that had been asserted against Juniper by the Company (“Asserted Patents”); and (ii) to Apple, Blackberry, Cisco, Google, Huawei, Ericsson, Microsoft and Sony, to the extent those parties did not already have licenses to our patents, a non-sublicensable, non-transferrable sublicense to use our existing portfolio. Prior to our ownership of the patents originating at Nortel, each of Apple, Blackberry, Ericsson, Microsoft and Sony had previously been granted full licenses to those patents. In addition, we separately granted Huawei a license with respect to Huawei’s network routers and switches. We also granted RPX the rights to grant Cisco and Google a sublicense under patents transferred to us through November 23, 2017. We have since dismissed our then-existing litigations against Cisco and Juniper and Cisco requested dismissal of its two petitions requestinginter partes re-examination (“IPR”) of certain of our patents at the Patent Trial and Appeal Board of the United States Patent and Trademark Office.
Further, we agreed, until May 23, 2016 (the “Standstill Period”) that: (a) we and RPX would engage in good faith negotiations for the grant of additional license rights to RPX’s other members in exchange for additional consideration to us; (b) we would not divest, transfer, or exclusively license any of our current patents; (c) neither RPX nor any RPX affiliate would challenge, or knowingly and intentionally assist others in challenging, the validity, enforceability, or patentability of any of our patents in any court or administrative agency having jurisdiction to consider the issue; and (d) we would not bring an action against current RPX clients for patent infringement.
Following the Standstill Period, as a result of the release of the RPX Security Interest, the patents may be leveraged, divested, transferred or exclusively licensed in a manner that is beneficial to us and our stockholders. We retained the right to bring claims under the patents at any time against other parties who are not licensees or beneficiaries under the RPX License. We also retained rights, following the Standstill Period, to bring claims under the patents against current RPX clients who did not become licensees or beneficiaries during the Standstill Period and, with respect to Juniper, under all of the patents other than the six Asserted Patents.
In March 2016, we entered into an agreement (which was subsequently amended in April and May 2016) with Equitable IP Corporation (“Equitable”) to facilitate the monetization of our patents (the “Monetization Agreement”). Pursuant to the Monetization Agreement, the Company is working together with Equitable to further develop and revise our ongoing litigation plan. See Note 4 to the Company’s audited financial statements for additional details surrounding the Monetization Agreement.
On May 23, 2016, we and RPX, entered into a second, separate Patent License Agreement (the “Second RPX License”) under which we acquired upon consummationgranted RPX the right to sublicense various patent rights only to current RPX clients (as of May 23, 2016). In exchange for the rights we granted under the Second RPX License, we received the following consideration: (i) a cash payment made to us in May 2016 in the amount of $4,355,000; and (ii) cancellation of the Merger.remaining 381,967 shares of our outstanding Series H Convertible Preferred Stock currently held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar.
In consideration of the above, we granted RPX the rights to grant to its current clients: (i) a fully paid portfolio license, to the extent such parties did not already have licenses to the Company’s patents; (ii) a covenant-not-to-sue current RPX clients for supply of chipsets; (iii) a standstill of litigation involving any patents acquired in the next five years.
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In connection with the Second RPX License, we closedalso granted to Alcatel-Lucent a license to the portfolio acquired from North South.
Under a separate agreement between us and RPX, we granted RPX the ability to grant to VTech Telecommunications Ltd. (“VTech”) a sublicense for a fully paid portfolio license in exchange for an additional $20,000 in cash consideration.
The license granted under the terms of the RPX License described herein does not extend to entities/companies that are not clients of RPX and provide chipsets or other hardware to current RPX clients.
In January of 2017, we settled our patent litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) and granted Uniden a license limited to the patents we originally asserted against Uniden and VTech, including U.S. Patent Nos. 5,581,599 (the “599 Patent”); 5,752,195; 5,892,814; 6,614,899; and 6,965,614 (See “Legal Proceedings” for a description of the Uniden litigation). The Company’s appeal at the Federal Circuit against the Patent and Trademark Office for its decision of patent invalidity of the ‘599 Patent will continue without Uniden as a party (See “Legal Proceedings”).
Our principal executive offices are located at One Rockefeller Plaza, 11th Floor New York, NY 10020, and our telephone number is 703-992-9325.
Our common stock trades on the acquisitionNASDAQ Capital Market under the symbol SPEX.
Recent Developments
On June 30, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Hoth Therapeutics, Inc., a Nevada corporation (“Hoth”), for the purchase of a groupan aggregate of patents in the mobile communication sector from Rockstar in which we paid to Rockstar certain consideration, including 176,9916,800,000 shares of common stock, which are being registered pursuant to this prospectus.
Available Information
Our principal executive office is located at 7927 Jones Branch Drive, Suite 3125, Tysons Corner, VA, 22102. Our telephone number is (703) 992-9260 and our websiteInternet address is www.spherix.com. TheWe make available free of charge on www.spherix.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on our website is not a partthe operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and should not be construed as being incorporated by reference into, this prospectus of this prospectus.
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4,979,898 shares. | |
Common stock offered | shares. |
Option to purchase additional shares | We have granted the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to an additional shares of common stock |
Common stock to be outstanding after this offering | shares. |
Use of proceeds | We estimate that our net proceeds from this offering will be approximately $ million. If the underwriters exercise their option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately $ million. |
We intend to use the net proceeds of this offeringfor working capital and general corporate purposes. | |
Risk factors | See “Risk Factors” beginning on page 11 of this prospectus, as well as other information included in this prospectus, for a discussion of factors you should read and consider carefully before investing in our securities. |
NASDAQ Capital Markets symbol | Our common stock is listed on the NASDAQ Capital Markets under the symbol “SPEX.” |
The number of shares of our common stock to be outstanding after this offering as shown above is based on 4,979,898 shares outstanding as of July 3, 2017 and excludes as of that date:
· | 312, 984 shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $82.39 per share; |
· | 1,250,311 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $9.21 per share (without giving effect to any of the anti-dilution adjustment provisions thereof); and |
· | 2,926 shares of common stock issuable upon the conversion of |
· | ||
Except as otherwise indicated herein, all information in this prospectus assumes no exercise of the underwriters’ option to purchase up to an additional shares of common stock.
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SUMMARY OF CONSOLIDATED FINANCIAL DATA
The following table summarizes our consolidated financial data. We have derived the risks described below before making an investment decision. The risks described belowfollowing consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2016 from our audited consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended December 31, 2016 and incorporated by reference in this prospectus. We have derived the summary statements of operations data for the three months ended March 31, 2017 and 2016 and the summary balance sheet data as of March 31, 2017 from our unaudited interim condensed financial statements contained in our quarterly report for the period ended March 31, 2017 and incorporated by reference in this prospectus. Our historical results for prior periods are not necessarily indicative of results to be expected for any future period. The summary consolidated financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the only ones we face. Additionalrelated notes thereto contained in our filings referenced above and incorporated by reference in this prospectus. The summary consolidated financial data in this section is not intended to replace our consolidated financial statements and the related notes thereto.
Statement of Operations Data
($ in thousands)
Three Months Ended March 31, | Year Ended December 31 | |||||||||||||||
2017 | 2016 | 2016 | 2015 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues | $ | 327 | $ | 72 | $ | 877 | $ | 33 | ||||||||
Operating costs and expenses | ||||||||||||||||
Amortization of patent portfolio | 338 | 531 | 2,135 | 6,317 | ||||||||||||
Compensation and related expenses (including stock-based compensation) | 589 | 312 | 1,950 | 1,724 | ||||||||||||
Professional fees | 285 | 705 | 2,293 | 2,780 | ||||||||||||
Impairment of goodwill and intangible assets | — | — | 2,713 | 40,600 | ||||||||||||
Rent | 22 | 22 | 84 | 88 | ||||||||||||
Other selling, general and administrative | 62 | 63 | 253 | 534 | ||||||||||||
Total operating expenses | 1,296 | 1,633 | 9,428 | 52,043 | ||||||||||||
Loss from operations | (969 | ) | (1,561 | ) | (8,551 | ) | (52,010 | ) | ||||||||
Other income (expenses), net | 172 | (30 | ) | (182 | ) | 276 | ||||||||||
Fair value adjustments for warrant liabilities | (122 | ) | 1,542 | 2,257 | 269 | |||||||||||
Total other (expenses) income | 50 | 1,512 | 2,075 | 545 | ||||||||||||
Net loss | $ | (919 | ) | $ | (49 | ) | $ | (6,476 | ) | $ | (51,465 | ) | ||||
Net income (loss) attributable to common stockholders | $ | (919 | ) | $ | (716 | ) | $ | 25,004 | $ | (42,303 | ) | |||||
Net loss per share, basic and diluted | (0.19 | ) | (0.26 | ) | ||||||||||||
Basic | $ | 6.76 | $ | (24.98 | ) | |||||||||||
Diluted | $ | 6.51 | $ | (24.98 | ) | |||||||||||
Weighted average number of common shares outstanding, basic and diluted | 4,943,929 | 2,705,864 | ||||||||||||||
Basic | 3,700,090 | 1,693,365 | ||||||||||||||
Diluted | 3,838,366 | 1,693,365 |
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Balance Sheet Data
($ in thousands)
March 31, | December 31, | |||||||||||||||
2017 | 2016 | 2016 | 2015 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 210 | $ | 494 | $ | 134 | $ | 142 | ||||||||
Marketable securities | 5,083 | 1,468 | 6,025 | 3,392 | ||||||||||||
Prepaid expenses and other assets | 145 | 292 | 135 | 330 | ||||||||||||
Total current assets | 5,438 | 2,254 | 6,294 | 3,864 | ||||||||||||
Property and equipment, net | 5 | 7 | 6 | 5 | ||||||||||||
Patent portfolios and patent rights, net | 4,613 | 9,268 | 4,951 | 9,799 | ||||||||||||
Deposit | 26 | 26 | 26 | 26 | ||||||||||||
Total assets | $ | 10,082 | $ | 11,555 | $ | 11,277 | $ | 13,694 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued expenses | $ | 175 | $ | 355 | $ | 123 | $ | 384 | ||||||||
Accrued salaries and benefits | 339 | 111 | 446 | 645 | ||||||||||||
Warrant liabilities | 824 | 1,417 | 702 | 2,959 | ||||||||||||
Short-term deferred revenue | 1,145 | 290 | 1,216 | 290 | ||||||||||||
Short-term lease liabilities | 187 | 178 | 183 | 178 | ||||||||||||
Total current liabilities | 2,670 | 2,351 | 2,670 | 4,456 | ||||||||||||
Long-term deferred revenue | 3,009 | 188 | 3,245 | 259 | ||||||||||||
Long-term lease liabilities | - | 184 | 44 | 229 | ||||||||||||
Total liabilities | 5,679 | 2,723 | 5,959 | 4,944 | ||||||||||||
Series I redeemable convertible preferred stock, $0.0001 par value; no shares issued and outstanding at December 31, 2016 and December 31, 2015; liquidation preference of $167 per share | - | - | - | - | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders' equity | ||||||||||||||||
Preferred Stock, $0.0001 par value, 50,000,000 shares authorized; | ||||||||||||||||
Series A: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share | ||||||||||||||||
Convertible preferred stock | - | - | - | - | ||||||||||||
Series C: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share | - | - | - | - | ||||||||||||
Series D: 4,725 shares issued and outstanding at December 31, 2016 and December 31, 2015 and 4,725 shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation value of $0.0001 per share | - | - | - | - | ||||||||||||
Series D-1: 834 shares issued and outstanding at December 31, 2016 and December 31, 2015 and 834 issued and outstanding at March 31, 2017 and March 31, 2016; liquidation value of $0.0001 per share | - | - | - | - | ||||||||||||
Series F-1: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share | - | - | - | - | ||||||||||||
Series H: no shares and 381,967 shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares and 381,967 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively; liquidation preference $83.50 per share | - | - | - | - | ||||||||||||
Series J: no shares issued and outstanding at December 31, 2016 and December 31, 2015 no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share | - | - | - | - | ||||||||||||
Series K: no shares and 1,240 shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares and 50 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively; liquidation preference $1,000 per share | - | - | - | - | ||||||||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 4,943,941, 4,943,941 and 2,539,859 shares issued at March 31, 2017, December 31, 2016 and December 31, 2015, respectively; 4,943,929, 4,943,929 and 2,539,847 shares outstanding at March 31, 2017, December 31, 2016 and December 31, 2015, respectively | - | - | - | - | ||||||||||||
Additional paid-in-capital | 147,335 | 144,418 | 147,331 | 144,287 | ||||||||||||
Treasury stock, at cost, 12 shares at March 31, 2017, December 31, 2016 and December 31, 2015 | (264 | ) | (264 | ) | (264 | ) | (264 | ) | ||||||||
Accumulated deficit | (142,668 | ) | (135,322 | ) | (141,749 | ) | (135,273 | ) | ||||||||
Total stockholders' equity | 4,403 | 8,832 | 5,318 | 8,750 | ||||||||||||
Total liabilities and stockholders' equity | $ | 10,082 | $ | 11,555 | $ | 11,277 | $ | 13,694 |
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There are numerous risks we are not presently aware of or that we currently believe are immaterial may also impairaffecting our business, operations. Oursome of which are beyond our control. An investment in our common stock involves a high degree of risk and may not be appropriate for investors who cannot afford to lose their entire investment. If any of the following risks actually occur, our business, financial condition or operating results could be harmed by any of these risks. Thematerially harmed. This could cause the trading price of our common stock couldto decline, due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also referaddition to the other information containedrisks outlined below, risks and uncertainties not presently known to us or incorporated by reference into this prospectus, includingthat we currently consider immaterial may also impair our business operations. Potential risks and uncertainties that could affect our operating results and financial statements and related notes.
Risks Related to Our Business
Because we have a limited operating history to evaluate our company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an early-stage company.
Since we have a limited operating history in our current business of patent licensing and monetization, it will make it difficult for investors and securities analysts to evaluate our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties we face as an early stage company with a limited operating history. Investors should evaluate an investment in our securities in light of the uncertainties encountered by early stage companies in an intensely competitive industry and in which the potential licenses and/or defendants from which the Company seeks to obtain recoveries are largely well-capitalized companies with resources (financial and otherwise) significantly greater than the Company’s. There can be no assurance that our efforts will be successful or that we will be able to become profitable.
We continue to incur operating losses and may not achieve profitability.
Our loss from operations for the three months ended March 31, 2017 and for the years ended December 31, 2016 and 2015 was $1.0 million, $8.6 million and $52.0 million, respectively. Our net loss attributable to common stockholders for the three months ended March 31, 2017 was $0.9 million, our net income attributable to common stockholders for the year ended December 31, 2016 was $25.0 million, and our net loss attributable to common stockholders for the year ended December 31, 2015 was $42.3 million. Our accumulated deficit for the three months ended March 31, 2017 and for the year ended December 31, 2016 was $142.7 million and $141.7 million, respectively. We recognized $327,000 and $877,000 in revenue in the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. Our ability to become profitable depends upon our ability to generate revenue from the monetization of intellectual property. We do not know when, or if, we will generate any revenue from such monetization. Even though our revenue may increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our common stock.
We expect to need additional capital to fund our growing operations and if we are unable to obtain sufficient capital, we may be forced to limit the scope of our operations.
We expect that for our business to grow we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business or pay our outstanding obligations, and we will have to modify our business plans accordingly. These factors would have a material adverse effect on our future operating results and our financial condition.
If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company. In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.
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Further impairment charges could have a material adverse effect on our financial condition and results of operations.
We are required to assess goodwill for impairment if events occur or circumstances changed that would more likely than not reduce our enterprise fair value below its book value. In addition, we are required to test our finite-lived intangible assets for impairment if events occur or circumstances change that would indicate the remaining net book value of the finite-lived intangible assets might not be recoverable. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions and other factors. As a result of decline in the market value of our common stock during the year ended December 31, 2016, we recorded a $2.7 million impairment charge to our intangible assets. If the fair value of our reporting units or finite intangible assets is less than their book value in the future, we could be required to record additional impairment charges. A continued decline of the market price of our common stock could result in additional impairment charges in the future. The amount of any impairment could be significant and could have expandeda material adverse effect on our reported financial results for the period in which the charge is taken.
The focus of our business is to commercializing, developing and monetizingmonetize intellectual property, including through licensing and enforcement. We may not be able to successfully monetize the patents or other licensed technology which we acquire and thus may fail to realize all of the anticipated benefits of such acquisition
We acquired our patents and patent applications during 2013 in three transactions which significantly changed the focus of our business and operations. We currently own and license several hundred patent assets and although we may seek to commercialize and develop products, alone or with others, there is no assurance that we will be able to successfully commercialize acquire,or develop orproducts and such commercialization and development is not a core focus of our business. There is significant risk involved in connection with our activities in which we seek to monetize the patent portfolios that we acquired from Rockstar and North SouthSouth.
In March 2016, the Company entered into an agreement (which was subsequently amended) with Equitable to facilitate the monetization of the Company’s patents (the “Monetization Agreement”). Pursuant to the Monetization Agreement, the Company has worked together with Equitable to develop and Rockstar.revise the Company’s ongoing litigation plan. Under the Monetization Agreement, Equitable is obligated to use its best commercially reasonable efforts to monetize the Company’s patents. To that end, Equitable has filed ten litigations, which are currently pending. The Company will share net monetization revenue derived from all monetization activity equally with Equitable. To facilitate the litigation plan, approximately 186 of over 330 of the Company’s patents and applications have been assigned to Equitable, which will pay all maintenance and prosecution fees going forward. No assigned patents may be transferred by Equitable to a third party without the Company’s consent. In the event that all terms of the Monetization Agreement are met by December 2017, the Company will further assign approximately 140 additional patents and applications to Equitable for monetization. The Company has retained a grant-back license to practice all transferred patents.
Our business is commonly referred to as a non-practicing entity model (or “NPE”) since we do not currently commercialize or develop products under the recently acquired patents. As an entity, we have limited prior experience as an NPE. The acquisition of the patents and an NPE business model could fail to produce anticipated benefits, or could have other adverse effects that we do not currently foresee. Failure to successfully monetize theseour patent assets or to operate an NPE business may have a material adverse effect on our business, financial condition and results of operations.
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In addition, the acquisition of the patent portfolios is subject to a number of risks, including, but not limited to the following:
· | There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During that time lag, material costs are likely to be incurred that would have a negative effect on our results of operations, cash flows and financial |
· | The integration of a patent portfolio will be a time consuming and expensive process that may disrupt our operations. If our integration efforts are not successful, our results of operations could be harmed. In addition, we may not achieve anticipated synergies or other benefits from such acquisition. |
· | If we initiate a patent infringement suit against potential infringers, or if potential licensees initiate a declaratory judgment action or administrative review action against us, such potential infringers and/or licensees may successfully invalidate our patents, or a fact finder may find that the potential infringer’s products do not infringe our patents. Thus, we may not successfully monetize the patents. These activities are inherently risky, time consuming and costly. |
Therefore, there is no assurance that the monetization of the patent portfolios we acquire will be successful, will occur timely or in a timeframe that is capable of prediction or will generate enough revenue to recoup our investment.
We have, prior to engaging in the patent monetization sector, been involved in businessespresently rely primarily involving research and development in furtherance of drug and pharmaceutical products and processes, including nutritional supplements and related services. Prior to the acquisition of our patent assets, our business consisted entirely of our biotechnology research and development unit. We have no operating history in executing our additional new business which includes, among other things, creating, commercializing, prosecuting, licensing, litigating or otherwise monetizing patent assets. Our lack of operating history in this sector makes it difficult to evaluate our additional new business model and future prospects.
If our efforts to generate revenue from such assetsour patent portfolios acquired from Rockstar and North South fail, we will have incurred significant losseslosses. We may not seek and may be unable to acquire additional assets.assets and therefore may be wholly reliant on our present portfolios for revenue. If this occurs,we are unable to generate revenue from our current assets and fail to acquire any additional assets, our business will likely fail.
In connection with our new line of business, we may commence legal proceedings against certain companies whose size and weresources could be substantially greater than ours. We expect such litigation to be time-consuming, lengthy and costly, which may adversely affect our financial condition and our ability to survive or operate our business,
To license or otherwise monetize our patentintellectual property assets, which may constitute a significant focus of our activities, we may be required to commence legal proceedings against certain companies, pursuant to which welarge, well established and well-capitalized companies. We may allege that such companies infringe on one or more of our patents. Our viability could be highly dependent on the outcome of this litigation, and there is a risk that we may be unable to achieve the results we desire from such litigation, which failure would harm our business to a great degree. In addition, thelitigation. The defendants in this litigation brought by us are likely to be much larger than us and have substantially more resources than we do, which couldwould make success of our litigation efforts subject to factors other than the validity of our patents or infringement claims asserted. Furthermore, as a public company, our level of cash resources and ability to incur expenditures on enforcing infringement claims is available to the public, including the entities against whom we seek to enforce our patents, and defendants may engage in tactics in an effort for us to utilize our remaining resources. The inability to successfully enforce our patents against larger more difficult.well-capitalized companies could result in realization through settlement or election to not pursue certain infringers, or less value from our patents, and could result in substantially lower than anticipated revenue realized from infringements and lower settlement values.
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We anticipate that these legal proceedings against infringers of our patents may continue for several or more years and may require significant expenditures for legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. In addition, courts and the laws are constantly changing in a manner that could increase our fees and expenses for pursuing infringers, and also could result in our assumption of legal fees of defendants if we are unsuccessful. Once initiated, we may be forced to litigate against others to enforce or defend our intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which we are involved may allege defenses and/or file counterclaims in an effort to avoid or limit liability and damages for patent infringement. Potential defendants could challenge our patents and our actions by commencing lawsuits seeking declaratory judgments declaring our patents invalid, not infringed, or for improper or unlawful activities. If such defenses or counterclaims are successful, they may preclude our ability to obtain damages for infringement or derive licensing revenue from the patents. A negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact our business. For example, on July 1, 2015, the United States District Court for the Eastern District of Virginia issued a Markman Order interpreting certain key claims in favor of the defendants in one of our actions against Verizon, resulting in the dismissal of our claims against Verizon with respect to one of our patents. Additionally, we anticipate that our legal fees and other expenses will be material and will negatively impact our financial condition and results of operations and may result in our inability to continue our business.
Parties who are alleged infringers of our patent rights may also challenge the validity of our patents in proceedings before the United States Patent and Trademark Office. These potential proceedings includeex parte reexaminations,inter partes review, or covered business method patent challenges. These proceedings could result in certain of our patent claims being dismissed or certain of our patents being invalidated. We would expend significant legal fees to defend against such actions.
Federal courts are becoming more crowded and, as a result, patent enforcement litigation is taking longer.
Our patent enforcement actions are almost exclusively prosecuted in federal court. Federal trial courts that hear our patent enforcement actions also hear criminal cases. Criminal cases always take priority over our actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings before federal judges and, as a result, we believe that the risk of delays in our patent enforcement actions will have a greater effect on our business in the future unless this trend changes.
We have been the subject of litigation and, due to the nature of our business, may be the target of future legal proceedings that could have an adverse effect on our business and our ability to monetize our patents.
In the ordinary course of business, we, along with our wholly-owned subsidiaries, will initiate litigation against parties whom we believe have infringed on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated by the defendants.
The Company may become subject to similar actions in the future which will be costly and time consuming to defend, the outcome of which are uncertain.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.
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Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2016, our internal control over financial reporting was not effective, due to our lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.
We may seek to internally develop additional new inventions and intellectual property, which would take time and be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities
Part of our additional new business may include the internal development of new inventions or intellectual property that we will seek to monetize. However, thisFor example, as a result of our acquisition of certain shares of common stock of Hoth Therapeutics, Inc. (“Hoth”) in June 2017, we have indirectly acquired certain sublicensing rights for BioLexa products developed by Chelexa Biosciences, Inc., for the treatment of eczema. Hoth is developing BioLexa’s applications in the aesthetic dermatology field to help treat and reduce post-procedure infections, accelerate healing and improve clinical outcomes for patients undergoing procedures and also intends to implement FDA testing procedures for BioLexa. Should we choose to assist in the development of BioLexa’s applications and/or internally develop any other inventions or intellectual property, such aspect of our business would likelywill require significant capital and wouldwill take time to achieve. Such activities couldmay also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.
In addition, even if we are able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain, and we would heavily rely upon, a proprietary position with respect to such inventions and intellectual property. However, there are significant risks associated with any such intellectual property we may develop principally, including the following:
· | patent applications we may file may not result in issued patents or may take longer than we expect to result in issued patents; |
· | we may be subject to interference proceedings; |
· | we may be subject to opposition proceedings in the U.S. or foreign countries; |
· | any patents that are issued to us may not provide meaningful protection; |
· | we may not be able to develop additional proprietary technologies that are patentable; |
· | other companies may challenge patents issued to us; |
· | other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; |
· | other companies may design around technologies we have developed; and |
· | enforcement of our patents |
We cannot be certain that patents will be issued as a result of any future applications, or that any of our patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we will be the first to make our additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we may license or otherwise monetize, our rights will depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss our business.
Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
We may be reliant on third parties to generate revenue for us.
In early 2016, we entered into a Monetization Agreement pursuant to which other more well-capitalized entities have the right to enforce our patent portfolio in exchange for royalties from enforcement proceeds. We may also enter into similar such agreements in the future. These agreements generally do not impose any affirmative obligation on the part of our contractual counterparties to enforce any rights under our patents. If these counterparties do seek to enforce rights under our patents, legal proceedings against infringers of our patents may continue for several or more years and it may be a significant period of time before we derive any income from these arrangements. These arrangements may also preclude us from enforcing these patents ourselves. Failure of these third parties to successfully enforce our patents may have an adverse effect on our revenues.
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Our ability to raise additional capital may be adversely affected by certain of our agreements.
Our ability to raise additional capital for use in our operating activities may be adversely impacted by the terms of a securities purchase agreement, dated as of July 15, 2015 (the “Securities Purchase Agreement”), between us and the investors who purchased securities in our July 2015 offering of our common stock and warrants for the purchase of our common stock. The Securities Purchase Agreement provides that, until the warrants issued thereunder are no longer outstanding, we will not affect or enter into a variable rate transaction, which includes issuances of securities whose prices or conversion prices may vary with the trading prices of or quotations for the shares of our common stock at any time after the initial issuance of such securities, as well as the entry into agreements where our stock would be issued at a future-determined price. These warrants may remain outstanding as late as January 22, 2021, when the warrants expire in accordance with their terms. These restrictions may have an adverse impact on our ability to raise additional capital, or to use our cash to make certain payments that we are contractually obligated to make.
New legislation, regulations or court rulings related to enforcing patents could harm our new line of business and operating results,
If Congress, the United States Patent and Trademark Office or courts implement new legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, these changes could negatively affect our new business model.business. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect our ability to assert our patent or other intellectual property rights.
On December 5, 2013, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States House of Representatives passed a patent law. These changes include provisions that affectreform titled the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent Office is currently developing regulations and procedures to govern administration“Innovation Act” by a vote of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act recently became effective. Accordingly, it is too early to tell what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
The Innovation Act also calls for discovery to be limited until after claim construction. The patent infringement plaintiff must also disclose anyone with a financial interest in either the asserted patent or the patentee and must disclose the ultimate parent entity. When a manufacturer and its customers are sued at the same time, the suit against the customer would be stayed as long as the customer agrees to be bound by the results of the case.
On April 29, 2014, the U.S. Supreme Court relaxed the standard for fee shifting in patent infringement cases. Section 285 of the Patent Act provides that attorneys’ fees may be awarded to a prevailing party in a patent infringement case in “exceptional cases.”
In Octane Fitness, LLC v. Icon Health& Fitness, Inc., the Supreme Court overturned the U.S. Court of Appeals for the Federal Circuit decisions limiting the meaning of “exceptional cases.” The U.S. Supreme Court held that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigation position” or “the unreasonable manner in which the case was litigated.” The U.S. Supreme Court also rejected the “clear and convincing evidence” standard for making this inquiry. The Court held that the standard should be a “preponderance of the evidence.”
In Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., the U.S. Supreme Court held that a district court’s grant of attorneys’ fees is reviewable by the U.S. Court of Appeals for the Federal Circuit only for “abuse of discretion” by the district court instead of the de novo standard that gave no deference to the district court.
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This pair of decisions lowered the threshold for obtaining attorneys’ fees in patent infringement cases and increased the level of deference given to a district court’s fee-shifting determination.
These two cases will make it much easier for district courts to shift a prevailing party’s attorneys’ fees to a non-prevailing party if the district court believes that the case was weak or conducted in an abusive manner. Defendants that get sued for patent infringement by non-practicing entities may elect to fight rather than settle the case because these U.S. Supreme Court decisions make it much easier for defendants to get attorneys’ fees.
On June 19, 2014, the U.S. Supreme Court decided Alice Corp. v. CLS Bank International in which the Court addressed the question of whether patents related to software are patent eligible subject matter. The Supreme Court did not rule that patents related to software were per se invalid or that software-related inventions were unpatentable. The Supreme Court outlined a test that the courts and the USPTO must apply in determining whether software-related inventions qualify as patent eligible subject matter.
Following in the wake of the Supreme Court’sAlicedecision, the lower courts have operated with a lack of guidance regarding patent eligibility. The Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent appeals, has increasingly entered one-sentence orders under Federal Rule of Civil Procedure 36, in which it upholds decisions of patent invalidity with no guidance as to why invalidity was upheld.For example, in each of the following appeals from the U.S. district courts involving substantial issues under the Alice doctrine, the Federal Circuit entered a Rule 36 order, saying only in one sentence that the district court record supported the entry of judgment below.
1. | Becton Dickinson and Co. v. Baxter Int’l Inc., Appeal No. 15-1918 (decided May 9, 2016) re: remote pharmacy monitoring. |
2. | IP Learn-Focus, LLC. v. Microsoft Corp., Appeal No. 15-1863 (decided July 11, 2016) re: a computer learning system comprising particular combinations of different types of sensors (e.g. optical sensors, nonoptical sensors and imaging sensors) and software programming, applied to MS’s Kinect device. |
3. | Novo Tranforma Techs. L.L.C. v. Sprint Spectrum, L. P., Appeal No. 15-2012 (decided September 23, 2016) re: a payload delivery system that eliminates the incompatibility between different communication services employing different media for communicating information. |
4. | Broadband iTV Inc. v. Hawaiian Tele., Inc., Appeal No. 16-1082 (decided September 26, 2016) re: automated control of video-on-demand technology. |
5. | Blue Spike LLC v. Google, Inc., Appeal No. 16-1054 (decided October 10, 2016) re: alternatives to digital watermarking by creating a “Signal Abstract”, a smaller digital representation of the digital signal that can be used for identification purposes. |
6. | Concaten, Inc. v. AmeriTrak Fleet Solutions, LLC, Appeal No. 16-1112 (decided October 11, 2016) re: a snow management system where real-time data is collected from a plurality of working snowplows and that data was then used to optimize the routing and operation of subsequent snowplow operations. |
7. | GT Nexus, Inc. v. Inttra, Inc., Appeal No. 16-1267 (decided October 11, 2016) re: a computer network architecture called “common carrier system” that integrates existing automated carrier booking and tracking systems and enables multiple shippers and multiple carriers to communicate across a common platform. |
8. | Netflix Inc. v. Rovi Corp., Appeal No. 15-1917 (decided November 7, 2016) re: automated viewing recommendations and book-marking in interactive program guides. |
9. | American Needle, Inc. v. Zazzle Inc., Appeal No. 16-1550 (decided November 10, 2016) re: selling objects online using a two-dimensional format to preview merchandise in three dimensions. |
10. | Personalized Media Commc’n LLC v. Amazon.com, Inc., Appeal No. 15-2008 (decided December 7, 2016) re: seven distinct network control applications from seven different and patentably distinct patents. |
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11. | MacroPoint LLC v. FourKites Inc., Appeal No. 16-1286 (decided December 8, 2016) re: five vehicle tracking applications. |
12. | Voxathon LLC v. FCA US LLC, Appeal No. 16-1614 (decided December 9, 2016) re: technology for allowing drivers to access telephone calls through vehicle entertainment and data systems. |
Several of the parties receiving these Rule 36 judgments have requested re-hearings, asking the Federal Circuit to provide Section 101 guidance en banc, but to date, none of these requests have taken up by the Court of Appeals.
On January 20, 2015, the U.S. Supreme Court decided another patent case, Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. InTeva, the Court overturned the long-standing practice that claim construction decision made by district courts were given de novo review on appeal. Instead, the Supreme Court held that when claim construction is based on extrinsic evidence, a district court’s findings of subsidiary facts are to be reviewed for clear error, while its ultimate claim construction is to be reviewed de novo. This change in how claim construction decisions are reviewed on appeal may have an impact on how parties handle patent litigation in the district courts. This could increase our litigation expenses. The full impact of theTeva decision on patent litigation at the district court level is yet to be determined.
On May 26, 2015, the U.S. Supreme Court decidedCommil USA LLC v. Cisco Systems, Inc. In this case, the Supreme Court held that a good faith belief that a patent is invalid does not provide an accused infringer with a defense against a charge of inducing patent infringement. The Court stated that permitting such a defense would undermine the statutory presumption of validity enjoyed by issued U.S. patents under 35 U.S.C. § 282. The long term effect of this ruling is yet to be seen as it is implemented by the district courts. However, this ruling has eliminated a defense available to parties accused of inducing patent infringement. This result could be beneficial to our patent enforcement efforts.
On December 1, 2015, the Federal Rules of Civil Procedure were amended to require a heightened pleading standard for a plaintiff when filing a patent infringement complaint. Prior to the amendment, patent complaints could follow the general pleading provided in the model patent complaint provided by Form 18. Form 18 has now been eliminated. Patent infringement complaints must now satisfy the pleading standards established by the Supreme Court’s landmark decisions inTwombly andIqbal, which require a patent plaintiff to demonstrate that its claims are “plausible.” It may likely result in more challenges to the sufficiency of patent complaints, which will increase the cost of litigation. This requirement may also impact the amount of research that is required before a patent infringement complaint can be filed.
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become enacted as laws.laws in their current or modified forms. Compliance with any new or existing laws or regulations could be difficult and expensive, decrease the value of our intellectual property portfolio, increase the risk of unlicensed infringement of our intellectual property, or otherwise affect the manner in which we conduct our business and negatively impact our business, prospects, financial condition and results of operations.
Regulatory developments and pending litigation may render our business model less profitable and may have a material adverse effect on our results of operations.
We may negotiate with leading technology companies to invest in, aggregate and acquire or in-license additional portfolios of patents and other intellectual property for monetization. Recent regulatory developments, as well as pending litigation in the industry that is continuing to establish new laws and rules for the licensing and/or assertion of patents, may make this business model more difficult to execute, more risky and/or less profitable. As noted, new draft legislation, if proposed and passed by Congress, might place more significant hurdles to the enforcement of our patent rights, allow defendants increased opportunities to challenge our patents in court and in the USPTO, and increase the risks and costs of patent litigation for all parties, including us. In addition, in various pending litigation and appeals in the United States Federal courts, various arguments and legal theories are being advanced to potentially limit the scope of damages a patent licensing company such as we might be entitled to. While we reject many of these arguments as improperly limiting the rights granted to legitimate patent holders under the Constitution and US patent laws, any one of these pending cases could result in new legal doctrines that could make our patent portfolios less valuable or more costly to enforce.
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In addition, competition authorities in various countries and regions, as well as judicial actions in the United States and abroad are examining the rights and obligations of holders of standard essential patents (SEPs), and in some cases imposing restrictions and further obligations on the licensing and enforcement of SEPs. These changes in law and/or regulation may make our licensing programs more difficult, may render some or all SEP patents held by us unenforceable, or impose other restrictions, costs, impediments or harm to our patent portfolios.
We are exploring and evaluating strategic alternatives and there can be no assurance that we will be successful in identifying, or completing any strategic alternative or that any such strategic alternative will yield additional value for shareholders.
Our management and Board of Directors has commenced a review of strategic alternatives which could result in, among other things, a sale, a merger, consolidation or business combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure you that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.
Our acquisitions of patent assets may be time consuming, complex and costly, which could adversely affect our operating results
Acquisitions of patent or other intellectual property assets, which are and will be critical to our business plan, are often time consuming, complex and costly to consummate. We may elect to not pursue any additional patents while we focus our efforts on monetizing our existing assets. We may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated. As a result, we expect to incur significant operating expenses and will likely be required to raise capital during the negotiations even if the acquisition is ultimately not consummated.consummated, or if we determine to acquire additional patents or other assets. Even if we are able to acquire particular patent assets, there is no guarantee that we will generate sufficient revenue related to those patent assets to offset the acquisition costs.costs, and we may be required to pay significant amounts of deferred purchase price if we monetize those patents above certain thresholds. While we will seek to conduct confirmatory due diligence on the patent assets we are considering for acquisition, we may acquire patent assets from a seller who does not have propercomplete analysis of infringements or claims, have valid or sole title or ownership to those assets, or otherwise provides us with flawed ownership rights, including invalid or unenforceable assets. In those cases, we may be required to spend significant resources to defend our interest in the patent assets and, if we are not successful, our acquisition may be invalid,worthless, in which case we could lose part or all of our investment in the assets.
We may also identify patent or other intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us. Acquisitions involving issuance of our securities could be dilutive to existing stockholders and could be at prices lower than those prices reflected in the trading markets. These higher costs could adversely affect our operating results and, if we incur losses, the value of our securities will decline. The integration of acquired assets may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the integration process could harm our business.
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In addition, we may acquire patents and technologies that are in the early stages of adoption in the commercial, industrial and consumer markets.adoption. Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees willor others adopt our patents and technologies in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will have value that can be realized through licensing or other activities.
We may be unsuccessful at integrating future acquisitions.
If we find appropriate opportunities in the future, we may acquire businesses to strategically increase the number of patents in our portfolio and pursue monetization. For example, on June 30, 2017, the Company acquired a stake in Hoth Therapeutics, Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth has a sublicense from Chelexa Biosciences, Inc. to use Chelexa’s BioLexa products for the treatment of eczema and such sublicense includes the right to further sublicense to third parties to make, use, have made, import, offer for sale and sell BioLexa products. There can monetize.be no guarantee that Hoth will be successful in its efforts to monetize its sublicense agreement with Chelexa.
As we acquire businesses or substantial stakes in certain businesses, the process of integration may produce unforeseen operating difficulties and expenditures, fail to result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that we will be able to identify suitable acquisition opportunities, consummate any pending or future acquisitions or that we will realize any anticipated benefits from any such acquisitions.
If we are unable to successfully monetize our patent assets, or if we cannot obtain sufficient capital to see our legal proceedings to fruition, our business model may be subject to change.
Our current business model of monetizing patent assets primarily through litigation against companies infringing on our intellectual property results in the potential for sporadic income. This makes us dependent on successful outcomes of our litigation claims, as well as obtaining financing from third-party sources to fund these litigations. If we are unable to generate revenue and are unable to raise additional capital on commercially reasonable terms, or if changes in law make our current business model infeasible, then we may determine to change our business model in a manner that would be anticipated to generate revenue on a more regular basis. If we determine to change our business model, it may be difficult to predict our future prospects. Furthermore, we may incur significant expenses in any such shift in business model, or our management may have to devote significant resources into developing, or may not be well suited for, any such new business model.
We have ongoing financial obligations to certain stockholders under the terms of our acquisition of certain patents from Rockstar. Our failure to comply with our obligations to these stockholders could have a material adverse effect on the value of our assets, our financial performance and our ability to sustain operations.
Rockstar is entitled to receive a contingent recovery percentage of future profits from licensing, settlements and judgments against defendants with respect to patents purchased by us from Rockstar. In particular, once we recover a certain amount of proceeds pertaining to the patents acquired from Rockstar in June 2013, which amount will not exceed $8.0 million, net of certain expenses, we will be required to make a payment of up to $13.0 million to Rockstar within six months of such recovery. Furthermore, once we recover a certain level of proceeds pertaining to each portfolio of patents we acquired from Rockstar, we will be required to make participation payments to RPX which, depending on how much we recover, could range from 30% of the amount we recover to 70% of the amount we recover in any given quarter, net of certain expenses. Our ability to fund these payments, as well as other payments that may become due in respect of our acquisition of patents from Rockstar in December 2013, will depend on the liquidity of our assets, recoveries, alternative demands for cash resources and access to capital at the time. Furthermore, our obligation to fund these payments could materially adversely impact our liquidity and financial position.
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In certain acquisitions of patent assets, we may seek to defer payment or finance a portion of the acquisition price. This approach may put us at a competitive disadvantage and could result in harm to our business
We have limited capital and may seek to negotiate acquisitions of patent or other intellectual property assets where we can defer payments, or finance a portion of the acquisition price.price or have an obligation to make contingent payments upon recovery of value from those assets. These types of debt financing, or deferred payment or contingent arrangements may not be as attractive to sellers of patent assets as receiving the full purchase price for those assets in cash at the closing of the acquisition. Asacquisition, and, as a result, we might not compete effectively against other companies in the market for acquiring patent assets, many of whom have greater cash resources than we have. In addition, any failureWe may also finance our activities by issuance of debt which could require interest and amortization payments which we may not have the ability to satisfyrepay, in which case we could be in default under the terms of loan agreements. We may pledge our debt repayment obligations may resultassets as collateral and if we are in adverse consequences todefault under our operating results.
Any failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and harm our brand, our business and our operating results
Our ability to operate our new line of business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our acquired patent assets and other intellectual property. To protect our proprietary rights, we will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. No assurances can be given that any of the measures we undertake to protect and maintain our assets will have any measure of success.
We are required to spend significant time and resources to maintain the effectiveness of thoseour assets by paying maintenance fees and making filings with the United States Patent and Trademark Office.USPTO. We may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with the United States Patent and Trademark Office.USPTO prior to issuance of patents. Further, there is a material risk that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business. For instance, in connection withinter partes review in our now-settled litigations with VTech and Uniden, the Patent Trial and Appeals Board has found that certain portions of the claims relating to certain of our patents are invalid. Regardless of whether any such claims are valid or can be successfully asserted, defending such claims could cause us to incur significant costs and could divert resources away from our other activities.
Despite our efforts to protect our intellectual property rights, any of the following or similar occurrences may reduce the value of our intellectual property:
· | our applications for patents, trademarks and copyrights may not be granted and, if granted, may be challenged or invalidated; |
· | issued trademarks, copyrights, or patents may not provide us with any competitive advantages when compared to potentially infringing other properties; |
· | our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or |
· | our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we acquire and/or prosecute. |
Moreover, we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business or enforce our patents against infringers in the future or from which competitors may operate.foreign countries. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would be reduced or eliminated, and our business would be harmed.
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Weak global economic conditions may cause infringing parties to delay entering into licensing agreements, which could prolong our litigation and adversely affect our financial condition and operating results
Our business plan depends significantly on worldwide economic conditions, and the United States and world economies have recently experienced weak economic conditions. Uncertainty about global economic conditions poses a risk as businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values. This response could have a material negative effect on the willingness of parties infringing on our assets to enter into licensing or other revenue generating agreements voluntarily. Entering into such agreements is critical to our business plan, and our failure to do so could cause material harm to our business.
If we are unablenot able to adequately protect our intellectual property from unauthorized use, it could diminish the value of our products and services, weaken our competitive position and reduce our revenue.
Our success depends in large part on our ability to identify unauthorized use of our intellectual property. We believe that our trade secrets and non-patented technology may be key to identifying and differentiating our products and services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.
We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-parties could copy or otherwise obtain and use our property without authorization or develop similar information and property independently, which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so, including situations which may damage our ability to succeed in licensing negotiations or legal proceedings such as patent infringement cases we may bring. In addition, competitors may design around our technologies or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.
If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings, or that contingent fees could be a significant portion of our recovery. We will also rely on trade secrets and contract law to protect some of our proprietary technology. We will enter into confidentiality and invention agreements with inventors, employees and consultants and common interest agreements with parties associated with our litigation efforts. Nevertheless, these agreements may not be honored and they may not effectively protect our right to our privileged, confidential or proprietary information or our patented or un-patented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
If we fail to manage our existing assets and patent inventory and third party relationships (such as attorneys and experts) effectively, our revenue and profits could decline and should we fail to acquire additional revenues from license fees, our growth could be impeded.
Our success depends in part on our ability to manage our existing portfolios of patent assets and manage our third party relationships necessary to monetize our assets effectively. Our attorneys and experts are not bound by long-term contracts that ensure us consistent access to expertise necessary to enforce our patents, which is crucial to our ability to generate license revenues and prosecute infringers. In addition, attorneys and experts can change the cost of the services they provide, such as contingent fees that we are required to pay, and our arrangements often require an increasing percentage of recoveries to be devoted to attorney’s fees depending on the length of time or stage of the case prior to settlement or recovery, reducing the residual amount available to us following conclusion of a case. If an attorney, seller, inventor or expert decides not to provide needed assistance in connection with a case, or provides assistance to prospective licensees or defendants, we may not be able to compete effectively
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We may be unable to issue securities under our shelf registration statement, which may have an adverse effect on our liquidity.
We have filed a shelf registration statement on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in part uponreliance on Instruction I.B.6. of Form S-3, which imposes a limitation on the strengthmaximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period. At the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may not exceed one-third of the aggregate market value of our proprietary rights that we will ownoutstanding common stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Based on this calculation and as a result of acquisitions in our technologies, brandssale of common stock and content. We intendwarrants that closed on July 21, 2015, we are currently ineligible to relysell securities pursuant to our effective registration statement on Form S-3. Whether we sell securities under the registration statement will depend on a combinationnumber of U.S. and foreign patents, copyrights, trademark, trade secret laws and license agreements to establish and protect our intellectual property and proprietary rights. The efforts we take to protect our intellectual property and proprietary rights may not be sufficient or effective at stopping unauthorized usefactors, including availability of our intellectual propertyexisting S-3 under the 1/3 limitation calculations set forth in Instruction I.B.6 of Form S-3, the market conditions at that time, our cash position at that time and proprietary rights. In addition, effective trademark, patent, copyrightthe availability and trade secret protection may not be available or cost-effective in every country in which our services are made available. There may be instances whereterms of alternative sources of capital. Furthermore, Instruction I.B.6. of Form S-3 requires that the issuer have at least one class of common equity securities listed and registered on a national securities exchange. If we are not able to fully protect or utilize our intellectual property in a mannermaintain compliance with applicable NASDAQ rules, we will no longer be able to rely upon that maximizes competitive advantage.Instruction. If we are unable to protectcannot sell securities under our intellectual property and proprietary rights from unauthorized use, the value of our productsshelf registration, we may be reduced,required to utilize more costly and time-consuming means of accessing the capital markets, which could negatively impactmaterially adversely affect our new business.liquidity and cash position.
Risks Related to Ownership of Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be adversely affected.
We face evolving regulation of corporate governance and public disclosure that may result in additional expenses and continuing uncertainty.
As a public company, we incur significant legal, accounting and standards relating to corporate governance and public disclosure, including theother expenses. The Sarbanes-Oxley Act of 2002, SEC regulationsor SOX, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ StockGlobal Market LLC rules are creating uncertainty for public companies. We are presently evaluating and monitoring developments with respect to new and proposedother applicable securities rules and cannot predict or estimate theregulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of the additional costs we may incur or the timing of these costs. For example,time towards maintaining compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act has to date required the commitment of significant resources to document and test the adequacy of our internal control over financial reporting. Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2012, our internal control over financial reporting was not effective, as a result of the reclassification from equity to liability of warrants issued between November 2009 and February 2012. Similarly, we concluded that our internal control over financial reporting was not effective as of September 30, 2013, due to the Company’s lack of segregation of duties, and difficulty in applying complex accounting principles, including fair value of derivatives, options and warrants as well as stock based compensation accounting. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.these requirements. These new or changed laws,rules, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest the resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
Our common stock may be delisted from The NASDAQ Capital Market if we fail to comply with continued listing standards.
Our common stock is currently traded on The NASDAQ Capital Market under the symbol “SPEX.” If we fail to meet any of the continued listing standards of The NASDAQ Capital Market, our common stock could be delisted from The NASDAQ Capital Market. These continued listing standards include specifically enumerated criteria, such as:
· | a $1.00 minimum closing bid price; |
· | stockholders’ equity of $2.5 million; |
· | 500,000 shares of publicly-held common stock with a market value of at least $1 million; |
· | 300 round-lot stockholders; and |
· | compliance with NASDAQ’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of NASDAQ’s discretionary authority. |
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On April 20, 2012,March 24, 2015, we received a deficiency notice from NASDAQ regardingthat the bid price of our common stock. Followingstock no longer met NASDAQ’s continued listing requirements. According to the notice, in order to regain compliance with the NASDAQ listing rules, our common stock would need to have a 1closing bid price of at least $1.00 per share for 20at least 10 consecutive trading days no later than September 21, 2015. On September 22, 2015, we received a letter from NASDAQ granting us an additional 180 days, or until March 21, 2016, to regain compliance. On March 4, 2016, our common stock underwent a 1-for-19 reverse stock split,split. As of the close of trading on October 8, 2012, NASDAQ provided confirmation to us that we have regained compliance with Marketplace Rule 5550(a)(2) sinceMarch 17, 2016, the closing bid price of itsour common stock had tradedwas at least $1.00 per share or greater for at least ten (10)10 consecutive business days. This is the second timetrading days and, accordingly, we employed a reversed stock split to avoid NASDAQ delisting.
If we arefail to comply with NASDAQ’s continued listing standards, we may be delisted thenand our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securitiesor OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Further, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Exchange Act.
Our share price may be volatile and there may not be an active trading market for our common stock.
There can be no assurance that the market price of our common stock will not decline below its present market price or that there will be an active trading market for our common stock. The market prices of technology or technology related companies have been and are likely to continue to be highly volatile. Fluctuations in our operating results and general market conditions for technology or technology related stocks could have a significant impact on the volatility of our common stock price. We have experienced significant volatility in the price of our common stock. From January 1, 2015 through March 31, 2017, the share price of our common stock (on a split-adjusted basis) ranged from a high of $21.47 to a low of $0.85. The reason for the volatility in our stock is not well understood and may continue. Factors that may have contributed to such volatility include, but are not limited to:
· | developments regarding regulatory filings; |
· | our funding requirements and the terms of our financing arrangements; |
· | technological innovations; |
· | introduction of new technologies by us or our competitors; |
· | material changes in existing litigation; |
· | changes in the enforceability or other matters surrounding our patent portfolios; |
· | government regulations and laws; |
· | public sentiment relating to our industry; |
· | developments in patent or other proprietary rights; |
· | the number of shares issued and outstanding; |
· | the number of shares trading on an average trading day; |
· | performance of companies in the non-performing entity space generally; |
· | announcements regarding other participants in the technology and technology related industries, including our competitors; |
· | block sales of our shares by stockholders to whom we have sold stock in private placements, or the cessation of transfer restrictions with respect to those shares; and |
· | market speculation regarding any of the foregoing. |
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We could fail in future financing efforts or be delisted from The NASDAQ Capital Market if we fail to receive stockholder approval when needed.
We are required under the NASDAQ rules to obtain stockholder approval for any issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by NASDAQ. Funding of our operations in the futureand acquisitions of assets may require issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding, but we might not be successful in obtaining the required stockholder approval for such an issuance. If we are unable to obtain financing due to stockholder approval difficulties, such failure may have a material adverse effect on our ability to continue operations.
Our shares of common stock are thinly traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise money or otherwise desire to liquidate their shares.
Our common stock has been “thinly-traded” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence,Our trading volumes are further adversely affected by the 1-for-19 reverse stock split that was effective as of March 4, 2016. In addition, we believe that due to the limited number of shares of our common stock outstanding, an options market has not been established for our common stock, limiting the ability of market participants to hedge or otherwise undertake trading strategies available for larger companies with broader shareholder bases which prevents institutions and others from acquiring or trading in our securities. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
Because of the Rights Agreement and “Anti-Takeover”“anti-takeover” provisions in our Certificate of Incorporation and Bylaws, a third party may be discouraged from making a takeover offer that could be beneficial to our stockholders.
Effective as of January 24, 2013, and as amended and restated on June 9, 2017, we adopted a new shareholder rights plan. The effect of this rights plan and of certain provisions of our Certificate of Incorporation, By-Laws, and the anti-takeover provisions of the Delaware General Corporation Law, could delay or prevent a third party from acquiring us or replacing members of our Board of Directors, or make more costly any attempt to acquire control of the Company, even if the acquisition or the replacementsBoard designees would be beneficial to our stockholders. These factors could also reduce the price that certain investors might be willing to pay for shares of the common stock and result in the market price being lower than it would be without these provisions.
In addition, defendants in actions seeking to enforce our patents may seek to influence our Board of Directors and stockholders by acquiring positions in the Company to force consideration of settlement or licensing proposals that may be less desirable than other outcomes such as litigation with respect to our monetization or patent enforcement activities. The effect of such influences on our Company or our corporate governance could reduce the value of our monetization activities and have an adverse effect on the value of our assets. The effect of anti-takeover provisions could impact the ability of prospective defendants to obtain influence in the Company or representation on the Board of Directors or acquire a significant ownership position and such result may have an adverse effect on the Company and the value of its securities.
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Dividends on our common stock are not likely.
During the last four years, we have not paid cash dividends on our common stock, and we do not anticipate paying cash dividends on our common stock in the foreseeable future. Investors must look solely to the potential for appreciation in the market price of the shares of our common stock to obtain a return on their investment.
It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.
Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and our own forecasts. If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include the following:
· | fluctuations in results of our enforcement and licensing activities or outcome of cases; |
· | fluctuations in duration of judicial processes and time to completion of cases; |
· | the timing and amount of expenses incurred to negotiate with licensees and obtain settlements from infringers; |
· | the impact of our anticipated need for personnel and expected substantial increase in headcount; |
· | fluctuations in the receptiveness of courts and juries to significant damages awards in patent infringement cases and speed to trial in the jurisdictions in which our cases may be brought and the accepted royalty rates attributable to damages analysis for patent cases generally, including the royalty rates for industry standard patents which we may own or acquire; |
· | worsening economic conditions which cause revenues or profits attributable to infringer sales of products or services to decline; |
· | changes in the regulatory environment, including regulation of NPE activities or patenting practices, that may negatively impact our or infringers practices; |
· | the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions; |
· | Any changes we make in our Critical Accounting Estimates described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our periodic reports; |
· | the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and |
· | costs related to acquisitions of technologies or businesses. |
If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. In particular, Anthony Hayes, our Chief Executive Officer, is important to the management of our business and operations and the development of our strategic direction. The loss of the services of any such individual and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
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Because an increasing amount of our outstanding shares may become freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
As of December 31, 2016, we had outstanding 4,943,929 shares of common stock, of which our directors and executive officers owned 72,284 shares which are subject to the limitations of Rule 144 under the Securities Act.
In general, Rule 144 provides that any non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that we are then current in our filings with the SEC.
An affiliate of the Company may sell after six months with the following restrictions:
· | we are current in our filings, |
· | certain manner of sale provisions, |
· | filing of Form 144, and |
· | volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed the greater of 1% of the total number of outstanding shares or, the average weekly trading volume during the four calendar weeks preceding the filing of a notice of sale. |
Because almost all of our outstanding shares are freely tradable (subject to certain restrictions imposed by lockup agreements executed by the holders thereof) and the shares held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
Risk Related to this Offering
Management will have broad discretion as to the use of the net proceeds from this offering, and we may not use these proceeds effectively.
We intend to use the net proceeds from this offering for working capital and general corporate purposes. Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.
You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.
Because the price per share of our common stock being offered is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on a public offering price of $ per share, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of approximately ($ ) per share in the net tangible book value of the common stock. See the section entitled “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.
In addition, we have a significant number of stock options, warrants and convertible preferred stock outstanding. To the extent that outstanding stock options, warrants have been or may be exercised or other shares issued, you may experience further dilution.
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Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If additional capital is raised through the sale of equity or convertible debt securities, or perceptions that those sales could occur, the issuance of these securities could result in further dilution to investors purchasing our common stock in this offering or result in downward pressure on the price of our common stock, and our ability to raise capital in the future.
The exercise of outstanding options and warrants to acquire shares of our common stock would cause additional dilution, which could cause the price of our common stock to decline.
In the past, we have issued options and warrants to acquire shares of our common stock. At March 31, 2017, there were 312,984 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $82.39 per share and 1,250,311 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $9.21 per share, and we may issue additional options, warrants and other types of equity in the future as part of stock-based compensation, capital raising transactions or other strategic transactions. To the extent these options and warrants are ultimately exercised, existing holders of our common stock would experience additional dilution which may cause the price of our common stock to decline.
A large number of shares issued in this offering may be sold in the market following this offering, which may depress the market price of our common stock.
A large number of shares issued in this offering may be sold in the market following this offering, which may depress the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market following this offering could cause the market price of our common stock to decline. If there are more shares of our common stock offered for sale than buyers are willing to purchase, then the market price of our common stock may decline to a market price at which buyers are willing to purchase the offered shares of our common stock and sellers remain willing to sell the shares. All of the securities issued in the offering will be freely tradable without restriction or further registration under the Securities Act.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGFORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. Such statements, includewhich reflect the views of our management with respect to future events and financial performance. These forward-looking statements regarding our expectations, hopes, beliefs or intentions regarding the future, including but not limitedare subject to statements regarding our market, strategy, competition, development plans (including acquisitions and expansion), financing, revenues, operations, and compliance with applicable laws. Forward-looking statements involve certain risks anda number of uncertainties and actual results may differ materially from those discussed in any such statement. Factorsother factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “targets” and similar expressions. Such forward-looking statements include the risks described in greater detailmay be contained in the following paragraphs. Allsections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” among other places in this prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, in this documentwhich are made as of the date hereof, based on the information available to usmanagement at this time and which speak only as of the date hereof, and we assumethis date. We undertake no obligation to update or revise any forward-looking statement. Market data used throughoutstatements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors.”
The identification in this document of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You may rely only on the information contained in this prospectus.
We have not authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of our common stock means that information contained in this prospectus is based on published third party reports orcorrect after the good faith estimates of management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information.
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If you purchase shares of our common stock.
After giving effect to the proceeds from any suchassumed sale by us of shares of our common stock in this offering at an assumed public offering price of $ per share of common stock,the last reported sale price of our common stock on The Nasdaq Capital Market on July __, 2017,after deducting the underwriting discount and estimated offering expenses payable by us, our as adjusted net tangible book value as of , 2017 would have been approximately $ , or approximately $ per share of common stock. This represents an immediate increase in net tangible book value of approximately $ per share to existing stockholders and an immediate dilution of approximately $ per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution:
Assumed public offering price per share | $ | [●] | ||
Net tangible book value per share as of March 31, 2017 | $ | (0.04 | ) | |
Increase per share attributable to new investors in this offering | ||||
As adjusted net tangible book value per share as of March 31, 2017 after giving effect to this offering | $ | [●] | ||
Dilution per share to investors participating in this offering | $ | [●] |
Each $ increase (decrease) in the assumed public offering price of $ per share would increase (decrease) our as adjusted net tangible book value after this offering by $ million, or $ per share, and the dilution per share to new investors by $ per share, assuming that the number of shares of common stock offered by us, as set forth above, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares of common stock we are offering from the assumed number of shares of common stock set forth above. An increase (decrease) of shares of common would increase (decrease) our as adjusted net tangible book value after this prospectus.offering by $ million, or $ per share, and the dilution per share to new investors by $ per share, assuming that the public offering price remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares that we offer in this offering, and other terms of this offering determined at pricing.
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The number of shares of our outstanding common stock reflected in the discussion and table above is based on 4,979,898 shares of common stock outstanding as of July 3, 2017 and excludes, as of that date:
· | 312, 984 shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $82.39 per share; |
· | 1,250,311 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $ 9.21 per share (without giving effect to any of the anti-dilution adjustment provisions thereof); and |
· | 2,926 shares of common stock issuable upon the conversion of our Series D and D-1 Preferred Stock. |
· | 269,115 shares of our common stock to be reserved for potential future issuance pursuant to our 2012, 2013 and 2014 Equity Incentive Plans, combined. |
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We estimate that our net proceeds from this offering will be approximately $ million based on an assumed offering price of $ , the last reported sale price of our common stock on the NASDAQ Capitals Market on , 2017. If the underwriters exercise their option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately $ million.
An $ increase (decrease) in the assumed public offering price of $ per share of our common stock would increase (decrease) the expected net cash proceeds of the offering to us by approximately $ . An increase (decrease) of in the assumed number of shares sold in this offering would increase (decrease) the expected net cash proceeds of the offering to us by approximately $ , assuming a public offering price of $ per share.
We intend to use the net proceeds of this offering for working capital and general corporate purposes. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds we will have upon completion of the offering. Accordingly, we will retain broad discretion over the use of these proceeds.
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MARKET FORPRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is tradedlisted on the NASDAQ Capital Market under the symbol SPEX. No dividends were paid in 2012 or 2011.
The following table sets forth the quarterly quotes of high and low closing prices for our common stock on the NASDAQ Capital Market, as applicable, for each quarterly period during our fiscal years ended December 31, 2016 and 2015, and the quarter ended March 31, 2017 and June 30, 2017.
Period | High | Low | ||||||
2015 | ||||||||
First Quarter | $ | 21.47 | $ | 14.82 | ||||
Second Quarter | $ | 15.58 | $ | 9.12 | ||||
Third Quarter | $ | 11.02 | $ | 3.99 | ||||
Fourth Quarter | $ | 10.07 | $ | 2.66 | ||||
2016 | ||||||||
First Quarter | $ | 2.66 | $ | 1.71 | ||||
Second Quarter | $ | 3.07 | $ | 1.86 | ||||
Third Quarter | $ | 2.36 | $ | 1.26 | ||||
Fourth Quarter | $ | 1.51 | $ | 0.87 | ||||
2017 | ||||||||
First Quarter | $ | 1.38 | $ | 1.02 | ||||
Second Quarter (through June 29, 2017) | $ | 4.75 | $ | 0.91 |
Holders
As of June 29, 2017, the last reported bysales price reported on the NASDAQ Capital Market for our common stock was $3.92 per share. As of the periods indicated (all adjusted for the September 2012 reverse stock split).
Period | High | Low | ||||||
2013 | ||||||||
First Quarter | $ | 14.99 | $ | 5.51 | ||||
Second Quarter | $ | 11.05 | $ | 4.07 | ||||
Third Quarter | $ | 27.86 | $ | 4.54 | ||||
2012 | ||||||||
First Quarter | $ | 35.40 | $ | 15.60 | ||||
Second Quarter | $ | 22.40 | $ | 10.00 | ||||
Third Quarter | $ | 11.98 | $ | 7.22 | ||||
Fourth Quarter | $ | 11.76 | $ | 5.85 | ||||
2011 | ||||||||
First Quarter | $ | 218.00 | $ | 70.00 | ||||
Second Quarter | $ | 117.20 | $ | 45.60 | ||||
Third Quarter | $ | 69.60 | $ | 24.60 | ||||
Fourth Quarter | $ | 68.40 | $ | 22.60 |
Dividends
During the last four years, we have not declared or nominee names. We believe thatpaid any cash dividends on our capital stock, and we do not anticipate paying cash dividends in the number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”
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Securities authorized for issuance under the authority granted to the Board of Directors by the Company’s stockholders at the annual meeting of stockholders held on November 17, 2009. The reverse stock split reduced the number of outstanding shares of common stock from 25,624,872 shares to 2,562,488 shares.
The following table provides information about the Company’sour common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’sour existing equity compensation plans as of December 31, 2012.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by security holders | 7,163 | 1 | $ | 22.34 | 2,750 | |||||||
Equity compensation plans not approved by securities holders | 1,399 | 2 | $ | 97.27 | N/A | |||||||
Total | 8,562 | 2,750 |
Number of securities | ||||||||||||
remaining available for | ||||||||||||
future issuance under | ||||||||||||
Number of securities to | Weighted average | equity compensation | ||||||||||
be issued upon exercise | exercise price of | plans (excluding | ||||||||||
of outstanding options, | outstanding options, | securities reflected in | ||||||||||
Plan Category | warrants and rights (1) | warrants and rights | column (1)) (2) | |||||||||
Equity compensation plans approved by security holder | 312,984 | $ | 82.39 | 269,115 | ||||||||
Equity compensation plans not approved by security holder | - | - | - | |||||||||
312,984 | 269,115 |
(1) | Consists of options to acquire |
(2) | Consists of shares of common stock available for future issuance under our equity incentive |
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Forward-Looking Statements
You should read this discussion together with the Financial Statements, related Notes and analysis of our results of operations andother financial condition should be read in conjunction with (i) our unaudited interim condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2013 and 2012 (ii) audited financial statements for the fiscal years ended December 31, 2012 and 2011 and the notes thereto and (iii) the section entitled “Business”,information included elsewhere in this prospectus. Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
2012 | 2011 | |||||||
Revenue | $ | 728,312 | $ | 820,925 | ||||
Direct cost and operating expense | (417,428 | ) | (388,065 | ) | ||||
Selling, general and administrative expense | (1,279,875 | ) | (816,389 | ) | ||||
Loss from discontinued operations before taxes | $ | (968,991 | ) | $ | (383,529 | ) |
Overview
We are an intellectual property company that owns patented and unpatented intellectual property. We wereSpherix Incorporated was formed in 1967 as a scientific research company and for much of our history pursued drug development including through Phase III clinical studies which were largely discontinued in 2012. In 2012 and 2013, we shifted our focus to being a firm that owns, develops, acquires and monetizes intellectual property assets. Through our acquisitionacquisitions of seven108 patents and patent applications from Rockstar Consortium US, LP and acquisition of several hundred patents issued to Harris Corporation as a result of our acquisition of North South, we have expanded our activities in wireless communications and telecommunication sectors including antenna technology, Wi-Fi, base station functionality and cellular.
Our activities generally include the acquisition and development of patents through internal or external research and development. In addition, we seek to acquire existing rights to intellectual property through the acquisition of already issued patents and pending patent applications, both in the United States and abroad. We may alone, or in conjunction with others, develop products and processes associated with our intellectual property and license our intellectual property to others seeking to develop products or processes or whose products or processes infringe our intellectual property rights through legal processes. Using our patented technologies, we employ strategies seeking to permit us to derive value from licensing, commercialization, settlement and litigation from our patents. We will continue to seek to obtain patents from inventors and patent owners to monetize patent portfolios.
Recent Developments
On June 30, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Hoth Therapeutics, Inc., a Nevada corporation (“Hoth”), for the purchase of 6,800,000 shares of common stock, par value $0.0001 (the “Shares”), of Hoth, for a purchase price of $675,000. As of June 30, 2017, Hoth had a total of 17,000,000 shares of common stock issued and outstanding. Hoth is a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth’s primary asset is a sublicense agreement with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa has granted Hoth an exclusive sublicense to use its BioLexa products for the treatment of eczema. Hoth intends to develop BioLexa’s applications in the aesthetic dermatology field to help treat and reduce post-procedure infections, accelerate healing and improve clinical outcomes for patients undergoing procedures. Hoth will be implementing FDA testing procedures for BioLexa. In addition to the Purchase Agreement, the Company and Hoth entered into a Registration Rights Agreement, pursuant to which Hoth is obligated to register for resale on a registration statement on Form S-1 under the Securities Act, all of the shares, no later than June 30, 2018, Further, the Company, Hoth and Hoth’s existing shareholders have entered into a Shareholders Agreement, pursuant to which Spherix shall have a right to appoint one director to the board of directors of Hoth for so long as the Company holds at least 10% of the issued and outstanding common stock of Hoth.
Critical Accounting Policies
Accounting for Warrants
We account for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of Accounting Standards Codification (“ASC”) 815,Derivatives and Hedging (“ASC 815”). We classify as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). We classify as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, Under ASC 815, registered common stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. We classify these derivative warrant liabilities on the consolidated balance sheet as a current liability.
We assess the classification of our common stock purchase warrants as of the date of each offering and determined that such instruments met the criteria for liability classification. The warrants are reported on the consolidated balance sheets as a warrant liability at fair value using the Black-Scholes valuation method. Changes in the estimated fair value of the warrants result in the consolidated statement of operations as “change in the fair value of warrant liabilities”.
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Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
During the three months ended March 31, 2017, revenue was approximately $0.3 million, which is the amortization of deferred revenue related to patent license agreements we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”). During the Mergerthree months ended March 31, 2016, revenue was approximately $72,000, which is the amortization of deferred revenue related to the RPX License Agreement dated November 23, 2015.
During the three months ended March 31, 2017 and 2016, we incurred a loss from operations of approximately $1.0 million and $1.6 million, respectively. The decrease in net loss was primarily attributed to a $0.2 million decrease in amortization expenses related to the Rockstar patents acquired by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016.
During the three months ended March 31, 2017 and 2016, other income was approximately $50,000 as compared to approximately $1.5 million of other income for the comparable prior period. The decrease in other income was primarily attributed to a $1.7 million decrease in change in fair value of warrant liabilities.
Fiscal Year Ended December 31, 2016 Compared to Fiscal Year Ended December 31, 2015
For the year ended December 31, 2016, we incurred a loss from operations of $8.6 million, a decrease of $43.4 million, as compared to $52.0 million in 2015. The decrease in net loss was primarily attributed to a $37.9 million decrease in impairment charge taken against the goodwill and intangible assets, and $4.2 million decrease in amortization of patent portfolio expense, partially offset by a $226,000 increase in compensation and related expenses. During the years ended December 31, 2016 and 2015, we recorded $2.1 million and $6.3 million, respectively, in amortization expenses related to the Rockstar patents acquired by the Company during 2013.
For the year ended December 31, 2016, revenue was approximately $0.9 million, which is the amortization of deferred revenue related to RPX License Agreements. For the year ended December 31, 2015, the revenue was nominal.
For the year ended December 31, 2016, we recorded income related to a non-cash fair value adjustment on our warrant liability of approximately $2.3 million, compared to $269,000 of income in 2015. Fair value adjustments for warrant liabilities is the result of the change in the carrying amount of the warrant liability caused by changes in the fair value as determined using a Black-Scholes valuation method. In addition, during the year ended December 31, 2016, we recorded other expenses, net of $182,000 compared to other income, net of $276,000 in 2015. During the year ended December 2015, the Company received $295,000 related to the settlement of the Huawei case in 2015.
For the year ended December 31, 2016, we incurred a $31.5 million of deemed capital contribution on preferred stock related to the cancellation of 381,967 shares of Series H Preferred Stock pursuant to the RPX license agreement compared with Nuta,a $9.5 million of deemed capital contribution on preferred stock related to the assignment to us of 29,940 shares of our wholly-owned subsidiary, North SouthSeries I Preferred Stock and 57,076 shares of our Series H Preferred Stock and the stockholders of North South. On August 30, 2013, we entered into an amendmentsubsequent cancellation thereof pursuant to the MergerRPX license agreement.
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Liquidity and Capital Resources
We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding revenue.
We intend to finance our activities through:
· | managing current cash and cash equivalents on hand from our past equity offerings, |
· | seeking additional funds raised through the sale of additional securities in the future, |
· | seeking additional liquidity through credit facilities or other debt arrangements, and |
· | increasing revenue from the monetization of its patent portfolios, license fees and new business ventures. |
Cash Flows from Operating Activities - For the three months ended March 31, 2017 and 2016, net cash used in operations was approximately $0.8 million and $1.5 million, respectively. The cash used in operating activities for the three months ended March 31, 2017 primarily resulted from $0.1 million of change in fair value of warrant liabilities and amortization expenses of $0.3 million, partially offset by $0.4 million of changes in assets and liabilities. The cash used in operating activities for the three months ended March 31, 2016 primarily resulted from $1.5 million of change in fair value of warrant liabilities and $0.7 million of changes in assets and liabilities, partially offset by significant non-cash charges related to amortization expenses of $0.5 million and stock-based compensation expense of $0.1 million.
For the year ended December 31, 2016, net cash provided by operations was $70,000 compared to net cash used in operations of $4.6 million for the year ended December 31, 2015.
The cash provided by operating activities for the year ended December 31, 2016 primarily resulted from significant non-cash charges related to impairment of intangibles of $2.7 million, amortization expenses of $2.1 million, stock-based compensation expense of approximately $0.6 million and approximately $3.5 million of deferred revenue, partially offset by approximately $6.5 million net loss and $2.3 million of change in fair value of warrant liabilities. The cash used in operating activities for the year ended December 31, 2015 primarily resulted from our net loss of $51.5 million and a fair value adjustment of warrant liabilities of $0.3 million, offset by significant non-cash charges related to impairment of goodwill and intangibles of $40.6 million, amortization expenses of $6.3 million, stock-based compensation expense of $0.4 million, plus a $0.2 million increase in cash from changes in operating assets and liabilities.
Cash Flows from Investing Activities -For the three months ended March 31, 2017 and 2016, net cash provided by investing activities was approximately $0.9 million and $1.9 million, respectively. The cash provided by investing activities primarily resulted from our sale of marketable securities for the three months ended March 31, 2017 of $5.0 million, partially offset by our purchase of marketable securities of $4.1 million. The cash provided by investing activities primarily resulted from our sale of marketable securities for the three months ended March 31, 2016 of $5.3 million, partially offset by purchase of marketable securities of $3.5 million, and purchase of property and equipment of $2,000.
For the year ended December 31, 2016, net cash used in investing activities was approximately $3.0 million. The cash used in investing activities primarily resulted from our purchase of marketable securities for the year ended December 31, 2016 of approximately $18.0 million and purchase of property and equipment of approximately $4,000, partially offset by sale of marketable securities of approximately $15.1 million. For the year ended December 31, 2015, net cash provided by investing activities was $0.1 million. We purchased $8.0 million and sold $8.1 million of marketable securities in 2015.
On June 30, 2017, we paid approximately $0.7 million in cash to purchase our interest in Hoth. This purchase will reduce our working capital balance by $0.7 million as of June 30, 2017.
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Cash Flows from Financing Activities - For the three months ended March 31, 2017 and 2016, there were no financing activities.
Our business will require significant amounts of capital to sustain operations and make the investments we need to execute our longer term business plan. Our accumulated deficit amounted to approximately $142.7 million at March 31, 2017, compared to approximately $141.7 million at December 31, 2016. Our existing liquidity is not sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for the foreseeable future. We will need to obtain additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or from the litigations in which we participate. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available to us on favorable terms, or at all.
Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. We may be forced to litigate against others to enforce or defend our intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which we are involved may allege defenses and/or file counterclaims or initiate inter parties reviews in an effort to avoid or limit liability and damages for patent infringement or cause us to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the value of the patents and preclude us from deriving revenue from the patents, the patents could be declared invalid by a court or the United States Patent and Trademark Office, in whole or in part, or the costs could increase.
Should we be unsuccessful in our efforts to execute our business plan, it could become necessary for us to reduce expenses, curtail operations or explore various alternative business opportunities or possibly suspend or discontinue our business activities.
Pursuant to the RPX License Agreement, the security interest that RPX held in favor of our patents acquired from Rockstar was extinguished. Accordingly, we now have greater flexibility to amend, amongmonetize our patent portfolio, including through the sale of our patents or sublicensing our patents to third parties who can pursue their own monetization strategies with respect to those patents in exchange for royalties or some other things,consideration.
We have filed a shelf registration statement on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction I.B.6. of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period. At the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Based on this calculation and primarily as a result of our sale of $2,500,000 of common stock for the purchase of common stock on August 8, 2016 we are not currently eligible to sell any securities pursuant to our effective registration statement on Form S-3. Whether we sell securities under the registration statement will depend on a number of factors, including the market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital.
Rockstar will be entitled to receive a contingent recovery percentage of future profits (“Participation Payments”) from licensing, settlements and judgments against defendants with respect to patents purchased under the merger consideration. On September 10, 2013,First Patent Purchase Agreement; however, no payment is required unless the Company receives a recovery. The Participation Payments under the First Patent Purchase Agreement are equal to zero percent until the Company recovers with respect to patents purchased under the First Patent Purchase Agreement at least (a) $8.0 million or (b) if we consummatedrecover less than $17.0 million, an amount equal to $5.0 million plus $3.0 million times a fraction equal to total recoveries minus $10.0 million, divided by $7.0 million (clause (a) or (b), as applicable, being the merger“Initial Return”), in each case net of certain expenses. Once we obtain recoveries in excess of the Initial Return, we are required to make a payment to Rockstar of $13.0 million, payable only from the proceeds of such recovery, within six months after such recovery. In addition, no later than 30 days after the end of each quarter in which we make such a recovery, we are required to pay to Rockstar a percentage of such recovery, net of certain expenses, scaling from 30% if such cumulative recoveries net of certain expenses are less than or equal to $50.0 million, to 70% to the extent cumulative recoveries net of certain expenses are in excess of $1.0 billion.
Rockstar will also be entitled to receive Participation Payments from licensing, settlements and North South merged into Nuta,judgments against defendants with Nuta continuing asrespect to patents purchased under the surviving corporationSecond Patent Purchase Agreement; however, no payment is required unless we receive a recovery. The Participation Payments under the Second Patent Purchase Agreement are equal to zero percent until we recover with respect to patents purchased under the Second Patent Purchase Agreement at least $120.0 million, net of certain expenses. Once we obtain recoveries in excess of that amount, we are required to pay to Rockstar 50% of our recovery in excess of that amount, no later than 30 days after the end of each quarter in which we make such a recovery.
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Our ability to fund these Participation Payments or the $13.0 million contingent payment will depend on the liquidity of our assets, recoveries, alternative demands for cash resources and owneraccess to capital at the time. Furthermore, our obligation to fund Participation Payments could adversely impact our liquidity and financial position.
Net cash flows provided by financing activities during the year ended December 31, 2016 was $2.9 million compared to net cash provided by financing activities of North South’s intellectual property.$3.8 million in the year ended December 31, 2015. The cash provided by financing activities for the year ended December 31, 2016, primarily resulted from approximately $2.1 million net proceeds from underwritten public offering of 1,592,357 shares of the Company’s common stock and $0.8 million proceeds from exercise of 200,000 shares of warrants, partially offset by the payment for the cancellation of common stock of approximately $4,000. Cash provided by financing activities for the year ended December 31, 2015, resulted from the redemption of 5,601 shares of Series I Preferred Stock and proceeds received from the issuance of common stock, preferred stock and warrants. In accordanceconnection with the termsredemption of the Merger Agreement,Series I Preferred Stock, we issued 1,203,153paid RPX $0.9 million. In July 2015, we sold 301,026 shares of our common stock and 1,379,685warrants to purchase up to an aggregate of 370,263 shares of our common stock (on a split-adjusted basis), yielding net proceeds of approximately $1.3 million, excluding the proceeds, if any, from the exercise of the warrants. In December 2015, we sold 726,315 shares of our common stock, 1,240 shares of our Series DK Convertible Preferred Stock which is convertible intoand warrants to purchase up to an aggregate of 1,894,723 shares of our common stock, on a one-for-ten basis, toyielding net proceeds of approximately $3.4 million, after deducting placement agent fees and other estimated offering expenses, excluding the former stockholders of North South.
Contractual Obligations
Future minimum rental payments required as of December 31, 2016, including Bethesda office lease obligation are as follows ($ in thousands):
Lease Payments | ||||
Year Ended December 31, 2017 | 220 | |||
Year Ended December 31, 2018 | 45 | |||
$ | 265 |
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We are a patent commercialization company that realizes revenuefocused on generating revenues from the monetization of intellectual property, or IP. Such monetization includes, but is not limited to, acquiring IP from patent holders in order to maximize the value of the patent holdings by conducting and managing a licensing campaign.campaign, or through the settlement and litigation of patents. We intend to generate revenues and related cash flows from the granting of intellectual property rights for the use of patented technologies that we own, or that we manage for others.
We continually work to enhance our portfolio of intellectual property through acquisition and strategic partnerships. Our mission is to partner with inventors, or other entities, who own undervalued intellectual property. We then work with the inventors or other entities to commercialize the IP. Currently, we own over 230 patents.
Our Products Andand Services
We acquire IP from patent holders in order to maximize the value of their patent holdings by conducting and managing a licensing campaign. Some patent holders tend to have limited internal resources and/or expertise to effectively address the unauthorized use of their patented technologies or they simply make the strategic business decision to outsource their intellectual property licensing. They can include individual inventors, large corporations, universities, research laboratories and hospitals. Typically, we, or an operating subsidiary, acquiresacquire a patent portfolio in exchange for a combinationsecurities of the Company, an upfront cash payment, a percentage of our operating subsidiary'ssubsidiary’s net recoveries from the licensing and enforcement of the portfolio, or a combination of the two.
On June 30, 2017, we acquired 6,800,000 shares of Hoth Therapeutics, Inc. Hoth is a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth’s primary asset is a sublicense agreement with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa has granted Hoth an exclusive sublicense to use its BioLexa products for the treatment of eczema.
Competition
We expect to encounter significant competition from others seeking to acquire interests in intellectual property assets and monetize such assets. This includes an increase in the number of competitors seeking to acquire the same or similar patents and technologies that we may seek to acquire. Most of our competitors have much longer operating histories, and significantly greater financial and human resources, than we do. Entities such as Vringo, Inc. (NYSE MKT: VRNG), VirnetX Holding CorpCorp. (NYSE MKT: VHC), Acacia Research Corporation (NASDAQ: ACTG), RPX Corporation (NASDAQ: RPXC), Marathon Patent Group, Inc. (NASDAQ: MARA) and others presently market themselves as being in the business of creating, acquiring, licensing or leveraging the value of intellectual property assets. We expect others to enter the market as the true value of intellectual property is increasingly recognized and validated. In addition, competitors may seek to acquire the same or similar patents and technologies that we may seek to acquire, making it more difficult for us to realize the value of its assets.
We also compete with venture capital firms, strategic corporate buyers and various industry leaders for technology acquisitions and licensing opportunities. Many of these competitors may have more financial and human resources than we do. As we become more successful, we may find more companies entering the market for similar technology opportunities, which may reduce our market share in one or more technology industries that we currently rely upon to generate future revenue.
Other companies may develop competing technologies that offer better or less expensive alternatives to our patented technologies that we may acquire and/or out-license. Many potential competitors may have significantly greater resources than we do. Technological advances or entirely different approaches developed by one or more of our competitors could render certain of the technologies owned or controlled by our operating subsidiaries obsolete and/or uneconomical.
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Intellectual Property and Patent Rights
Our intellectual property is primarily comprised of trade secrets, patented know-how, issued and pending patents, copyrights and technological innovation.
The portfolio we are working with Equitable to monetize pursuant to the Monetization Agreement is currently comprised of
Most of ourthe patents in the Portfolio are publicly accessible on the Internet website of the U.S. Patent and Trademark Office at
The lives of ourthe patent rights in the Portfolio have a wide duration. Certain patents have already expired andduration ranging from 2017 to 2026.
On June 30, 2017, the latest patents do not expire until 2026.
Patent Enforcement Litigation
We, Equitable or its subsidiaries may often be required to engage in litigation to enforce our patents andthe patent rights. We are, or may become a party to ongoingrights associated with the Portfolio. Such patent enforcement related litigation allegingtypically involves allegations of infringement by third parties of certain of the patented technologies owned or controlled by us.
Employees
As of December 9, 2013,March 31, 2017, we had 2have four full-time employee and no part-time employees. We believe our employee relations to be good.employees, none of which are represented by a labor union or covered by a collective bargaining agreement.
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Our main office is located in Tysons Corner, VirginiaNew York, New York where we lease one office under a lease that expires in July 2018 with a monthly payment of $3,149 for one office. We lease a space in Williamsburg, VA for $1,500 a month. We also lease office space in Longview, Texas under a renewable lease with monthly payments of $1,958; and Bethesda, Maryland, where it leases 837under a lease with monthly payments of $15,107 that expires in March 2018. We believe that the New York, Maryland, Virginia and 5,000 square feet of office space under leases that expire on August 31, 2014 and March 31, 2018, respectively. The Company’s monthly lease payment for the Virginia rental is $1,883.25 per month and $13,402.62 per month for the Maryland rental. The Company’s subsidiary, Nuta Technology Corp., is located in the Tysons Corner, Virginia office. The capacity of the Tysons Corner and BethesdaTexas facilities are adequate for the Company’s currentsufficient to meet our needs. The Company also leases office space in New York, NY on a month-to-month basis at a monthly rate of $6,000.
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In the ordinary course of business, we actively pursue legal remedies to enforce our intellectual property rights and to stop unauthorized use of the technology in our technology.patent portfolio. Other than ordinary routine litigation incidental to the business and other than as set forth below, we know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
Spherix Incorporated v. ElizabetheanUniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court Associates III Limited Partnership
On August 30, 2013, we initiated litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) in Spherix Incorporated v. Uniden Corporation et al , Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas (“the Court”) for infringement of U.S. Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”). The Companycomplaint alleges that Uniden has commencedmanufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patents. We seek relief in the form of a lawsuit against the landlordfinding of infringement of the Bethesda, Maryland office claiming that the assignmentAsserted Patents, an accounting of the lease to the purchaser of the Spherix Consulting business was permitted under the lease and seeking termination of the leaseall damages sustained by us as a result of Uniden’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On June 3, 2014, in an effort to narrow the landlord's failurecase, the parties filed a stipulation dismissing without prejudice all claims and counterclaims related to consentU.S. Patent No. 5,752,195. On September 4, 2014, Uniden America Corporation, together with VTech Communications, Inc., filed a request for inter partes review (“IPR”) of U.S. Patent No. 5,581,599 (the “‘599 Patent”) and 6,614,899 (the “‘899 Patent”) in the United States Patent and Trademark Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board “PTAB”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued its Markman order, construing a total of 13 claim terms that had been disputed by the parties. On April 2, 2015, we filed an Amended Complaint with Jury Demand and the parties filed a Settlement Conference Report informing the Court that the parties have not yet resumed settlement negotiations. On September 10, 2015, the Court stayed the case and ordered the parties to such assignment.file a status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of U.S. Patent No. 5,581,599 the 599 Patent and all asserted claims of the ‘899 patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request, the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further Court intervention.The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ‘599 Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted the parties’ motion to continue the stay. On January 12, 2017, we settled the case with Uniden and Uniden took a license under the Asserted Patents. The lawsuit,appeal to the Federal Circuit continues with the Patent Office as an adverse party.
International License Exchange of America, LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware
On April 26, 2016, we initiated litigation against Fairpoint Communications, Inc. in Spherix Incorporated v. Elizabethean Court Associates III Limited Partnership ("Elizabethean")Fairpoint Communications, Inc., Case No., 377142 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware (the “Court”) for infringement of U.S. Patent No. RE40,999 (the “999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ‘999 Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and costs, a declaration that the case is currently in discovery,exceptional under 35 U.S.C. § 285, and the parties are followingCompany’s attorney’s fees. On October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America, LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itself as the court imposed scheduling order, however, Elizabetheanplaintiff, consistent with our Monetization Agreement with Equitable. On November 17, 2016, the Court granted ILEA’s motion. On June 22, 2017, the Court entered a Scheduling Order setting the Markman hearing for August 22, 2018 and jury trial for October 28, 2019.
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International License Exchange of America, LLC Litigations
Under our Monetization Agreement with Equitable, ILEA has filed the patent infringement litigations listed below.
· | On August 12, 2016, litigation against Cincinnati Bell, Inc., case number 1:16-cv-00715-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of U.S. Patent No. RE40,999 (“the ‘999 patent”), U.S. Patent No. 6,970,461, and U.S. Patent No. 7,478,167. On March 8, 2017, Cincinnati Bell filed a motion to dismiss, alleging lack of personal jurisdiction and improper venue. On March 29, 2017, the parties filed a joint motion to stay all deadlines until April 29, 2017, stating that the parties have reached an agreement in principal to resolve all claims asserted in the case. On April 3, 2017, the court granted the parties’ motion to stay all deadlines until April 29, 2017. On May 5, 2017, the Court ordered the parties to file a joint status report by three days from the date of the order. On May 5, 2017, the parties filed a joint stipulation of dismissal and the Court terminated the case. |
· | On August 12, 2016, litigation against Frontier Communications Corporation, case number 1:16-cv-00714-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On May 16, 2017, ILEA filed an agreed motion to stay all deadlines in the case, stating that the parties had reached an agreement in principal in the case and needed time to finalize the written agreement. On May 19, 2017, the Court granted the motion and stayed all deadlines until June 19, 2017.On June 19, 2017, ILEA filed a notice of voluntary dismissal and the Court terminated the case. |
· | On August 12, 2016, litigation against Echostar Corporation, case number 1:16-cv-00716-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On April 17, 2017, ILEA filed a notice of voluntary dismissal of the case, and on April 18, 2017, the Court closed the case. |
· | On August 15, 2016, litigation against ATN International, Inc. Commnet Wireless, LLC Choice Communications LLC, and Choice Communications, LLC (“Choice Wireless”), case number: 1:16-cv-00718-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On April 12, 2017, the parties jointly dismissed the case by filing a stipulation dismissing the case with prejudice. |
· | On August 15, 2016, litigation against Sprint Corporation and Clearwire Corporation case number 1:16-cv-00719-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On May 1, 2017, ILEA filed a notice of voluntary dismissal of the case, and the court closed the case on May 2, 2017. |
· | On August 16, 2016, litigation against ViaSat, Inc., case number 1:16-cv-00720-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On March 7, 2017, ViaSat filed a motion to dismiss, alleging failure to state a plausible claim of patent infringement. On March 21, 2017, ILEA filed its brief in opposition to the motion to dismiss. On March 28, 2017, ViaSat filed its reply brief on the motion to dismiss. On May 19, 2017, the Court issued an order granting ViaSat’s motion to dismiss, but granted ILEA leave to amend the complaint no later than three weeks from the date of the order. On May 30, 2017, ILEA filed its amended complaint. The due date for ViaSat’s response is currently July 13, 2017. |
· | On September 9, 2016, litigation against Fortinet Inc., case number 1:16-cv-00795-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On March 7, 2017, Fortinet filed its answer to the Complaint. On June 14, 2017, the Court ordered the parties to file a status report within three days of the order. On June 16, 2017, the parties filed the joint status report stating that the parties have executed a written settlement agreement resolving the case. |
· | On September 9, 2016, litigation against GTT Communications, Inc., case number 1:16-cv-00796-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent. On May 19, 2017, the parties filed a motion to extend time to answer the complaint until June 5, 2017. On May, 22, 2017, the Court granted the motion. |
· | On November 22, 2016, litigation against Alcatel-Lucent SA and Alcatel-Lucent USA Inc., case number 1:16-cv-01077-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent and U.S. Patent Nos. 7,158,515; 6,222,848; 6,578,086; and 6,697,325. On March 28, 2017, ILEA filed a notice of voluntary dismissal of the case and on that date the court closed the case. |
· | On May 4, 2017, litigation againstNTT Communications ICT Solutions Pty Ltd., NTT America, Inc., and NTT Security (US) Inc., case number 1:17-cv-00508-UNA, in theU.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent and U.S. Patent No. 5,959,990 |
· | On May 15, 2017, litigation against ADTRAN, Inc. case number 1:17-cv-00562-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999 patent and U.S. Patent Nos. 5,959,990; 6.970,461; 7,478,167; 7,274,704; and 7,277,533. |
In July 2016, a Motion for Summary Judgmentlawsuit relating to the ‘999 Patent was dismissed in anticipation of settlement with the counterparty. In May 2017, settlement was reached, pursuant to which the Company has opposed.
Counterclaims
In the ordinary course of business, we, or with our wholly-owned subsidiaries or monetization partners, will initiate litigation against parties whom we believe have infringed on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated by the defendants. Currently, there are no counterclaims pending against us. In the event such counterclaims are filed, in the Circuit Court of Montgomery County, Maryland, Case No.: 382667-V, in the matter of LegalLink Inc. vs. Spherix Incorporated. LegalLink, Inc., a Merrill Communications Company allegeswe can provide no assurance that the Company failed to honor their contract regarding services provided by LegalLink, Inc. LegalLink, Inc. alleges that the Company owes them $47,309 for services rendered to the Company, thatoutcome of these claims will not have gone unpaid. The Company's legal counsel is reviewing this lawsuita material adverse effect on our financial position and the time to file a responsive pleading has not yet occurred.results from operations.
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Directors
The following table sets forth information concerningthe name, age and position of each current director of the Company.
Director | ||||||
Name | Age | Position | Since | |||
Robert J. Vander Zanden (1)(2)(3) | 71 | Director and Chairman of the Board | 2004 | |||
Anthony Hayes | 49 | Chief Executive Officer, Director, and Principal Accounting and Financial Officer | 2013 | |||
Tim S. Ledwick (1)(2) | 59 | Director | 2015 | |||
Eric Weisblum (1)(2)(3) | 47 | Director | 2016 |
(1) Member of our Management and BoardAudit Committee.
(2) Member of Directors.
Director | ||||||||
Name | Age | Position | Since | |||||
Robert J. Vander Zanden | 67 | Chairman of the Board | 2004 | |||||
Anthony Hayes | 45 | Chief Executive Officer and Director | 2013 | |||||
Michael Pollack | 47 | Interim Chief Financial Officer | 2013 | |||||
Douglas T. Brown | 59 | Director | 2004 | |||||
Edward M. Karr | 43 | Director | 2012 | |||||
Harvey J. Kesner | 56 | Director | 2012 | |||||
Alexander Poltorak | 56 | Director | 2013 |
(3) Member of our Nominating Committee.
The biographies of our current directors are as follows:
Dr. Robert J. Vander Zanden
Dr. Robert J. Vander Zanden, a Board member since 2004, having served as a Vice President of R&D withat Kraft Foods International, brings a long and distinguished career in applied technology, product commercialization, and business knowledge of the food science industry to us. Additionally, Mr. Vander Zanden has specific experience in developing organizations designed to deliver against corporate objectives. Dr. Vander Zanden holds a Ph.D. in Food Science and an M.S. in Inorganic Chemistry from Kansas State University, and a B.S. in Chemistry from the University of Wisconsin –- Platteville, where he was named a Distinguished Alumnus in 2002. In his 30-year career, he has been with ITT Continental Baking Company as a Product Development Scientist; with Ralston Purina’s Protein Technology Division as Manager Dietary Foods R&D; with Keebler as Group Director, Product and Process Development (with responsibility for all corporate R&D and quality); with Group Gamesa, a Frito-Lay Company, as Vice President, Technology; and with Nabisco as Vice President of R&D for their International Division. With the acquisition of Nabisco by Kraft Foods, he became the Vice President of R&D for Kraft’s Latin American Division. Dr. Vander Zanden retired from Kraft Foods in 2004. He currently holds the title of Adjunct Professor and Lecturer in the Department of Food, Nutrition and Packaging Sciences at Clemson University, where he also is a member of their Industry Advisory Board. His focus on achieving product and process innovation through training, team building and creating positive working environments has resulted in his being recognized with many awards for product and packaging innovation. Dr. Vander Zanden is not now, nor has he been for the past five years, a director of a public, for-profit company other than us. Mr. Vander Zanden executive experience provides him with valuable business expertise, which the Board believes qualifies him to serve as a director of the Company.
Anthony Hayes
Mr. Anthony Hayes, a director and Chief Executive Officer since 2013, has served as the Chief Executive Officer of North South since March 2013 and since June 2013, has served as a consultant to theour Company. Mr. Hayes was the fund manager of JaNSOME IP Management LLC and JaNSOME Patent Fund LP from August 2012 to August 2013, both of which he co-founded. Mr. Hayes was the founder and Managing Member of Atwater Partners of Texas LLC from March 2010 to August 2012 and a partner at Nelson Mullins Riley & Scarborough LLP from May 1999 to March 2010. Mr. Hayes received his Juris Doctorate from Tulane University School of Law and his B.A. in Economicseconomics from Mary Washington College. The Board believes Mr. Hayes was chosenis qualified to beserve as a director of the Company based on his expansive knowledge of, and experience in, the patent monetization sector.sector, as well as because of his intimate knowledge of the Company through his service as Chief Executive Officer. On March 10, 2017, as a result of Mr. Frank Reiner’s resignation as Chief Financial Officer, Mr. Hayes began serving as the Company’s Principal Accounting Officer.
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Tim S. Ledwick
Mr. Michael Pollack
Eric Weisblum
Mr. Edward M. Karr, a Board member since November 2012, is the founder of RAMPartners SA, an investment management and investment banking firm based in Geneva, Switzerland. Since 2005, RAMPartners has helped raise more than $200 million for small capitalization companies in fields such as natural resources, high technology, health care, and clean energy. RAMPartners is a member of Global Alliance Partners (GAP), a network organization of internationally minded financial partners focusing on the capital midmarket. Prior to founding RAMPartners, Mr. Karr managed a private Swiss asset management, investment banking, and trading firm based in Geneva for six years. At the firm, he was responsible for all of the capital market transactions, investment, and marketing activities. In 2004, Futures Magazine named Mr. Karr as one of the world’s Top Traders. He is a past contributor to CNBC and has been quoted in numerous financial publications. Mr. Karr’s extensive capital markets experience provides him with valuable expertise which the Board believes qualifies him to serveEric Weisblum, who joined as a director ofin 2016, iscurrently the Company.
Executive Officers
The names of Patent Strategy & Management. He is the Founder and President of non-for-profit American Innovators for Patent Reform (AIPR). He was US Co-chair of the subcommittee on Information Exchange of the US-USSR Trade and Economic Counsel. Mr. Poltorak was chosen to be a director of the Company based on his expansive knowledge of, and experience in, the management of intellectual property, particularly patents.
Name | ||||||||||||||||
Position | ||||||||||||||||
Anthony Hayes | 49 | Chief Executive Officer, Director & Principal Accounting and Financial Officer |
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Meetings of the Board of Directors and Committees
During the fiscal year ended December 31, 2016, our Board held a total of 18 regularly scheduled and special meetings, the Audit Committee held 3 meetings and the Compensation Committee held 5 meetings. The Nominating Committee held 2 meetings during 2016. None of our incumbent directors attended less than 100% of the Board or committee meetings.
Policy Regarding Attendance at Annual Meetings of Stockholders
Our Company does not have a policy with regard to Board members’ attendance at annual meetings. All of our directors attended our last annual meeting of stockholders.
Code of Ethics
We have adopted a Code of Ethics, which is available on our website atwww.spherix.com.
Audit Committee
We have a standing Audit Committee. The Audit Committee members are Mr. Brown, Chair; Mr. Karr, andLedwick, Chair, Dr. Vander Zanden. Mr. Kesner served as a member of the Audit Committee until February 27, 2013 when he was appointed interim Chief Executive Officer of the Company.Zanden and Eric Weisblum. The Committee has authority to review theour financial records, of the Company, deal with itsour independent auditors, recommend financial reporting policies to the Board, policies with respect to financial reporting, and investigate all aspects of the Company’sour business. The Audit Committee Charter is available for your review on the Company’sour website at www.spherix.com. Each member of the Audit Committee satisfies the independence requirements and other criteria established criteria of theby NASDAQ and the SEC.SEC applicable to audit committee members. The Board of Directors has determined that Mr. Brown and Mr. Karr meetLedwick meets the requirements of an audit committee financial expert as defined in the SEC and NASDAQ rules.
Compensation Committee
The Compensation Committee oversees the Company’scompensation for our executive compensationofficers and recommends various incentives for key employees to encourage and reward increased corporate financial performance, productivity and innovation. Its current members are Mr. Karr, Chair, Mr. Brown and Dr. Vander Zanden.Zanden, Mr. Weisblum (Chairman), and Mr. Ledwick. The Compensation Committee Charter is available on the Company’sour website at www.spherix.com.
Nominating Committee
The Nominating Committee presents and recommends to the Board, for adoptionapproval by the Board, the proposed Board of Directors for election by the stockholders. Its members are Mr. Karr, Chair, Mr. Brown, Mr. Kesner,Weisblum and Dr.Vander Zanden.Dr. Vander Zanden (Chairman). The Nominating Committee Charter is available on the Company’sour website at www.spherix.com. The Nominating Committee does not have any formal minimum qualifications for director candidates. The Nominating Committee identifies candidates by first evaluating current members of the Board who are willing to continue in service. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Nominating Committee then identifies the desired skills and experience of a new candidate(s).
Among other factors, when considering a prospective candidate, the Nominating Committee considers a candidate’s business experience and skills, attributes pertinent to Company business, personal integrity and judgment, and possible conflicts of interest. To date, the Nominating Committee has not utilized the services of any search firm to assist it in identifying director candidates. The Nominating Committee’s policy is to consider director candidate recommendations from its stockholders which are received prior to any annual meeting of stockholders, including confirmation of the candidate’s consent to serve as a director.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and anyone who beneficially owns ten percent (10%) or more of our common stock, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of common stock. Anyone required to file such reports also need to provide us with copies of all Section 16(a) forms they file.
Based solely upon a review of (i) copies of the Section 16(a) filings received during or with respect to 2016 and (ii) certain written representations of our officers and directors, we believe that all filings required to be made pursuant to Section 16(a) of the Exchange Act during and with respect to 2016 were filed in a timely manner, with the exception of a Form 3 to be filed by Mr. Weisblum in August 2016, in connection with his appointment to the Board of Directors has determined thatDirectors. Mr. Weisblum filed a majority of the Board consists of members who are currently “independent” as that term is defined under current listing standards of NASDAQ. The Board of Directors considers Messrs. Karr, Vander Zanden, Brown and PoltorakForm 5 on February 9, 2017 to be “independent” as defined by the applicable rules of The NASDAQ Stock Market LLC.
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The following Summary of Compensation table sets forth the compensation paid by theour Company during the two years ended December 31, 2011 and December 31, 2012,2016, to all Executive Officersexecutive officers earning in excess of $100,000 during any such years.
Summary of Compensation
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Award ($) (1) | Non-Equity Incentive Plan Compensation ($) (2) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compen- sation ($) (3) | Total ($) | ||||||||||||||||||||||||
C. Kruger (3) Former CEO and COO | 2012 | 262,573 | - | - | 3,919 | 143,222 | - | 286,443 | 696,157 | ||||||||||||||||||||||||
2011 | 278,100 | - | - | 531 | 139,050 | - | - | 417,681 | |||||||||||||||||||||||||
R. Lodder Principal Executive Officer and President (4) | 2012 | 233,398 | - | - | 2,138 | 93,359 | - | - | 328,895 | ||||||||||||||||||||||||
2011 | 226,600 | - | - | 273 | 90,640 | - | - | 317,513 | |||||||||||||||||||||||||
R. Clayton CFO, Treasurer and Corporate Secretary (5) | 2012 | 212,180 | - | - | 2,138 | 74,263 | - | - | 288,581 | ||||||||||||||||||||||||
2011 | 206,000 | - | - | 273 | 72,100 | - | - | 278,373 |
Stock | Option | Non-Equity Incentive Plan | Change in Pension Value and Non- Qualified Deferred | All Other | ||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Awards ($) | Awards ($) | Compensation ($)(1) | Compensation Earnings ($) | Compensation ($) | Total ($) | |||||||||||||||||||||||||
Anthony Hayes, President, Chief | 2016 | 350,000 | 225,000 | - | 6,222 | - | - | - | 581,222 | |||||||||||||||||||||||||
Executive Officer and Director (1) | 2015 | 350,000 | 350,000 | - | - | - | - | - | 700,000 | |||||||||||||||||||||||||
Frank Reiner, Interim Chief | 2016 | 271,000 | 40,000 | 60,000 | - | - | - | - | 371,000 | |||||||||||||||||||||||||
Financial Officer (3) | 2015 | 254,500 | 80,000 | 60,000 | - | - | - | - | 394,500 | |||||||||||||||||||||||||
Richard Cohen, | 2016 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Chief Financial Officer (5) | 2015 | 120,000 | - | - | - | - | - | - | 120,000 |
Awards pursuant to the Spherix Incorporated 2013 Incentive Compensation Plan and 2014 Incentive Compensation Plan. |
(2) | On January 28, 2014, the Compensation Committee adopted a resolution intended to grant Mr. Hayes options to purchase 15,789 shares of common stock options with a term of five years and an exercise price of $110.77, subject to certain vesting conditions upon agreement of the Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on January 28, 2014. On April 3, 2014 the Compensation Committee adopted a resolution intended to grant Mr. Hayes options to purchase 26,316 shares of common stock options with a term of five years and an exercise price of $54.34 subject to certain vesting conditions upon agreement of the Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on April 3, 2014. On July 15, 2014 the Compensation Committee adopted a resolution intended to grant Mr. Hayes options to purchase 5,263 shares of common stock options with a term of five years and an exercise price of $34.01 subject to certain vesting conditions upon agreement of the Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on July 15 2014. On December 16, 2015 the Compensation Committee adopted a resolution to award Mr. Hayes his 2015 target bonus in the amount of $350,000 which was paid on January 13, 2016. On May 3, 2016 the Compensation Committee adopted a resolution to grant Mr. Hayes options to purchase 3,947 shares of common stock options with a term of ten years and an exercise price of $1.98 subject to certain vesting conditions upon agreement of the Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on May 24, 2016. Amount of 2016 bonus is $225,000. |
(3) | All stock options to Mr. Reiner were granted in accordance with ASC Topic 718. On December 22, 2015, the Compensation Committee adopted a resolution to pay Mr. Reiner a 2015 bonus of $40,000 in cash and $60,000 in shares of common stock in respect of his performance for the 2015 fiscal year which, as of the close of trading on December 21, 2015, would have constituted a total of 21,053 shares. The Compensation Committee also adopted to pay Mr. Reiner a deferred 2014 bonus of $20,000 in cash and $20,000 in cash in lieu of common stock for achieving the target in respective employment agreement. On December 8, 2016, the members of the Compensation Committee adopted a resolution to pay Mr. Reiner a bonus of $40,000 in cash and $60,000 in shares of common stock in respect of his performance for the 2016 fiscal year, which as of the close of trading on December 8, 2016, would have constituted a total of 48,781 shares. |
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(4) | Mr. Cohen resigned to Mr. |
Outstanding Equity Awards at December 31, 2012
Option Awards | Stock Awards | ||||||||||||||||||||
Number | Market | ||||||||||||||||||||
Number of | Number of | of Shares | Value of | ||||||||||||||||||
Securities | Securities | or Units | Shares or | ||||||||||||||||||
Underlying | Underlying | of Stock | Units of | ||||||||||||||||||
Unexercised | Unexercised | Option | Option | that have | Stock that | ||||||||||||||||
Options (#) | Options (#) | Exercise | Expiration | not Vested | have not | ||||||||||||||||
Name | Exercisable | Unexercisable | Price ($) | Date | (#) | Vested ($) | |||||||||||||||
R. Lodder | 63 | 187 | $ | 40.00 | 11/14/2016 | 1,000 | 6,830 | ||||||||||||||
R. Clayton | 63 | 187 | $ | 40.00 | 11/14/2016 | 1,000 | 6,830 |
Option Awards | ||||||||||||||
Number of Securities | Number of Securities | |||||||||||||
Underlying Unexercised | Underlying Unexercised | Option Exercise | Option Expiration | |||||||||||
Name | Options (#) Exercisable | Options (#) Unexercisable | Price ($) | Date | ||||||||||
Anthony Hayes | 39,472 | - | $ | 134.52 | 4/1/2023 | |||||||||
13,158 | - | $ | 54.34 | 4/3/2019 | ||||||||||
5,263 | - | $ | 34.01 | 7/15/2019 | ||||||||||
1,974 | 1,973 | $ | 1.98 | 5/2/2021 | ||||||||||
Frank Reiner | 5,263 | - | $ | 88.73 | 3/15/2024 | |||||||||
2,631 | - | $ | 36.86 | 6/19/2024 |
Potential Payment upon Termination or Change in Control
Under the April 1, 2016 employment agreement with Mr. Hayes, we have agreed to, pay our officers one year salary and health and welfare (COBRA) benefits uponin the event of termination by us without “cause” or followingpursuant to a change in control, grant Mr. Hayes, in addition to reimbursement of any documented, unreimbursed expenses incurred prior to such date, (i) any unpaid compensation and vacation pay accrued during the term of the Employment Agreement, and any other benefits accrued to him under any of our benefit plans outstanding at such time, (ii) twelve (12) months base salary at the then current rate to be paid in a single lump sum within thirty (30) days of Mr. Hayes’ termination, (iii) continuation for a period of twelve (12) months of any benefits as extended to our executive officers from time to time, including but not limited to group health care coverage and (iv) payment on a pro rata basis of any annual bonus or other payments earned in connection with any bonus plans to which Mr. Hayes was a participant as of the date of termination. In addition, any options or restricted stock shall be immediately vested upon termination of Mr. Hayes’s employment without “cause” or pursuant to a change in control.
Under the December 12, 2012 Retention AgreementMarch 14, 2014 employment agreement with Mr. Clayton and an extension letter dated March 29, 2013, Mr. ClaytonFrank Reiner, in the event of a termination or non-renewal of his employment without “cause” or pursuant to the consummation of a change in control, we have agreed to remain as CFOgrant Mr. Reiner in addition to reimbursement of any documented, unreimbursed expenses incurred prior to such date, (i) any unpaid compensation and vacation pay accrued during two years commencing on March 14, 2014 or any then applicable extension of the Company through June 30, 2013term of Mr. Reiner’s employment, and any other benefits accrued to him under any of our benefit plans outstanding at such time, (ii) twelve (12) months’ base salary at the then current rate to be paid in a single lump sum within sixty (60) days of Mr. Reiner’s termination, (iii) continuation for a period of twelve (12) months of any benefits as extended to our executive officers from time to time and (iv) payment on a pro rata basis of any annual bonus or other payments earned in connection with any bonus plans to which Mr. Reiner was a participant as of the date of termination. In addition, any options or restricted stock shall be immediately vested upon termination or non-renewal of Mr. Reiner’s employment without “cause” or pursuant to a change in control. In March 2017, Mr. Reiner and the Company agreed not to payrenew Mr. ClaytonReiner’s employment agreement and Mr. Reiner received his non-renewal compensation. On March 10, 2017, Mr. Reiner and the Company entered into a severance of $212,180 as required byseparation agreement and general release, pursuant to which Mr. Reiner received payments due to him under the terms of his prior employment agreement. Pursuant toagreement as well as a Retention Agreement with Mr. Lodder, Mr. Lodder agreed to remain as principal executive officer through June 30, 2013 and the Company agreed to pay Mr. Lodder a severancelump sum payment of $233,398 as required by the terms$18,504 in lieu of his prior employment agreement. All of the retention payments were made on or before June 30, 2013.
Name | Fees Earned Paid in Cash ($) | Options ($) | All Other Compensation ($) | Total ($) | ||||||||||||
Douglas T. Brown | $ | 22,000 | $ | 8,084 | $ | - | $ | 30,084 | ||||||||
Edward M. Karr | 3,600 | 6,980 | - | 10,580 | ||||||||||||
Harvey J. Kesner (2) | 3,600 | 6,980 | - | 10,580 | ||||||||||||
Aris Melissaratos (1) | 22,000 | 8,084 | 10,500 | 40,584 | ||||||||||||
Thomas B. Peter (1) | 17,300 | 8,084 | 3,500 | 28,884 | ||||||||||||
Robert J. Vander Zanden | 32,900 | 8,084 | - | 40,984 |
Executive Officer Agreements
On September 10, 2013, the Companywe entered into an employment agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes shall serveserved as the Chief Executive Officer of the Company for a period of two years, subject to renewal. In consideration for his employment, the Company paidwe agreed to pay Mr. Hayes a signing bonus of $100,000 and a base salary of $350,000 per annumannum. In addition, Mr. Hayes was entitled to receive an annual bonus in an amount equal to up to 100% of his base salary if the Company met or exceeded certain criteria adopted by the Compensation Committee. During the year ended December 31, 2015, Mr. Hayes waived his right to receive this bonus.
In February 2015, the members of the Compensation Committee revised the annual bonus structure for Mr. Hayes and established an incentive target bonus (a “Target Bonus”). The amount of the Target Bonus was (i) $350,000 in cash, be payable in a single lump-sum payment promptly following the consummation of a qualifying strategic transaction, and (ii) a discretionary bonus to be determined by the Compensation Committee, in its sole discretion, prior to the earlier of a proxy solicitation in 2015 in relation to a qualifying strategic transaction or the consummation thereof. In December 2015, the members of Compensation Committee evaluated the 2015 achievements and deemed that Mr. Hayes had achieved the criteria for his Target Bonus by consummating five strategic transactions prior to December 31, 2015 that, together reached the applicable bonus threshold. As such, Mr. Hayes’ Target Bonus of $350,000 was made to Mr. Hayes. No additional discretionary bonus was made.
On April 1, 2016, we entered into an employment agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes serves as the Chief Executive Officer for a period of one year, subject to renewal. In consideration for his employment, we agreed to pay Mr. Hayes a base salary of $350,000 per annum. Mr. Hayes will be entitled to receive an annual bonus in an amount equal to up to 100% of his base salary if the Company meetswe meet or exceedsexceed certain criteria adopted by our Compensation Committee. We further agreed to grant executive restricted stock units, pursuant to the Company’s compensation committee. In the event Mr. Hayes’ employment is terminated, other than for “Cause,” as defined in Mr. Hayes’ employment agreement or by Mr. Hayes without “Good Reason,” as defined in Mr. Hayes’ employment agreement, Mr. Hayes will be entitledCorporation’s 2014 Equity Incentive Plan, with respect to receive severance benefits equal to twelve months of his base salary, continued coverage under the Company’s benefit plans for a period of twelve months and payment of his pro-rated earned annual bonus.
As of the date of this report, the Compensation Committee has not determined Mr. Hayes’ bonus for 2016.
On June 30, 2015, our Board of Directors accepted the resignation of Richard Cohen as Chief Financial Officer, effective immediately. In connection therewith, we amended and restated the Company’s consulting agreement with Chord Advisors, LLC (“Chord”) such that Chord would continue to provide us with certain financial accounting and advisory services at a reduced monthly fee of $10,000 from $20,000.
In connection with Mr. Cohen’s resignation, on June 30, 2015, the Board of Directors appointed Frank Reiner as Interim Chief Financial Officer, effective immediately. Pursuant to Mr. Reiner’s employment agreement, the term of Mr. Reiner’s employment is one year and automatically extends for additional one-year terms unless no less than 60 days’ prior written notice of non-renewal is given by Mr. Reiner or us. Mr. Reiner’s base salary under his employment agreement was $235,000 per year, but in connection with being named Interim Chief Financial Officer, the Board of Directors authorized an amendment to Mr. Reiner’s employment agreement to increase Mr. Reiner’s base salary to $271,000. Mr. Reiner is also be entitled to receive an annual bonus if the Compensation Committee of the Board determines that performance targets have been met. The amount of the annual bonus is determined based on our gross proceeds from certain monetization of our intellectual property. In December 2016, the members of the Compensation Committee determined to pay Mr. Reiner $60,000 in shares of common stock and a percentagecash bonus of future profits after recovery of patent monetization costs$40,000 in connection with his performance for the 2016 fiscal year. On March 10, 2017, Mr. Reiner and an initial priority return on investment to the Company.
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Director Compensation
The following table summarizes the compensation paid to non-employee directors during the year ended December 31, 2016.
Change in Pension | ||||||||||||||||||||||||||||
Non-Equity | Value and Non- | |||||||||||||||||||||||||||
Fees earned or | Incentive Plan | Qualified Deferred | All Other | |||||||||||||||||||||||||
paid in cash ($) | Stock Awards ($) | Option Awards ($)(1) | Compensation ($) | Compensation Earnings ($) | Compensation ($) | Total ($) | ||||||||||||||||||||||
Jeffrey Ballabon (2) | 68,796 | - | 6,222 | - | - | �� | - | 75,018 | ||||||||||||||||||||
Eric Weisblum (3) | 21,033 | - | 4,769 | - | - | - | 25,802 | |||||||||||||||||||||
Robert J. Vander Zanden (4) | 81,200 | - | 6,222 | - | - | - | 87,422 | |||||||||||||||||||||
Tim Ledwick (5) | 70,400 | - | 6,222 | - | - | - | 76,622 | |||||||||||||||||||||
Howard E. Goldberg (6) | 57,139 | - | 6,222 | - | - | - | 63,361 |
(1) | All stock options were granted in accordance with ASC Topic 718. The aggregate grant date fair value of the option awards was approximately $36,000 and was computed in accordance with FASB ASC Topic 718 (column (d)). |
(2) | Mr. Ballabon was paid $68,796 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of 2016. In addition, Mr. Ballabon was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. Mr. Ballabon resigned as a director on October 26, 2016. |
(3) | Mr. Weisblum was paid $21,033 in cash compensation for his service as a director in 2016. In addition, Mr. Weisblum was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. |
(4) | Mr. Vander Zanden was paid $81,200 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of 2016. In addition, Mr. Vander Zanden was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. |
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(5) | Mr. Ledwick was paid $70,400 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of 2016. In addition, Mr. Ledwick was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. |
(6) | Mr. Goldberg was paid $57,139 in cash compensation for his service as a director in 2016. In addition, Mr. Goldberg was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. Mr. Goldberg resigned as a director on October 26, 2016. |
Non-employee directors received the following annual compensation for service as a member of the Board for the fiscal year ended December 31, 2016:
Annual Retainer | $ | 60,000 | To be paid in cash in four equal quarterly installments. | |||
Stock Options | 3,947 | Options to acquire shares of our common stock, pursuant to and subject to the available number of shares under the 2014 Plan, to be granted on the date of our Annual Meeting. The options will have an exercise price equal to the closing price on the trading day immediately preceding the date of issuance and be exercisable for a period of ten (10) years with 50% vesting immediately on the date of issue and the remaining 50% vesting on the one year anniversary date of the issue so long as the optionee has not been removed as a director of Spherix for cause. | ||||
Additional Retainer | $ | 5,000 | To be paid to the Chairman of the Board upon election annually. |
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The current Board of Directors consists of Mr. Tim S. Ledwick, Mr. Anthony Hayes, Dr. Robert J. Vander Zanden and Mr. Eric Weisblum. The Board of Directors has determined that Dr. Vander Zanden, Mr. Ledwick and Mr. Weisblum are independent directors within the meaning of the applicable NASDAQ rules. Our Audit, Compensation, and Nominating Committees consist solely of independent directors.
Richard Cohen was appointed our Chief Financial Officer on January 6, 2014. In consideration for Mr. Cohen’s services, during 2015, the Company paid to Chord Advisors, LLC, of which Mr. Cohen was terminatedchairman and an equity owner, a monthly fee of $20,000. Total fees of $120,000 were paid to Chord while Mr. Cohen served as our Chief Financial Officer. In connection with the resignation of Mr. Cohen on June 30, 2015, our Board of Directors appointed Frank Reiner as Interim Chief Financial Officer. Pursuant to Mr. Reiner’s employment agreement with the Company, dated as of March 14, 2014, as amended, the term of Mr. Reiner’s employment is one year and automatically extends for additional one-year terms unless no less than 60 days’ prior written notice of non-renewal is given by Mr. Reiner or us. Mr. Reiner’s base salary under his employment agreement was $235,000 per year, but in connection with being named Interim Chief Financial Officer, the Board of Directors authorized an amendment to Mr. Reiner’s employment agreement to increase Mr. Reiner’s base salary to $271,000. On March 10, 2017, Mr. Reiner and the Company entered into a separation agreement and general release, pursuant to which Mr. Reiner received payments due to him under the terms of his Retention Agreement.
On August 10, 2015, we entered into a Consulting Agreementconsulting agreement with Mr. Howard E. Goldberg (d/b/a Forward Vision Associates, of which Mr. Goldberg is the sole proprietor and owner), on an entity wholly-ownedindependent contractor basis, pursuant to which Mr. Goldberg will, among other services, provide advisory services to us in areas including licensing, litigation and business strategies. Mr. Goldberg was also added as a director at that time. We will pay Mr. Goldberg an agreed upon quarterly retainer amount of $20,400 (calculated on an hourly basis) and, if applicable, upon exhaustion of each quarterly retainer, at an hourly rate to be paid in equity (for the first 50 hours above the quarterly retainer), and subsequently (if applicable) at an hourly rate thereafter in cash. We will reimburse Mr. Goldberg for actual out-of-pocket expenses. The consulting agreement with Mr. Goldberg has an initial term of one year, unless he has completed the desired services by an earlier date or unless the agreement is earlier terminated pursuant to its terms. The consulting agreement with Mr. Kesner,Goldberg may be extended by written agreement of both us and Mr. Goldberg. For the year ended December 31, 2016 and 2015, the Company incurred $40,800 and $42,287, respectively, consulting expenses related to this agreement. Mr. Goldberg resigned as a director of the Company pursuant to which the entity was issued 120,000 shareson October 26, 2016 and as of Common Stock in exchange for its services. The shares will vest if prior to December 31, 2017, the Company: (i) closes an acquisition either approved by the stockholders or in excess of $25 million; (ii) closesAugust 2016, Mr. Goldberg no longer serves as a private or public financing of at least $7.5 million; (iii) sells all or substantially all of its assets; or (iv) otherwise suffers a change in control. In such an event, the affiliate shall also be entitled to a one-time payment of $250,000. On May 31, 2013, 110,000 shares were transferred by the entity to U.S. Commonwealth Life A.I. at the fair market value of the shares of the Common Stock on May 31, 2013.
We have not adopted written policies and procedures specifically for related person transactions. Our Board of Directors is responsible to approve all related party transactions.transactions, and approved each of the transactions set forth above.
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Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management
The following table setstables set forth certain information concerning the number of shares of our Common Stockcommon stock owned beneficially as of December 9, 2013May 19, 2017 by (i) our officers and directors as a group and (ii) each person (including any group) known to us to own more than 5% of any classour common stock. As of our voting securities, (ii) eachMay 19, 2017 there were 4,943,929 shares of our officers and directors, and (iii) our officers and directors as a group.common stock outstanding. Unless otherwise indicated, it is our understanding and belief that the stockholders listed possess sole voting and investment power with respect to the shares shown.
Title of Class | Name of Beneficial Owner | Amount and Nature of Ownership (1) | Percent Of Class (2) | |||||||
Principal Stockholders | ||||||||||
Common | Iroquois Master Fund Ltd. (3) 641 Lexington Avenue 26th Floor New York, NY 10022 | 272,033 | (3) | 9.99 | % | |||||
Common | Rockstar Consortium US LP (4) 7160 North Dallas Parkway, Suite No. 250 Plano, TX 75024 | 176,991 | (4) | 6.8 | % | |||||
Common | Barry Honig 555 South Federal Highway, #450 Boca Raton, FL 33432 | 278,060 | (5) | 9.99 | % | |||||
Common | Hudson Bay IP Opportunities Master Fund LP (6) 777 Third Avenue 30th Floor New York, NY 10017 | 261,680 | 9.99 | % | ||||||
Common | All Principal Stockholders as a Group | 988,764 | 36.77 | % | ||||||
Executive Officers and Directors | ||||||||||
Common | Robert J. Vander Zanden | 76,302 | (7) | 2.91 | % | |||||
Common | Anthony Hayes | 85,581 | (8) | 3.27 | % | |||||
Common | Douglas T. Brown | 76,159 | (9) | 2.90 | % | |||||
Common | Edward M. Karr | 76,013 | (10) | 2.90 | % | |||||
Common | Harvey J. Kesner | 214,615 | (11) | 8.19 | % | |||||
Common | Alexander Poltorak | 1,214 | (12) | * | ||||||
Common | All Executive Officers and Directors as a Group (six persons) | 529,884 | 20.17 | % |
Title of Class | Name of Beneficial Owner | Amount and Nature of Ownership (1) | Percent of Class Beneficially Owned (2) | |||||||
Y Executive Officers and Directors | ||||||||||
Common | Robert J. Vander Zanden | 26,365 | (3) | 1.98 | % | |||||
Common | Anthony Hayes | 99,023 | (4) | 1.98 | % | |||||
Common | Tim S. Ledwick | 7,894 | (5) | 1.98 | % | |||||
Common | Eric Weisblum | 3,947 | (6) | * | ||||||
Common | All Directors and Officers as a Group (4 persons) | 137,229 | 2.72 | % |
* | Less than 1% of the outstanding shares of the Company Common Stock. |
(1) Under Rule 13d-3 of the Exchange Act a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.
(2) Based on 4,943,929 shares of our common stock.
(3) Includes 7 shares |
(4) Includes 1,214 shares of common stock, 59,867 options for purchase of common stock exercisable as of May 19, 2017, 1,973 options for purchase of common stock exercisable within 60 days of May 19, 2017, and banks, except35,969 RSUs which have vested as disclosed above, no other person is known by us to own beneficially more than 5% of our outstandingMay 19, 2017, net of withholdings for tax obligations.
(5) Includes 5,921 options for purchase of common stock.
(6) Includes 1,974 options for purchase of common stock exercisable as of May 19, 2017, and 1,973 options for purchase of common stock exercisable within 60 days of May 19, 2017.
Effective January 24,1, 2013, the Company and Equity Stock Transfer, LLC as Rights Agent, entered into a Rights Agreement, which was subsequently assigned to Transfer Online Inc. as Rights Agent on June 20, 2016 and amended and restated on June 9, 2017. The Rights Agreement provides each stockholder of record a dividend distribution of one “right” for each outstanding share of common stock. Rights become exercisable at the earlier of ten days following: (1) a public announcement that an acquirer has purchased or has the right to acquire 10% or more of our common stock, or (2) the commencement of a tender offer which would result in an offeroroffer or beneficially owning 10% or more of our outstanding common stock. All rights held by an acquirer or offeroroffer or expire on the announced acquisition date, and all rights expire at the close of business on December 31, 2017,2020, subject to further extension. Each right entitles a stockholder to acquire, at a price of $7.46 per one one-hundredth of a preferred share, subject to adjustments, 1/100nineteen-hundredth of a share of our preferred stock,Series A Preferred Stock, subject to adjustments, which carries voting and dividend rights similar to one share of our common stock. Alternatively, a right holder may elect to purchase for the stated price an equivalent number of shares of our common stock at a price per share equal to one-half of the average market price for a specified period. In lieu of the stated purchase price, a right holder may elect to acquire one-half of the common stock available under the second option. The purchase price of the preferred stock fractional amount is subject to adjustment for certain events as described in the Agreement. At the discretion of a majority of the Board of Directors and within a specified time period, we may redeem all of the rights at a price of $0.001 per right. The Board may also amend any provisions of the Agreement prior to exercise.
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Common | |||||||||||
Beneficial Ownership of | Stock | Beneficial Ownership | |||||||||
Common Stock Prior | Saleable | of Common Stock | |||||||||
to the Offering (1) | Pursuant | After the Offering (1) | |||||||||
Number of | Percent of | to This | Number of | Percent of | |||||||
Name and Address of Selling Stockholder | Shares | Class (2) | Prospectus | Shares | Class (2) | ||||||
Hudson Bay IP Opportunities Master Fund, LP (3) | 261,680 (3) | 9.99% (3) | 643,690 (4) | 261,680 | 9.99% (3) | ||||||
Iroquois Master Fund Ltd. (5) | 272,033 (5) | 9.99% (5) | 416,000 (6) | 272,033 | 9.99% (5) | ||||||
GRQ Consultants, Inc. Roth 401K FBO Barry Honig (7) | 278,060 (8) | 9.99% (8) | 333,508 (9) | 278,060 | 9.99% | ||||||
Barry Honig | 278,060 (8) | 9.99% (8) | 333,497(10) | 278,060 | 9.99% (8) | ||||||
Rockstar Consortium US LP (11) | 176,991 | 6.8% | 176,991 | 0 | 0 | ||||||
Alpha Capital Anstalt (12) | 275,826 (12) | 9.99% | 101,326 | 275,826 | 9.99% | ||||||
Robert S. Colman Trust UDT 3/13/85 (13) | 78,014 | 3.0% | 78,014 | 0 | 0 | ||||||
Jonathan Honig | 59,453 | 2.27% | 59,453 | 0 | 0 | ||||||
Sandor Capital Master Fund (14) | 199,507 (14) | 7.18% | 39,007 | 160,500 | 5.77% | ||||||
Cranshire Capital Master Fund Ltd (15) | 29,313 | 1.11% | 29,313 | 0 | 0 | ||||||
Empery Asset Master, Ltd (16) | 19,619 | * | 19,619 | 0 | 0 | ||||||
Stockwire Research Group (17) | 19,389 | * | 19,339 | 0 | 0 | ||||||
JSL Kids Partners (18) | 9,924 | * | 9,924 | 0 | 0 | ||||||
Nachum Stein (19) | 19,388(19) | * | 9,695 | 9,693 | * | ||||||
American European Insurance Company (19) | 9,693 | * | 9,693 | 0 | 0 | ||||||
Kristin O’Conner | 26,162 | * | 23,546 | 2,616 | * | ||||||
Total | 2,302,615 |
General
The following description of common stock and preferred stock summarizes the material terms and provisions of the common stock and preferred stock and is not complete. For the complete terms of our common stock, and preferred stock, please refer to our certificateAmended and Restated Certificate of incorporation, as amended,Incorporation, which may be further amended from time to time, any certificates of designation for our preferred stock, and our amended and restated bylaws, as amended from time to time. The Delaware General Corporation Law (“DCGL) may also affect the terms of these securities.
On April 24, 2014, we filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which was previously approved by our stockholders at our annual meeting held on February 6, 2014.
The Amended and Restated Certificate of Incorporation, among other things, increases our authorized capital stock consistsnumber of 50,000,000 shares of common stock $0.0001to 200,000,000 shares from 50,000,000 shares. The Amended and Restated Certificate of Incorporation also requires us to indemnify our directors, officer and agents and advance expenses to such persons to the fullest extent permitted by Delaware law.
Additionally, on April 23, 2014, we filed a Certificate of Elimination with the Secretary of State of the State of Delaware eliminating our Series B Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock and returning them to authorized but undesignated shares of our preferred stock.
Amended and Restated Certificate of Incorporation
On March 4, 2016, the Company implemented a reverse stock split with a ratio of 1-for-19. The par value and 5,000,000 sharesother terms of preferredthe common stock $0.0001 par value. Thewere not affected by the reverse stock split. In addition, the amendment to the Company’s certificate of incorporation that effected the reverse stock split simultaneously reduced the number of authorized and unissued shares of common stock and the authorized and undesignated shares of preferred stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. If the approval of our stockholders is not so required, our board of directors may determine notfrom 200,000,000 to seek stockholder approval.
Common Stock
Subject to the rights of the preferred stock, holders of common stock are entitled to receive such dividends as are declared by our board of directors out of funds legally available for the payment of dividends. We presently intend to retain any earnings to fund the development of our business. Accordingly, we do not anticipate paying any dividends on our common stock for the foreseeable future. Any future determination as to declaration and payment of dividends will be made at the discretion of our board of directors.
In the event of the liquidation, dissolution, or winding up of the Company, each outstanding share of our common stock will be entitled to share equally in any of our assets remaining after payment of or provision for our debts and other liabilities.
Holders of common stock are entitled to one vote per share on matters to be voted upon by stockholders. There is no cumulative voting for the election of directors, which means that the holders of shares entitled to exercise more than fifty percent (50%) of the voting rights in the election of directors are able to elect all of the directors.
Holders of common stock have no preemptive rights to subscribe for or to purchase any additional shares of common stock or other obligations convertible into shares of common stock which we may issue after the date of this prospectus.
All of the outstanding shares of common stock are fully paid and non-assessable. Holders of our common stock are not liable for further calls or assessments.
The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.
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Preferred Stock
Our certificateAmended and Restated Certificate of incorporationIncorporation authorizes 5,000,00050,000,000 shares of preferred stock. Our board of directors is authorized, without further stockholder action, to establish various series of such preferred stock from time to time and to determine the rights, preferences and privileges of any unissued series including, among other matters, any dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, the number of shares constituting any such series, and the description thereof and to issue any such shares. Although there is no current intent to do so, our board of directors may, without stockholder approval, issue shares of an additional class or series of preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of the common stock.
One of the effects of the preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of the management.
The DGCL provides that the holders of preferred stock will have the right to vote separately as a class on any proposal involving certain fundamental changes in the rights of holders of that series of preferred stock. This right is in addition to any voting rights provided for in the applicable certificate of designation.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Preferred stock could be issued quickly with terms designed to delay or prevent a change in control of our Company or make removal of management more difficult. Additionally, the issuance of preferred stock could have the effect of decreasing the market price of our common stock.
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The Company had designated separate series of its capital stock as of March 31, 2017, December 31, 2016 and December 31, 2015 as summarized below:
Number of Shares Issued and Outstanding as of | ||||||||||||||||||
March 31, 2017 | December 31, | December 31, 2015 | Par Value | Conversion Ratio | ||||||||||||||
Series "A" | - | - | - | $ | 0.0001 | N/A | ||||||||||||
Series "C" | - | - | - | 0.0001 | 0.05:1 | |||||||||||||
Series “D" | 4,725 | 4,725 | 4,725 | 0.0001 | 0.53:1 | |||||||||||||
Series “D-1" | 834 | 834 | 834 | 0.0001 | 0.53:1 | |||||||||||||
Series “F-1" | - | - | - | 0.0001 | 0.05:1 | |||||||||||||
Series “H" | - | - | 381,967 | 0.0001 | 0.53:1 | |||||||||||||
Series “I” | - | - | - | 0.0001 | 1.05:1 | |||||||||||||
Series “J” | - | - | - | 0.0001 | 0.05:1 | |||||||||||||
Series “K” | - | - | 1,240 | 0.0001 | 263.16:1 |
On April 23, 2014, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware eliminating its Series B Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock and returning them to authorized but undesignated shares of preferred stock. No shares of the foregoing series of preferred stock were outstanding.
Series A Preferred Stock
Our board of directors has designated 500,000 shares of our preferred stock as Series A Participating Preferred Stock (“Series A Preferred Stock”).
On January 1, 2013, and as amended and restated on June 9, 2017, we adopted a stockholder rights plan in which rights to purchase shares of Series A Preferred Stock were distributed as a dividend at the rate of one right for each share of common stock. The rights are designed to guard against partial tender offers and other abusive and coercive tactics that might be used in an attempt to gain control of Spherix or to deprive our stockholders of their interest in the long-term value of Spherix. These rights seek to achieve these goals by forcing a potential acquirer to negotiate with our board of directors (or go to court to try to force the Board of Directors to redeem the rights), because only the Board of Directors can redeem the rights and allow the potential acquirer to acquire our shares without suffering very significant dilution. However, these rights also could deter or prevent transactions that stockholders deem to be in their interests, and could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.
Each right entitles the registered holder to purchase one one-hundredth of a share (a “Unit”) of our Series A Preferred Stock. Each Unit of Series A Preferred Stock will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Units of Series A Preferred Stock will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Unit of Series A Preferred Stock will have 100 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Unit of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.
The rights will be exercisable only if a person or group acquires ten percent (10%) or more of our common stock (subject to certain exceptions stated in the plan) or announces a tender offer the consummation of which would result in ownership by a person or group of ten percent (10%) or more of our common stock. Our board of directors may redeem the rights at a price of $.001$0.001 per right. The rights will expire at the close of business on December 31, 20172020 unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by the Company.
As of securities, which we closed in October 2010, we created a Series B Convertible Preferred Stock. AllMarch 31, 2017, December 2016, and December 2015, no shares of Series B ConvertibleA Preferred Stock were issued in the offering have been converted to common stock except for one (1) outstanding share of Series B Convertible Preferred Stock.and outstanding.
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Series C Convertible Preferred Stock
On March 6, 2013, the Company and certain investors that participated in the Company’s November 2012 private placement transaction entered into separate Warrant Exchange Agreements pursuant to which thethose investors exchanged common stock purchase warrants acquired in the private placement transaction for 229,337 shares of ourthe Company’s Series C Convertible Preferred Stock.Stock (“Series C Preferred Stock”). Each share of Series C Convertible Preferred Stock is convertible into one (1)one-nineteenth of a share of common stock at the option of the holder. The Series C Convertible Preferred Stock was established on March 5, 2013 by the filing in the State of Delaware of a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock.
As of March 31, 2017,December 2016, and December 2015, no shares of Series of Series C Preferred Stock remained issued and outstanding, respectively.
Series D Convertible Preferred Stock
In connection with the Merger Agreement with Nuta, North South and the shareholders of North South, as amended on August 30, 2013. On September 10, 2013, we consummated the Merger. At the closing of the Merger, an aggregate of 500 issued and outstanding sharesacquisition of North South’s common stock were converted intopatent portfolio in September 2013, the right to receive an aggregate of 1,203,153 shares of common stock and 500 shares of North South’s Series A Preferred Stock and 128 shares of North South’s Series B Preferred StockCompany issued and outstanding were converted into the right to receive an aggregate of 1,379,685 shares of our newly designatedits Series D Convertible Preferred Stock.
As of March 31, 2017, December 2016, and December 2015, 4,725 shares of Series D Preferred Stock may not convert such shares in excess of the “Conversion Limit”. The “Conversion Limit” is defined as that number of shares of common stock as shall equal 15% (the “Volume Percentage”) of the greater of (i) the trading volume of our common stock on such conversion date or (ii) the average trading volume of our common stock for ten trading days immediately prior to such conversion date. If our common stock trades at a price of at least $12.00 per share on the conversion date, then the Volume Percentage for purposes of the foregoing calculation shall equal 20%. Notwithstanding the foregoing, holders of the Series D Preferred Stock may convert such shares without regard to the aforementioned conversion limit if our common stock trades at a minimum price of $15.00 per share on the conversion date.
Series D-1 Convertible Preferred Stock
The Company’s Series D-1 Convertible Preferred Stock (“Series D-1 Preferred Stock”) was established on November 22, 2013. Each share of Series D-1 Preferred Stock has a stated value of $0.0001 per share and is convertible into ten (10) sharesten- nineteenths of a share of common stock. Upon the liquidation, dissolution or winding up of ourthe Company’s business, each holder of Series D-1 Preferred Stock shall be entitled to receive, for each share of Series D-1 Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of the Company’s common stock on an “as converted” basis. Each holder of Series D-1 Preferred Stock shall be entitled to vote on all matters submitted to ourthe Company’s stockholders and shall be entitled to such number of votes equal to the number of shares of common stock such shares of Series D-1 Preferred Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation. At no time may shares of Series D-1 Preferred Stock be converted if such conversion would cause the holder to hold in excess of 9.99% of our issued and outstanding common stock. The conversion ratio of the Series DD-1 Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, splitscombination of shares and fundamentalsimilar recapitalization transactions. The Company anticipates commencingcommenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which the holders of ourthe Company’s outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares for shares of ourthe Company’s Series D-1 Preferred Stock on a one-for-one basis.
As of March 31, 2017, December 2016, and December 2015, 834 shares of Series D-1 Preferred Stock remained issued and outstanding.
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Series EH Convertible Preferred Stock
On December 31, 2013, the Company designated 459,043 shares of preferred stock as Series EH Preferred Stock. On December 31, 2013, the Company issued approximately $38.3 million of Series H Preferred Stock was established on June 25, 2013.(or 459,043 shares) to Rockstar. Each share of Series EH Preferred Stock is convertible at the optioninto ten-nineteenths of the holder at any time, into one (1)a share of common stock and has a stated value of $0.0001. Such$83.50. The conversion ratio is subject to adjustment in the caseevent of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We areThe Company is prohibited from effecting the conversion of the Series EH Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially ownowns more than 4.99% (or, if such limitation is waived by the holder(which may be increased to 9.99% and subsequently to 19.99%, each upon no less than 61 days prior notice, 9.99%)days’ written notice), in the aggregate, of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series EH Preferred Stock. AllHolders of the Series H Preferred Stock shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to the number of votes equal to the number of shares of common stock into which the shares of Series H Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series H Preferred Stock provides a liquidation preference of $83.50 per share. The shares of Series H Preferred Stock were not immediately convertible and did not possess any voting rights until such a time as the Company had obtained stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, the Company obtained the required stockholder approval and, as a result, all outstanding shares of our Series EH Preferred Stock are convertible and possess voting rights in accordance with its terms. On May 28, 2014, 20,000 shares of Series H Preferred Stock were converted into 10,526 shares of common stock.
In January 2015, Rockstar transferred its remaining outstanding Series H Preferred Stock to RPX Clearinghouse LLC, an affiliate of RPX.
According to the RPX License Agreement, on November 23, 2015, RPX transferred to the Company for cancellation 57,076 shares of Series H Preferred Stock then held by North SouthRPX, having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar.
In connection with a second, separate, licensing agreement, on May 23, 2016, RPX transferred to the Company for cancellation of 100% of the remaining 381,967 shares of Series H Preferred Stock held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar.
As of March 31, 2017, December 2016, and retired in full on September 30, 2013.
Series I Redeemable Convertible Preferred Stock
On December 31, 2013, the Company designated 119,760 shares of preferred stock as Series FI Preferred Stock. On December 31, 2013, the Company issued approximately $20 million (or 119,760 shares) of Series I Preferred Stock was established on November 1, 2013.to Rockstar. Each share of Series FI Preferred Stock iswas convertible at the optioninto twenty-nineteenths of the holder at any time, into one (1)a share of common stock and hashad a stated value of $0.0001. Such$167.00. The conversion ratio iswas subject to adjustment in the caseevent of stock splits, stock dividends, combination of shares and similar recapitalization transactions. Each share of Series F Preferred Stock is entitled to one vote per share (subject to beneficial ownership limitation) and shall vote together with holders of our common stock. We areThe holder was prohibited from effecting the conversion ofconverting the Series FI Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially ownowned more than 4.99% (which may be increased to 9.99% and subsequently to 19.99%, each upon 61 days’ written notice), in the aggregate, of the Company’s issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series FI Preferred Stock. On November 6, 2013, we issued an aggregateHolders of 304,250the Series I Preferred Stock were entitled to vote on all matters submitted to its stockholders who were entitled to the number of votes equal to the number of shares of common stock into which the shares of Series FI Preferred Stock in a private placement. In November 2013, we conducted an exchange of our outstandingwere convertible, subject to applicable beneficial ownership limitations. The Series FI Preferred Stock provided for a liquidation preference of $167.00 per share.
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The shares of Series F-1I Preferred Stock (as described below).
In January 2015, Rockstar transferred its remaining outstanding Series I Preferred Stock, as well as its other stock in the Company to RPX Clearinghouse LLC.
In June 2015, the Company redeemed 5,601 shares of Series I Preferred Stock. In accordance with this redemption, the Company paid RPX $0.9 million.
On November 23, 2015, as per RPX License Agreement, RPX transferred to the Company for cancellation all remaining 29,940 shares of Series I Preferred Stock, as to which a $5,000,000 mandatory redemption payment would have been due from the Company on or by December 31, 2015.
As of the date of this prospectus,March 31, 2017, December 2016, and December 2015, no shares of Series FI Preferred Stock were outstanding.
Series F-1J Convertible Preferred Stock
On May 28, 2014, the Company designated 20,000,000 shares of preferred stock as Series F-1 ConvertibleJ Preferred Stock. On May 28, 2014, the Company entered into a placement agency agreement with Laidlaw & Company (UK) Ltd., as the placement agent, which provided for the issuance and sale in a registered direct public offering (the “Series J Offering”) by the Company of 10,000,000 shares of Series J Preferred Stock (“which were convertible into a total of 526,315 shares of common stock. The Series F-1J Preferred Stock”)Stock in the Series J Offering was established on November 22, 2013. On November 26, 2013,sold at a public offering price of $2.00 per share. The net offering proceeds to the Company from the sale of the shares were approximately $18.4 million, after deducting placement agent fees ($1.32 million), legal fees ($0.18 million) and escrow fee ($0.04 million). The sale of the Series J Preferred Stock was made pursuant to a subscription agreement between the Company and holders ofcertain investors in the Series F Preferred Stock entered into separate Amendment and Exchange Agreements pursuant to which the holders of Series F Preferred Stock exchangedJ Offering.
The shares of Series FJ Preferred Stock for sharescarry a liquidation preference equal to the greater of our(i) the stated value or (ii) the amount the holder would receive as a holder of common stock if such holder had converted the Series F-1J Preferred Stock immediately prior to such liquidation, dissolution or winding up. Each holder of Series J Preferred Stock is entitled to vote on all matters submitted to stockholders of the Company and is entitled to a one-for-one basis. On November 26, 2013, an aggregatevote of 304,25067.3% of the number of votes for each share of common stock into which the Series J Preferred Stock is convertible owned at the record date for the determination of stockholders entitled to vote on such matter. Subject to certain ownership limitations as described below, shares of Series F-1 were issued in exchange for 304,250 shares of Series F Preferred Stock. As of December 9, 2013, 304,250 shares of Series F-1J Preferred Stock were outstanding.
On May 28, 2014 all shares of Series J Preferred Stock were converted into one (1)an aggregate of 526,315 shares of common stock.
As of March 31, 2017, December 2016, and December 2015,no shares of Series J Preferred Stock are issued and outstanding.
Series K Convertible Preferred Stock
On December 2, 2015, the Company designated 1,240 shares of preferred stock as Series K Preferred Stock. On December 7, 2015, the Company issued 1,240 shares of Series K Preferred Stock in December 2015 Offering. Each share of Series K Preferred Stock is convertible into five thousand-nineteenths of a share of common stock and has a stated value of $0.0001. Such$1,000. The conversion ratio is subject to adjustment in the caseevent of stock splits, stock dividends, combination of shares and similar recapitalization transactions. Each shareThe Series K Preferred do not generally have any voting rights but are convertible into shares of common stock. At no time may shares of Series F-1K Preferred Stock is entitled to 91% of one vote per share (subject to beneficial ownership limitation) and shall vote together with holders of our common Stock. We are prohibited from effecting the conversion of the Series F-1 Preferred Stock to the extent that, as a result ofbe converted if such conversion would cause the holder will beneficially own more than 9.99%to hold in the aggregateexcess of 4.99% of the issued and outstanding common stock, subject to an increase in such limitation up to 9.99% of the issued and outstanding common stock on 61 days’ written notice to the Company. The conversion ratio of the Series K Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.
Since January 1, 2016, stockholders have converted all 1,240 shares of our common stock calculated immediately after giving effect to the issuance ofSeries K Preferred Stock into 326,315 shares of common stock upon the conversion of the Series F-1 Preferred Stock.
As of March 31, 2017, December 9, 2013, 2,006,714 options were2016, and December 2015, none, none and 1,240 shares, respectively, of Series K Preferred Stock are issued under our 2013 Equity Incentive Plan and 6,663 options were issued under our previously adopted 1997 Plan.outstanding.
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Warrants
A summary of warrant activity for the three months ended March 31, 2017 and the year ended December 31, 2016 is presented below:
Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
Outstanding as of December 31, 2015 | 2,304,888 | $ | 7.98 | $ | - | 2.83 | ||||||||||
Exercised | (200,000 | ) | 3.80 | |||||||||||||
Expired | (854,577 | ) | - | |||||||||||||
Outstanding as of December 31, 2016 | 1,250,311 | $ | 9.21 | 3.91 | ||||||||||||
Exercisable as of December 31, 2016 | 1,250,311 | $ | 9.21 | $ | - | 3.91 | ||||||||||
Outstanding as of March 31, 2017 | 1,250,311 | 9.21 | 3.67 | |||||||||||||
Exercisable as of March 31, 2017 | 1,250,311 | 9.21 | 3.67 |
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equity Stock Transfer, with an address at 110 Greene Street, Suite 403, New York, NY 10012.
Listing
Our common stock is listed on the NASDAQ Capital Market under the symbol “SPEX”. We have not applied to list our common stock on any other exchange or quotation system.
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Limitations on Directors’ Liability
Our certificate of incorporation and bylaws contain provisions indemnifying our directors and officers to the fullest extent permitted by Delaware law.
In addition, as permitted by Delaware law, our certificate of incorporation provides that no director will be liable to us or our stockholders for monetary damages for breach of the director’s fiduciary duty as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of the director’s fiduciary duty as a director, except that a director will be personally liable for:
· | any breach of his or her duty of loyalty to us or our stockholders; |
· | acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law; |
· | the payment of dividends or the redemption or purchase of stock in violation of Delaware law; or |
· | any transaction from which the director derived an improper personal benefit. |
This provision does not affect a director’s liability under the federal securities laws.
To the extent that our directors, officers and controlling persons are indemnified under the provisions contained in our certificate of incorporation or Delaware law against liabilities arising under the Securities Act of 1933, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
Provisions of Ourour Certificate of Incorporation and Bylaws, our Shareholder Rights Plan, and Delaware Law that May Have an Anti-Takeover Effect
Certain provisions set forth in our certificateAmended and Restated Certificate of incorporationIncorporation and Amended and Restated Bylaws, our Amended and Restated Shareholder Rights Plan, and Delaware law which are summarized below, maycould have an anti-takeoverthe effect and may delay, deterof discouraging potential acquisition proposals or preventmaking a tender offer or takeover attempt thatdelaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management.
Certificate of Incorporation and Bylaws
In particular, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, among other things:
• | authorize our board of directors to issue, without further action by the stockholders, up to 50,000,000 shares of undesignated preferred stock; | |
• | provide that stockholders must provide advance notice to nominate persons for election to our board of directors or submit proposals for consideration at stockholder meetings; | |
• | specify that special meetings of our stockholders can be called only by our board of directors or by any officer instructed by the board of directors to a call a special meeting; | |
• | provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum, or by the sole remaining director; and | |
• | provide the board of directors with the ability to alter the bylaws without stockholder approval. |
Shareholder Rights Plan
On January 1, 2013, and as amended and restated on June 9, 2017, we adopted a stockholder rights plan in which rights to purchase shares of Series A Preferred Stock were distributed as a dividend at the rate of one right for each share of common stock. The rights are designed to guard against partial tender offers and other abusive and coercive tactics that might be used in an attempt to gain control of Spherix or to deprive our stockholders of their interest in the long-term value of Spherix. These rights seek to achieve these goals by forcing a potential acquirer to negotiate with our board of directors (or go to court to try to force the Board of Directors to redeem the rights), because only the Board of Directors can redeem the rights and allow the potential acquirer to acquire our shares without suffering very significant dilution. However, these rights also could deter or prevent transactions that stockholders deem to be in their interests, and could reduce the stockholder’s best interests, including attemptsprice that investors or an acquirer might be willing to pay in the future for shares of our common stock.
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Each right entitles the registered holder to purchase one nineteen-hundredth of a share (a “Unit”) of our Series A Preferred Stock. Each Unit of Series A Preferred Stock will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Units of Series A Preferred Stock will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Unit of Series A Preferred Stock will have 100 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Unit of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.
The rights will be exercisable only if a person or group acquires ten percent (10%) or more of our common stock (subject to certain exceptions stated in the plan) or announces a tender offer the consummation of which would result in ownership by a premium being paid overperson or group of ten percent (10%) or more of our common stock. Our board of directors may redeem the marketrights at a price forof $0.001 per right. The stockholder rights plan provides that the shares heldrights will expire at the close of business on December 31, 2020 unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by stockholders.
Delaware Takeover Statute
Section 203 of the Delaware General Corporation Law (“DGCL”)DGCL prohibits a Delaware corporation that is a public company from engaging in any “business combination” (as defined below) with any “interested stockholder” (defined generally as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with such entity or person) for a personperiod of three years following the date that such stockholder became an interested stockholder, unless:
• | before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
• | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
• | on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
Section 203 of the Delaware General Corporation LawDCGL defines “business combination” to include:
• | any merger or consolidation involving the corporation and the interested stockholder; |
• | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; |
• | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
• | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or |
• | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
Disclosure of SEC Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and persons controlling us, we understand that it is the SEC’s opinion that such indemnification is against public policy as expressed in the Securities Act and may therefore be unenforceable.
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Laidlaw & Company (UK) Ltd. is acting as the representative of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from time to time, sell, transfer, or otherwise disposeus, the number of any or all of its shares of common stock on any stock exchange, market, or trading facility on whichset forth opposite its name below.
Underwriters | Number of Shares | |||
Laidlaw & Company (UK) Ltd. | ||||
Total |
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are tradedpurchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The underwriters are not obligated to purchase the shares of common stock covered by the underwriters' over-allotment option described below.
The underwriters are offering the shares subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in private transactions. These dispositions may be at fixed prices, at prevailing market prices atpart.
Commissions, Discounts and Expenses
We have agreed to pay the timeunderwriters an underwriting discount equal to 8.0% of sale, at prices relatedthe aggregate gross proceeds raised in this offering. The following table summarizes the underwriting discounts and commissions we will pay to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
Without Over-Allotment | With Over-Allotment | |||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount | $ | $ | $ | |||||||||
Proceeds, before expenses, to us | $ | $ | $ |
We have agreed to pay an accountable expense allowance to the representative of the underwriters up to a maximum of $25,000; however, an allowance shall not be paid in connection with the over-allotment option if the over-allotment option is exercised, and we have agreed to pay all fees and expenses of the representative, including, without limitation, its legal fees and expenses, all such fees not to exceed $70,000 in the aggregate, inclusive of background check expenses. We have also agreed to pay the expenses relating to the offering, including, but not limited to, (1) all actual filing fees incurred in connection with the review of this offering by the Financial Industry Regulatory Authority, Inc., or FINRA, (2) all fees and expenses relating to the listing of our shares of common stock on the Nasdaq Capital Market, (3) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of the shares of common stock being offered by this prospectus under state securities laws, or "blue sky" laws, or under the securities laws of foreign jurisdictions designated by the representative, (4) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of our shares of common stock under the securities laws of such foreign jurisdictions as the representative may reasonably designate, (5) all actual fees, expenses and disbursements relating to background checks of our officers and directors not to exceed $10,000, (6) the costs of all mailing and printing of the underwriting documents as the representative may reasonably deem necessary, and (7) the legal fees and expenses and fees and expenses of any other agents and representatives of the Company incurred as a result of the offering.
The aggregate proceedsexpenses of the offering, not including the underwriting discount, are estimated at approximately $_______ and are payable by us.
Option to Purchase Additional Shares
We have granted an option to the underwriters, exercisable for 45 days after the date of this prospectus, to purchase up to ___________ additional Shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each underwriter will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional Shares proportionate to that underwriter's initial amount reflected in the above table.
Lock-Up Agreements
Pursuant to certain "lock-up" agreements, for a period of ninety (90) days from the effective date of the offering, we and our named executive officers and directors have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the underwriter.
The representative may, in its sole discretion and at any time or from time to time before the termination of the lock-up periods release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and any of our stockholders from anywho will execute a lock-up agreement, providing consent to the sale of shares prior to the common stock offeredexpiration of the lock-up period.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters may engage in stabilizing transactions, short sales and purchases to cover positions created by it will beshort sales, and penalty bids or purchases for the purchasepurpose of pegging, fixing or maintaining the price of the common stock, less discountsin accordance with Regulation M under the Exchange Act:
•Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or commissions, if any.a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The selling stockholders reservesunderwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the rightopen market. In determining the source of shares to accept and, together with its agents from timeclose out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to time,the price at which they may purchase shares through their option to reject, in whole or in part, any proposed purchase of common stockadditional shares. A naked short position is more likely to be made directly or through agents. We would not receive any ofcreated if the proceeds from any such sale.
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•Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
•Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be deemedhigher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representative will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Listing and Transfer Agent
Our Common Stock is listed on The NASDAQ Capital Market and trades under the symbol “SPEX.” The transfer agent of our Common Stock is Vstock Transfer, LLC, with an address at 18 Lafayette Place, Woodmere, NY 11598.
Electronic Distribution
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares of common stock to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters' websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.
Other Relationships
From time to time, certain of the underwriters and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or the Relevant Member States, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, our securities will not be offered to the public in that Relevant Member State prior to the publication of a prospectus in relation to the securities that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities may be made to the public in that Relevant Member State at any time:
For the purposes of this provision, the expression an "offer of common shares to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the common shares to be “underwriters”offered so as to enable an investor to decide to purchase or subscribe the common shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State. The expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
We have not authorized, and do not authorize the making of, any offer of shares through any financial intermediary on our behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated by this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the shares on our or the underwriters' behalf.
United Kingdom
Our securities may not be offered or sold and will not be offered or sold to any persons in the United Kingdom other than persons whose ordinary activities involve acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses and in compliance with all applicable provisions of the Financial Services and Markets Act 2000, or FSMA, with respect to anything done in relation to our securities in, from or otherwise involving the United Kingdom.
In addition, each underwriter:
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Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia, or the Corporations Act) in relation to the securities has been or will be lodged with the Australian Securities & Investments Commission, or the ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
(1) you confirm and warrant that you are either:
(a) a "sophisticated investor" under section 708(8)(a) or (b) of the Corporations Act;
(b) a "sophisticated investor" under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant's certificate to us which complies with the requirements
of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;
(c) a person associated with us under section 708(12) of the Corporations Act; or
(d) a "professional investor" within the meaning of Section 2(11)section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance; and
(2) you warrant and agree that you will not offer any of the securities for resale in Australia within 12 months of those securities being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.
Hong Kong
The securities may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (2) to "professional investors" within the meaning of the Securities Act.and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Japan
The securities offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
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Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, us, or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares.
Canada
Resale Restrictions
The distribution of our securities in Canada is being made only in the provinces of Ontario, Quebec, Alberta, British Columbia and Manitoba on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any discounts, commissions, concessionsresale of the common stock in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or profit they earn onunder a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the shares may be underwriting discountscommon stock.
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Representations of Purchasers
By purchasing securities in Canada and commissionsaccepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:
Rights of Action—Ontario Purchasers
Under Ontario securities legislation, certain purchasers who purchase any securities offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the securities, for rescission against us in the event that this prospectus contain a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the securities. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the securities. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the securities were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
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Ellenoff Grossman & Schole LLP, New York, New York, will pass upon the validity of the issuanceshares of the securitiesour common stock offered herebyhereby. Certain legal matters in connection with this offer will be passed upon for usthe underwriters by Baxter, Baker, Sidle, ConnSheppard, Mullin, Richter & Jones, P.A.
Marcum LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of andincluded in our Annual Report on Form 10-K for the yearsyear ended December 31, 2012 and 2011, included2016, as set forth in their report dated March 31, 2017, which is incorporated by reference in this prospectus and elsewhere in the registration statement have been so includedstatement. Our consolidated financial statements are incorporated by reference in reliance upon theon Marcum LLP’s report, of Grant Thornton LLP, independent registered public accounting firm, upongiven on the authority of saidsuch firm as experts in accounting and auditing in giving said report.
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We have filed with the SEC a registration statement on Form S-1 together with any amendments and related exhibits, under the Securities Act with respect to ourthe shares of common stock offered by this prospectus. Thehereby. This prospectus, which constitutes a part of the registration statement, contains additionaldoes not contain all of the information set forth in the registration statement or the exhibits filed with the registration statement. For further information about us and our shares ofthe common stock thatand warrants offered hereby, we refer you to the selling stockholders are offeringregistration statement and the exhibits filed with the registration statement. Statements contained in this prospectus.
We are subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, are required to file annual, quarterly and currentperiodic reports, proxy statements and other information with the SEC. You may read, without charge,These periodic reports, proxy statements and copy the documents we fileother information are available for inspection and copying at the SEC’s public reference rooms in Washington, D.C. at 100 F Street, NE, Room 1580, Washington, DC 20549,facilities and the website of the SEC referenced above. We make available free of charge, on or in New York, New Yorkthrough the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and Chicago, Illinois. You can request copiesamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of these documents by writingthe Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information found on our website, other than as specifically incorporated by reference in this prospectus, is not part of this prospectus.
The SEC and paying a fee forallows us to incorporate by reference the copying cost. Please callinformation we file with it, which means that we can disclose important information to you by referring you to another document that we have filed separately with the SEC. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus supersedes information incorporated by reference that we filed with the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also availableprior to the public at no cost from the SEC’s website at http://www.sec.gov.
2012 | 2011 | |||||||
Revenue | $ | 19,922 | $ | - | ||||
Operating expense | ||||||||
Research and development expense | (727,091 | ) | (1,645,939 | ) | ||||
Selling, general and administrative expense | (2,764,836 | ) | (2,548,007 | ) | ||||
Total operating expense | (3,491,927 | ) | (4,193,946 | ) | ||||
Loss from operations | (3,472,005 | ) | (4,193,946 | ) | ||||
Other Income from Change in Fair Value of Warrants | 1,202,489 | 3,716,812 | ||||||
Loss on issuance of warrants | (621,983 | ) | (4,983 | ) | ||||
Interest income | 3,466 | 3,455 | ||||||
Other income | - | 51,261 | ||||||
Gain on settlement of obligations | - | 845,000 | ||||||
(Loss) income from continuing operations before taxes | (2,888,033 | ) | 417,599 | |||||
Income tax expense | - | (14,485 | ) | |||||
(Loss) income from continuing operations | (2,888,033 | ) | 403,114 | |||||
Discontinued operations | ||||||||
Loss from discontinued operations | (968,991 | ) | (383,529 | ) | ||||
Income tax expense | - | - | ||||||
Loss from discontinued operations | (968,991 | ) | (383,529 | ) | ||||
Net (loss) income | $ | (3,857,024 | ) | $ | 19,585 | |||
Net (loss) income per share, basic | ||||||||
Continuing operations | $ | (10.56 | ) | $ | 3.07 | |||
Discontinued operations | $ | (3.54 | ) | $ | (2.92 | ) | ||
Net (loss) income per share | $ | (14.10 | ) | $ | 0.15 | |||
Net loss per share, diluted | ||||||||
Continuing operations | $ | (10.56 | ) | $ | (2.37 | ) | ||
Discontinued operations | $ | (3.54 | ) | $ | (2.77 | ) | ||
Net loss per share | $ | (14.10 | ) | $ | (5.14 | ) | ||
Weighted average shares outstanding, basic | 273,567 | 131,285 | ||||||
Weighted average shares outstanding, diluted | 273,567 | 138,346 |
ASSETS | 2012 | 2011 | ||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 4,498,237 | $ | 4,911,350 | ||||
Trade accounts receivable, net of allowance of $0 and $8,174 | - | - | ||||||
Other receivables | 3,425 | 293 | ||||||
Prepaid research expenses | - | 209,780 | ||||||
Prepaid expenses and other assets | 100,474 | 116,565 | ||||||
Assets of segment held for sale | 104,265 | 289,927 | ||||||
Total current assets | 4,706,401 | 5,527,915 | ||||||
Property and equipment, net of accumulated depreciation | 24,009 | 85,374 | ||||||
of $308,386 and $244,711 | ||||||||
Patents, net of accumulated amortization of $0 and $2,146 | - | - | ||||||
Deposit | 25,625 | 35,625 | ||||||
Assets of segment held for sale, non-current | - | 6,108 | ||||||
Total assets | $ | 4,756,035 | $ | 5,655,022 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 425,774 | $ | 269,996 | ||||
Accrued salaries and benefits | 280,263 | 242,550 | ||||||
Liabilities of segment held for sale | 25,040 | 380,136 | ||||||
Total current liabilities | 731,077 | 892,682 | ||||||
Deferred rent | 45,081 | 47,675 | ||||||
Warrant liability | 3,125,393 | 916,621 | ||||||
Total liabilities | 3,901,551 | 1,856,978 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity | ||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; | ||||||||
5,250 series B issued and 1 outstanding at December 31, 2012, | ||||||||
and December 31, 2011 | - | - | ||||||
Common stock, $0.0001 par value, 50,000,000 shares authorized; | ||||||||
814,114 and 155,150 issued, 813,713 and 154,749 | ||||||||
outstanding at December 31, 2012 and 2011, respectively | 82 | 16 | ||||||
Paid-in capital in excess of par value | 36,630,406 | 35,717,008 | ||||||
Treasury stock, 401 shares | (464,786 | ) | (464,786 | ) | ||||
Accumulated deficit | (35,311,218 | ) | (31,454,194 | ) | ||||
Total stockholders' equity | 854,484 | 3,798,044 | ||||||
Total liabilities and stockholders' equity | $ | 4,756,035 | $ | 5,655,022 |
Preferred Stock | Common Stock | Paid-in | Treasury Stock | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital in Excess of Par | Shares | Amount | Accumulated Deficit | Stockholders' Equity | ||||||||||||||||||||||||||||
Balance, January 1, 2011 | 1 | $ | - | 107,181 | $ | 11 | 34,536,947 | 401 | (464,786 | ) | 31,473,779 | $ | 2,598,393 | |||||||||||||||||||||||
Sale of common stock, net of | ||||||||||||||||||||||||||||||||||||
offering costs of $103,196 | - | - | 47,969 | 5 | 1,144,527 | - | - | - | 1,144,532 | |||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 35,534 | - | - | - | 35,534 | |||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 19,585 | 19,585 | |||||||||||||||||||||||||||
Balance, December 31, 2011 | 1 | - | 155,150 | 16 | 35,717,008 | 401 | (464,786 | ) | (31,454,194 | ) | 3,798,044 | |||||||||||||||||||||||||
Sale of common stock, net of | ||||||||||||||||||||||||||||||||||||
offering costs of $77,012 | - | - | 536,898 | 54 | 858,647 | - | - | - | 858,701 | |||||||||||||||||||||||||||
Stock-based compensation | - | - | 122,250 | 12 | 56,436 | - | - | - | 56,448 | |||||||||||||||||||||||||||
Fractional shares payment | - | - | (184 | ) | - | (1,685 | ) | - | - | - | (1,685 | ) | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (3,857,024 | ) | (3,857,024 | ) | |||||||||||||||||||||||||
Balance, December 31, 2012 | 1 | $ | - | 814,114 | $ | 82 | 36,630,406 | 401 | (464,786 | ) | (35,311,218 | ) | $ | 854,484 |
2012 | 2011 | |||||||
Cash flows from operating activities | ||||||||
Net (loss) income | (3,857,024 | ) | $ | 19,585 | ||||
Adjustments to reconcile net (loss) income to net cash | ||||||||
used in operating activities: | ||||||||
Other Income from Change in Fair Value of Warrants | (1,202,489 | ) | (3,716,812 | ) | ||||
Issuance costs of warrants accounted for at fair value | 245,513 | 230,604 | ||||||
Loss on issuance of warrants | 621,983 | 4,983 | ||||||
Gain on settlement of obligation | - | (845,000 | ) | |||||
Depreciation and amortization | 63,675 | 66,308 | ||||||
Stock-based compensation | 56,448 | 35,534 | ||||||
Provision for doubtful accounts | (8,174 | ) | 8,174 | |||||
Changes in assets and liabilities: | ||||||||
Receivables | 5,042 | 262,333 | ||||||
Prepaid expenses and other assets | 235,871 | 289,830 | ||||||
Accounts payable and accrued expenses | 193,491 | (366,885 | ) | |||||
Deferred rent | (2,594 | ) | (33,270 | ) | ||||
Deferred compensation | - | (305,000 | ) | |||||
Net cash used in activities of continuing operations | (3,648,258 | ) | (4,349,616 | ) | ||||
Net cash used in activities of discontinued operations | (167,429 | ) | (10,044 | ) | ||||
Net cash used in operating activities | (3,815,687 | ) | (4,359,660 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of fixed assets | (2,309 | ) | (2,374 | ) | ||||
Net cash used in activities of continuing operations | (2,309 | ) | (2,374 | ) | ||||
Net cash provided by (used in) activities of discontinued operations | 4,102 | (2,478 | ) | |||||
Net cash provided by (used in) investing activities | 1,793 | (4,852 | ) | |||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of common stock and warrants | 3,724,991 | 4,034,352 | ||||||
Issuance cost of common stock and warrants | (322,525 | ) | (333,800 | ) | ||||
Reverse stock split fractional share payment | (1,685 | ) | - | |||||
Net cash provided by activities of continuing operations | 3,400,781 | 3,700,552 | ||||||
Net cash provided by financing activities | 3,400,781 | 3,700,552 | ||||||
Net decrease in cash and cash equivalents | (413,113 | ) | (663,960 | ) | ||||
Cash and cash equivalents, beginning of year | 4,911,350 | 5,575,310 | ||||||
Cash and cash equivalents, end of year | $ | 4,498,237 | $ | 4,911,350 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for taxes | $ | - | $ | 160,829 |
2012 | 2011 | |||||||
Revenue | $ | 728,312 | $ | 820,925 | ||||
Direct cost and operating expense | (417,428 | ) | (388,065 | ) | ||||
Selling, general and administrative expense | (1,279,875 | ) | (816,389 | ) | ||||
Loss from discontinued operations before taxes | $ | (968,991 | ) | $ | (383,529 | ) |
Fair Value Measurements of Warrants Using Significant Unobservable Inputs (Level 3) | ||||
Balance at December 31, 2011 | $ | 3,125,000 | ||
Change in fair value of Warrant Liability | (2,208,000 | ) | ||
Balance at December 31, 2012 | $ | 917,000 |
our Current Reports on Form 8-K filed with the exercise price of 293sharesSEC on February 9, 2017, March 15, 2017, June 12, 2017, June 20, 2017 and July 3, 2017.
Any information in any of the Company’s 2,425 outstanding options and 27,427 shares of the Company’s 55,391 warrants was below the average market price of the Company’s common stock for the period.
Diluted earnings per share Calculation | December 31, 2012 | December 31, 2011 | ||||||
Net (loss) income | $ | (3,857,024 | ) | $ | 19,585 | |||
Less other income from change in fair value of warrants assumed exercised | -- | (730,862 | ) | |||||
Adjusted net loss | $ | (3,857,024 | ) | $ | (711,277 | ) | ||
Diluted shares outstanding | ||||||||
Weighted average shares outstanding, | 273,567 | 131,285 | ||||||
Shares assumed exercised | -- | 7,061 | ||||||
Diluted shares outstanding | 273,567 | 138,346 | ||||||
Net loss per share, diluted | $ | (14.10 | ) | $ | (5.14 | ) |
Shares of Common Stock
PRELIMINARY PROSPECTUS
Laidlaw & Company (UK) Ltd.
, 2017
75 |
2012 | 2011 | |||||||
Computers | $ | 9,000 | $ | 7,000 | ||||
Office furniture and equipment | 94,000 | 94,000 | ||||||
Leasehold improvements | 229,000 | 229,000 | ||||||
Total cost | 332,000 | 330,000 | ||||||
Accumulated depreciation and amortization | (308,000 | ) | (245,000 | ) | ||||
Property and equipment, net | $ | 24,000 | $ | 85,000 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate that expenses consisted of the following at December 31:
2012 | 2011 | |||||||
Accounts payable | $ | 210,000 | $ | 106,000 | ||||
Accrued expenses | 218,000 | 164,000 | ||||||
$ | 428,000 | $ | 270,000 |
2012 | 2011 | |||||||
Accrued Payroll | $ | 21,000 | $ | 29,000 | ||||
Accrued annual bonuses | 173,000 | 176,000 | ||||||
Accrued severance | 40,000 | - | ||||||
Accrued vacation | 42,000 | 38,000 | ||||||
Other | 4,000 | - | ||||||
$ | 280,000 | $ | 243,000 |
Warrant | Exercise | Estimated fair value | Change in estimated fair value | |||||||||||||||||||||
Date | Shares | Price | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
11/16/2009 | 5,522 | $ | 650.00 | $ | - | $ | 41,000 | $ | (40,000 | ) | $ | (524,000 | ) | |||||||||||
11/16/2009 | 414 | $ | 575.00 | - | - | - | (1,000 | ) | ||||||||||||||||
10/7/2010 | 10,500 | $ | 300.00 | 3,000 | 157,000 | (154,000 | ) | (1,069,000 | ) | |||||||||||||||
10/7/2010 | 630 | $ | 312.50 | - | - | - | (50,000 | ) | ||||||||||||||||
1/19/2011 | 10,673 | $ | 160.00 | 7,000 | 184,000 | (177,000 | ) | (1,277,000 | ) | |||||||||||||||
1/19/2011 | 640 | $ | 162.50 | - | 1,000 | (1,000 | ) | (65,000 | ) | |||||||||||||||
10/25/2011 | 26,628 | $ | 44.80 | 106,000 | 528,000 | (422,000 | ) | (709,000 | ) | |||||||||||||||
10/25/2011 | 799 | $ | 59.13 | - | 6,000 | (6,000 | ) | (22,000 | ) | |||||||||||||||
2/2/2012 | 10,648 | $ | 28.00 | 49,000 | - | (144,000 | ) | - | ||||||||||||||||
2/2/2012 | 1,597 | $ | 27.00 | - | - | (21,000 | ) | - | ||||||||||||||||
11/8/2012 | 483,657 | $ | 6.53 | 2,960,000 | - | (237,000 | ) | - | ||||||||||||||||
3,125,000 | $ | 917,000 | $ | (1,202,000 | ) | $ | (3,717,000 | ) |
As of December 31, 2011 | ||||||||||||||||||||||||
Grant Date | 11/16/09 | 10/07/10 | 01/19/11 | 10/25/11 | ||||||||||||||||||||
Shares | 5,522 | 10,500 | 10,673 | 26,628 | ||||||||||||||||||||
Stock price | $ | 23.40 | $ | 23.40 | $ | 23.40 | $ | 23.40 | ||||||||||||||||
Exercise price | $ | 650.00 | $ | 300.00 | $ | 160.00 | $ | 44.80 | ||||||||||||||||
Expected terms (yrs) | 2.9 | 3.8 | 4.1 | 4.8 | ||||||||||||||||||||
Risk-free interest rate | 0.36 | % | 0.60 | % | 0.60 | % | 0.83 | % | ||||||||||||||||
Estimated volatility | 144.55 | % | 156.71 | % | 156.71 | % | 143.85 | % | ||||||||||||||||
As of December 31, 2012 | ||||||||||||||||||||||||
Grant Date | 11/16/09 | 10/07/10 | 01/19/11 | 10/25/11 | 02/02/12 | 11/08/12 | ||||||||||||||||||
Shares | 5,522 | 10,500 | 10,673 | 26,628 | 10,648 | 483,657 | ||||||||||||||||||
Stock price | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | ||||||||||||
Exercise price | $ | 650.00 | $ | 300.00 | $ | 160.00 | $ | 44.80 | $ | 28.00 | $ | 6.53 | ||||||||||||
Expected terms (yrs) | 1.9 | 2.8 | 3.1 | 3.8 | 4.1 | 4.9 | ||||||||||||||||||
Risk-free interest rate | 0.25 | % | 0.36 | % | 0.36 | % | 0.54 | % | 0.54 | % | 0.72 | % | ||||||||||||
Estimated volatility | 110.99 | % | 101.94 | % | 101.94 | % | 133.28 | % | 133.28 | % | 146.03 | % | ||||||||||||
As of the date of issuance for warrants issued in 2011 and 2012 | ||||||||||||||||||||||||
Grant Date | 01/19/11 | 10/25/11 | 02/02/12 | 11/08/12 | ||||||||||||||||||||
Shares | 10,673 | 26,628 | 10,648 | 483,657 | ||||||||||||||||||||
Stock price | $ | 155.00 | $ | 51.40 | $ | 20.60 | $ | 7.31 | ||||||||||||||||
Exercise price | $ | 160.00 | $ | 44.80 | $ | 28.00 | $ | 6.53 | ||||||||||||||||
Expected terms (yrs) | 5 | 5 | 5 | 5 | ||||||||||||||||||||
Risk-free interest rate | 1.95 | % | 1.01 | % | 0.71 | % | 0.65 | % | ||||||||||||||||
Estimated volatility | 138.7 | % | 144.6 | % | 144.7 | % | 146.0 | % |
11-16-2012 | 8-14-2012 | 5-15-2012 | 11-15-2011 | |||||||||||||
Risk-free interest rate | 0.62 | % | 0.75 | % | 0.74 | % | 0.93 | % | ||||||||
Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Expected life (years) | 5 | 5 | 5 | 5 | ||||||||||||
Volatility | 91.3 | % | 111.8 | % | 122.7 | % | 130.0 | % |
2012 | 2011 | |||||||||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | Shares | Weighted Average Exercise Price | |||||||||||||||||||
Outstanding at beginning of year | 2,426 | $ | 53.60 | 316 | $ | 322.00 | ||||||||||||||||||
Granted | 5,487 | $ | 10.93 | 2,250 | $ | 40.00 | ||||||||||||||||||
Exercised | - | $ | - | - | $ | - | ||||||||||||||||||
Expired or forfeited | (750 | ) | $ | 40.00 | (140 | ) | $ | 440.00 | ||||||||||||||||
Outstanding at end of year | 7,163 | $ | 22.34 | 4.4 | $ | - | 2,426 | $ | 53.60 | |||||||||||||||
Exercisable at end of year | 6,788 | $ | 21.36 | 4.5 | $ | - | 1,176 | |||||||||||||||||
Weighted-average fair value of | ||||||||||||||||||||||||
options granted during the year | $ | 8.44 | $ | 34.20 | ||||||||||||||||||||
Price range of options | ||||||||||||||||||||||||
Outstanding | $ | 9.80-$228.00 | $ | 40.00-$228.00 | ||||||||||||||||||||
Exercised | $ | - | $ | - | ||||||||||||||||||||
Expired or forfeited | $ | 40.00 | $ | 440.00 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Number of Options | Weighted Average Exercise Price | |||||||||||||||||
$ | 9.80-$15.20 | 5,488 | $ | 10.93 | 4.7 | 5,488 | $ | 10.93 | ||||||||||||||
$ | 40.00 | 1,500 | $ | 40.00 | 3.9 | 1,125 | $ | 40.00 | ||||||||||||||
$ | 228.00 | 175 | $ | 228.00 | 2.4 | 175 | $ | 228.00 | ||||||||||||||
7,163 | 6,788 |
2012 | 2011 | |||||||
U.S. Federal income tax expense | $ | - | $ | (13,000 | ) | |||
State and local income tax expense | $ | - | $ | (1,000 | ) | |||
Total income tax expense | $ | - | $ | (14,000 | ) | |||
2012 | 2011 | |||||||
Current income tax expense | $ | - | $ | (14,000 | ) | |||
Deferred income tax expense | $ | - | $ | - | ||||
Total income tax expense | $ | - | $ | (14,000 | ) |
2012 | 2011 | |||||||
Deferred tax assets | ||||||||
Deferred rent | $ | 17,000 | $ | 19,000 | ||||
Accrued vacation | 16,000 | 15,000 | ||||||
Tax credit/grants | 82,000 | 82,000 | ||||||
Deferred compensation | 16,000 | - | ||||||
Net operating loss carryforward | 16,852,000 | 15,467,000 | ||||||
Accrued bonus | 68,000 | 68,000 | ||||||
Stock based compensation | 45,000 | 25,000 | ||||||
Accrued expenses | 38,000 | 38,000 | ||||||
Property and equipment | 19,000 | - | ||||||
Warrants | 3,683,000 | 2,813,000 | ||||||
Warrants - issuance costs | 553,000 | 211,000 | ||||||
Other | 1,000 | 5,000 | ||||||
Total deferred tax asset | 20,837,000 | 18,532,000 | ||||||
Deferred tax liabilities | ||||||||
Property and equipment | - | (3,000 | ) | |||||
Change in accounting method - accrued bonus | - | (20,000 | ) | |||||
- | (23,000 | ) | ||||||
Valuation allowance | (20,837,000 | ) | (18,509,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
2012 | 2011 | |||||||
U.S. Federal income tax benefit at the statutory rate of 34% | $ | 982,000 | $ | (142,000 | ) | |||
Effect of permanent differences | 4,000 | (9,000 | ) | |||||
Effect of permanent differences - Government Grant | - | 4,000 | ||||||
Effect of permanent differences - Warrants | 114,000 | 1,184,000 | ||||||
State income taxes benefit, net of federal tax benefit | 99,000 | 251,000 | ||||||
Other | (1,000 | ) | (78,000 | ) | ||||
Change in valuation allowance | (1,198,000 | ) | (1,224,000 | ) | ||||
Income tax expense | $ | - | $ | (14,000 | ) |
Year Ending December 31, | Operating Lease | |||
2013 | $ | 156,000 | ||
2014 | 161,000 | |||
2015 | 165,000 | |||
2016 | 170,000 | |||
2017 | 176,000 | |||
2018 | 44,000 | |||
$ | 872,000 |
September 30, 2013 | December 31, 2012 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets | ||||||||
Cash | $ | 2,541,743 | $ | 4,498,237 | ||||
Other receivables | - | 3,425 | ||||||
Prepaid expneses and other assets | 51,074 | 100,474 | ||||||
Assets of segment held for sale | - | 104,265 | ||||||
Total current assets | 2,592,817 | 4,706,401 | ||||||
Other assets | ||||||||
Property and equipment, net of accumulated depreciation of $332,395 and $308,386 | - | 24,009 | ||||||
Patent portfolio, net of accumulated amortization of $133,785 and $0 | 4,967,911 | - | ||||||
Deposit | 29,505 | 25,625 | ||||||
Goodwill | 1,711,883 | - | ||||||
Total assets | $ | 9,302,116 | $ | 4,756,035 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 486,136 | $ | 425,774 | ||||
Accrued salaries and benefits | 48,505 | 280,263 | ||||||
Accrued patent costs | 1,000,000 | - | ||||||
Liabilities of segment held for sale | 2,551 | 25,040 | ||||||
Total current liabilities | 1,537,192 | 731,077 | ||||||
Deferred rent | 45,008 | 45,081 | ||||||
Warrant liabilities | 39,923 | 3,125,393 | ||||||
Total liabilities | 1,622,123 | 3,901,551 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity | ||||||||
Convertible preferred stock, $0.0001 par value, 5,000,000 shares authorized; | ||||||||
Series A: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $1,000 per share | - | - | ||||||
Series B: 1 share issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $1,000 per share | - | - | ||||||
Series C: 1 and no shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Series D: 1,379,685 and no shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | 138 | - | ||||||
Series E: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Series F: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Common stock, $0.0001 par value, 50,000,000 shares authorized; 2,430,305 and 814,114 shares issued at September 30, 2013 and December 31, 2012, respectively; 2,429,904 and 813,713 shares outstanding at September 30, 2013 and December 31, 2012, respectively | 244 | 82 | ||||||
Additional paid in capital | 57,239,275 | 36,630,406 | ||||||
Treasury stock at cost, 401 shares at September 30, 2013 and December 31, 2012, respectively | (464,786 | ) | (464,786 | ) | ||||
Accumulated deficit | (49,094,878 | ) | (35,311,218 | ) | ||||
Total stockholders' equity | 7,679,993 | 854,484 | ||||||
Total liabilities and stockholders' equity | $ | 9,302,116 | $ | 4,756,035 |
For the Three Months Ended September 30, 2013 (Unaudited) | For the Three Months Ended September 30, 2012 (Unaudited) | For the Nine Months Ended September 30, 2013 (Unaudited) | For the Nine Months Ended September 30, 2012 (Unaudited) | |||||||||||
Revenues | $ | 1,837 | $ | 16,710 | $ | 7,811 | $ | 16,710 | ||||||
Operating costs and expenses | ||||||||||||||
Amortization of patents | 133,785 | - | 133,785 | - | ||||||||||
Compensation and compensation related expenses (including stock based compensation) | 6,392,503 | 89,959 | 7,129,025 | 492,456 | ||||||||||
Research and development expenses | 9,648 | 107,817 | 9,648 | 617,469 | ||||||||||
Professional fees | 2,139,977 | 316,671 | 2,867,945 | 848,498 | ||||||||||
Rent | 60,433 | 42,905 | 132,475 | 121,630 | ||||||||||
Depreciation expense | 2,519 | 16,993 | 24,009 | 50,936 | ||||||||||
Other selling, general and administrative expenses | 579,740 | 76,010 | 884,858 | 252,201 | ||||||||||
Total operating expenses | 9,318,605 | 650,355 | 11,181,745 | 2,383,190 | ||||||||||
Operating loss | (9,316,768) | (633,645) | (11,173,934) | (2,366,480) | ||||||||||
Interest income | 202 | 830 | 739 | 2,774 | ||||||||||
Fair value adjustments for warrant liabilities | 36,583 | 58,413 | (2,610,465) | 740,605 | ||||||||||
Loss from continuing operations before taxes | (9,279,983) | (574,402) | (13,783,660) | (1,623,101) | ||||||||||
Income tax expense | - | - | - | - | ||||||||||
Loss from continuing operations | (9,279,983) | (574,402) | (13,783,660) | (1,623,101) | ||||||||||
Discontinued operations | ||||||||||||||
Loss from discontinued operations before tax | - | (133,148) | - | (323,423) | ||||||||||
Income tax expense | - | - | - | - | ||||||||||
Loss from discontinued operations | - | (133,148) | - | (323,423) | ||||||||||
Net loss | $ | (9,279,983) | $ | (707,550) | $ | (13,783,660) | $ | (1,946,524) | ||||||
Net loss per share, basic and diluted | ||||||||||||||
Continuing operations | $ | (6.93) | $ | (2.76) | $ | (14.43) | $ | (8.09) | ||||||
Discontinued operations | $ | - | $ | (0.64) | $ | - | $ | (1.61) | ||||||
Net loss per share, basic and diluted | $ | (6.93) | $ | (3.40) | $ | (14.43) | $ | (9.70) | ||||||
Weighted average shares outstanding, basic and diluted | 1,339,300 | 207,806 | 955,292 | 200,547 |
For the Nine Months Ended | For the Nine Months Ended | |||||||
September 30, 2013 | September 30, 2012 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (13,783,660 | ) | $ | (1,946,524 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Provision for doubtful accounts | - | (8,174 | ) | |||||
Depreciation | 24,009 | 50,936 | ||||||
Fair value adjustments for warrant liabilities | 2,610,465 | (740,605 | ) | |||||
Stock based compensation | 7,402,485 | 40,350 | ||||||
Amortization of patent portfolio | 133,785 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | 60,023 | 316,041 | ||||||
Accounts receivable | - | 103,746 | ||||||
Other receivables | 3,425 | - | ||||||
Accounts payable, accrued expenses and accrued salaries and benefits | (171,396 | ) | (151,994 | ) | ||||
Deferred payables | (73 | ) | 5,206 | |||||
Net cash used in continuing operations | (3,720,937 | ) | (2,331,018 | ) | ||||
Net cash provided by discontinued operations | 81,776 | 17,636 | ||||||
Net cash used in operating activities | (3,639,161 | ) | (2,313,382 | ) | ||||
Cash flows from investing activities | ||||||||
Cash acquired in acquisition of North South | 2,684,363 | - | ||||||
Purchase of property and equipment | - | (1,599 | ) | |||||
Purchase of patent portfolio | (2,001,696 | ) | - | |||||
Net cash provided by (used in) investing activities | 682,667 | (1,599 | ) | |||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of note payable | 500,000 | - | ||||||
Proceeds received from issuance of preferred stock | 500,000 | 1,055,353 | ||||||
Reverse stock split fractional share payment | - | (1,685 | ) | |||||
Net cash provided by financing activiites | 1,000,000 | 1,053,668 | ||||||
Net decrease in cash | (1,956,494 | ) | (1,261,313 | ) | ||||
Cash at beginning of period | 4,498,237 | 4,911,350 | ||||||
Cash at end of period | $ | 2,541,743 | $ | 3,650,037 | ||||
Supplemental disclosure of cash flow information | ||||||||
Interest paid | $ | - | $ | - | ||||
Income taxes paid | $ | - | $ | - | ||||
Supplemental disclosure of non cash activity | ||||||||
Issuance of Convertible Preferred Stock - Series C in connection with exchange of warrants | $ | 5,695,935 | $ | - | ||||
Conversion of Convertible Preferred Stock - Series C into common stock | $ | 23 | $ | - | ||||
Issuance of common stock in connection with cashless exercise of warrants | $ | 1 | $ | - | ||||
Issuance of common stock in connection with acquisition of patent portfolio | $ | 1,000,000 | $ | - | ||||
Accrued patent costs | $ | 1,000,000 | $ | - | ||||
Acquisition of North South Holdings: | ||||||||
Prepaid expenses | $ | (14,503 | ) | $ | - | |||
Patent portfolio | (1,100,000 | ) | - | |||||
Goodwill | (1,711,883 | ) | - | |||||
Common and preferred stock issued | 5,510,749 | - | ||||||
Cash acquired in acquisition of North South | $ | 2,684,363 | $ | - |
For the Years Ending December 31 | Harris Patent Portfolio | CompuFill Patent Portfolio | Rockstar Patent Portfolio | Other Costs | Total Amortization | |||||||||||||||||
2013 | * | $ | 11,765 | $ | 10,294 | $ | 247,001 | $ | 10,344 | $ | 279,404 | |||||||||||
2014 | 47,059 | 41,176 | 795,348 | 41,376 | 924,959 | |||||||||||||||||
2015 | 47,059 | 41,176 | 672,310 | 41,376 | 801,921 | |||||||||||||||||
2016 | 47,059 | 41,176 | 672,310 | 41,376 | 801,921 | |||||||||||||||||
2017 | 47,059 | 41,176 | 433,918 | 41,376 | 563,529 | |||||||||||||||||
Thereafter | 196,077 | 171,571 | 1,056,112 | 172,417 | 1,596,177 | |||||||||||||||||
Total | $ | 396,078 | $ | 346,569 | $ | 3,876,999 | $ | 348,265 | $ | 4,967,911 |
September 30, 2013 | September 30, 2012 | |||||||
Convertible preferred stock | 13,796,852 | 4 | ||||||
Warrants to purchase common stock | 66,062 | 67,637 | ||||||
Non-vested restricted stock awards | 250 | - | ||||||
Options to purchase common stock | 2,012,163 | 2,425 | ||||||
Total | 15,875,327 | 70,066 |
Purchase Consideration: | ||||
Value of common stock and convertible preferred stock issued to sellers | $ | 5,510,749 | ||
Tangible assets acquired: | ||||
Cash | 2,684,363 | |||
Prepaid expenses | 14,503 | |||
Net tangible assets acquired | 2,698,866 | |||
Purchase consideration in excess of fair value of net tangible assets | 2,811,883 | |||
Allocated to: | ||||
Patent portfolios | 1,100,000 | |||
Goodwill | 1,711,883 | |||
$ | - |
For the nine months ended September 30, 2013 | For the nine months ended September 30, 2012 | For the three months ended September 30, 2013 | For the three months ended September 30, 2012 | |||||||||||||
Revenues | $ | 101,811 | $ | 16,710 | $ | 95,837 | $ | 16,710 | ||||||||
Net loss | $ | (14,214,571 | ) | $ | (1,720,160 | ) | $ | (9,421,574 | ) | $ | (606,755 | ) | ||||
Loss per share- basic and diluted | $ | (6.84 | ) | $ | (1.23 | ) | $ | (4.08 | ) | $ | (0.43 | ) |
Preferred Stock | Number of Shares Issued | Par Value | Conversion to Common Stock | |||||||||
Series “A" (1) | 0 | $ | .0001 | N/A | ||||||||
Series “B" (2) | 1 | $ | .0001 | 1:1 | ||||||||
Series “C" (3) | 1 | $ | .0001 | 1:1 | ||||||||
Series “D” (4) | 1,379,685 | $ | .0001 | 10:1 | ||||||||
Series “E” (5) | 0 | $ | .0001 | 1:1 |
Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
Outstanding at December 31, 2012 | 7,163 | $ | 22.34 | 4.4 | ||||||||||||
Granted | 2,005,500 | $ | 7.08 | 9.5 | ||||||||||||
Exercised | - | $ | - | |||||||||||||
Expired or forfeited | (500 | ) | $ | (25.00 | ) | |||||||||||
Outstanding at September 30, 2013 | 2,012,163 | $ | 7.13 | 9.5 | $ | 1,724,730 | ||||||||||
Options exercisable at September 30, 2013 | 36,663 | $ | 7.43 | 9.5 | $ | 25,800 |
Number of Units | Weighted Average Grant Date Fair Value | ||||
Nonvested at January 1, 2013 | 122,500 | $6.83 | |||
Granted | - | ||||
Vested | (120,250) | ($6.80) | |||
Forfeited | (2,000) | ($6.83) | |||
Nonvested at September 30, 2013 | 250 | $6.83 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Stock Options with: | ||||||||||||||||
Service conditions only | $ | 4,716,070 | $ | - | $ | 4,718,214 | $ | 40,000 | ||||||||
Combined market and service conditions | 306,250 | - | 306,250 | - | ||||||||||||
Combined market and performance conditions | 1,555,535 | - | 1,555,535 | - | ||||||||||||
Restricted stock | 816,000 | - | 822,486 | - | ||||||||||||
$ | 7,393,855 | $ | - | $ | 7,402,485 | $ | 40,000 |
Fair value measurements at September 30, 2013 using | |||||||||||||||||
September 30, 2013 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
Liabilities: | |||||||||||||||||
Fair value of warrant liabilities | $ | 39,923 | – | – | $ | 39,923 |
Fair value measurements at December 31, 2012 using | ||||||||||||||||
December 31, 2012 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
Liabilities: | ||||||||||||||||
Fair value of warrant liabilities | $ | 3,125,393 | – | – | $ | 3,125,393 |
September 30, | December 31, | |||||||
2013 | 2012 | |||||||
Warrants: | ||||||||
Risk-free interest rate | 0.04% - 1.42 | % | 0.16% - 0.72 | % | ||||
Expected volatility | 55.12%-72.94 | % | 91.79% - 146.03 | % | ||||
Expected life (in years) | 0.1-3.3 | 0.8 - 4.9 | ||||||
Expected dividend yield | - | - | ||||||
Number of warrants | 66,062 | 550,664 | ||||||
Fair value | $ | 39,923 | $ | 3,125,393 |
2013 | 2012 | |||||||
Beginning balance | $ | 3,125,393 | $ | 916,621 | ||||
Issuance of new warrants | - | 214,288 | ||||||
Fair value adjustments for | ||||||||
warrant liabilities | 2,610,465 | (740,605 | ) | |||||
Reclassification to | ||||||||
stockholders’ equity | (5,695,935 | ) | - | |||||
Ending balance | $ | 39,923 | $ | 390,304 |
Operating | ||||
Year Ending December 31, | Leases | |||
2013 | $ | 44,819 | ||
2014 | 176,014 | |||
2015 | 165,427 | |||
2016 | 170,390 | |||
2017 | 175,502 | |||
2018 | 44,197 | |||
$ | 776,349 |
June 30, | ||||||||
ASSETS | 2013 | December 31, | ||||||
(Unaudited) | 2012 | |||||||
Current assets: | ||||||||
Cash | $ | 1,630,166 | $ | 549,047 | ||||
Accounts receivable | 94,000 | - | ||||||
Prepaid expenses | 29,425 | - | ||||||
Total current assets | 1,753,591 | 549,047 | ||||||
Other assets: | ||||||||
Patent portfolio, net | 792,370 | 415,000 | ||||||
Investment in Spherix Corp. | 500,000 | - | ||||||
Total other assets | 1,292,370 | 415,000 | ||||||
Total assets | $ | 3,045,961 | $ | 964,047 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 24,000 | $ | - | ||||
Patent settlement and inventor royalty payables | 47,648 | - | ||||||
Total current liabilities | 71,648 | - | ||||||
Commitments and Contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, par value $ 0.0001 per share; 1,000 shares authorized; Series A Convertible Preferred Stock; 500 shares, issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
Series B Convertible Preferred Stock; 128 and no shares, issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
Common Stock, par value $0.0001 per share; 75,000 shares authorized, 500 shares issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
Additional paid in capital | 3,234,880 | 1,000,000 | ||||||
Deficit accumulated during the development stage | (260,567 | ) | (35,953 | ) | ||||
Total stockholders' equity | 2,974,313 | 964,047 | ||||||
Total liabilities and stockholders' equity | $ | 3,045,961 | $ | 964,047 |
For the | For the | |||||||||||
Period from | Period from | |||||||||||
For the Six Months | November 9, 2012 through | November 9, 2012through | ||||||||||
June 30, 2013 | December 31, | June 30, 2013 | ||||||||||
(Unaudited) | 2012 | (Unaudited) | ||||||||||
Revenue | $ | 94,000 | $ | - | $ | 94,000 | ||||||
Operating cost and expenses | ||||||||||||
Cost of revenues | ||||||||||||
Legal settlement and maintenance fees | 125,347 | - | 125,347 | |||||||||
Inventor royalty fees | 30,208 | - | 30,208 | |||||||||
Amortization of patents | 34,514 | - | 34,514 | |||||||||
Director's fees | 35,460 | 5,100 | 40,560 | |||||||||
Legal fees | 27,743 | 30,853 | 58,596 | |||||||||
Professional fees | 55,480 | - | 55,480 | |||||||||
Other fees and expenses | 9,862 | - | 9,862 | |||||||||
Total operating expenses | 318,614 | 35,953 | 354,567 | |||||||||
Net loss | $ | (224,614 | ) | $ | (35,953 | ) | $ | (260,567 | ) |
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Deficit Accumulated | |||||||||||||||||||||||||||||||||
Additional Paid | During the Development | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Stage | Total | ||||||||||||||||||||||||||||
Balance at November 9, 2012 | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||
Issuance of shares to founders in exchange for intial capital contributions (500 shares of common stock at $0.0001 per share and 500 shares of convertible preferred stock at $2,000 per share) | 500 | - | - | - | 500 | - | 1,000,000 | - | 1,000,000 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (35,953 | ) | (35,953 | ) | |||||||||||||||||||||||||
Balance at December 31, 2012 | 500 | - | - | - | 500 | - | 1,000,000 | (35,953 | ) | 964,047 | ||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock (unaudited) | - | - | 128 | - | - | - | 2,234,880 | - | 2,234,880 | |||||||||||||||||||||||||||
Net loss (unaudited) | - | - | - | - | - | - | - | (224,614 | ) | (224,614 | ) | |||||||||||||||||||||||||
Balance at June 30, 2013 (Unaudited) | 500 | $ | - | 128 | $ | - | 500 | $ | - | $ | 3,234,880 | $ | (260,567 | ) | $ | 2,974,313 |
For the Period from | For the Period from | |||||||||||
For the Six Months | November 9, 2012 through | November 9, 2012 through | ||||||||||
June 30, 2013 (Unaudited) | December 31, 2012 | June 30, 2013 (Unaudited) | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (224,614 | ) | $ | (35,953 | ) | $ | (260,567 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Amortization | 34,514 | - | 34,514 | |||||||||
Changes in assets and liabilities which used cash: | ||||||||||||
Changes in accounts receivable | (94,000 | ) | - | (94,000 | ) | |||||||
Changes in prepaid expenses | (29,425 | ) | - | (29,425 | ) | |||||||
Changes in accrued expenses | 71,648 | - | 71,648 | |||||||||
Net cash used in operating activities | (241,877 | ) | (35,953 | ) | (277,830 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of patent portfolios | (411,884 | ) | (415,000 | ) | (826,884 | ) | ||||||
Investment in Spherix Corp. | (500,000 | ) | - | (500,000 | ) | |||||||
Net cash used in investing activities | (911,884 | ) | (415,000 | ) | (1,326,884 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Issuance of shares to founders in exchange for initial capital contributions | - | 1,000,000 | 1,000,000 | |||||||||
Issuance of Series B convertible preferred stock | 2,234,880 | - | 2,234,880 | |||||||||
Net cash provided by financing activities | 2,234,880 | 1,000,000 | 3,234,880 | |||||||||
Net increase in cash | 1,081,119 | 549,047 | 1,630,166 | |||||||||
Cash, beginning of period | 549,047 | - | - | |||||||||
Cash, end of period | $ | 1,630,166 | $ | 549,047 | $ | 1,630,166 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | $ | - | $ | - | $ | - | ||||||
Income taxes | $ | - | $ | - | $ | - |
For the Years Ending December 31 | Harris Patent Portfolio | CompuFill Patent Portfolio | Other Costs | Total Amortization | ||||||||||||||
2013 | * | 23,529 | 20,588 | 4,523 | 48,640 | |||||||||||||
2014 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
2015 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
2016 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
2017 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
Thereafter | 164,706 | 156,130 | 33,774 | 354,610 | ||||||||||||||
Total | 376,471 | 341,422 | 74,477 | 792,370 |
NASDAQ listing and filing fees | ||||
Miscellaneous expenses | ||||
Total offering expenses (other than underwriting commissions) |
*To be completed by amendment.
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Deferred tax assets: | ||||
Net operating loss carryforward | $ | 2,200 | ||
Deferred start-up and organizational expenses | 11,822 | |||
Valuation allowance | (14,022) | |||
Net deferred tax asset | $ | – |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND CONTINGENCIES
SEC registration fee | $ | 2,559.45 | ||
Transfer agent’s fees and expenses | $ | 2,000 | * | |
Legal fees and expenses | $ | 15,000 | * | |
Printing fees and expenses | $ | 2,500 | * | |
Accounting fees and expenses | $ | 100,000 | * | |
Miscellaneous fees and expenses | $ | 1,000 | * | |
Total | $ | 123,059.45 | * |
Section 145 of the General Corporation Law of the State of DelawareDCGL provides, in general, that a corporation incorporated under the laws of the State of Delaware, as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably entitled to indemnity for such expenses.
Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the General Corporation Law of the State of Delaware,DCGL, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.
We have entered into indemnification agreements with all of our executive officers and directors. These agreements provide, subject to limited exceptions and among other things, for the indemnification to the fullest extent permitted or required by Delaware law, provided however, that no director or officer shall be entitled to indemnification in connection with (i) any “claim” (as such term is defined in the agreement) initiated by him or her against the Company or the Company’s directors or officers unless the Company joins or consent to the initiation of such claim, or (ii) the purchase and sale of securities by him or her in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended. Our indemnification agreements also provide for the advancement of expenses (including attorneys’ fees) incurred by the indemnitee in connection with any action, suit, or proceeding (subject to the terms and conditions set forth therein). The indemnification agreements contain certain exclusions, including proceedings initiated by the indemnitee unless the Company has joined in or consented to the initiation of such claim.
We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the General Corporation LawDCGL would permit indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act:
On June 15, 2015, the Company entered into a consulting agreement with a third party for three months of investor relations services. The Company agreed to pay the consultant a monthly fee of $5,000 for three months commencing on June 15, 2015, and granted 45,000 shares of restricted stock valued at $27,000 in the aggregate. The restricted stock awards vest monthly for each of the State of Delaware would permit indemnification.
On November 26, 2013, weJune 10, 2015, the Company entered into separate Amendment and Exchange Agreementsa consulting agreement with the holdersa third party for three months of our outstanding shares of Series F Preferred Stock pursuant to which such holdersinvestor relations services. The Company has agreed to return their sharespay the consultant a monthly fee of Series F Preferred Stock to us for cancellation$10,000, payable in consideration for which we issued such holder an equal number of shares of Series F-1 Preferred Stock. Each share of Series F-1 Preferred Stock is entitled to 91% of one vote per share (subject to beneficial ownership limitations described below) and shall vote together with holders of our common stock. Each share of Series F-1 Preferred Stock is convertible into one share of our common stock and has a stated value of $0.0001. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We are prohibited from effecting the conversion of the Series F-1 Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversionfor each month of the Series F-1 Preferred Stock.
Each of the above were sold and issued to “accredited investors,” as such term is definedissuances was made in reliance on exemptions under Section 4(a)(2) under the Securities Act of 1933, as amended, and the Company received no proceeds from these issuances.
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On March 26, 2014, Spherix Incorporated (the "Company") sold an aggregate of $4,446,081 of its securities in a private offering made solely to accredited investors (the “Investors”) (the “Offering”) pursuant to Subscription Agreements, dated as of March 26, 2014 (the “Subscription Agreement”). Pursuant to the Offering, Investors purchased (i) 1,185,614shares (the “Shares”) of common stock, par value $0.0001 per share, of the Company (“Common Stock”) and (ii) five year warrants to purchase an aggregate of 592,794 shares of common stock of the Company, at an exercise price of $6.15 per share (the “Warrants”). The Warrants are exercisable on the six month anniversary of the date of issuance by payment to the Company of the exercise price of $6.15 per share, or if a registration statement covering the common stock underlying the Warrants is not then in effect, on a cashless basis. Each Warrant may be callable at $0.01 per Warrant upon the consummation of a Company financing with a per share offering price of at least $8.00 and net proceeds to the Company from such offering of at least $15 million.
The Shares and Warrants described were offered and sold solely to “accredited investors” in reliance on the exemption from registration afforded by Rule 506 of Regulation D and Section 4(a)(2) and Regulation D (Rule 506) underof the Securities ActAct. In connection with the sale of 1933,the securities, the Company relied on the Investors' written representations as amended,to its status as an "accredited investor" as defined in Rule 501(a) of Regulation D. In addition, neither the Company nor anyone acting on its behalf has offered or sold these securities by any form of general solicitation or general advertising.
On April 17, 2014, the Company filed a registration statement with the SEC to register the resale of all shares and corresponding provisions of state securities laws.
Laidlaw & Company (UK) Ltd., a FINRA registered broker was utilizeddealer, acted as placement agent in connection with the sale. Each shareOffering on a best-efforts basis and received a cash fee of Series F Preferred Stock is entitled to one vote per share (subject to beneficial ownership limitation)$444,608, plus a non-accountable expense allowance of $88,922, and shall vote together with holders of our common stock. We are prohibited from effecting the conversion of the Series F Preferred Stock to the extent that, aswas issued a result of such conversion, the holder will beneficially own more than 9.99% in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F Preferred Stock.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits.The exhibits to the |
(b) | Financial Statements.Financial statement schedules have been omitted, as the |
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ITEM 17. Undertakings
The undersigned registrant hereby undertakes:
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: |
(i) | To include any prospectus required by Section 10(a)(3) of the Securities |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration |
provided, however, that paragraphs (1)(i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof; |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; |
(4) | That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of thesuch securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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SIGNATURES
For the purpose of determining liability under the Securities ActPursuant to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
SPHERIX INCORPORATED | |||
By: | /s/ Anthony Hayes | ||
Anthony Hayes | |||
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates stated.
Date | ||||
/s/ | ||||
Director and Chairman of the Board | ||||
July 3, 2017 | ||||
Robert J. Vander Zanden | ||||
Director | ||||
Tim S. Ledwick | ||||
* | Director | July 3, 2017 | ||
Eric Weisblum |
*By: | /s/ Anthony Hayes | |
Anthony Hayes | ||
Attorney-in-Fact |
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INDEX TO EXHIBITS
Exhibit No. | Description | |
1.1† | Underwriting Agreement | |
1.2 | Placement Agency Agreement, dated July 15, 2015, between Spherix Incorporated and Chardan Capital Markets LLC (incorporated by reference to Form 8-K filed July 17, 2015) | |
3.1 | Amended and Restated Certificate of Incorporation of Spherix Incorporated, dated April 24, 2014 (incorporated by reference to Form 8-K filed April 25, 2014) | |
3.2 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Spherix Incorporated, dated March 2, 2016 (incorporated by reference to Form 8-K filed March 18, 2016) | |
3.2 | Amended and Restated Bylaws of Spherix Incorporated (incorporated by reference to Form 8-K filed October 15, 2013) | |
3.3 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Spherix Incorporated, effective March 4, 2016 (incorporated by reference to Form 10-K filed March 29, 2016) | |
4.1 | Specimen Certificate for common stock, par value $0.0001 per share, of Spherix Incorporated (incorporated by reference to Form S-3/A filed April 17, 2014) | |
4.2 | Amended and Restated Rights Agreement, dated June 9, 2017, by and between Spherix Incorporated and Transfer Online Inc. (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 9, 2017) | |
4.3 | Certificate of Designation of Preferences, Rights and Limitations of Series J Convertible Preferred Stock (incorporated by reference to Form 8-K/A filed on June 2, 2014) | |
4.4 | Certificate of Designation of Preferences, Rights and Limitations of Series K Convertible Preferred Stock (incorporated by reference to Form 8-K filed on December 3, 2015) |
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4.5 | Form of Warrant (incorporated by reference to Form 8-K filed on March 26, 2014) | |
4.6 | Form of Placement Agent Warrant (incorporated by reference to Form 8-K filed on March 26, 2014) | |
4.7 | Form of Common Stock Purchase Warrant (incorporated by reference to Form 8-K filed July 17, 2015) | |
4.8 | Form of Warrant (incorporated by reference to Form 8-K filed December 3, 2015) | |
5.1† | Opinion of EGS | |
10.1 | 2012 Equity Incentive Plan (incorporated by reference from the Company’s Information Statement on Form DEF 14c filed November 26, 2012) | |
10.2 | Warrant Exchange Agreement dated March 1, 2013 between the Company and certain investors (incorporated by reference to Form 8-K filed March 7, 2013) | |
10.3 | Agreement and Plan of Merger dated April 2, 2013 (incorporated by reference to the Form 8-K filed on April 4, 2013) | |
10.4 | First Amendment to Agreement and Plan of Merger dated August 30, 2013 (incorporated by reference to the Form 8-K filed on September 4, 2013) | |
10.5 | Spherix Incorporated 2013 Equity Incentive Plan (incorporated by reference to the Form 8-K filed on April 4, 2013) | |
10.6 | Spherix Incorporated 2014 Equity Incentive Plan (incorporated by reference from the Company’s Proxy Statement on Form DEF 14A filed December 20, 2013) | |
10.7 | Amendment to Spherix Incorporated 2014 Equity Incentive Plan (incorporated by reference from the Company’s Proxy Statement on Form DEF 14A filed March 28, 2014) |
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10.8 | Form of Indemnification Agreement (incorporated by reference to the Form 8-K filed on September 10, 2013) | |
10.9 | Employment Agreement between Spherix Incorporated and Anthony Hayes (incorporated by reference to the Form 8-K filed on September 13, 2013) | |
10.10 | Indemnification Agreement between Spherix Incorporated and Alexander Poltorak (incorporated by reference to the Form 8-K filed on October 29, 2013) | |
10.11 | Indemnification Agreement between Spherix Incorporated and Richard Cohen (incorporated by reference to the Form 8-K filed on January 9, 2014) | |
10.12 | Indemnification Agreement between Spherix Incorporated and Jeffrey Ballabon (incorporated by reference to the Form 8-K filed on June 13, 2014) | |
10.13** | Patent Purchase Agreement between Spherix Incorporated and Rockstar Consortium US LP, including Amendment No. 1 thereto (incorporated by reference to the Form 8-K/A filed on November 19, 2013) | |
10.14 | Form of Series F Exchange Agreement (incorporated by reference to the Form 8-K filed on November 26, 2013) | |
10.15 | Form of Series D Exchange Agreement (incorporated by reference to the Form 8-K filed on December 30, 2013) | |
10.16 | Confidential Patent Purchase Agreement dated December 31, 2013 between Spherix Incorporated and Rockstar Consortium US LP (incorporated by reference to the Form S-1/A filed January 21, 2014) | |
10.17 | Form of Subscription Agreement (incorporated by reference to the Form 8-K filed March 26, 2014) |
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10.18 | Form of Registration Rights Agreement (incorporated by reference to the Form 8-K filed March 26, 2014) | |
10.19 | Form of Subscription Agreement (incorporated by reference to the Form 8-K filed on May 29, 2014) | |
10.20 | Letter of Agreement, dated January 6, 2014, between Spherix Incorporated and Chord Advisors, LLC (incorporated by reference to the Form 10-K filed on March 30, 2015) | |
10.21 | Letter of Agreement, dated April 11, 2014, between Spherix Incorporated and Chord Advisors, LLC (incorporated by reference to the Form 10-K filed on March 30, 2015) | |
10.22 | Securities Purchase Agreement, dated July 15, 2015, between Spherix Incorporated and the purchasers party thereto (incorporated by reference to Form 8-K filed July 17, 2015) | |
10.23 | Employment Agreement, dated as of March 14, 2014, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 10-K filed March 29, 2016) | |
10.24 | Amendment to Employment Agreement, dated as of June 30, 2015, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 10-K filed March 29, 2016) | |
10.25 | Consulting Services Agreement, dated as of August 10, 2015, between Spherix Incorporated and Howard E. Goldberg d/b/a Forward Vision Associates (incorporated by reference to Form 8-K filed August 19, 2015) | |
10.26 | Settlement and License Agreement, dated October 13, 2015, between Spherix Incorporated and Huawei Technologies Co., Ltd. (incorporated by reference to Form 10-K filed March 29, 2016) | |
10.27 | Patent License Agreement, dated as of November 23, 2015, between Spherix Incorporated and RPX Corporation (incorporated by reference to Form 8-K filed November 30, 2015 | |
10.28 | Securities Purchase Agreement, dated as of December 2, 2015, between Spherix Incorporated and the investors party thereto (incorporated by reference to Form 8-K filed December 3, 2015) |
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10.29 | Engagement Agreement, dated September 16, 2015, as amended, between Spherix Incorporated and H.C. Wainwright & Co., LLC (incorporated by reference to Form 8-K filed December 3, 2015) | |
10.30 | Employment Agreement, effective as of April 1, 2016, between Spherix Incorporated and Anthony Hayes (incorporated by reference to Form 8-K filed May 26, 2016) | |
10.31 | Separation Agreement and Release, dated March 10, 2017, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 8-K filed March 15, 2017) | |
10.32 | Patent License Agreement, dated as of May 23, 2016, between Spherix Incorporated and RPX Corporation (incorporated by reference to Form 10-Q filed August 15, 2016) | |
10.33 | Technology Monetization Agreement, dated as of March 11, 2016, and amended as of April 22, 2016, April 27, 2016 and May 22, 2016, between Spherix Incorporated and Equitable IP Corporation (incorporated by reference to Form 8-K filed August 2, 2016) | |
10.34 | Underwriting Agreement, dated as of August 2, 2016, by and among Spherix Incorporated and the underwriters named on Schedule I thereto (incorporated by reference to Form 8-K filed August 3, 2016) | |
10.35 | Assignment and Assumption of Rights Agreement, dated as of June 16, 2016, by and between Spherix Incorporated and Transfer Online, Inc. (incorporated by reference to Form 8-K filed June 21, 2016) | |
10.36 | Securities Purchase Agreement, dated as of June 30, 2017, by and between Spherix Incorporated and Hoth Therapeutics, Inc. (incorporated by reference to Form 8-K filed July 3, 2017) | |
10.37 | Registration Rights Agreement, dated as of June 30, 2017, by and between Spherix Incorporated and Hoth Therapeutics, Inc. (incorporated by reference to Form 8-K filed July 3, 2017) | |
10.38 | Form of Shareholders Agreement, dated as of June 30, 2017(incorporated by reference to Form 8-K filed July 3, 2017) | |
21.1 | List of Subsidiaries (incorporated by reference to 10-K filed on March 31, 2017) | |
23.1* | Consent of Marcum LLP, independent registered public accounting firm | |
23.4 | Power of Attorney (included on signature page) (Incorporated by reference to Registrant’s Registration Statement on Form S-1 filed with the Commission on May 24, 2017) |
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* Filed herewith.
** Pursuant to a Confidential Treatment Request under Rule 24b-2 filed with and approved by the SEC, portions of this exhibit have been omitted
†To be filed by amendment.
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