UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2002. |
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission file number 0-5576
SPHERIX INCORPORATED
(formerly Biospherics Incorporated)
(Exact name of Registrant as specified in its charter)
Delaware |
| 52-0849320 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
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12051 Indian Creek Court, Beltsville, Maryland 20705 | ||
(Address of principal executive offices) | ||
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301-419-3900 | ||
(Registrant’s telephone number, including area code) | ||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practicable date.
Class |
| Outstanding as of October 25, 2002 |
Common Stock $0.005 par value |
| 11,330,432 |
Transitional Small Business Disclosure Format (Check One): Yes ¨ No ý
Spherix Incorporated
Form 10-Q
For the Quarter Ended September 30, 2002
Index
2
(Unaudited)
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| 2002 |
| 2001 |
| 2002 |
| 2001 |
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Revenue |
| $ | 4,832,470 |
| $ | 6,794,926 |
| $ | 12,125,147 |
| $ | 16,853,031 |
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Operating expense |
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Direct contract and operating costs |
| 3,144,485 |
| 3,812,624 |
| 8,776,566 |
| 10,916,634 |
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Selling, general and administrative expense |
| 882,307 |
| 1,063,203 |
| 2,844,819 |
| 3,120,539 |
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Research and development expense |
| 293,973 |
| 122,288 |
| 665,903 |
| 294,960 |
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Depreciation and amortization expense |
| 398,172 |
| 365,797 |
| 1,177,050 |
| 1,050,420 |
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Total operating expense |
| 4,718,937 |
| 5,363,912 |
| 13,464,338 |
| 15,382,553 |
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Income (loss) from operations |
| 113,533 |
| 1,431,014 |
| (1,339,191 | ) | 1,470,478 |
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Interest income (expense), net |
| 23,563 |
| 5,621 |
| 65,857 |
| 98,368 |
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Income (loss) before taxes |
| 137,096 |
| 1,436,635 |
| (1,273,334 | ) | 1,568,846 |
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Income tax expense |
| — |
| — |
| — |
| — |
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Net income (loss) |
| $ | 137,096 |
| $ | 1,436,635 |
| $ | (1,273,334 | ) | $ | 1,568,846 |
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Net income (loss) per share, basic |
| $ | 0.01 |
| $ | 0.13 |
| $ | (0.11 | ) | $ | 0.15 |
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Net income (loss) per share, diluted |
| $ | 0.01 |
| $ | 0.13 |
| $ | (0.11 | ) | $ | 0.14 |
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Weighted average shares outstanding, basic |
| 11,334,044 |
| 10,736,041 |
| 11,195,950 |
| 10,735,974 |
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Weighted average shares outstanding, diluted |
| 11,346,502 |
| 11,217,714 |
| 11,195,950 |
| 11,036,722 |
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See accompanying notes to financial statements.
3
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| Sept. 30, 2002 |
| December 31, 2001 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
| $ | 8,621,180 |
| $ | 6,582,203 |
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Trade accounts receivable, net of allowance for doubtful accounts of $68,000 and $35,000 |
| 2,494,143 |
| 1,521,241 |
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Other receivables |
| 10,155 |
| 71,914 |
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Prepaid expenses and other assets |
| 807,078 |
| 675,979 |
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Total current assets |
| 11,932,556 |
| 8,851,337 |
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Property and equipment, net of accumulated depreciation of $5,054,054 and $4,305,381 |
| 3,719,340 |
| 4,163,224 |
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Patents and other intangible assets, net of accumulated amortization of $161,614 and $139,968 |
| 217,153 |
| 226,367 |
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Total assets |
| $ | 15,869,049 |
| $ | 13,240,928 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Bank line of credit |
| $ | 103,696 |
| $ | 212,856 |
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Accounts payable and accrued expenses |
| 923,021 |
| 339,546 |
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Accrued salaries and benefits |
| 659,903 |
| 1,076,568 |
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Notes payable |
| — |
| 38,595 |
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Capital lease obligations |
| 28,600 |
| 44,576 |
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Total current liabilities |
| 1,715,220 |
| 1,712,141 |
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Capital lease obligations |
| 70,361 |
| 21,019 |
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Deferred compensation |
| 122,155 |
| 122,155 |
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Deferred rent |
| 210,308 |
| 194,493 |
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Deferred revenue |
| 1,000,000 |
| 1,000,000 |
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Total liabilities |
| 3,118,044 |
| 3,049,808 |
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Commitments and contingencies |
| — |
| — |
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Redeemable common stock, 0 and 2,761,507 shares |
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| 668,190 |
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Stockholders’ equity |
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Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued and outstanding |
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Common stock, $.005 par value, 50,000,000 shares authorized; 11,390,670 and 10,790,170 issued, 11,329,182 and 10,737.568 shares outstanding, of which 0 and 2,761,507 shares are classified as redeemable common stock at September 30, 2002, and December 31, 2001, respectively |
| 56,953 |
| 40,143 |
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Paid-in capital in excess of par value |
| 18,747,816 |
| 14,222,739 |
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Treasury stock, 61,488 and 52,602 shares at cost, at September 30, 2002 and December 31, 2001, respectively |
| (390,575 | ) | (350,097 | ) | ||
Accumulated deficit |
| (5,663,189 | ) | (4,389,855 | ) | ||
Total stockholders’ equity |
| 12,751,005 |
| 9,522,930 |
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Total liabilities and stockholders’ equity |
| $ | 15,869,049 |
| $ | 13,240,928 |
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See accompanying notes to financial statements.
4
(Unaudited)
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| Nine Months Ended September 30, |
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| 2002 |
| 2001 |
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Cash flows from operating activities |
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Net (loss) income |
| $ | (1,273,334 | ) | $ | 1,568,846 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
| 1,177,050 |
| 1,050,421 |
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Loss on disposal of assets |
| 28,160 |
| 5,948 |
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Treasury stock issued in payment of expense |
| 22,730 |
| 748 |
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Changes in assets and liabilities: |
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Trade accounts receivable |
| (972,902 | ) | (2,549,926 | ) | ||
Other receivables |
| 61,759 |
| 2,070 |
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Prepaid expenses and other assets |
| (131,099 | ) | (116,252 | ) | ||
Accounts payable and accrued expenses |
| (224,898 | ) | 163,045 |
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Deferred rent |
| 15,815 |
| 25,273 |
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Deferred revenue |
| — |
| (81,375 | ) | ||
Net cash (used in) provided by operating activities |
| (1,296,719 | ) | 68,798 |
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Cash flow from investing activities |
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Purchases of property and equipment |
| (667,397 | ) | (947,836 | ) | ||
Additions to patent costs and other intangible assets |
| (12,432 | ) | (81,236 | ) | ||
Net cash used in investing activities |
| (679,829 | ) | (1,029,072 | ) | ||
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Cash flow from financing activities |
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Net change on bank line of credit |
| (109,160 | ) | (12,268 | ) | ||
Net change in book overdraft |
| 391,708 |
| 336,978 |
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Payments on notes payable |
| (38,595 | ) | (179,111 | ) | ||
Payments on capital lease obligations |
| (38,917 | ) | (182,113 | ) | ||
Proceeds from issuance of common stock |
| 3,879,195 |
| 11,709 |
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Cost of purchasing treasury stock |
| (62,712 | ) | (22,975 | ) | ||
Cost of issuance of common stock |
| (5,994 | ) | (10,140 | ) | ||
Net cash provided by (used in) financing activities |
| 4,015,525 |
| (57,920 | ) | ||
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Net increase (decrease) in cash and cash equivalents |
| 2,038,977 |
| (1,018,194 | ) | ||
Cash and cash equivalents, beginning of period |
| 6,582,203 |
| 5,549,866 |
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Cash and cash equivalents, end of period |
| $ | 8,621,180 |
| $ | 4,531,672 |
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See accompanying notes to financial statements.
5
(Unaudited)
1. Basis of Presentation
The accompanying interim financial statements of Spherix Incorporated (formerly Biospherics Incorporated) (the “Company”) do not include all of the information and disclosures generally required for annual financial statements and are unaudited. In the opinion of management, the accompanying unaudited financial statements contain all material adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2002, and the results of its operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and its cash flows for the nine-month periods ended September 30, 2002 and 2001. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
2. Net Income Per Share
Basic net income (loss) per common share has been computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted net income per common share has been computed by dividing net income by the weighted-average number of common shares outstanding with an assumed increase in common shares outstanding for common stock equivalents. Diluted net loss per common share has been computed by dividing net loss by the weighted-average number of common shares outstanding without an assumed increase in common shares outstanding for common stock equivalents, as common stock equivalents are antidilutive. Common stock equivalents, which consist of stock options and warrants that are assumed likely to be exercised, were 29,552 and 300,748 at September 30, 2002 and 2001, respectively. Total options and warrants outstanding at September 30, 2002 and 2001, were 1,085,973 and 1,660,973, respectively.
3. Deferred Revenue
Deferred revenue includes a $1,000,000 non-refundable advance against future royalties from the D-tagatose licensing agreement with MD Foods Ingredients amba of Denmark (“MDFI”) (subsequently merged with Arla to become Arla Foods). The advance will be recognized as revenue at a rate of 50% of annual royalties generated from future sales, now expected to begin mid-2003.
4. Redeemable Common Stock
In August 1978, the Company, with stockholders’ approval, entered into agreements, which were restated on January 15, 1996, with two officer-stockholders (the “Principal Stockholders”) who beneficially own over 23% of the outstanding common stock at December 31, 2001. Under the agreement, upon their deaths, the Company may have been required to redeem from their estates the number of shares of the Company’s stock necessary to pay estate taxes and administrative expenses of the estate, if any, up to $5,000,000. Shares would be redeemed at the then-current market price. On May 15, 2002, the two officer-stockholders voluntarily agreed to forgive this obligation and the amounts previously classified as redeemable common stock have been reclassified as common stock and paid-in capital in excess of par value. Redeemable common stock, as of December 31, 2001, consisted of 2,761,507 shares with a par value of $0.005 per share, respectively. The Company is the beneficiary of an insurance policy on the lives of these individuals, which the Company maintained to provide benefits of $5,000,000 for this agreement. The Company does not intend to renew the policy after this year.
5. Treasury Stock Transactions
During 2001, the Company issued 112 shares of Common Stock previously held in the treasury in payment of expenses. The excess of the purchase price of the treasury stock over the value of the stock on the date of issuance has been charged to retained earnings in the amount of $106.
During 2002, the Company issued 2,914 shares of Common Stock previously held in the treasury in payment of expenses. The excess of the value of the stock on the date of issuance over the purchase price of the treasury stock has been charged to paid-in capital in the amount of $495. The Company also purchased 11,800 shares of its common stock at a total cost of $62,712 to be held in the treasury.
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6. Stockholders Equity
On March 20, 2002, warrants for 250,000 shares of common stock at $6.50 per share and warrants for 325,000 shares of common stock at $6.4005 per share were exercised by an institutional investor.
7. Change in Accounting Presentation
Starting in 2002, indirect costs related to the Company’s Information Technology Division (“ITD”) are included as part of the direct contract and operating costs in the Statement of Operations. These costs were previously reported as part of the Company’s selling, general and administrative expenses. This change reflects the changing role of ITD to that of an emerging profit center for the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is intended to update the information contained in the Company’s Annual Report as filed on Form 10-K for the year ended December 31, 2001, and the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31 and June 30, 2002, and presumes that readers have access to, and will have read, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in such Form 10-K and Forms 10-Q.
Certain statements in this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are identified by the use of forward-looking words or phrases such as “believes,” “expects,” is or are “expected,” “anticipates,” “anticipated,” “should” and words of similar impact. These forward-looking statements are based on the Company’s current expectations. Because forward-looking statements involve risks and uncertainties, the Company’s actual results could differ materially. See the Company’s Form 8-K filing dated March 26, 1999, for a more detailed statement concerning forward-looking statements.
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and assess performance. The Company is managed along two business segments: InfoSpherix and BioSpherix.
Results of Operations for the Three and Nine Months Ended September 30, 2002 and 2001
The Company reported net income of $137,000 ($0.01 per share, diluted) on sales of $4.8 million, and a net loss of $1,273,000 ($0.11 per share, diluted) on sales of $12.1 million for the three months and nine months ended September 30, 2002, respectively, compared to net income of $1,437,000 ($0.13 per share, diluted) on sales of $6.8 million, and net income of $1,569,000 ($0.14 per share, diluted) on sales of $16.9 million for the three months and nine months ended September 30, 2001, respectively.
InfoSpherix
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| Three Months Ended Sept. 30, |
| Nine Months Ended Sept. 30, |
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| 2002 |
| 2001 |
| 2002 |
| 2001 |
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Revenue |
| $ | 4,807,000 |
| $ | 6,789,000 |
| $ | 12,042,000 |
| $ | 16,803,000 |
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Operating expense |
| 4,256,000 |
| 5,161,000 |
| 12,255,000 |
| 14,817,000 |
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Operating income (loss) |
| $ | 551,000 |
| $ | 1,628,000 |
| $ | (213,000 | ) | $ | 1,986,000 |
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InfoSpherix revenue for the three months and nine months ended September 30, 2002, decreased $1,982,000 (29%) and $4,761,000 (28%), respectively, in relation to the same periods in 2001, resulting in operating income of $551,000 and an operating loss of $213,000 for the three-month and nine-month periods ended September 30, 2002, compared to operating income of $1,628,000 and $1,986,000 for the same respective periods in 2001.
On March 30, 2001, the Company received approximately $1.3 million in revenue and recognized related expenses in settlement of a U.S. Department of Labor Administrative Review Board (“ARB”) decision concerning the Company’s liability for wages and fringe benefits under two contracts that the Company was awarded by the General Services Administration (“GSA”), a Federal Government agency. Under the settlement agreement, GSA reimbursed the
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Company $1.3 million for wages and fringe benefits (other related costs are not reimbursable), and the Company agreed to pay retroactive wages and benefits to certain labor categories in accordance with the Service Contract Act. These funds were subsequently disbursed on April 18, 2001, to the affected employees. Accordingly, a substantial portion of the decrease in revenue is attributable to this settlement.
Revenue from commercial contracts for the three months and nine months ended September 30, 2002, decreased by $1,587,000 (90%) and $2,948,000 (90%) in relation to the same periods in 2001. The 2002 loss principally resulted from this reduction in revenue. Commercial contracts are typically for shorter terms than government contracts and that can result in substantial variations in commercial revenues. The prior year operations benefited from a significant short-term pharmaceutical contract, which was conducted in the third quarter of 2001. Commercial contracts are being actively pursued by the Company but the Company’s recent history has been that contracts have been received on a sporadic basis.
Revenue from government reservation contracts are historically greater in the spring and summer when vacation planning is more prevalent.
BioSpherix
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| Three Months Ended Sept. 30, |
| Nine Months Ended Sept. 30, |
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| 2002 |
| 2001 |
| 2002 |
| 2001 |
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Revenue |
| $ | 25,000 |
| $ | 6,000 |
| $ | 83,000 |
| $ | 50,000 |
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Operating expense |
| 463,000 |
| 203,000 |
| 1,209,000 |
| 566,000 |
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Operating loss |
| $ | (438,000 | ) | $ | (197,000 | ) | $ | (1,126,000 | ) | $ | (516,000 | ) |
BioSpherix revenue for the three and nine months ended September 30, 2002, increased $19,000 (317%) and $33,000 (66%), respectively, in relation to the same periods in 2001. Operating loss increased $241,000 (122%) and $610,000 (118%) between years, for the three and nine months ended September 30, 2002, respectively. The increase in revenue is related to sales of FlyCrackerÔ, the Company’s safe-for-humans pesticide. The Company increased its sales effort for FlyCracker in order to launch it nationwide by advertising, extensive travel and employment of additional sales personnel during 2002. The Company continues to receive very positive feedback from FlyCracker users, but a very dry summer nation-wide had a negative effect on the demand for pesticides. While sales of FlyCracker were disappointing, its reception and users’ comments have established its effectiveness on a national scale. With the product now fully developed, the Company is exploring the relative benefits of licensing the product to a company with a prominent reputation and sales record in the agricultural products industry as opposed to continuing sales on its own behalf.
The current year’s operating expense included an increase in R&D costs with respect to NaturloseÔ, the brand name for the non-food uses of tagatose. The expenditures include a pilot plant study to determine scale-up capital and operations costs for the non-food uses of tagatose. In addition, costs were incurred in BioSpherix’s continuing effort to obtain commercial production of Naturlose. Visits to potential sites, procurements of test materials and negotiations with potential joint venture partners and toll producers have added to costs.
The Company initiated an arbitration proceeding in May of this year against its licensee of tagatose for food uses, MD Foods amba (merged into Arla Foods amba), claiming damages and other compensation because of its licensee’s delay in commercializing tagatose. The legal expenses from the arbitration process are included in the operating expenses of BioSpherix.
8
Research and development
For the reasons stated above, research and development expenses for the three months and nine months ended September 30, 2002, increased $172,000 (140%) and $371,000 (126%), respectively, in relation to the same periods in 2001.
Selling, general and administrative
Selling, general and administrative expense (“S,G&A”) for the three months and nine months ended September 30, 2002, decreased $181,000 (17%) and $276,000 (9%), respectively, in relation to the same periods in 2001. This is because in the prior year, selling, general and administrative expenses included approximately $181,000 and $510,000 of indirect ITD costs for the three and nine months ended September 30, 2001. However, starting in 2002, indirect ITD costs are included in direct contract and operating costs.
Depreciation
Depreciation expense for the three months and nine months ended September 30, 2002, increased by $32,000 (9%) and $127,000 (12%), respectively, in relation to the same periods in 2001. The increase reflects the additional depreciation from a significant investment in software in 2001 related to our reservation business, and anticipated growth in the commercial business to increase efficiency and call volume, which is being depreciated over a three-year period.
Interest
Interest income (expense), net, for the three months and nine months ended September 30, 2002, increased $18,000 (319%) and decreased $33,000 (33%), respectively, in relation to the same periods in 2001. The change between periods is a combination of lower interest rates on the Company’s investments in treasury funds and the maturity of several notes and capital leases.
Liquidity and Capital Resources
The Company’s Loan Agreement (the “Agreement”) with Bank of America (the “Bank”) provides for borrowing up to $2 million, subject to advance rates as defined in the Agreement. Outstanding borrowings under the Agreement aggregated $104,000 at September 30, 2002, and are collateralized by the Company’s eligible accounts receivable. The interest rate under the agreement is the Bank’s prime rate. The total amount available to the Company was $2.0 million under the Agreement at September 30, 2002. The Agreement contains covenants that require the Company to meet certain tangible net worth ratios. The Company was in compliance with the bank covenants as of September 30, 2002. The line expires on June 30, 2003, and the Company anticipates that the line will be renewed at that time. However, if the Company is unable to extend the line of credit, the Company believes that it has adequate funds to meet all of its current obligations.
Cash flow for the nine months ended September 30, 2002, reflects a net cash inflow of $2.0 million, consisting of $1.3 million used in operating activities, $680,000 used in investing activities, and $4.0 million provided by financing activities. Cash used in operating activities in 2002 increased $1.4 million from that of the prior year as a result of the decreased InfoSpherix revenue and increased costs related to BioSpherix’s expanded work on FlyCracker and Naturlose. Cash used in investing activities decreased by $300,000. As noted above, a significant investment in computer software was made in September of 2001. Approximately $120,000 of software development costs were capitalized in 2002. Cash flow from financing activities increased $4.1 million between years. In 2002, $3.9 million was received through the issuance of common stock primarily through the exercise of warrants; there were no new issuances of stock in the same period of 2001.
Working capital as of September 30, 2002, was $10.2 million, which represents a $3.1 million, or 44%, increase from working capital of $7.1 million at December 31, 2001. The increase is related to the exercise of warrants during the first quarter of 2002.
The Company is considering the construction of a pilot Naturlose production plant as well as negotiating with potential partners for conversion of a suitable existing plant for production of Naturlose. The Company believes that it
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has sufficient funds to cover its capital needs and maintain existing programs as well as a routine and consistent upgrading of its information and telecommunication systems.
No dividends were paid in 2001 and none are anticipated in 2002.
Trends and Outlooks
Due to the traditional year-end slowdown in the Company’s reservation/tourism business, the Company currently anticipates that it will operate at a loss during the fourth quarter of 2002. The magnitude of the loss will depend in large part on the success of the Company’s efforts to secure additional InfoSpherix Commercial business during this period. The Company has won several new contracts that will begin in the fourth quarter of 2002, including a reservation contract with the Indiana Department of Natural Resources, an information services contract with the U.S. Office of Personnel Management, and a technical consulting services contract with the U.S. Department of Housing and Urban Development, in partnership with Minjoh Technology Solutions.
The Company will increase its focus on and investments in its BioSpherix opportunities. Management and the Board believe that the BioSpherix sector affords the greatest opportunities for increased shareholder value. The Company’s licensee of tagatose for food uses has announced a joint venture for production of tagatose with sales expected to commence by mid 2003. Two major beverage/food companies have filed patent applications and/or obtained patents for use of tagatose in their products. The Company continues to prosecute its arbitration proceeding against the licensee due to delays in the commercialization process. While there can be no guarantee that these actions will result in receipt of damages or sales of tagatose for food use or payment of royalties to the Company, management is optimistic as to long-term commercialization of tagatose for food uses.
Management is similarly optimistic as to the prospects for Naturlose. As noted above, management is considering construction of a pilot plant or entry into appropriate agreements with other parties to secure Naturlose for non-food uses of tagatose.
Based on these factors, the Company will increase its investments in the above-described BioSpherix ventures, concentrating on tagatose and Naturlose, but exploring other BioSpherix opportunities for future development.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company manages its debt and its available cash considering available investment opportunities and risks, tax consequences and overall financing strategies.
At September 30, 2002, the Company did not have any fixed-rate indebtedness and had approximately $104,000 in variable rate indebtedness in the form of the bank line of credit. The Company has not entered into any interest rate swaps or other derivatives with respect to its indebtedness.
Cash available for investment is typically invested in short term treasury funds. In general, such funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. The carrying amounts approximate market value. It is the Company’s practice to hold these investments to maturity.
Assuming the September 30, 2002, variable rate debt and cash available for investment, a one percent change in interest rates would impact net interest income by less than $85,000.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.
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In May 2002, the Company initiated arbitration proceedings against its licensee of tagatose for food uses, MD Foods amba (merged into Arla Foods amba). The arbitration was filed with the American Arbitration Association. The Company is seeking damages for what it claims has been an unreasonably long time for its licensee to bring tagatose to market. The Company also seeks other measures to accelerate the pace toward commercialization of the food uses of tagatose. The action is in the preliminary stages.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer of Spherix Incorporated pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer of Spherix Incorporated pursuant to 18 U.S.C. Section 1350
(b) There were no reports on Form 8-K filed by the Registrant during the three months ended September 30, 2002.
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Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Spherix Incorporated | |
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| (formerly Biospherics Incorporated) | |
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| (Registrant) | |
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Date: | November 12, 2002 |
| By: | /s/ Gilbert V. Levin |
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| Gilbert V. Levin |
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| Chair, Chief Executive Officer, and Treasurer |
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Date: | November 12, 2002 |
| By: | /s/ Richard C. Levin |
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| Richard C. Levin |
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| Chief Financial Officer and Vice President for Administration |
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Certification of
Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
I, Gilbert V. Levin, Chair, Chief Executive Officer, and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Spherix Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| /s/ Gilbert V. Levin |
| Gilbert V. Levin |
| Chair, CEO and Treasurer |
| November 12, 2002 |
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Certification of
Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
I, Richard C. Levin, Chief Financial Officer and VP, Administration, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Spherix Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| /s/ Richard C. Levin |
| Richard C. Levin |
| CFO and VP, Administration |
| November 12, 2002 |
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