Dominari 10K/A 2002 Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark one)

ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2002

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		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 incorporation or organization)			(I.R.S. Employer Identification No.)

12051 Indian Creek Court, Beltsville, Maryland 20705
(Address of principal executive offices)

Registrant’s telephone number, including area code: 301-419-3900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock ($.005 par value per share)

(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the voting stock of the Registrant held by non-affiliates as of June 28, 2002, the last day of the Registrant’s most recently completed second fiscal quarter, based on the closing price of the stock on such date was (for purposes of this determination, only our Directors and Executive Officers have been deemed affiliates):

Common Stock – Par Value $.005 $50,602,554

There were 11,351,057 shares of the Registrant’s Common Stock outstanding as of March 17, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Spherix Incorporated definitive Proxy Statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 not later than 120 days after the end of the fiscal year to which this report relates, are incorporated by reference into Part III of this Form 10-K.

EXPLANATORY NOTE

This Form 10-K/A (Amendment No. 1) is being filed for the purpose of correcting conversion errors incurred during the EDGARization of the Company’s 10-K as filed with the Securities and Exchange Commission on March 26, 2003. The changes correct the number of shares issued as reported on the “Balance Sheet” and in the Paid-in Capital in Excess of Par transactions in the “Statement of Changes in Stockholders’ Equity” so as to agree with the audited financial statements as provided to our shareholders in the 2003 proxy mailing. In all other respects, the Registrant’s Annual Report on Form 10-K remains the same. Item 8 “Financial Statements and Supplementary Data” of Part II is hereby amended and restated in its entirety to read as follows:

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data required by this Item 8 follow.

Index to Financial Statements

Report of Independent Certified Public Accountants

Statements of Operations for the years ended December 31, 2002, 2001, and 2000

Balance Sheets as of December 31, 2002 and 2001

Statements of Changes in Stockholders’ Equity for the years ended December 31, 2002, 2001, and 2000

Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000

Notes to Financial Statements

See accompanying notes to financial statements.

Report of Independent Certified Public Accountants

Board of Directors

Spherix Incorporated

We have audited the accompanying balance sheets of Spherix Incorporated (the “Company”) as of December 31, 2002 and 2001, and the related statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Spherix Incorporated as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Vienna, Virginia

February 10, 2003

See accompanying notes to financial statements.

Spherix Incorporated

Statements of Operations

For the years ended December 31, 2002, 2001, and 2000

	2002			2001		2000

Revenue	$	15,131,855		$	19,937,461	$	17,034,694

Operating expense
Direct contract and operating costs	11,551,010			13,639,601		11,087,899
Selling, general and administrative expense	4,514,509			4,029,222		3,939,702
Research and development expense	475,997			390,156		281,084
Depreciation and amortization expense	1,593,380			1,424,714		1,314,962
Total operating expense	18,134,896			19,483,693		16,623,647

(Loss) income from operations	(3,003,041		)	453,768		411,047

Interest income (expense), net	81,115			114,055		180,023

(Loss) income before taxes	(2,921,926		)	567,823		591,070
Income tax expense	—			—		—

Net (loss) income	$	(2,921,926	)	$	567,823	$	591,070

Net (loss) income per share, basic	$	(0.26	)	$	0.05	$	0.06
Net (loss) income per share, diluted	$	(0.26	)	$	0.05	$	0.06

Weighted average shares outstanding, basic	11,240,998			10,735,812		10,499,628
Weighted average shares outstanding, diluted	11,240,998			11,080,176		10,559,794

See accompanying notes to financial statements.

Spherix Incorporated

Balance Sheets

As of December 31, 2002 and 2001

	2002			2001
ASSETS
Current assets
Cash and cash equivalents	$	8,656,069		$	6,582,203
Trade accounts receivable, net of allowance for doubtful accounts of $71,000 and $35,000	2,169,471			1,521,241
Other receivables	13,344			71,914
Prepaid expenses and other assets	749,227			675,979
Total current assets	11,588,111			8,851,337

Property and equipment, net of accumulated depreciation of $5,252,858 and $4,305,381	3,653,356			4,163,224
Patents, net of accumulated amortization of $168,892 and $139,968	211,673			226,367
Total assets	$	15,453,140		$	13,240,928

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Bank line of credit	$	722,384		$	212,856
Accounts payable and accrued expenses	1,146,846			339,546
Accrued salaries and benefits	800,497			1,076,568
Notes payable	—			38,595
Capital lease obligations	27,220			44,576
Deferred revenue	103,662			—
Total current liabilities	2,800,609			1,712,141

Capital lease obligations	63,310			21,019
Deferred compensation	112,887			122,155
Deferred rent	214,876			194,493
Deferred revenue	1,000,000			1,000,000
Total liabilities	4,191,682			3,049,808

Commitments and contingencies	—			—

Redeemable common stock, 0 and 2,761,507 shares at December 31, 2002 and 2001, respectively	—			668,190

Stockholders’ equity
Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.005 par value, 50,000,000 shares authorized; 11,412,545 and 10,790,170 issued, 11,351,057 and 10,737,568 outstanding, of which 0 and 2,761,507 shares are classified as redeemable common stock at December 31, 2002 and 2001, respectively	57,063			40,143
Paid-in capital in excess of par value	18,906,610			14,222,739
Treasury stock, 61,488 and 52,062 shares, at cost at December 31, 2002 and 2001, respectively	(390,434		)	(350,097		)
Accumulated deficit	(7,311,781		)	(4,389,855		)
Total stockholders’ equity	11,261,458			9,522,930
Total liabilities and stockholders’ equity	$	15,453,140		$	13,240,928

See accompanying notes to financial statements.

Spherix Incorporated

Statements of Changes in Stockholders’ Equity

For the years ended December 31, 2002, 2001 and 2000

					Paid-in Capital in Excess of Par								Retained Earnings (Accumulated Deficit)			Stockholders' Equity
	Common Stock							Treasury Stock
	Shares	Amount						Shares		Amount
Balance, December 31, 1999	9,781,488	$	33,636		$	7,963,339		33,838		$	(219,054	)	$	(5,542,815	)	$		2,235,106

Issuance of common stock
Sale of common stock in private placement	723,982	3,620			4,996,380			—		—			—			5,000,000
Exercise of employee stock options	178,475	892			844,033			—		—			—			844,925
Exercise of stock warrants	100,100	501			519,925			—		—			—			520,426
Cost of stock issuance	—	—			(44,167		)	—		—			—			(44,167			)
Acquisition of treasury stock in connection with option exercises	—	—			—			17,966		(132,499		)	—			(132,499			)
Issuance of treasury stock in payment of expense	—	—			—			(3,090	)	23,577			(5,828		)	17,749
Net reclassification for redeemable common stock	—	(110		)	(131,761		)	—		—			—			(131,871			)
Net income	—	—			—			—		—			591,070			591,070
Balance, December 31, 2000	10,784,045	38,539			14,147,749			48,714		(327,976		)	(4,957,573		)	8,900,739

Issuance of common stock
Exercise of employee stock options	6,125	30			43,296			—		—			—			43,326
Cost of stock issuance	—	—			(10,140		)	—		—			—			(10,140			)
Purchase of treasury stock	—	—			—			4,000		(22,975		)	—			(22,975			)
Issuance of treasury stock in payment of expense	—	—			—			(112	)	854			(105		)	749
Issuance of options	—	—			32,390			—		—			—			32,390
Net reclassification for redeemable common stock	—	1,574			9,444			—		—			—			11,018
Net income	—	—			—			—		—			567,823			567,823
Balance, December 31, 2001	10,790,170	40,143			14,222,739			52,602		(350,097		)	(4,389,855		)	9,522,930

Issuance of common stock
Exercise of employee stock options	47,375	237			311,999			—		—			—			312,236
Exercise of stock warrants	575,000	2,875			3,702,288			—		—			—			3,705,163
Cost of stock issuance	—	—			(5,993		)	—		—			—			(5,993			)
Purchase of treasury stock	—	—			—			11,800		(62,571		)	—			(62,571			)
Stock-based compensation	—	—			20,700			—		—			—			20,700
Issuance of treasury stock in payment of expenses	—	—			495			(2,914	)	22,234			—			22,729
Net reclassification for redeemable common stock	—	13,808			654,382			—		—			—			668,190
Net loss	—	—			—			—		—			(2,921,926		)	(2,921,926			)
Balance, December 31, 2002	11,412,545	$	57,063		$	18,906,610		61,488		$	(390,434	)	$	(7,311,781	)	$	11,261,458

See accompanying notes to financial statements.

Spherix Incorporated

Statements of Cash Flows

For the years ended December 31, 2002, 2001 and 2000

	2002			2001			2000
Cash flows from operating activities
Net (loss) income	$	(2,921,926	)	$	567,823		$	591,070
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	1,593,380			1,424,714			1,314,961
Provision for uncollectible accounts receivable	36,000			(40,000		)	(125,000		)
Loss on disposal or write-down of assets	28,160			5,949			25,484
Treasury stock issued in payment of expenses	22,730			749			17,749
Stock-based compensation	20,700			—			—
Changes in assets and liabilities:
Trade accounts receivable	(684,230		)	640,506			(380,735		)
Other receivables	58,570			148,941			(71,706		)
Prepaid expenses and other assets	(73,248		)	(224,997		)	11,249
Accounts payable and accrued expenses	252,993			(35,629		)	132,535
Deferred rent	20,383			33,010			45,329
Deferred compensation	(9,268		)	18,237			136,308
Deferred revenue	103,662			(111,161		)	—

Net cash (used in) provided by operating activities	(1,552,094		)	2,428,142			1,697,244

Cash flows from investing activities
Purchases of property and equipment	(1,005,151		)	(1,170,322		)	(1,887,828		)
Additions to patent costs	(14,230		)	(100,725		)	(28,999		)

Net cash used in investing activities	(1,019,381		)	(1,271,047		)	(1,916,827		)

Cash flows from financing activities
Net change on bank line of credit	509,528			(173,418		)	(891,579		)
Restricted cash under bank line of credit	—			500,000			—
Net change in book overdraft	272,922			(193,686		)	(144,177		)
Payments on notes payable	(38,595		)	(194,664		)	(607,457		)
Payments on capital lease obligations	(47,348		)	(73,201		)	(213,303		)
Proceeds from issuance of common stock	4,017,399			43,326			6,232,852
Purchase of treasury stock	(62,571		)	(22,975		)	—
Cost of issuance of common stock	(5,994		)	(10,140		)	(44,167		)

Net cash provided by (used in) financing activities	4,645,341			(124,758		)	4,332,169

Net increase in cash and cash equivalents	2,073,866			1,032,337			4,112,586
Cash and cash equivalents, beginning of year	6,582,203			5,549,866			1,437,280

Cash and cash equivalents, end of year	$	8,656,069		$	6,582,203		$	5,549,866

Supplemental cash flow information
Income taxes refunded	$	—		$	—		$	151,312
Interest paid	$	33,997		$	83,160		$	143,903
Property and equipment financed by capital leases	$	72,283		$	13,644		$	—
Property and equipment financed by accounts payable	$	5,314		$	—		$	72,245

See accompanying notes to financial statements.

Spherix Incorporated

Notes to Financial Statements

1. Summary of Significant Accounting Policies

Nature of Business

Spherix Incorporated was founded in 1967, is incorporated in Delaware, and maintains two facilities in Maryland. The Company consists of a biotechnology division (“BioSpherix”) and an information services division (“InfoSpherix”). InfoSpherix consists of Commercial Information Services (“CIS”), Government Information Services (“GIS”) and Information Technology Services (“ITS”). BioSpherix is dedicated to research, development, and productization of proprietary products. The CIS and GIS operate information center services providing consulting, information management, and materials management to the public as well as reservation and tourism solutions. ITS provides software engineering, telecommunications, network infrastructure, internet provision, and other computer system services via the CIS and GIS.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2002, the Company had approximately $8.6 million invested in treasury funds with a maturity of three months or less, which are included as cash and cash equivalents.

Concentrations

At December 31, 2002, three major contracts constituted 66% of the trade accounts receivable, the components of which were 41%, 13%, and 12%. No other single contract was greater than 10% of total trade accounts receivable. Receivables from Federal and state agencies represented 77% of the total trade accounts receivable.

Use of Estimates and Assumptions

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Accordingly, actual results could differ from those estimates and assumptions.

Property and Equipment and Depreciation

Property and equipment are stated at cost and consist of office furniture and equipment, computer hardware and software, leasehold improvements, and capital leases. Computer hardware and software include the cost of internally developed software programs, which have long-term benefits. It is the Company’s policy to capitalize software developed for internal use. The Company computes depreciation and amortization under the straight line method over the following estimated useful lives of the related assets.

Office furniture and equipment		3 to 10 years
Computer hardware and software		3 to 5 years

Leasehold improvements are depreciated or amortized over the lesser of the term of the related lease or the estimated useful lives of the assets (generally 5 to 10 years). Major additions, improvements and renewals are capitalized and ordinary repairs, maintenance, and renewals are expensed in the year incurred. Gains or losses from the

sale or retirement of property and equipment result from the difference between sales proceeds (if any) and the assets’ net book value, and are recorded in the Statement of Operations.

Inventory

Included in prepaid expenses is approximately $204,000 of FlyCracker inventory valued at lower of cost or market.

Research and Development Costs

Research and development costs are charged to operations as incurred.

Patent Costs

Legal costs incurred in connection with patent applications and costs of acquiring patents are capitalized when incurred. When patents are granted, costs are amortized over a term representing the lesser of the life of the patent or the projected sales period of the product or process.

Revenue Recognition

Revenue is recognized using the following methods depending upon the terms of the contracts: time and materials or fixed price. Revenue under time and materials contracts is recognized at contractually agreed upon rates based upon direct labor hours expended and other direct costs incurred. Revenue for fixed-price contracts is recognized using the percentage-of-completion and unit-of-delivery methods. Losses, if any, on contracts are recorded during the period when first determined.

License Fees and Advance Royalties

License fees and royalties are recognized as revenue over the fixed term of the contract. Non-refundable fees are recognized when they are earned in accordance with the applicable contractual terms. Payments received that are related to future performance are deferred and recorded as revenue as they are earned over contractually specified future performance periods. See Note 8. Pursuant to the contractual terms, the advance will be recovered and therefore recognized as revenue at the rate of 50% of such future royalties. Commercialization of the products subject to the royalties is expected in 2003; however, since the Company is unable to accurately estimate the amount of revenue that will be recognized from the royalties in 2003, the deferred revenue has been classified as noncurrent.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Fair Value Information

The estimated fair value of the Company’s financial instruments, which include cash, receivables, accounts payable, bank line of credit, and short-term notes payable reported in the balance sheet, approximate their carrying value given their short maturities.

Accounting for Stock-Based Compensation

The Company applies APB Opinion No. 25 and related interpretations in accounting for stock-based compensation. Accordingly, because the exercise price of options granted has typically been at market price, no compensation cost has been recognized, with the exception of approximately $20,700 of compensation expense incurred in 2002 as a result of issuing certain option grants at below market and $32,000 of compensation expense incurred in 2001 as a result of extending the life of certain option grants. The Company elected the “disclosure only” presentation of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation in 1996 and, consequently, makes no charge against income in the financial statements with respect to options granted with exercise prices at or above fair market value.

To measure stock-based compensation in accordance with SFAS 123, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following tables summarize the assumptions used and the pro-forma net (loss) income and net (loss) income per share resulting from applying SFAS 123.

		2002			2001			2000
Net (loss) income, as reported		$	(2,921,926	)	$	567,823		$	591,070
Add: stock-based employee compensation expense included in reported net (loss) income		20,700			32,000			—
Deduct: total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax effects		(868,867		)	(420,668		)	(225,148		)
Pro forma net (loss) income		$	(3,770,093	)	$	179,155		$	365,922
Net (loss) income per share – basic	As reported	$	(0.26	)	$	0.05		$	0.06
	Pro forma	$	(0.34	)	$	0.01		$	0.04
Net (loss) income per share – diluted	As reported	$	(0.26	)	$	0.05		$	0.06
	Pro forma	$	(0.34	)	$	0.01		$	0.04

Net Income Per Share

Basic net (loss) income per common share has been computed by dividing net (loss) 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, which includes outstanding options and warrants. Diluted net loss per common share in 2002 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 38,468 at December 31, 2002.

	2002	2001	2000

Weighted average shares outstanding, basic	11,240,998	10,735,812	10,499,628
Weighted average dilutive common stock equivalents	—	344,364	60,166
Weighted average shares outstanding, diluted	11,240,998	11,080,176	10,559,794

2. Allowance for Doubtful Accounts

Management regularly reviews the accounts receivables for uncollectible and potentially uncollectible accounts and when necessary establishes an allowance for doubtful accounts.

Balance, December 31, 1999	$	200,000
Write-off of uncollectible accounts	(156,000		)
Valuation adjustment	31,000
Balance, December 31, 2000	75,000
Write-off of uncollectible accounts	(1,236		)
Valuation adjustment	(38,764		)
Balance, December 31, 2001	35,000
Valuation adjustment	36,000
Balance, December 31, 2002	$	71,000

3. Property and Equipment

The components of property and equipment as of December 31, 2002, at cost are:

	2002			2001
Computer software	$	3,071,244		$	2,795,267
Computer hardware	4,435,526			4,441,411
Office furniture and equipment	441,325			416,260
Leasehold improvements	512,002			306,805
Capital leases	446,117			508,862
Total cost	8,906,214			8,468,605
Accumulated depreciation and amortization (including capital lease accumulated depreciation of $392,337 and $264,346)	(5,252,858		)	(4,305,381		)
Property and equipment, net	$	3,653,356		$	4,163,224

4. Debt

Line of Credit

The Company renewed its Loan Agreement (the “Agreement”) with Bank of America (the “Bank”) on June 30, 2002, which provides for borrowing up to $2 million, subject to advance rates as defined in the Agreement. Outstanding borrowings under the Agreement aggregated $722,000 at December 31, 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 for further advance to the Company was $1,071,000 under the Agreement at December 31, 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 December 31, 2002. The line expires on June 30, 2003, but the Company anticipates that the line will be renewed in 2003. 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 for the balance of 2003.

5. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following at December 31:

	2002		2001

Accrued expenses	$	547,000	$	129,000
Book overdraft	326,000		55,000
Accounts payable	274,000		156,000
	$	1,147,000	$	340,000

The increase in accrued expense between years is related to legal fees in connection with the Arla Foods arbitration.

6. Stockholder Equity

Private Placements

On March 20, 2002, Warrants for 250,000 shares of Common Stock at $6.50 per share and Warrants for 325,00 shares of Common Stock at $6.40 per share were exercised by an institutional investor. Warrants for the purchase of 1,085,973 shares at $6.91 are outstanding at December 31, 2002.

In connection with the above, the Investor has agreed that it will not exercise any of the warrants to the extent that it would acquire shares of Common Stock exceeding 9.9% of the outstanding Common Stock nor will it sell shares to anyone to the extent that their holding in the Company would exceed 4.9% of the outstanding Common Stock.

Stock Option Plan

The Company has an Employees’ Stock Option Plan (the “Plan”) which permits issuance of both Incentive Stock Options (ISO) and Non-Qualified Stock Options, whereby options may be granted to officers and other key employees to purchase up to 1,000,000 shares of common stock in amounts determined by the Compensation Committee of the Board of Directors through December 31, 2007. During 2002, 2001, and 2000, 422,800, 375,100, and 44,400 options were granted under the Plan, respectively. At December 31, 2002, 68,750 options were available for grant under the Plan. An additional 6,000, 5,000, and 5,000 options were granted outside the Plan in 2002, 2001, and 2000, respectively. Activity for the three years ended December 31, 2002, for all option grants is shown below:

	2002 Shares						2002 Weighted Average Exercise Price		2001 Shares						2001 Weighted Average Exercise Price		2000 Shares						2000 Weighted Average Exercise Price
Outstanding at beginning of year	654,575						$	7.18	290,500						$	6.55	634,100						$	5.47
Granted	428,800						$	7.77	380,100						$	7.64	49,400						$	6.53
Exercised	(47,375					)	$	6.57	(6,125					)	$	6.12	(178,475					)	$	4.73
Expired or forfeited	(124,525					)	$	6.98	(9,900					)	$	7.09	(214,525					)	$	4.97
Outstanding at end of year	911,475						$	7.52	654,575						$	7.18	290,500						$	6.55
Exercisable at end of year	165,700								228,627								203,138

Price range of options
Outstanding	$	2.25	-	$	10.51				$	4.06	-	$	10.51				$	4.06	-	$	7.25
Exercised	$	5.78	-	$	7.13				$	5.78	-	$	6.44				$	3.31	-	$	7.25
Expired or forfeited	$	4.06	-	$	9.55				$	6.00	-	$	7.25				$	4.68	-	$	7.12

The following table summarizes information with respect to stock options outstanding at December 31, 2002:

Range of Exercise Price					Number of Options Outstanding at 12/31/02	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$	2.25	-	$	5.78	83,475	3.2	$	4.48
$	6.00	-	$	7.84	359,700	5.6	$	6.43
$	8.09	-	$	10.51	468,300	9.3	$	8.89
					911,475	7.3	$	7.52

The following table summarizes information with respect to stock options exercisable at December 31, 2002:

Year of Option Expiration	Number of Options	Weighted Average Exercise Price		Price Range
2003	56,475	$	6.07	$	5.78	-	$	6.36
2004	11,488	$	6.12	$	6.00	-	$	6.60
2005	23,602	$	6.53	$	6.44	-	$	7.08
2006	18,135	$	9.64	$	9.55	-	$	10.51
2007	56,000	$	6.42	$	6.31	-	$	7.35

All Years	165,700	$	6.65	$	5.78	-	$	10.51

The Company used the following values for the Black-Scholes calculation used to measure the fair value of stock-based compensation in accordance with SFA5123.

Expected life (years)	4-6			4-6			4
Risk-free interest rate	4.25		%	4.75		%	5.75		%
Volatility	73.1		%	80.0		%	73		%
Dividend yield	0		%	0.0		%	0.0		%
Weighted average remaining contractual life (years)	7.3			5.7			2.4
Weighted average fair value at date of grant	$	5.05		$	4.94		$	3.76

Treasury Stock Transactions

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. During 2002, the Company also purchased 11,800 shares of Common Stock at a total cost of $62,571.

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 $105. During 2001, the Company also acquired 4,000 shares of Common Stock, which were recorded as an addition to treasury stock.

7. Income Taxes

There were no tax expenses for the years 2002, 2001, and 2000 as a result of net losses in 2002 and the net operating loss carryforwards.

The tax effect of significant temporary differences representing deferred tax assets as of December 31, 2002 and 2001, is as follows:

	2002						2001
	Current			Non-Current			Current			Non-Current
Property and equipment	$	—		$	(636,863	)	$	—		$	(633,429	)
Deferred rent	—			55,951			—			22,583
Accrued vacation	36,882			—			29,202			—
Allowance for doubtful accounts	27,420			—			13,517			—
Deferred revenue	—			386,200			—			386,200
Net operating loss carryforward	—			4,011,838			—			2,894,303
Accrued bonus	—			—			—			—
Other	(17,492		)	43,597			11,953			47,176

	46,810			3,860,723			54,672			2,716,833
Valuation allowance	(46,810		)	(3,860,723		)	(54,672		)	(2,716,833		)

Deferred tax asset	$	—		$	—		$	—		$	—

Approximately $2.9 million in U.S. net operating losses was created in 2002. The Company has $10.4 million in net operating loss carryforwards that will be available to offset regular taxable U.S. income during the carryforward period, which will begin to expire in 2018. Based on the Company’s loss in 2002 and its accumulated deficit, the Company has provided a full valuation allowance against the net deferred tax asset. During fiscal year 2002, the Company increased the allowance in the amount of $1.14 million to fully reserve the net deferred tax asset at December 31, 2002. At December 31, 2002, approximately $342,000 of the valuation allowance, related to benefits from stock compensation, will be credited to “paid in capital” when recognized in future periods.

Reconciliation between actual tax expense and tax computed at the statutory Federal rate of 34 percent for 2002, 2001, and 2000 are as follows:

	2002			2001			2000
U.S. Federal income tax rate at 34%	$	(993,455	)	$	193,060		$	200,964
State taxes, net of federal tax benefit	(134,993		)	26,233			27,307
Change in valuation allowance	1,136,030			(235,301		)	64,620
Expenses not deductible for tax purposes	31,750			28,674			6,353
Valuation allowance related to stock compensation	(34,006		)	(8,639		)	(299,244		)
Adjustment for prior year taxes	(5,326		)	(4,027		)	—

Income tax provision (benefit)	$	—		$	—		$	—

8. Commitments and Contingencies

Government Contracts

The principal portion of the Company’s revenue has been generated by the InfoSpherix Division. Several of the Company’s contracts that provide these revenues (principally contracts with the U.S. Government) are from time to time subject to protest proceedings. These contracts are awarded pursuant to a competitive bidding process. As of December 31, 2002, none of the Company’s contracts were under protest; however, the Company is contesting the cancellation of the NPS Reservation System procurement and the non-competitive bundling of this program with the National Forest Service’s National Recreation and Reservation System contract. In 2002, the NPS contract accounted for approximately $4.1 million in revenue or 27% of the total revenue for the year.

Leases

The Company has various commitments under capital and operating leases through 2009 relating to computer hardware and software, office equipment, its call center facility in Cumberland, Maryland, and its call center and administrative offices in Beltsville, Maryland.

Future minimum rentals as of December 31, 2002, under noncancellable leases are as follows:

Year Ending December 31,	Capital Leases		Operating Leases

2003	$	47,449	$	530,638
2004	32,121		546,124
2005	30,028		562,507
2006	27,059		579,383
2007	16,537		596,764
Thereafter	—		717,611
	153,194		$	3,533,027
Less: executory costs	50,311
Less: amount representing interest	12,353
Capital lease obligations	90,530
Less current portion	27,220
Long-term obligations	$	63,310

These future minimum rentals do not include consumer price index (CPI) adjustments to which some of the leases are subject. The Company incurred rental expenses of $645,000 in 2002, $652,000 in 2001, and $707,000 in 2000 under operating leases.

Related Party Transactions

Stock Redemption Agreements

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 24% of the outstanding common stock at December 31, 2002. Believing that the Spherix stock is now sufficiently liquid to eliminate the need for their Stock Redemption Agreements that were funded by the Company, Dr. and Mrs. Levin voluntarily surrendered their stock redemption rights, and allowed the Company to stop insuring their lives thereby saving the annual premiums. 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. Redeemable common stock, as of December 31, 2002 and 2001, consisted of 0 and 2,761,507 shares, respectively. The Company was 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. As a result of the termination of the Stock Redemption Agreement, the insurance policy was not renewed at the end of the year.

Employment, Deferred Compensation, Stock Redemption and Consulting Agreements for Principal Stockholders

Dr. Gilbert V. Levin, Company founder and CEO, has served under an Employment Agreement since March 3, 1969. This Agreement was amended and restated in 2002, ensuring his continued full-time employment through December 31, 2004. On February 17, 1993, the Company entered into agreements with the Principal Stockholders, Dr. Gilbert V. Levin and Mrs. M. Karen Levin, to provide adequate retirement benefits and to protect the Company’s stock from a precipitous sale to pay estate taxes upon their deaths. These agreements provided that, upon retirement, under a Supplemental Executive Retirement Plan (SERP), these individuals would receive deferred compensation equal to 70% and 60% of their average annual total compensations less the assumed returns from investment of their funded pension plans, and less their social security payments. The deferred compensation plan is unfunded. At December 31, 2002, the Company had no liability under the plan as actuarially determined. The SERPs for Dr. and Mrs. Levin at present have zero value. The Company also agreed to fund long-term lifetime healthcare and health insurance policies for them. At December 31, 2002, the Company’s liability was estimated to be $113,000. Upon completion of their employment, the officer-stockholders also agree to serve as consultants to the Company on a minimum part-time, plus as-needed basis, at a specified daily rate.

Employee Contract

The Company has entered into an employment agreement with its Founder, Chair, CEO, and Treasurer, who is a Principal Stockholder, that provides for certain benefits should he be terminated within the terms of the agreement for other than specific reasons. Benefits to be provided under this agreement include continued life, disability, accident and health insurance and severance payments equal to his annual base compensation through the term of the agreement. The agreement expires December 31, 2004.

Deferred Rent

The Company entered into a lease for its headquarters and research facilities in 1997. The excess of the rent expense over the cash payments for rent is recorded as deferred rent and is being amortized over the life of the lease.

Deferred Revenue

On September 27, 1996, the Company signed an exclusive worldwide licensing agreement with MD Foods Ingredients amba (MDFI) of Denmark for the use, manufacture and sale of Spherix’s low-calorie sugar, tagatose, as a sweetener in foods. The Company received a non-refundable $750,000 initial partial payment on signing. This $750,000 was classified as licensing revenue in the 1996 financial statements. The Company received an additional payment of $1,750,000 on January 6, 1997, subsequent to the successful completion of MDFI’s due diligence. The first $750,000 of the $1,750,000 received on January 6, 1997, completes the initial non-refundable payment, and was

classified as licensing revenue in the first quarter of 1997. The remaining $1 million of the $1,750,000 was classified as deferred revenue as this represents a non-refundable advance against future royalties, recoverable and to be recognized as revenue, at the rate of 50% of such annual royalties. The term of the Agreement is five years after the expiration of the last to expire present or future U.S. patent covering the licensed product and/or the licensed process. The Company has two U.S. patents covering the proprietary method for the manufacture of tagatose, which expire on July 19, 2009, and March 25, 2011, respectively. Additional patents have been procured and others are likely to result from ongoing research. The Company believes the new patents will extend the term of the royalties. Full running royalties will be paid to the Company on sales, which the Company believes will begin when the first full-scale production plant for tagatose becomes operational in 2003. In 2000, MDFI was merged into Arla Foods.

Other

On May 23, 2002, the Company filed for arbitration against its licensee, MD Foods amba (merged into Arla Foods amba). The filing sought damages for what the Company claims has been an unreasonably long time for its licensee to bring tagatose to market and seeks to determine whether Arla has abrogated its license as a result. The Company has also sought a determination of its right to terminate the license agreement. Arla has asked the arbitral tribunal to order the Company to pay Arla’s attorney fees, expert fees and the costs of the arbitration, and has reserved the right to file a counter-claim against the Company. The Company also seeks other measures to accelerate the pace toward commercialization of uses of the new sweetener licensed to the Danish firm. In the event Arla is found to have abrogated its license agreement with Spherix, the Company will develop alternate sources of supply of tagatose for uses in food products. To date the Company has incurred approximately $473,000 in related legal expenses and the Company expects to incur significant legal expenses in 2003.

In December 2002, the National Park Service (“NPS”) cancelled the procurement for the National Park Reservation System. The Company had operated this program for the past five years. NPS informed the Company that the U.S. Office of Management and Budget had ordered NPS to non-competitively bundle this program with the National Forest Service’s National Recreation and Reservation System contract. The Company is contesting this action.

The Company is also a party to legal actions arising in the ordinary course of business. Management of the Company, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a materially adverse effect on the financial position or results of operations of the Company.

9. Employee Benefit Plans

Effective January 1, 1990, the Company established the Spherix Incorporated 401(k) Retirement Plan. The Plan is a discretionary defined contribution plan and covers substantially all employees who have attained the age of 21, have completed 1 year of service, and have worked a minimum of 1,000 hours in the past Plan or anniversary year.

Under provisions of the Plan, the Company, for any plan year, has contributed an amount equal to 50% of the participant’s contribution or 2½% of the participant’s eligible compensation, whichever is less. The Company may, at its own discretion, make additional matching contributions to participants. Company contributions, net of forfeitures, amounted to $97,000, $85,000, and $72,000 in 2002, 2001, and 2000, respectively.

10. Information by Business Segment

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company is managed along two business segments, InfoSpherix and BioSpherix.

Financial information by business segment for the years ended December 31, 2002, 2001, and 2000 is summarized below:

		Year Ended December 31,
		(Dollars in thousands)
		2002			2001			2000
Revenues	InfoSpherix	$	15,043		$	19,881		$	16,885
	BioSpherix	89			56			150
	Total revenues	$	15,132		$	19,937		$	17,035

Operating (Loss) Profit and (Loss) Income Before Income Taxes	InfoSpherix	$	(1,239	)	$	1,110		$	870
	BioSpherix	(1,764		)	(656		)	(459		)
	Total operating income (loss)	(3,003		)	454			411
	Interest income (expense), net	81			114			180
	Income (loss) from operations before income taxes	$	(2,922	)	$	568		$	591

Identifiable Assets	InfoSpherix	$	5,195		$	5,314		$	6,557
	BioSpherix	384			216			164
	General corporate assets	9,874			7,711			6,730
	Total assets	$	15,453		$	13,241		$	13,451

Capital Expenditures	InfoSpherix	$	770		$	919		$	1,882
	BioSpherix	14			8			—
	General corporate assets	299			185			21
	Total capital expenditures	$	1,083		$	1,112		$	1,903

Depreciation and Amortization	InfoSpherix	$	1,390		$	1,278		$	1,186
	BioSpherix	25			21			20
	General corporate assets	178			125			109
	Total depreciation and amortization	$	1,593		$	1,424		$	1,315

During 2002, InfoSpherix recognized revenue from three of its customers, all of which were government agencies, representing 35%, 27%, and 19% of the total Company revenues. During 2001, InfoSpherix recognized revenue from three of its customers, all of which were government agencies, representing 22%, 18%, and 14% of the total Company revenues. During 2000, InfoSpherix recognized revenue from four of its customers, including two government agencies, representing 22%, 16%, 15%, and 12% of the total Company revenues. Government contracts accounted for 94% and 82% of the InfoSpherix revenue in 2002 and 2001, respectively.

BioSpherix has invented and patented for the Company the use of tagatose as a low-calorie sweetener. In 1996, the Company signed an exclusive worldwide licensing agreement with MD Foods Ingredients (MDFI) amba of Denmark for the use, manufacture and sale of Spherix’s low-calorie sugar, tagatose, as a sweetener (see Note 8 “Commitments and Contingencies”). In 2000, MDFI was merged into Arla Foods.

BioSpherix also obtained and filed for patents on other inventions, including a safe-for-humans (and animals) pesticide against house and stable flies, FlyCracker, which was market tested in 2000. While continuing its sales efforts, the Company is considering whether it would be more profitable to license the right to sell FlyCracker. It potentially fills an important need expressed by the EPA for safe pesticides to replace the harsh chemicals that the EPA cites as toxic. BioSpherix is also developing other proprietary products.

Operating (loss) profit consists of revenue less operating expenses. In computing operating profit, interest expense and income taxes were not considered. Operating loss for InfoSpherix was $1,239,000 (8% of InfoSpherix revenue) for 2002.

Identifiable assets by business segment are those assets used in the Company’s operations in each segment, such as accounts receivable, inventories, fixed assets, and patent costs. Corporate assets are principally cash and certain other assets not related to a particular segment’s operations.

11. Selected Quarterly Information (in thousands, except per share data), unaudited

The table below sets forth selected unaudited financial information for each quarter of the last two years.

	Quarter Ended
	March 31,			June 30,			September 30,		December 31,
2001
Revenue	$	5,218		$	4,840		$	6,795	$	3,084
Gross profit	$	1,243		$	1,711		$	2,982	$	361
Net (loss) income	$	(157	)	$	289		$	1,437	$	(1,001	)
Net (loss) income per share, basic	$	(0.01	)	$	0.03		$	0.13	$	(0.09	)
Net (loss) income per share, diluted	$	(0.01	)	$	0.03		$	0.13	$	(0.09	)

2002
Revenue	$	3,066		$	4,227		$	4,832	$	3,007
Gross profit	$	429		$	1,231		$	1,688	$	233
Net (loss) income	$	(1,111	)	$	(299	)	$	137	$	(1,649	)
Net (loss) income per share, basic	$	(0.10	)	$	(0.03	)	$	0.01	$	(0.15	)
Net (loss) income per share, diluted	$	(0.10	)	$	(0.03	)	$	0.01	$	(0.15	)

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits

(23) Consent of Independent Certified Public Accountants

(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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

		Spherix Incorporated
		(Registrant)


Date:	April 30, 2003	By:	/s/ Gilbert V. Levin
			Gilbert V. Levin
			Chair, CEO, & Treasurer

Certifications

I, Gilbert V. Levin, Chair, Chief Executive Officer, and Treasurer, certify that:

1. I have reviewed this annual report on Form 10-K/A (Amendment 1) of Spherix Incorporated;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the “Evaluation Date”); and

c) presented in this annual 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 annual 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
	April 30, 2003

I, Richard C. Levin, CFO of Spherix and Interim President of the InfoSpherix Division, certify that:

1. I have reviewed this annual report on Form 10-K/A (Amendment 1) of Spherix Incorporated;

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 annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

	/s/ Richard C. Levin
	Richard C. Levin
	CFO of Spherix and Interim President of the InfoSpherix Division
	April 30, 2003

Dominari (DOMH) 10-K/A2002 FY Annual report (amended)

EXPLANATORY NOTE