Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Nov. 14, 2013 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'SPHERIX INC | ' |
Entity Central Index Key | '0000012239 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Entity Voluntary Filers | 'No | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 2,429,904 |
Document Fiscal Year Focus | '2013 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
Consolidated_Balance_Sheets
Consolidated Balance Sheets (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Current assets | ' | ' |
Cash | $2,541,743 | $4,498,237 |
Other receivables | ' | 3,425 |
Prepaid expenses 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 |
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 |
Stockholders' equity | ' | ' |
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 |
Consolidated_Balance_Sheets_Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Consolidated Balance Sheets Parenthetical | ' | ' |
Property and equipment, accumulated depreciation (in dollars) | $332,395 | $308,386 |
Patent portfolio, net of accumulated amortization | $133,785 | $0 |
Preferred stock, par value (in dollars per share) | $0.00 | $0.00 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, series A shares issued | ' | ' |
Preferred stock, series A shares outstanding | ' | ' |
Preferred stock, series A liquidation preference, per share | $1,000 | $1,000 |
Preferred stock, series B shares issued | 1 | 1 |
Preferred stock, series B shares outstanding | 1 | 1 |
Preferred stock, series B liquidation preference, per share | $1,000 | $1,000 |
Preferred stock, series C shares issued | 1 | ' |
Preferred stock, series C shares outstanding | 1 | ' |
Preferred stock, series C liquidation preference, per share | $0.00 | $0.00 |
Preferred stock, series D shares issued | 1,379,685 | ' |
Preferred stock, series D shares outstanding | 1,379,685 | ' |
Preferred stock, series D liquidation preference, per share | $0.00 | $0.00 |
Preferred stock, series E shares issued | ' | ' |
Preferred stock, series E shares outstanding | ' | ' |
Preferred stock, series E liquidation preference, per share | $0.00 | $0.00 |
Preferred stock, series F shares issued | ' | ' |
Preferred stock, series F shares outstanding | ' | ' |
Preferred stock, series F liquidation preference, per share | $0.00 | $0.00 |
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 2,430,305 | 814,114 |
Common stock, shares outstanding | 2,429,904 | 813,713 |
Treasury stock, shares | 401 | 401 |
Consolidated_Statements_of_Ope
Consolidated Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Consolidated Statements Of Operations | ' | ' | ' | ' |
Revenue | $1,837 | $16,710 | $7,811 | $16,710 |
Costs of revenues | ' | ' | ' | ' |
Amortization of patents | 133,785 | ' | 133,785 | ' |
Compensation and compensation related expenses (including stock based compensation) | 6,392,503 | ' | 7,129,025 | ' |
Research and development expense | 9,648 | 107,817 | 9,648 | 617,469 |
Professional fees | 2,139,977 | ' | 2,867,945 | ' |
Rent | 60,433 | ' | 132,475 | ' |
Depreciation expense | 2,519 | ' | 24,009 | ' |
Other selling, general and administrative | 579,740 | 542,538 | 884,858 | 1,765,721 |
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 |
Loss from operations | ' | ' | ' | ' |
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 taxes | ' | -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 number of shares outstanding, basic and diluted | 1,339,300 | 207,806 | 955,292 | 200,547 |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
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 and amortization | 24,009 | 50,936 |
Fair value adjustment of warrant liabilities | 2,610,465 | -740,605 |
Stock-based compensation | 7,402,485 | 40,350 |
Amortization of patent portfolio | 133,785 | ' |
Changes in 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 flow from investing activities | ' | ' |
Cash acquired in acquisition of North South | 2,684,363 | ' |
Purchase of fixed assets | ' | -1,599 |
Purchase of patent portfolio | -2,001,696 | ' |
Net cash used in investing activities | 682,667 | -1,599 |
Cash flow from financing activities | ' | ' |
Proceeds from issuance of note payable | 500,000 | ' |
Proceeds from issuance of preferred stock | 500,000 | 1,055,353 |
Reverse stock split fractional share payment | ' | -1,685 |
Net cash provided by financing activities | 1,000,000 | 1,053,668 |
Net decrease in cash and cash equivalents | -1,956,494 | -1,261,313 |
Cash and cash equivalents, beginning of period | 4,498,237 | 4,911,350 |
Cash and cash equivalents, end of period | 2,541,743 | 3,650,037 |
Supplemental disclosures of cash flow information: | ' | ' |
Interest paid | ' | ' |
Income taxes paid | ' | ' |
Non-cash financing activity: | ' | ' |
Issuance of Series C Convertible Preferred Stock 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 Holding Prepaid expenses | -14,503 | ' |
Acquisition of North South Holding Patent portfolio | -1,100,000 | ' |
Acquisition of North South Holding Goodwill | -1,711,883 | ' |
Acquisition of North South Holding Common and preferred stock issued | 5,510,749 | ' |
Acquisition of North South Holding Cash acquired in acquisition of North South | $2,684,363 | ' |
Business_Merger_and_Basis_of_P
Business, Merger and Basis of Presentation | 9 Months Ended |
Sep. 30, 2013 | |
Accounting Policies [Abstract] | ' |
Business, Merger and Basis of Presentation | ' |
Business and Merger | |
Until the sale of Spherix Consulting, Inc. in December 2012, the Company’s principal segments of Spherix Incorporated (the “Company”) have been Biospherics, the biotechnology research and development business, and Spherix Consulting, the technical and regulatory consulting business. On December 3, 2012, the Company sold all of the stock of Spherix Consulting, Inc. Accordingly, the operations of Spherix Consulting, Inc. are reported in the accompanying condensed consolidated financial statements as discontinued operations. We were 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 discontinued in 2012. The Company has shifted its focus during 2013 and is now an intellectual property company that owns patented and unpatented intellectual property. | |
On December 27, 2012, the Company formed a new wholly-owned subsidiary, Nuta Technology Corp., (“Nuta”), which is incorporated in the state of Virginia. On April 2, 2013, the Company entered into an Agreement and Plan of Merger, as amended (the "Merger Agreement") with its wholly owned subsidiary, Nuta, North South Holdings, Inc., a Delaware corporation ("North South"), the owner or assignee of certain patents, licenses and applications (the “North South Intellectual Property”), and the shareholders of North South (the "North South Shareholders"). On September 10, 2013 the transaction contemplated under the Merger Agreement was completed (the “Merger”). At closing, North South merged with and into Nuta with Nuta as the surviving corporation. Nuta will continue its operations in the State of Virginia as the record owner of the North South’s intellectual property. Pursuant to the terms and conditions of the Merger, at the closing of the Merger, all of North South’s 5,213 issued and outstanding shares of common stock were converted into an aggregate of 1,203,153 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), and all of North South’s 491 issued and outstanding shares of Series A Preferred Stock and 107 issued and outstanding shares of Series B Preferred Stock were converted into an aggregate of 1,379,685 shares of the Company's Series D Convertible Preferred Stock, par value $0.0001 per share, which is convertible into shares of the Company’s common stock on a one-for-ten basis (collectively with the 1,203,153 common shares of the Company, the “Merger Consideration”). | |
The closing of the Merger was subject to customary closing conditions, including the receipt of a fairness opinion that the Merger Consideration is fair to stockholders and the Company from a financial point of view, based on, among other things, the North South Intellectual Property assets, and the approval of the Company’s shareholders holding a majority of the outstanding voting capital stock of the Company as of the record date (July 10, 2013) to issue the Merger Consideration pursuant to NASDAQ listing standards. | |
On July 24, 2013, the Company purchased a group of patents in the mobile communication sector (the “Purchased Patents”) from Rockstar Consortium US LP, a Delaware limited partnership (“Rockstar”) at a contractual price of $4,000,000. In consideration for the Purchased Patents, the Company paid an aggregate $3,000,000 in consideration to Rockstar, which consisted of a $2,000,000 cash payment and 176,991 shares of common stock accepted by the seller in settlement of the $1,000,000 remaining balance of the Company’s common stock (176,991 shares at $5.65 per share). The Shares are subject to a lock-up agreement, subject to certain leak-out provisions, which shall expire on the earlier of (i) six months from the issuance of the shares or (ii) the date that the Company’s Common Stock achieves a trading volume of at least 50,000 shares per day and a closing price of at least $15 per share for a period of five consecutive days. The Company has filed a registration statement covering the resale of the shares issued to Rockstar with the Securities and Exchange Commission (the “SEC”) on September 5, 2013. On the anniversary of one year and one day after the Company files its first complaint against a defendant with any one or more of the patents acquired in this transaction, the Company shall deliver $1,000,000 to Rockstar. The initial complaint was filed on August 30, 2013, and at that time the additional $1,000,000 was accrued and included in patent portfolio on the condensed consolidated balance sheet. | |
Rockstar will also be entitled to receive a percentage of future profits after recovery of patent monetization costs and an initial priority return on investment to the Company. | |
Basis of Presentation and Principles of Consolidation | |
The accompanying condensed consolidated financial statements of the Company are unaudited and do not include all of the information and disclosures generally required for annual financial statements. In the opinion of management, the statements contain all material adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s consolidated financial position as of September 30, 2013, the consolidated results of its operations for the three-and nine-month periods ended September 30, 2013 and 2012, and the consolidated results of its cash flows for the nine-month periods ended September 30, 2013 and 2012. This report should be read in conjunction with the Company’s Annual Report on Form 10-K, which does contain the complete information and disclosure, for the year ended December 31, 2012. | |
The accompanying condensed consolidated financial statements include the accounts of Spherix Incorporated and its wholly-owned subsidiaries, Biospherics Incorporated and Nuta Technology Corp. Prior to the Merger with Nuta, North South formed two Delaware limited liability corporations on July 26, 2013, Guidance IP, LLC (“Guidance”) and Directional IP, LLC. (“Directional”). All significant intercompany balances and transactions have been eliminated in consolidation. |
Liquidity_and_Capital_Resource
Liquidity and Capital Resources | 9 Months Ended | ||
Sep. 30, 2013 | |||
Notes to Financial Statements | ' | ||
Liquidity and Capital Resources | ' | ||
The Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding revenue. | |||
The Company intends to finance its 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, | ||
· | increasing revenue from the monetization of its patent portfolios, license fees, and new business ventures. | ||
The Company’s business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer term business plan. The Company’s working capital amounted to $1,055,625 and $3,975,324 at September 30, 2013 and December 31, 2012, respectively and, cash on hand amounted to $2,541,743 and $4,498,237, respectively. Upon closing of the Merger on September 10, 2013, the North South cash balance (approximately $2,684,363) became available for the operations of the Company. | |||
The Company in November of 2013 sold an aggregate of 304,250 shares of its newly designated Series F Preferred Stock and 48,438 shares of common stock to five accredited investors for gross proceeds to the Company of $2,235,000 pursuant to subscription agreements. The effective purchase price per share of Common Stock and 156,250 of the Series F Preferred Stock was $6.40 for $1,310,000 of such investment and 148,000 shares of Series F Stock was $6.25 for $925,000 of such investment. The proceeds of the sale of the common stock and Series F Convertible Preferred Stock will be used to further the operations of the Company (Series F Convertible Preferred Stock - see Note 8, Subsequent Events). | |||
Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. The Company may be forced to litigate against others to enforce or defend its 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 the Company is 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 the Company 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 the Company from deriving revenue from the patents. The patents could be declared invalid by a court or the US Patent and Trademark Office, in whole or in part, or the costs of the Company can increase. | |||
As a result, a negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact the Company’s business. Additionally, the Company anticipates that legal fees which are not included in contingency fee arrangements, experts and other expenses will be material and could have an adverse effect on its financial condition and results of operations if its efforts to monetize these patents are unsuccessful. | |||
In addition, the costs of enforcing the Company’s patent rights may exceed its recoveries from such enforcement activities. Accordingly, in order for the Company to generate a profit from its patent enforcement and monetization activities, the revenues from such enforcement and monetization activities must be high enough to offset both the cash outlays and the contingent fees payable from such revenues, including any profit sharing arrangements with inventors or prior owners of the patents. The Company’s failure to monetize its patent assets or the occurrence of unforeseen circumstances that could have a negative impact on the Company’s liquidity could significantly harm its business. | |||
Should the Company be unsuccessful in its efforts to execute its business plan, it could become necessary for the Company to reduce expenses, curtail its operation or explore various alternative business opportunities or possibly suspend or discontinue its business activities. |
Summary_of_Significant_Account
Summary of Significant Accounting Policies | 9 Months Ended | ||||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||||||||
Summary of Significant Accounting Policies | ' | ||||||||||||||||||||||
Use of Estimates | |||||||||||||||||||||||
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). 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. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, valuation of warrants, the valuation of assets acquired and common and preferred stock issued in the acquisition of North South and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions. | |||||||||||||||||||||||
Concentration of Cash | |||||||||||||||||||||||
The Company maintains cash balances at two financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2013, the Company’s cash and cash equivalents in excess of the FDIC limits were $1,932,739. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks. | |||||||||||||||||||||||
Accounts Receivable | |||||||||||||||||||||||
Credit is extended to customers based on an evaluation of a customer’s financial condition and, in general, collateral is not required. Management regularly reviews accounts receivable for uncollectible and potentially uncollectible accounts, and when necessary establishes an allowance for doubtful accounts. Balances that are outstanding after management has used reasonable collection efforts are written-off through a reduction in the allowance for doubtful accounts and a credit to accounts receivable. | |||||||||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||||||||
Financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. | |||||||||||||||||||||||
The Company uses three levels of inputs that may be used to measure fair value: | |||||||||||||||||||||||
Level 1 — quoted prices in active markets for identical assets or liabilities | |||||||||||||||||||||||
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable | |||||||||||||||||||||||
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions) | |||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||
The Company currently derives its revenues from past production payments. Past production payment revenues are royalty payments for the use of the Company’s intellectual property and where payments are made as part of a settlement of a patent infringement dispute. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability is reasonably assured. Based on the criteria enumerated in Accounting Standards Codification (“ASC”) 605, the Company records its revenues and costs associated with its patent enforcement activities gross on the consolidated statement of operations. | |||||||||||||||||||||||
Cost of Revenues | |||||||||||||||||||||||
Cost of revenues include the costs and expenses incurred in connection with the Company’s patent enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third parties and the amortization of patent-related acquisition costs. | |||||||||||||||||||||||
Inventor Royalties and Contingent Legal Expenses | |||||||||||||||||||||||
Inventor royalties are expensed in the period that the related revenues are recognized. In certain instances, pursuant to the terms of the underlying inventor agreements, costs paid by the Company to acquire patents are recoverable from future net revenues. Patent acquisition costs that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense. | |||||||||||||||||||||||
Contingent legal fees are expensed in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement. Legal fees advanced by contingent law firms that are required to be paid in the event that no license recoveries are obtained are expensed as incurred. | |||||||||||||||||||||||
Intangible Assets – Patent Portfolios | |||||||||||||||||||||||
Intangible assets include the Company’s patent portfolios with original estimated useful lives ranging from 6 months to 12 years. The Company amortizes the cost of the intangible assets over their estimated useful lives on a straight line basis. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. As disclosed in Note 1, the Company acquired certain patent portfolios in the third quarter of 2013. The weighted average remaining amortization period of the Company’s patents is approximately 8.5 years. Future amortization of all patents is as follows: | |||||||||||||||||||||||
For the Years Ending | Harris | CompuFill | Rockstar | ||||||||||||||||||||
31-Dec | Patent Portfolio | Patent Portfolio | Patent Portfolio | Total | |||||||||||||||||||
Other Costs | 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 | |||||||||||||
* Represents three months remaining for 2013 | |||||||||||||||||||||||
Amortization of the intangible assets for the three and nine months ended September 30, 2013 was $133,785. There was no amortization prior to July 24, 2013 as the first assets were placed into service on July 24, 2013. | |||||||||||||||||||||||
Impairment of Long-lived Assets | |||||||||||||||||||||||
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The Company has not identified any such impairment losses. | |||||||||||||||||||||||
Reclassifications | |||||||||||||||||||||||
The Company has reclassified certain amounts from its previously reported consolidated financial statements for comparative purposes to conform to the fiscal 2013 presentation. These reclassifications had no impact on the Company’s previously reported consolidated operations or cash flows. | |||||||||||||||||||||||
Goodwill | |||||||||||||||||||||||
Under ASC No. 350, “Intangibles—Goodwill and Other” (“ASC 350”), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently, if impairment indicators arise. | |||||||||||||||||||||||
Goodwill impairment is tested at least annually or when factors indicate potential impairment using a two-step process that begins with an estimation of the fair value of each reporting unit. Step 1 is a screen for potential impairment pursuant to which the estimated fair value of each reporting unit is compared to its carrying value. | |||||||||||||||||||||||
The Company estimates the fair values of each reporting unit by a combination of (i) estimation of the discounted cash flows of each of the reporting units based on projected earnings in the future (the income approach) and (ii) a comparative analysis of revenue and margins multiples of public companies in similar markets (the market approach). If there is a deficiency (the estimated fair value of a reporting unit is less than its carrying value), a Step 2 test is required. | |||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||
The Company adopted the provisions of ASC 740-10, which prescribes a recognition threshold and measurement process for financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. | |||||||||||||||||||||||
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of September 30, 2013. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. | |||||||||||||||||||||||
The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations. | |||||||||||||||||||||||
Net Loss Per Share | |||||||||||||||||||||||
Basic earnings and loss per share are computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the conversion of preferred stock and the exercise of stock options and warrants from the calculation of net loss per share if their effect would be antidilutive. | |||||||||||||||||||||||
Securities that could potentially dilute earnings per share in the future that were not included in the computation of diluted loss per share at September 30, 2013 and 2012 are as follows: | |||||||||||||||||||||||
30-Sep-13 | 30-Sep-12 | ||||||||||||||||||||||
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 | |||||||||||||||||||||
Stock-based Compensation | |||||||||||||||||||||||
The Company accounts for share-based payment awards exchanged for employee services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a four- to ten-year period. | |||||||||||||||||||||||
The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield. The risk free interest rate is based on U.S. Treasury zero-coupon yield curve over the expected term of the option. The expected term assumption is determined using the weighted average midpoint between vest and expiration for all individuals within the grant. The expected volatility assumption is based on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns. | |||||||||||||||||||||||
The Company’s model includes a zero dividend yield assumption, as the Company has not historically paid nor does it anticipate paying dividends on its common stock. The Company’s model does not include a discount for post-vesting restrictions, as the Company has not issued awards with such restrictions. | |||||||||||||||||||||||
The periodic expense is then determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest. | |||||||||||||||||||||||
Segment Reporting | |||||||||||||||||||||||
The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. As of September 30, 2013 and for the nine months ended September 30, 2013, the Company operates in two segments. The segments are as follows: biotechnology and patent monetization. The Company’s biotechnology segment is minimal in 2013 and represented 100% of the Company in 2012. Since the acquisition of the Rockstar patent portfolio and merger with North South, the Company is primarily a patent monetization company and a majority of the Company’s operations and assets are in the patent monetization segment. | |||||||||||||||||||||||
The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the Company’s chief executive officer. | |||||||||||||||||||||||
Recently Issued Accounting Pronouncements | |||||||||||||||||||||||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU state that an unrecognized tax benefit , or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. | |||||||||||||||||||||||
For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | |||||||||||||||||||||||
Acquisition_of_North_South
Acquisition of North South | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Business Combinations [Abstract] | ' | ||||||||||||||||
Acquisition of North South | ' | ||||||||||||||||
As disclosed in Note 1, on September 10, 2013, the Company completed its acquisition of North South. The Company acquired North South to expand its patent portfolio and continue its business plan of the monetization of its intellectual property. The Company accounted for its acquisition of North South using the acquisition method of accounting. Accordingly, the results of operations for the three and nine months ended September 30, 2013, include operations of the acquired business since September 10, 2013. | |||||||||||||||||
The fair value of the purchase consideration issued to the sellers of North South was allocated to fair value of the net tangible assets acquired, with the resulting excess allocated to separately identifiable intangibles, and the remainder recorded as goodwill. Goodwill recognized from the transactions mainly represented the expected operational synergies upon acquisition of the subsidiary and intangibles not qualifying for separate recognition. Goodwill is nondeductible for income tax purposes in the tax jurisdiction of the acquired business. | |||||||||||||||||
The purchase price was allocated as follows: | |||||||||||||||||
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 | ||||||||||||||||
$ | - | ||||||||||||||||
The purchase price allocation was based, in part, on management’s knowledge of North South’s business and the results of a third party appraisal commissioned by management. | |||||||||||||||||
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 | ) | |||||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2012 or to project potential operating results as of any future date or for any future periods. | |||||||||||||||||
On August 6, 2013, the Company sold a promissory note in the principal amount of $500,000 to North South Holdings, Inc. pursuant to the terms of a Note Purchase Agreement with gross proceeds to the Company of $500,000. The Note accrues interest at the rate of 0.25% per annum and is due and payable twenty-four months from the date of issuance, subject to acceleration in the event of default and may be prepaid in whole or in part without penalty or premium. The note has been eliminated in consolidation. |
Stockholders_Equity
Stockholders' Equity | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Equity [Abstract] | ' | ||||||||||||||||
Stockholders' Equity | ' | ||||||||||||||||
Preferred Stock | |||||||||||||||||
The Company has authorized the issuance of 5,000,000 shares of convertible preferred stock and has certificates of designation of five separate series as summarized below as of September 30, 2013. | |||||||||||||||||
Number of Shares Issued | Conversion to Common Stock | ||||||||||||||||
Preferred Stock | Par Value | ||||||||||||||||
Series “A" (1) | 0 | $ | 0.0001 | N/A | |||||||||||||
Series “B" (2) | 1 | $ | 0.0001 | 1:01 | |||||||||||||
Series “C" (3) | 1 | $ | 0.0001 | 1:01 | |||||||||||||
Series “D” (4) | 1,379,685 | $ | 0.0001 | 10:01 | |||||||||||||
Series “E” (5) | 0 | $ | 0.0001 | 1:01 | |||||||||||||
-1 | See Rights Agreement below. | ||||||||||||||||
-2 | 1 share was issued October 12, 2010 and remains issued and outstanding. Liquidation preference is $1,000 per share. | ||||||||||||||||
-3 | See Warrant Exchange Agreement below. | ||||||||||||||||
-4 | The Company on September 10, 2013, issued 1,379,685 shares of Series D convertible preferred stock in exchange for all the Series A and Series B Preferred shares of North South. See Note 1. | ||||||||||||||||
-5 | There were 100,000 shares were issued on June 25, 2013 in consideration for $500,000 to North South pursuant to a private placement. See Series E Convertible Preferred Stock below. The shares were retired on September 30, 2013. | ||||||||||||||||
Warrant Exchange Agreement | |||||||||||||||||
On March 6, 2013, the Company, and certain investors that participated in the November 2012 private placement transaction (“Investors”), entered into separate Warrant Exchange Agreements pursuant to which certain of the Investors exchanged common stock purchase warrants acquired in the private placement for shares of the Company’s newly designated Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock is convertible into one (1) share of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at the option of the holder, subject to certain limitations on conversions that would result in the Investors acquiring more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice, 9.99%) of the outstanding voting stock of the Company. 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 (“Certificate of Designation”). The liquidation preference of the Series C Convertible Preferred Stock is $0.0001 per share. | |||||||||||||||||
Pursuant to the Warrant Exchange Agreements, certain Investors received in exchange for their warrants an aggregate of 229,337 shares of the Series C Convertible Preferred Stock, each convertible into one share of Common Stock. The number of shares of Common Stock underlying the Series C Convertible Preferred Stock is the same number as would have been-issued upon a “cashless exercise” of the exchanged warrants under the terms of the warrants based on the one-day volume weighted average price of the Company’s Common Stock on February 28, 2013, which was $12.6439 per share, as reported by Bloomberg. | |||||||||||||||||
The Company agreed to register the shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock on the same basis as the shares of Common Stock issued in the November 2012 private placement transaction which registration obligation was subsequently waived by a majority of the Investors. As of September 30, 2013, investors converted 229,336 shares of the Series C Convertible Preferred Stock into 229,336 shares of common stock. | |||||||||||||||||
Rights Agreement | |||||||||||||||||
On January 24, 2013, effective as of January 1, 2013, the Company and Equity Stock Transfer, LLC, as Rights Agent, entered into a Rights Agreement which continues through December 31, 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 offeror beneficially owning 10% or more of our outstanding Common Stock. | |||||||||||||||||
All rights held by an acquirer or offeror expire on the announced acquisition date, and all rights expire at the close of business on December 31, 2017, subject to further extension. Each right entitles a Stockholder to acquire, for a price of $7.46, 1/100 of a share of our Convertible Series A Preferred Stock, 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 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. | |||||||||||||||||
Series E Convertible Preferred Stock | |||||||||||||||||
On June 25, 2013, the Company sold 100,000 shares of its newly designated Series E Convertible Preferred Stock (the “Series E Preferred Stock”) to North South for a purchase price of $5.00 per share with gross proceeds to the Company of $500,000 pursuant to a subscription agreement. These securities were sold pursuant to an exemption from registration under Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of the securities laws. Each share of Series E Preferred Stock is convertible, at the option of the holder at any time, into one (1) share of the Company’s Common Stock and has a stated value of $0.0001. Such conversion ratio is subject to adjustment in the case of stock splits, stock dividends, combination of shares and similar recapitalization transactions. | |||||||||||||||||
North South is prohibited from effecting the conversion of the Series E Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially own more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice, 9.99%) in the aggregate of the issued and outstanding shares of the Company’s Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series E Preferred Stock. These 100,000 shares of Series E Convertible Preferred Stock were acquired by the Company in connection with the North South Merger, and thereafter retired and were not outstanding as of September 30, 2013. | |||||||||||||||||
Common Stock | |||||||||||||||||
The Company has 50,000,000 shares authorized as of September 30, 2013 with a par value of $0.0001 per share. | |||||||||||||||||
During the nine months ended September 30, 2013, the Company issued the following shares of common stock: | |||||||||||||||||
· 229,336 shares of common stock issued upon conversion of 229,336 shares of Series C Convertible Preferred Stock originally issued in connection with the warrant exchange agreement described above; | |||||||||||||||||
· 176,991 shares of common stock issued in connection with the acquisition of intellectual property in the Rockstar patent portfolio acquisition (see Note 1); | |||||||||||||||||
· 6,711 shares of common stock issued upon the cashless exercise of 9,391 warrants; and | |||||||||||||||||
· 1,203,153 shares of common stock issued in connection with the acquisition of North South. These shares were issued in exchange for the 5,213 shares of common stock of North South. | |||||||||||||||||
The Company’s additional paid in capital increased $20,608,869 in the nine months ended September 30, 2013. Included in this increase is stock based compensation of $7,402,485, increase for the acquisition of North South of $5,510,491, an increase due to the issuance of common shares in the Rockstar patent purchase of $999,982 and an increase due to the conversion of warrants to Series C Convertible Preferred Stock of $5,695,512. | |||||||||||||||||
Stock Options | |||||||||||||||||
2013 Plan | |||||||||||||||||
In April 2013, the Company’s board of directors adopted the Spherix Incorporated 2013 Equity Incentive Plan (the “2013 Plan”), an omnibus equity incentive plan pursuant to which the Company may grant equity and cash and equity-linked awards to certain management, directors, consultants and others. The plan was approved by the Company’s shareholders in August 2013. | |||||||||||||||||
The 2013 Plan authorized approximately 15% of our fully-diluted Common Stock at the time approved (not to exceed 2,800,000 shares) be reserved for issuance under the Plan, after giving effect to the shares of our capital stock issuable under the Merger. On April 4, 2013, the Company issued 2,005,500 option shares to executives of the Company and certain outside consultants under the 2013 Plan. The total fair value of the options on the date of grant was approximately $15,865,270 under the Black-Scholes and other lattice models of valuing options. | |||||||||||||||||
On April 4, 2013, the Company, with the approval of the board of directors, granted the following stock options to various employees, directors and consultants at a contractual price of $7.08 per share, which was equal to the fair market value of the Company’s common stock on the date that the terms of those awards were agreed to by the Company and optionees. | |||||||||||||||||
Awards with service conditions only were granted as follows: | |||||||||||||||||
· 750,000 stock options to our former interim Chief Executive Officer which vest in four equal installments of 187,500 options each on October 4, 2013, April 4, 2014, October 4, 2014 and April 4, 2015, subject to a time based service condition only; | |||||||||||||||||
· 250,000 stock options to the former Chief Executive Officer of North South, who became the Company’s Chief Executive Officer upon the completion of the acquisition of North South on September 10, 2013, which vest in four equal installments of 62,500 options each on October 4, 2013, April 4, 2014, October 4, 2014 and April 4, 2015, subject to a time based service condition only; | |||||||||||||||||
· An aggregate of 225,000 options to three directors that fully vested on October 4, 2013, subject to each of these directors’ continued service to the Company through that date; and | |||||||||||||||||
· An aggregate of 30,500 options to two consultants and one employee that fully vested on August 16, 2013 upon shareholder approval of the plan. | |||||||||||||||||
Awards with combined market and service conditions were granted as follows: | |||||||||||||||||
· 250,000 stock options to our former interim Chief Executive Officer for which (i) the exercisability of the options is subject to the volume weighted average price of the Company’s stock attaining at least $12 per share for at least 30 days during any consecutive 90 day period through December 31, 2014, and (ii) the continued employment/directorship of the interim Chief Executive Officer over a period of time that permits vesting at the rate of 62,500 options each on October 4, 2013, April 4, 2014, October 4, 2014 and April 4, 2015, subject to a time based service condition only; and | |||||||||||||||||
· 500,000 stock options to the former Chief Executive Officer of North South, who became the Company’s Chief Executive Officer upon the completion of the acquisition of North South on September 10, 2013 for which (i) (i) the exercisability of the options is subject to the volume weighted average price of the Company’s stock attaining at least $12 per share for at least 30 days during any consecutive 90 day period through December 31, 2014, and (ii) achieving performance conditions as follows: | |||||||||||||||||
100,000 options subject to the delivery of a business plan acceptable to the board of directors of the Company by no later than June 30, 2013; | |||||||||||||||||
70,000 options subject to the closing of a financing transaction as set forth in the business plan; | |||||||||||||||||
70,000 options for two successful patent monetizations; | |||||||||||||||||
70,000 options upon the completion of an additional purchase of a patent portfolio; | |||||||||||||||||
70,000 options upon the initiation of litigation upon at least four defendants in infringement cases; | |||||||||||||||||
70,000 options upon the presentation of at least two additional monetization opportunities acceptable to the board of directors; and | |||||||||||||||||
50,000 options for attending at least 20 investor relations meetings. | |||||||||||||||||
The 2013 stock option plan was approved by the Company’s stockholders on August 16, 2013, which resulted in the ratification of the awards approved by the Company’s board of directors on April 4, 2013. | |||||||||||||||||
The fair value of the stock options issued with service conditions only was calculated on the date that the final approval by the stockholders was obtained using the Black-Scholes option pricing model with the following assumptions: contractual exercise price $7.08 per share; fair value of the Company’s common stock of $12.80 per share; risk free interest rates ranging from 0.36% to 2.84%; dividend yield of 0%; expected terms ranging from 2 to 10 years; and a volatility rate of 78.9%. The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained. The Company does not expect to pay dividends in the foreseeable future so therefore the dividend yield is 0%. The expected term was calculated using the plain vanilla method, which is approximately to the term that Management believes represents a good approximation of the period of time that each class of optionee would likely hold these awards until exercising them. The Company obtained the risk free interest rate from publicly available data published by the Federal Reserve. The volatility rate was computed based on a comparison of average volatility rates of similar companies. | |||||||||||||||||
Compensation expense recognized for the above noted awards amounted to $4,716,070 for the three and nine month periods ended September 30, 2013. Unamortized compensation cost for these awards amounted to $7,474,200 and will be amortized over a remaining contractual term of 2 years. | |||||||||||||||||
The fair value of the stock options issued with combined market and service conditions only was calculated on the date that the final approval by the stockholders was obtained using the same assumptions as the awards that contain service conditions only; however, the fair value was adjusted for the risk associated with attaining the volume weighted average pricing target that must be met in order for the award to become exercisable. The Company determined that the unit fair value of each award amounted to $4.90 based on a 70% probability of attaining the aforementioned price target, which was determined using a Monte Carlo Simulation of the probability of attaining the target. | |||||||||||||||||
The aggregate fair value of the 250,000 stock options that features the combined market and service condition amounted to $1,225,000 on the date of grant. The fair value of these awards is being amortized over an explicit service period in which the award vests at the rate of 62,500 options each on October 4, 2013, April 4, 2014, October 4, 2014 and April 4, 2015 as noted above. Compensation expense recognized for this award amounted to $306,250 for the three and nine month periods ended September 30, 2013. Unamortized compensation cost for this award amounts to $918,750 and will be amortized over the remaining explicit service of 2 years. | |||||||||||||||||
The aggregate fair value of the 500,000 stock options that features the combined market and performance condition amounted to $2,450,000 on the date of grant. The recipient of these awards attained the required conditions with respect to 240,000 of these options as of the date stockholder approval was obtained. Accordingly, the Company recorded compensation cost in the amount of $1,176,000 for the three and nine month periods ended September 30, 2013. Company Management believes that it is highly probable that the recipient of this grant will attain the conditions necessary to vest 190,000 of the stock options over a derived service period that will end no later than December 31, 2013, and the remaining 70,000 stock options over a derived service period that will end no later than March 31, 2014. Compensation expense relating to these components of the awards amounted to $379,535 for the three and nine month periods ended September 30, 2013. Unamortized compensation cost for these awards amounts to $894,465 and will be amortized over the remaining explicit service of 2 years. | |||||||||||||||||
A summary of option activity under the Company’s employee stock option plan for the nine months ended September 30, 2013, is presented below: | |||||||||||||||||
Options | Shares | Weighted- | Weighted- | Aggregate | |||||||||||||
Average | Average | Intrinsic | |||||||||||||||
Exercise | Remaining | Value | |||||||||||||||
Price | Contractual | ||||||||||||||||
Term | |||||||||||||||||
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 | |||||||||||
The Company established the 2014 Equity Incentive Plan on September 27, 2013. This has been submitted for shareholder approval authorizing the issuance of up to 1,400,000 shares of Common Stock as incentive compensation. The Company’s Annual Meeting of Shareholders is presently scheduled for December 10, 2013 at which time the shareholders will be asked to approve this plan. | |||||||||||||||||
Restricted Stock Awards | |||||||||||||||||
A restricted stock award entitles the recipient to receive shares of unrestricted common stock upon vesting of the award and expiration of the restrictions. The fair value of each restricted stock award is determined upon granting of the shares and the related compensation expense is recognized ratably over the vesting period and charged to the operations as non-cash compensation expense. Shares contained in the unvested portion of restricted stock awards are forfeited upon termination of employment, unless otherwise agreed. The fair value of restricted stock issued under the Plan is determined based on the closing price of the Company’s common stock on the grant date. | |||||||||||||||||
A summary of the restricted stock award activity for the nine months ended September 30, 2013 is as follows: | |||||||||||||||||
Number of | Weighted | ||||||||||||||||
Units | 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 | |||||||||||||||
The Company incurred $822,485 and $0 in compensation expense during the nine months ended September 30, 2013 and 2012, respectively, related to the restricted stock awards previously granted. At September 30, 2013, unrecognized compensation expense associated with the restricted stock awards was $683, which will be amortized over approximately one-half of a year. | |||||||||||||||||
At the end of December 2012, the Company entered into a Consulting Agreement with an entity wholly-owned by Mr. Harvey Kesner, a member of the board of directors and our former Interim Chief Executive Officer, pursuant to which the entity was issued 120,000 shares of common stock in exchange for its services with a grant date value of $816,000. | |||||||||||||||||
The shares will vest if prior to December 31, 2017, the Company; (i) closes a Qualified Transaction (as defined within the agreement); (ii) closes a private or public financing of at least $7.5 million; or (iii) otherwise undergoes a change in control. In such an event, the affiliate shall also be entitled to a one-time payment of $250,000. Expense is recognized upon satisfaction of the above contingencies. The consummation of the Merger qualified as a Qualified Transaction and was approved by the shareholders, thereby causing the shares to vest on September 10, 2013. | |||||||||||||||||
The following table provides a summary of stock based compensation expense for all awards during the periods presented: | |||||||||||||||||
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 | - | |||||||||||||
Restrcited stock | 816,000 | - | 822,486 | - | |||||||||||||
$ | 7,393,855 | $ | - | $ | 7,402,485 | $ | 40,000 | ||||||||||
Fair_Value_Measurement
Fair Value Measurement | 9 Months Ended | |||||||||||||||||
Sep. 30, 2013 | ||||||||||||||||||
Fair Value Disclosures [Abstract] | ' | |||||||||||||||||
Fair Value Measurement | ' | |||||||||||||||||
Fair Value of Financial Assets and Liabilities | ||||||||||||||||||
Financial liabilities measured at fair value on a recurring basis are summarized below: | ||||||||||||||||||
Fair value measurements at September 30, 2013 using | ||||||||||||||||||
30-Sep-13 | Quoted prices in | Significant | Significant | |||||||||||||||
active markets for identical assets | other | unobservable | ||||||||||||||||
(Level 1) | observable | inputs | ||||||||||||||||
inputs | (Level 3) | |||||||||||||||||
(Level 2) | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Fair value of warrant liabilities | $ | 39,923 | – | – | $ | 39,923 | ||||||||||||
Fair value measurements at December 31, 2012 using | ||||||||||||||||||
31-Dec-12 | Quoted prices in | Significant | Significant | |||||||||||||||
active markets for identical assets | other | unobservable | ||||||||||||||||
(Level 1) | observable | inputs | ||||||||||||||||
inputs | (Level 3) | |||||||||||||||||
(Level 2) | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Fair value of warrant liabilities | $ | 3,125,393 | – | – | $ | 3,125,393 | ||||||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Principal Accounting Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Principal Accounting Officer. | ||||||||||||||||||
Level 3 Valuation Techniques | ||||||||||||||||||
Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. | ||||||||||||||||||
The Company uses the Black-Scholes option valuation model to value Level 3 financial liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. | ||||||||||||||||||
A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “Fair value adjustments for warrant liabilities” in the Company’s condensed consolidated statements of operations. | ||||||||||||||||||
As of September 30, 2013, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy. | ||||||||||||||||||
Liabilities resulting from the Warrants issued in connection with the Company’s financing were valued using the Black-Scholes option valuation model and the following assumptions on the following: | ||||||||||||||||||
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 | ||||||||||||||
The risk-free interest rate was based on rates established by the Federal Reserve. The expected volatility in the Black-Scholes model is based on the standard deviation of the Company’s underlying stock price's daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends on its common stock, and does not expect to pay dividends on its common stock in the future. | ||||||||||||||||||
The fair value of these warrant liabilities was $3,125,393 at December 31, 2012. The net change in fair value during the nine months ended September 30, 2013 was $3,085,470, of which $2,610,465 is reported in our condensed consolidated statement of operations as fair value adjustments for warrant liabilities and $5,695,935 as a reclassification of the fair value of the warrant liabilities to stockholders’ equity in connection with the March 2013 exchange of 475,211 Series B Warrants for 229,337 shares of Series C Convertible Preferred Stock (see note 5 “Stockholders’ Equity”). The fair value of the warrant liabilities is re-measured at the end of every reporting period and upon the exercise and/or modification of warrants. The change in fair value is reported in the condensed consolidated statement of operations as fair value adjustments for warrant liabilities. | ||||||||||||||||||
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis for the nine months ended September 30: | ||||||||||||||||||
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 | ||||||||||||||
Commitments_and_Contingencies
Commitments and Contingencies | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||
Commitments and Contingencies | ' | ||||
Leases | |||||
The Company has commitments under an operating lease through March 31, 2018 relating to its administrative office in Bethesda, Maryland. In addition, the Company entered into a lease agreement in February 2013 to lease 837 square feet of office space in Tysons Corner, Virginia. The Virginia lease runs from March 1, 2013 through August 31, 2014. | |||||
Future minimum rental payments required as of September 30, 2013, remaining under the non-cancelable leases are as follows: | |||||
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 | ||||
The Bethesda, Maryland office lease contains step rent provisions, capital improvement funding, or other tenant allowances. The Tysons Corner, Virginia office lease contains step rent provision. Minimum rental payments including allowances on the leases are recognized on a straight-line basis over the term of the leases. The Company incurred net operating lease rental expenses of approximately $132,475 and $121,630 for the nine months ended September 30, 2013 and 2012, respectively. The Company has commenced a lawsuit against the landlord of the Bethesda, Maryland office claiming that the assignment of the lease to the purchaser of the Spherix Consulting business was permitted under the lease and seeking termination of the lease as a result of the landlord’s failure to consent to such assignment. The Bethesda, Maryland office is currently being offered for sublease at current market rents that are significantly lower than the fixed lease cost of such facility. | |||||
Employment Agreement | |||||
The Company entered into an employment agreement (“Employment Agreement”) with Anthony Hayes on September 10, 2013, for a period of two years. The Employment Agreement shall automatically be extended for additional one-year terms unless either party gives written notice of non-renewal to the other party no later than six months prior to the expiration of the term. | |||||
Pursuant to the Employment Agreement, the Company is obligated to pay a base salary of $350,000 per annum, with bonus potential of 100% of the base salary. In addition, the Company paid a $100,000 signing bonus upon the execution of the Employment Agreement. | |||||
Litigation | |||||
During September 2013, the Company filed a lawsuit on its cordless handset patents acquired from Rockstar against Uniden Corporation (“Uniden”), for patent infringement in the Northern District of Texas. The patents at issue in the litigation were acquired in the Rockstar portfolio in July 2013, as successor to Nortel Networks (“Nortel”). The lawsuit asserts that from 2007 to present, Uniden’s cordless phones infringed one or more claims of one or more of the Company’s patents. Management is unable to predict an outcome in this matter at this time. | |||||
During September, 2013, the Company also filed a lawsuit against VTech Communications, Inc. (“VTech”) in the Northern District of Texas. The patents at issue in the litigation were acquired in the Rockstar portfolio in July 2013, as successor to Nortel. The lawsuit asserts that many cordless telephones manufactured by VTech, dating to 1993 infringed on one or more claims of the Company’s patents. Management is unable to predict an outcome in this matter at this time. | |||||
On August 1, 2013, the Company’s subsidiary Guidance filed a complaint against T-Mobile USA, Inc. (“T-Mobile”) in the Middle District of Florida. The patents at issue in the litigation were acquired from North South and constitute patents, acquired from Harris Corporation. The lawsuit asserts T-Mobile infringes United States Patent No. 5,719,584 entitled “System and Method for Determining the Geolocation of a Transmitter” in the geolocation of cell phones on the T-Mobile cell phone network. |
Subsequent_Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2013 | |
Subsequent Events [Abstract] | ' |
Subsequent Events | ' |
The Company evaluated all events or transactions after September 30, 2013 through the date the condensed consolidated financial statements were issued. | |
On October 7, 2013, the Company received notice of a complaint filed in the Circuit Court of Montgomery County, Maryland in the matter of LegalLink Inc. vs. Spherix Incorporated. LegalLink, Inc., a Merrill Communications Company alleges 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, that have gone unpaid. The Company’s legal counsel is reviewing this lawsuit and is assessing the likelihood of an unfavorable outcome at this time. As of September 30, 2013, the past due balance of $47,409 has been included in accounts payable and accrued expenses on the condensed consolidated financial statements. | |
On October 11, 2013, the Company appointed Michael Pollack as its interim Chief Financial Officer. In connection with his appointment, the Company and Mr. Pollack entered into an Indemnification Agreement. | |
On October 15, 2013, the Board approved the Company’s Amended and Restated Bylaws in order to update the Company’s bylaws in various respects. | |
On October 15, 2013, the Board approved the amendment and restatement of the Company’s Certificate of Incorporation, as amended, to, among other things, increase the number of authorized shares from 50,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock to 200,000,000 shares and 50,000,000 shares respectively. The amendment and restatement of the Company’s Certificate of Incorporation is being submitted for stockholder approval at the Company’s 2013 Annual Stockholder meeting. | |
On October 28, 2013, the Board appointed Alexander Poltorak to the Company’s Board of Directors. In connection with his appointment, the Company and Mr. Poltorak entered into an Indemnification Agreement. | |
On November 6, 2013, the Company sold an aggregate of 304,250 shares of its newly designated Series F Preferred Stock and 48,438 shares of common stock to five accredited investors for gross proceeds to the Company of $2,235,000 pursuant to subscription agreements. The purchase price per share of Common Stock was $6.40 for $1,310,000 of such investment and $6.25 for $925,000 of such investment. No broker was utilized in connection with the sale. In accordance with the requirement of NASDAQ, each share of Series F Preferred Stock shall be entitled to .91 times the vote attributable to the shares of common stock. The Company anticipates correcting the Certificate of Designation; Rights and Preferences of the Series F Preferred Stock shall be entitled to 91% of one vote, subject to the beneficial ownership limitation covering the shares. In connection with the foregoing private placement, the Company agreed to file a “resale” registration statement with the SEC covering all shares of Common Stock and shares of Common Stock underlying the Series F Preferred Stock within 91 days of the final closing date and to maintain the effectiveness of the registration statement until all securities have been sold or are otherwise able to be sold pursuant to Rule 144. The Company has agreed to use its reasonable best efforts to have the registration statement declared effective within 180 days of the final closing. | |
The Company is obligated to pay to investors a fee of one (1%) per month in cash for every thirty day period up to a maximum of six (6%) percent, (i) that the registration statement has not been filed after the required filing date, and (ii) following the required date of effectiveness that the registration statement has not been declared effective; provided, however, that the Company shall not be obligated to pay any such liquidated damages if the Company is unable to fulfill its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415”, provided the Company registers at such time the maximum number of shares of Common Stock permissible upon consultation with the staff of the SEC. | |
The Company also entered into a Lockup Agreement with certain investors which provides for restrictions on the resale of shares for a period of 180 days from the closing of the Private Placement held by certain investors through December 31, 2014, which in certain circumstances is subject to extension. The Lockup Agreement provides that additional 180 day restrictions shall commence without further action of the Company upon the sale of $15 million or greater gross proceeds of securities and upon a material acquisition. | |
Summary_of_Significant_Account1
Summary of Significant Accounting Policies (Policies) | 9 Months Ended | ||||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||||||||
Basis of presentation | ' | ||||||||||||||||||||||
Basis of Presentation and Principles of Consolidation | |||||||||||||||||||||||
The accompanying condensed consolidated financial statements of the Company are unaudited and do not include all of the information and disclosures generally required for annual financial statements. In the opinion of management, the statements contain all material adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s consolidated financial position as of September 30, 2013, the consolidated results of its operations for the three-and nine-month periods ended September 30, 2013 and 2012, and the consolidated results of its cash flows for the nine-month periods ended September 30, 2013 and 2012. This report should be read in conjunction with the Company’s Annual Report on Form 10-K, which does contain the complete information and disclosure, for the year ended December 31, 2012. | |||||||||||||||||||||||
The accompanying condensed consolidated financial statements include the accounts of Spherix Incorporated and its wholly-owned subsidiaries, Biospherics Incorporated and Nuta Technology Corp. Prior to the Merger with Nuta, North South formed two Delaware limited liability corporations on July 26, 2013, Guidance IP, LLC (“Guidance”) and Directional IP, LLC. (“Directional”). All significant intercompany balances and transactions have been eliminated in consolidation. | |||||||||||||||||||||||
Use of Estimates | ' | ||||||||||||||||||||||
Use of Estimates | |||||||||||||||||||||||
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). 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. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, valuation of warrants, the valuation of assets acquired and common and preferred stock issued in the acquisition of North South and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions. | |||||||||||||||||||||||
Concentration of Cash | ' | ||||||||||||||||||||||
Concentration of Cash | |||||||||||||||||||||||
The Company maintains cash balances at two financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2013, the Company’s cash and cash equivalents in excess of the FDIC limits were $1,932,739. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks. | |||||||||||||||||||||||
Accounts Receivable | ' | ||||||||||||||||||||||
Accounts Receivable | |||||||||||||||||||||||
Credit is extended to customers based on an evaluation of a customer’s financial condition and, in general, collateral is not required. Management regularly reviews accounts receivable for uncollectible and potentially uncollectible accounts, and when necessary establishes an allowance for doubtful accounts. Balances that are outstanding after management has used reasonable collection efforts are written-off through a reduction in the allowance for doubtful accounts and a credit to accounts receivable. | |||||||||||||||||||||||
Fair Value of Financial Instruments | ' | ||||||||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||||||||
Financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. | |||||||||||||||||||||||
The Company uses three levels of inputs that may be used to measure fair value: | |||||||||||||||||||||||
Level 1 — quoted prices in active markets for identical assets or liabilities | |||||||||||||||||||||||
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable | |||||||||||||||||||||||
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions) | |||||||||||||||||||||||
Revenue Recognition | ' | ||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||
The Company currently derives its revenues from past production payments. Past production payment revenues are royalty payments for the use of the Company’s intellectual property and where payments are made as part of a settlement of a patent infringement dispute. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability is reasonably assured. Based on the criteria enumerated in Accounting Standards Codification (“ASC”) 605, the Company records its revenues and costs associated with its patent enforcement activities gross on the consolidated statement of operations. | |||||||||||||||||||||||
Cost of Revenues | ' | ||||||||||||||||||||||
Cost of Revenues | |||||||||||||||||||||||
Cost of revenues include the costs and expenses incurred in connection with the Company’s patent enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third parties and the amortization of patent-related acquisition costs. | |||||||||||||||||||||||
Inventor Royalties and Contingent Legal Expenses | ' | ||||||||||||||||||||||
Inventor Royalties and Contingent Legal Expenses | |||||||||||||||||||||||
Inventor royalties are expensed in the period that the related revenues are recognized. In certain instances, pursuant to the terms of the underlying inventor agreements, costs paid by the Company to acquire patents are recoverable from future net revenues. Patent acquisition costs that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense. | |||||||||||||||||||||||
Contingent legal fees are expensed in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement. Legal fees advanced by contingent law firms that are required to be paid in the event that no license recoveries are obtained are expensed as incurred. | |||||||||||||||||||||||
Intangible Assets b Patent Portfolios | ' | ||||||||||||||||||||||
Intangible Assets – Patent Portfolios | |||||||||||||||||||||||
Intangible assets include the Company’s patent portfolios with original estimated useful lives ranging from 6 months to 12 years. The Company amortizes the cost of the intangible assets over their estimated useful lives on a straight line basis. Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent. As disclosed in Note 1, the Company acquired certain patent portfolios in the third quarter of 2013. The weighted average remaining amortization period of the Company’s patents is approximately 8.5 years. Future amortization of all patents is as follows: | |||||||||||||||||||||||
For the Years Ending | Harris | CompuFill | Rockstar | ||||||||||||||||||||
31-Dec | Patent Portfolio | Patent Portfolio | Patent Portfolio | Total | |||||||||||||||||||
Other Costs | 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 | |||||||||||||
* Represents three months remaining for 2013 | |||||||||||||||||||||||
Amortization of the intangible assets for the three and nine months ended September 30, 2013 was $133,785. There was no amortization prior to July 24, 2013 as the first assets were placed into service on July 24, 2013. | |||||||||||||||||||||||
Impairment of Long-lived Assets | ' | ||||||||||||||||||||||
Impairment of Long-lived Assets | |||||||||||||||||||||||
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The Company has not identified any such impairment losses. | |||||||||||||||||||||||
Reclassifications | ' | ||||||||||||||||||||||
Reclassifications | |||||||||||||||||||||||
The Company has reclassified certain amounts from its previously reported consolidated financial statements for comparative purposes to conform to the fiscal 2013 presentation. These reclassifications had no impact on the Company’s previously reported consolidated operations or cash flows. | |||||||||||||||||||||||
Goodwill | ' | ||||||||||||||||||||||
Goodwill | |||||||||||||||||||||||
Under ASC No. 350, “Intangibles—Goodwill and Other” (“ASC 350”), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently, if impairment indicators arise. | |||||||||||||||||||||||
Goodwill impairment is tested at least annually or when factors indicate potential impairment using a two-step process that begins with an estimation of the fair value of each reporting unit. Step 1 is a screen for potential impairment pursuant to which the estimated fair value of each reporting unit is compared to its carrying value. | |||||||||||||||||||||||
The Company estimates the fair values of each reporting unit by a combination of (i) estimation of the discounted cash flows of each of the reporting units based on projected earnings in the future (the income approach) and (ii) a comparative analysis of revenue and margins multiples of public companies in similar markets (the market approach). If there is a deficiency (the estimated fair value of a reporting unit is less than its carrying value), a Step 2 test is required. | |||||||||||||||||||||||
Income Taxes | ' | ||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||
The Company adopted the provisions of ASC 740-10, which prescribes a recognition threshold and measurement process for financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. | |||||||||||||||||||||||
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of September 30, 2013. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. | |||||||||||||||||||||||
The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations. | |||||||||||||||||||||||
Net Loss Per Share | ' | ||||||||||||||||||||||
Net Loss Per Share | |||||||||||||||||||||||
Basic earnings and loss per share are computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the conversion of preferred stock and the exercise of stock options and warrants from the calculation of net loss per share if their effect would be antidilutive. | |||||||||||||||||||||||
Securities that could potentially dilute earnings per share in the future that were not included in the computation of diluted loss per share at September 30, 2013 and 2012 are as follows: | |||||||||||||||||||||||
30-Sep-13 | 30-Sep-12 | ||||||||||||||||||||||
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 | |||||||||||||||||||||
Stock-based Compensation | ' | ||||||||||||||||||||||
Stock-based Compensation | |||||||||||||||||||||||
The Company accounts for share-based payment awards exchanged for employee services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a four- to ten-year period. | |||||||||||||||||||||||
The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield. The risk free interest rate is based on U.S. Treasury zero-coupon yield curve over the expected term of the option. The expected term assumption is determined using the weighted average midpoint between vest and expiration for all individuals within the grant. The expected volatility assumption is based on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns. | |||||||||||||||||||||||
The Company’s model includes a zero dividend yield assumption, as the Company has not historically paid nor does it anticipate paying dividends on its common stock. The Company’s model does not include a discount for post-vesting restrictions, as the Company has not issued awards with such restrictions. | |||||||||||||||||||||||
The periodic expense is then determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest. | |||||||||||||||||||||||
Segment Reporting | ' | ||||||||||||||||||||||
Segment Reporting | |||||||||||||||||||||||
The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. As of September 30, 2013 and for the nine months ended September 30, 2013, the Company operates in two segments. The segments are as follows: biotechnology and patent monetization. The Company’s biotechnology segment is minimal in 2013 and represented 100% of the Company in 2012. Since the acquisition of the Rockstar patent portfolio and merger with North South, the Company is primarily a patent monetization company and a majority of the Company’s operations and assets are in the patent monetization segment. | |||||||||||||||||||||||
The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the Company’s chief executive officer. | |||||||||||||||||||||||
Recently Issued Accounting Pronouncements | ' | ||||||||||||||||||||||
Recently Issued Accounting Pronouncements | |||||||||||||||||||||||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU state that an unrecognized tax benefit , or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. | |||||||||||||||||||||||
For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | |||||||||||||||||||||||
Summary_of_Significant_Account2
Summary of Significant Accounting Policies (Tables) | 9 Months Ended | ||||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||||||||
Future amortization expense of patents | ' | ||||||||||||||||||||||
For the Years Ending | Harris | CompuFill | Rockstar | ||||||||||||||||||||
31-Dec | Patent Portfolio | Patent Portfolio | Patent Portfolio | Total | |||||||||||||||||||
Other Costs | 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 | |||||||||||||
Antidilutive securities excluded from computation of earnings per share | ' | ||||||||||||||||||||||
30-Sep-13 | 30-Sep-12 | ||||||||||||||||||||||
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 |
Acquisition_of_North_South_Tab
Acquisition of North South (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Business Combinations [Abstract] | ' | ||||||||||||||||
Purchase Price Allocation | ' | ||||||||||||||||
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 | ||||||||||||||||
$ | - | ||||||||||||||||
The purchase price allocation was based, in part, on management’s knowledge of North South’s business and the results of a third party appraisal commissioned by management. | |||||||||||||||||
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 | ) |
Stockholders_Equity_Tables
Stockholders' Equity (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Stockholders Equity Tables | ' | ||||||||||||||||
Preferred stock | ' | ||||||||||||||||
Number of Shares Issued | Conversion to Common Stock | ||||||||||||||||
Preferred Stock | Par Value | ||||||||||||||||
Series “A" (1) | 0 | $ | 0.0001 | N/A | |||||||||||||
Series “B" (2) | 1 | $ | 0.0001 | 1:01 | |||||||||||||
Series “C" (3) | 1 | $ | 0.0001 | 1:01 | |||||||||||||
Series “D” (4) | 1,379,685 | $ | 0.0001 | 10:01 | |||||||||||||
Series “E” (5) | 0 | $ | 0.0001 | 1:01 | |||||||||||||
A summary of option activity | ' | ||||||||||||||||
Options | Shares | Weighted- | Weighted- | Aggregate | |||||||||||||
Average | Average | Intrinsic | |||||||||||||||
Exercise | Remaining | Value | |||||||||||||||
Price | Contractual | ||||||||||||||||
Term | |||||||||||||||||
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 | |||||||||||
A summary of the restricted stock award activity | ' | ||||||||||||||||
Number of | Weighted | ||||||||||||||||
Units | 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 | |||||||||||||||
Stock based compensation expense | ' | ||||||||||||||||
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 | - | |||||||||||||
Restrcited stock | 816,000 | - | 822,486 | - | |||||||||||||
$ | 7,393,855 | $ | - | $ | 7,402,485 | $ | 40,000 |
Fair_Value_Measurement_Tables
Fair Value Measurement (Tables) | 9 Months Ended | |||||||||||||||||
Sep. 30, 2013 | ||||||||||||||||||
Fair Value Measurement Tables | ' | |||||||||||||||||
Financial liabilities measured at fair value | ' | |||||||||||||||||
Fair value measurements at September 30, 2013 using | ||||||||||||||||||
30-Sep-13 | Quoted prices in | Significant | Significant | |||||||||||||||
active markets for identical assets | other | unobservable | ||||||||||||||||
(Level 1) | observable | inputs | ||||||||||||||||
inputs | (Level 3) | |||||||||||||||||
(Level 2) | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Fair value of warrant liabilities | $ | 39,923 | – | – | $ | 39,923 | ||||||||||||
Fair value measurements at December 31, 2012 using | ||||||||||||||||||
31-Dec-12 | Quoted prices in | Significant | Significant | |||||||||||||||
active markets for identical assets | other | unobservable | ||||||||||||||||
(Level 1) | observable | inputs | ||||||||||||||||
inputs | (Level 3) | |||||||||||||||||
(Level 2) | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Fair value of warrant liabilities | $ | 3,125,393 | – | – | $ | 3,125,393 | ||||||||||||
Liabilities resulting from the Series B Warrants | ' | |||||||||||||||||
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 | ||||||||||||||
Changes in company's Level 3 liabilities | ' | |||||||||||||||||
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 |
Commitments_and_Contingencies_
Commitments and Contingencies (Tables) | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
Commitments And Contingencies Tables | ' | ||||
Future minimum rental payments | ' | ||||
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 | ||||
Business_Merger_and_Basis_of_P1
Business, Merger and Basis of Presentation (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Common stock, par value (in dollars per share) | $0.00 | ' | $0.00 |
Preferred stock, series D shares issued | 1,379,685 | ' | ' |
Preferred stock, series D shares outstanding | 1,379,685 | ' | ' |
Series D, par value | $0.00 | ' | $0.00 |
Accrued patent costs | $1,000,000 | ' | ' |
North South [Member] | ' | ' | ' |
Acquired company's shares converted to common stock | 5,213 | ' | ' |
Common stock from acquired company's shares | 1,203,153 | ' | ' |
Common stock, par value (in dollars per share) | $0.00 | ' | ' |
Series A issued and outstanding | 491 | ' | ' |
Preferred stock, series D shares issued | 1,379,685 | ' | ' |
Preferred stock, series D shares outstanding | 1,379,685 | ' | ' |
Series D, par value | $0.00 | ' | ' |
Series D conversion feature | 'one-for-ten | ' | ' |
Rockstar [Member] | ' | ' | ' |
Patent purchase | 4,000,000 | ' | ' |
Patent purchase, cash paid | 2,000,000 | ' | ' |
Patent purchase, shares issued | 176,991 | ' | ' |
Patent purchase, shares issued, value | 1,000,000 | ' | ' |
Patent purchase, shares issued, per share price | $5.65 | ' | ' |
Accrued patent costs | $1,000,000 | ' | ' |
Liquidity_and_Capital_Resource1
Liquidity and Capital Resources (Details Narrative) (USD $) | 1 Months Ended | ||
Nov. 06, 2013 | Sep. 30, 2013 | Dec. 31, 2012 | |
Working capital | ' | $1,055,625 | $3,975,324 |
Cash on hand | ' | 2,541,743 | 4,498,237 |
Private placement proceeds | 2,235,000 | ' | ' |
Private placement, per share price range | '6.25-6.40 | ' | ' |
Common Stock Shares [Member] | ' | ' | ' |
Private placement proceeds | 310,000 | ' | ' |
Private placement, shares issued | 48,438 | ' | ' |
Private placement, per share price | $6.40 | ' | ' |
Series F Preferred Stock 2 [Member] | ' | ' | ' |
Private placement proceeds | 925,000 | ' | ' |
Private placement, shares issued | 148,000 | ' | ' |
Private placement, per share price | $6.25 | ' | ' |
Series F Preferred Stock 3 [Member] | ' | ' | ' |
Private placement proceeds | 1,000,000 | ' | ' |
Private placement, shares issued | 156,250 | ' | ' |
Private placement, per share price | $6.40 | ' | ' |
North South [Member] | ' | ' | ' |
Cash on hand | ' | $2,684,363 | ' |
Summary_of_Significant_Account3
Summary of Significant Accounting Policies (Details) (USD $) | Sep. 30, 2013 |
2013 | $279,404 |
2014 | 924,959 |
2015 | 801,921 |
2016 | 801,921 |
2017 | 563,529 |
Thereafter | 1,596,177 |
Total | 4,967,911 |
Other Costs [Member] | ' |
2013 | 10,344 |
2014 | 41,376 |
2015 | 41,376 |
2016 | 41,376 |
2017 | 41,376 |
Thereafter | 172,417 |
Total | 348,265 |
Harris [Member] | ' |
2013 | 11,765 |
2014 | 47,059 |
2015 | 47,059 |
2016 | 47,059 |
2017 | 47,059 |
Thereafter | 196,077 |
Total | 396,078 |
Compufill [Member] | ' |
2013 | 10,294 |
2014 | 41,176 |
2015 | 41,176 |
2016 | 41,176 |
2017 | 41,176 |
Thereafter | 171,571 |
Total | 346,569 |
Rockstar [Member] | ' |
2013 | 247,001 |
2014 | 795,348 |
2015 | 672,310 |
2016 | 672,310 |
2017 | 433,918 |
Thereafter | 1,056,112 |
Total | $3,876,999 |
Summary_of_Significant_Account4
Summary of Significant Accounting Policies (Details 1) | Sep. 30, 2013 | Dec. 31, 2012 | Sep. 30, 2012 |
Accounting Policies [Abstract] | ' | ' | ' |
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 | 7,163 | 2,425 |
Total | 15,875,327 | ' | 70,066 |
Summary_of_Significant_Account5
Summary of Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2013 | Sep. 30, 2013 | |
Cash FDIC Insured Amount | $250,000 | $250,000 |
Cash in excess of FDIC limit | 1,932,739 | 1,932,739 |
Weighted average useful life | ' | '8 years 6 months |
Amortization of intangible assets | $133,785 | $133,785 |
UsefulLife Low [Member] | ' | ' |
Weighted average useful life | ' | '6 months |
UsefulLife High[Member] | ' | ' |
Weighted average useful life | ' | '12 years |
Acquisition_of_North_South_Det
Acquisition of North South (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Business Combinations [Abstract] | ' | ' | ' | ' |
Value of common stock and convertible preferred stock issued to sellers | $5,510,749 | ' | $5,510,749 | ' |
Tangible assets acquired: | ' | ' | ' | ' |
Cash | 2,684,363 | ' | 2,684,363 | ' |
Prepaid expenses | 14,503 | ' | 14,503 | ' |
Net tangible assets acquired | 2,698,866 | ' | 2,698,866 | ' |
Purchase consideration in excess of fair value of net tangible assets | 2,811,883 | ' | 2,811,883 | ' |
Allocated to: | ' | ' | ' | ' |
Patent portfolios | 1,100,000 | ' | 1,100,000 | ' |
Goodwill | 1,711,883 | ' | 1,711,883 | ' |
Pro Forma Revenues | 95,837 | 16,710 | 101,811 | 16,710 |
Pro Forma Net loss | ($9,421,574) | ($606,755) | ($14,214,571) | ($1,720,160) |
Pro Forma Loss per share- basic and diluted | ($4.08) | ($0.43) | ($6.84) | ($1.23) |
Acquisition_of_North_South_Det1
Acquisition of North South (Details Narrative) (North South [Member], USD $) | 9 Months Ended |
Sep. 30, 2013 | |
North South [Member] | ' |
Promissory note issued | $500,000 |
Proceeds from issuance of note | $500,000 |
Note interest rate | 0.25% |
Maturity date | '24 months |
Stockholders_Equity_Details
Stockholders' Equity (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Shares issued | 1 | 1 |
Par value | $0.00 | $0.00 |
Series A Preferred Stock [Member] | ' | ' |
Shares issued | 0 | ' |
Par value | $0.00 | ' |
Conversion to common stock | 'N/A | ' |
Series B Preferred Stock [Member] | ' | ' |
Shares issued | 1 | ' |
Par value | $0.00 | ' |
Conversion to common stock | '1:1 | ' |
Series C Preferred Stock [Member] | ' | ' |
Shares issued | 1 | ' |
Par value | $0.00 | ' |
Conversion to common stock | '1:1 | ' |
Series D Preferred Stock [Member] | ' | ' |
Shares issued | 1,379,685 | ' |
Par value | $0.00 | ' |
Conversion to common stock | '10:1 | ' |
Series E Preferred Stock [Member] | ' | ' |
Shares issued | 0 | ' |
Par value | $0.00 | ' |
Conversion to common stock | '1:1 | ' |
Stockholders_Equity_Details_1
Stockholders' Equity (Details 1) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Options | ' | ' |
Outstanding at beginning of period | 7,163 | 2,425 |
Granted | 2,005,500 | ' |
Exercised | ' | ' |
Expired or forfeited | -500 | ' |
Outstanding at end of period | 2,012,163 | 2,425 |
Exercisable at end of period | 6,663 | ' |
Weighted Average Exercise Price | ' | ' |
Outstanding at beginning of period | $22.34 | ' |
Granted | $7.08 | ' |
Exercised | ' | ' |
Expired or forfeited | ($25) | ' |
Outstanding at end of period | $7.13 | ' |
Exercisable at end of period | $7.43 | ' |
Weighted Average Remaining Contractual Term | ' | ' |
Outstanding at beginning of period | '4 years 4 months 24 days | ' |
Granted | '9 years 6 months 0 days | ' |
Outstanding at end of period | '9 years 6 months 0 days | ' |
Exercisable at end of period | '9 years 6 months 0 days | ' |
Outstanding at end of period | $1,724,730 | ' |
Exercisable at end of period | $25,800 | ' |
Stockholders_Equity_Details_2
Stockholders' Equity (Details 2) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Shares | ' | ' |
Outstanding at beginning of period | 7,163 | 2,425 |
Granted | 2,005,500 | ' |
Forfeited | 500 | ' |
Outstanding at end of period | 2,012,163 | 2,425 |
Restricted Stock [Member] | ' | ' |
Shares | ' | ' |
Outstanding at beginning of period | 122,500 | ' |
Granted | ' | ' |
Vested | -120,250 | ' |
Forfeited | -2,000 | ' |
Outstanding at end of period | 250 | ' |
Weighted average grant date fair value | ' | ' |
Nonvested | 6.83 | ' |
Vested | -6.8 | ' |
Forfeited | -6.83 | ' |
Nonvested | 6.83 | ' |
Stockholders_Equity_Details_3
Stockholders' Equity (Details 3) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Stock based compensation expense, stock options with: | ' | ' | ' | ' |
Service conditions only | $4,716,070 | ' | $40,000 | $4,718,214 |
Combined market and service conditions | 306,250 | ' | ' | 306,250 |
Combined market and performance conditions | 1,555,535 | ' | ' | 1,555,535 |
Restricted stock | 816,000 | ' | ' | 722,486 |
Total | $7,393,855 | ' | $40,000 | $7,402,485 |
Fair_Value_Measurement_Details
Fair Value Measurement (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Fair value of warrant liabilities | $39,923 | $3,125,393 |
Fair Value, Inputs, Level 1 [Member] | ' | ' |
Fair value of warrant liabilities | ' | ' |
Fair Value, Inputs, Level 2 [Member] | ' | ' |
Fair value of warrant liabilities | ' | ' |
Fair Value, Inputs, Level 3 [Member] | ' | ' |
Fair value of warrant liabilities | $39,923 | $3,125,393 |
Fair_Value_Measurement_Details1
Fair Value Measurement (Details 1) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Expected dividend yield | ' | ' |
Number of warrants | 66,062 | 550,664 |
Fair value | $39,923 | $3,125,393 |
Minimum [Member] | ' | ' |
Risk-free interest rate | 0.04% | 0.16% |
Expected volatility | 55.12% | 91.79% |
Expected life (in years) | '1 month 8 days | '9 months 2 days |
Maximum [Member] | ' | ' |
Risk-free interest rate | 1.42% | 0.72% |
Expected volatility | 79.29% | 146.03% |
Expected life (in years) | '3 years 4 months | '4 years 11 months 3 days |
Fair_Value_Measurements_Detail
Fair Value Measurements (Details 2) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Fair value adjustments for warrant liabilities | $36,583 | $58,413 | ($2,610,465) | $740,605 |
Fair Value, Inputs, Level 3 [Member] | ' | ' | ' | ' |
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 stockholder's equity | ' | ' | -5,695,935 | ' |
Ending balance | $39,923 | $390,304 | $39,923 | $390,304 |
Commitments_and_Contingencies_1
Commitments and Contingencies (Details) (USD $) | Sep. 30, 2013 |
Future minimum rental payments | ' |
2013 | $44,819 |
2014 | 176,014 |
2015 | 165,427 |
2016 | 170,390 |
2017 | 175,502 |
2018 | 44,197 |
Total | $776,349 |
Commitment_and_Contingencies_D
Commitment and Contingencies (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Notes to Financial Statements | ' | ' |
Net operating lease rental expenses | $132,475 | $121,630 |
Employment agreement base salary | 350,000 | ' |
Bonus percentage of salary | 10.00% | ' |
Signing bonus paid | $100,000 | ' |
Subsequent_Events_Details_Narr
Subsequent Events (Details Narrative) (USD $) | 1 Months Ended |
Nov. 06, 2013 | |
Subsequent Events Details Narrative | ' |
Plaintiff amount | $47,309 |
Past due balance | 47,409 |
Private placement proceeds | $2,235,000 |
Private placement, per share price | '6.25-6.40 |