UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2015
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From ____________ to ____________
Commission File No. 000-22400
SPECIAL DIVERSIFIED OPPORTUNITIES INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 56-1581761 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | identification no.) |
| | |
| 1521 Concord Pike, Suite 301 | |
| Wilmington, Delaware | 19803 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (302) 824-7062
Securities registered pursuant to Section 12(b) of the Act:
| | Title of Each Class | | | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 par value | | None |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filero | Accelerated Filero | Non-Accelerated Filero | Smaller Reporting Companyx |
| | | (Do not check if a smaller reporting company) | |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The aggregate market value of the common stock held by non-affiliates of the Registrant was $15,425,000, calculated by using the number of shares outstanding and the closing price of the common stock on June 30, 2015 (the last business day of the Registrant’s most recently completed second fiscal quarter).
As of March 15, 2016 there were 21,035,140 shares outstanding of the Registrant’s common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None
Item 1. Business
Asset Sale
On April 5, 2013, Special Diversified Opportunities Inc. (f/k/a Strategic Diagnostics Inc.) (“SDOI” or the “Company”), SDIX LLC, a Delaware limited liability company (the “Purchaser”) and OriGene Technologies, Inc., a Delaware corporation and the sole equity holder of the Purchaser (“Parent” or “OriGene”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which the Company agreed, subject to certain terms and conditions including approval of the Company's stockholders, to sell to the Purchaser substantially all of the Company’s rights, title and interest in substantially all of the Company’s non-cash assets related to the Life Sciences Business (the “Asset Sale”).
At a special meeting of the stockholders of the Company held on July 10, 2013, the stockholders approved the Asset Sale as contemplated by the Asset Purchase Agreement. On July 12, 2013, the Company completed the Asset Sale.
Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser acquired all of the Company’s rights, title, and interest in substantially all of the assets, equipment, inventory, and intellectual property (the “Purchased Assets”) related exclusively to the Company's Life Sciences Business, the product portfolio in respect of which included a full suite of integrated capabilities, including antibody and assay design, development and production and the Company's Advanced Technologies Business. The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. The Parent unconditionally guaranteed Purchaser’s obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets was $16.0 million, which was subject to a post-closing working capital adjustment.
The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1.3 million of the purchase price was placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contained indemnification provisions pursuant to which the Company and the Purchaser agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.
The Asset Purchase Agreement also included restrictive covenants, including, that SDOI not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.
As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.
In May 2014, the Company, the Purchaser and OriGene reached a settlement of various claims by the parties relating to the Asset Sale. The terms of the settlement called for the release of the $1.3 million in escrow to the Company, as well as the payment by the Purchaser and OriGene to the Company of an additional $250,000 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. The settlement also included mutual releases of these and all other claims under the Asset Purchase Agreement.
Overview
Prior to the completion of the Asset Sale, the Company was a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
In 2011 and 2012, the Company disposed of several of its former lines of business, leaving it focused solely on its Life Sciences business. Specifically, the Company sold its Water Quality and Environmental products assets in 2011 and its Food Pathogen and AG-GMO products assets in 2012. As a result of the various assets sales transactions in 2012 and 2013, financial information of the Life Science and Food/AG-GMO product groups has been separately reclassified within the consolidated financial statements as discontinued operations. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
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The Life Sciences Business constituted the Company's only operating business at the time of its consummation, and accordingly, following the closing of the Asset Sale, the Company has become a "shell company" under the federal securities laws. The Company has essentially no operating assets, and its business strategy is primarily identifying new business and investment opportunities. Since the close of the Asset Sale, the Company has been exploring strategic alternatives to maximize shareholder value going forward, including deploying the proceeds of the Asset Sale in business acquisition opportunities, merging with another company, or other actions to redeploy our capital, including, without limitation, distribution of cash to our shareholders.
Employees
As of December 31, 2015, the Company employed one part time employee who has executed an agreement with the Company agreeing not to disclose the Company’s proprietary information and assigning to the Company all rights to inventions made during his employment.
Organizational History
Special Diversified Opportunities Inc., formerly known as Strategic Diagnostics Inc., is a Delaware corporation formed in 1990.
Item 1A. Risk Factors
Risks Related to Our Business
Our stockholders have not received and may not receive any of the proceeds of the Asset Sale.
The cash purchase price for the Life Sciences Business was paid directly to the Company. None of the net proceeds of the purchase price will be received by our stockholders, unless our Board ultimately proposes, and our stockholders approve, a distribution of the assets of the Company to the stockholders.
The Purchaser did not assume any of the excluded liabilities under the Asset Purchase Agreement.
Under the Asset Purchase Agreement, the Purchaser did not assume all of the liabilities associated with our Life Sciences Business. Certain liabilities remained with us post-closing. For example, Purchaser did not assume any liabilities arising out of, relating to or resulting or accruing from or with respect to the Life Sciences Business prior to the closing date. Such liabilities, together with other excluded liabilities under the asset purchase agreement, could be significant. While we believe that we are adequately insured against certain of the risks associated with such excluded liabilities, there can be no assurances.
Our common stock was delisted from the NASDAQ Capital Market following the Asset Sale, and there may be reduced ability to trade our common stock.
Because we no longer had an operating business immediately following the Asset Sale Transaction, we were notified that, in NASDAQ’s view, we no longer satisfied the continued listing standards of the NASDAQ Capital Market, and our common stock was delisted from the NASDAQ Capital Market pursuant to NASDAQ’s authority under NASDAQ Listing Rule 5101. While trading of our common stock is currently conducted in the over-the-counter market on the OTC Bulletin Board, such trading could substantially reduce the market liquidity of our common stock. As a result, an investor may find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.
We might not generate revenue following the Asset Sale Transaction and, if we do, any such revenue will be unpredictable.
The Life Sciences Business sold to the Purchaser represented substantially all of our revenue-generating assets. Following the Asset Sale, we may never generate revenue. Our revenues in the future, if any, will be unpredictable. Conversely, during the immediate future, we will continue to incur certain expenses of operating our business as a public company.
We are precluded from competing in certain areas of the Life Sciences Business for five years following the consummation of the Asset Sale.
We have agreed to be bound by a non-competition covenant in the Asset Purchase Agreement which precludes our ability to re-enter the antibody and assay design business (as defined in the Asset Purchase Agreement) during the five years following the consummation of the Asset Sale.
Failure to successfully identify and enter into a new line of business or identify possible acquisition candidates could cause our stock price to decline.
Since the close of the Asset Sale, we have been exploring strategic alternatives to maximize shareholder value going forward, including deploying the proceeds of the Asset Sale in seeking business acquisition opportunities, a merger with another company, or other actions to redeploy our capital, including, without limitation, distribution of cash to our stockholders. In relation to pursuing such strategic alternatives and new business acquisition opportunities, our stock price may decline due to any or all of the following potential occurrences:
| · | we may not be able to identify a profitable new line of business or deploy successfully our resources to operate profitably in such line of business; and |
| · | we may not be able to find suitable acquisition candidates or may not be able to acquire suitable candidates with our limited financial resources. |
There can be no assurance that we will be able to identify suitable acquisition candidates or business and investment opportunities.
There is no guarantee that we will be able to identify such new business acquisition opportunities or strategic alternatives in which we may redeploy our assets and the proceeds of the Asset Sale. If we are unable to identify new business opportunities or acquire suitable acquisition candidate(s), we may continue to incur operating losses and negative cash flows, and our results of operations and stock price may suffer.
Our shareholders are subject to the broad discretion of our Board.
Following the closing of the Asset Sale, we have essentially no operating assets, and our business strategy is primarily identifying new business and investment opportunities. Our stockholders may not have an opportunity to evaluate the specific merits or risks of any such proposed transactions or investments. As a result, our stockholders may be dependent on the broad discretion and judgment of our Board in connection with the application of our capital and the selection of acquisition or investment targets, or any proposal that our Board may make to our stockholders that they approve, a distribution of the assets of the Company to the stockholders. There can be no assurance that determinations ultimately made by us will permit us to achieve profitable operations.
We will incur significant costs in connection with our evaluation of new business opportunities and suitable acquisition candidates.
Our Board is in the process of identifying, analyzing and evaluating potential new business opportunities, including possible acquisition and merger candidates, and intends to continue to do so. We will incur significant costs, such as due diligence and legal and other professional fees and expenses, as part of these efforts. Notwithstanding these efforts and expenditures, we cannot give any assurance that we will identify an appropriate new business opportunity, or any acquisition opportunity, in the near term, or at all.
We will likely have no operating history in our new line of business, which is yet to be determined, and therefore we will be subject to the risks inherent in establishing a new business.
We have not identified what, if anything, our new line or lines of business will be and, therefore, we cannot fully describe the specific risks presented by such business. It is likely that we will have had no operating history in the new line of business, and it is possible that any company we may acquire will have a limited operating history in its business. Accordingly, there can be no assurance that our future operations will generate operating or net income, and as such our success will be subject to the risks, expenses, problems and delays inherent in establishing a new line of business for us. The ultimate success of such new business cannot be assured.
Following the closing of the Asset Sale, we became a “shell company” under the federal securities laws following the closing.
The Life Sciences Business constituted our only operating business, and accordingly, after the closing of the Asset Sale, we became a shell company as defined by Rule 405 of the Securities Act and Exchange Act Rule 12b-2. Applicable securities rules prohibit shell companies from using a Form S-8 registration statement to register securities pursuant to employee compensation plans and from utilizing Form S-3 for the registration of securities for so long as we would be a shell company and for 12 months thereafter.
Additionally, Form 8-K requires shell companies to provide more detailed disclosure upon completion of a transaction that causes it to cease being a shell company. To the extent that we acquire a business in the future, we would be required to file a current report on Form 8-K containing the financial and other information required in a registration statement on Form 10 within four business days following completion of such a transaction.
To assist the Securities and Exchange Commission in the identification of shell companies, we are required to check a box on our quarterly reports on Form 10-Q and our annual reports on Form 10-K indicating that we are a shell company.
To the extent that we would be required to comply with additional disclosure because we are a shell company, we might be delayed in executing any mergers or acquiring other assets that would cause us to cease being a shell company. In addition, under Rule 144 of the Securities Act, a holder of restricted securities of a “shell company” is not allowed to resell their securities in reliance upon Rule 144. Preclusion from any prospective purchase using the exemptions from registration afforded by Rule 144 might make it more difficult for us to sell equity securities in the future and the inability to utilize registration statements on Forms S-8 and S-3 would likely increase our costs to register securities in the future. Additionally, the loss of the use of Rule 144 and Forms S-3 and S-8 might make investments in our securities less attractive to investors and might make the offering and sale of our securities to employees, directors and others under compensatory arrangements more expensive and less attractive to recipients.
Future acquisitions and business combinations that we consummate may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.
We may consider making acquisitions and entering into business combinations, investments, joint ventures or other strategic alliances with other companies. We may have to issue debt or equity securities to pay for future acquisitions, which could be dilutive to our then current stockholders. We cannot assure you that we will consummate any transactions in the future. However, these transactions create risks, such as:
| ● | difficulty assimilating the operations, technology and personnel of the combined companies; |
| ● | disrupting the business we may acquire; |
| ● | problems retaining key technical and managerial personnel of the acquired business; |
| ● | additional operating losses and expenses of acquired businesses; and |
| ● | impairment of relationships with existing employees, customers and business partners of the acquired business. |
Any of the events described in the foregoing paragraph could have an adverse effect on the combined business, financial condition and results of operations and could cause our stock price to decline.
If we do not produce future taxable income, our ability to realize the benefits of our net operating loss carryforwards could be significantly reduced.
As of December 31, 2015, the Company had U.S. federal net operating loss carryforwards, including those acquired in the Company’s past acquisitions, of approximately $20.1 million, which, if not utilized, begin to expire as follows:
| Year | | Net Operating
Loss
(in thousands) | |
| | | | |
| 2022 | | $ | 1,674 | |
| 2024 | | | 1,876 | |
| 2025 | | | 3 | |
| 2026 | | | 1 | |
| 2027 | | | 1 | |
| 2028 | | | 3,492 | |
| 2029 | | | 2,501 | |
| 2030 | | | 1,281 | |
| 2031 | | | 391 | |
| 2033 | | | 6,625 | |
| 2034 | | | 452 | |
| 2035 | | | 1,801 | |
| Total | | $ | 20,098 | |
The Tax Reform Act of 1986 (the “Act”) limits the annual use of net operating loss and income tax credit carryforwards after certain ownership changes (as defined by the Act). The application of these limits, or the application of certain other statutory or regulatory requirements for the utilization of net operating losses and income tax credit carryforwards, could significantly restrict our ability to utilize carryforwards. Certain of our total net operating loss carryforwards from 2001 and prior years are subject to limitations on their annual use since a cumulative change in ownership of more than 50% has occurred within a three-year period with respect to those net operating loss carryforwards. The Company has determined that no limitations on net operating loss carryforwards exist for the years expiring 2022 through 2031 (tax years 2001 through 2012).
Based on the best information available to us today, we do not have sufficient future taxable income to utilize the net operating loss carryforwards and income tax credit carryforwards prior to their expiration, and we have established a full valuation allowance against these net operating loss and income tax credit carryforwards for financial reporting purposes.
Certain of our shareholders are able to significantly influence proposals for a change in control or other matters requiring a shareholder vote.
One shareholder held approximately 34.5% of our common stock as of March 15, 2016. Due to this concentration of ownership, this shareholder can substantially influence all matters requiring a stockholder vote, including, without limitation:
| · | the election of directors |
| · | the amendment of our organizational documents; or |
| · | the approval of a merger, sale of assets, or other major corporate transaction. |
Provisions in our organizational documents could prevent or frustrate attempts by stockholders to replace our current management.
Our certificate of incorporation and our bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board. Our certificate of incorporation provides for a staggered board and removal of directors only for cause. Accordingly, stockholders may elect only a portion of our board at any annual meeting, which may have the effect of delaying or preventing changes in management. In addition, under our certificate of incorporation, our Board of Directors may issue additional shares of preferred stock, which could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the composition of our Board of Directors. Our bylaws require advance notice of stockholder proposals and director nominations and permit only our President or a majority of the Board of Directors to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, our certificate of incorporation contains provisions that limit our ability to engage in a business combination with any holder of 15% or more of our capital stock unless, among other possibilities, the Board of Directors approves the transaction. These provisions may have the effect of preventing or hindering a change of control of our company.
Our stock has generally had low trading volume, and its public trading price has been volatile.
During the year ended December 31, 2015, the price of our common stock fluctuated between $0.95 and $1.23 per share, with an average daily trading volume for the year of approximately 55,000 shares. The market may experience significant price and volume fluctuations that are often unrelated to the operating performance of individual companies.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company is headquartered in Wilmington, Delaware, and occupies approximately 200 square feet of space under an operating lease. This lease runs through October 1, 2016. As of the date of this report, the Company believes that its equipment and facilities are adequate for its present purposes. The Company’s inactive subsidiary, AZUR Environmental Limited, is the lessee for a real property lease located in the United Kingdom. In 2001, the landlord of the property gave AZUR Environmental Limited its consent to allow AZUR to assign the lease and its related obligations to a third party. As inducement to the landlord to grant the assignment, AZUR was required to guarantee performance under the original lease terms if the third party fails to perform. The lease term expires in November 2016 and provides for annual principal rent payments of approximately $150,000. The Company believes that based on its assessment of the current financial strength of the third party, no liability is required to be recorded with regard to the guarantee or lease obligation.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Trading in the Company’s common stock is conducted in the over-the-counter market on the OTC Bulletin Board under the symbol "SDOI." Set forth below are the quarterly high and low bid prices for the shares of common stock of the Company as reported by the OTC Bulletin Board without retail mark-up, mark-down or commission, which may not necessarily represent actual transactions:
| | | Common Stock | |
| | | Price Range | |
| Fiscal Year Ended | | High | | | Low | |
| December 31, 2015: | | | | | | | | |
| Fourth Quarter | | $ | 1.08 | | | $ | 0.95 | |
| Third Quarter | | | 1.13 | | | | 0.95 | |
| Second Quarter | | | 1.20 | | | | 1.11 | |
| First Quarter | | | 1.19 | | | | 1.10 | |
| | | | | | | | | |
| December 31, 2014: | | | | | | | | |
| Fourth Quarter | | $ | 1.22 | | | $ | 1.06 | |
| Third Quarter | | | 1.26 | | | | 1.14 | |
| Second Quarter | | | 1.20 | | | | 1.10 | |
| First Quarter | | | 1.22 | | | | 1.09 | |
On March 14, 2016, there were approximately 1,800 holders (260 holders of record) of the common stock of the Company. The Company has never paid any cash dividends on its common stock.
Item 6. Selected Financial Data
| | | Year Ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
| | | (in thousands, except share and per share data) | |
| Revenues | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,216 | | | | 1,242 | | | | 1,845 | | | | 1,927 | | | | 1,880 | |
| Total operating expenses | | | 1,216 | | | | 1,242 | | | | 1,845 | | | | 1,927 | | | | 1,880 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating loss | | | (1,216 | ) | | | (1,242 | ) | | | (1,845 | ) | | | (1,927 | ) | | | (1,880 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Interest income (expense), net | | | - | | | | 2 | | | | (6 | ) | | | (11 | ) | | | (11 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Loss from continuing operations before taxes | | | (1,216 | ) | | | (1,240 | ) | | | (1,851 | ) | | | (1,938 | ) | | | (1,891 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income tax expense (benefit) | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss from continuing operations | | | (1,216 | ) | | | (1,240 | ) | | | (1,851 | ) | | | (1,938 | ) | | | (1,891 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income from discontinued operations, net of taxes | | | - | | | | 250 | | | | 580 | | | | 6,280 | | | | 1,593 | |
| Net income (loss) | | $ | (1,216 | ) | | $ | (990 | ) | | $ | (1,271 | ) | | $ | 4,342 | | | $ | (298 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share from continuing operations | | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.09 | ) | | $ | (0.09 | ) | | $ | (0.09 | ) |
| Basic and diluted income per share from discontinued operations | | | - | | | | 0.01 | | | | 0.03 | | | | 0.31 | | | | 0.08 | |
| Basic and diluted net income (loss) per share | | $ | (0.06 | ) | | $ | (0.05 | ) | | $ | (0.06 | ) | | $ | 0.21 | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares used in computing basic and diluted net income (loss) per share | | | 21,027,640 | | | | 21,027,640 | | | | 20,843,324 | | | | 20,534,047 | | | | 20,435,134 | |
| | | December 31, | |
| | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | | | | |
| BALANCE SHEET DATA: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 23,467 | | | $ | 24,818 | | | $ | 24,598 | | | $ | 18,145 | | | $ | 10,665 | |
| | | | | | | | | | | | | | | | | | | | | |
| Working capital | | | 23,162 | | | | 24,354 | | | | 25,339 | | | | 20,599 | | | | 14,858 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | 23,513 | | | | 24,840 | | | | 25,964 | | | | 27,570 | | | | 22,622 | |
| �� | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | | - | | | | - | | | | - | | | | - | | | | 300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Stockholders' equity | | | 23,162 | | | | 24,354 | | | | 25,339 | | | | 25,110 | | | | 19,997 | |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This annual report contains certain forward-looking statements reflecting the current expectations of Special Diversified Opportunities Inc. and its subsidiary (the “Company” or “SDOI”). In addition, when used in this annual report, the words “anticipate,” “enable,” “estimate,” “intend,” “expect,” “believe,” “potential,” “may,” “will,” “should,” “project” and similar expressions as they relate to the Company are intended to identify said forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated at this time. Such risks and uncertainties include, without limitation, ability to successfully identify and enter a new line of business or identify possible acquisition candidates, the risks inherent in establishing a new business, attraction and retention of management and key employees, the ability to obtain financing and other factors more fully described in the Company’s public filings with the U.S. Securities and Exchange Commission.
Asset Sale
On April 5, 2013, Special Diversified Opportunities Inc. (f/k/a Strategic Diagnostics Inc.) (“SDOI” or the “Company”), SDIX LLC, a Delaware limited liability company (the “Purchaser”) and OriGene Technologies, Inc., a Delaware corporation and the sole equity holder of the Purchaser (“Parent” or “OriGene”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which the Company agreed, subject to certain terms and conditions including approval of the Company's stockholders, to sell to Purchaser substantially all of the Company’s rights, title and interest in substantially all of the Company’s non-cash assets related to the Life Sciences Business (the “Asset Sale”).
At a special meeting of the stockholders of the Company held on July 10, 2013, the stockholders approved the Asset Sale as contemplated by the Asset Purchase Agreement. On July 12, 2013, the Company completed the Asset Sale.
Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser acquired all of the Company’s right, title, and interest in the Purchased Assets related exclusively to the Company’s Life Sciences Business, the product portfolio in respect of which included a full suite of integrated capabilities, including antibody and assay design, development and production and the Company's Advanced Technologies Business. The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. The Parent unconditionally guaranteed Purchaser’s obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets was $16.0 million, which was subject to a post-closing working capital adjustment.
The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1.3 million of the purchase price was placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contained indemnification provisions pursuant to which the Company and the Purchaser have agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.
The Asset Purchase Agreement also included restrictive covenants, including, that the Company not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.
As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.
In May 2014, the Company, the Purchaser and OriGene reached a settlement of various claims by the parties related to the Asset Sale. The terms of the settlement called for the release of the $1.3 million in escrow to the Company, as well as the payment by the Purchaser and OriGene to the Company of an additional $250,000 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. This payment was recorded as gain on sale on the Consolidated Statement of Operations for the year ended December 31, 2014. The settlement also included mutual releases of these and all other claims under the Asset Purchase Agreement.
Overview
Prior to the completion of the Asset Sale, the Company was a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
In 2011 and 2012, the Company continued the transition from a fragmented product offering and marketing strategy to becoming a focused organization, with proven, proprietary technologies tied directly to its customers’ needs. The Company sold its Water Quality and Environmental products assets in 2011 and its Food Pathogen and AG-GMO products assets in 2012, as part of its overall strategy to focus on its Life Science operations. As a result of the asset sale transactions in 2012 and 2013, financial information of the Food/AG-GMO and Life Sciences products has been separately reclassified within the consolidated financial statements as discontinued operations. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
Results of Operations
Year ended December 31, 2015 versus year ended December 31, 2014
Selling, general and administrative expenses
Selling, general and administrative expenses include personnel costs, professional fees and other expenses related to the Company's current level of activity while the Company explores its future direction and opportunities. Selling, general and administrative expenses were $1.2 million in 2015 and 2014. Personnel costs and professional fees were $235,000 lower in 2015 than in 2014, However, this decrease was mostly offset by expenses of approximately $225,000 incurred in connection with a Separation Agreement and General Release dated October 19, 2015 between the Company and its former president.
Loss from continuing operations
Loss from continuing operations was $1.2 million, or $0.06 per share, in 2015 and 2014.
Income from discontinued operations
There was no income or loss from discontinued operations in 2015. Income from discontinued operations was $250,000, or $0.01 per share in 2014, representing the working capital adjustment on the Asset Sale in accordance with the settlement with the Purchaser and OriGene.
Year ended December 31, 2014 versus year ended December 31, 2013
Selling, general and administrative expenses
Selling, general and administrative expenses include personnel costs, professional fees and other expenses related to the Company's current level of activity while the Company explores its future direction and opportunities. Selling, general and administrative expenses decreased from $1.8 million in 2013 to $1.2 million in 2014 due to lower personnel costs, reduced board of directors fees and decreases in other public company costs including insurance.
Loss from continuing operations
Loss from continuing operations was $1.2 million, or $0.06 per share, in 2014 as compared to $1.9 million or $0.09 per share, in 2013.
Income from discontinued operations
Income from discontinued operations was $250,000, or $0.01 per share, in 2014 as compared to $580,000, or $0.03 per share, in 2013. The income from discontinued operations in 2014 represented $250,000 for the working capital adjustment on the Asset Sale in accordance with the settlement with the Purchaser and OriGene. Discontinued operations in 2013 included the results of the Life Science products through the completion of the Asset Sale. Income from discontinued operations in 2013 included a gain of $2.8 million representing a gain of $2.5 million on the sale of the Company's Life Science assets and $300,000 of additional consideration on the 2012 sale of the Food Pathogen and AG-GMO assets, partially offset by an operating loss of $2.2 million for the Life Science business through the date of the Asset Sale.
Liquidity and Capital Resources
Liquidity is our ability to generate sufficient cash flows from operating activities to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently our liquidity needs arise primarily from current operating expenses and potential business investment opportunities.
| | | Year Ended | |
| | | December 31, | |
| | | 2015 | | | 2014 | | | 2013 | |
| | | (in thousands) | |
| | | | | | | | | | |
| Net cash used in operating activities | | $ | (1,351 | ) | | $ | (1,080 | ) | | $ | (2,826 | ) |
| Net cash provided by investing activities | | | - | | | | 1,300 | | | | 9,573 | |
| Net cash used in financing activities | | | - | | | | - | | | | (237 | ) |
| Effect of exchange rate changes on cash | | | - | | | | - | | | | (57 | ) |
| Net increase in cash and cash equivalents | | $ | (1,351 | ) | | $ | 220 | | | $ | 6,453 | |
Net cash used in operating activities in 2015 was primarily the result of the net loss for the year plus a reduction in accrued expenses. Net cash used in operating activities in 2014 was primarily the result of the loss from continuing operations for the year and a reduction in accrued expenses, partially offset by $250,000 for the gain on sale resulting from the settlement with the Purchaser and OriGene. Net cash used in operating activities in 2013 was primarily the result of the loss from continuing operations for the year plus a reduction in accrued expenses.
There was no net cash provided by investing activities in 2015. Net cash provided by investing activities in 2014 was attributable to the release of the $1.3 million in escrow to the Company. Net cash provided by investing activities in 2013 of $9.6 million was due to the proceeds from the sales of the assets of the discontinued operations, partially offset by net investing activities, primarily acquisitions of plant and equipment, used in the discontinued operations.
There was no net cash used in or provided by financing activities in 2015 and 2014. Net cash used in financing activities in 2013 was $237,000, primarily attributable to the purchase of employee restricted shares for withholding taxes. The Company’s working capital (current assets less current liabilities) decreased from $24.4 million at December 31, 2014 to $23.2 million at December 31, 2015. The decrease was due to the use of cash in operations during the year.
For the year ended December 31, 2015, the Company satisfied all of its cash requirements from cash and cash equivalents on-hand. At December 31, 2015, the Company had no debt and stockholders’ equity of $23.2 million.
Based upon its cash and cash equivalents on hand and expected operating expenses, the Company believes it has sufficient resources to meet its operating requirements at least through the next 12 months. However, the Company believes that it would ultimately need to become profitable on an operating basis in order to continue to have such sufficient resources.
The Company’s long-term capital needs and its ability to meet such needs will depend on whether it is able to identify potential business acquisition opportunities, and if so, the acquisition price. Based on the Company's present financial resources, the Company may require additional debt or equity financing to complete an acquisition.
Off-Balance Sheet Arrangements
As of December 31, 2015, the Company did not have any off-balance sheet arrangements as defined in Item 304(a) (4) (ii) of Regulation S-K.
Contractual Obligations
The Company is not committed to making cash payments in the future on its leases. The Company has no off-balance sheet debt or other such unrecorded obligations.
Critical Accounting Policies
The Company’s accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements. The Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which require the Company to make estimates and assumptions that affect the 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 revenues and expenses during the year. On an on-going basis, the Company evaluates its estimates, including those related to deferred taxes and stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. The Company considers the following policies to be most critical in understanding the judgments that are involved in preparing the Consolidated Financial Statements and the uncertainties that could impact the consolidated results of operations, financial condition and cash flows.
Deferred Taxes– In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. In making their assessment, management considers positive evidence, negative evidence, and possible tax planning strategies that could be implemented. Management also considers the future reversal of existing taxable temporary differences, recent earnings history, history of or potential for tax attributes such as net operating losses to expire and the ability to project future taxable income. The Company’s history of cumulative pre-tax losses from continuing operations over the most recent three-year period, including 2015, is significant negative evidence that is difficult to overcome. In light of this negative evidence, coupled with the current economic conditions, management has concluded that it is more likely than not that the Company will not realize the benefits of these tax deductible differences and has continued to provide a full valuation allowance offsetting its U.S. federal and state net deferred tax assets at December 31, 2015.
As of December 31, 2015, the Company had U.S. federal net operating loss carryforwards, including those of acquired companies, of approximately $20.1 million which begin to expire as follows:
| Year | | Net Operating
Loss
(in thousands) | |
| | | | |
| 2022 | | $ | 1,674 | |
| 2024 | | | 1,876 | |
| 2025 | | | 3 | |
| 2026 | | | 1 | |
| 2027 | | | 1 | |
| 2028 | | | 3,492 | |
| 2029 | | | 2,501 | |
| 2030 | | | 1,281 | |
| 2031 | | | 391 | |
| 2033 | | | 6,625 | |
| 2034 | | | 452 | |
| 2035 | | | 1,801 | |
| Total | | $ | 20,098 | |
Share–Based Compensation— The Company accounts for share-based compensation in accordance with the fair value method of accounting, which requires the Company to measure all employee share–based compensation awards at the date of grant and recognize such expense in our consolidated financial statements.
The grant date fair value of the awards is recognized as compensation expense over the vesting period of the awards and is included in selling, general and administrative expenses. Management is required to make estimates and assumptions to determine the grant date fair value of stock options, including the expected term of stock options and the volatility of our stock price in the future. In addition, assumptions related to expected future forfeitures and performance-based vesting features all impact expense recognition. These assumptions have an impact on the valuation assigned to equity awards and the associated recognition of expense.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has limited exposure to changing interest rates, and is currently not engaged in hedging activities.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and supplemental quarterly financial data of the Company and its subsidiary are included as part of this Form 10-K:
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Financial Officer (who is our principal executive and accounting officer), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2015, were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the year ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The Company believes its internal controls over financial reporting have been adapted to reflect the Company's present status as a shell company.
Management’s Report on Internal Control over Financial Reporting
The report of management on our internal control over financial reporting is set forth on page 27 of this report.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
The Company’s Board currently consists of five members. As provided by the Certificate of Incorporation, the Board is divided into two classes of directors with each director serving a two-year term. Each year one class of directors is elected by a stockholder vote. Our Class II Directors, whose terms will expire at the annual meeting of our stockholders to be held in 2016, are Thomas J. Kelleher, Kenneth M. Young and Wayne P. Yetter. The terms of our Class I Directors, Gregory H.A. Baxter and David M. Wurzer, will expire at the annual meeting of our stockholders to be held in 2017.
The following table sets forth the name, age and principal occupation of each director, or nominee for director, and the year in which he became a director, if applicable.
| Name and Principal Occupation | | Age | | Director Since | |
| | | | | | |
| Gregory H.A Baxter | | 62 | | 2015 | |
| Independent Corporate Finance Consultant | | | | | |
| | | | | | |
| Thomas J. Kelleher | | 47 | | 2015 | |
| President -B. Riley Financial, Inc. | | | | | |
| Chief Executive Officer - B. Riley & Co., LLC | | | | | |
| | | | | | |
| David M. Wurzer | | 57 | | 2010 | |
| Executive Vice President and Chief Investment Officer - Connecticut Innovations | | | | | |
| | | | | | |
| Wayne P. Yetter | | 70 | | 2010 | |
| Retired Pharmaceutical and Healthcare Executive | | | | | |
| | | | | | |
| Kenneth M. Young | | 51 | | 2015 | |
| President and Chief Executive Officer - Lightbridge Communications Corporation | | | | | |
Background of Directors
Gregory H.A. Baxter joined the Company as a director in October 2015. Mr. Baxter has been an independent corporate finance consultant primarily for middle-market corporations and closely held businesses since 2005. Previously from 2003 to 2005, he was Managing Director and Head, Hedge Fund Sales and Marketing at Diaz & Altschul Capital Management, where his primary focus was bringing its investment products to prospective corporate and institutional clients. He was also a member of the Investment Committee. Immediately prior to joining Diaz & Altschul, he was Managing Director and Head of Generalist/Cross-Border Mergers & Acquisitions at SG Cowen Securities Corporation, the U.S. investment bank of French bank, Société Générale from 2000 to 2002. There, he re-established the cross-border effort and worked globally in industries such as food, retail, consumer products, transportation and oil and gas. He was also a member of the SG Cowen Fairness Opinion Review Committee. Prior to SG Cowen he was at Rothschild Inc. for almost six years, from 1994 to 2000, where he specialized in advising on industrial/engineering companies, including automotive, domestic and cross border mergers, acquisitions and divestitures. He was also a founding member of SW Capital, an M&A boutique that specialized in middle-market transactions for Fortune 500 companies. Prior to that, he was a Vice President of Irving Trust Company’s Corporate Financial Counseling Department, providing M&A and other corporate finance advice to the bank’s clients. He sits on the board of Turning Point Brands, Inc. Mr. Baxter holds a holds a B.A. from the University of Victoria in Canada and an M.B.A. from the Ivey Business School in London.
Thomas J. Kelleher joined the Company as a director in October 2015.Mr. Kelleher is President of B. Riley Financial, Inc. (Nasdaq: RILY); Chief Executive Officer of the wholly owned broker dealer subsidiary, B. Riley & Co., LLC, and President of the wholly owned wealth and asset management subsidiary, B. Riley Capital Management, LLC. Mr. Kelleher joined B. Riley & Co. in 1997 and held positions on the Research, Sales and Trading teams, and eventually senior management positions within the company including Chief Financial Officer and Chief Compliance Officer. He has served as Chief Executive Officer of B. Riley & Co. LLC since 2006. Mr. Kelleher holds a Bachelor of Science in Mechanical Engineering from Lehigh University.
David M. Wurzerjoined the Company as a director in February 2010. Since 2009, Mr. Wurzer has served as Managing Director, Investments, Senior Managing Director, Investments, and beginning April 2014, as Executive Vice President and Chief Investment Officer at Connecticut Innovations (CI), the State’s “venture capital arm.” He is responsible for oversight of the CI Ventures' venture capital portfolio and team, as well as sourcing and analyzing investment opportunities, leading CI investments in entrepreneurial high-tech ventures and advising portfolio companies. Prior to joining CI, Mr. Wurzer most recently served as Executive Vice President, Treasurer and Chief Financial Officer of CuraGen Corporation, a biopharmaceutical development company, from September 1997 through December 2007. He has over 30 years of financial experience with growth-oriented companies, including direct involvement with raising capital, strategic transactions and mergers and acquisitions, for both start-up companies and publicly-held entities. Mr. Wurzer serves on the boards of Axerion Therapeutics, Inc., and Thetis Pharmaceuticals, LLC, which are privately held, and on the board Summit Therapeutics plc (NASDAQ: SMMT, LON:SUMM). Mr. Wurzer holds a BBA degree in Accountancy from the University of Notre Dame.
Wayne P. Yetter joined the Company as a director in May 2010. Mr. Yetter served as Chief Executive Officer of Verispan LLC, a joint venture of McKesson Corp. and Quintiles Transnational, a leading provider of healthcare information and marketing services to the pharmaceutical industry, from September 2005 to August 2008 when the company was acquired by SDI Health. Mr. Yetter had a 30 year career in the pharmaceutical industry and held executive positions at Pfizer, Merck, Astra-Merck (now AstraZeneca) and Novartis. His roles included Vice President, Marketing Operations (global) and Vice President, Far East and Pacific at Merck, founding Chief Executive Officer of Astra-Merck, and President and Chief Executive Officer of Novartis Pharmaceuticals Corporation, the US division of Novartis AG. He also served as Chief Operating Officer of IMS Health, a market research data company from 1999 until 2000, when he became Chairman and Chief Executive Officer of Synavant, Inc. (a Nasdaq listed spin-out of IMS). Synavant was acquired by Dendrite International in 2003. Mr. Yetter currently serves as a director of InfuSystem Holdings, Inc. (NYSEMKT:INFU) and privately held Espero Pharmaceuticals, Inc.. Previously, he served as Chairman of Noven Pharmaceuticals, Chairman of Transkaryotic Therapies, Chairman of NuPathe Inc., Lead Independent Director of Matria Healthcare (each of these companies was acquired) and as a director of Synvista Therapeutics, Inc. He also served on the Executive Committee of PhRMA, the pharmaceutical industry association, from 1997-1999. Mr. Yetter holds a B.A. in Biology from Wilkes University and received an M.B.A from Bryant University.
Kenneth M. Youngjoined the Company as a director in October 2015.Mr. Young has served as the President and Chief Executive Officer of Lightbridge Communications Corporation (“LCC”), an independent telecon services company, since August 2008. Mr. Young also served as President and Chief Operating Officer of LCC from May 2008 to August 2008, Senior Vice President, President of the Americas from June 2007 to May 2008, and Chief Marketing Officer from May 2006 to June 2007. Mr. Young also serves on the board of B. Riley Financial, Inc. Mr. Young holds an MBA from the University of Southern Illinois and a B.S. Computer Sciences from Graceland University.
Experience, Qualifications, Attributes and Skills
The Board of Directors believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company’s business.With respect to their consideration of diversity of background, neither the Nominating & Corporate Governance Committee nor the full Board of Directors has a formal policy of assessing diversity with respect to any particular qualities or attributes. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board’s membership criteria. Accordingly, the Board and the Nominating & Corporate Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.
All of our current Board members share certain qualifications and attributes consistent with these criteria, which are set forth in the Company’s Corporate & Governance Guidelines and Policies, including unquestioned personal ethics and integrity and possessing skills and experience aligned with our strategic direction and operating challenges and that complement the overall composition of the Board. In addition, each Board member has demonstrated certain core business competencies, including high achievement and a record of success, financial literacy, a history of making good business decisions and exposure to best practices.
The following highlights the specific experience, qualifications, attributes and skills of our individual Board members that have led the Nominating & Corporate Governance Committee to conclude that these individuals should continue to serve on our Board:
Mr. Baxterhas years of experience as a financial consultant. His significant experience with corporate investments, mergers and acquisitions is of importance to the Company as it continues to pursue opportunities for partnerships, alliances and future growth.
Mr. Kelleherbrings extensive insightinto asset and investment management in various industries. His significant experience in investment banking is of importance to the Company as it continues to pursue opportunities for partnerships, alliances and future growth.
Mr. Young brings significant executive leadership experience to the Company.
Mr. Wurzer has years of senior-level management experience in growing companies. His wealth of knowledge in the investment arena is of importance to the Company as it continues to pursue opportunities for partnerships, alliances and future growth. Mr. Wurzer is considered an "audit committee financial expert" under the criteria adopted by the SEC and brings to the Audit Committee exceptional experience and understanding in the auditing and accounting fields.
Mr. Yetter brings strong experience in senior leadership in pharmaceutical and healthcare-related companies, including public and privately held firms. His experience in these industries is of importance to the Company.
Identification of Executive Officers and Certain Significant Employees
The executive officers of the Company, their positions with the Company, their ages and a brief biography for each are as follows:
| Name | | Age | | Position |
| | | | | |
| Kevin J. Bratton | | 67 | | VP – Finance, Chief Financial Officer and Corporate Secretary |
Kevin J. Bratton joined SDIX in June 2009 as Vice President – Finance and Chief Financial Officer. Mr. Bratton was Senior Vice President Business Operations for EUSA Pharma (USA), Inc. in Langhorne, Pennsylvania from May 2008 until May 2009. Mr. Bratton had been Senior Vice President and Chief Financial Officer of Cytogen Corporation in Princeton, New Jersey from November 2006 until its acquisition by EUSA Pharma, Inc. in May 2008. Mr. Bratton has over 35 years of experience in all phases of multi-national financial operations across the healthcare, biotechnology and technology industries, including developing strategic plans and annual budgets as well as financing negotiations and merger & acquisition transactions. Prior to joining Cytogen, Mr. Bratton was Chief Financial Officer at Metrologic Instruments, Inc., a global technology company, from July 2002 until November 2006, where he directed the company’s finance operations during a period of significant growth in sales, net income, cash flow from operations, and working capital. Previously, Mr. Bratton began his career with the public accounting firm Touche Ross & Co. (now Deloitte & Touche LLP). He has a bachelor of science in business and accounting from Northeastern University.
CORPORATE GOVERNANCE
Board Risk Oversight
The Board of Directors, acting mainly through the Audit Committee, is actively involved in the oversight of the significant risks affecting the Company’s operations and strategic initiatives. Our risk analysis efforts are designed to identify the most significant risks that confront the Company, though these risks may vary from time to time. Overall, the risks we assess encompass enterprise, operational, compliance and financial risks.
Management periodically reports to the Audit Committee and the Board of Directors on their assessment of risks facing the Company and mitigation activities designed to facilitate the maintenance of risk within acceptable levels.
Independence of Directors
The Board has determined that each member of the Board is independent as determined in accordance with the applicable listing standards of the NASDAQ Global Market. While the Company's Common Stock is no longer listed on that market, we continue to use the standards of that market to determine the independence of our directors.
Compensation of Directors
Directors are entitled to receive compensation for their services as determined by a majority of the Board, based on the recommendation of the Compensation Committee. However, directors who are employees, and who receive compensation for their services as such, are not entitled to receive any compensation for their services as a director of the Company. Board members are entitled to reimbursement for travel-related expenses incurred in attending meetings of the Board and of the committees.
Pursuant to the director compensation policy adopted in May 2003 and amended in May 2009, May 2011 and October 2013, upon their election to the Board, non-employee directors receive a non-statutory option to purchase shares of Common Stock with an aggregate value of $30,000, with an exercise price equal to the greater of (A) the amount that is 10% greater than the trailing average closing price of the Common Stock for the five consecutive trading days ending on the date of grant, or (B) the closing price of the Common Stock on the date of grant. This initial option is immediately vested with respect to one-third of the option shares, and the remaining shares subject to such option grant vest in a series of two (2) successive equal annual installments upon the optionee’s completion of each year of service as a Board member over the two-year period measured from the option grant date.
Each non-employee Board member shall also receive annual compensation in such amount as is determined, by a majority of Board members, from time to time to be appropriate. Such compensation is currently established as set forth below:
| ● | Each non-employee Board member receives an annual base retainer in cash of $15,000. |
| ● | Directors do not receive payments for meeting attendance. |
| ● | Non-employee members of the Board receive the following additional annual retainers, payable in cash, for service to the Board in the following capacities: |
| Chairman of the Board | | $ | 10,000 | |
| Lead Outside Director (if any) | | $ | 5,000 | |
| Audit Committee Chair | | $ | 5,000 | |
| Compensation, Strategy and Nominating & Corporate Governance Committee Chairs | | $ | 3,000 | |
| Committee Membership (non-Chair) | | $ | 1,500 | |
On the date of each annual meeting of stockholders, each individual who is to continue to serve as a non-employee Board member following that meeting is granted (i) a non-statutory option to purchase 10,000 shares of Common Stock with a term of seven years and an exercise price per share equal to the greater of (A) the amount that is 10% greater than the trailing average closing price of the Common Stock for the five consecutive trading days ending on the date of grant, or (B) the closing price of the Common Stock on the date of grant; and (ii) 2,500 shares of the Common Stock. Such options and restricted stock shall vest in two (2) successive equal annual installments upon the first two anniversaries of the date of grant. If directors are appointed during a year, they receive prorated equity grants as described in this paragraph with respect for their service during the remainder of the year ending with the next annual meeting of stockholders.
The following table shows the compensation paid to the members of the Company’s Board of Directors for the year ended December 31, 2015.
| Name | | Fees Earned or Paid in Cash | | | Share Awards (1) | | | Option Awards (1) | | | All Other Compensation | | | Total | |
| Gregory H.A. Baxter | | $ | 3,750 | | | $ | - | | | $ | - | | | | | | | $ | 3,750 | |
| Thomas A. Bologna | | $ | 12,375 | | | $ | 2,825 | | | $ | 2,300 | | | | - | | | $ | 17,500 | |
| Steven R. Becker | | $ | 26,500 | | | $ | 2,825 | | | $ | 2,300 | | | | - | | | $ | 31,625 | |
| Thomas J. Kelleher | | $ | 3,750 | | | $ | - | | | $ | - | | | | | | | $ | 3,750 | |
| Murray McCabe | | $ | 11,250 | | | $ | 2,825- | | | $ | 2,300 | | | | - | | | $ | 16,375 | |
| Richard van den Broek | | $ | 11,250 | | | $ | 2,825 | | | $ | 2,300- | | | | - | | | $ | 16,375 | |
| David M. Wurzer | | $ | 21,500 | | | $ | 2,825 | | | $ | 2,300 | | | | - | | | $ | 26,625 | |
| Wayne P. Yetter | | $ | 21,000 | | | $ | 2,825 | | | $ | 2,300 | | | | - | | | $ | 26,125 | |
| Kenneth M. Young | | $ | 3,750 | | | $ | - | | | $ | - | | | | | | | $ | 3,750 | |
| (1) | The aggregate numbers of restricted shares and shares issuable upon the exercise of options to purchase shares for the directors outstanding as of December 31, 2015 are as follows: Mr. Bologna (options to purchase 81,574 shares); Mr. Becker (2,500 shares, options to purchase 91,021 shares); Mr McCabe (options to purchase 33,076 shares); Mr. van den Broek (options to purchase 91,021 shares); Mr. Wurzer (2,500 shares; options to purchase 81,574 shares); and Mr. Yetter (2,500 shares; options to purchase 81,304 shares). Options granted in 2015 had an exercise price of $1.24 per share. |
Stock Ownership Guidelines and Mandatory Retirement
The Company has no stock ownership requirements for directors, though directors are encouraged to buy and hold shares of the Company’s common stock.
Each Board member is required to retire from such position not later than the Annual Meeting immediately following such person’s 75th birthday.
Meetings of the Board of Directors and Committees
The Board held 2 meetings and numerous informational calls during the fiscal year ended December 31, 2015. Each of the directors attended at least 80% of the aggregate of the total number of meetings of the Board and of the committees of which he was a member which were held during the period he was a director or committee member.
The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating & Corporate Governance Committee. The following table shows the current membership of each committee, each committee’s functions and the number of meetings each committee held during the year ended December 31, 2015.
| | | | | | Number of |
| | | | | | Meetings |
| Committee and Members | | Functions of Committee | | in 2015 |
| | | | | | |
| Audit | | Ÿ Selects the Company's independent auditors | | 4 |
| | Thomas J. Kelleher David M. Wurzer * (1) Wayne P. Yetter | | Ÿ Reviews the results and scope of the annual audit and the services provided by the Company's independent auditors | | |
| | | | Ÿ Reviews the recommendations of the Company's independent auditors with respect to the accounting system and controls | | |
| | | | | | |
| Compensation | | Ÿ Reviews and approves salaries for all corporate officers | | |
| | David M. Wurzer Wayne P. Yetter * | | Ÿ Reviews and approves all incentive and special compensation plans and programs | | |
| | | | Ÿ Reviews and approves management succession planning | | |
| | | | Ÿ Conducts special competitive studies | | |
| | | | Ÿ Retains compensation consultants as necessary and appropriate | | |
| | | | Ÿ Reviews and recommends to the Board compensation for non-employee directors | | |
| | | | | | |
| Nominating & Corporate Governance | Ÿ Identifies individuals eligible to become members of the Board of Directors | | 4 |
| | Wayne P. Yetter
Kenneth M. Young | | Ÿ Select and recommend to the Board the director nominees for the Board for the next annual meeting of shareholders | | |
| | | | Ÿ Oversee the evaluation of the Board | | |
| | | | | | |
| Strategy Committee | | Ÿ Considers various strategic and other alternatives to | | |
| | Gregory H.A. Baxter | | deploy the Company's capital | | |
| | Thomas J. Kelleher Kenneth M. Young | | Ÿ Represent the Company's interest in exploration and negotiation of potential transactions | | |
| (1) | Audit Committee Financial Expert |
The Compensation Committee acted by unanimous written consent on one occassion.
The charters of the Audit, Compensation, and Nominating & Corporate Governance Committees are all available in the Investor Relations/Corporate Governance section of the Company’s website atwww.sdoi.com.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act, the Company’s executive officers and directors, and persons beneficially owning more than 10% of the common shares, are required to file with the Securities and Exchange Commission reports of their initial ownership and changes in ownership of common shares. The Company believes that during 2015, its executive officers and directors who were required to file reports under Section 16(a) complied with such requirements in all material respects, except that in June 2015, Form 4s were filed for Messrs. Becker, Bologna, Wurzer, van den Broek and Yetter in which were reported grants to each such person, in November 2013, of options to purchase 25,000 shares of our common stock, which had inadvertently not been reported earlier.
Item 11. Executive Compensation
Summary Compensation Table
The following table shows, for the years ended December 31, 2015 and 2014, the compensation paid or accrued by the Company to our named executive officers.
| Name and Principal Position | | | | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | All Other Compensation ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Philip T. Blazek (1) | | | 2015 | | | | 199,385 | | | | - | | | | - | | | | - | | | | - | | | | 224,712 | | | | 424,097 | |
| President | | | 2014 | | | | 240,000 | | | | 35,000 | | | | - | | | | - | | | | - | | | | - | | | | 275,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin J. Bratton | | | 2015 | | | | 126,072 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 126,072 | |
| Vice President and | | | 2014 | | | | 140,619 | | | | 10,000 | | | | - | | | | - | | | | - | | | | 252,144 | | | | 402,763 | |
| Chief Financial Officer (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Mr. Blazek's employment with the Company terminated on October 19, 2015. |
| (2) | Mr. Bratton's employment was reduced to half time effective February 1, 2014. Included in all other compensation in 2014 is a payment of $252,144 for severance due to the reduction in salary. |
Outstanding Equity Awards at Fiscal Year-End
The following table shows all outstanding equity awards held by our named executive officers on December 31, 2015.
| | | Option Awards | | | Stock Awards | |
| | | | | | | | | | | | | | Market Value | |
| | | | | | | | | | | Number of | | | of Shares or | |
| | | Number of Shares | | | | | | | | of Shares or | | | Units of | |
| | | Underlying Unexercised | | | Option | | | Option | | Units or Stock | | | Stock that | |
| | | Options | | | Exercise | | | Expiration | | That Have | | | Have Not | |
| Name | | Exercisable | | | Unexercisable | | | Price | | | Date | | Not Vested | | | Vested(1) | |
| | | | | | | | | | | | | | | | | | |
| Philip T. Blazek | | | — | | | | — | | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Kevin J. Bratton | | | 75,000 | | | | — | | | $ | 1.50 | | | 6/1/2019 | | | — | | | | — | |
| | | | 25,000 | | | | — | | | $ | 1.69 | | | 6/1/2020 | | | — | | | | — | |
| | | | 50,000 | | | | — | | | $ | 2.19 | | | 3/1/2021 | | | — | | | | — | |
| | | | 15,000 | | | | — | | | $ | 2.10 | | | 2/28/2022 | | | — | | | | — | |
| (1) | Value is calculated by multiplying the number of shares subject to vesting by $0.99, the closing price of the common shares on the OTC Bulletin Board on December 31, 2015. |
Equity Compensation
The table below presents certain information as of December 31, 2015 concerning securities issuable in connection with equity compensation plans that have been approved by the Company’s stockholders and that have not been approved by the Company’s stockholders.
| Plan Category | | Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a) | | | Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) | | | Number of securities
remaining available
for issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c) | |
| Equity compensation plan approved by security holders | | | 609,570 | | | $ | 1.80 | | | | 3,921,011 | |
| | | | | | | | | | | | | |
| Equity compensation not approved by security holders | | | 75,000 | | | $ | 1.50 | | | | - | |
| | | | | | | | | | | | | |
| Total | | | 684,570 | | | $ | 1.77 | | | | 3,921,011 | |
The 75,000 shares underlying options granted under equity compensation not approved by security holders were granted in connection with the Company’s hiring, on June 1, 2009, of its Chief Financial Officer, Kevin Bratton. The grants to Mr. Bratton are 75,000 shares in a ten year non-qualified stock option grant at an exercise price of $1.50 per share. The total securities to be issued, relate to 684,570 of stock options with a weighted average exercise price of $1.77 per share.
Executive Employment Agreements
The Company maintains an offer letter with Mr. Bratton, dated as of May 18, 2009, which outlines the terms of his employment. This letter provides for compensation at an annual rate of $240,000 with annual increases as determined by the Compensation Committee. Under this agreement, Mr. Bratton received options to purchase 75,000 shares of Common Stock, vesting at a rate of 25% annually beginning on the first anniversary of the grant date. Mr. Bratton was also granted 25,000 restricted shares of Common Stock, which were granted with the same terms as the options.
Stock-Based Award Grant Practices
We follow certain practices for the grant of stock-based awards. Among other things, these practices encompass the following principles:
| ● | The majority of stock-based awards are approved annually by the Compensation Committee on a pre-scheduled date, in connection with the final determinations regarding compensation for the preceding year. |
| ● | Stock-based awards other than annual awards may be granted to address, among other things, the recruiting or hiring of new employees and promotions. |
| ● | The Compensation Committee has established that stock options are granted only on the date the Compensation Committee approves the grant and with an exercise price equal to the closing price of the common stock on the market in which the Company shares are traded on the date of grant or, in certain cases, above such closing price. |
| ● | Backdating of stock options is prohibited. |
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, a publicly-held corporation may not deduct more than $1 million in a taxable year for certain forms of compensation made to the chief executive officer and other officers listed in the summary compensation table. Our policy is generally to preserve the federal income tax deductibility of compensation paid to our executives, and certain of our equity awards have been structured to preserve deductibility under Section 162(m). Nevertheless, we retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of our company. While we believe that all compensation paid to our executives in 2013 was deductible, it is possible that some portion of compensation paid in future years will be non-deductible, particularly in those years in which restricted share awards vest.
As noted below, under the Change of Control Severance Plan, we may in certain circumstances make additional payments to our named executive officers if payments to them resulting from a change of control are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. We included this provision in the Change of Control Severance Plan in order to enhance the motivation of our named executive officers to further increase stockholder value while remaining employed by us. We believe that these incentives would be frustrated by the possible imposition of the need for our executive officers to pay an excise tax upon the receipt of their change of control benefit under the Change of Control Severance Plan, and we do not believe that the provisions of the Change of Control Severance Plan should provide even a potential disincentive to our named executive officers’ pursuit of a change of control that otherwise might be in the best interests of the Company and its stockholders. Accordingly, we determined to provide payment to reimburse our named executive officers for any excise taxes payable in connection with the change of control payment, as well as any taxes that accrue as a result of our reimbursement.
Role of Executive Officers in Determining Executive Compensation for Named Executive Officers
Our Named Executive Officers did not receive increases in their 2015 compensation.
Perquisites and Other Personal Benefits
In addition to the components noted above, our total executive compensation program also includes various benefits, such as health insurance plans, other insured benefits, paid leave and retirement plans in which substantially all of the Company’s employees participate. At the present time, the only plans in effect are health, dental, life and disability insurance plans and the severance plan for certain senior officers of the Company described under “Change of Control Severance Plan.”
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Our named executive officers are entitled to receive certain payments and other benefits in connection with certain separations from employment or following a change in control of the Company. Those payments or benefits are provided by the terms of our plans or by the terms of their employment agreements, as reflected in the table below.
Among other things, these payments arise under the Company’s Change of Control Severance Agreement (the “Severance Agreement”).
Subject to the terms and conditions of the Severance Agreement, Participants are entitled to: (1) a lump sum cash payment or salary continuation equal to the Participant’s then current annual base salary, prorated for partial periods (twelve months for Mr. Bratton), (2) extension of medical and dental benefits for the applicable severance period, (3) a prorated bonus under the Company’s Annual Incentive Plan for the year in which the termination occurs, payment of which shall be made at the same time and under the same terms and conditions as bonuses are paid to employees of the Company (provided that such bonus shall equal no less than the average of the bonuses awarded to the named executive officer for the three (3) years (or lesser number of years for which the named executive officer was employed by the Company) preceding the year in which the named executive officer’s termination occurs), (4) extension of the exercise time period for outstanding stock options to the date that is one year following the Participant’s date of termination and (5) executive outplacement services. In certain circumstances, Participants may also receive an additional payment relating to income taxes on their severance benefits.
Mr. Bratton received compensation of $252,144 under this Plan as a result of his reduction in salary in February 2014.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table presents, as of March 15, 2016, information as to (i) the persons or entities known to the Company to be beneficial owners of more than 5% of the Common Stock, (ii) each director and director nominee, (iii) each of the named executive officers appearing in the Summary Compensation Table under “Executive Compensation” below and (iv) all directors and executive officers of the Company as a group, based on representations of executive officers and directors of the Company and filings received by the Company on Schedule 13D or 13G promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of March 15, 2016, the Company had 21,035,140 shares of the Common Stock issued and outstanding. Unless otherwise indicated, the number of shares beneficially owned by the persons or entities named in the table and by all executive officers and directors as a group are presented in accordance with Rule 13d-3 under the Exchange Act and include, in addition to shares issued and outstanding, unissued shares which are subject to issuance upon exercise of options or warrants within 60 days after March 15, 2016. Such unissued shares are also included in computing the percent of class beneficially owned by such person, but are not included in computing the percent of class beneficially owned by any other person. The address of the individual beneficial owners is in care of the Company at its address listed on the first page of this Proxy Statement unless otherwise noted.
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership (1) | | | Options Exercisable Within 60 Days After Record Date | | | Total Beneficial Ownership | | | Percent of Class | |
| Gregory H.A. Baxter | | | - | | | | - | | | | - | | | | - | |
| Kevin J. Bratton | | | 90,225 | | | | 165,000 | | | | 255,225 | | | | 1.2 | % |
| Thomas J. Kelleher | | | - | | | | - | | | | - | | | | - | |
| David M. Wurzer | | | 12,500 | | | | 71,574 | | | | 84,074 | | | | * | |
| Wayne P. Yetter | | | 7,500 | | | | 71,304 | | | | 78,804 | | | | * | |
| Kenneth M. Young | | | - | | | | - | | | | - | | | | - | |
| All officers and directors as a group (6 persons) | | | 7,497,888 | | | | 549,186 | | | | 8,047,074 | | | | 37.3 | % |
| | | | | | | | | | | | | | | | | |
Standard General L.P.
767 Fifth Avenue, 12th Floor
New York, NY 110153 | | | 7,255,048 | (2) | | | | | | | 7,255,048 | | | | 34.5 | % |
| * | Represents less than 1%. |
| (1) | Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the securities shown to be owned by such stockholder. The inclusion herein of securities listed as beneficially owned does not constitute an admission of beneficial ownership. |
| (2) | The Company has relied solely on Schedule 13D filed March 2, 2016 for this information. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions and Approval Policy
Our Code of Ethics mandate that officers and directors bring promptly to the attention of our Compliance Officer, currently our Chief Financial Officer, any transaction or series of transactions that may result in a conflict of interest between that person and the Company. Following any disclosure, our Compliance Officer will then review with the Chairman of our Audit Committee the relevant facts disclosed by the officer or director in question. After this review, the Chairman of the Audit Committee and the Compliance Officer determine whether the matter should be brought to the Audit Committee or the full Board of Directors for approval. In considering any such transaction, the Audit Committee or the Board of Directors, as the case may be, will consider various relevant factors, including, among others, the reasoning for the Company to engage in the transaction, whether the terms of the transaction are arm’s length and the overall fairness of the transaction to the Company. If a member of the Audit Committee or the Board is involved in the transaction, he or she will not participate in any of the discussions or decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.
Item 14. Principal Accounting Fees and Services
Audit Fees. Fees billed to the Company by KPMG LLP during 2015 and 2014 for audit services rendered by KPMG LLP for the audit of the Company’s annual financial statements for such years, for the review of those financial statements included in the Company’s Quarterly Reports on Form 10-Q during such years, and for services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements, totaled $110,000 and $110,000, respectively.
Tax Fees. Fees billed to the Company by KPMG LLP during 2015 and 2014 for professional services rendered for tax compliance, tax advice and tax planning totaled $24,956 and $49,820, respectively.
All Other Fees. There were no additional fees billed to the Company by KPMG LLP during 2015 or 2014 for products and services, other than services reported in the two preceding paragraphs.
All of the services described in the preceding paragraphs were approved by the Audit Committee pursuant to applicable regulations.
PART IV
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements
(a) See the Consolidated Financial Statements which begin on page 29 of this report.
2. Financial Statement Schedules
Financial statement schedules are omitted because they are either not required or not applicable or the required information is reflected in the financial statements or notes thereto.
3. Exhibits
Exhibit Number | | Description | | Reference |
| 3.1 | | Fourth Amended and Restated Certificate of Incorporation of the Company | | (1) |
| | | | | |
| 3.2 | | Amendment of Fourth Amended and Restated Certificate of Incorporation of the Company | | (2) |
| | | | | |
| 3.3 | | Second Amended and Restated Bylaws of the Company | | (3) |
| | | | | |
| 4.1 | | Section 382 Rights Agreement, dated as of October 16, 2014, between Special Diversified Opportunities Inc. and American Stock Transfer & Trust Company, LLC. | | (4) |
| | | | | |
| 10.1 | | 1998 Employee Stock Purchase Plan* | | (5) |
| | | | | |
| 10.2 | | 2000 Stock Incentive Plan* | | (6) |
| | | | | |
| 10.3 | | Strategic Diagnostics Inc. Change of Control Severance Agreement* | | (7) |
| | | | | |
| 10.4 | | Form of Nonqualified Stock Option Agreement* | | (8) |
| | | | | |
| 10.5 | | Form of Restricted Stock Grant Agreement* | | (8) |
| | | | | |
| 10.6† | | Separation Agreement and General Release, dated as of October 19, 2015, by and between Philip Blazek and the Company (filed herewith)* | | |
| | | | | |
| 21.1 | | Subsidiary of the Company (filed herewith) | | |
| | | | | |
| 23.1 | | Consent of KPMG LLP, Independent Registered Public Accounting Firm (filed herewith) | | |
| | | | | |
| 31.1 | | Certification of the Principal Executive Officer and Principal Financial Officer of Special Diversified Opportunities Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith) | | |
| | | | | |
| 32.1 | | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (furnished herewith) | | |
| | | | | |
| 101.INS | | XBRL Instance Document (filed herewith) | | |
| | | | | |
| 101.SCH | | XBRL Taxonomy Extension Scheme Document (filed herewith) | | |
| | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | | |
| | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | | |
| | | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | | |
| | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | | |
| (1) | Incorporated by reference to the designated exhibit of the EnSys Registration Statement on Form S-4 (No. 333-17505) filed on December 9, 1996. |
| (2) | Incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed July 15, 2013. |
| (3) | Incorporated by reference to Exhibit 3.2 of the Company's Form 8-K filed July 15, 2013. |
| (4) | Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed October 16, 2014 |
| (5) | Incorporated by reference to the designated exhibit of the Company’s Registration Statement on Form S-8 (No. 333- 68107) filed on November 30, 1998. |
| (6) | Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 24, 2004. |
| (7) | Incorporated by reference to the designated exhibit of the Company’s Form 10-Q for the fiscal quarter ended September 30, 2005. |
| (8) | Incorporated by reference to the designated exhibit of the Company’s Form 10-K for the fiscal year ended December 31, 2009. |
| * | Management contract or compensatory plan. |
| † | Confidential treatment requested for portions of this exhibit. |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015 based upon criteria inInternal Control — Integrated Framework- 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2015, based on the criteriain Internal Control-Integrated Framework issued by COSO.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
This report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
| | | /s/ Kevin J. Bratton |
| | | Kevin J. Bratton |
| | Vice President – Finance and Chief |
| | | Financial Officer (Principal Executive Officer and Principal Financial Officer) |
Dated: March 30 , 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Special Diversified Opportunities Inc.:
We have audited the accompanying consolidated balance sheets of Special Diversified Opportunities Inc. and subsidiary as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Special Diversified Opportunities Inc. and subsidiary as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 30, 2016
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | December 31, | | | December 31, | |
| | | 2015 | | | 2014 | |
| ASSETS | | | | | | | | |
| Current Assets : | | | | | | | | |
| Cash and cash equivalents | | $ | 23,467 | | | $ | 24,818 | |
| Other current assets | | | 46 | | | | 22 | |
| Total current assets | | | 23,513 | | | | 24,840 | |
| Total assets | | $ | 23,513 | | | $ | 24,840 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current Liabilities : | | | | | | | | |
| Accrued expenses | | $ | 351 | | | $ | 486 | |
| Total current liabilities | | | 351 | | | | 486 | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES (NOTE 7) | | | | | | | | |
| | | | | | | | | |
| Stockholders' Equity: | | | | | | | | |
| Preferred stock, $.01 par value, 20,920,648 shares authorized, no shares issued or outstanding | | | - | | | | - | |
| Common stock, $.01 par value, 50,000,000 shares authorized, and 21,436,767 shares and 21,434,267 shares issued at December 31, 2015 and December 31, 2014, respectively | | | 217 | | | | 217 | |
| Additional paid-in capital | | | 44,172 | | | | 44,148 | |
| Treasury stock, 406,627 common shares at cost at December 31, 2015 and December 31, 2014, respectively | | | (555 | ) | | | (555 | ) |
| Accumulated deficit | | | (20,672 | ) | | | (19,456 | ) |
| Total stockholders' equity | | | 23,162 | | | | 24,354 | |
| Total liabilities and stockholders' equity | | $ | 23,513 | | | $ | 24,840 | |
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| | | Year Ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,216 | | | | 1,242 | | | | 1,845 | |
| Total operating expenses | | | 1,216 | | | | 1,242 | | | | 1,845 | |
| | | | | | | | | | | | | |
| Operating loss | | | (1,216 | ) | | | (1,242 | ) | | | (1,845 | ) |
| Interest income (expense), net | | | - | | | | 2 | | | | (6 | ) |
| Loss from continuing operations before taxes | | | (1,216 | ) | | | (1,240 | ) | | | (1,851 | ) |
| Income tax expense (benefit) | | | - | | | | - | | | | - | |
| Loss from continuing operations, net of taxes | | | (1,216 | ) | | | (1,240 | ) | | | (1,851 | ) |
| Income from discontinued operations, net of taxes | | | - | | | | 250 | | | | 580 | |
| Net loss | | $ | (1,216 | ) | | $ | (990 | ) | | $ | (1,271 | ) |
| | | | | | | | | | | | | |
| Basic and diluted loss per share from continuingoperations | | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.09 | ) |
| Basic and diluted income per share from discontinuedoperations | | | - | | | | 0.01 | | | | 0.03 | |
| Basic and diluted net loss per share | | $ | (0.06 | ) | | $ | (0.05 | ) | | $ | (0.06 | ) |
| | | | | | | | | | | | | |
| Shares used in computing basic and diluted net loss per share | | | 21,027,640 | | | | 21,027,640 | | | | 20,843,324 | |
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| | | Year Ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | |
| Net loss | | $ | (1,216 | ) | | $ | (990 | ) | | $ | (1,271 | ) |
| Foreign currency translation adjustment | | | - | | | | - | | | | (57 | ) |
| Reclassification of translation adjustment to discontinued operations | | | - | | | | - | | | | 291 | |
| | | | | | | | | | | | | |
| Comprehensive loss | | $ | (1,216 | ) | | $ | (990 | ) | | $ | (1,037 | ) |
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
| | | | | | | | | Additional | | | | | | | | | Cumulative | | | | |
| | | Preferred | | | Common | | | Paid-In | | | Treasury | | | Accumulated | | | Translation | | | | |
| | | Stock | | | Stock | | | Capital | | | Stock | | | Deficit | | | Adjustments | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2013 | | $ | - | | | $ | 215 | | | $ | 42,879 | | | $ | (555 | ) | | $ | (17,195 | ) | | $ | (234 | ) | | $ | 25,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | (1,271 | ) | | | - | | | | (1,271 | ) |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | (57 | ) | | | (57 | ) |
| Reclassification of translation adjustment to discontinued operations | | | - | | | | - | | | | - | | | | - | | | | - | | | | 291 | | | | 291 | |
| Employee stock purchase plan | | | - | | | | - | | | | 9 | | | | - | | | | - | | | | - | | | | 9 | |
| Stock-based compensation | | | - | | | | - | | | | 1,466 | | | | - | | | | - | | | | - | | | | 1,466 | |
| Employee purchases of restricted shares | | | - | | | | 4 | | | | - | | | | - | | | | - | | | | - | | | | 4 | |
| Shares surrendered in payment of | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| payroll taxes | | | - | | | | (2 | ) | | | (211 | ) | | | - | | | | - | | | | - | | | | (213 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2013 | | | - | | | | 217 | | | | 44,143 | | | | (555 | ) | | | (18,466 | ) | | | - | | | | 25,339 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | (990 | ) | | | - | | | | (990 | ) |
| Stock-based compensation | | | - | | | | - | | | | 5 | | | | - | | | | - | | | | - | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2014 | | | - | | | | 217 | | | | 44,148 | | | | (555 | ) | | | (19,456 | ) | | | - | | | | 24,354 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | (1,216 | ) | | | - | | | | (1,216 | ) |
| Stock-based compensation | | | - | | | | - | | | | 24 | | | | - | | | | - | | | | - | | | | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance December 31, 2015 | | $ | - | | | $ | 217 | | | $ | 44,172 | | | $ | (555 | ) | | $ | (20,672 | ) | | $ | - | | | $ | 23,162 | |
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | Year Ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | |
| Cash Flows from Operating Activities : | | | | | | | | | | | | |
| Net loss | | $ | (1,216 | ) | | $ | (990 | ) | | $ | (1,271 | ) |
| Less: income from discontinued operations | | | - | | | | 250 | | | | 580 | |
| Loss from continuing operations | | | (1,216 | ) | | | (1,240 | ) | | | (1,851 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities : | | | | | | | | | | | | |
| Stock-based compensation expense | | | 24 | | | | 5 | | | | 28 | |
| (Increase) decrease in: | | | | | | | | | | | | |
| Other current assets | | | (24 | ) | | | 44 | | | | 4 | |
| Increase (decrease) in : | | | | | | | | | | | | |
| Accounts payable | | | - | | | | - | | | | (30 | ) |
| Accrued expenses | | | (135 | ) | | | (139 | ) | | | (1,233 | ) |
| Net operating activities from discontinued operations | | | - | | | | 250 | | | | 256 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (1,351 | ) | | | (1,080 | ) | | | (2,826 | ) |
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities : | | | | | | | | | | | | |
| Net proceeds from sale of discontinued operations | | | - | | | | - | | | | 10,142 | |
| Restricted cash | | | - | | | | 1,300 | | | | - | |
| Net investing activities from discontinued operations | | | - | | | | - | | | | (569 | ) |
| | | | | | | | | | | | | |
| Net cash provided by investing activities | | | - | | | | 1,300 | | | | 9,573 | |
| | | | | | | | | | | | | |
| Cash Flows from Financing Activities : | | | | | | | | | | | | |
| Proceeds from employee stock purchase plan | | | - | | | | - | | | | 9 | |
| Proceeds from employee restricted share purchase | | | - | | | | - | | | | 4 | |
| Purchase of employee restricted shares for withholding taxes | | | - | | | | - | | | | (213 | ) |
| Net financing activities from discontinued operations | | | - | | | | - | | | | (37 | ) |
| | | | | | | | | | | | | |
| Net cash used in financing activities | | | - | | | | - | | | | (237 | ) |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash | | | - | | | | - | | | | (57 | ) |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (1,351 | ) | | | 220 | | | | 6,453 | |
| | | | | | | | | | | | | |
| Cash and Cash Equivalents, Beginning of Year | | | 24,818 | | | | 24,598 | | | | 18,145 | |
| | | | | | | | | | | | | |
| Cash and Cash Equivalents, End of Year | | $ | 23,467 | | | $ | 24,818 | | | $ | 24,598 | |
| | | | | | | | | | | | | |
| Supplemental Cash Flow Disclosure : | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Noncash investing activity, restricted cash proceeds from sale of discontinued operations | | $ | - | | | $ | - | | | $ | 1,300 | |
| | | | | | | | | | | | | |
| Noncash investing activity, from discontinued operations | | | - | | | | - | | | | 254 | |
| | | | | | | | | | | | | |
| Cash paid for taxes, net of tax refunds | | | 27 | | | | 29 | | | | 48 | |
| | | | | | | | | | | | | |
| Cash paid for interest | | | - | | | | - | | | | 15 | |
The accompanying notes are an integral part of these statements
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
1. ASSET SALE
On April 5, 2013, Special Diversified Opportunities Inc. (f/k/a Strategic Diagnostics Inc.) (“SDOI” or the “Company”), SDIX LLC, a Delaware limited liability company (the “Purchaser”) and OriGene Technologies, Inc., a Delaware corporation and the sole equity holder of the Purchaser (“Parent” or “OriGene”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which the Company agreed, subject to certain terms and conditions including approval of the Company's stockholders, to sell to the Purchaser substantially all of the Company’s rights, title and interest in substantially all of the Company’s non-cash assets related to the Life Sciences Business (the “Asset Sale”).
At a special meeting of the stockholders of the Company held on July 10, 2013, the stockholders approved the Asset Sale as contemplated by the Asset Purchase Agreement. On July 12, 2013, the Company completed the Asset Sale.
Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser acquired all of the Company’s rights, title, and interest in substantially all of the assets, equipment, inventory, and intellectual property (the “Purchased Assets”) related exclusively to the Company's Life Sciences Business, the product portfolio in respect of which included a full suite of integrated capabilities, including antibody and assay design, development and production and the Company's Advanced Technologies Business. The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. Parent unconditionally guaranteed Purchaser’s obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets was $16,000, which was subject to a post-closing working capital adjustment.
The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1,300 of the purchase price was placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contained indemnification provisions pursuant to which the Company and the Purchaser agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.
The Asset Purchase Agreement also included restrictive covenants, including, that SDOI not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.
As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.
In May 2014, the Company, the Purchaser and OriGene reached a settlement of various claims by the parties relating to the Asset Sale. The terms of the settlement called for the release of the $1,300 in escrow to the Company, as well as the payment by the Purchaser and OriGene of an additional $250 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CERTAIN BALANCE SHEET INFORMATION
Business
The Company is a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. The Company's board of directors has been exploring strategic alternatives to maximize shareholder value going forward including deploying the proceeds of the Asset Sale in business acquisition opportunities, merging with another company, or other actions to redeploy the Company's capital, including, without limitation, distribution of cash to the Company's shareholders.
Prior to the completion of the Asset Sale, the Company was a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CERTAIN BALANCE SHEET INFORMATION(Continued)
Basis of Presentation
The historical financial statements presented herein include the consolidated financial statements of SDOI and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. In addition to the Asset Sale, the Company consummated the sale of its Food Pathogens and AG-GMO products assets in October 2012. The financial information of the Food Pathogens and AG-GMO products as well as the Life Science products have been separately reclassified within the consolidated financial statements as discontinued operations. See Note 3 for further information.
The following policies represent the accounting policies followed by the Company prior to the time it became a shell company as a result of the Asset Sale.
Foreign Currency Translation
The functional currency for the Company’s former United Kingdom branch operation was the British pound. Assets and liabilities related to this foreign operation were translated at the current exchange rates at the end of each period. The resulting translation adjustments are accumulated as a separate component of stockholders’ equity. Revenues and expenses were translated at average exchange rates in effect during the period with foreign currency transaction gains and losses, if any, included in results of operations. As a result of the Asset Sale, the translation adjustment as of the closing date was reclassified to discontinued operations.
Use of Estimates
The preparation of the consolidated financial statements requires the management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the period. These estimates include those made in connection with deferred tax assets. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments that have maturities of three months of less when acquired to be cash equivalents. As of December 31, 2015 and 2014, cash of $23,467 and $24,818, respectively, consisted of bank checking operating accounts.
Stock-Based Compensation
The Company accounts for stock-based compensation using the fair value method, which requires that compensation costs related to employee share-based payment transactions are measured in the financial statements at fair value on the date of grant and are recognized over the vesting period of the award.
Research and Development
Prior to the completion of the Asset Sale, research and development costs were charged to expense as incurred.
Accounting for Income Taxes
Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such changes are enacted.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CERTAIN BALANCE SHEET INFORMATION(Continued)
The Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the implementation of authoritative guidance related to the accounting for uncertainty in income taxes, the Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The authoritative guidance also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company includes interest and penalties related to unrecognized tax benefits as a component of income tax expense. See Note 9 for further information.
Basic and Diluted Loss per Share
Basic loss per share (EPS) is computed by dividing net loss available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS, except that the dilutive effect of converting or exercising all potentially dilutive securities is also included in the denominator. The Company’s calculation of diluted EPS includes the dilutive effect of exercising stock options into common shares and the inclusion of unvested restricted stock awards. Basic loss per share excludes potentially dilutive securities. For the years 2015, 2014 and 2013, conversion of stock options with exercise prices less than the market share price and unvested restricted shares totaling 7,500, 0, and 0, respectively, into common share equivalents were excluded from this calculation because they were anti-dilutive, due to the net losses recorded in the periods. For the years 2015, 2014 and 2013, certain other stock options were excluded from common share equivalents as all had exercise prices greater than the market share price at December 31, 2015, 2014 and 2013, respectively.
Listed below are the basic and diluted share calculations for the years ended December 31, 2015, 2014 and 2013:
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | |
| Weighted average common shares outstanding | | | 21,027,640 | | | | 21,027,640 | | | | 20,843,324 | |
| Shares used in computing basic and diluted net loss per share | | | 21,027,640 | | | | 21,027,640 | | | | 20,843,324 | |
Treasury Stock
Shares of common stock repurchased by the Company are recorded at cost as treasury stock in the stockholders’ equity section of the consolidated balance sheet, and as a use of cash in the financing activities section of the consolidated statement of cash flows.
Comprehensive Loss
Comprehensive loss is comprised of net loss and currency translation adjustments and is presented in the consolidated statements of comprehensive loss.
Statements of Cash Flows
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
3. DISCONTINUED OPERATIONS
On October 16, 2012, the Company completed the sale of its Food Pathogens and AG-GMO products assets to Romer Labs for approximately $12,075, net of transaction fees. These assets included intellectual property, inventory, commercial contracts and equipment. The Company recognized a gain on the sale of these assets, after transaction fees, of $9,882.
The Company had the opportunity to receive additional consideration of up to $600 if it was able to meet certain conditions as provided for in the agreement with Romer Labs. As of December 31, 2013, the Company received $300 pursuant to this additional consideration, all of which is recorded as a gain on sale of assets in the Company’s financial results for the year ended December 31, 2013. The Company will not receive the remaining $300 related to this additional consideration.
On July 12, 2013, the Company completed the sale of its Life Sciences products assets to SDIX LLC for approximately $16,000 before transaction fees. These assets included intellectual property, inventory, commercial contracts and equipment. The Company recognized a gain on the sale of these assets, after transaction fees, of $2,345. For presentation purposes, $125 of the costs related to the acquisition were previously expensed in the fourth quarter of 2012, respectively, as general and administrative costs. The Company has reclassified these expenses to discontinued operations.
At the closing of the Asset Sale, $1,300 of the purchase price was placed in escrow to satisfy any indemnification claims that were brought by April 12, 2014. In addition, the Asset Purchase Agreement provided for an adjustment to the purchase price based upon the actual working capital, as defined, on the closing date as compared to a working capital target amount.
In May 2014, the Company, the Purchaser and OriGene reached a settlement of various claims by the parties relating to the Asset Sale. The terms of the settlement called for the release of the $1,300 in escrow to the Company, as well as the payment by the Purchaser and OriGene to the Company of an additional $250 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. The settlement also included mutual releases of these and all other claims under the Asset Purchase Agreement.
The results of operations and cash flow activity of the Food Pathogens, AG-GMO and Life Science products have been reclassified separately as discontinued operations within the consolidated financial statements for all periods presented. The following table presents key information associated with the operating results of the discontinued operations for the reporting periods included in the Company’s 2014 and 2013 consolidated statements of operations:
| Results of Operations of Discontinued Operations |
| | | Year Ended December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Revenues | | $ | - | | | $ | 7,564 | |
| Cost of sales | | | - | | | | 4,417 | |
| Gross profit | | | - | | | | 3,147 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Research and development | | | - | | | | 960 | |
| Selling, general and administrative | | | - | | | | 4,355 | |
| Gain on sale of assets | | | (250 | ) | | | (2,770 | ) |
| Total operating expenses | | | (250 | ) | | | 2,545 | |
| | | | | | | | | |
| Operating income | | | 250 | | | | 602 | |
| Interest expense | | | - | | | | (8 | ) |
| Income before income taxes | | | 250 | | | | 594 | |
| Income tax expense | | | - | | | | 14 | |
| Income from discontinued operations | | $ | 250 | | | $ | 580 | |
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
4. PROPERTY AND EQUIPMENT
The Company's property, plant and equipment was sold as part of the Asset Sale. Depreciation expense included in discontinued operations was $563 in 2013.
5. ACCRUED EXPENSES
As of December 31, accrued expenses consisted of the following:
| | | 2015 | | | 2014 | |
| | | | | | | | | |
| Compensation | | $ | 72 | | | $ | 112 | |
| Professional fees | | | 83 | | | | 122 | |
| Other | | | 196 | | | | 252 | |
| | | | | | | | | |
| Total accrued expenses | | $ | 351 | | | $ | 486 | |
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
6.SHARE-BASED COMPENSATION
Under various plans, executives, key employees and outside directors receive awards of options to purchase common stock. The Company has a stock option plan (the “2000 Plan”) which authorizes the granting of incentive and nonqualified stock options and restricted stock awards. Incentive stock options are granted at not less than 100% of fair market value at the date of grant (110% for stockholders owning more than 10% of the Company’s common stock). Nonqualified stock options are granted at not less than 85% of fair market value at the date of grant. A maximum of 8,000,000 shares of common stock are issuable under the 2000 Plan. Certain additional options have been granted outside the 2000 Plan. These options generally follow the provisions of the 2000 Plan. The Company issues new shares to satisfy option exercises and the vesting of restricted stock awards.
The Company also has an Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP. For financial reporting purposes, the Company’s ESPP is compensatory. Therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP. The Company issues new shares to satisfy shares purchased under the ESPP.
Share-based compensation expense recorded in 2015, 2014 and 2013 is summarized as follows:
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | |
| Stock options | | $ | 13 | | | $ | 5 | | | $ | 611 | |
| Employee stock purchase plan | | | - | | | | - | | | | 1 | |
| Restricted stock awards and restricted stock units | | | 11 | | | | - | | | | 854 | |
| | | | | | | | | | | | | |
| Total share-based compensation expense | | $ | 24 | | | $ | 5 | | | $ | 1,466 | |
The deferred income tax benefit related to share-based compensation expense for the years ended December 31, 2015, 2014 and 2013 was $0 due to the full valuation allowance recorded against deferred tax assets (see Note 9). Share-based compensation expense of $24, $5 and $28 in 2015, 2014 and 2013, respectively, is a component of selling, general and administrative expense, and is recorded as a non-cash expense in the operating activities section of the consolidated statement of cash flows. All other share-based compensation is included in discontinued operations.
As a result of the Asset Sale, all then outstanding unvested stock options, unvested restricted shares and unvested performance based restricted stock units vested on July 12, 2013. The expense of approximately $1,169 related to this acceleration of vesting was recorded in the Company's fiscal third quarter, with approximately $431 related to stock options and $738 related to restricted stock awards.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
6.SHARE-BASED COMPENSATION (Continued)
Information with respect to the stock options granted under the 2000 Plan and options granted separately from the 2000 Plan is summarized as follows:
| | | | | | | | | Weighted | | Aggregate | |
| | | Number | | | | | | Average Remaining | | Instrinsic | |
| | | of Shares | | | Price Range | | | Contractual term | | Value | |
| | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2013 | | | 2,170,043 | | | $ | 1.49 | | | | - | | | $ | 4.65 | | | | | | | |
| Granted | | | 556,200 | | | $ | 1.19 | | | | - | | | $ | 1.50 | | | | | | | |
| Cancelled / forfeited | | | (1,246,749 | ) | | $ | 1.19 | | | | - | | | $ | 4.65 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | | 1,479,494 | | | $ | 1.25 | | | | - | | | $ | 4.60 | | | | | | | |
| Granted | | | 23,076 | | | $ | 1.30 | | | | - | | | $ | 1.30 | | | | | | | |
| Cancelled / forfeited | | | (528,000 | ) | | $ | 1.50 | | | | - | | | $ | 4.60 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2014 | | | 974,570 | | | $ | 1.25 | | | | - | | | $ | 3.74 | | | | | | | |
| Granted | | | 60,000 | | | $ | 1.24 | | | | - | | | $ | 1.24 | | | | | | | |
| Cancelled / forfeited | | | (350,000 | ) | | $ | 1.25 | | | | - | | | $ | 1.50 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2015 | | | 684,570 | | | $ | 1.24 | | | | - | | | $ | 3.74 | | | 4.2 years | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Vested and exercisable at | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2015 | | | 654,570 | | | $ | 1.24 | | | | - | | | $ | 3.74 | | | 4.1 years | | $ | - | |
As of December 31, 2015, options covering 654,570 shares were exercisable with a weighted average exercise price of $1.80 per share, and 3,921,011 shares were available for future grant under the 2000 Plan.
As of December 31, 2015, unrecognized compensation expense related to outstanding non-performance based stock options was $5.
The weighted average fair value at the date of grant for non-performance based options granted during 2015, 2014 and 2013 was estimated at $0.23, $0.40 and $0.31 per share, respectively, using the Black-Scholes pricing model. The weighted-average assumptions used in the Black-Scholes model were as follows: dividend yield of 0%, expected volatility of 26% in 2015, 38% in 2014 and 38% in 2013, risk-free interest rate of 1.71% in 2015, 1.71% in 2014 and 1.05% in 2013 and expected option life of 4.25 years in 2015, 5.5 years in 2014 and 5 years in 2013. The expected option life was computed using the sum of the average vesting period and the contractual life of the option and dividing by 2, for all periods presented.
The Company issued options to acquire 350,000 shares of common stock with performance based vesting during the year ended December 31, 2013. These options were cancelled in 2015.
SPECIAL DIVERSIFIED OPPORTUNTIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
6.SHARE-BASED COMPENSATION (Continued)
The following table provides additional information about the Company’s stock options outstanding at December 31, 2015:
| | | | Options Outstanding | | | Options Exercisable | |
| | | | | | | Weighted Average | | | | | | Wtd. Average | |
| Range of | | | Number of | | | Remaining | | Exercise | | | Number of | | | Exercise | |
| Exercise Prices | | | Shares | | | Contractual Life | | Price | | | Shares | | | Price | |
| | | | | | | | | | | | | | | | | | | |
| $ 1.24 - $ 1.85 | | | 477,528 | | | | 4.1 | | | Years | | $ | 1.51 | | | | 447,528 | | | $ | 1.53 | | |
| $ 2.00 - $ 2.25 | | | 175,000 | | | | 4.8 | | | Years | | $ | 2.13 | | | | 175,000 | | | $ | 2.13 | | |
| $ 3.69 - $ 3.74 | | | 32,042 | | | | 2.3 | | | Years | | $ | 3.72 | | | | 32,042 | | | $ | 3.72 | | |
| $ 1.24 - $ 3.74 | | | 684,570 | | | | 4.2 | | | Years | | $ | 1.77 | | | | 654,570 | | | $ | 1.80 | | |
The Company grants restricted stock awards (RSA) which is the right to receive shares. The fair value of RSAs is based on the market price for the stock at the date of grant. RSAs generally vest over periods of two to five years.
The following table summarizes the changes in non-vested restricted stock units for the three year period ended December 31, 2015:
| | | | | | Weighted Average | | | | |
| | | | | | Grant Date | | | Aggregate | |
| | | Shares | | | Fair Value | | | Intrinsic Value | |
| | | | | | | | | | |
| Non-vested RSAs at January 1, 2013 | | | 445,000 | | | $ | 1.60 | | | | | |
| | | | | | | | | | | | | |
| Granted | | | 225,000 | | | $ | 1.58 | | | | | |
| Vested | | | (620,000 | ) | | $ | 1.60 | | | | | |
| Cancelled / forfeited | | | (50,000 | ) | | $ | 1.59 | | | | | |
| | | | | | | | | | | | | |
| Non-vested RSAs at December 31, 2013 | | | - | | | $ | 0.00 | | | | | |
| | | | | | | | | | | | | |
| Granted | | | - | | | $ | 0.00 | | | | | |
| Vested | | | - | | | $ | 0.00 | | | | | |
| Cancelled / forfeited | | | - | | | $ | 0.00 | | | | | |
| | | | | | | | | | | | | |
| Non-vested RSAs at December 31, 2014 | | | - | | | $ | 0.00 | | | | | |
| | | | | | | | | | | | | |
| Granted | | | 15,000 | | | $ | 1.13 | | | | | |
| Vested | | | (7,500 | ) | | $ | 1.13 | | | | | |
| Cancelled / forfeited | | | - | | | | | | | | | |
| | | | | | | | | | | | | |
| Non-vested RSAs at December 31, 2015 | | | 7,500 | | | $ | 1.13 | | | | | |
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
6.SHARE-BASED COMPENSATION (Continued)
Of the 7,500 RSA’s that vested in 2015, 2,500 common shares were issued in December 2015 and are included in the number of common shares outstanding at December 31, 2015. Common shares for the remaining 5,000 vested RSA’s were issued in January 2016.
The Company recorded compensation expense of $11, $0 and $854, respectively, for the years ended December 31, 2015, 2014 and 2013, for RSAs. The expense in 2013 is included in discontinued operations. As of December 31, 2015, there is unrecognized compensation expense of $6 related to RSAs.
The Company also issued 410,000 performance-based Restricted Stock Units (“RSUs”) during the year ended December 31, 2012, of which 200,000 have been forfeited. The fair value of an RSU is equal to the market value of a share of stock on the date of grant. The performance-based RSUs vest based upon the achievement of certain goals related to the Company’s senior management team, for periods ranging from June 30, 2012 through December 31, 2015. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, if the Company meets the performance targets. If the designated performance targets are not met, no payout will be made. The performance conditions related to 210,000 RSUs were met in 2013, and these shares are included in the Restricted Stock summary above.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
7. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities under operating leases. Rent expense in continuing operations for each of the years ended December 31, 2015, 2014 and 2013, was $28. There are no future commitments under non-cancelable leases at December 31, 2015.
The Company’s subsidiary, AZUR Environmental Limited, is the lessee for a real property lease located in the United Kingdom. In 2001, the landlord of the property gave AZUR Environmental Limited its consent to allow AZUR to assign the lease and its related obligations to a third party. As inducement to the landlord to grant the assignment, AZUR was required to guarantee performance under the original lease terms if the third party fails to perform. The Company believes that based on its assessment of the current financial strength of the third party, no liability is required to be recorded with regard to the guarantee or lease obligation. The lease term expires in November 2016 and provides for annual principal rent payments of approximately $150 per year in the aggregate.
The Company is subject to various claims arising in the ordinary course of business. Although the ultimate outcome of these matters is presently not determinable, management does not believe that the outcome of these matters will have a material adverse effect on the Company’s financial position or results of operations.
8. RETIREMENT SAVINGS PLAN
The Company maintained a retirement savings plan qualified under Section 401(k) of the Internal Revenue Code. The plan allowed for eligible employees to contribute a portion of their gross wages to the plan. The Company matched employees’ contributions on a 100% basis up to 1% of gross wages and on a 50% basis up to the next 5% of gross wages. All employee and Company matching contributions ceased upon the closing of the Asset Sale and the Company has terminated the plan. All plan balances were distributed as of December 31, 2013. In 2013, the Company recognized expense of $124 associated with this plan. This expense is included in discontinued operations.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
9. INCOME TAXES
The components of income (loss) from continuing operations before tax expense as of December 31 are as follows:
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | |
| United States | | $ | (1,216 | ) | | $ | (1,240 | ) | | $ | (1,851 | ) |
| Rest of the world | | | - | | | | - | | | | - | |
| Total | | $ | (1,216 | ) | | $ | (1,240 | ) | | $ | (1,851 | ) |
No income tax expense (benefit) is attributable to continuing operations as of December 31, 2015, 2014 or 2013.
The following table summarizes the significant differences between the U.S. Federal statutory rate and the Company’s effective tax rate for financial statement purposes on income from continuing operations:
| | | 2015 | | | 2014 | | | 2013 | |
| | | % | | | % | | | % | |
| Statutory tax rate | | | 34.0 | | | | 34.0 | | | | 34.0 | |
| Valuation allowance, federal | | | (34.0 | ) | | | (27.1 | ) | | | 20.9 | |
| Valuation allowance related to discontinued operations | | | - | | | | (6.9 | ) | | | (10.1 | ) |
| Stock compensation expense | | | - | | | | - | | | | (34.8 | ) |
| Subpart F income | | | - | | | | - | | | | (9.8 | ) |
| Other, net | | | - | | | | - | | | | (0.2 | ) |
| | | | | | | | | | | | | |
| Total | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
Significant components of the Company’s deferred tax assets as of December 31 are as follows:
| | | 2015 | | | 2014 | |
| | | | | | | |
| Net operating loss carryforwards | | $ | 8,281 | | | $ | 7,513 | |
| Credit carryforwards | | | 1,297 | | | | 1,310 | |
| Non-deductible reserves | | | 326 | | | | 574 | |
| | | | | | | | | |
| Total deferred tax assets | | | 9,904 | | | | 9,397 | |
| Valuation allowance | | | (9,904 | ) | | | (9,397 | ) |
| | | | | | | | | |
| Net deferred tax assets | | $ | - | | | $ | - | |
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
9. INCOME TAXES (Continued)
For the year ended December 31, 2015, the Company recorded no income tax expense.
Overall, the valuation allowance for deferred tax assets increased during 2015 by $507. The valuation allowance increased by $412 related to the current year net operating loss and $95 related to the current year increase in deferred tax assets.
FASB ASC 740,Accounting for Income Taxes(“FASB ASC 740”), requires a company to evaluate its deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required. Pursuant to FASB ASC 740, a cumulative pre-tax loss in recent years is significant negative evidence that is difficult to overcome in considering whether deferred tax assets are more likely than not realizable. The Company has evaluated the possibility of potential tax planning strategies and determined that none currently exist that the Company would conclude are prudent and feasible. The Company has concluded, based upon the evaluation of all available evidence, that it is more likely than not that the U.S. federal and state net deferred tax assets will not be realized and has recorded a full valuation allowance on its U.S. federal and state net deferred tax assets, as of December 31, 2015.
At December 31, 2015, the Company had U.S. federal net operating loss carryforwards of approximately $20,098 including those of acquired companies, which will expire as follows:
| Year | | Net
Operating
Loss
(in
thousands) | |
| | | | |
| 2022 | | $ | 1,674 | |
| 2024 | | | 1,876 | |
| 2025 | | | 3 | |
| 2026 | | | 1 | |
| 2027 | | | 1 | |
| 2028 | | | 3,492 | |
| 2029 | | | 2,501 | |
| 2030 | | | 1,281 | |
| 2031 | | | 391 | |
| 2033 | | | 6,625 | |
| 2034 | | | 452 | |
| 2035 | | | 1,801 | |
| Total | | $ | 20,098 | |
The above includes net operating losses of $668 which, if realized, would be accounted for as additional paid in capital and excludes $1,257 related to unrecognized tax benefits.
The Company has federal research and experimentation credit carryforwards of $1,068, net of $119 related to unrecognized tax benefits, as of December 31, 2015, which are set to expire in years 2020 through 2032. The Company also has federal alternative minimum tax credit carryforwards of $10 which have indefinite lives.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
9. INCOME TAXES (Continued)
For the year ended December 31, 2015, the Company had no change in its unrecognized tax benefits.
The following table is a reconciliation of the gross unrecognized tax benefits during the years ended December 31:
| | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | |
| Gross unrecognized tax benefits as of January 1 | | $ | 628 | | | $ | 619 | | | $ | 590 | |
| Increases from positions taken in prior periods | | | - | | | | - | | | | 2 | |
| Increases from positions taken in current period | | | - | | | | 9 | | | | 27 | |
| | | | | | | | | | | | | |
| Gross unrecognized tax benefits as of December 31 | | $ | 628 | | | $ | 628 | | | $ | 619 | |
The unrecognized tax benefits at December 31, 2015 of $628, if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.
The Company is subject to U.S. federal income tax, as well as income taxes of multiple state jurisdictions.
The Company recognizes accrued interest expense and penalties related to uncertain tax benefits that have resulted in a refund or reduction of income taxes paid. Unrecognized tax benefits aggregating $622 would reduce already existing net operating loss and tax credit carryforwards and therefore require no accrual for interest or penalty in any of the years 2015, 2014 or 2013. The remaining unrecognized tax benefit of $6 include de minimis interest and penalty where required.
For federal purposes, post-1997 tax years remain open to examination as a result of net operating loss carryforwards. For state purposes, the statute of limitations remains open in a similar manner for states that have generated net operating losses. The Company does not expect that the total amount of unrecognized tax benefits related to positions taken in prior periods will change significantly during the next twelve months.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(in thousands, except share and per share data)
10. QUARTERLY FINANCIAL DATA (unaudited)
| | | Three Months Ended, | |
| | | March 31 | | | June 30 | | | September 30 | | | December 31 | |
| | | (In thousands except per share data) | |
| 2015 | | | | | | | | | | | | | | | | |
| Loss from continuing operations | | $ | (251 | ) | | $ | (291 | ) | | $ | (268 | ) | | $ | (406 | ) |
| Income from discontinued operations | | | - | | | | - | | | | - | | | | - | |
| Net income (loss) | | | (251 | ) | | | (291 | ) | | | (268 | ) | | | (406 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share from continuing operations | | | (0.01 | ) | | | (0.01 | ) | | | (0.01 | ) | | | (0.02 | ) |
| Basic and diluted income per share from discontinued operations | | | - | | | | - | | | | - | | | | - | |
| Basic and diluted net loss per share | | | (0.01 | ) | | | (0.01 | ) | | | (0.01 | ) | | | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| 2014 | | | | | | | | | | | | | | | | |
| Loss from continuing operations | | $ | (340 | ) | | $ | (343 | ) | | $ | (261 | ) | | $ | (296 | ) |
| Income (loss) from discontinued operations | | | 0 | | | | 250 | | | | - | | | | 0 | |
| Net income (loss) | | | (340 | ) | | | (93 | ) | | | (261 | ) | | | (296 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share from continuing operations | | | (0.02 | ) | | | (0.02 | ) | | | (0.01 | ) | | | (0.02 | ) |
| Basic and diluted income per share from discontinued operations | | | - | | | | 0.01 | | | | - | | | | - | |
| Basic and diluted net income (loss) per share | | | (0.02 | ) | | | - | | | | (0.01 | ) | | | (0.02 | ) |
11. SUBSEQUENT EVENT
On February 29, 2016, the Company was informed by B. Riley & Co., LLC ("B. Riley") that it had sold 3,504,172 shares of the Company's common stock in a transaction that is matchable against B. Riley's purchase of 742,344 shares of the Company's common stock in December 2015. In accordance with Section 16(b) of the Securities Exchange Act of 1934 which provides that any profit realized by an insider on short-swing transactions must be disgorged to the Company, B. Riley paid the Company $133 for the disgorgement of profits in connection with these matchable transactions. This amount will be credited to additional paid-in capital during the quarter ending March 31, 2016.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | | SPECIAL DIVERSIFIED OPPORTUNITIES INC. |
| | | |
| Date: | March 30, 2016 | /s/ Kevin J. Bratton |
| | | Kevin J. Bratton |
| | | Vice President - Finance and Chief Financial Officer |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Date: | March 30, 2016 | /s/ Gregory H.A. Baxter |
| | | Gregory H.A. Baxter |
| | | Director |
| | | |
| Date: | March 30, 2016 | /s/ Kevin J. Bratton |
| | | Kevin J. Bratton |
| | | Vice President – Finance and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer) |
| | | |
| Date: | March 30, 2016 | /s/ Thomas J. Kelleher |
| | | Thomas J. Kelleher |
| | | Director |
| | | |
| Date: | March 30, 2016 | /s/ David M. Wurzer |
| | | David M. Wurzer |
| | | Director |
| | | |
| Date: | March 30 , 2016 | /s/ Wayne P. Yetter |
| | | Wayne P. Yetter |
| | | Director |
| | | |
| Date: | March 30, 2016 | /s/ Kenneth M. Young |
| | | Kenneth M. Young |
| | | Director |
