UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 000-05576001-41845
SPHERIX INCORPORATED
(Exact name of Registrant as specified in its charter)
| (Exact name of registrant as specified in its charter) |
| Delaware | 52-0849320 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 725 5th Avenue, 22nd Floor, New York, NY 10022 |
| (Address of Principal Executive Offices, including zip code) |
One Rockefeller Plaza
| (212) 393-4540 |
| (Registrant’s telephone number, including area code) |
| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
New York, NY 10020
(Address of principal executive offices)
(212) 745-1374
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☒ | Smaller Reporting Company | ☒ |
| Emerging growth company | ☐ |
Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer (Do not check if a smaller reporting company) ☐ Smaller Reporting Company ☒ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of eachSecurities registered pursuant to Section 12(b) of the Registrant’s classes of Common Stock, as of the latest practicable date.Act:
| Name of | ||||
| Common Stock, $0.0001 par value | The Nasdaq Capital Market LLC |
As of November 6, 2023, there were 5,345,312 shares of the Company’s common stock issued and outstanding.
Spherix Incorporated and SubsidiariesDOMINARI HOLDINGS INC.
Form 10-Q
For the Quarter Ended September 30, 20172023
Index
Index
2
i
PART I - FINANCIAL INFORMATION
SPHERIX INCORPORATED AND SUBSIDIARIES
DOMINARI HOLDINGS INC. Condensed Consolidated Balance Sheets
($ in thousands except share and per share amounts)
(Unaudited)
| September 30 | December 31 | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 233 | $ | 134 | ||||
| Marketable securities | 4,735 | 6,025 | ||||||
| Prepaid expenses and other assets | 42 | 135 | ||||||
| Total current assets | 5,010 | 6,294 | ||||||
| Property and equipment, net | 4 | 6 | ||||||
| Patent portfolios and patent rights, net | 3,924 | 4,951 | ||||||
| Investments at fair value in Hoth | 1,020 | — | ||||||
| Deposit | 26 | 26 | ||||||
| Total assets | $ | 9,984 | $ | 11,277 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 48 | $ | 123 | ||||
| Accrued salaries and benefits | 269 | 446 | ||||||
| Warrant liabilities | 961 | 702 | ||||||
| Short-term deferred revenue | 1,000 | 1,216 | ||||||
| Short-term lease liabilities | 94 | 183 | ||||||
| Total current liabilities | 2,372 | 2,670 | ||||||
| Long-term deferred revenue | 2,530 | 3,245 | ||||||
| Long-term lease liabilities | — | 44 | ||||||
| Total liabilities | 4,902 | 5,959 | ||||||
| Stockholders' equity | ||||||||
| Series D: 4,725 shares issued and outstanding at September 30, 2017 and December 31, 2016; liquidation value of $0.0001 per share | — | — | ||||||
| Series D-1: 834 shares issued and outstanding at September 30, 2017 and December 31, 2016; liquidation value of $0.0001 per share | — | — | ||||||
| Series H: no shares and 381,967 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively; liquidation preference $83.50 per share | — | — | ||||||
| Series K: no shares and 1,240 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively; liquidation preference $1,000 per share | — | — | ||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized; 6,229,910 and 4,943,941 shares issued at September 30, 2017 and December 31, 2016, respectively; 6,229,898 and 4,943,929 shares outstanding at September 30, 2017 and December 31, 2016, respectively | — | — | ||||||
| Additional paid-in-capital | 149,415 | 147,331 | ||||||
| Treasury stock, at cost, 12 shares at September 30, 2017 and December 31, 2016 | (264 | ) | (264 | ) | ||||
| Accumulated deficit | (144,069 | ) | (141,749 | ) | ||||
| Total stockholders' equity | 5,082 | 5,318 | ||||||
| Total liabilities and stockholders' equity | $ | 9,984 | $ | 11,277 | ||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,388 | $ | 33,174 | ||||
| Marketable securities | 16,274 | 7,130 | ||||||
| Deposits with clearing broker | 7,172 | - | ||||||
| Prepaid expenses and other assets | 715 | 564 | ||||||
| Prepaid acquisition cost | - | 301 | ||||||
| Short-term investments at fair value | 1 | 13 | ||||||
| Notes receivable, at fair value - current portion | 6,336 | 7,474 | ||||||
| Investment in Fieldpoint Securities | - | 2,000 | ||||||
| Total current assets | 34,886 | 50,656 | ||||||
| Property and equipment, net | 361 | - | ||||||
| Notes receivable, at fair value - non-current portion | 1,372 | 1,100 | ||||||
| Employee forgivable loan receivable | 7 | - | ||||||
| Investments | 22,696 | 23,103 | ||||||
| Right-of-use assets | 3,426 | 919 | ||||||
| Security deposit | 458 | 458 | ||||||
| Total assets | $ | 63,206 | $ | 76,236 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 315 | $ | 447 | ||||
| Accrued salaries and benefits | 632 | 1,260 | ||||||
| Accrued commissions | 177 | - | ||||||
| Lease liability - current | 411 | 82 | ||||||
| Other current liability | 187 | - | ||||||
| Total current liabilities | 1,722 | 1,789 | ||||||
| Lease liability | 3,137 | 680 | ||||||
| Total liabilities | 4,859 | 2,469 | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $.0001 par value, 50,000,000 authorized | ||||||||
| Series D: 5,000,000 shares designated; 3,825 shares issued and outstanding at September 30, 2023 and December 31, 2022; liquidation value of $0.0001 per share | - | - | ||||||
| Series D-1: 5,000,000 shares designated; 834 shares issued and outstanding at September 30, 2023 and December 31, 2022; liquidation value of $0.0001 per share | - | - | ||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized; 5,345,312 and 5,485,096 shares issued at September 30, 2023 and December 31, 2022, respectively; 5,285,164 and 5,017,079 shares outstanding at September 30, 2023 and December 31, 2022, respectively | - | - | ||||||
| Additional paid-in capital | 260,695 | 262,970 | ||||||
| Treasury stock, at cost, 60,148 and 468,017 shares at September 30, 2023 and December 31, 2022, respectively | (501 | ) | (3,322 | ) | ||||
| Accumulated deficit | (201,847 | ) | (185,881 | ) | ||||
| Total stockholders’ equity | 58,347 | 73,767 | ||||||
| Total liabilities and stockholders’ equity | $ | 63,206 | $ | 76,236 | ||||
See accompanying notes to unaudited condensed consolidated financial statementsstatements.
SPHERIX INCORPORATED AND SUBSIDIARIES
DOMINARI HOLDINGS INC. Condensed Consolidated Statements of Operations
($ in thousands except share and per share amounts)
(Unaudited)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 963 | $ | - | $ | 1,034 | $ | - | ||||||||
| Operating costs and expenses | ||||||||||||||||
| General and administrative | $ | 4,067 | $ | 4,515 | $ | 16,980 | $ | 8,564 | ||||||||
| Research and development | - | 61 | 3 | 2,113 | ||||||||||||
| Research and development - license acquired | 525 | - | 525 | |||||||||||||
| Total operating expenses | 4,067 | 5,101 | 16,983 | 11,202 | ||||||||||||
| Loss from operations | (3,104 | ) | (5,101 | ) | (15,949 | ) | (11,202 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | - | - | - | 64 | ||||||||||||
| Interest income | 208 | 187 | 505 | 586 | ||||||||||||
| (Loss) gain on marketable securities | (150 | ) | (1,654 | ) | 185 | (4,390 | ) | |||||||||
| Unrealized loss on note receivable | - | - | (212 | ) | - | |||||||||||
| Change in fair value of investments | (495 | ) | 329 | (495 | ) | 91 | ||||||||||
| Total other (expenses) income | (437 | ) | (1,138 | ) | (17 | ) | (3,649 | ) | ||||||||
| Net loss | $ | (3,541 | ) | $ | (6,239 | ) | $ | (15,966 | ) | $ | (14,851 | ) | ||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | - | - | - | (4,109 | ) | |||||||||||
| Net Loss Attributable to Common Shareholders | $ | (3,541 | ) | $ | (6,239 | ) | $ | (15,966 | ) | $ | (18,960 | ) | ||||
| Net loss per share, basic and diluted | ||||||||||||||||
| Basic and Diluted | $ | (0.66 | ) | $ | (1.17 | ) | $ | (3.09 | ) | $ | (3.59 | ) | ||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
| Basic and Diluted | 5,345,312 | 5,344,989 | 5,159,501 | 5,283,182 | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | 314 | $ | 314 | $ | 952 | $ | 563 | ||||||||
| Operating costs and expenses | ||||||||||||||||
| Amortization of patent portfolio | 346 | 536 | 1,027 | 1,598 | ||||||||||||
| Compensation and related expenses (including stock-based compensation) | 488 | 836 | 1,371 | 1,509 | ||||||||||||
| Professional fees | 280 | 343 | 815 | 1,872 | ||||||||||||
| Rent | 21 | 20 | 70 | 65 | ||||||||||||
| Other selling, general and administrative | 138 | 65 | 374 | 188 | ||||||||||||
| Total operating expenses | 1,273 | 1,800 | 3,657 | 5,232 | ||||||||||||
| Loss from operations | (959 | ) | (1,486 | ) | (2,705 | ) | (4,669 | ) | ||||||||
| Other (expenses) income | ||||||||||||||||
| Other income, net | 6 | 16 | 299 | 41 | ||||||||||||
| Change in fair value of investment | 345 | — | 345 | — | ||||||||||||
| Change in fair value of warrant liabilities | 1,067 | 1,024 | $ | (259 | ) | 2,055 | ||||||||||
| Total other (expenses) income | 1,418 | 1,040 | 385 | 2,096 | ||||||||||||
| Net income (loss) | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | (2,573 | ) | |||||
| Deemed capital contribution on extinguishment of preferred stock | — | — | — | 31,480 | ||||||||||||
| Net income (loss) attributable to common stockholders | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | 28,907 | ||||||
| Net income (loss) per share attributable to common stockholders, basic and diluted | ||||||||||||||||
| Basic | $ | 0.08 | $ | (0.11 | ) | $ | (0.44 | ) | $ | 8.72 | ||||||
| Diluted | $ | 0.08 | $ | (0.11 | ) | $ | (0.44 | ) | $ | 8.25 | ||||||
| Weighted average number of common shares outstanding, | ||||||||||||||||
| Basic | 5,998,920 | 4,163,245 | 5,304,201 | 3,312,969 | ||||||||||||
| Diluted | 6,009,042 | 4,163,245 | 5,304,201 | 3,503,735 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
statements.
4
DOMINARI HOLDINGS INC.
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity
($ in thousands except share and per share amounts)
(Unaudited)
For the Three Months Ended September 30, 2023 and 2022
| Preferred Stock | Common Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 4,659 | $ | - | 5,345,312 | $ | - | $ | 260,585 | 60,148 | $ | (501 | ) | $ | (198,306 | ) | $ | 61,778 | |||||||||||||||||||
| Stock-based compensation | - | - | - | - | 110 | - | - | - | 110 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (3,541 | ) | (3,541 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2023 | 4,659 | $ | - | 5,345,312 | $ | - | $ | 260,695 | 60,148 | $ | (501 | ) | $ | (201,847 | ) | $ | 58,347 | |||||||||||||||||||
| Series O | Series P | Common Stock | Preferred Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | - | $ | - | 5,246,852 | $ | - | 4,659 | $ | - | $ | 261,603 | 242,902 | $ | (1,750 | ) | $ | (172,386 | ) | $ | 87,467 | |||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | - | - | - | - | 102,080 | (751 | ) | (751 | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 238,244 | - | - | - | 1,370 | - | - | - | 1,370 | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (6,239 | ) | (6,239 | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | - | $ | - | - | $ | - | 5,485,096 | $ | - | 4,659 | $ | - | $ | 262,973 | 344,982 | $ | (2,501 | ) | $ | (178,625 | ) | $ | 81,847 | |||||||||||||||||||||||||||||
SPHERIX INCORPORATED AND SUBSIDIARIES
For the Nine Months Ended September 30, 2023 and 2022
| Preferred Stock | Common Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 4,659 | $ | - | 5,485,096 | $ | - | $ | 262,970 | 468,017 | $ | (3,322 | ) | $ | (185,881 | ) | $ | 73,767 | |||||||||||||||||||
| Stock-based compensation | - | - | 529,715 | - | 1,485 | - | - | - | 1,485 | |||||||||||||||||||||||||||
| Cancellation of common stock | - | - | (25,000 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | 236,630 | (939 | ) | - | (939 | ) | |||||||||||||||||||||||||
| Retirement of treasury stock | - | - | (644,499 | ) | - | (3,760 | ) | (644,499 | ) | 3,760 | - | - | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (15,966 | ) | (15,966 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2023 | 4,659 | $ | - | 5,345,312 | $ | - | $ | 260,695 | 60,148 | $ | (501 | ) | $ | (201,847 | ) | $ | 58,347 | |||||||||||||||||||
| Redeemable Convertible Preferred Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Series O | Series P | Common Stock | Preferred Stock | Paid-in | Treasury Stock | Accumulated | Stockholders | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | - | $ | - | - | $ | - | 5,275,329 | $ | - | 4,659 | $ | - | $ | 265,633 | - | $ | (264 | ) | $ | (163,774 | ) | $ | 101,595 | |||||||||||||||||||||||||||||
| Issuance of Series O redeemable convertible preferred stock for cash | 11,000 | 11,000 | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Series P redeemable convertible preferred stock for cash | 11,000 | 11,000 | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Cost on issuance of Series O and Series P Redeemable Convertible Preferred Stock | - | (1,504 | ) | - | (1,505 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | - | 1,504 | - | 1,505 | - | - | - | - | (4,109 | ) | - | - | - | (4,109 | ) | |||||||||||||||||||||||||||||||||||||
| Redemption of Series O Redeemable Convertible Preferred Stock | (11,000 | ) | (11,000 | ) | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Redemption of Series P Redeemable Convertible Preferred Stock | - | - | (11,000 | ) | (11,000 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | - | - | - | - | 344,982 | (2,237 | ) | - | (2,237 | ) | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 238,244 | - | - | - | 1,475 | - | - | - | 1,475 | |||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock related to investment in CBM | - | - | - | - | (22,812 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | - | - | - | - | (5,665 | ) | - | - | - | (26 | ) | - | - | - | (26 | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (14,851 | ) | (14,851 | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | - | $ | - | - | $ | - | 5,485,096 | $ | - | 4,659 | $ | - | $ | 262,973 | 344,982 | $ | (2,501 | ) | $ | (178,625 | ) | $ | 81,847 | |||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
DOMINARI HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (15,966 | ) | $ | (14,851 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of right-of-use assets | 268 | 23 | ||||||
| Depreciation | 57 | - | ||||||
| Change in fair value of short-term investment | 12 | 1,517 | ||||||
| Change in fair value of long-term investment | 482 | (1,608 | ) | |||||
| Research and development-acquired license, expensed | - | 525 | ||||||
| Stock-based compensation | 1,485 | 1,475 | ||||||
| Realized loss on marketable securities | 1,249 | 712 | ||||||
| Unrealized (gain) loss on marketable securities | (897 | ) | 3,889 | |||||
| Unrealized loss on note receivable | 212 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | (229 | ) | (344 | ) | ||||
| Prepaid acquisition cost | 301 | - | ||||||
| Clearing broker deposits | (3,622 | ) | - | |||||
| Accounts payable and accrued expenses | (345 | ) | 137 | |||||
| Accrued salaries and benefits | (628 | ) | 659 | |||||
| Accrued commissions | 152 | - | ||||||
| Lease liabilities | 11 | 12 | ||||||
| Other current liabilities | 66 | - | ||||||
| Notes receivable, at fair value – net interest accrued | (96 | ) | (521 | ) | ||||
| Deposit | - | (295 | ) | |||||
| Net cash used in operating activities | (17,488 | ) | (8,670 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | (34,068 | ) | (27,479 | ) | ||||
| Sale of marketable securities | 24,572 | 28,503 | ||||||
| Proceeds from sale of digital currencies | - | 93 | ||||||
| Purchase of fixed assets | (419 | ) | - | |||||
| Acquisition of FPS, net of cash acquired and receivable owed from FPS | (1,112 | ) | - | |||||
| Collection of principal on note receivable | 850 | - | ||||||
| Funds to employee forgivable loan | (107 | ) | - | |||||
| Purchase of research and development licenses | (525 | ) | ||||||
| Purchase of short-term and long-term investments | (75 | ) | (15,016 | ) | ||||
| Purchase of short-term and long-term promissory notes | - | (1,600 | ) | |||||
| Net cash used in investing activities | (10,359 | ) | (16,024 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost | - | 17,891 | ||||||
| Payment for fractional shares | - | (26 | ) | |||||
| Redemption of Series O and Series P Redeemable Convertible Preferred Stock | - | (22,000 | ) | |||||
| Purchase of treasury stock | (939 | ) | (2,237 | ) | ||||
| Net cash used in financing activities | (939 | ) | (6,372 | ) | ||||
| Net decrease in cash and cash equivalents and restricted cash | (28,786 | ) | (31,066 | ) | ||||
| Cash and cash equivalents, beginning of period | 33,174 | 65,562 | ||||||
| Cash and cash equivalents, end of period | $ | 4,388 | $ | 34,496 | ||||
| Non-cash investing and financing activities | ||||||||
| Transfer from short-term investment to marketable securities | $ | - | $ | 1,497 | ||||
| Reclassify from convertible note receivable to notes receivable at fair value | $ | - | $ | 2,147 | ||||
| Promissory convertible note receivable conversion into common shares | $ | - | $ | 899 | ||||
| On March 27, 2023, the Company acquired all assets and liabilities of FPS as disclosed in Note 4: | ||||||||
| Net assets acquired, net of cash acquired and receivable owed from FPS | $ | 3,112 | ||||||
| Less - Deposit previously transferred in October 2022 to FPS | $ | (2,000 | ) | |||||
| Net cash paid | $ | 1,112 | ||||||
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (2,320 | ) | $ | (2,573 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Amortization of patent portfolio | 1,027 | 1,598 | ||||||
| Change in fair value of investment | (345 | ) | — | |||||
| Change in fair value of warrant liabilities | 259 | (2,055 | ) | |||||
| Stock-based compensation | 13 | 353 | ||||||
| Depreciation expenses | 2 | 1 | ||||||
| Realized loss on marketable securities | 303 | — | ||||||
| Unrealized gain on marketable securities | (262 | ) | 62 | |||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 93 | 271 | ||||||
| Accounts payable and accrued expenses | (75 | ) | (320 | ) | ||||
| Accrued salaries and benefits | (177 | ) | (111 | ) | ||||
| Deferred revenue | (932 | ) | 3,812 | |||||
| Accrued lease liabilities | (133 | ) | (133 | ) | ||||
| Net cash (used in) provided by operating activities | (2,547 | ) | 905 | |||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | (11,283 | ) | (15,707 | ) | ||||
| Purchase of property and equipment | — | (3 | ) | |||||
| Sale of marketable securities | 12,533 | 12,070 | ||||||
| Investment in Hoth Therapeutics, Inc. | (675 | ) | — | |||||
| Net cash provided by (used in) investing activities | 575 | (3,640 | ) | |||||
| Cash flows from financing activities | ||||||||
| Cash paid for cancellation of common stock | — | (4 | ) | |||||
| Cash from issuance common stock, net of offering cost | 2,095 | 2,140 | ||||||
| Proceeds from exercise of warrants | — | 760 | ||||||
| Repurchase of restricted stock units to pay for employee withholding taxes | (24 | ) | — | |||||
| Net cash provided by financing activities | 2,071 | 2,896 | ||||||
| Net increase in cash and cash equivalents | 99 | 161 | ||||||
| Cash and cash equivalents, beginning of period | 134 | 142 | ||||||
| Cash and cash equivalents, end of period | $ | 233 | $ | 303 | ||||
| Cash paid for interest and taxes | $ | 195 | $ | — | ||||
| Non-cash investing and financing activities | ||||||||
| Extinguishment of Series H Convertible Preferred Stock in connection with license agreement | $ | — | $ | 31,480 | ||||
| Recognition of deferred revenue in connection with license agreement | $ | — | $ | 414 | ||||
See accompanying notes to unaudited condensed consolidated financial statementsstatements.
SPHERIX INCORPORATED AND SUBSIDIARIES
DOMINARI HOLDINGS INC. Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Description of Business and Recent Developments
Organization and Description of Business
Spherix IncorporatedDominari Holdings Inc. (the “Company”) is an intellectual property company incorporated in the State of Delaware that owns patented and unpatented intellectual property. The Company, formerly AIkido Pharma, Inc., was formedfounded in 1967 as a scientific research company and for much of its history pursued drug development including through Phase III clinical studies which were discontinued. Through the Company’s acquisition of patents and patent applications developed by Nortel Networks Corporation from Rockstar Consortium US, LP (“Rockstar”) and Harris Corporation from North South Holdings Inc. (“North South”) in 2013,Spherix Incorporated. Since 2017, the Company has expanded its activities.
The Company is currentlyoperated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related patent commercialization company focused on generating revenues from the monetization of intellectual property, or IP. Such monetization includes, but is not limited to, acquiring IP from patent holders in order to maximize the value of the patent holdings by conducting and managing a licensing campaign, or through the settlement and litigation of patents. We intend to generate revenues and related cash flows from the granting of intellectual property rights for the use of patented technologies that we own, that we manage for others, or that others manage on our behalf. To date, we have generated minimal revenues and no assurance can be provided that our business model will be successful.
The Company continually workstechnology. In an effort to enhance its portfolioshareholder value, in June of intellectual property through acquisitions and strategic partnerships. The Company’s mission is to partner with inventors, or other entities, who own undervalued intellectual property. The2022, the Company then worksformed a wholly owned financial services subsidiary, Dominari Financial Inc. (“Dominari Financial”), with the inventors or other entitiesintent of shifting the Company’s primary operating focus away from biotechnology to commercialize the IP.
In March 2016,fintech and financial services industries. Through Dominari Financial, the Company entered intoacquired Dominari Securities LLC (“Dominari Securities”), an agreement (which was subsequently amended in Aprilintroducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”) and May 2016)an investment adviser registered with Equitable IP Corporationthe Securities and Exchange Commission (“Equitable”) to facilitate the monetization of its patents (the “Monetization Agreement”SEC”). PursuantDominari Securities provides investment advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated brokers.
Related to the Monetization Agreement,shift described above, AIkido Labs, LLC (“Aikido Labs”), a wholly owned subsidiary of the Company, is working together with Equitable to further developin the process of winding down its historical pipeline of biotechnology assets. Aikido Labs has historically explored opportunities in high growth industries and revise its ongoing litigation plan. See Note 7 for additional details surrounding the Monetization Agreement.has equity holdings including Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc., Payward, Inc. dba Kraken, Space Exploration Technologies Corp. dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc. dba Masterclass.
Note 2. Liquidity and Financial ConditionCapital Resources
The Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While the Company continues to implement its business strategy, it intends to finance its activities through:through managing current cash on hand from the Company’s past equity offerings.
Management believesBased upon projected cash flow requirements, the Company currently has sufficient fundsadequate cash and cash equivalents and marketable securities to meetfund its operating requirementsoperations for at least the next twelve months.
The Company’s ultimate success is dependent on its ability to obtain additional financing and generate sufficient cash flows to meet its obligations on a timely basis. The Company’s business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer term business plan. The Company’s working capital amounted to approximately $2.6 million at September 30, 2017, and net income amounted to approximately $0.5 million and net loss approximately $2.3 million for the three and nine months ended September 30, 2017. The Company had an approximately $144.1 million of accumulated deficit as of September 30, 2017. Absent generation of sufficient revenue from the executiondate of the Company’s long term business plan, the Company will need to obtain additional debt or equity financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or operations. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume that such financing will be available to the Company on favorable terms, or at all. On July 18, 2017, the Company entered into an underwriting agreement with Laidlaw & Company (UK) Ltd. with respect to the issuance and sale of an aggregate of 1,250,000 shares of the Company’s common stock, par value $0.0001 per share, in a firm commitment underwritten public offering which closed on July 24, 2017. Each share was sold for a price of $2.00 for aggregate gross proceeds of $2.5 million, with net proceeds of approximately $2.1 million, after deducting the underwriting discounts and commissions (equivalent to 8% of gross proceeds) and estimated offering expenses.
Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. The Company may be forced to litigate against others to enforce or defend its intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which the Company is involved may allege defenses and/or file counterclaims or initiate inter parties reviews in an effort to avoid or limit liability and damages for patent infringement or cause the Company to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the value of the patents and preclude the Company from deriving revenue from the patents. The patents could be declared invalid by a court or the United States Patent and Trademark Office, in whole or in part, or the costs of the Company can increase. Recent rulings also create an increased risk that if the Company is unsuccessful in litigation it could be responsible to pay the attorneys’ fees and other costs of defendants by lowering the standard for legal fee shifting sought by defendants in patent cases.
these unaudited condensed consolidated financial statements.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 3. Summary of Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the 2022 Annual Report.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), and in conformity with the rules and regulations of the SEC. In the opinion of management, these financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The condensed consolidated balance sheet as of September 30, 2023, condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023 or for any future interim period. The condensed consolidated balance sheet at December 31, 2022 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.
The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the membership interest or outstanding voting stock. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries, Nuta Technology Corp. (“Nuta”), Spherix Portfolio Acquisition II, Inc. (“SPXII”), Guidance IP, LLC (“Guidance”), Directional IP, LLC (“Directional”), Spherix Management Services, LLC (“SMS”)Aikido Labs, Dominari Financial, and NNPT, LLC (“NNPT”).Dominari Securities. All significant intercompany balances and transactions have been eliminated in consolidation.
Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.
Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).U.S. GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, the valuation of derivative liabilities,investments, the valuation of investmentsnotes receivable and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates including the carrying amount of the intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.
Marketable SecuritiesDeposits with clearing broker
Marketable securities are classified as trading and are carried at fair value. The Company’s marketable securities consistDeposits with Dominari Securities’ clearing broker consisted of corporate bonds and highly liquid mutualapproximately $7.2 million held in money market funds and exchange-traded & closed-end funds which are valued at quoted market prices.
During the three months ended September 30, 2017 and 2016,liquid insured deposits maintained by the Company incurred realized losses of approximately $174,000 and realized gains of approximately $56,000, respectively, and unrealized gains of approximately $124,000 and $91,000, respectively, onwith its investments in marketable securities, which are included in other income, net on the consolidated statements of operations. In addition, during the three months ended September 30, 2017 and 2016, the Company earned dividend income of approximately $18,000 and $2,000, respectively, which is included in other income, net on the consolidated statement of operations.
During the nine months ended September 30, 2017 and 2016, the Company incurred realized losses of approximately $303,000 and $66,000, respectively, and unrealized gains (losses) of approximately $262,000 and ($62,000), respectively, on its investments in marketable securities, which are included in other income, net on the consolidated statements of operations. In addition, during the nine months ended September 30, 2017 and 2016, the Company earned dividend income of approximately $72,000 and $19,000, respectively, which is included in other income, net on the consolidated statement of operations.
The Company reinvested such dividend income into its marketable securities during the nine months ended September 30, 2017 and 2016. The fair values of such marketable securities heldclearing broker as of September 30, 2017 and December 31, 2016 were $4.7 million and $6.0 million, respectively.2023.
InvestmentLeases
The Company elected the fair value option for its investment in Hoth Therapeutics, Inc., a Nevada corporation (“Hoth”). As of September 30, 2017, the fair value of this investment was $1,020,000 (see Note 4). The investment was classified as a Level 3 financial instrument at September 30, 2017.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
The decision to elect the fair value option, which is irrevocable once elected, is determined on an instrument by instrument basis and applied to an entire instrument. The net gains or losses, if any, on an investment for which the fair value option has been elected, are recognized as an unrealized gain on investment in the Consolidated Statements of Operations.
Accounting for Warrants
The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions ofits leases under ASC 815, Derivatives and Hedging (“842, Leases (“ASC 815”842”). The Company classifiesUnder this guidance, arrangements meeting the definition of a lease are classified as equity any contracts that (i) require physical settlementoperating or net-share settlement or (ii) givesfinancing leases and are recorded on the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, Under ASC 815, registered common stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on theunaudited condensed consolidated balance sheet as both a current liability.right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred (see Note 10 - Leases).
Revenue
The Company assessed the classification of common stock purchase warrants as of the date of each offering and determined that such instruments met the criteria for liability classification. Accordingly, the Company classified the warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liabilities” in the consolidated statements of operations. The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 6).
recognizes revenues under ASC 606 - Net Loss per Share
Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Net income (loss) attributable to common stockholders includes the effect of the deemed capital contribution on extinguishment of preferred stock and the deemed dividend related to the immediate accretion of beneficial conversion feature of convertible preferred stock. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the conversion of preferred stock and the exercise of stock options and warrants from the calculation of net loss per share if their effect would be anti-dilutive.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The following table summarizes the earnings (loss) per share calculation (in thousands, except per share amount):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Basic earnings per share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | (2,573 | ) | |||||
| Deemed capital contribution on extinguishment of preferred stock | — | — | — | 31,480 | ||||||||||||
| Net income (loss) available to common stockholders | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | 28,907 | ||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding, | 5,998,920 | 4,163,245 | 5,304,201 | 3,312,969 | ||||||||||||
| Earnings per basic share: | ||||||||||||||||
| Net income (loss) | 0.08 | (0.11 | ) | (0.44 | ) | (0.78 | ) | |||||||||
| Deemed capital contribution on extinguishment of preferred stock | — | — | — | 9.50 | ||||||||||||
| Net income (loss) available to common stockholders | $ | 0.08 | $ | (0.11 | ) | $ | (0.44 | ) | $ | 8.72 | ||||||
| Dilutive earnings per share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | (2,573 | ) | |||||
| Deemed capital contribution on extinguishment of preferred stock | — | — | — | 31,480 | ||||||||||||
| Net income (loss) available to common stockholders | $ | 459 | $ | (446 | ) | $ | (2,320 | ) | $ | 28,907 | ||||||
| Denominator: | ||||||||||||||||
| Weighted average basic shares outstanding, | 5,998,920 | 4,163,245 | 5,304,201 | 3,312,969 | ||||||||||||
| Weighted average effect of dilutive securities | ||||||||||||||||
| Employee stock options | 7,196 | — | — | 260 | ||||||||||||
| Convertible preferred stock | 2,926 | — | — | 173,418 | ||||||||||||
| Restricted stock units | — | — | — | 17,088 | ||||||||||||
| Weighted average diluted shares outstanding | 6,009,042 | 4,163,245 | 5,304,201 | 3,503,735 | ||||||||||||
| Earnings per diluted share: | ||||||||||||||||
| Net income (loss) | $ | 0.08 | $ | (0.11 | ) | $ | (0.44 | ) | $ | (0.73 | ) | |||||
| Deemed capital contribution on extinguishment of preferred stock | — | — | — | 8.98 | ||||||||||||
| Net income (loss) available to common stockholders | $ | 0.08 | $ | (0.11 | ) | $ | (0.44 | ) | $ | 8.25 | ||||||
Securities that could potentially dilute loss per share in the future as follows:
| As of September 30, | ||||||||
| 2017 | 2016 | |||||||
| Convertible preferred stock | 2,926 | 2,926 | ||||||
| Warrants to purchase common stock | 1,251,709 | 1,251,709 | ||||||
| Non-vested restricted stock units | — | 59,256 | ||||||
| Options to purchase common stock | 328,716 | 289,380 | ||||||
| Total | 1,583,351 | 1,603,271 | ||||||
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “RevenueRevenue from Contracts with Customers” (“ASU 2014-09”Customers (“ASC 606”), which requires entities to recognize revenue in a way that depicts. Revenues are recognized when control of the transfer of promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration to which the entityCompany expects to be entitled to in exchange for thosethe goods or services.
The new guidance also requires additional disclosure aboutfollowing provides detailed information on the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The FASB has subsequently issued ASU No. 2016-10, Revenue from Contracts with Customer (Topic 606) Identifying Performance Obligations and Licensing to address issues arising from implementationrecognition of the new revenue recognition standard. ASU 2014-09 and ASU 2016-10 are effective for interim and annual periods beginningCompany’s revenues from contracts with customers:
| ● | Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings, and underwriting and distributing public and private debt. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded and are recorded on a gross basis within the general and administrative line item in the unaudited condensed consolidated statements of operations as the Company is acting as a principal in the arrangement. Any expenses reimbursed by the Company’s clients are recognized as other income. |
| ● | Commissions are earned by executing, transactions for clients primarily in equity, equity-related, and debt products. Commission revenues associated with trade execution are recognized at a point in time on trade-date. Commissions revenues are generally paid on settlement date and the Company records receivables to account for timing between trade-date and payment on settlement date. |
| ● | Account advisory fees are earned in connection with investment advisory services. Account advisory fees are recognized over time using the time elapsed method as the Company determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees are generally paid in advance of a specified service period (e.g. quarterly) and are initially deferred within in our Condensed Consolidated Balance Sheet. |
Long-term investments
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and may be adopted earlier,related ASU 2018-03 and ASU 2019-04 concerning recognition and measurement of financial assets and financial liabilities. In adopting this guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.
For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but not before January 1, 2017. The revenue standards areis required to be adopted by taking either a full retrospectiveadjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a modified retrospective approach. The Company is currently evaluatingsimilar investment with the impact that ASU 2014-09 and 2016-10 will have on the Company’s financial statements and determining the transition method, including the period of adoption, that it will apply.same issuer or upon an impairment.
Recently adopted accounting standards
In January 2016,October 2021, the FASB issued ASU No. 2016-01,2021-08, RecognitionBusiness Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This update amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. The Company adopted ASU 2021-08 on January 1, 2023. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2021-08.
Effect of new accounting pronouncements not yet adopted
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investmentsEquity Securities Subject to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiringContractual Sale Restrictions, to clarify that a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized costcontractual restriction on the balance sheet; requires public business entities to usesale of an equity security is not considered part of the exit price notion whenunit of account of the equity security and, therefore, is not considered in measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; andequity security. ASU 2022-03 also clarifies that an entity should evaluate the need forcannot recognize and measure a valuation allowancecontractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 may be early adopted and are effective on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issuedprospective basis for fiscal years beginning after December 15, 2017,2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU No. 2016-01 will haveof the amendments on itsthe Company’s consolidated financial statements.statements and whether it will early adopt the amendments in ASU 2022-03.
In February 2016,March 2023, the FASB issued ASU No. 2016-02,2023-01, Leases (Topic 842), which supersedes FASB ASC Topic 840,Leases (Topic 840)to require entities to classify and provides principlesaccount for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases basedwith related parties on the principlebasis of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the termlegally enforceable terms and conditions of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases.arrangement. The standard isamendments are effective for annual and interimin periods beginning after December 15, 2018, with early adoption permitted upon issuance. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In March 2016, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations(“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. The amendments in ASU 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2016-08 on the consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective on January 1, 2020. Early adoption will be available on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017,2023, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impactprovisions of this new pronouncementthe amendments and the impact on its consolidated statements of cash flows.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In January 2017, the FASB issued ASU No. 2017-04,Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting forGoodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on itsfuture consolidated financial statements.
In May 2017,statements and whether it will early adopt the Financial Accounting Standards Board (the FASB) issued ASU 2017-09,Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, (ASU 2017-09). ASU 2017-09 provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 should2023-01.
Effect of new accounting pronouncements to be applied prospectively to an award modified onadopted in future periods
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or after the adoption date. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The adoption of this ASU is not expected to have a materialsignificant impact on the Company’sthese unaudited condensed consolidated financial position or results of operations.statements.
In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09,Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. Effective on January 1, 2017, the Company began accounting for forfeitures as they occur. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election under ASU 2016-09, the Company estimated their forfeiture rate at 0%, or they did not have a significant history of forfeitures.
Note 4. Investment in Hoth Therapeutics, Inc.FPS Acquisition
On June 30, 2017 (the “Closing Date”), the CompanySeptember 9, 2022, Dominari Financial entered into a Securitiesmembership interest purchase agreement, as amended and restated on March 27, 2023 (the “FPS Purchase Agreement (the “Purchase Agreement”) with Hoth Therapeutics, Inc.Fieldpoint Private Bank & Trust (“Seller”), a Nevada corporation (“Hoth”),Connecticut bank, for the purchase of an aggregate of 6,800,000 shares of common stock, par value $0.0001 (the “Shares”its wholly owned subsidiary, Fieldpoint Private Securities, LLC, a Connecticut limited liability company (“FPS”), that is a broker-dealer registered with FINRA and an investment adviser registered with the SEC (the “FPS Acquisition”). Pursuant to the terms of Hoth,the FPS Purchase Agreement, Dominari Financial purchased from the Seller 100% of the membership interests in FPS (the “FPS Membership Interests”). FPS’s registered broker-dealer and investment adviser businesses were renamed and will operate as Dominari Securities, a wholly owned subsidiary of Dominari Financial. The FPS Purchase Agreement provided for Dominari Financial’s acquisition of FPS’s Membership Interests in two closings, the first of which occurred on October 4, 2022 (the “Initial Closing”), at which Dominari Financial paid to the Seller $2.0 million in consideration for a purchase pricetransfer by the Seller to Dominari Financial of $675,000. As20% of the FPS Membership Interests. Following the Initial Closing, Date, HothFPS filed a continuing membership application requesting approval for a change of ownership, control, or business operations with FINRA in accordance with FINRA Rule 1017 (the “Rule 1017 Application”). The Rule 1017 Application was approved by FINRA on March 20, 2023. The second closing (the “Second Closing”) occurred on March 27, 2023. Dominari Financial paid to the Seller an additional approximate $1.6 million consideration for a transfer by the Seller to Dominari Financial of the remaining 80% of the FPS Membership Interests.
Consideration Transferred
The FPS Acquisition was accounted for as a business combination under ASC 805.
Under the terms of the FPS Purchase Agreement and subsequent amendments and side letters to the agreement 100% of the FPS Membership Interests were acquired for cash consideration of approximately $3.4 million, which reflected the fair value of net assets acquired, plus a $1 purchase price. At March 31, 2023, Dominari Financial had not finalized the purchase accounting related to the fair value of assets acquired in the FPS Acquisition. Pursuant to the Initial Closing and Second Closing, Dominari Financial had wired a total of 17,000,000 sharesapproximately $3.6 million in cash to the Seller. The purchase price allocation identified net assets of common stock issuedapproximately $3.4 million, resulting in a receivable due from the Seller for approximately $0.2 million. The receivable is not included within the consideration transferred as part of the FPS Acquisition but is included within prepaid expenses and outstanding. Hoth isother assets within the unaudited condensed consolidated balance sheet as of March 31, 2023.
Under the acquisition method of accounting, the assets acquired, and liabilities assumed of FPS were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. Acquisition-related costs are not included as a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth’s primary asset is a sublicense agreementcomponent of consideration transferred but are expensed in the periods in which costs are incurred. The Company incurred approximately $0.3 million of transaction costs associated with Chelexa Biosciences, Inc. (“Chelexa”) pursuantthe FPS Acquisition. The transaction costs are included in general and administrative expenses in the unaudited condensed consolidated statement of operations.
Fair Value of Net Assets Acquired
The following table summarizes the fair values of the assets acquired and liabilities assumed of FPS at the date of acquisition ($ in thousands):
| March 27, | ||||
| 2023 | ||||
| (Unaudited) | ||||
| ASSETS | ||||
| Cash and cash equivalents | $ | 92 | ||
| Deposits with Clearing Broker-Dealer | 3,550 | |||
| Other receivables | 53 | |||
| Prepaid and other current assets | 89 | |||
| Total assets acquired | 3,784 | |||
| Liabilities | ||||
| Accrued expenses | $ | 273 | ||
| Accrued commissions | 25 | |||
| Wealth management liabilities | 62 | |||
| Total liabilities assumed | 360 | |||
| Total net assets of FPS Acquisition | 3,424 | |||
Note 5. Investments in Marketable Securities
The realized gain or loss, unrealized gain or loss, and dividend income related to which Chelexa has granted Hoth an exclusive sublicense to use its BioLexa productsmarketable securities for the treatment of eczema.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Under the Purchase Agreement, following the occurrence of a Going Public Event (as defined below), Hoth covenants to timely file all reports required to be filed under the Securities Exchange Act of 1934 (the “Exchange Act”)three and to take all necessary steps to cause the Shares to be approved for listing or quotation on a trading market such as NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX. A “Going Public Event” means (i) an initial public offering of Hoth’s securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) Hoth’s entry into a merger, consolidation, transfer or share exchange transaction pursuant to which Hoth becomes subject to the reporting requirements of the Exchange Act.
The Company adopted the fair value option for this investment and will record any change in fair value in the statement of operations (see Note 6).
Note 5. Intangible Assets
Patent Portfolio and Patent Rights
The Company’s intangible assets with finite lives consist of its patents and patent rights. For all periods presented, all of the Company’s identifiable intangible assets were subject to amortization. The carrying amounts related to acquired intangible assets as ofnine months ended September 30, 20172023 and 2022, which are recorded as a component of gains and (losses) on marketable securities on the unaudited condensed consolidated statements of operations, are as follows ($ in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Realized loss | $ | (762 | ) | $ | (144 | ) | $ | (1,249 | ) | $ | (712 | ) | ||||
| Unrealized gain (loss) | 382 | (1,589 | ) | 897 | (3,889 | ) | ||||||||||
| Dividend income | 230 | 79 | 537 | 211 | ||||||||||||
| Total | $ | (150 | ) | $ | (1,654 | ) | $ | 185 | $ | (4,390 | ) | |||||
Note 6. Short-term investments
| Net Carrying Amount | Weighted average amortization period (years) | |||||||
| Patent Portfolios and Patent Rights at December 31, 2016, net | $ | 4,951 | 3.65 | |||||
| Amortization expenses | (1,027 | ) | ||||||
| Patent Portfolios and Patent Rights at September 30, 2017, net | $ | 3,924 | 2.91 | |||||
The amortization expenses related to acquired intangible assetsfollowing table presents the Company’s short-term investments as of September 30, 2023, and December 31, 2022 ($ in thousands):
| September 30, 2023 | December 31, 2022 | |||||||
| Investment in Vicinity Motor Corp. | 1 | 13 | ||||||
| Total | 1 | 13 | ||||||
There was approximately $12,000 reduction in the fair value of the short-term investments for the nine months ended September 30, 20172023.
The following table provides quantitative information regarding Level 3 fair value measurement inputs at their measurement dates:
| September 30, 2023 | December 31, 2022 | |||||||
| Option term (in years) | 1.1 | 1.8 | ||||||
| Volatility | 67.2 | % | 76.90 | % | ||||
| Risk-free interest rate | 5.43 | % | 4.47 | % | ||||
| Expected dividends | 0.00 | % | 0.00 | % | ||||
| Stock price | $ | 0.95 | $ | 0.96 | ||||
Note 7. Long-Term Investments
The Company holds interests in several privately held companies as long-term investments that the Company perceives as potential IPO candidates. The following table presents the Company’s long-term investments as of September 30, 2023, and 2016 are as followsDecember 31, 2022 ($ in thousands):
| Amortization Expense for the Three Months Ended September 30, | Amortization Expense for the Nine Months Ended September 30, | |||||||||||||||
| Date Acquired and Description | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| 7/24/13 - Rockstar patent portfolio | $ | 18 | $ | 26 | $ | 53 | $ | 78 | ||||||||
| 9/10/13 - North South patent portfolio | 5 | 8 | 16 | 23 | ||||||||||||
| 12/31/13 - Rockstar patent portfolio | 323 | 502 | 958 | 1,497 | ||||||||||||
| $ | 346 | $ | 536 | $ | 1,027 | $ | 1,598 | |||||||||
| Cost Basis | September 30, 2023 | December 31, 2022 | ||||||||||
| Investment in Kerna Health Inc | $ | 2,140 | $ | 4,940 | $ | 4,940 | ||||||
| Investment in Kaya Now | 1,500 | - | - | |||||||||
| Investment in Tevva Motors | 1,972 | 2,794 | 2,794 | |||||||||
| Investment in ASP Isotopes | 1,300 | - | - | |||||||||
| Investment in Unusual Machines | 1,075 | 1,033 | 1,000 | |||||||||
| Investment in Qxpress | 1,000 | 1,000 | 1,000 | |||||||||
| Investment in Masterclass | 170 | 170 | 170 | |||||||||
| Investment in Kraken | 597 | 597 | 597 | |||||||||
| Investment in Epic Games | 3,500 | 3,500 | 3,500 | |||||||||
| Investment in Tesspay | 1,240 | 2,500 | 2,500 | |||||||||
| Investment in SpaceX | 3,500 | 3,674 | 3,674 | |||||||||
| Investment in Databricks | 1,200 | 760 | 1,200 | |||||||||
| Investment in Discord | 476 | 476 | 476 | |||||||||
| Investment in Thrasio | 300 | 300 | 300 | |||||||||
| Investment in Automation Anywhere | 476 | 476 | 476 | |||||||||
| Investment in Anduril | 476 | 476 | 476 | |||||||||
| Total | $ | 20,922 | $ | 22,696 | $ | 23,103 | ||||||
The future amortization of these intangible assets was based on the adjusted carrying amount. Future amortization of all patents is as follows ($Investment in thousands):Unusual Machines, Inc.
| Rockstar | North South | Rockstar | ||||||||||||||
| Portfolio | Portfolio | Portfolio | ||||||||||||||
| Acquired | Acquired | Acquired | Total | |||||||||||||
| 24-Jul-13 | 10-Sep-13 | 31-Dec-13 | Amortization | |||||||||||||
| Six Months Ended December 31, 2017 | 18 | 6 | 323 | 347 | ||||||||||||
| Year Ended December 31, 2018 | 71 | 22 | 1,280 | 1,373 | ||||||||||||
| Year Ended December 31, 2019 | 71 | 22 | 1,280 | 1,373 | ||||||||||||
| Year Ended December 31, 2020 | 71 | 22 | 638 | 731 | ||||||||||||
| Year Ended December 31, 2021 | 71 | 22 | — | 93 | ||||||||||||
| Thereafter | 4 | 3 | — | 7 | ||||||||||||
| Total | $ | 306 | $ | 97 | $ | 3,521 | $ | 3,924 | ||||||||
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Equitable Agreement
In March 2016,On November 22, 2021, the Company entered into an agreement (which(the “AerocarveUS Agreement”) with AerocarveUS Corporation, (“AerocarveUS”). Under the AerocarveUS Agreement, the Company agreed to purchase 250,000 shares of common stock of AerocarveUS for $1.0 million. AerocarveUS changed its name to “Unusual Machines, Inc.” on July 5, 2022. In March of 2023, the Company was subsequently amended) with Equitable IP Corporation (“Equitable”)issued an additional 64,377 shares at no cost. In June 2023, the Company purchased an additional 150,000 shares of common stock for approximately $0.08 million. On July 10, 2023, Unusual Machines, Inc. effected a reverse stock split pursuant to facilitate the monetizationwhich each two shares of common stock of the Corporation issued and outstanding was combined and reclassified into one share of common stock of the Corporation. The investment in Unusual Machines, Inc. was valued at approximately $1.0 million as of September 30, 2023.
Note 8. Notes Receivable
The following table presents the Company’s patents (the “Monetization Agreement”notes receivable as of September 30, 2023 ($ in thousands):
| Maturity Date | Stated Interest Rate | Principal Amount | Interest Receivable | Fair Value | ||||||||||||||
| Notes receivable, at fair value | ||||||||||||||||||
| Convergent convertible note - current | 01/29/2023 | 8 | % | $ | 1,000 | $ | 125 | $ | 1,125 | |||||||||
| Convergent convertible note - non-current | 01/29/2023 | 8 | % | $ | 250 | $ | - | $ | 250 | |||||||||
| Raefan Industries LLC Investment | 12/31/2023 | 8 | % | $ | 4,493 | $ | 717 | $ | 5,210 | |||||||||
| American Innovative Robotics Investment | 04/01/2027 | 8 | % | $ | 1,100 | $ | 22 | $ | 1,122 | |||||||||
| Notes receivable, at fair value - current portion | $ | 6,336 | ||||||||||||||||
| Notes receivable, at fair value - non-current portion | $ | 1,372 | ||||||||||||||||
Convergent Therapeutics, Inc. Investment
The Company’s 8% convertible promissory note (“Convergent Convertible Note”). issued by Convergent Therapeutics, Inc. (“Convergent”) in the principal amount of approximately $1.8 million pursuant to a Note Purchase Agreement matured on January 29, 2023. Upon maturity, Convergent entered into a contractual repayment schedule with the Company. Pursuant to the Monetization Agreement,schedule, Convergent will make a total of eight payments in the amount of $250 thousand and accrued interest, every three months until fully satisfied.
The principal balance of the Convergent Convertible Note was approximately $1.3 million as of September 30, 2023. The Company recorded principal repayment of $0.8 million and interest income of approximately $0.2 million on the Convergent Convertible Note for the nine months ended September 30, 2023.
Raefan Industries LLC Investment
The Company recorded an interest income receivable of approximately $0.7 million on the Raefan Industries Promissory Note as of September 30, 2023 and an unrealized loss on the note of approximately $0.2 million.
American Innovative Robotics, LLC Investment
The Company recorded interest income of approximately $67,000 on the Robotics Promissory Note for the nine months ended September 30, 2023.
Kaya Now Inc. Investment
During the fourth quarter of 2022, the Company has worked together with Equitable to develop and refineidentified indicators of impairment for the Company’s ongoing litigation plan. UnderKaya investment as a result of adverse changes in Kaya’s business operations, including liquidity concerns. As a result, the Monetization Agreement, Equitable is obligated to use its best, commercially reasonable efforts to monetizeCompany recorded an impairment charge of $0.5 million in the Company’s patents. To that end, Equitable has filed several litigations, onefourth quarter of which is currently pending. 2022. The impairment charge represents an impairment loss of the total investment held as a promissory note resulting in a $0 balance for the Kaya Now Promissory Note as of September 30, 2023.
The Company will share net monetization revenue derived from all monetization activity equally with Equitable. To facilitatereceived and recorded interest income related to the litigation plan,Kaya Now Promissory Note of approximately 186 of over 330 of the Company’s patents and applications have been assigned to Equitable, which will pay all maintenance and prosecution fees going forward. No assigned patents may be transferred by Equitable to a third party without the Company’s consent. In the event that all terms of the Monetization Agreement are met by December 2017, the Company will further assign approximately 140 additional patents and applications to Equitable for monetization. The Company has retained a grant-back license to practice all transferred patents.
The Company has concluded that the Monetization Agreement did not constitute a sale of the patents. The Company’s retention of the right to use the patents, the requirement$10,000 for the Company’s consent to any sale, and the significant economic benefits the Company retained with respect to the litigation, licensing and sale proceeds, did not meet the sale of patent criteria. The Monetization Agreement has been treated as an agreement to outsource its licensing activities to an outside servicer for contingent fees based on the success of the servicer’s efforts. As such, the Company will not remove the patents from its consolidated balance sheet, and will record its share of litigation, licensing, and sales proceeds, if any, when those proceeds are received, or when due if the other revenue recognition criteria are met under ASC 605,Revenue Recognition.nine months ended September 30, 2023.
Note 6.9. Fair Value of Financial Assets and Liabilities
Financial instruments, including cash and cash equivalents, accounts and other receivables, marketable securities, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company uses three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The following table presents the Company’s assets and liabilities that are measured at fair value at September 30, 2017 and December 31, 2016 ($ in thousands):
| Fair value measured at September 30, 2017 | ||||||||||||||||
| Total carrying value at September 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2017 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual funds | $ | 4,735 | $ | — | $ | 4,735 | $ | — | ||||||||
| Investment in Hoth | $ | 1,020 | $ | — | $ | — | $ | 1,020 | ||||||||
| Liabilities | ||||||||||||||||
| Fair value of warrant liabilities | $ | 961 | $ | — | $ | — | $ | 961 | ||||||||
| Fair value measured at December 31, 2016 | ||||||||||||||||
| Total carrying value at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2016 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - corporate bonds | $ | 6,025 | $ | 211 | $ | 5,814 | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Fair value of warrant liabilities | $ | 702 | $ | — | $ | — | $ | 702 | ||||||||
There were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2017.
Level 2 Valuation Techniques
The fair values of Level 2 marketable securities are determined using one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 Valuation Techniques
Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Financial assets consist of the Company’s investment in Hoth. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “change in fair value of warrant liabilities” in the Company’s consolidated statements of operations.
On July 21, 2015, the Company issued the July 2015 Warrants to purchase an aggregate of 370,263 shares of common stock to the investors in the July 2015 Financing. The July 2015 Warrants became exercisable on January 22, 2016 for a period of 5 years at an exercise price of $8.17 per share. The warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the July 2015 Warrants) at the Company and therefore are classified as liabilities. The July 2015 Warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.
On December 7, 2015, the Company issued Series A warrants to purchase up to 1,052,624 shares of common stock and Series B warrants to purchase up to 842,099 shares of common stock contained in such offering. Series A Warrants had an exercise price of $3.80 per share and were exercisable at any time between December 7, 2015 and May 6, 2016. 852,624 shares of Series A warrants expired unexercised on May 24, 2016, and no Series A Warrants remain outstanding as of December 31, 2016. Series B Warrants have an exercise price of $4.75 per share and are exercisable at any time between December 7, 2015 and December 6, 2020. The Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the consolidated balance sheet as a current liability.
The Series B warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and as of September 30, 2017 is as follows:
| Date of valuation | September 30, 2017 | December 31, 2016 | ||||||
| Risk-free interest rate | 1.62% | 1.93% | ||||||
| Expected volatility | 100.00% - 134.57% | 100% - 133.79% | ||||||
| Expected life (in years) | 3.19 - 3.31 | 3.93 - 4.06 | ||||||
| Expected dividend yield | — | — | ||||||
The risk-free interest rate was based on rates established by the Federal Reserve. For the July 2015 Warrants, the expected volatility in the Black-Scholes model is based on an expected volatility of 100% for both periods which represents the percentage required to be used when valuing the cash settlement feature as contractually stated in the form of warrant. The general expected volatility is based on standard deviation of the Company’s underlying stock price’s daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends on its common stock,2023, and does not expect to pay dividends on its common stock in the future.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2017 and 2016 that are measured at fair value on a recurring basisDecember 31, 2022 ($ in thousands):
| Fair value measured as of September 30, 2023 | ||||||||||||||||
| Total at September 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | 16,274 | $ | 16,274 | $ | - | $ | - | ||||||||
| Total marketable securities | $ | 16,274 | $ | 16,274 | $ | - | $ | - | ||||||||
| Short-term investment | $ | 1 | $ | - | $ | - | $ | 1 | ||||||||
| Notes receivable at fair value, current portion | $ | 6,336 | $ | - | $ | - | $ | 6,336 | ||||||||
| Notes receivable at fair value, non-current portion | $ | 1,372 | $ | - | $ | - | $ | 1,372 | ||||||||
| Fair value measured as of December 31, 2022 | ||||||||||||||||
| Total at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | 7,130 | $ | 7,130 | $ | - | $ | - | ||||||||
| Total marketable securities | $ | 7,130 | $ | 7,130 | $ | - | $ | - | ||||||||
| Short-term investment | $ | 13 | $ | - | $ | - | $ | 13 | ||||||||
| Notes receivable at fair value, current portion | $ | 7,474 | $ | - | $ | - | $ | 7,474 | ||||||||
| Notes receivable at fair value, non-current portion | $ | 1,100 | $ | - | $ | - | $ | 1,100 | ||||||||
| Fair Value of Level 3 financial liabilities | ||||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Beginning balance | $ | 702 | $ | 2,959 | ||||
| Fair value adjustment of warrant liabilities | 259 | (2,055 | ) | |||||
| Ending balance | $ | 961 | $ | 904 | ||||
Level 3 Measurement
The value of the Company’s investment in Hoth was determined based on a valuation which takes into consideration, when applicable, cash received, cost of the investment, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The values at which the Company’s investment in Hoth is carried on its books are adjusted to estimated fair value at the end of each quarter taking into account general economic and stock market conditions and those characteristics specific to Hoth.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis:basis ($ in thousands):
| Fair Value of Level 3 financial liabilities | ||||
| September 30, 2017 | ||||
| Beginning balance | $ | — | ||
| Fair value of Hoth upon issuance | 675 | |||
| Change in fair value of Hoth | 345 | |||
| Ending balance | $ | 1,020 | ||
| Short-term investment at December 31, 2022 | $ | 13 | ||
| Change in fair value of investment | (12 | ) | ||
| Short-term investment at September 30, 2023 | $ | 1 | ||
| Notes receivable at fair value, current portion at December 31, 2022 | $ | 7,474 | ||
| Collection of principal outstanding | (750 | ) | ||
| Note receivable, Convergent Therapeutics, non-current portion | (250 | ) | ||
| Unrealized loss on note receivable | (212 | ) | ||
| Accrued interest receivable | 74 | |||
| Notes receivable at fair value, current portion at September 30, 2023 | $ | 6,336 | ||
| Notes receivable at fair value, non-current portion at December 31, 2022 | $ | 1,100 | ||
| Note receivable, Convergent Therapeutics, non-current portion | 250 | |||
| Accrued interest receivable | 22 | |||
| Notes receivable at fair value, non-current portion at September 30, 2023 | $ | 1,372 |
Note Receivable at fair value
While the Company believes its valuation methods are appropriate and consistent with other market participants, the use
As of different methodologies or assumptions to determineSeptember 30, 2023, the fair value of certain financial instruments could resultthe notes receivable was measured taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No material change was noted in a different estimate of fair value at the reporting date.
The decision to elect the fair value option, which is irrevocable once elected, is determined on an instrument by instrument basis and applied to an entire instrument. The net gains or losses, if any, on an investment for which the fair value option has been elected, are recognized as an unrealized gain on investment in the Consolidated Statements of Operations.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The fair value of the investment in Hoth atnotes receivable during the three months ended September 30, 2017 was approximately $1.0 million. The underlying stock price of Hoth was estimated to be $0.15 per share based on Hoth’s fundraising activity and2023.
Note 10. Leases
On December 1, 2021, the Option Pricing Method Backsolve in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issues as Compensation. The valuation of the underlying shares included the following assumptions: risk-free rate – 1.39%, company volatility - 75%, expected term or time to maturity – 1.5 years.
Note 7. RPX License Agreement
On November 23, 2015, the Company and RPX Corporation (“RPX”) entered into a Patent LicenseLease Agreement (the “RPX License Agreement”“Company’s Lease”) under whichwith Trump Tower Commercial LLC, a New York limited liability company. Under the Company’s Lease, the Company granted RPX the right to sublicense various patent license rights to certain RPX clients. The consideration to the Company included: (i) the transfer to the Company for cancellation of its remaining outstanding Series I Redeemable Convertible Preferred Stock (the “Series I Preferred Stock”), as to whichrents a $5,000,000 mandatory redemption payment would have been due from the Company on or by December 31, 2015; (ii) the transfer to the Company for cancellation of 13%, or 57,076 shares, of its Series H Convertible Preferred Stock (the “Series H Preferred Stock”) then held by RPX, having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar; (iii) cancellationportion of the only outstanding security interest on 101twenty-second floor at 725 Fifth Avenue, New York, New York (the “22nd Floor Premises”). The Company currently uses the 22nd Floor Premises to run its day-to-day operations. The initial term of the Company’s patents and patent applications that originated at Nortel NetworksLease is seven (7) years commencing on July 11, 2022 (“Nortel”) and were purchased byCommencement Date). Under the Company’s Lease, the Company from Rockstar, which security interest had previously been transferredis required to RPX by Rockstar (“RPX Security Interest”);pay monthly rent, commencing on January 11, 2023, equal to $12,874. Effective for the sixth and (iv) $300,000 in cash to the Company. While the license granted to RPX is non-exclusive and the durationseventh years of the license is forCompany’s Lease, the liferent shall increase to $13,502. The Company took possession of the patents,22nd Floor Premises on the Company’s ongoing obligations in the arrangement is to provide certain specific RPX licensors with a non-exclusive license to any new patents that may be acquired by or exclusively licensed to the Company during the two-year period following the effective date of the agreement. Therefore, the Company will recognize $0.6 million revenue ratably over the two-year period that it is obligated to provide these RPX licensees with licenses to such new patents. During the years ended December 31, 2016 and 2015, the Company recorded approximately $290,000 and $31,000, respectively, in revenue related to the amortization of the license.Commencement Date.
On MaySeptember 23, 2016, the Company, and RPX,2022, Dominari Financial entered into a second, separate, Patent LicenseLease Agreement (“Dominari Financial’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under Dominari Financial’s Lease, Dominari Financial rents a portion of a floor at 725 Fifth Avenue, New York, New York (the “RPX License”“Premises”) under which. Dominari Financial currently uses the Company granted RPXPremises to run its day-to-day operations. The initial term of Dominari Financial’s Lease is seven (7) years commencing on the rightdate that possession of the Premises is delivered to sublicense various patent rights onlyDominari Financial. Under Dominari Financial’s Lease, Dominari Financial is required to current RPX clients (as of May 23, 2016). In exchangepay monthly rent equal to $49,368. Effective for the rights granted bysixth and seventh years of Dominari Financial’s Lease, the rent shall increase to $51,868 per month. The Company took possession of the Premises in February 2023.
The tables below represent the Company’s lease assets and liabilities as of September 30, 2023:
| September 30, 2023 | ||||
| Assets: | ||||
| Operating lease right-of-use-assets | $ | 3,426 | ||
| Liabilities: | ||||
| Current | ||||
| Operating | 411 | |||
| Long-term | ||||
| Operating | 3,137 | |||
| $ | 3,548 | |||
The following tables summarize quantitative information about the Company’s operating leases, under the RPX License, the Company received the following consideration: (i) a cash payment made to the Company in May 2016 in the amountadoption of $4,355,000; and (ii) cancellation of 100% of the remaining 381,967 shares of the Company’s outstanding Series H Convertible Preferred Stock currently held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar Consortium US LP (“Rockstar”).ASC 842:
September 30, | ||||
| Weighted-average remaining lease term – operating leases (in years) | 6.7 | |||
| Weighted-average discount rate – operating leases | 10.0 | % | ||
In consideration of the above, the Company granted RPX the rights to grant to its current clients: (i) a fully paid portfolio license, to the extent such parties did not already have licenses to the Company’s patents; (ii) a covenant-not-to-sue current RPX clients for supply of chipsets; (iii) a standstill of litigation involving any patents acquired in the next five years (“Standstill”).
The Company also granted to Alcatel-Lucent a license to the portfolio acquired from the Harris Corporation.
During the three and nine months ended September 30, 2017,2023, the Company recorded approximately $314,000 and $932,000, respectively, in revenue$0.6 million of lease expense to current period operations.
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2023 | |||||||
| Operating leases | ||||||||
| Operating lease cost | $ | 179 | $ | 490 | ||||
| Operating lease expense | 179 | 490 | ||||||
| Short-term lease rent expense | 33 | 96 | ||||||
| Net rent expense | $ | 212 | $ | 586 | ||||
Supplemental cash flow information related to the amortization of the license.leases were as follows:
| Nine Months Ended | ||||
| September 30, 2023 | ||||
| Operating cash flows - operating leases | $ | 209 | ||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | 2,780 | ||
Under a separate agreement between the Company and RPX, dated May 23, 2016, the Company granted RPX the ability to grant to VTech Telecommunications Ltd. (“VTech”) a sublicense for a fully paid portfolio license in exchange for an additional $20,000 in cash consideration.
The license granted under the terms of the RPX License described herein does not extend to entities/companies that are not clients of RPX and provide chipsets or other hardware to current RPX clients.
The carrying value of Series H Convertible Preferred Stock on the extinguishment date was estimated at approximately $31.9 million. The fair value on the same date was estimated at approximately $414,000 based upon equivalent common shares that the Series H Convertible Preferred Stock could have converted into at the closing price on May 23, 2016. This resulted in the Company receiving cash from RPX of $4.4 million, a deemed capital contribution of approximately $31.5 million, short term deferred revenue $1.1 million and long term deferred revenue of $3.7 million.
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
A summaryAs of information with respectSeptember 30, 2023, future minimum payments during the RPX transaction on May 23, 2016 isnext five years and thereafter are as follows:
| Operating | ||||
| Leases | ||||
| Remaining Period Ended December 31, 2023 | $ | 188 | ||
| Year Ended December 31, 2024 | 747 | |||
| Year Ended December 31, 2025 | 685 | |||
| Year Ended December 31, 2026 | 685 | |||
| Year Ended December 31, 2027 | 685 | |||
| Year Ended December 31, 2028 | 766 | |||
| Thereafter | 1,160 | |||
| Total | 4,916 | |||
| Less present value discount | (1,368 | ) | ||
| Operating lease liabilities | $ | 3,548 | ||
| Stock price on May 22, 2016 | $ | 2.06 | ||
| Series H Assumptions | ||||
| Series H Shares | 381,967 | |||
| Series H - Liquidation preference | $ | 83.50 | ||
| Series H -Carrying value | $ | 31,894,245 | ||
| Equivalent common shares - Series H | 201,035 | |||
| Fair Value of Series H preferred | $ | 414,133 | ||
| Contribution/Deemed dividend | $ | 31,480,112 |
The deferred revenue will be amortized over a 5-year service period as the RPX License includes a standstill agreement which requires Spherix to provide the licensee with the right to use any future acquired patents for five years.
ASC 260-10-S99-2,Effect on the Calculation of EarningsNote 11. Net Loss per Share for the Redemption or Induced Conversion of Preferred Stock, requires the gain or
Basic loss on extinguishment of equity-classified preferred stock to be included in net income per common stockholder used to calculate earnings per share (similar toof common stock is computed by dividing the treatment of dividends paid on preferred stock). The difference between (1) the fair value of the consideration transferred to the holders of the preferred stock and (2) the carrying amount of the preferred stock (net of issuance costs) is subtracted from (or added to) net income to arrive at income availableloss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents outstanding. Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Securities that could potentially dilute loss per share in the calculationfuture that were not included in the computation of earningsdiluted loss per share.share for the nine months ended September 30, 2023, and 2022 are as follows:
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| Convertible preferred stock | 34 | 34 | ||||||
| Warrants to purchase common stock | 444,796 | 444,796 | ||||||
| Restricted stock awards | 96,309 | - | ||||||
| Options to purchase common stock | 134,454 | 198,574 | ||||||
| Total | 675,593 | 643,404 | ||||||
Note 8.12. Stockholders’ Equity and Redeemable Convertible Preferred Stock
Restated Certificate of Incorporation
On March 4, 2016, the Company implemented a Reverse Stock Split with a ratio of 1-for-19. The par value and other terms of the common stock were not affected by the Reverse Stock Split. In addition, the amendment to the Company’s certificate of incorporation that effected the Reverse Stock Split simultaneously reduced the number of authorized shares of Common Stock from 200,000,000 to 100,000,000.
Common Stock
On July 18, 2017,March 6, 2023, the Company entered intocancelled 644,499 shares of common stock as a result of retirement of 644,499 shares of treasury stock.
On March 20, 2023, the Company cancelled 25,000 shares of common stock owned by an underwritingexecutive.
June 27, 2023, pursuant to Soo Yu’s employment agreement with Laidlaw &and the Company’s 2022 Equity Incentive Plan, the Company (UK) Ltd. with respect to the issuance and sale of an aggregate of 1,250,000executed a Grant Agreement, through which Soo Yu was granted 1,033,591 shares of the Company’s common stock, parstock. Upon issuance, the shares were fully vested and nonforfeitable with a total fair value $0.0001 per share, in a firm commitment underwritten public offering which closed on July 24, 2017. Each share was sold for a price of $2.00 for aggregate gross proceeds of $2,500,000, with net proceeds of approximately $2.1$2.7 million. Pursuant to the Grant Agreement, the Company withheld 503,876 of the shares granted to satisfy Soo Yu’s tax obligation of approximately $1.3 million after deductingand recorded as income taxes withheld within the underwriting discounts and commissions (equivalent to 8% of gross proceeds) and estimated offering expenses. unaudited condensed consolidated balance sheet. See Restricted Stock roll-forward below.
Preferred Stock
The Company had designated separate series of its capital stock as of September 30, 2017 and December 31, 2016 as summarized below:
| Number of Shares Issued | |||||||||||
| and Outstanding as of | |||||||||||
| September 30, 2017 | December 31, 2016 | Par Value | Conversion Ratio | ||||||||
| Series "A" | — | — | $ | 0.0001 | N/A | ||||||
| Series "C" | — | — | 0.0001 | 0.05:1 | |||||||
| Series “D" | 4,725 | 4,725 | 0.0001 | 0.53:1 | |||||||
| Series “D-1" | 834 | 834 | 0.0001 | 0.53:1 | |||||||
| Series “F-1" | — | — | 0.0001 | 0.05:1 | |||||||
| Series “H" | — | — | 0.0001 | 0.53:1 | |||||||
| Series “I” | — | — | 0.0001 | 1.05:1 | |||||||
| Series “J” | — | — | 0.0001 | 0.05:1 | |||||||
| Series “K” | — | — | 0.0001 | 263.16:1 | |||||||
Treasury Stock
SPHERIX INCORPORATED AND SUBSIDIARIES
NotesOn January 21, 2022, the Company’s board of directors authorized a share buyback program (the “Share Buyback Program”), pursuant to Condensed Consolidated Financial Statementswhich the Company authorized the Share Buyback Program in an amount of up to three million dollars. During the nine months ended September 30, 2023, the Company repurchased 236,630 shares at a cost of approximately $0.9 million or $3.97 per share through marketable securities account under the Share Buyback Program. The Company records treasury stock using the cost method.
On March 6, 2023, the Company retired 644,499 shares of treasury stock with original cost of approximately $3.8 million.
Warrants
A summary of warrant activity for the nine months ended September 30, 20172023, is presented below:
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | 444,796 | $ | 29.25 | - | 3.20 | |||||||||||
| Outstanding as of September 30, 2023 | 444,796 | $ | 29.25 | - | 2.45 | |||||||||||
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | ||||||||||||||
| Outstanding as of December 31, 2016 | 1,250,311 | $ | 9.21 | $ | — | 3.91 | |||||||||||
| Expired | (557 | ) | |||||||||||||||
| Outstanding as of September 30, 2017 | 1,249,754 | $ | 8.98 | 3.17 | |||||||||||||
| Exercisable as of September 30, 2017 | 1,249,754 | $ | 8.98 | $ | — | 3.17 | |||||||||||
Restricted Stock Awards
A summary of restricted stock awards activity for the nine months ended September 30, 2023, is presented below:
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2022 | 8,068 | $ | 5.90 | |||||
| Granted | 626,024 | $ | 2.67 | |||||
| Vested | (537,783 | ) | 2.63 | |||||
| Nonvested at September 30, 2023 | 96,309 | $ | 3.18 | |||||
Stock-based compensation associated with the amortization of restricted stock awards expense was approximately $93,000 and $1.4 million for the nine months ended September 30, 2023, and 2022, respectively. All stock compensation was recorded as a component of general and administrative expenses.
As of September 30, 2023, there is approximately $0.2 million unrecognized stock-based compensation expense related to restricted stock awards.
Stock Options
Also approved by the Company’s stockholders on February 26, 2016 was an amendment to the Company’s 2014 Equity Incentive Plan, which increased the number of shares of common stock authorized to be issued pursuant to the 2014 Plan from 4,161,892 to 8,250,000 prior to effectuation of the 1:19 reverse stock split. As a result of the split, the total share authorization under the plan was reduced to 434,210 shares.
During the second quarter ended June 30, 2017, pursuant to and subject to the available number of shares reserved under the 2014 Plan, the Company issued an aggregate of 15,788 options to purchase common stock of the Company to four of its directors. The aggregate grant date fair value of these options was approximately $12,000. These stock options vest over one year.
A summary of option activity under the Company’s employee stock option plan for the nine months ended September 30, 20172023, is presented below:
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | 31,193 | $ | 302.97 | $ | - | 7.9 | ||||||||||
| Employee options granted | 110,000 | 3.21 | - | 9.9 | ||||||||||||
| Employee options forfeited | (5,882 | ) | 5.95 | - | - | |||||||||||
| Employee options expired | (857 | ) | $ | 9,719.07 | - | - | ||||||||||
| Outstanding as of September 30, 2023 | 134,454 | $ | 10.70 | $ | - | 9.4 | ||||||||||
| Options vested and exercisable | 24,454 | $ | 44.43 | $ | - | 7.1 | ||||||||||
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2016 | 310,091 | $ | 82.25 | $ | — | 4.1 | ||||||||||
| Employee options granted | 15,788 | 1.02 | 7,420 | 4.7 | ||||||||||||
| Employee options expired | (176 | ) | — | — | — | |||||||||||
| Outstanding as of September 30, 2017 | 325,703 | $ | 78.24 | $ | 7,697 | 3.5 | ||||||||||
| Options vested and expected to vest | 325,703 | $ | 78.24 | $ | 7,697 | 3.5 | ||||||||||
| Options vested and exercisable | 317,811 | $ | 80.15 | $ | 3,987 | 3.4 | ||||||||||
A summary of option activity under the Company’s non-employee stock option plan for the nine months ended September 30, 2017 is presented below:
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2016 | 2,893 | $ | 98.07 | $ | — | 4.4 | ||||||||||
| Non-employee options granted | — | — | — | — | ||||||||||||
| Outstanding as of September 30, 2017 | 2,893 | $ | 98.07 | $ | — | 3.7 | ||||||||||
| Options vested and expected to vest | 2,893 | $ | 98.07 | $ | — | 3.7 | ||||||||||
| Options vested and exercisable | 2,893 | $ | 98.07 | $ | — | 3.7 | ||||||||||
Stock-based compensation associated with the amortization of stock option expense was approximately $2,000$26,000 and $5,000 for the three months ended September 30, 2017 and 2016, and was approximately $13,000 and $26,000$40,000 for the nine months ended September 30, 20172023, and 2016,2022, respectively. All stock compensation was recorded as a component of general and administrative expenses.
Restricted Stock Units
On March 14, 2017, 35,969 restricted stock units (“RSUs”) were delivered to Anthony Hayes. 23,287 shares of common stock were withheld (at the closing price of the Company's common stock on the NASDAQ Capital Market on March 14, 2017) to satisfy the tax obligationEstimated future stock-based compensation expense relating to the vesting of the RSUs.unvested stock options is approximately $0.7 million.
Note 13. Revenue
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Stock-based Compensation
Stock-based compensationThe following table presents our total revenues disaggregated by revenue type for the three and nine months ended September 30, 20172023 and 2016 was comprised of the following ($ in2022 (in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Employee stock option awards | $ | 2 | $ | 5 | $ | 13 | 26 | |||||||||
| Non-employee restricted stock awards | — | — | — | 255 | ||||||||||||
| Employee restricted stock units | — | 49 | — | 72 | ||||||||||||
| Total compensation expense | $ | 2 | $ | 54 | $ | 13 | $ | 353 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Underwriting | $ | 318 | $ | - | $ | 361 | $ | - | ||||||||
| Commissions | 525 | - | 539 | - | ||||||||||||
| Advisory fees | 72 | - | 72 | - | ||||||||||||
| Other | 48 | - | $ | 62 | - | |||||||||||
| Total | $ | 963 | $ | - | $ | 1,034 | $ | - | ||||||||
Stock-based compensation was approximately $2,000 and $54,000 for the three months ended September 30, 2017 and 2016, and was approximately $13,000 and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively. Unamortized stock-based compensation expense was immaterial at September 30, 2017.
Note 9.14. Commitments and Contingencies
Legal Proceedings
In the past, in the ordinary course of business, the Company actively pursuespursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of patentedthe Company’s technology. From timeOther than ordinary routine litigation incidental to time,the business, the Company may be involvedis not aware of any material, active or pending legal proceedings brought against it.
Note 15. Regulatory
Dominari Securities, the Company’s broker-dealer subsidiary, is registered with the SEC as an introducing broker-dealer and is a member of FINRA. The Company’s broker-dealer subsidiary is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, the subsidiary is subject to the minimum net capital requirements promulgated by the SEC and has elected to calculate minimum capital requirements using the basic method permitted by Rule 15c3-1. As of September 30, 2023, Dominari Securities had net capital of approximately $6.2 million, which was approximately $6.1 million in various claimsexcess of required minimum net capital of $0.1 million.
Note 16. Related Party Transaction
In 2021, the Company engaged the services of Revere Securities, LLC (“Revere”) to strategically manage and counterclaimsbuild the Company’s investment processes. Kyle Wool, Board Member, was previously a member of the board of directors of Revere. The Company incurred fees of approximately $75,000 and legal actions arising$0.8 million during the nine months ending September 30, 2023, and 2022, respectively. These fees were included in general and administrative expenses in the ordinary courseunaudited condensed consolidated statements of business. There were no pending material claims or legal matters as of the date of this report other than the following matters:operations.
Spherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas
On August 30, 2013, we initiated litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) inSpherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas (“the Court”) for infringement of U.S. Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”). The complaint alleges that Uniden has manufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patents. We sought relief in the form of a finding of infringement of the Asserted Patents, an accounting of all damages sustained by us as a result of Uniden’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On June 3, 2014, in an effort to narrow the case, the parties filed a stipulation dismissing without prejudice all claims and counterclaims related to U.S. Patent No. 5,752,195. On September 4, 2014, Uniden America Corporation, together with VTech Communications, Inc., filed a request forinter partes review (“IPR”) of U.S. Patent No. 5,581,599 (the “’599 Patent���) and 6,614,899 (the “’899 Patent”) in the United States Patent and Trademark Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board (“PTAB”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued itsMarkman order, construing a total of 13 claim terms that had been disputed by the parties. On April 2, 2015, we filed an Amended Complaint with Jury Demand and the parties filed a Settlement Conference Report informing the Court that the parties have not yet resumed settlement negotiations. On September 10, 2015, the Court stayed the case and ordered the parties to file a status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of the ’599 Patent and all asserted claims of the ’899 Patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request, the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further Court intervention. The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ’599 Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted the parties’ motion to continue the stay. On January 12, 2017, we settled the case with Uniden and Uniden took a license under the Asserted Patents and the appeal to the Federal Circuit continued with the Patent and Trademark Office (“PTO”) as an adverse party. On July 25, 2017, after full briefing and oral argument, the Federal Circuit issued an order affirming the PTAB’s decision relating to the ’599 Patent.
International License Exchange of America, LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware
Note 17. Segment Reporting
SPHERIX INCORPORATED AND SUBSIDIARIES
NotesThe Company operates in two reportable business segments: (1) Dominari Financial and (2) Legacy AIkido. The Dominari Financial reportable business segment represents the Company’s broker-dealer business, which is composed of mostly underwriting and transactional service activities. The Legacy AIkido reportable business segment includes Aikido Labs, which manages the investments holdings of the legacy entity. Prior to Condensed Consolidated Financial Statementsthe FPS Acquisition, the Company operated as a single operating segment comprised of Legacy AIkido.
On April 26, 2016, we initiated litigation against Fairpoint Communications, Inc. inSpherix Incorporated v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA,The chief operating decision-maker (“CODM”) has access to and regularly reviews internal financial reporting for each business and uses that information to make operational decisions and allocate resources. Accounting policies applied by the reportable segments are the same as those used by the Company and described in the United States District Court for“Summary of Significant Accounting Policies.” While assets are primarily held within the District of Delaware (the “Court”) for infringement of U.S. Patent No. RE40,999 (the ’999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ’999 Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and costs, a declaration that the caseLegacy AIkido reportable business segment, total assets by segment is exceptional under 35 U.S.C. § 285, and the Company’s attorney’s fees. On October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America, LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itselfnot disclosed as the plaintiff, consistent with our Monetization Agreement with Equitable. On November 17, 2016,CODM does not assess performance, make strategic decisions, or allocate resources based on assets.
The measures of segment profitability that are most relied upon by the Court granted ILEA’s motion. On June 22, 2017,CODM are gross revenues and net loss, as presented within the Court entered a Scheduling Order settingtable below and reconciled to the Markman hearing for August 22, 2018 and jury trial for October 28, 2019. On August 31, 2017, the parties filed a joint stipulationstatement of dismissal and, on September 1, 2017, the Court terminated the case.operations.
| Three Months Ended September 30, 2023 | ||||||||||||
| Dominari Financial | Legacy AIkido | Consolidated | ||||||||||
| Revenue | $ | 963 | $ | - | $ | 963 | ||||||
| Operating Costs | ||||||||||||
| General and administrative | 2,324 | 1,743 | $ | 4,067 | ||||||||
| Research and development | - | - | - | |||||||||
| Loss from operations | $ | (1,361 | ) | $ | (1,743 | ) | $ | (3,104 | ) | |||
| Other (expenses) income | ||||||||||||
| Other income | - | - | - | |||||||||
| Interest income | 91 | 117 | 208 | |||||||||
| Loss on marketable securities | - | (150 | ) | (150 | ) | |||||||
| Unrealized loss on note receivable | - | - | - | |||||||||
| Change in fair value of investments | (495 | ) | (495 | ) | ||||||||
| Total other (expenses) income | $ | 91 | $ | (528 | ) | $ | (437 | ) | ||||
| Net loss | $ | (1,270 | ) | $ | (2,271 | ) | $ | (3,541 | ) | |||
International License Exchange of America, LLC Litigations
| Nine Months Ended September 30, 2023 | ||||||||||||
| Dominari Financial | Legacy AIkido | Consolidated | ||||||||||
| Revenue | $ | 1,034 | $ | - | $ | 1,034 | ||||||
| Operating Costs | ||||||||||||
| General and administrative | 10,380 | 6,600 | 16,980 | |||||||||
| Research and development | 3 | 3 | ||||||||||
| Loss from operations | $ | (9,346 | ) | $ | (6,603 | ) | $ | (15,949 | ) | |||
| Other (expenses) income | ||||||||||||
| Other income | - | - | - | |||||||||
| Interest income | 135 | 370 | 505 | |||||||||
| Gain on marketable securities | - | 185 | 185 | |||||||||
| Unrealized loss on note receivable | - | (212 | ) | (212 | ) | |||||||
| Change in fair value of investments | - | (495 | ) | (495 | ) | |||||||
| Total other (expenses) income | $ | 135 | $ | (152 | ) | $ | (17 | ) | ||||
| Net loss | $ | (9,211 | ) | $ | (6,755 | ) | $ | (15,966 | ) | |||
Under our Monetization Agreement with Equitable, ILEA has filed the patent infringement litigations listed below.
|
SPHERIX INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In July 2016, a lawsuit relating to the ’999 Patent was dismissed in anticipation of settlement with the counterparty. In May 2017, settlement was reached, pursuant to which the counterparty granted to Equitable the right to monetize a portfolio of 112 patents (the “Settlement Patents”). Pursuant to the Company’s Monetization Agreement with Equitable, the Company is entitled to receive a portion of the net revenue generated by Equitable’s monetization of the Settlement Patents.
Counterclaims
In the ordinary course of business, we, or with our wholly-owned subsidiaries or monetization partners, will initiate litigation against parties whom we believe have infringed on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated by the defendants. Currently, there are no counterclaims pending against us. In the event such counterclaims are filed, we can provide no assurance that the outcome of these claims will not have a material adverse effect on our financial position and results from operations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-Q. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements. All references to “we,” “us,” “our” and the “Company” refer to Spherix Incorporated,Dominari Holdings Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Cautionary Note Regarding Forward-Looking Statements
Overview
WeAll statements other than statements of historical fact included in this Report including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are an intellectual property company that owns patentedforward-looking statements. When used in this Report, terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,” “project,” “target,” “budget,” “forecast,” “could,” “continue,” “plan,” or “potentially” or the negatives of these terms or variations of them or similar terminology, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and unpatented intellectual property. Spherix Incorporated was formed in 1967 as a scientific research company and for much ofinformation currently available to, our history pursued drug development including through Phase III clinical studies which were largely discontinued in 2012. In 2012 and 2013, we shifted our focus to being a firm that owns, develops, acquires and monetizes intellectual property assets. Through our acquisitions of 108 patents and patent applicationsmanagement. Actual results could differ materially from Rockstar Consortium US, LP and acquisition of several hundred patents issued to Harris Corporationthose contemplated by the forward-looking statements as a result of certain factors detailed in our acquisitionfilings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Overview
Dominari Holdings Inc. (the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of North South, we have expanded our activitiessmall-molecule anticancer and antiviral therapeutics and their related patent technology. In an effort to enhance shareholder value, in wireless communicationsJune of 2022, the Company formed a wholly owned financial services subsidiary, Dominari Financial Inc. (“Dominari Financial”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and telecommunication sectors including antenna technology, Wi-Fi, base station functionalityfinancial services industries. Through Dominari Financial, the Company acquired Dominari Securities LLC (Dominari Securities), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”) and cellular.
Our activities generally includean investment adviser registered with the acquisitionSecurities and developmentExchange Commission (“SEC”). Dominari Securities provides investment advisory services and annuity and insurance products of patentscertain insurance carriers as an insurance agency through internal or external researchindependent and development. In addition, we seekaffiliated brokers.
Related to acquire existing rights to intellectual property through the acquisitionshift described above, AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of already issued patents and pending patent applications, boththe Company, is in the United Statesprocess of winding down its historical pipeline of biotechnology assets. Aikido Labs has historically explored opportunities in high growth industries and abroad.has equity holdings including Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc., Payward, Inc. dba Kraken, Space Exploration Technologies Corp. dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc. dba Masterclass.
Reverse Stock Split
On June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022. The Reverse Stock Split was effective on June 7, 2022. All references to common stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in the unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Payment for fractional shares resulting from the reverse stock split amounted to $26,000.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements. We have identified the accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may alone,change in subsequent periods. Our actual results may differ substantially from these estimates under different assumptions or conditions. The following represent those critical accounting policies that we believe most significantly impact the judgments and estimates used in conjunction with others, develop products and processes associated withthe preparation of our intellectual property and license our intellectual property to others seeking to develop products or processes or whose products or processes infringe our intellectual property rights through legal processes. Using our patented technologies, we employ strategies seeking to permit us to derive value from licensing, commercialization, settlement and litigation from our patents. We will continue to seek to obtain patents from inventors and patent owners to monetize patent portfolios.unaudited condensed consolidated financial statements.
Long-term investments
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 and ASU 2019-04 concerning recognition and measurement of financial assets and financial liabilities. In adopting this guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.
For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.
Refer to Note 3 of the Annual Report for a discussion of our significant accounting policies.
Recently Issued Accounting Pronouncements
See Note 3 to the unaudited condensed consolidated financial statements for a discussion of recent accounting standards.
Results of Operations
Three months endedMonths Ended September 30, 20172023, compared to three months endedthe Three Months Ended September 30, 20162022
During the three months ended September 30, 20172023, we recognized approximately $1.0 million in revenue from operations, primarily driven by the commissions and 2016,underwriting revenue was approximately $0.3 million, which represents the amortization of deferred revenue related to the two patent license agreements we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”).earned by Dominari Securities. During the three months ended September 30, 2017, we recognized $73,0002023, and $0.2 million from November 2015 and May 2016 RPX License transactions, respectively. Both the November 2015 and May 2016 RPX License transactions use the straight-line method to amortize the deferred revenue over the contract life of 2 years and 5 years, respectively.
During the three months ended September 30, 2017 and 2016,2022, we incurred a loss from operations of approximately $1.0$3.1 million and $1.5$5.1 million, respectively. The decrease in net loss from operations was primarily attributed to (i) a $0.2 million decrease in amortization expenses relatedattributable to the Rockstar patents acquired by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016 and (ii) a $0.3 million decrease in compensation and related expenses due to further cost cutting implemented in the first quarter of 2017. following:
| i. | An approximate $0.4 million decrease in general and administrative expenses. The Company incurred decreased compensation expenses of approximately $0.2 million due to decreased stock-based compensation expenses. |
| ii. | An approximate $0.6 million decrease in research and development expenses – attributable to the Company’s strategic business decision to transition away from the biotechnology industry and into financial services. The result is a decrease in research and development related expenses by almost 100%. |
During the three months ended September 30, 2017,2023 and 2022, other incomeexpenses was approximately $1.4$0.4 million as compared to approximately $1.0and $1.1 million, for the comparable prior period.respectively. The increase in other income was primarily attributed to an increase in fair value of our investment in Hoth Therapeutics, Inc. (“Hoth”).
Net income attributable to common stockholders was a net income of $0.5 million inactivity for the three months ended September 30, 20172023 and 2022, is primarily a result of overall volatility in investment valuations due to macroeconomic uncertainty (i.e. inflation, global tensions in the Ukraine, etc.) impacting marketable securities and the change in fair value of short and long-term investments. Specifically:
| i. | Marketable securities – we recognized a loss of approximately $0.2 million for the three months ended September 30, 2023. The decrease of approximately $1.5 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $2.0 million and an increase in dividend income of approximately $0.2 million, offset by an increase in realized loss of approximately $0.6 million. The decreases were driven by both market improvement and decrease in sale activity resulting in fewer realized losses. |
| ii. | Short-term and long-term investments –The changes over the three months ended September 30, 2023 and 2022 are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $0.8 million on the adjusted fair value of the investments during the three months ended September 30, 2023. |
Nine Months Ended September 30, 2023, compared to net loss of $0.4 million in the three months ended September 30, 2016.
Nine months ended September 30, 2017 compared to nine months ended September 30, 20162022
During the nine months ended September 30, 2017 and 2016, revenue was2023, we recognized approximately $1.0 million and $0.6 million, respectively, which representsin revenue from operations, primarily driven by the amortization of deferredunderwriting revenue related to the two patent license agreements we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”).earned by Dominari Securities. During the nine months ended September 30, 2017,2023, and 2022, we recognized $0.2incurred a loss from operations of approximately $16.0 million and $0.7$11.2 million, from November 2015 and May 2016 RPX License transactions, respectively. BothThe increase in loss in operations was primarily attributable to the November 2015 and May 2016 RPX License transactions use the straight-line method to amortize the deferred revenue over the contract life. following:
| i. | An approximate $8.4 million increase in general and administrative expenses – driven by approximately $0.1 million and $1.2 million of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial and Dominari Securities, respectively. In addition, the Company also incurred increased compensation expenses of approximately $5.6 million due to growing operations. |
| ii. | An approximate $2.6 million decrease in research and development expenses – attributable to the Company’s strategic business decision to transition away from the biotechnology industry and into financial services. The result is a decrease in research and development related expenses by almost 100%. |
During the nine months ended September 30, 20172023 and 2016, we incurred a net loss from operations of2022, other income (expenses) was approximately $2.7 million$17 thousand and $4.7$(3.6) million, respectively. The decrease in net loss was primarily attributed to (i) a $0.6 million decrease in amortization expenses related to the Rockstar patents acquired by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016 and (ii) a $1.1 million decrease in professional fees due to further cost cutting implemented in the first quarter of 2017.
Duringactivity for the nine months ended September 30, 20172023 and 2016, other income was approximately $0.4 million as compared2022, is primarily a result of overall volatility in investment valuations due to approximately $2.1 million of other income formacroeconomic uncertainty (i.e. inflation, global tensions in the comparable prior period. The decrease in other income was primarily attributed to a $2.3 million decreaseUkraine, etc.) impacting marketable securities and the change in fair value of warrant liabilities,short and was offset by an increase in fair value of our investment in Hoth.long-term investments. Specifically:
Net loss attributable to common stockholders was a net loss of $2.3 million in the nine months ended September 30, 2017 compared to net income of $28.9 million in the nine months ended September 30, 2016. The change is attributed to the decrease of deemed capital contribution on extinguishment of preferred stock. During the nine months ended September 30, 2016, we incurred a one-time $31.5 million of deemed capital contribution on preferred stock related to the cancellation of 381,967 shares of Series H Preferred Stock pursuant to the RPX license agreement, which capital contribution is not reflected in the nine months ended September 30, 2017.
| i. | Marketable securities – we recognized a gain of approximately $0.2 million for the nine months ended September 30, 2023. The decrease of approximately $4.6 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $4.8 million and increase in dividend income of approximately $0.3 million, offset by an increase in realized loss of approximately $0.5 million. The decreases were driven by both market improvement and a decrease in sale activity resulting in fewer realized losses. |
| ii. | Short-term and long-term investments –The changes over the nine months ended September 30, 2023 and 2022 are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $0.6 million on the adjusted fair value of the investments during the nine months ended September 30, 2023. |
Liquidity and Capital Resources
We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding revenue.
Weexpenses. While we continue to implement our business strategy, we intend to finance our activities through:
| ● | managing current cash and cash equivalents on hand from our past debt and equity |
| ● | seeking additional funds raised through the sale of additional securities in the |
| ● | seeking additional liquidity through credit facilities or other debt | |
Cash Flows from Operating Activities - For the nine months ended September 30, 2017, netOur ultimate success is dependent on our ability to generate sufficient cash used in operations was approximately $2.5 million. The cash used in operating activities for the nine months ended September 30, 2017 primarily resulted from $0.3 million change in fair value of warrant liabilities and $1.2 million of changes in assets and liabilities, and partially offset by amortization expenses of $1.0 million. During the nine months ended September 30, 2016, we generated approximately $0.9 million of cash in operating activities. The cash provided by operating activities for the nine months ended September 30, 2016 primarily resulted from significant non-cash charges relatedflow to amortization expenses of $1.6 million, stock-based compensation expense of approximately $0.4 million and approximately $3.8 million of deferred revenue, partially offset by approximately $2.6 million of net loss and $2.1 million of change in fair value of warrant liabilities.
Cash Flows from Investing Activities - For the nine months ended September 30, 2017, net cash provided by investing activities was approximately $0.6 million. The cash provided by investing activities primarily resulted frommeet our sale of marketable securities for the nine months ended September 30, 2017 of $12.5 million, partially offset by our purchase of marketable securities of $11.3 million. During the nine months ended September 30, 2016, we used approximately $3.6 million of cash investing activities. The cash used in investing activities primarily resulted from our purchase of marketable securities for the nine months ended September 30, 2016 of approximately $15.7 million and purchase of marketable securities, partially offset by sale of marketable securities of approximately $12.1 million.
Cash Flows from Financing Activities - Cash provided by financing activities for the nine months ended September 30, 2017 was approximately $2.1 million, which related to issuance of common stock. Cash provided by financing activities for the nine months ended September 30, 2016 was approximately $2.9 million, which related to approximately $2.1 million from the issuance of common stock and $0.8 million proceeds from exercise of 200,000 shares of warrants, partially offset by the payment for the cancellation of common stock of approximately $4,000.
obligations on a timely basis. Our business willmay require significant amounts of capital to sustain operations and make the investmentsthat we need to execute our longer termlonger-term business plan.plan to support our transition into the financial services industry. Our working capital amounted to approximately $2.6$33.2 million at September 30, 2017, and net loss amounted to approximately $2.3 million for the nine months ended September 30, 2017. On July 24, 2017, we closed on a firm commitment underwritten offering for aggregated gross proceeds of $2,500,000. In addition, the fair value of our marketable securities held as of September 30, 2017 was $4.7 million. Our accumulated deficit amounted2023. We believe our cash and cash equivalents and marketable securities, together with the anticipated cash flow from operations will be sufficient to approximately $144.1 millionmeet our working capital and capital expenditure requirements for at September 30, 2017. We willleast the next 12 months. In the event that cash flow from operations is not sufficient to fund our operations, as expected, or if our plans or assumptions change, including if inflation begins to have a greater impact on our business or if we decide to move forward with any activities that require more outlays of cash than originally planned, we may need to obtainraise additional capital sooner than expected. We may raise this additional capital by obtaining additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-tradedpublicly traded company or from the litigations in which we participate. If we attemptcontinuing operations.
Our ability to obtain additionalcapital to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt or equity financing, we cannot assume that such financingfinancing. Capital availability will be available to us on favorable terms, or at all.
Disputes regardingaffected by prevailing conditions in our industry, the assertion of patentsglobal economy, the global financial markets, and other intellectual property rightsfactors, many of which are highly complex and technical. We may be forced to litigate against others to enforce or defendbeyond our intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which we are involved may allege defenses and/or file counterclaims or initiate inter parties reviews in an effort to avoid or limit liability and damages for patent infringement or cause us to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the value of the patents and preclude us from deriving revenue from the patents, the patents could be declared invalid by a court or the United States Patent and Trademark Office, in whole or in part, or the costs could increase.
Should we be unsuccessful in our efforts to execute our business plan, it could become necessary for us to reduce expenses, curtail operations or explore various alternative business opportunities or possibly suspend or discontinue our business activities.
Pursuant to the RPX License Agreement, the security interest that RPX held in favor of our patents acquired from Rockstar was extinguished. Accordingly, we now have greater flexibility to monetize our patent portfolio, including through the sale of our patents or sublicensing our patents to third parties who can pursue their own monetization strategies with respect to those patents in exchange for royalties or some other consideration.
We have filed a shelf registration statement on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction I.B.6. of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period. At the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Based on this calculation and primarilycontrol. Specifically, as a result of recent volatility and weakness in the public markets, due to, among other factors, uncertainty in the global economy and financial markets, it may be much more difficult to raise additional capital, if and when it is needed, unless the public markets become less volatile and stronger at such time that we seek to raise additional capital. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.
Cash Flows from Operating Activities
For the nine months ended September 30, 2023 and 2022, net cash used in operations was approximately $17.5 million and $8.7 million, respectively. The cash used in operating activities for the nine months ended September 30, 2023, is primarily attributable to a net loss of approximately $16.0 million, approximately $0.9 million of unrealized gain on marketable securities and changes in operating assets and liabilities of $4.4 million, partially offset by $1.5 million stock-based compensation expense and approximately $1.2 million in realized losses on marketable securities. The cash used in operating activities for the nine months ended September 30, 2022 primarily resulted from a net loss of $14.9 million and change in fair value of long-term investment of $1.6 million and is partially offset by change in fair value of short-term investment of $1.5 million and unrealized loss on marketable securities of $3.9 million.
Cash Flows from Investing Activities
For the nine months ended September 30, 2023 and 2022, net cash used in investing activities was approximately $10.4 million and $16.0 million, respectively. The cash used in investing activities for the nine months ended September 30, 2023, primarily resulted from our purchase of marketable securities of approximately $34.1 million and the acquisition of FPS for approximately $1.1 million, partially offset by our sale of $2,500,000marketable securities of Common Stockapproximately $24.6 million. The Company also collected approximately $0.5 million in principal related to its short-term notes. The cash used in investing activities for the nine months ended September 30, 2022 primarily resulted from our purchase of marketable securities of $27.5 million, purchase of promissory notes of $1.6 million and purchase of investments of $15.0 million, partially offset by our sale of marketable securities of $28.5 million since we invest excess cash into marketable securities until additional cash is needed.
Cash Flows from Financing Activities
For the nine months ended September 30, 2023, cash used in financing activities was approximately $0.9 million, which reflects the cost for the purchase of Commontreasury stock of approximately $0.9 million. Cash used in financing activities for the nine months ended September 30, 2022 was $6.4 million, which reflects the cost for the redemption of Series O and Series P Redeemable Convertible Preferred Stock on August 8, 2016 we are not currently eligible to sell any securities pursuant to our effective registration statement on Form S-3. Whether we sell securities under the registration statement will depend on a number of factors, including the market conditions at that time, our cash position at that time$22.0 million and the availability and termscost for purchase of alternative sourcestreasury stock of capital.
Rockstar will be entitled to receive a contingent recovery percentage of future profits (“Participation Payments”) from licensing, settlements and judgments against defendants with respect to patents purchased under the First Patent Purchase Agreement; however, no payment is required unless the Company receives a recovery. The Participation Payments under the First Patent Purchase Agreement are equal to zero percent until the Company recovers with respect to patents purchased under the First Patent Purchase Agreement at least (a) $8.0$2.2 million, or (b) if we recover less than $17.0 million, an amount equal to $5.0 million plus $3.0 million times a fraction equal to total recoveries minus $10.0 million, dividedpartially offset by $7.0 million (clause (a) or (b), as applicable, being the “Initial Return”), in each case net of certain expenses. Once we obtain recoveries in excess of the Initial Return, we are required to make a payment to Rockstar of $13.0 million, payable only from the proceeds of such recovery, within six months after such recovery. In addition, no later than 30 days after the end$17.9 million from investors in exchange of each quarter in which we make such a recovery, we are required to pay to Rockstar a percentageissuance of such recovery, netissuance of certain expenses, scaling from 30% if such cumulative recoveries net of certain expenses are less than or equal to $50.0 million, to 70% to the extent cumulative recoveries net of certain expenses are in excess of $1.0 billion.
Rockstar will also be entitled to receive Participation Payments from licensing, settlementsSeries O and judgments against defendants with respect to patents purchased under the Second Patent Purchase Agreement; however, no payment is required unless we receive a recovery. The Participation Payments under the Second Patent Purchase Agreement are equal to zero percent until we recover with respect to patents purchased under the Second Patent Purchase Agreement at least $120.0 million, net of certain expenses. Once we obtain recoveries in excess of that amount, we are required to pay to Rockstar 50% of our recovery in excess of that amount, no later than 30 days after the end of each quarter in which we make such a recovery. Series P Redeemable Convertible Preferred Stock.
Our ability to fund these Participation Payments or the $13.0 million contingent payment will depend on the liquidity of our assets, recoveries, alternative demands for cash resources and access to capital at the time. Furthermore, our obligation to fund Participation Payments could adversely impact our liquidity and financial position.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosuredisclosure controls and procedures” as such term is defined that are designed to ensure that material information required to be disclosed in Rules 13a-15(e) and 15d-15(e)our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissionthe SEC’s rules and forms,forms. Our disclosure controls and procedures are also designed to ensure that such information isrequired to be disclosed in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer,principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect toDuring the quarter ended September 30, 2017,2023, we carried out an evaluation, under the supervision and with the participation of our management, we conducted an evaluationincluding our principal executive officer and principal financial officer, of the effectiveness of the design and operationsoperation of our disclosure controls and procedures.procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon thisthat evaluation, our Chief Executive Officer hasprincipal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective, as of September 30, 2017. the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
We have a lack of segregation of duties, and a lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected.
However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. We believe that the foregoing steps will remediate the material weakness identified above, and we will continue to monitor the effectiveness of these steps and makenot made any changes that our management deems appropriate.
Management is in the process of determining how best to make the required changes that are needed to implement an effective system of internal control over financial reporting. Our management acknowledges the existence of this problem, and intends to develop procedures to address it to the extent possible given our limitations in financial and human resources.
Management does not expect that our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systemssystem are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effectiveall control system,systems, no evaluation of internal control over financial reportingcontrols can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been or will be detected.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2017 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
In the past, in the ordinary course of business, we actively pursuepursued legal remedies to enforce our intellectual property rights and to stop unauthorized use of the technology in our patent portfolio.technology. Other than ordinary routine litigation incidental to the business, and other than as set forth below, we know of no material, active or pending legal proceedings against us, except for those described below.
Spherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas
On August 30, 2013, we initiated litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) inSpherix Incorporated v. Uniden Corporation et al , Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas (“the Court”) for infringement of U.S. Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”). The complaint alleges that Uniden has manufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patents. We seek relief in the form of a finding of infringement of the Asserted Patents, an accounting of all damages sustained by us as a result of Uniden’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On June 3, 2014, in an effort to narrow the case, the parties filed a stipulation dismissing without prejudice all claims and counterclaims related to U.S. Patent No. 5,752,195. On September 4, 2014, Uniden America Corporation, together with VTech Communications, Inc., filed a request forinter partesreview (“IPR”) of U.S. Patent No. 5,581,599 (the “’599 Patent”) and 6,614,899 (the “’899 Patent”) in the United States Patent and Trademark Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board “PTAB”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued itsMarkman order, construing a total of 13 claim terms that had been disputed by the parties. On April 2, 2015, we filed an Amended Complaint with Jury Demand and the parties filed a Settlement Conference Report informing the Court that the parties have not yet resumed settlement negotiations. On September 10, 2015, the Court stayed the case and ordered the parties to file a status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of U.S. Patent No. 5,581,599 the ’599 Patent and all asserted claims of the ’899 patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request, the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further Court intervention. The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ’599 Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted the parties’ motion to continue the stay. On January 12, 2017, we settled the case with Uniden and Uniden took a license under the Asserted Patents and the appeal to the Federal Circuit continued with the Patent Office as an adverse party. On July 25, 2017, after full briefing and oral argument, the Federal Circuit issued an order affirming the PTAB’s decision relating to the ’599 Patent.us.
International License Exchange of America, LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware
On April 26, 2016, we initiated litigation against Fairpoint Communications, Inc. inSpherix Incorporated v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware (the “Court”) for infringement of U.S. Patent No. RE40,999 (the “999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ’999 Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and costs, a declaration that the case is exceptional under 35 U.S.C. § 285, and the Company’s attorney’s fees. On October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America, LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itself as the plaintiff, consistent with our Monetization Agreement with Equitable. On November 17, 2016, the Court granted ILEA’s motion. On June 22, 2017, the Court entered a Scheduling Order setting the Markman hearing for August 22, 2018 and jury trial for October 28, 2019. On August 31, 2017, the parties filed a joint stipulation of dismissal and, on September 1, 2017, the Court terminated the case.
International License Exchange of America, LLC Litigations
Under our Monetization Agreement with Equitable, ILEA has filed the patent infringement litigations listed below.
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In July 2016, a lawsuit relating to the ’999 Patent was dismissed in anticipation of settlement with the counterparty. In May 2017, settlement was reached, pursuant to which the counterparty granted to Equitable the right to monetize a portfolio of 112 patents (the “Settlement Patents”). Pursuant to the Company’s Monetization Agreement with Equitable, the Company is entitled to receive a portion of the net revenue generated by Equitable’s monetization of the Settlement Patents.
Counterclaims
In the ordinary course of business, we, or with our wholly-owned subsidiaries or monetization partners, will initiate litigation against parties whom we believe have infringed on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated by the defendants. Currently, there are no counterclaims pending against us. In the event such counterclaims are filed, we can provide no assurance that the outcome of these claims will not have a material adverse effect on our financial position and results from operations.
Investing in our common stock is subjectAs a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to a number of risks and uncertainties. You should carefully consider theprovide information required by this Item. Our current risk factors described under the heading “Item 1A. Risk Factors”are set forth in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2016, and in other reports we filewhich was filed with the SEC. There have been no changes to theSEC on March 30, 2023. Any of our previously disclosed risk factors disclosedcould result in a significant or material adverse effect on our Annual Report on Form 10-K for the year ended December 31, 2016 that we believe are material.results of operations or financial condition. Additional risks and uncertaintiesrisk factors not presently known to us or that we currently believe aredeem immaterial may also impair our business or results of operations. We may negatively impactdisclose changes to such risk factors or disclose additional risk factors from time to time in our business.future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
| * | Filed herewith |
Signatures
Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Spherix Incorporated
(Registrant)
| DOMINARI HOLDINGS INC. | ||
| Date: November | By: | /s/ Anthony Hayes |
| Anthony Hayes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 6, 2023 | By: | /s/ George Way |
| George Way | ||
| Chief Financial Officer | ||
| (Principal Financial |
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