As filed with the Securities and Exchange Commission on December 9, 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SPHERIX INCORPORATED
(Exact name of registrantRegistrant as specified in its charter)
Delaware | 52-0849320 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification |
6430 Rockledge Drive, Suite 3125
Bethesda, MD 20877
(703) 992-9260
(Address, including zip code, and telephone number,
Anthony Hayes
Chief Executive Officer
Spherix Incorporated
6430 Rockledge Drive, Suite 3125
Bethesda, MD 20877
Telephone (703) 992-9260
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Theodore J. Ghorra, Esq.
Nixon Peabody LLP
437 Madison Avenue
New York, New York 10022
Telephone: (212) 940-3000
Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large“large accelerated filer,”, “accelerated filer” “accelerated filer” and “smaller“smaller reporting company”company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to Be Registered | Amount to Be Registered (1) | Proposed Maximum Offering Price Per Unit | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | |||||||||
| Common stock, $0.0001 par value per share | 902,055 shares | $ | 8.63 | (2) | $ | 7,784,734.65 | (2) | $ | 1,002.67 | ||||
Common stock, $0.0001 par value per share (3) | 1,400,560 shares | $ | 8.63 | (2) | 12,086,832.80 | (2) | 1,556.78 | ||||||
| Total | 2,302,615 shares | 2,559.45 | |||||||||||
Title of each class of securities to be registered(1) | Proposed offering price | Amount of registration fee(2) | ||||||
| Common Stock, par value $0.0001 per share | $ | $ | ||||||
| Common Stock Warrants | $ | $ | ||||||
| Total | $ | 10,000,000 | $ | 1,162.00 | ||||
| (1) |
| (2) | Calculated in accordance with Rule |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment thatwhich specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until thisthe Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. WeThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission declares our registration statementis effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.
Subject to completion, dated December 9, 2013
PROSPECTUS
Up to Shares of Common Stock
Warrants to Purchase Shares
We are offering shares of our common stock including 1,400,560and warrants to purchase shares of our common stock issuable upon conversion of outstanding shares of Series D Convertible Preferred Stock, which the Company anticipates exchanging for shares of Series D-1 Convertible Preferred Stock on a one for one basis, prior to the effectiveness of this prospectus. Each share of Series D Convertible Preferred Stock is (and each share of Series D-1 Convertible Preferred Stock will be) convertible into ten shares of common stock, which are held by the selling stockholders named in this prospectus. One selling stockholder acquired the common stock from us in connection with our acquisition of a patent portfolio from the selling stockholder on July 24, 2013 and the balance of the selling stockholders will acquire shares of Series D-1 Convertible Preferred Stock in connection with the exchange of shares of Series D Convertible Preferred Stock held by them.offering. The shares of Series D Convertible Preferred Stock held by such stockholders were originally issued to them in connection with our acquisition of North South Holdings, Inc. (“North South”) in exchange for securities of North South held by them. We are not selling any common stock under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholders. All references in this prospectus to Series D/Series D-1 Preferred Stock shall refer to shares of the Company’s Series D Preferred Stock whichwarrants will be exchanged for shares of Series D-1 Preferred Stock on a one for one basis, prior to effectiveness of this prospectus.
Our common stock is tradedlisted on The NASDAQ Capital Market under the symbol “SPEX.” On December 6, 2013, the“SPEX”. The last reported sale price of our common stock on The NASDAQ Capital Market on September 17, 2015 was $8.74$0.56 per share.
An investmentInvesting in our common stock and warrants involves a high degree of risk. See “Risk Factors”You should consider carefully the risks and uncertainties in the section entitled “Risk Factors” beginning on page 310 of this prospectus for more information on these risks. prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed uponon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
| Per share | Total | |||||||
| Public offering price | $ | $ | ||||||
| Placement agent’s fees(1) | $ | $ | ||||||
| Proceeds to Spherix Incorporated, before expenses | $ | $ | ||||||
| (1) | We have agreed to reimburse the placement agent for certain of its expenses. In addition, we have agreed to issue to the placement agent warrants to purchase our common stock. See “Plan of Distribution” on page 50 of this prospectus for a description of the compensation payable to the placement agent. |
We have engaged Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (“Wainwright” or the “Placement Agent”) to act as our exclusive placement agent in connection with this offering. Wainwright is not purchasing or selling the securities offered by us, and is not required to sell any specific number or dollar amount of securities, but will use its reasonable best efforts to arrange for the sale of the securities offered. We estimate total expenses of this offering, excluding the placement agent fees, will be approximately $ . Because there is no minimum offering amount required as a condition to closing in this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above. This offering will terminate on , 2015, unless the offering is fully subscribed before that date or we decide to terminate the offering prior to that date. In either event, the offering may be closed without further notice to you. We have not arranged to place the funds from investors in an escrow, trust or similar account.
Rodman & Renshaw
a unit of H.C. Wainwright & Co.
The date of this prospectus is ________, 2013., 2015
TABLE OF CONTENTS
| Prospectus Summary | 1 | |
| 7 | ||
| Summary Selected Consolidated Financial Information | 8 | |
| Risk Factors | 10 | |
| Cautionary Note Regarding Forward-Looking Statements | 27 | |
| Use of Proceeds | ||
| 28 | ||
| Dividend Policy | 29 | |
| Dilution | 30 | |
| Management | 32 | |
| Executive Compensation | 35 | |
| Certain Relationships and Related-Party Transactions | 39 | |
| Security Ownership of | ||
| 41 | ||
| 43 | ||
| Description of Warrants | 52 | |
| Plan of Distribution | 54 | |
| Legal Matters | 55 | |
| Experts | 55 | |
| Where You Can Find | 55 | |
| Incorporation of Certain Information by Reference | 56 | |
We have not authorized anyone to provide you with information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give to you. We are offering to sell, and are seeking offers to buy, shares of our common stock and warrants only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock or warrants. Our business, financial condition, results of operations, and prospects may have changed since that date.
No action is being taken in any jurisdiction outside the United States to permit a public offering of our common stock or warrants or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
| i |
The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider before buying our securities. Therefore, you should read the entire prospectus, and any documents we incorporate by reference, carefully before deciding to invest in our securities. Investors should carefully consider the information set forth under “Risk Factors” beginning on page 10 of this prospectus. In this prospectus, unless the context otherwise requires, references to “the Company,” “we,” “us,” “our,” or “Spherix” refer to Spherix Incorporated (“we”Incorporated.
About This Prospectus
You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the “Company”)Placement Agent has not, authorized any person to provide you with different or inconsistent information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the Placement Agent is not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and the documents incorporated by reference is accurate only as of their respective dates. Spherix’s business, financial condition, results of operations and prospects may have changed since such dates.
We further note that the representations, warranties and covenants made by us in any document that is filed as an exhibit to the registration statement of which this prospectus is a part and in any document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
Our Business
Our Business Model
We are a patent commercialization company that realizes revenue from the monetization of intellectual property, companyor 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 owns patentedwe own, or that we manage for others.
We continually work to enhance our portfolio of intellectual property through acquisition and unpatentedstrategic partnerships. Our mission is to partner with inventors, or other entities, who own undervalued intellectual property. We were formedthen work with the inventors or other entities to commercialize the IP. Currently, we own over 330 patents and patent applications.
Our Products and Services
We acquire IP from patent holders in 1967 asorder to maximize the value of their patent holdings by conducting and managing a scientificlicensing campaign. Some patent holders tend to have limited internal resources and/or expertise to effectively address the unauthorized use of their patented technologies or they simply make the strategic business decision to outsource their intellectual property licensing. They can include individual inventors, large corporations, universities, research companylaboratories and hospitals. Typically, we, or an operating subsidiary, acquires a patent portfolio in exchange for mucha combination of an upfront cash payment, a percentage of our history pursued drug development including through Phase III clinical studies which were largely discontinuedoperating subsidiary’s net recoveries from the licensing and enforcement of the portfolio, or a combination of the two.
Competition
We expect to encounter significant competition from others seeking to acquire interests in 2012. Through our acquisitionintellectual property assets and monetize such assets. This includes an increase in the number of sevencompetitors seeking to acquire the same or similar patents from Rockstar Consortium US, LP (“Rockstar”) and acquisition of several hundred patents issuedtechnologies that we may seek to Harris Corporation as a resultacquire. Most of our acquisitioncompetitors have much longer operating histories, and significantly greater financial and human resources, than we do. Entities such as Vringo, Inc. (NYSE MKT: VRNG), VirnetX Holding Corp (NYSE MKT: VHC), Acacia Research Corporation (NASDAQ: ACTG), RPX Corporation (NASDAQ: RPXC), Marathon Patent Group, Inc. (NASDAQ: MARA) and others presently market themselves as being in the business of North South,creating, acquiring, licensing or leveraging the value of intellectual property assets. We expect others to enter the market as the true value of intellectual property is increasingly recognized and validated. In addition, competitors may seek to acquire the same or similar patents and technologies that we may seek to acquire, making it more difficult for us to realize the value of its assets.
We also compete with venture capital firms, strategic corporate buyers and various industry leaders for technology acquisitions and licensing opportunities. Many of these competitors may have expandedmore financial and human resources than we do. As we become more successful, we may find more companies entering the market for similar technology opportunities, which may reduce our activitiesmarket share in one or more technology industries that we currently rely upon to generate future revenue.
Other companies may develop competing technologies that offer better or less expensive alternatives to our patented technologies that we may acquire and/or out-license. Many potential competitors may have significantly greater resources than we do. Technological advances or entirely different approaches developed by one or more of our competitors could render certain of the technologies owned or controlled by our operating subsidiaries obsolete and/or uneconomical.
Intellectual Property and Patent Rights
Our intellectual property is primarily comprised of trade secrets, patented know-how, issued and pending patents, copyrights and technological innovation.
Our portfolio is currently comprised of over 330 patents and patent applications. Our patent portfolio includes both U.S. and foreign patents and pending patent applications in the wireless communications and telecommunication sectors including data, optical and voice technology, antenna technology, Wi-Fi, base station functionality, and cellular.
Most of our patents are publicly accessible on the acquisitionInternet website of the U.S. Patent and developmentTrademark Office at www.uspto.gov.
The lives of our patent rights have a wide duration. Certain patents through internal or external researchhave already expired and development. In addition, we seekthe latest patents do not expire until 2026.
Patent Enforcement Litigation
We may often be required to acquire existing rightsengage in litigation to intellectual property through the acquisition of already issuedenforce our patents and pending patent applications, bothrights. We are, or may become a party to ongoing patent enforcement related litigation, alleging infringement by third parties of certain of the patented technologies owned or controlled by us. The material litigations in which we are currently engaged are described in summary fashion below.
Guidance IP LLC v. T-Mobile Inc., Case No. 2:14-cv-01066-RSM, in the United States District Court for the Western District of Washington
On August 1, 2013, our wholly owned subsidiary Guidance initiated litigation against T-Mobile Inc. (“T-Mobile”) in Guidance IP LLC v. T-Mobile Inc., Case No. 6:13-cv-01168-CEH-GJK, in the United States District Court for the Middle District of Florida for infringement of U.S. Patent No. 5,719,584 (the “Asserted Patent”). The complaint alleges that T-Mobile has manufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patent. We sought relief in the form of a finding of infringement of the Asserted Patent, an accounting of all damages sustained by us as a result of T-Mobile’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and abroad. We may alone, or in conjunction with others, develop products and processes associated with 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.
Spherix Incorporated v. VTech Telecommunications Ltd. et al., a Virginia corporation (“Nuta”), North South andCase No. 3:13-cv-03494-M, in the stockholdersUnited States District Court for the Northern District of North South. Texas
On August 30, 2013, we entered intoinitiated litigation against VTech Telecommunications Ltd. and VTech Communications, Inc. (collectively “VTech”) in Spherix Incorporated v. VTech Telecommunications Ltd. et al., Case No. 3:13-cv-03494-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; 5,892,814; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”). The complaint alleges that VTech 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 amendmentaccounting of all damages sustained by us as a result of VTech’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On November 11, 2013, VTech filed its Answer with counterclaims requesting a declaration that the Asserted Patents are non-infringed and invalid. On December 5, 2013, we filed our Answer to the Merger Agreementcounterclaims, in which we denied that the Asserted Patents were non-infringed and invalid. On May 22, 2014, the Court entered a Scheduling Order for the case setting trial to amend, among other things,begin on January 11, 2016. On June 3, 2014, in an effort to narrow the termscase, 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, VTech Communications, Inc., together with Uniden America Corporation, filed a request for inter partes review (“IPR”) of two of the merger consideration.Asserted Patents in the United States Patent and Trademark Office. On March 3, 2015, the Patent Trial and Appeal Board (“Board”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. The Board also suggested an accelerated IPR schedule to culminate in an oral hearing on or about September 28, 2015. The Board held a conference call with the parties on March 17, 2015 to finalize the IPR schedule. On October 27, 2014, the Court held a Technology Tutorial Hearing for the educational benefit of the Court. The Markman hearing was held on November 21 and 26, 2014. Both the Technology Tutorial and the Markmanhearing were held jointly with the Spherix Incorporated v. Uniden Corporation et al. case (see below). On March 19, 2015, the Court issued its Markman 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. The Court has ordered the parties to hold a settlement conference not later than December 28, 2015. On April 15, 2015, we filed a Motion to Compel Production of Technical Documents against Defendants. On April 20, 2015, we filed an Opposed Motion for Leave to Serve Supplemental Infringement Contentions. Also on April 20, 2015, Defendants filed their Amended Answer to our Amended Complaint with their counterclaims. On May 1, 2015, we filed our Answer to the counterclaims. On May 5, 2015, the parties filed a Joint Stipulation and Motion to Modify the Scheduling Order. On May 6, 2015, the Court entered the Stipulation, in which the Court estimated the trial date to occur in July of 2016 and ordered the parties to be ready for trial on or after June 22, 2016. Our patent owner’s response to the petition in the IPR was timely filed on May 26, 2015.
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”) in 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 (“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 April 15, 2014, Uniden filed its Answer with counterclaims requesting a declaration that the patents at issue are non-infringed and invalid. On April 28, 2014, we filed our Answer to the counterclaims, in which we denied that the patents at issue were non-infringed and invalid. On May 22, 2014, the Court entered a scheduling order for the case setting trial to begin on February 10, 2016. 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 for inter partes review (“IPR”) of two of the Asserted Patents in the United States Patent and Trademark Office. On March 3, 2015, the Patent Trial and Appeal Board (“Board”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. The Board also suggested an accelerated IPR schedule to culminate in an oral hearing on September 28, 2015. The Board held a conference call with the parties on March 17, 2015 to finalize the IPR schedule. On October 27, 2014, the Court held a Technology Tutorial Hearing for the educational benefit of the Court. The Markman hearing was held on November 21 and 26, 2014, with both hearings occurring jointly with the Spherix Incorporated v. VTech Telecommunications Ltd. et al. case (see above). On March 19, 2015, the Court issued its Markmanorder, 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. The Court has ordered the parties to hold a settlement conference not later than January 20, 2016. On April 9, 2015, the parties filed a Joint Motion to Modify Patent Scheduling Order. On April 10, 2015, the Court granted the Motion. On April 20, 2015, Defendants filed their Amended Answer to our Amended Complaint with their counterclaims. On May 1, 2015, we filed our Answer to the counterclaims. Our patent owner’s response to the petition in the IPR was timely filed on May 26, 2015. On July 9, 2015, the Court issued a modified Scheduling Order setting the Final Pretrial Conference for February 2, 2016 and confirming the Trial Date beginning February 20, 2016. On September 9, 2015, the parties jointly filed a motion to stay the case pending the decision in the two IPR proceedings. On September 10, 2013,2015, 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.
Spherix Incorporated v. Cisco Systems Inc., Case No. 1:14-cv-00393-SLR, in the United States District Court for the District of Delaware
On March 28, 2014, we consummatedinitiated litigation against Cisco Systems Inc. (“Cisco”) in Spherix Incorporated v. Cisco Systems Inc., Case No. 1:14-cv-00393- SLR, in the mergerUnited States District Court for the District of Delaware for infringement of U.S. Patent Nos. RE40467; 6,697,325; 6,578,086; 6,222,848; 6,130,877; 5,970,125; 6,807,174; 7,397,763; 7,664,123; 7,385,998; and North South merged into Nuta,8,607,323 (collectively, the “Asserted Patents”). The complaint alleges that Cisco 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 Cisco’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On July 8, 2014, we filed an amended complaint to reflect that certain of the patents asserted were assigned to our wholly-owned subsidiary NNPT LLC (“NNPT”), based in Longview, Texas. By the amended complaint, NNPT was added as a co-plaintiff with Nuta continuingus. On August 5, 2014, Cisco filed a motion to dismiss certain claims alleged in the amended complaint. On August 26, 2014, we and NNPT filed an opposition to Cisco’s motion to dismiss. On September 5, 2014, Cisco filed its reply brief regarding its motion to dismiss. On March 9, 2015, Cisco moved to consolidate certain claims relating to alleged obligations by us to license Cisco on two unrelated patents, which Cisco had made against us on June 6, 2014 in the pending case Bockstar Technologies LLC v. Cisco Systems, Inc., Case No. 1:13-cv-02020- SLR-SRF (see below). On March 23, 2015, we filed our opposition to Cisco’s motion to consolidate. On March 31, 2015, the Court granted Cisco’s motion to dismiss allegations of “willful” infringement. Spherix’s allegations of patent infringement for the eleven (11) patents continue. Spherix has the ability to re-allege “willful” infringement at a later time. On April 3, 2015, Cisco Systems, Inc. petitioned the U.S. Patent Office for an inter partes review (“IPR”) of Spherix patents 7,397,763 and 8,607,323. The remaining nine patents Spherix has asserted against Cisco were not part of the petitions and the time for Cisco to petition the USPTO for an IPR on those remaining patents expired on April 6, 2015. On April 10, 2015, Cisco withdrew its March 9, 2015 motion to consolidate claims from the Bockstar case. On May 5, 2015, Cisco filed its Answer to our amended complaint with counterclaims under the Sherman Act, breach of contract, breach of covenant of good faith and fair dealing implied in contract, promissory estoppel, and requesting a declaration that the patents at issue are non-infringed and invalid. On June 10, 2015, the Court entered a Scheduling Order for the case. The Court set the Markman hearing to occur in two phases, for two different sets of patents, to occur on June 24, 2016 and September 8, 2016. The Court set trial to begin on January 16, 2018. On July 13, 2015, we filed our oppositions to Cisco’s IPR proceedings. On July 20, 2015, we filed a motion to dismiss or transfer certain of Cisco’s counterclaims.
Spherix Incorporated v. Juniper Networks, Inc., Case No. 1:14-cv-00578-SLR, in the United States District Court for the District of Delaware
On May 2, 2014, we initiated litigation against Juniper Networks, Inc. (“Juniper”) in Spherix Incorporated v. Juniper Networks, Inc., Case No. 1:14-cv- 00578-SLR, in the United States District Court for the District of Delaware for infringement of U.S. Patent Nos. RE40467; 6,578,086; 6,130,877; 7,385,998; 7,664,123; and 8,607,323 (collectively, the “Asserted Patents”). The complaint alleges that Juniper 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 Juniper’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On July 8, 2014, we filed an amended complaint to reflect that certain of the surviving corporationpatents asserted were assigned to our wholly-owned subsidiary NNPT LLC, based in Longview, Texas. By the amended complaint, NNPT LLC was added as a co-plaintiff with us. On August 8, 2014, Juniper filed a motion to dismiss certain claims alleged in the amended complaint. On August 29, 2014, we filed our opposition to Juniper’s motion to dismiss. On September 15, 2014, Juniper filed its reply brief regarding its motion to dismiss. On March 31, 2015, the Court granted Juniper’s motion to dismiss allegations of “willful” infringement. Spherix’s allegations of patent infringement for the eleven (11) patents continue. Spherix has the ability to reallege “willful” infringement at a later time. On April 14, 2015, Juniper filed its Answer to our amended complaint. On May 6, 2015, the Court held an in-person Scheduling Conference in court and ownerordered the parties to submit the final proposed Scheduling Order to the Court. On May 28, 2015, the Court entered a Scheduling Order for the case setting the Markman hearing for June 24, 2016 and trial to begin on May 15, 2017.
NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al., Case No. 2:14-cv-00677-JRG-RSP, in the United States District Court for the Eastern District of North South’s intellectual property,Texas
On June 9, 2014, NNPT initiated litigation against Futurewei Technologies, Inc., Huawei Device (Hong Kong) Co., Ltd., Huawei Device USA Inc., Huawei Investment & Holding Co., Ltd., Huawei Technologies Co., Ltd., Huawei Technologies Cooperatif U.A., and Huawei Technologies USA Inc. (collectively “Huawei”), in NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al., Case No. 2:14-cv-00677-JRG-RSP, in accordancethe United States District Court for the Eastern District of Texas (“the Court”), for infringement of U.S. Patent Nos. 6,578,086; 6,130,877; 6,697,325; 7,664,123; and 8,607,323 (collectively, the “Asserted Patents”). On September 8, 2014, Huawei filed its answers to the complaint in which defendant Huawei Technologies USA asserted counterclaims requesting a declaration that the patents at issue were non-infringed and invalid. On October 8, 2014, NNPT filed its Answer to the counterclaims, in which it denied that the Asserted Patents were non-infringed and invalid. On January 20, 2015, the Court held a Scheduling Conference and set the Markman hearing for July 17, 2015 and trial to begin on February 8, 2016. On January 28, 2015, the Court appointed as mediator for the parties, Hon. David Folsom, former Chief Judge of the United States District Court for the Eastern District of Texas. On February 24, 2015, the Court issued its Docket Control Order setting the Markman hearing for July 17, 2015 and trial to begin on February 8, 2016. The Court also set an August 14, 2015 deadline to complete mediation. On June 11, 2015, Huawei filed a request for inter partes review (“IPR”) of two of the Asserted Patents in the United States Patent and Trademark Office. On July 7, 2015, the Court reset the Markman hearing date for August 5, 2015. The Markman hearing was held on August 5, 2015 as scheduled. The parties held an initial mediation on August 6, 2015. On August 17, 2015, the Court issued itsMarkman Order. On August 20, 2015, the mediator filed a report with the termsCourt reporting that the parties reached a settlement of the Merger Agreement, we issued 1,203,153 sharescase on August 14, 2015. On August 31, 2015, the parties filed a Joint Motion to Stay and Notice of our common stockSettlement. On September 9, 2015, the Court stayed the case and 1,379,685 shares of our Series D Convertible Preferred Stock, each of which is convertible into shares of common stock onset a one-for-ten basis, tostatus conference for October 2, 2015. On September 18, 2015, the former stockholders of North South.
Spherix Incorporated v. Verizon Services Corp. et al., Case No. 1:14-cv-00721-GBL-TCB, in the United States District Court for the Eastern District of wireless communications, satellite, solar and radio frequency, as well as 2 U.S. patents in pharmaceutical technology. Prior to the Merger, North South acquired and developed patents through internal and/or external research and development and acquired issued U.S. and foreign patents and pending patent applications. We license our patents to companies seeking to develop products and processes that embodied our patented invention or to companies whose products and processes infringed our intellectual property. Prior to our acquisition of North South, North South commenced monetization and commercialization efforts by filing patent infringementVirginia
On June 11, 2014, we initiated litigation against T-Mobile USA on geo-location technology owned by NorthVerizon Services Corp.; Verizon South as well as two lawsuits on pharmaceutical distribution,Inc.; Verizon Virginia LLC; Verizon Communications Inc.; Verizon Federal Inc.; Verizon Business Network Services Inc.; and MCI Communications Services, Inc. (collectively, “Verizon”) in Spherix Incorporated v. Verizon Services Corp. et al., Case No. 1:14-cv-00721-GBL-TCB, in the rights to which we acquired upon consummationUnited States District Court for the Eastern District of Virginia (“the Merger.
Spherix Incorporated v. Verizon Services Corp. et al., Case No. 1:15-cv-0576-GBL-IDD, in the United States District Court for the Eastern District of Virginia
On May 1, 2015, we initiated litigation against Verizon Services Corp.; Verizon South Inc.; Verizon Virginia LLC; Verizon Communications Inc.; Verizon Federal Inc.; Verizon Business Network Services Inc.; MCI Communications Services, Inc.; Cellco Partnership d/b/a Verizon Wireless; and Cisco Systems, Inc. (collectively, “Defendants”) in Spherix Incorporated v. Verizon Services Corp. et al., Case No. 1:15-cv-0576-GBL-IDD, in the United States District Court for the Eastern District of Virginia for infringement of U.S. Patent Nos. 5,959,990; 6,111,876; RE40,999; RE44,775; RE45,065; RE45,081; RE45,095; and RE45,121 (collectively, the “Asserted Patents”). The complaint alleges that Defendants has used, 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, damages sufficient to compensate us for Defendants’ infringement, together with pre-and post-judgment interest and costs, and our attorney’s fees. On June 30, 2014, we filed an Amended Complaint to add allegations of infringement of U.S. Patent Nos. RE45,521 and RE45,598. On July 15, 2015, Cisco filed a motion to transfer the case to the District of Delaware. On July 17, 2015, Verizon filed an Answer and Counterclaims to the Complaint. On July 17, 2015, the Court issued a Scheduling Order setting the Final Pretrial Conference for November 19, 2015, with trial to be set within 4-8 weeks of the pretrial conference. On July 31, 2015, we filed our Opposition to Cisco’s motion to transfer. On August 5, 2015, the Court held an Initial Pretrial Conference in the case to discuss the discovery plan for the case. On August 6, 2015, we filed our answer to Verizon’s counterclaims. On August 11, 2015, the Court issued its Scheduling Order regarding the discovery schedule, setting discovery to be concluded by November 15, 2015. On August 31, 2015, a settlement agreement between Spherix and Verizon was entered into, resolving all outstanding litigation between the two companies. Cisco was not a party to the agreement and the case continues against Cisco. On September 1, 2015, the Spherix and Verizon filed a joint motion to dismiss the Verizon entities from the case. On September 2, 2015, the Court granted the motion to dismiss Verizon.
Cisco Systems, Inc. v. Spherix Incorporated, 1:15-cv-00559-SLR, in the United States District Court for the District of Delaware
On June 30, 2015, Cisco Systems, Inc. initiated litigation against us in United States District Court for the District of Delaware, requesting a declaration of non-infringement U.S. Patent No. RE45,598, which are being registered pursuantissued on June 30, 2015, and, with respect to this prospectus.
Counterclaims
In the ordinary course of business, we, along with our wholly-owned subsidiaries, 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 which such holders could exchange shares of Series D Preferred Stock for shares of Series D-1 Convertible Preferred Stock onpotential counterclaims initiated by the defendants. Currently, as stated above, defendants in the cases Spherix Incorporated v. VTech Telecommunications Ltd.;Spherix Incorporated v. Uniden Corporation; Spherix Incorporated v. Cisco Systems Inc., and NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al. have filed counterclaims against us. We have evaluated the counterclaims and believe they are without merit and have not recorded a one-for-one basis. An aggregate of 725,064 shares of common stock issued to the former stockholders of North South and 1,400,560 shares of common stock underlying 140,056 shares of Series D/D-1 Convertible Preferred Stock issued to our Series D Convertible Preferred Stockholders, are being registered pursuant to this prospectus. The rights of the Series D-1 Convertible Preferred Stock are substantially identical to the rights of the Series D Convertible Preferred Stock except for certain modificationsloss provision relating to conversion limitations. All references in this prospectus to Series D/Series D-1 Preferred Stock shall refer to sharessuch matters. We can provide no assurance that the outcome of the Company’s Series D Preferred Stock whichthese claims will be exchanged for shares of Series D-1 Preferred Stocknot have a material adverse effect on a one for one basis, prior to effectiveness of this prospectus.
Corporate Information
We were incorporated in Delaware in 1967. Our principal executive office is located at 7927 Jones Branch6430 Rockledge Drive, Suite 3125, Tysons Corner, VA, 22102.503, Bethesda, MD 20877. Our telephone number is (703) 992-9260(646) 532-2964 and our website address is www.spherix.com. The information on our website is not a part of, and should not be construed as being incorporated by reference into, this prospectus of this prospectus.
As used in this prospectus, unless otherwise specified, references to the “Company,” “we,” “our” and “us” refer to Spherix Incorporated and, unless otherwise specified, its direct and indirect subsidiaries.THE OFFERING
| us | Up to | |
| Common | ||
| shares ( if the warrants are exercised in full). See notes below regarding outstanding share calculations. |
| Description of | The warrants will have a per share exercise price equal to $ . The warrants are exercisable beginning on and expire years from the date of | ||
| Use of | proceeds | We |
| Risk | factors | You should |
| NASDAQ Capital Market symbol | “SPEX” |
The number of shares of common stock to be outstanding after this offering is based on 34,402,763 shares of common stock outstanding as of September 17, 2015.
The number of shares of our common stock to be outstanding after this offering excludes the shares of common stock that may be issued under the warrants to be issued in this offering, and also excludes the following:
7,804,828 shares of common stock issuable upon the exercise of warrants outstanding as of September 17, 2015, having a weighted average exercise price of $1.74 per share;
Unless otherwise indicated, all information in this prospectus reflects or assumes the following:
no conversion or redemption of preferred stock after September 17, 2015.
The following tables summarize our financial data for the periods presented. The summary statement of operations data and balance sheet data for each of the years ended December 31, 2014 and 2013 have been derived from our audited financial statements. The audited financial statements as of December 31, 2014 and 2013, and the report thereon, were included in our Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated by reference into this prospectus. The summary statement of operations data for the six-months ended June 30, 2015 and 2014 and summary balance sheet data as of June 30, 2015 have been derived from our unaudited financial statements, which were included in our Quarterly Report on Form 10-Q for the period ended June 30, 2015, which is incorporated by reference into this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future periods.
You should read this data together with the financial statements and related notes incorporated by reference into this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, and each of the notes thereto, which are incorporated by reference into this prospectus.
(In thousands, except per share data)
| Six Months Ended June 30, | Year Ended December 31 | |||||||||||||||
| 2015 | 2014 | 2014 | 2013 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues | $ | 2 | $ | 7 | $ | 10 | $ | 27 | ||||||||
| Operating costs and expenses | ||||||||||||||||
| Cost of Revenues | — | — | — | 3 | ||||||||||||
| Amortization of patent portfolio | 4,872 | 4,878 | 9,831 | 267 | ||||||||||||
| Compensation and related expenses (including stock-based compensation) | 665 | 10,734 | 13,710 | 9,783 | ||||||||||||
| Research and Development | — | — | — | 10 | ||||||||||||
| Professional fees | 1,280 | 2,965 | 4,520 | 4,143 | ||||||||||||
| Impairment of goodwill and intangible assets | 37,212 | — | — | — | ||||||||||||
| Rent | 44 | 138 | 864 | 134 | ||||||||||||
| Depreciation | — | — | — | 24 | ||||||||||||
| Other selling, general and administrative | 348 | 886 | 1,696 | 1,010 | ||||||||||||
| Total operating expenses | 44,421 | 19,601 | 30,621 | 15,374 | ||||||||||||
| Loss from operations | (44,419 | ) | (19,594 | ) | (30,611 | ) | (15,347 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income (expenses), net | 25 | 16 | 31 | — | ||||||||||||
| Fair value adjustments for warrant liabilities | — | 47 | 48 | (2,618 | ) | |||||||||||
| Total other (expenses) income | 25 | 63 | 79 | (2,618 | ) | |||||||||||
| Net loss | $ | (44,394 | ) | $ | (19,531 | ) | $ | (30,532 | ) | $ | (17,965 | ) | ||||
| Net loss per share, basic and diluted | $ | (1.55 | ) | $ | (1.80 | ) | $ | (1.55 | ) | $ | (13.64 | ) | ||||
| Weighted average number of common shares outstanding, | ||||||||||||||||
| Basic and diluted | 28,615,050 | 10,844,706 | 19,736,842 | 1,317,472 | ||||||||||||
| As of June 30 | As of December | |||||||||||||||
| 2015 | 2014 | 2014 | 2013 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Balance Sheet Data | ||||||||||||||||
| Cash and Cash Equivelants | $ | 87 | $ | 7,146 | $ | 805 | $ | 3,125 | ||||||||
| Working Captial (deficit) | (36 | ) | 6,310 | 3,182 | 1,773 | |||||||||||
| Total Assets | 15,596 | 68,932 | 61,158 | 69,853 | ||||||||||||
| Long-term lease liabilities | 319 | — | 407 | — | ||||||||||||
| Total Stockholder’s Equity | 9,306 | 62,074 | 53,586 | 48,302 | ||||||||||||
Investing in our common stock and warrants involves a high degree of risk. Before investing in our common stock and warrants, you should consider carefully consider the risks described below, before making an investment decision. Thetogether with the other information contained in this prospectus. If any of the risks describedset forth below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also impairoccur, our business, operations. Our businessfinancial condition, results of operations and future growth prospects could be harmed by any ofmaterially and adversely affected. In these risks. The tradingcircumstances, the market price of our common stock could decline, due to any of these risks, and you may lose all or part of your investment. In assessing these
Risks Associated with Our Business
Because we have a limited operating history to evaluate our company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an early-stage company.
Since we have a limited operating history in our current business of patent licensing and monetization, it will make it difficult for investors and securities analysts to evaluate our business and prospects. You must consider our prospects in light of the risks, youexpenses and difficulties we face as an early stage company with a limited operating history. Investors should also referevaluate an investment in our securities in light of the uncertainties encountered by early-stage companies in an intensely competitive industry and in which the potential licenses and/or defendants from which the Company seeks to obtain recoveries are largely well capitalized companies with resources (financial and otherwise) significantly greater than the other information containedCompany’s. There can be no assurance that our efforts will be successful or incorporated by reference into this prospectus,that we will be able to become profitable.
We continue to incur operating losses and may not achieve profitability.
We have incurred losses from operations in prior years, including 2014 and 2013. Our net loss for the years ended December 31, 2014 and December 31, 2013 was $30.5 million and $18.0 million, respectively. Our accumulated deficit was $83.8 million at December 31, 2014 and $53.3 million at December 31, 2013. We may not achieve profitable operations.
We expect to need additional capital to fund our growing operations, and if we are unable to obtain sufficient capital we may be forced to limit the scope of our operations.
We expect that as our business continues to grow we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business or pay our outstanding obligations, and we will have to modify our business plans accordingly. These factors would have a material and adverse effect on our future operating results and our financial condition.
If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company. In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
In their reports for each of our last two fiscal years, our independent registered public accountants stated that our consolidated financial statements for the years ended December 31, 2014 and related notes.
An impairment charge could have a material adverse effect on our financial condition and results of operations.
We are required to assess goodwill for impairment if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. In addition, we are required to test our finite-lived intangible assets for impairment if events occur or circumstances change that would indicate the remaining net book value of the finite-lived intangible assets might not be recoverable. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions and other factors. Given the significant decline in stock price during the six months ended June 30, 2015 (the closing market price of our common stock was as of December 31, 2014 and June 30, 2015 was $1.13 and $0.48, respectively), we assessed impairment of our intangible assets as of June 30, 2015 and recorded a $40.0 million charge to our intangible assets. If the fair value of our reporting units or finite intangible assets is less than their book value in the future, we could be required to record additional impairment charges. A continued decline of the market price of our common stock could result in additional impairment charges in the future. The amount of any impairment could be significant and could have expandeda material adverse effect on our reported financial results for the period in which the charge is taken.
The focus of our business is to commercializing, developing and monetizingmonetize intellectual property, including through licensing and enforcement. We may not be able to successfully monetize the patents which we acquire and thus may fail to realize all of the anticipated benefits of such acquisition.
We acquired our patents and patent applications during 2013 in three transactions which significantly changed the focus of our business and operations. We currently own several hundred patent assets and although we may seek to commercialize and develop products, alone or with others, there is no assurance that we will be able to successfully commercialize or develop products and such commercialization and development is not a core focus of our business. There is significant risk involved in connection with our activities in which we acquire develop orand seek to monetize the patent portfolios that we acquired from Rockstar and North South and Rockstar.South. Our business is commonly referred to as a non-practicing entity model (or “NPE”) since we do not currently commercialize or develop products under the recently acquired patents. As an entity, we have limited prior experience as an NPE. The acquisition of the patents and an NPE business model could fail to produce anticipated benefits, or could have other adverse effects that we do not currently foresee. Failure to successfully monetize theseour patent assets or to operate an NPE business may have a material adverse effect on our business, financial condition and results of operations.
In addition, the acquisition of the patent portfolios is subject to a number of risks, including, but not limited to the following:
| There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During that time lag, material costs are likely to be incurred that would have a negative effect on our results of operations, cash flows and financial position; and |
| • | The integration of a patent portfolio will be a time consuming and expensive process that may disrupt our operations. If our integration efforts are not successful, our results of operations could be harmed. In addition, we may not achieve anticipated synergies or other benefits from such acquisition. |
Therefore, there is no assurance that the monetization of the patent portfolios we acquire will be successful, will occur timely or in a timeframe that is capable of prediction or will generate enough revenue to recoup our investment.
Our operating history makes it difficult to evaluate our current business and future prospects.
If our efforts to generate revenue from such assetsour patent portfolios acquired from Rockstar and North South fail, we will have incurred significant losseslosses. We may not seek and may be unable to acquire additional assets.assets and therefore may be wholly reliant on our present portfolios for revenue. If this occurs,we are unable to generate revenue from our current assets and fail to acquire any additional assets, our business will likely fail.
In connection with our new line of business, we may commence legal proceedings against certain companies whose size and resources could be substantially greater than ours; we expect such litigation to be time-consuming, lengthy and costly which may adversely affect our financial condition and our ability to survive or operate our business, even if the patents are valid and the cases we bring have merit..
To license or otherwise monetize our patent assets, which may constitute a significant focus of our activities, we may be required to commence legal proceedings against certain companies, pursuant to whichlarge and well established and well capitalized companies. For instance, we are currently involved in litigation against Cisco Systems, Uniden, VTech Telecommunications, Verizon Services, Huawei and Juniper Networks, each of whom is much larger and better capitalized than we are. We may allege that such companies infringe on one or more of our patents. Our viability could be highly dependent on the outcome of this litigation, and there is a risk that we may be unable to achieve the results we desire from such litigation, which failure would harm our business to a great degree. In addition, thelitigation. The defendants in this litigation brought by us are likely to be much larger than us and have substantially more resources than we do, which couldwould make success of our litigation efforts subject to factors other than the validity of our patents or infringement claims asserted. The inability to successfully enforce our patents against larger more difficult.
We anticipate that these legal proceedings against infringers of our patents may continue for several or more years and may require significant expenditures for legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. In addition, courts and the laws are constantly changing in a manner that could increase our fees and expenses for pursuing infringers, and also could result in our assumption of legal fees of defendants if we are unsuccessful. Once initiated, we may be forced to litigate against others to enforce or defend 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 in an effort to avoid or limit liability and damages for patent infringement. Potential defendants could challenge our patents and our actions by commencing lawsuits seeking declaratory judgments declaring our patents invalid, not infringed, or for improper or unlawful activities. If such defenses or counterclaims are successful, they may preclude our ability to obtain damages for infringement or derive licensing revenue from the patents. A negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact our business. For example, on July 1, 2015, the United States District Court for the Eastern District of Virginia, the Court issued a Markman Order interpreting certain key claims in favor of the defendants in one of our actions against Verizon, resulting in the dismissal of our claims against Verizon with respect to one of our patents. Additionally, we anticipate that our legal fees and other expenses will be material and will negatively impact our financial condition and results of operations and may result in our inability to continue our business.
Parties who are alleged infringers of our patent rights may also challenge the validity of our patents in proceedings before the United States Patent and Trademark Office. These potential proceedings includeex parte reexaminations,inter partesreview, or covered business method patent challenges. These proceedings could result in certain of our patent claims being dismissed or certain of our patents being invalidated. We would expend signification legal fees to defend against such actions.
We have been the subject of litigation and, due to the nature of our business, may be the target of future legal proceedings that could have an adverse effect on our business and our ability to monetize our patents.
In the ordinary course of business, we, along with our wholly-owned subsidiaries, 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, defendants in the cases Spherix Incorporated v. VTech Telecommunications Ltd.; Spherix Incorporated v. Uniden Corporation; Spherix Incorporated v. Cisco Systems Inc., andNNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al.have filed counterclaims against us. We have evaluated the counterclaims and believe they are without merit.
The Company may become subject to similar actions in the future which will be costly and time consuming to defend, the outcome of which are uncertain.
We may seek to internally develop additional new inventions and intellectual property, which would take time and be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activitiesactivities..
Part of our additional new business may include the internal development of new inventions or intellectual property that we will seek to monetize. However, this aspect of our business would likely require significant capital and would take time to achieve. Such activities could also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.
In addition, even if we are able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain, and we would heavily rely upon, a proprietary position with respect to such inventions and intellectual property. However, there are significant risks associated with any such intellectual property we may develop principally, including the following:
| we may be subject to interference proceedings; |
| we may be subject to opposition proceedings in the U.S. or foreign countries; |
| any patents that are issued to us may not provide meaningful protection; |
| we may not be able to develop additional proprietary technologies that are patentable; |
| other companies may challenge patents issued to us; |
| other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; |
| other companies may design around technologies we have developed; and |
| enforcement of our patents |
We cannot be certain that patents will be issued as a result of any future applications, or that any of our patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we will be the first to make our additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we may license or otherwise monetize, our rights will depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss our business.
Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
Our ability to raise additional capital may be adversely affected by certain of our agreements.
Our ability to raise additional capital for use in our operating activities may be adversely impacted by the terms of our Series I Redeemable Convertible Preferred Stock (our “Series I Preferred Stock”). In the event we consummate certain fundamental transactions, we will be required to redeem such portion of our outstanding shares of Series I Preferred Stock as shall equal (i) 50% of the net proceeds of the fundamental transaction after deduction of the amount of net proceeds required to leave the Company with cash and cash equivalents on hand of $5.0 million and up until the net proceeds leave the Company with cash and cash equivalents on hand of $7.5 million and (ii) 100% of the net proceeds of the fundamental transaction thereafter. For these purposes, a fundamental transaction includes, among other things, the realization by us of net proceeds from any financing, recovery, sale, license fee or other revenue received by the Company (including on account of any intellectual property rights held by the Company and not just in respect of the patents) during any fiscal quarter in an amount which would cause our cash or cash equivalents to exceed $5,000,000. Thus, a significant portion of any amount we raise in a financing transaction, including the proceeds of the offering described in this prospectus, or generate from monetization of our intellectual property may need to be used to redeem all or a portion of our Series I Preferred Stock rather than being used to finance our operations.
Our ability to raise additional capital for use in our operating activities also may be adversely impacted by the terms of a securities purchase agreement, dated as of July 15, 2015 (the “Securities Purchase Agreement”), between us and the investors who purchased securities in our July 2015 offering of our common stock and warrants for the purchase of our common stock. The Securities Purchase Agreement provides that, until the warrants issued thereunder are no longer outstanding, we will not affect or enter into a variable rate transaction, which includes issuances of securities whose prices or conversion prices may vary with the trading prices of or quotations for the shares of our Common Stock at any time after the initial issuance of such securities, as well as the entry into agreements where our stock would be issued at a future-determined price. These warrants may remain outstanding as late as January 22, 2021, when the warrants expire in accordance with their terms. The Securities Purchase Agreement also provides the investors an 18-month right of participation for an amount up to 100% of such subsequent financing of common stock (or common stock equivalents or a combination thereof), including any financing that may be consummated pursuant to this prospectus during such period, on the same terms and conditions of such transaction. Last, proceeds we received under the Securities Purchase Agreement are not permitted to be used for satisfaction of the Company’s debt or for the redemption of our Series I Preferred Stock. These restrictions may have an adverse impact on our ability to raise additional capital, or to use our cash to make certain payments that we are contractually obligated to make.
New legislation, regulations or court rulings related to enforcing patents could harm our new line of business and operating results, or could cause us to change our business model..
If Congress, the United States Patent and Trademark Office or courts implement new legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, these changes could negatively affect our new business model.business. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect our ability to assert our patent or other intellectual property rights.
On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent Office is currentlyhas been developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act recently became effective. Accordingly, it is too early to tell what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
On June 4, 2013, the Obama Administration issued executive actionsorders and legislative recommendations. The legislative measures recommended by the Obama Administration include requiring patentees and patent applicants to disclose the “Real Party-in-Interest”, giving district courts more discretion to award attorney’s fees to the prevailing party, requiring public filing of demand letters such that they are accessible to the public, and protecting consumers against liability for a product being used off-the shelf and solely for its intended use.
The executive actions includes orderingorders require the USPTOUnited States Patent and Trademark Office (the “USPTO”) to make rules to require the disclosure of the Real Party-in-Interest by requiring patent applicants and owners to regularly update ownership information when they are involved in proceedings before the USPTO (e.g. specifying the “ultimate parent entity”) and requiring the USPTO to train its examiners to better scrutinize functional claims to prevent allowing overly broad claims.
On October 23,December 5, 2013, the United States House of Representatives passed a patent reform titled the “Innovation Act” by a vote of 325-91. Representative Bob Goodlatte, with bipartisan support, introduced a new set of proposed patent reforms titled the “Innovation Act.”Innovation Act on October 23, 2013. The Innovation Act, as passed by the House, has a number of proposed major proposed changes. Some of the proposed changes include a heightened pleading requirement for the filing of patent infringement claims. It requires a particularized statement with detailed specificity regarding how each asserted claim term corresponds to the functionality of each accused instrumentality. The Innovation Act, as passed by the House, also includes a provisionfee-shifting provisions which provide that, allows prevailing defendants to collect attorney fees from non-plaintiffs who have substantial interest inunless the asserted patent. Moreover, a patentee who gives a covenant not to sue to a defendant will be deemed a non-prevailing party and, therefore, subjectof a patent infringement litigation positions were objectively reasonable, such non-prevailing party would have to attorney fees.
The Innovation Act also calls for discovery to be limited until after claim construction. The patent infringement plaintiff must also disclose anyone with a financial interest in either the asserted patent or the patentee and must disclose the ultimate parent entity. When a manufacturer and its customers are sued at the same time, the suit against the customer would be stayed as long as the customer agrees to be bound by the results of the case.
Representative Goodlatte reintroduced the Innovation Act as H.R. 9 on February 2, 2015. The bill has 22 co-sponsors, made up of 11 Democrats and 11 Republicans. On February 5, 2015, the bill was referred to the House Committee on the Judiciary for further consideration, and on March 17, 2015, the bill was referred to the House Subcommittee on Courts, Intellectual Property, and the Internet.
On March 3, 2015, S.632 known as the “Support Technology and Research for Our Nations Growth Patents Act of 2015” (“the STRONG Act”) was introduced into the Senate by Senator Christopher Coons. The STRONG Act prescribes a number of changes in current patent law, including how the USPTO and the Patent Trial and Appeal Board (PTAB) handle post-issuance patent proceedings. One change proposed by the Act is that the PTAB construe patent claims under the same “ordinary and customary meaning” standard in inter partes and post grant review proceedings as applied in district court litigation. The Act also provides additional grounds for a patent owner to submit claim amendments during a post-issuance review. The Act directs the Supreme Court to eliminate the model complaint for patent infringement. It also authorizes state attorneys general to act in preventing bad faith demand letters from being sent to accused infringers. The Act would allow such behavior to be treated as an unfair or deceptive act or practice in violation of the Federal Trade commission Act.
On April 29, 2015, the Energy and Commerce Committee voted to advance a bill to the full U.S. House of Representatives known as the “Targeting Rogue and Opaque Letters Act” (“the TROL Act”) (H.R. 2045). This bill is aimed at halting misleading demand letters sent by patent “trolls.” The bill would give the Federal Trade Commission and state attorneys general the authority to impose civil penalties on companies that send misleading and bad faith letters to recipients demanding that they license patents.
Also on April 29, 2015, a group of bipartisan Senators introduced S. 1137, another new patent reform bill titled, the “Protecting American Talent and Entrepreneurship” (the “PATENT Act”). The bill includes provisions requiring patent plaintiffs to clearly identify each patent and claim allegedly infringed, the products or processes, accused of infringing, and how the infringement occurs. The bill also provides that if end users of a product are sued for infringement, the manufacturer can step-in to litigate and the suit against the users will be stayed. A fee-shifting provision is also included that provides winning parties a chance to show that the losing party’s position and conduct were not “objectively reasonable.”
On April 29, 2014, the U.S. Supreme Court relaxed the standard for fee shifting in patent infringement cases. Section 285 of the Patent Act provides that attorneys’ fees may be awarded to a prevailing party in a patent infringement case in “exceptional cases.”
In Octane Fitness, LLC v. Icon Health & Fitness, Inc., the Supreme Court overturned the U.S. Court of Appeals for the Federal Circuit decisions limiting the meaning of “exceptional cases.” The U.S. Supreme Court held that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigation position” or “the unreasonable manner in which the case was litigated.” The U.S. Supreme Court also rejected the “clear and convincing evidence” standard for making this inquiry. The Court held that the standard should be a “preponderance of the evidence.”
In Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.,the U.S. Supreme Court held that a district court’s grant of attorneys’ fees is reviewable by the U.S. Court of Appeals for the Federal Circuit only for “abuse of discretion” by the district court instead of the de novo standard that gave no deference to the district court.
These pair of decisions lowered the threshold for obtaining attorneys’ fees in patent infringement cases and increased the level of deference given to a district court’s fee-shifting determination.
These two cases will make it much easier for district courts to shift a prevailing party’s attorneys’ fees to a non-prevailing party if the district court believes that the case was weak or conducted in an abusive manner. Defendants that get sued for patent infringement by non-practicing entities may elect to fight rather than settle the case because these U.S. Supreme Court decisions make it much easier for defendants to get attorneys’ fees.
On June 19, 2014, the U.S. Supreme Court decided Alice Corp. v. CLS Bank International in which the Court addressed the question of whether patents related to software are patent eligible subject matter. The Supreme Court did not rule that patents related to software were per se invalid or that software-related inventions were unpatentable. The Supreme Court outlined a test that the courts and the USPTO must apply in determining whether software-related inventions qualify as patent eligible subject matter. We must now wait and see how the federal district courts and the USPTO will apply this ruling. The test outlined by the Supreme Court could potentially affect the value of some of the patents we hold.
On January 20, 2015, the U.S. Supreme Court decided another patent case, Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. In Teva, the Court overturned the long-standing practice that claim construction decision made by district courts were given de novo review on appeal. Instead, the Supreme Court held that when claim construction is based on extrinsic evidence, a district court’s findings of subsidiary facts are to be reviewed for clear error, while its ultimate claim construction is to be reviewed de novo. This change in how claim construction decisions are reviewed on appeal may have an impact on how parties handle patent litigation in the district courts. This could increase our litigation expenses. The full impact of the Teva decision on patent litigation at the district court level is yet to be determined.
On May 26, 2015, the U.S. Supreme Court decidedCommil USA LLC v. Cisco Systems, Inc. In this case, the Supreme Court held that a good faith belief that a patent is invalid does not provide an accused infringer with a defense against a charge of inducing patent infringement. The Court stated that permitting such a defense would undermine the statutory presumption of validity enjoyed by issued U.S. patents under 35 U.S.C. § 282. The long term affect of this ruling is yet to be seen as it is implemented by the district courts. However, this ruling has eliminated a defense available to parties accused of inducing patent infringement. This result could be beneficial to our patent enforcement efforts.
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become enacted as laws.laws in their current or modified forms. Compliance with any new or existing laws or regulations could be difficult and expensive, affect the manner in which we conduct our business and negatively impact our business, prospects, financial condition and results of operations.
Our acquisitions of patent assets may be time consuming, complex and costly, which could adversely affect our operating resultsresults..
Acquisitions of patent or other intellectual property assets, which are and will be critical to our business plan, are often time consuming, complex and costly to consummate. We may elect to not pursue any additional patents while we focus our efforts on monetizing our existing assets. We may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated. As a result, we expect to incur significant operating expenses and will likely be required to raise capital during the negotiations even if the acquisition is ultimately not consummated.consummated, or if we determine to acquire additional patents or other assets. Even if we are able to acquire particular patent assets, there is no guarantee that we will generate sufficient revenue related to those patent assets to offset the acquisition costs.costs, and we may be required to pay significant amounts of deferred purchase price if we monetize those patents above certain thresholds. While we will seek to conduct confirmatory due diligence on the patent assets we are considering for acquisition, we may acquire patent assets from a seller who does not have propercomplete analysis of infringements or claims, have valid or sole title or ownership to those assets, or otherwise provides us with flawed ownership rights, including invalid or unenforceable assets. In those cases, we may be required to spend significant resources to defend our interest in the patent assets and, if we are not successful, our acquisition may be invalid,worthless, in which case we could lose part or all of our investment in the assets.
We may also identify patent or other intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us. Acquisitions involving issuance of our securities could be dilutive to existing stockholders and could be at prices lower than those prices reflected in the trading markets. These higher costs could adversely affect our operating results and, if we incur losses, the value of our securities will decline.
In addition, we may acquire patents and technologies that are in the early stages of adoption in the commercial, industrial and consumer markets.adoption. Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees willor others adopt our patents and technologies in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will have value that can be realized through licensing or other activities.
If we can monetize.
Our current business model of monetizing patent assets primarily through litigation against companies infringing on our intellectual property results in the potential for sporadic income. This makes us dependent on successful outcomes of our litigation claims, as well as obtaining financing from third-party sources to fund these litigations. If we are unable to generate revenue and are unable to raise additional capital on commercially reasonable terms, or if changes in law make our current business model infeasible, then we may determine to change our business model in a manner that would be anticipated to generate revenue on a more regular basis. If we determine to change our business model, it may be difficult to predict our future prospects. Furthermore, we may incur significant expenses in any such shift in business model, or our management may have to devote significant resources into developing, or may not be well suited for, any such new business model.
We have ongoing financial obligations to certain stockholders under the terms of our acquisition of certain patents from Rockstar. Our failure to comply with our obligations to these stockholders could have a material adverse effect on the value of our assets, our financial performance and our ability to sustain operations.
In connection with our agreement to acquire Rockstar patents entered on December 31, 2013, the Company and Rockstar entered into a series of agreements which require us to redeem $20.0 million of stated value of Series I Preferred Stock in $5 million increments on each of the 6, 12, 18 and 24 month anniversaries of the purchase. While as of August 14, 2015 we have redeemed $15.0 million of these shares, we presently have inadequate cash to fund the remaining payment. In the event that such payment is not timely made, the holders of our Series I Preferred Stock may employ certain remedies, including the imposition of interest at a rate of 15% per annum from the closing date on unpaid and unconverted amounts due, and to reduce the redemption obligations through sale or recovery of patents we purchased from Rockstar in that acquisition at a value equal to unconverted amounts due which have been pledged as collateral for such obligations in the case of certain defaults as set forth in our agreements with Rockstar. Rockstar has filed a UCC-1 covering our redemption obligations and has the right to foreclose on the collateral. The redemption obligation is also required to be satisfied in the event that we engage in certain capital raising transactions (among other instances, where such transactions result in net proceeds to us in excess of $7.5 million) and from recoveries on other assets. The obligation to utilize capital from financings and from other sources or the loss of patents to Rockstar upon a default could adversely impact our liquidity and financial position.
In January 2015, Rockstar transferred its remaining outstanding Series I Preferred Stock, as well as its other stock in Spherix (including our Series H Convertible Preferred Stock) to RPX Clearinghouse LLC (“RPX”), an affiliate of RPX Corporation. Since RPX’s business model is to lower the risk of patent litigation against entities such as Spherix, RPX may take stances that are adverse to Spherix and its other stockholders. In June 2015, the Company received a letter from RPX alleging that the Company’s disclosure relating to the substantial doubt regarding its ability to continue as a going concern in its previously filed Form 10-Ks and 10-Qs constitutes a default under the Intellectual Property Security Agreement surrounding the Series I Preferred Stock that was entered into with Rockstar in December 2013, which was transferred to RPX in January 2015 as part of the purchase of Rockstar by RPX. No communications or actions alleging any breach have followed since the date of such initial communication from RPX. We strongly believe that there is no merit in the allegation, and no legal basis for the claim.
In addition, RPX will be entitled to receive a contingent recovery percentage of future profits from licensing, settlements and judgments against defendants with respect to patents purchased by us from Rockstar. In particular, once we recover a certain amount of proceeds pertaining to the patents acquired from Rockstar in June 2013, which amount will not exceed $8.0 million, net of certain expenses, we will be required to make a payment of up to $13.0 million to Rockstar within six months of such recovery. Furthermore, once we recover a certain level of proceeds pertaining to each portfolio of patents we acquired from Rockstar, we will be required to make participation payments to RPX which, depending on how much we recover, could range from 30% of the amount we recover to 70% of the amount we recover in any given quarter, net of certain expenses. Our ability to fund these payments, as well as other payments that may become due in respect of our acquisition of patents from Rockstar in December 2013, 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 these payments could materially adversely impact our liquidity and financial position.
In certain acquisitions of patent assets, we may seek to defer payment or finance a portion of the acquisition price. This approach may put us at a competitive disadvantage and could result in harm to our businessbusiness..
We have limited capital and may seek to negotiate acquisitions of patent or other intellectual property assets where we can defer payments, or finance a portion of the acquisition price.price or have an obligation to make contingent payments upon recovery of value from those assets. These types of debt financing, or deferred payment or contingent arrangements may not be as attractive to sellers of patent assets as receiving the full purchase price for those assets in cash at the closing of the acquisition. Asacquisition, and, as a result, we might not compete effectively against other companies in the market for acquiring patent assets, many of whom have greater cash resources than we have. In addition, any failureWe may also finance our activities by issuance of debt which could require interest and amortization payments which we may not have the ability to satisfyrepay, in which case we could be in default under the terms of loan agreements. We may pledge our debt repayment obligations may resultassets as collateral and if we are in adverse consequences todefault under our operating results.
Any failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and harm our brand, our business and our operating resultsresults..
Our ability to operate our new line of business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our acquired patent assets and other intellectual property. To protect our proprietary rights, we will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. No assurances can be given that any of the measures we undertake to protect and maintain our assets will have any measure of success.
We will likely be required to spend significant time and resources to maintain the effectiveness of thoseour assets by paying maintenance fees and making filings with the United States Patent and Trademark Office.USPTO. We may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with the United States Patent and Trademark Office.USPTO prior to issuance of patents. Further, there is a material risk that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business. Regardless of whether any such claims are valid or can be successfully asserted, defending such claims could cause us to incur significant costs and could divert resources away from our other activities.
Despite our efforts to protect our intellectual property rights, any of the following or similar occurrences may reduce the value of our intellectual property:
Moreover, we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business or enforce our patents against infringers in the future or from which competitors may operate.foreign countries. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would be reduced or eliminated, and our business would be harmed.
Weak global economic conditions may cause infringing parties to delay entering into licensing agreements, which could prolong our litigation and adversely affect our financial condition and operating resultsresults..
Our business plan depends significantly on worldwide economic conditions, and the United States and world economies have recently experienced weak economic conditions. Uncertainty about global economic conditions poses a risk as businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values. This response could have a material negative effect on the willingness of parties infringing on our assets to enter into licensing or other revenue generating agreements voluntarily. Entering into such agreements is critical to our business plan, and our failure to do so could cause material harm to our business.
If we are unablenot able to adequately protect our intellectual property from unauthorized use, it could diminish the value of our products and services, weaken our competitive position and reduce our revenue.
Our success depends in large part on our intellectual property ownership. In addition, we believe that our trade secrets and non-patented technology may be key to identifying and differentiating our products and services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.
We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-parties could copy or otherwise obtain and use our property without authorization or develop similar information and property independently, which may infringe upon our proprietary rights. We may not be able to compete effectively.
If we resort to legal proceedings to enforce our intellectual property rights, the strengthproceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings, or that contingent fees could be a significant portion of our recovery. We will also rely on trade secrets and contract law to protect some of our proprietary rights that wetechnology. We will own as a result of acquisitions inenter into confidentiality and invention agreements with inventors, employees and consultants and common interest agreements with parties associated with our technologies, brands and content. We intend to rely on a combination of U.S. and foreign patents, copyrights, trademark, trade secret laws and licenselitigation efforts. Nevertheless, these agreements to establish and protect our intellectual property and proprietary rights. The efforts we take to protect our intellectual property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual propertyhonored and proprietary rights. In addition, effective trademark, patent, copyright and trade secret protectionthey may not be available or cost-effective in every country in which our services are made available. There may be instances where we are not able to fully protect or utilize our intellectual property in a manner that maximizes competitive advantage. If we are unable toeffectively protect our intellectual property and proprietary rights from unauthorized use, the value of our products may be reduced, which could negatively impact our new business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be adversely affected.
We have incurred losses from operations in prior years, including 2012. Our loss from continuing operations for the year ended December 31, 2012 was $2.9 million and out net loss was $3.9 million and for the year ended December 31, 2012. The Company’s accumulated deficit was $35.3 million at December 31, 2012. Our loss from continuing operations for the nine month period ended September 30, 2013 was $9.3 million and the Company’s accumulated deficit was $49.1 million at September 30, 2013. We may not return to profitable operations.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-OxleyDodd–Frank Wall Street Reform and Consumer Protection Act, of 2002, SECSecurities and Exchange Commission (“SEC”) regulations and NASDAQ Stock Market LLC rules are creating uncertainty for public companies. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of these costs. For example, compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act has to date required the commitment of significant resources to document and test the adequacy of our internal control over financial reporting. Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2012, our internal control over financial reporting was not effective, as a result of the reclassification from equity to liability of warrants issued between November 2009 and February 2012. Similarly, we concluded that our internal control over financial reporting was not effective as of September 30, 2013, due to the Company’s lack of segregation of duties, and difficulty in applying complex accounting principles, including fair value of derivatives, options and warrants as well as stock based compensation accounting. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest the resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.
Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of June 30, 2015, our internal control over financial reporting was not effective, due to the Company’s lack of segregation of duties, and difficulty in applying complex accounting principles, including fair value of derivatives, options and warrants as well as stock based compensation accounting. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.
With respect to the year ended December 31, 2014 and the quarter ended June 30, 2015, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2014 or June 30, 2015.
If we make acquisitions, it could divert management’s attention, cause ownership dilution to our shareholders and be difficult to integrate.
Following our acquisition of North South in September 2013, we have grown rapidly and we expect to continue to evaluate and consider future acquisitions. Acquisitions generally involve significant risks, including difficulties in the assimilation of the assets, services and technologies we acquire or industry overlay on which the patent assets read, diversion of management’s attention from other business concerns, overvaluation of the acquired assets, and the acceptance of the acquired assets and/or claims. Acquisitions may not be successful, which can have a number of adverse effects upon us including adverse financial effects and may seriously disrupt our management’s time. The integration of acquired assets may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the integration process could harm our business.
If we fail to manage our existing assets and patent inventory and third party relationships (such as attorneys and experts) effectively, our revenue and profits could decline and should we fail to acquire additional revenues from license fees, our growth could be impeded.
Our success depends in part on our ability to manage our existing portfolios of patent assets and manage our third party relationships necessary to monetize our assets effectively. Our attorneys and experts are not bound by long-term contracts that ensure us a consistent access to expertise necessary to enforce our patents, which is crucial to our ability to generate license revenues and prosecute infringers. In addition, attorneys and experts can change the cost of the services they provide, such as contingent fees that we are required to pay, and our arrangements often required an increasing percentage of recoveries to be devoted to attorney’s fees depending on the length of time or stage of the case prior to settlement or recovery, reducing the residual amount available to us following conclusion of a case. If an attorney, seller, inventor or expert decides not to provide needed assistance in connection with a case, or provides assistance to prospective licensees or defendants, we may not be able to timely replace this expertise with that from other sources or prevent such assistance to others from damaging our claims and prospects for recovery or licensing thus resulting in potentially lost cases, opportunities, or revenues and potentially diminishing the value of our patent assets. The ability to utilize attorneys, sellers’ personnel, inventors or experts will depend on various factors, some of which are beyond our control.
We may be unable to issue securities under our shelf registration statement, which may have an adverse effect on our liquidity.
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 as a result of our sale of common stock and warrants that closed on July 21, 2015, we are currently ineligible to sell 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 availability of our existing S-3 under the 1/3 limitation calculations set forth in Instruction I.B.6 of Form S-3, the market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital. Furthermore, Instruction I.B.6. of Form S-3 requires that the issuer have at least one class of common equity securities listed and registered on a national securities exchange. If we are forcednot able to resortmaintain compliance with applicable NASDAQ rules, we will no longer be able to legal proceedingsrely upon that Instruction. If we cannot sell securities under our shelf registration, we may be required to enforceutilize more costly and time-consuming means of accessing the capital markets, which could materially adversely affect our intellectual property rights, the proceedings could be burdensomeliquidity and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. We will also rely on trade secrets and contract law to protect some of our proprietary technology. We will enter into confidentiality and invention agreements with our employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect our right to our un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
Risks Related to Ownership of Our Common Stock.
Our common stock may be delisted from The NASDAQ Capital Market if we fail to complybecome compliant with continued listing standards.
Our common stock is currently traded on The NASDAQ Capital Market under the symbol “SPEX.” If we fail to meet any of the continued listing standards of The NASDAQ Capital Market, our common stock could be delisted from The NASDAQ Capital Market. These continued listing standards include specifically enumerated criteria, such as:
stockholders’ equity of $2.5 million;
Over the past several years, including at certain times prior to entering into our new line of business, we had several instances of NASDAQ deficiencies.
On April 20, 2012, wethe Company received a deficiency notice from NASDAQ regarding the bid price of our common stock. Following a 1 for 20 reverse stock split, on October 8, 2012, NASDAQ provided confirmation to us that we have regained compliance with Marketplace Rule 5550(a)(2) since the closing bid price of its common stock had traded at $1.00 per share or greater for at least ten (10) consecutive business days. This iswas the second time wethe Company employed a reversedreverse stock split to avoid NASDAQ delisting.
On September 25, 2012, wethe Company received written notification from NASDAQ advising us that the minimum number of publicly held shares of our common stock had fallen below the minimum 500,000 shares required for continued listing on the NASDAQ Capital Market pursuant to NASDAQ Rule 5550(a)(4). As a result of our November 2012 private placement transaction, we have beenthe Company was advised by NASDAQ that we haveit regained compliance with this requirement.
On December 31, 2012, our total stockholders’ equity was $854,000, and was below the $2.5 million listing standard required by NASDAQ. In March 2013, we exchanged with certain investors the warrants issued in November 2012 for Series C Preferred Stock, effectively increasing total stockholders’ equity to approximately $2.8 million.
On March 24, 2015, we received a deficiency notice from NASDAQ that the bid price of our common stock no longer met NASDAQ’s continued listing requirements. According to the notice, in order to regain compliance with the NASDAQ listing rules, our common stock would need to have a closing bid price of at least $1.00 per share for at least 10 consecutive trading days no later than September 21, 2015. On September 22, 2015, we received a letter from NASDAQ granting us an additional 180 days, or until March 19, 2016, to regain compliance. It is unknown at this time if we will be able to regain compliance with the minimum bid price requirement within the additional time allowed in order to continue our common stock listing on the Nasdaq Capital Market. Continued listing during this period is also contingent on our continued compliance with all listing requirements other than for the minimum bid price. While we hope to regain compliance in the aggregate by approximately $2.7 million.
If we arefail to comply with NASDAQ’s continued listing standards, we may be delisted thenand our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securitiesor OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
Finally, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Securities Exchange Act. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the shares but must trade it on an unsolicited basis. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares that become subject to those penny stock rules.
Our share price may be volatile and there may not be an active trading market for our common stock.
There can be no assurance that the market price of our common stock will not decline below its present market price or that there will be an active trading market for our common stock. The market prices of technology or technology related companies have been and are likely to continue to be highly volatile. Fluctuations in our operating results and general market conditions for technology or technology related stocks could have a significant impact on the volatility of our common stock price. We have experienced significant volatility in the price of our common stock. From January 1, 2013 through September 17, 2015, the share price of our common stock (on a split-adjusted basis) has ranged from a high of $19.40 to a low of $0.20. The reason for the volatility in our stock is not well understood and may continue. Factors that may have contributed to such volatility include, but are not limited to:
| • | developments regarding regulatory filings; |
| • | our funding requirements and the terms of our financing arrangements; |
| • | technological innovations; |
| • | introduction of new technologies by us or our competitors; |
| • | material changes in existing litigation; |
| • | changes in the enforceability or other matters surrounding our patent portfolios; |
| • | government regulations and laws; |
| • | public sentiment relating to our industry; |
| • | developments in patent or other proprietary rights; |
| • | the number of shares issued and outstanding; |
| • | the number of shares trading on an average trading day; |
| • | performance of companies in the non-performing entity space generally; |
| • | announcements regarding other participants in the technology and technology related industries, including our competitors; |
| • | block sales of our shares by stockholders to whom we have sold stock in private placements, or the cessation of transfer restrictions with respect to those shares; and |
| • | market speculation regarding any of the foregoing. |
We could fail in future financing efforts or be delisted from The NASDAQ Capital Market if we fail to receive stockholder approval when needed.
We are required under the NASDAQ rules to obtain stockholder approval for any issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by NASDAQ. Funding of our operations in the futureand acquisitions of assets may require issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding, but we might not be successful in obtaining the required stockholder approval for such an issuance. If we are unable to obtain financing due to stockholder approval difficulties, such failure may have a material adverse effect on our ability to continue operations.
Our shares of common stock are thinly traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise money or otherwise desire to liquidate their shares.
Our common stock has been “thinly-traded” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence,In addition, we believe that due to the limited number of shares of our common stock outstanding, an options market has not been established for our common stock, limiting the ability of market participants to hedge or otherwise undertake trading strategies available for larger companies with broader shareholder bases which prevents institutions and others from acquiring or trading in our securities. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
Because of the Rights Agreement and “Anti-Takeover” provisions in our Certificate of Incorporation and Bylaws, a third party may be discouraged from making a takeover offer that could be beneficial to our stockholders.
Effective as of January 24, 2013, we adopted a new shareholder rights plan. The effect of this rights plan and of certain provisions of our Certificate of Incorporation, By-Laws, and the anti-takeover provisions of the Delaware General Corporation Law, could delay or prevent a third party from acquiring us or replacing members of our Board of Directors, or make more costly any attempt to acquire control of the Company, even if the acquisition or the replacementsBoard designees would be beneficial to our stockholders. These factors could also reduce the price that certain investors might be willing to pay for shares of the common stock and result in the market price being lower than it would be without these provisions.
In addition, defendants in actions seeking to enforce our patents may seek to influence our Board of Directors and stockholders by acquiring positions in the Company to force consideration of settlement or licensing proposals that may be less desirable than other outcomes such as litigation with respect to our monetization or patent enforcement activities. The effect of such influences on our Company or our corporate governance could reduce the value of our monetization activities and have an adverse effect on the value of our assets. The effect of Anti-Takeover provisions could impact the ability of prospective defendants to obtain influence in the Company or representation on the Board of Directors or acquire a significant ownership position and such result may have an adverse effect on the Company and the value of its securities.
If we cannot manage our growth effectively, we may not establish or maintain profitability.
Businesses which grow rapidly often have difficulty managing their growth. If our business continues to grow as rapidly as it has since September 2013 and as we anticipate, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support.
We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to continue to lose money, which will reduce our stock price.
It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.
Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and our own forecasts. If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include the following:
| • | the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and | |
| • | costs related to acquisitions of technologies or businesses. |
If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. In particular, Anthony Hayes, our Chief Executive Officer, is important to the management of our business and operations and the development of our strategic direction. The loss of the services of any such individual and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
Our largest shareholders can exert significant control over our business and affairs and may have actual or potential interests that may depart from those of our other shareholders.
Our largest outside stockholders own a substantial percentage of our outstanding voting capital. The interests of such persons may differ from the interests of other stockholders. There can be no assurance that our significant stockholders will, in future matters submitted for stockholder approval, vote in favor of such matter, even if such matters are recommended for approval by management or are in the best interest of stockholders, generally. As a result, in addition to their positions with us, such persons will have the ability to vote their significant holdings in favor of proposals presented to our stockholders for approval, including proposals to:
In addition, such holder’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price. Our significant stockholders could also utilize their significant ownership interest to seek to influence management and decisions of the Company.
Because an increasing amount of our outstanding shares may become freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
As of September 17, 2015, we had outstanding 34,402,763 shares of common stock, of which our directors and executive officers own 34,081 shares which are subject to the limitations of Rule 144 under the Securities Act.
In general, Rule 144 provides that any non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that we are then current in our filings with the SEC.
An affiliate of the Company may sell after six months with the following restrictions:
Because almost all of our outstanding shares are freely tradable (subject to certain restrictions imposed by lockup agreements executed by the holders thereof) and the shares held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
Risks Related to the Offering
Our stock price is volatile and subject to numerous factors.
The market price of our common stock has been, and we expect will continue to be, subject to significant volatility. The value of our common stock may decline regardless of our operating performance or prospects. Factors affecting our market price include:
Recent events have caused stock prices for many companies, including ours, to fluctuate in ways unrelated or disproportionate to their operating performance. The general economic, political and stock market conditions that may affect the market price of our common stock are beyond our control. The market price of our common stock at any particular time may not remain the market price in the future.
We have a significant number of outstanding warrants and options, and future sales of the shares obtained upon exercise of these options or warrants could adversely affect the market price of our common stock.
As of September 17, 2015, we had outstanding options exercisable for an aggregate of 5,498,576 shares of common stock at a weighted average exercise price of $4.69 per share and warrants to purchase up to 7,804,828 shares of our common stock at a weighted average exercise price of $1.74 per share. We have registered the issuance of all the shares issuable upon exercise of the options and warrants, and they will be freely tradable by the exercising party upon issuance. The holders may sell these shares in the public markets from time to time, without limitations on the timing, amount or method of sale. As our stock price rises, the holders may exercise their warrants and options and sell a large number of shares. This could cause the market price of our common stock to decline.
Our corporate governance structure may prevent our acquisition by another company at a premium over the public trading price of our shares.
It is possible that the acquisition of a majority of our outstanding voting stock by another company could result in our stockholders receiving a premium over the public trading price for our shares. Provisions of our restated certificate of incorporation and bylaws and of Delaware corporate law could delay or make more difficult an acquisition of our company by merger, tender offer or proxy contest, even if it would create an immediate benefit to our stockholders. For example, our restated certificate of incorporation does not permit stockholders to act by written consent, and our bylaws generally require ninety days advance notice of any matters to be brought before the stockholders at an annual or special meeting.
In addition, our board of directors has the authority to issue up to 50,000,000 shares of preferred stock and to determine the terms, rights and preferences of this preferred stock, including voting rights of those shares, without any further vote or action by the stockholders. At September 17, 2015, 49,525,457 shares of preferred stock remained unissued. The rights of the holders of common stock may be subordinate to, and adversely affected by, the rights of holders of preferred stock that may be issued in the future. The issuance of preferred stock could also make it more difficult for a third party to acquire a majority of our outstanding voting stock, even at a premium over our public trading price.
Further, our certificate of incorporation also provides for a classified board of directors with directors divided into three classes serving staggered terms. These provisions may have the effect of delaying or preventing a change in control of us without action by our stockholders and, therefore, could adversely affect the price of our stock or the possibility of sale of shares to an acquiring person.
We do not anticipate declaring any cash dividends on our common stock.
We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and earnings for use in the operation and expansion of our business. Absent a material transaction or change in this policy, investors must look solely to the potential for appreciation in the market price of the shares of our common stock to obtain a return on their investment.
There is no public market for the warrants to purchase shares of our common stock being offered by us in this offering.
There is no established public trading market for the warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants on any national securities exchange or other nationally recognized trading system, including the NASDAQ Capital Market. Without an active market, the liquidity of the warrants will be limited.
You will experience immediate dilution in the book value per share of common stock as a result of this offering.
Investors in this offering will experience immediate dilution in their net tangible book value per share to the extent of the difference between the public offering price per share of common stock and the “adjusted” net tangible book value per share after giving effect to the offering. Our net tangible book value as of June 30, 2015 was approximately negative $0.33 million, or $0.01 per share of our common stock based on 34,402,763 shares outstanding. Assuming that we issue $ of shares of common stock in this offering at an assumed offering price of $ per share, the closing price of our common stock on the NASDAQ Capital Market on September 17, 2015, and after deducting placement agent’s fees and estimated offering expenses payable by us, our net tangible book value as of September 17, 2015, would have been approximately $ million, or $ per share of our common stock. This calculation excludes the proceeds, if any, from the exercise of the warrants issued in this offering. This amount represents an increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution in net tangible book value of $ per share to investors in this offering. These amounts do not take into account the potential material decrease in our net book value related to any warrant derivative liability we record related to the warrants issued in this offering. See “— We may record a material warrant derivative liability, which could impact our ability to remain listed on The NASDAQ Capital Market.” See the section titled “Dilution” below.
This prospectus contains, and may incorporate by reference, forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements regardingof historical fact. These forward-looking statements are based on our current expectations hopes, beliefs or intentions regarding theand projections about future including but not limitedevents and they are subject to statements regarding our market, strategy, competition, development plans (including acquisitions and expansion), financing, revenues, operations, and compliance with applicable laws. Forward-looking statements involve certain risks and uncertainties known and unknown that could cause actual results mayand developments to differ materially from those discussedexpressed or implied in any such statement. Factorsstatements.
In some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should”, “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from suchthose expressed in them. Any forward-looking statements includeare qualified in their entirety by reference to the risks described in greater detail infactors discussed throughout this prospectus.
You should read this prospectus and any accompanying prospectus supplement and the following paragraphs. All forward-looking statementsdocuments that we reference herein and therein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this document are madeprospectus and any accompanying prospectus supplement is accurate as of the date hereof,on the front cover of this prospectus or such prospectus supplement only. Because the risk factors referred to above, as well as those described in the section entitled Risk Factors beginning on page 10 of this prospectus and incorporated herein by reference, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus and any accompanying prospectus supplement, and particularly our forward-looking statements, by these cautionary statements.
We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this prospectus or the documents incorporated by reference herein or therein, or those that we may make orally or in writing from time to time, are based upon management’s beliefs and assumptions and are made based on information available to us as of the date hereof,time made and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we assume no obligationbelieve that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to update anybe incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on past forward-looking statement. Market data used throughoutstatements, which are based on known results and trends at the time they are made, to anticipate future results or trends.
Except as otherwise provided in this prospectus, is based on published third party reports orwe currently intend to use the good faith estimatesnet proceeds from the sale of management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information.
We will have significant discretion in the use of any net proceeds. Investors will be relying on the judgment of our management regarding the application of the proceeds of any sale of our securities.
We have never declared or paid any dividends on our common stock and do not anticipate paying any in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the operation and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants and other risksfactors that relateour board of directors may deem relevant.
If you invest in our common stock or warrants to our business and investingpurchase common stock in sharesthis offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share of our common stock.
Net tangible book value per share is determined by this prospectus.
Dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares are held in street or nominee names. The Company’sof common stock is traded onand warrants in this offering and the NASDAQ Capital Market under the symbol SPEX. No dividends were paid in 2012 or 2011.
| Period | High | Low | ||||||
| 2013 | ||||||||
| First Quarter | $ | 14.99 | $ | 5.51 | ||||
| Second Quarter | $ | 11.05 | $ | 4.07 | ||||
| Third Quarter | $ | 27.86 | $ | 4.54 | ||||
| 2012 | ||||||||
| First Quarter | $ | 35.40 | $ | 15.60 | ||||
| Second Quarter | $ | 22.40 | $ | 10.00 | ||||
| Third Quarter | $ | 11.98 | $ | 7.22 | ||||
| Fourth Quarter | $ | 11.76 | $ | 5.85 | ||||
| 2011 | ||||||||
| First Quarter | $ | 218.00 | $ | 70.00 | ||||
| Second Quarter | $ | 117.20 | $ | 45.60 | ||||
| Third Quarter | $ | 69.60 | $ | 24.60 | ||||
| Fourth Quarter | $ | 68.40 | $ | 22.60 | ||||
| Assumed public offering price per share | $ | |||||||
| Historical net tangible book value per share as of June 30, 2015 | $ | 0.01 | ||||||
| Increase in as-adjusted net tangible book value per share attributable to new investors | ||||||||
| As-adjusted net tangible book value per share after this offering | ||||||||
| Dilution per share to investors participating in this offering | $ | |||||||
Each $ increase (decrease) in the assumed public offering price of $ per share, which is the last reported sale price of our common stock excluding stockholders whose shares are held in streeton The NASDAQ Capital Market on , 2015, would increase (decrease) the as adjusted net tangible book value by approximately $ million, or nominee names. We believeapproximately $ per share, and increase (decrease) the dilution per share to new investors by approximately $ per share, assuming that the number of beneficial owners is substantially greater thanshares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated placement agent fees and expenses and estimated offering expenses payable by us. An increase of 100,000 shares in the number of record holders becauseshares offered by us would increase the as adjusted net tangible book value by approximately $ million, or $ per share, and the dilution per share to new investors would be approximately $ per share, assuming that the assumed public offering price remains the same and after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us. Similarly, a large portiondecrease of our common stock100,000 shares in the number of shares offered by us would decrease the as adjusted net tangible book value by approximately $ million, or approximately $ per share, and the dilution per share to new investors would be approximately $ per share, assuming that the assumed public offering price remains the same and after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us. The as adjusted information discussed above is held of record through brokerage firms in “street name.”
The Company implementedforegoing calculations excludes the reverse stock split under the authority granted to the Board of Directors by the Company’s stockholders at the annual meeting of stockholders held on November 17, 2009. The reverse stock split reduced the number of outstanding shares of common stock from 25,624,872 shares to 2,562,488 shares.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | 7,163 | 1 | $ | 22.34 | 2,750 | |||||||
| Equity compensation plans not approved by securities holders | 1,399 | 2 | $ | 97.27 | N/A | |||||||
| Total | 8,562 | 2,750 | ||||||||||
5,044,821 shares of common stock reserved for issuance upon conversion of our outstanding convertible preferred stock without regard to the beneficial ownership conversion limits applicable to such securities; and an aggregate of 1,473,104 shares of common stock reserved for future issuance under our equity plans. Unless otherwise indicated, all information in this prospectus reflects or assumes the following: no exercise of outstanding options to purchase |
Furthermore, we may choose to the other instruments. The increase between years is directly related to the change in the Company’s stock price between years.
| 2012 | 2011 | |||||||
| Revenue | $ | 728,312 | $ | 820,925 | ||||
| Direct cost and operating expense | (417,428 | ) | (388,065 | ) | ||||
| Selling, general and administrative expense | (1,279,875 | ) | (816,389 | ) | ||||
| Loss from discontinued operations before taxes | $ | (968,991 | ) | $ | (383,529 | ) | ||
Directors and damages for patent infringement or case the Company to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the valueExecutive Officers of the patentsSpherix Incorporated
Our current Board of Directors and preclude the Company from deriving revenue from the patents, the patents could be declared invalid by a court or the US Patenttheir respective ages and Trademark Office, in whole or in part, or the costs of the Company can increase.
| Director | ||||||||
| Name | Age | Position | Since | |||||
| Robert J. Vander Zanden | 67 | Chairman of the Board | 2004 | |||||
| Anthony Hayes | 45 | Chief Executive Officer and Director | 2013 | |||||
| Michael Pollack | 47 | Interim Chief Financial Officer | 2013 | |||||
| Douglas T. Brown | 59 | Director | 2004 | |||||
| Edward M. Karr | 43 | Director | 2012 | |||||
| Harvey J. Kesner | 56 | Director | 2012 | |||||
| Alexander Poltorak | 56 | Director | 2013 | |||||
| Name | Age | Director Since | ||||
| Robert J. Vander Zanden, Director and Chairman of the Board | 70 | 2004 | ||||
| Anthony Hayes, Chief Executive Officer and Director | 47 | 2013 | ||||
| Douglas T. Brown, Director | 62 | 2004 | ||||
| Jeffrey Ballabon, Director | 53 | 2014 | ||||
| Tim S. Ledwick, Director | 58 | 2015 | ||||
| Howard E. Goldberg, Director | 69 | 2015 | ||||
Dr. Robert J. Vander Zanden
Dr. Robert J. Vander Zanden, a Board member since 2004, having served as a Vice President of R&D with Kraft Foods International, brings a long and distinguished career in applied technology, product commercialization, and business knowledge of the food science industry to us. Additionally, Mr. Vander Zanden has specific experience in developing organizations designed to deliver against corporate objectives. Dr. Vander Zanden holds a Ph.D. in Food Science and an M.S. in Inorganic Chemistry from Kansas State University, and a B.S. in Chemistry from the University of Wisconsin – Platteville, where he was named a Distinguished Alumnus in 2002. In his 30-year career, he has been with ITT Continental Baking Company as a Product Development Scientist; with Ralston Purina’s Protein Technology Division as Manager Dietary Foods R&D; with Keebler as Group Director, Product and Process Development (with responsibility for all corporate R&D and quality); with Group Gamesa, a Frito-Lay Company, as Vice President, Technology; and with Nabisco as Vice President of R&D for their International Division. With the acquisition of Nabisco by Kraft Foods, he became the Vice President of R&D for Kraft’s Latin American Division. Dr. Vander Zanden retired from Kraft Foods in 2004. He currently holds the title of Adjunct Professor and Lecturer in the Department of Food, Nutrition and Packaging Sciences at Clemson University, where he also is a member of their Industry Advisory Board. His focus on achieving product and process innovation through training, team building and creating positive working environments has resulted in his being recognized with many awards for product and packaging innovation. Dr. Vander Zanden is not now, nor has he been for the past five years, a director of a public, for-profit company other than us. Mr. Vander Zanden executive experience provides him with valuable business expertise which the Board believes qualifies him to serve as a director of the Company.
Anthony Hayes
Mr. Anthony Hayes, a director and Chief Executive Officer since 2013, has served as the Chief Executive Officer of North South since March 2013 and, since June 2013, has served as a consultant to theour Company. Mr. Hayes was the fund manager of JaNSOME IP Management LLC and JaNSOME Patent Fund LP from August 2012 to August 2013, both of which he co-founded. Mr. Hayes was the founder and Managing Member of Atwater Partners of Texas LLC from March 2010 to August 2012 and a partner at Nelson Mullins Riley & Scarborough LLP from May 1999 to March 2010. Mr. Hayes received his Juris Doctorate from Tulane University School of Law and his B.A. in Economics from Mary Washington College. The Board believes Mr. Hayes was chosenis qualified to beserve as a director of the Company based on his expansive knowledge of, and experience in, the patent monetization sector.
Douglas T. Brown
Mr. Douglas T. Brown, a Board Member since 2004, brings to the Board a broad understanding of financial statements, financial markets, and other business aspects. He is currently Senior Vice President and Manager of the Corporate Banking Government Contracting Group for PNC Bank N.A., Washington, DC. Mr. Brown has been with PNC and its predecessor bank, Riggs Bank, since 2001 and previously worked for Bank of America, N.A. and its predecessor banks for 16 years as a Loan Officer, as well as a manager of Loan Officers in the Mid-Atlantic region. Subsequent to 1990, the majority of Mr. Brown’s customers are companies that provided services to the Federal Government and State governments. Mr. Brown holds a B.A. degree in Political Science from American University and a graduate degree from The Stonier Graduate School of Banking at the University of Delaware. He is not now, nor has he been for the past five years, a director of a public, for-profit company other than us. Mr. Brown’s executive corporate finance experience provides him with valuable expertise which the Board believes qualifies him to serve as a director of our Company.
Jeffrey Ballabon
Mr. Jeffrey Ballabon, Spherix Board Member since 2014, is a founding partner of B2 Strategic, an international consulting firm. Prior to his work at B2, Mr. Ballabon was CEO of Innovative Communications Technologies, Inc. where he managed litigation and licensing efforts that ultimately led to the Company
Tim S. Ledwick
Mr. Time S. Ledwick is currently the Chief Financial Officer of Management Health Solutions, a private equity-backed company that provides software solutions and services to hospitals focused on reducing costs through superior inventory management practices. In addition, since 2012 he has served on the board and Chair of the subcommitteeAudit Committee of Telkonet, Inc. (TKOI) a smart energy management technology company. From 2007 to 2011, Mr. Ledwick provided CFO consulting services to a $150 million services firm and, in addition, from 2007-2008 also acted as special advisor to The Dellacorte Group, a middle market financial advisory firm focused on Information Exchangetransactions between $100 million and $1 billion. From 2002 through 2006, Tim was a member of the US-USSR TradeBoard of Directors and Economic Counsel. Mr. Poltorak was chosen to beExecutive Vice President-CFO of Dictaphone Corporation playing a directorlead role in developing a business plan which revitalized the company, resulting in the successful sale of the Company basedfirm and delivering a seven times return to shareholders. From 2001-2002, Ledwick was brought on his expansive knowledgeas CFO to lead the restructuring efforts of and experienceLernout & Hauspie Speech Products, a Belgium-based NASDAQ listed speech technology company, whose market cap had at one point reached a high of $9 billion. From 1999 through 2001, he was CFO of Cross Media Marketing Corp, an $80 million public company headquartered in New York City, playing a lead role in the management of intellectual property, particularly patents.
Howard E. Goldberg
Mr. Howard E. Goldberg has vast operational experience spanning a party adverse toprofessional services and management career of forty-eight years. During the Company ormost recent twenty-three years of that career Mr. Goldberg has a material interest adverse to the Company.
Non-Director Executive Officers
The following table identifies the independent and non-independent current Board and Committee members:
Name | Age | |||||||||||||||
| Frank Reiner | 52 | Interim Chief Financial Officer | ||||||||||||||
Frank Reiner
Mr. Frank Reiner is a seasoned and experienced patent licensing and monetization professional. Prior to joining Spherix in 2014 Frank was located in Silicon Valley and employed as the Vice President of Global Licensing for the Kudelski Group where his primary role was licensing a digital video patent portfolio. Prior to thatMr. Reiner was the Vice President of Patent Licensing and Acquisition for Flextronics International Ltd. where he managed patent assertions made against Flextronics designed products and was responsible for building a defensive patent portfolio via internal innovation, invention and through patent acquisitions. Previously, Mr. Reiner was a Partner at Intellectual Value Creation Services, LLC whose charter was to work as a patent monetization team for the IP Investment Group at Coller Capital supporting patent acquisitions, sales and licensing both from a technical and business perspective. Mr. Reiner started his patent and licensing career at InterDigital Communications, LLC as the Senior Director of Licensing where he was responsible for InterDigital’s patent licensing program in the cellular and wireless space. He participated in numerous patent license negotiations and patent infringement litigations, and he supported, patent prosecution and the management of existing patent license agreements. Mr. Reiner started his career as a software engineer in the defense industry where he developed high-end aircraft and tank simulators for the U.S. military. He achieved multiple positions of higher responsibility at General Electric, Martin Marietta and Lockheed Martin. He received a BS in Computer Science from Embry-Riddle Aeronautical University and an MBA from Villanova University.
The following describes the compensation earned in fiscal 2014 and 2013 by each of the executive officers identified below in the Summary Compensation Table, who are referred to collectively as our “named executive officers.” Our named executive officers with respect to the fiscal year that ended on December 31, 2014 are Anthony Hayes, Chief Executive Officer, and Frank Reiner, Interim Chief Financial Officer. The principal terms of our employment agreements with Mr. Hayes and Mr. Reiner are described below in the “Executive Compensation — Employment Agreements” section of this prospectus.
Our revised Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014, which includes the Part III information of Form 10-K, is incorporated herein by reference. The data therein is supplemented, in relevant part, by the tables set forth below.
Summary Compensation Table **
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Award ($) | Non-Equity Incentive Plan Compensation ($)(1) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Anthony Hayes, Chief Executive Officer (2) | 2014 | 350,000 | 250,000 | — | 805,651 | — | — | 6,400 | 1,412,051 | |||||||||||||||||||||||||||
| 2013 | 92,885 | 200,000 | — | 4,885,558 | — | — | — | 5,178,443 | ||||||||||||||||||||||||||||
| Frank Reiner, Interim Chief Financial Officer (3) | 2014 | 182,917 | — | 46,700 | 384,838 | — | — | — | 614,454 | |||||||||||||||||||||||||||
| 2013 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Harvey Kesner, Interim CEO and Director (4) | 2014 | 14,250 | — | — | 2,244,944 | — | — | 14,250 | 2,273,444 | |||||||||||||||||||||||||||
| 2013 | — | — | — | 8,531,674 | — | — | 423,300 | 8,954,974 | ||||||||||||||||||||||||||||
| Robert Lodder, Former President (5) | 2014 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 2013 | 126,424 | — | — | — | — | — | 233,398 | 359,822 | ||||||||||||||||||||||||||||
| Richard Cohen, Chief Financial Officer (6) | 2014 | 240,000 | — | — | — | — | — | — | 240,000 | |||||||||||||||||||||||||||
| 2013 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Robert Clayton CFO, Treasurer and Corporate Secretary (7) | 2014 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 2013 | 135,255 | — | — | — | — | — | 212,180 | 347,435 |
| (2) | In 2013, Mr. Hayes received a $100,000 signing bonus, a $100,000 annual bonus and 750,000 stock options valued on the date of grant in accordance with ASC Topic 718. On January 28, 2014, the Compensation Committee adopted a resolution intended to grant Mr. Hayes 300,000 stock options with a term of five years and an exercise price of $5.83 that would be subject to certain vesting conditions upon agreement of the Compensation Committee and Mr. Hayes. The parties failed to reach agreement prior to the date of this Annual Report on From 10-K and accordingly the stock options subject to specific performance targets were determined not to be issued, but may be issued at a future date at the discretion of the Compensation Committee. In accordance with the ASC Topic 718 the failure to finalize performance targets result in the stock options not being considered to have been granted and therefore not outstanding. On April 3, 2014, Mr. Hayes received 500,000 stock options with a term of five years and valued on the date of grant, with 50% vesting immediately and the remaining 50% vesting upon our Company’s receipt of gross proceeds of at least $30 million by April 3, 2015 from an offering of its securities. On June 30, 2014, Mr. Hayes received a bonus in the aggregate amount of $250,000. On July 3, 2014, Mr. Hayes received 100,000 stock options with a term of five years and an exercise price of $1.79, vesting immediately. Mr. Hayes also received $6,400 in cash for his service as a director of our Company during 2014. All stock options to Mr. Hayes were granted in accordance with ASC Topic 718. |
| (3) | Includes 150,000 stock options valued on the date of grant in accordance with ASC Topic 718. |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Award ($) (1) | Non-Equity Incentive Plan Compensation ($) (2) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compen- sation ($) (3) | Total ($) | ||||||||||||||||||||||||
C. Kruger (3) Former CEO and COO | 2012 | 262,573 | - | - | 3,919 | 143,222 | - | 286,443 | 696,157 | ||||||||||||||||||||||||
| 2011 | 278,100 | - | - | 531 | 139,050 | - | - | 417,681 | |||||||||||||||||||||||||
R. Lodder Principal Executive Officer and President (4) | 2012 | 233,398 | - | - | 2,138 | 93,359 | - | - | 328,895 | ||||||||||||||||||||||||
| 2011 | 226,600 | - | - | 273 | 90,640 | - | - | 317,513 | |||||||||||||||||||||||||
R. Clayton CFO, Treasurer and Corporate Secretary (5) | 2012 | 212,180 | - | - | 2,138 | 74,263 | - | - | 288,581 | ||||||||||||||||||||||||
| 2011 | 206,000 | - | - | 273 | 72,100 | - | - | 278,373 | |||||||||||||||||||||||||
| Mr. Kesner served as our interim Chief Executive Officer from February 27, 2013 to September 10, 2013. Mr. Kesner was paid $14,250 as compensation for his Board of Director duties during 2014. During 2013, Mr. Kesner was paid $150,000 as compensation for his CEO duties and $23,300 as compensation for his Board of Director duties. Other Compensation includes $250,000 consulting fee paid to Paradox Capital Partners in 2013, a firm of which Mr. Kesner is manager and member, for services rendered in the merger of North South. Mr. Kesner’s compensation does not include legal fees paid to a law firm with which Mr. Kesner is associated, in the amount of $557,483 and $815,981 as of December 31, 2014 and 2013, respectively. On | |
Mr. Lodder resigned as our President We paid Mr. Lodder severance of $233,398 as required by the terms of his prior employment agreement. | |
| (6) | Mr. Cohen was appointed our Chief Financial Officer on January 6, 2014. In consideration for Mr. Cohen’s services, we agreed to pay Chord Advisors LLC (“Chord”), of which Mr. Cohen is chairman, a monthly fee of $20,000 ($5,000 of which was payable in shares of our Common Stock). In April 2014, we modified this agreement to pay Chord a monthly fee of $20,000 in cash, and no fees were paid to Chord in the form of our Common Stock. |
| (7) | Mr. Clayton resigned as Chief Financial Officer, Treasurer and Corporate Secretary in March |
Outstanding Equity Awards at December 31, 2012
| Option Awards | Stock Awards | ||||||||||||||||||||
| Number | Market | ||||||||||||||||||||
| Number of | Number of | of Shares | Value of | ||||||||||||||||||
| Securities | Securities | or Units | Shares or | ||||||||||||||||||
| Underlying | Underlying | of Stock | Units of | ||||||||||||||||||
| Unexercised | Unexercised | Option | Option | that have | Stock that | ||||||||||||||||
| Options (#) | Options (#) | Exercise | Expiration | not Vested | have not | ||||||||||||||||
| Name | Exercisable | Unexercisable | Price ($) | Date | (#) | Vested ($) | |||||||||||||||
| R. Lodder | 63 | 187 | $ | 40.00 | 11/14/2016 | 1,000 | 6,830 | ||||||||||||||
| R. Clayton | 63 | 187 | $ | 40.00 | 11/14/2016 | 1,000 | 6,830 | ||||||||||||||
The following table summarizes the compensation paid to non-employee directors during the year endedshows information regarding outstanding equity awards at December 31, 2012.
| Name | Fees Earned Paid in Cash ($) | Options ($) | All Other Compensation ($) | Total ($) | ||||||||||||
| Douglas T. Brown | $ | 22,000 | $ | 8,084 | $ | - | $ | 30,084 | ||||||||
| Edward M. Karr | 3,600 | 6,980 | - | 10,580 | ||||||||||||
Harvey J. Kesner (2) | 3,600 | 6,980 | - | 10,580 | ||||||||||||
Aris Melissaratos (1) | 22,000 | 8,084 | 10,500 | 40,584 | ||||||||||||
Thomas B. Peter (1) | 17,300 | 8,084 | 3,500 | 28,884 | ||||||||||||
| Robert J. Vander Zanden | 32,900 | 8,084 | - | 40,984 | ||||||||||||
| Option Awards | ||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options | Number of Shares or Units of Stock that Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested ($) | ||||||||||||||||||||||
Name | Exercisable | Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||||||||||||
| Anthony Hayes | 687,500 | 62,500 | 7.08 | 4/1/2023 | — | — | ||||||||||||||||||
| 250,000 | 250,000 | 2.86 | 4/3/2019 | — | — | |||||||||||||||||||
| 100,000 | — | 1.79 | 7/15/2019 | — | — | |||||||||||||||||||
| Frank Reiner | 50,000 | 50,000 | 4.67 | 3/15/2024 | ||||||||||||||||||||
| 50,000 | — | 1.94 | 6/19/2024 | |||||||||||||||||||||
| 2,500 | 4.67 | |||||||||||||||||||||||
Employment and Insider Participation
Anthony Hayes
Pursuant to Mr. Karr, Chair; Mr. Brown, and Dr. Vander Zanden. None of our members of the Compensation Committee during the fiscal year ended December 31, 2012 served as an officer or employee ofHayes’ Employment Agreement with the Company, was formerly an officerdated as of the Company, or had any relationship requiring disclosure required by Item 404 of Regulation S-K.
Frank Reiner
Pursuant to Mr. Reiner’s Employment Agreement with the Company, dated as of March 14, 2014 (the “Agreement”), the term of Mr. Reiner’s employment is one year and automatically extends for additional one-year terms unless no less than 60 days’ prior written notice of non-renewal is given by Mr. Reiner or the Company. Mr. Reiner’s base salary under the Agreement was $235,000 per year, but in connection with being named Interim Chief Financial Officer, the Board authorized an amendment to the Agreement to increase Mr. Reiner’s base salary to $271,000. Mr. Reiner is also entitled to receive an annual bonus if the Compensation Committee of the Board determines that performance targets have been met. The amount of the annual bonus is determined based on the Company’s gross proceeds from certain monetizations of the Company’s intellectual property. Mr. Reiner is also eligible to participate in all employee benefits plans from time to time in effect for the Company’s other senior executive officers.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Since January 1, 2014, there has not been, nor is there currently proposed, any transaction or series of related transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which the other parties included or will include any of our directors, executive officers, holders of 5% or more of our voting securities, or any member of the immediate family of any of the foregoing persons, other than compensation arrangements with directors and executive officers, which are described in the “Management,” and “Executive Compensation” sections of our Form 10-K/A and the transactions described below.
On September 10, 2013, the Company entered into an employment agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes serves as the Chief Executive Officer of the Company for a period of two years, subject to renewal. In consideration for his employment, the Company agreed to pay Mr. Hayes a signing bonus of $100,000 and a base salary of $350,000 per annum. Mr. Hayes will be entitled to receive an annual bonus in an amount equal to up to 100% of his base salary if the Company meets or exceeds certain criteria adopted by the Company’s compensation committee. In the event Mr. Hayes’ employment is terminated, other than for “Cause,” as defined in Mr. Hayes’ employment agreement or by Mr. Hayes without “Good Reason,” as both terms are defined in Mr. Hayes’ employment agreement, Mr. Hayes will be entitled to receive severance benefits equal to twelve months of his base salary, continued coverage under the Company’s benefit plans for a period of twelve months and payment of his pro-rated earned annual bonus.
As it relates to Mr. Hayes 2013 we closedannual bonus, the transactions contemplatedCompany paid Mr. Hayes $100,000 during the year ended December 31, 2013. In April of 2014, compensation Committee of the Board of Directors approved to pay Mr. Hayes the remaining amount of his 2013 bonus due of $250,000. The bonus was paid as of June 30, 2014.
As it relates to Mr. Hayes 2014 annual bonus, during the year ended December 31, 2014, the Compensation Committee of the Board of Directors approved a bonus payout of $175,000 for services provided in 2014. The Company has included such bonus in accrued expenses on the consolidated balance sheet as of December 31, 2014.
In February 2015, the members of the Compensation Committee revised the annual bonus structure to be paid to Mr. Hayes and established an incentive target bonus per the Employment Agreement. The amount of such target bonus shall be (i) $350,000 in cash, which shall be payable in a single lump-sum payment promptly following the consummation of a qualifying strategic transaction, and (ii) a discretionary bonus to be determined by the Merger Agreement dated April 2, 2013, byCompensation Committee, in its sole discretion, prior to the earlier of a proxy solicitation in 2015 in relation to a qualifying strategic transaction or the consummation thereof.
On January 6, 2014, the Company’s board of directors appointed Richard Cohen as its Chief Financial Officer, and amongMichael Pollack resigned as the interim Chief Financial Officer of the Company, Nuta, North South and certain shareholders of North South. North South was merged with and into Nuta, with Nutaeffective January 3, 2014. Mr. Cohen served as the surviving corporation and holderCompany’s Chief Financial Officer pursuant to an agreement with Chord Advisors LLC (“Chord”), of which Mr. Cohen is Chairman. In consideration for Mr. Cohen’s services, the assetsCompany agreed to pay Chord a monthly fee of the North South (“Merger”). As a result$20,000, $5,000 of the Merger, holders of the outstanding shares of North South’s outstanding Common Stock received an aggregate of 1,203,153which was initially payable in shares of the Company’s Common Stockcommon stock. In April 2014, the Company modified this agreement to pay Chord a monthly fee of $20,000 in cash. The previous $15,000 payable in shares was forgiven by Chord.
On June 30, 2015, the Board of Directors accepted the resignation of Richard Cohen as Chief Financial Officer of the Company, effective immediately. In connection therewith, the Company amended and holdersrestated its consulting agreement with Chord, such that it will continue to provide the Company with certain financial accounting and advisory services, with the monthly fee to Chord reduced from $20,000 to $10,000 per month since its affiliate will no longer serve as the Company’s Chief Financial Officer.
In connection with the resignation of North South’s outstanding Series A Preferred StockMr. Cohen, on June 30, 2015, the Board appointed Frank Reiner, the Interim Chief Financial Officer of the Company, effective immediately. Pursuant to Mr. Reiner’s Employment Agreement with the Company, dated as of March 14, 2014, as amended, the term of Mr. Reiner’s employment is one year and Series B Preferred Stock receivedautomatically extends for additional one-year terms unless no less than 60 days’ prior written notice of non-renewal is given by Mr. Reiner or the Company. Mr. Reiner’s base salary under the agreement was $235,000 per year, but in connection with being named Interim Chief Financial Officer, the Board authorized an aggregateamendment to the agreement to increase Mr. Reiner’s base salary to $271,000. Mr. Reiner is also entitled to receive an annual bonus if the Compensation Committee of 1,379,685 sharesthe Board determines that performance targets have been met. The amount of the annual bonus is determined based on the Company’s gross proceeds from certain monetization of the Company’s Series D Preferred Stock, each of whichintellectual property. Mr. Reiner is convertible into 10 shares of Common Stock. Under the Merger Agreement, as amended on August 30, 2013, of the consideration paid, 555,072 shares of Common Stock and 94,493 shares of Series D Preferred Stock shall be paid into escrow for a period of one yearalso eligible to cover certain indemnification obligations.
On August 10, 2015, the Company entered into a Retention Agreementconsulting agreement with its former President, Dr. Robert A. Lodder,Mr. Goldberg (d/b/a Forward Vision Associates, of which provides that (i) Dr. Lodder will remain withMr. Goldberg is the Company assole proprietor and owner), on an executive officer through June 30, 2013 and receive compensation at the rate previously provided to him and (ii) the Company will pay Dr. Lodder a severance of $233,398 as had been provided under the terms of his Employment Agreement, which was terminated under the terms of his Retention Agreement.
Indemnification Agreements
We have not adopted written policiesentered into indemnification agreements with all of our executive officers and procedures specifically for related person transactions. Our Boarddirectors. These agreements provide that, subject to limited exceptions and among other things, we will indemnify each of Directorsour executive officers and directors to the fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which a right to indemnification is responsible to approve all related party transactions.
The following table sets forth certain information concerningrelating to the number of sharesbeneficial ownership of our Common Stock owned beneficiallycommon stock as of December 9, 2013 by (i) June 30, 2015 by:
Our Form 10-K/A, which includes the Part III information of Form 10-K, is incorporated herein by reference. The data therein is supplemented, in relevant part, by the tables set forth below.
The number of shares beneficially owned by each entity, person, director, executive officer or selling stockholder is determined in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual or entity has sole or shared voting power or investment power as well as any shares that the individual or entity has the right to acquire within 60 days of April 1, 2015 through the exercise of any stock option, warrants or other rights. Except as otherwise indicated, it is our understanding and belief thatsubject to applicable community property laws, the stockholders listed possesspersons named in the table have sole voting and investment power with respect to all shares of common stock held by that person or entity.
The percentage of shares beneficially owned is computed on the shares shown.
Title of Class | Name of Beneficial Owner | Amount and Nature of Ownership (1) | Percent Of Class (2) | |||||||
| Principal Stockholders | ||||||||||
| Common | Iroquois Master Fund Ltd. (3) 641 Lexington Avenue 26th Floor New York, NY 10022 | 272,033 | (3) | 9.99 | % | |||||
| Common | Rockstar Consortium US LP (4) 7160 North Dallas Parkway, Suite No. 250 Plano, TX 75024 | 176,991 | (4) | 6.8 | % | |||||
| Common | Barry Honig 555 South Federal Highway, #450 Boca Raton, FL 33432 | 278,060 | (5) | 9.99 | % | |||||
| Common | Hudson Bay IP Opportunities Master Fund LP (6) 777 Third Avenue 30th Floor New York, NY 10017 | 261,680 | 9.99 | % | ||||||
| Common | All Principal Stockholders as a Group | 988,764 | 36.77 | % | ||||||
| Executive Officers and Directors | ||||||||||
| Common | Robert J. Vander Zanden | 76,302 | (7) | 2.91 | % | |||||
| Common | Anthony Hayes | 85,581 | (8) | 3.27 | % | |||||
| Common | Douglas T. Brown | 76,159 | (9) | 2.90 | % | |||||
| Common | Edward M. Karr | 76,013 | (10) | 2.90 | % | |||||
| Common | Harvey J. Kesner | 214,615 | (11) | 8.19 | % | |||||
| Common | Alexander Poltorak | 1,214 | (12) | * | ||||||
Common | All Executive Officers and Directors as a Group (six persons) | 529,884 | 20.17 | % | ||||||
| Shares Beneficially Owned Prior to the Offering | ||||||||
Name and Address of Beneficial Owner | Number(1) | Percent of Class(2) | ||||||
| Directors, Officers and Named Executive Officers: | ||||||||
| Robert J. Vander Zanden(3) | 426,302 | 1.22 | % | |||||
| Anthony Hayes(4) | 1,123,081 | 3.16 | % | |||||
| Douglas T. Brown(5) | 426,304 | 1.22 | % | |||||
| Jeffrey Ballabon(6) | 150,000 | 0.43 | % | |||||
| Tim S. Ledwick(7) | 75,000 | 0.22 | % | |||||
| Howard E. Goldberg(8) | 75,000 | 0.22 | % | |||||
| Frank Reiner(9) | 161,000 | 0.47 | % | |||||
| All current directors and executive officers as a group (seven persons) | 2,436,687 | 6.62 | % | |||||
| (1) |
| (2) |
| Includes |
| Includes |
| (5) | Includes 144 shares of Common Stock and 426,160 options for purchase of Common Stock exercisable within 60 days of September 17, 2015. |
| (6) | Consists of 150,000 options for purchase of Common Stock exercisable within 60 days of September 17, 2015. |
| (7) | Consists of 75,000 options for purchase of Common Stock exercisable within 60 days of September 17, 2015. |
| (8) | Consists of 75,000 options for purchase of Common Stock exercisable within 60 days of September 17, 2015. |
| (9) | Includes |
| 42 |
| Common | |||||||||||
| Beneficial Ownership of | Stock | Beneficial Ownership | |||||||||
| Common Stock Prior | Saleable | of Common Stock | |||||||||
to the Offering (1) | Pursuant | After the Offering (1) | |||||||||
| Number of | Percent of | to This | Number of | Percent of | |||||||
| Name and Address of Selling Stockholder | Shares | Class (2) | Prospectus | Shares | Class (2) | ||||||
Hudson Bay IP Opportunities Master Fund, LP (3) | 261,680 (3) | 9.99% (3) | 643,690 (4) | 261,680 | 9.99% (3) | ||||||
Iroquois Master Fund Ltd. (5) | 272,033 (5) | 9.99% (5) | 416,000 (6) | 272,033 | 9.99% (5) | ||||||
GRQ Consultants, Inc. Roth 401K FBO Barry Honig (7) | 278,060 (8) | 9.99% (8) | 333,508 (9) | 278,060 | 9.99% | ||||||
Barry Honig | 278,060 (8) | 9.99% (8) | 333,497(10) | 278,060 | 9.99% (8) | ||||||
Rockstar Consortium US LP (11) | 176,991 | 6.8% | 176,991 | 0 | 0 | ||||||
Alpha Capital Anstalt (12) | 275,826 (12) | 9.99% | 101,326 | 275,826 | 9.99% | ||||||
Robert S. Colman Trust UDT 3/13/85 (13) | 78,014 | 3.0% | 78,014 | 0 | 0 | ||||||
Jonathan Honig | 59,453 | 2.27% | 59,453 | 0 | 0 | ||||||
Sandor Capital Master Fund (14) | 199,507 (14) | 7.18% | 39,007 | 160,500 | 5.77% | ||||||
Cranshire Capital Master Fund Ltd (15) | 29,313 | 1.11% | 29,313 | 0 | 0 | ||||||
Empery Asset Master, Ltd (16) | 19,619 | * | 19,619 | 0 | 0 | ||||||
Stockwire Research Group (17) | 19,389 | * | 19,339 | 0 | 0 | ||||||
JSL Kids Partners (18) | 9,924 | * | 9,924 | 0 | 0 | ||||||
Nachum Stein (19) | 19,388(19) | * | 9,695 | 9,693 | * | ||||||
American European Insurance Company (19) | 9,693 | * | 9,693 | 0 | 0 | ||||||
Kristin O’Conner | 26,162 | * | 23,546 | 2,616 | * | ||||||
Total | 2,302,615 | ||||||||||
General
The following description of common stock and preferred stock, summarizes the material terms and provisions of the common stock and preferred stock and is not complete. For the complete terms of our common stock and preferred stock, please refer to our certificateAmended and Restated Certificate of incorporation, as amended,Incorporation, which may be further amended from time to time, any certificates of designation for our preferred stock, and our amended and restated bylaws, as amended from time to time. The Delaware General Corporation Law (“DCGL”) may also affect the terms of these securities.
On April 24, 2014, we filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which was previously approved by our stockholders at our annual meeting held on February 6, 2014.
The Amended and Restated Certificate of Incorporation, among other things, increased our authorized number of shares of common stock and preferred stock to 200,000,000 shares from 50,000,000 shares and to 50,000,000 shares from 5,000,000 shares, respectively. The Amended and Restated Certificate of Incorporation also requires us to indemnify our directors, officer and agents and advance expenses to such persons to the fullest extent permitted by Delaware law.
Additionally, on April 23, 2014, we filed a Certificate of Elimination with the Secretary of State of the State of Delaware eliminating our Series B Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock and returning them to authorized but undesignated shares of our preferred stock. None of the foregoing series of preferred stock were outstanding. On November 26, 2013, we issued an aggregate of 304,250 shares of Series F-1 Convertible Preferred Stock in exchange for 304,250 shares of Series F Preferred Stock, which shares were convertible into 304,250 shares of common stock. All shares of Series F-1 Convertible Preferred Stock have been converted into common stock, and no shares of Series F-1 Convertible Preferred Stock remain outstanding. On June 2, 2014, we issued 10,000,000 shares of Series J Convertible Preferred Stock, which shares were convertible into a total of 10,000,000 shares of common stock. All shares of Series J Convertible Preferred Stock have been converted into common stock, and no shares of Series J Convertible Preferred Stock remain outstanding.
Our authorized capital stock consists of 50,000,000200,000,000 shares of common stock, $0.0001 par value, and 5,000,00050,000,000 shares of preferred stock, $0.0001 par value. The authorized and unissued shares of common stock and the authorized and undesignated shares of preferred stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. If the approval of our stockholders is not so required, our board of directors may determine not to seek stockholder approval.
Common Stock
Subject to the rights of the preferred stock, holders of common stock are entitled to receive such dividends as are declared by our board of directors out of funds legally available for the payment of dividends. We presently intend to retain any earnings to fund the development of our business. Accordingly, we do not anticipate paying any dividends on our common stock for the foreseeable future. Any future determination as to declaration and payment of dividends will be made at the discretion of our board of directors.
In the event of the liquidation, dissolution, or winding up of the Company, each outstanding share of our common stock will be entitled to share equally in any of our assets remaining after payment of or provision for our debts and other liabilities.
Holders of common stock are entitled to one vote per share on matters to be voted upon by stockholders. There is no cumulative voting for the election of directors, which means that the holders of shares entitled to exercise more than fifty percent (50%) of the voting rights in the election of directors are able to elect all of the directors.
Holders of common stock have no preemptive rights to subscribe for or to purchase any additional shares of common stock or other obligations convertible into shares of common stock which we may issue after the date of this prospectus.
All of the outstanding shares of common stock are fully paid and non-assessable. Holders of our common stock are not liable for further calls or assessments.
The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.
Our common stock is currently traded on The NASDAQ Capital Market under the symbol “SPEX.” If we fail to meet any of the continued listing standards of The NASDAQ Capital Market, our common stock could be delisted from The NASDAQ Capital Market. These continued listing standards include specifically enumerated criteria, such as:
stockholders’ equity of $2.5 million;
On March 24, 2015, we received a deficiency notice from NASDAQ that the bid price of our common stock no longer met NASDAQ’s continued listing requirements. According to the notice, in order to regain compliance with the NASDAQ listing rules, our common stock would need to have a closing bid price of at least $1.00 per share for at least 10 consecutive trading days no later than September 21, 2015. On September 22, 2015, we received a letter from NASDAQ granting us an additional 180 days, or until March 19, 2016, to regain compliance. It is unknown at this time if we will be able to regain compliance with the minimum bid price requirement within the additional time allowed in order to continue our common stock listing on the Nasdaq Capital Market. Continued listing during this period is also contingent on our continued compliance with all listing requirements other than for the minimum bid price. While we hope to regain compliance in the ordinary course of business, we may consider a reverse stock split, if necessary to continue our listing, and have committed to NASDAQ to do so if necessary. However, even if we do effect such a reverse stock split, our stockholders may bring actions against us in connection with that reverse stock split that could divert management resources, cause us to incur significant expenses or cause our common stock to be further diluted.
If we fail to comply with NASDAQ’s continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
Finally, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Securities Exchange Act. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the shares but must trade it on an unsolicited basis. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares that become subject to those penny stock rules.
Preferred Stock
Our certificateAmended and Restated Certificate of incorporationIncorporation authorizes 5,000,00050,000,000 shares of preferred stock. Our board of directors is authorized, without further stockholder action, to establish various series of such preferred stock from time to time and to determine the rights, preferences and privileges of any unissued series including, among other matters, any dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, the number of shares constituting any such series, and the description thereof and to issue any such shares. Although there is no current intent to do so, our board of directors may, without stockholder approval, issue shares of an additional class or series of preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of the common stock.
One of the effects of the preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of the management.
We will fix the rights, preferences, privileges and restrictions of the preferred stock of each series in the certificate of designation relating to that series. We will file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, the certificate of designation that describes the terms of the series of preferred stock we are offering. This description will include the terms of such preferred stock, including but not limited to, any or all of the following, as required:
| • | the title and stated value; | |
| • | the number of shares we are offering; | |
| • | the liquidation preference per share; | |
| • | the purchase price; | |
| • | the dividend rate, period and payment date and method of calculation for dividends; | |
| • | whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; | |
| • | any contractual limitations on our ability to declare, set aside or pay any dividends; | |
| • | the procedures for any auction and remarketing, if any; | |
| • | the provisions for a sinking fund, if any; | |
| • | the provisions for redemption or repurchase, if applicable, and any restrictions on our ability to exercise those redemption and repurchase rights; | |
| • | any listing of the preferred stock on any securities exchange or market; | |
| • | whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price, or how it will be calculated, and the conversion period; | |
| • | whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange price, or how it will be calculated, and the exchange period; | |
| • | voting rights, if any, of the preferred stock; | |
| • | preemptive rights, if any; | |
| • | restrictions on transfer, sale or other assignment, if any; |
| • | whether interests in the preferred stock will be represented by depositary shares; | |
| • | a discussion of any material or special United States federal income tax considerations applicable to the preferred stock; | |
| • | the relative ranking and preferences of the preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs; | |
| • | any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs; and | |
| • | any other specific terms, preferences, rights or limitations of, or restrictions on, the preferred stock. |
If we issue shares of preferred stock under this prospectus, after receipt of payment therefor, the shares will be fully paid and non-assessable.
The DGCL provides that the holders of preferred stock will have the right to vote separately as a class on any proposal involving certain fundamental changes in the rights of holders of that series of preferred stock. This right is in addition to any voting rights provided for in the applicable certificate of designation.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Preferred stock could be issued quickly with terms designed to delay or prevent a change in control of our Company or make removal of management more difficult. Additionally, the issuance of preferred stock could have the effect of decreasing the market price of our common stock.
Series A Preferred Stock
Our board of directors has designated 500,000 shares of our preferred stock as Series A Participating Preferred Stock (“Series A Preferred Stock”).
On January 1, 2013, we adopted a stockholder rights plan in which rights to purchase shares of Series A Preferred Stock were distributed as a dividend at the rate of one right for each share of common stock. The rights are designed to guard against partial tender offers and other abusive and coercive tactics that might be used in an attempt to gain control of Spherix or to deprive our stockholders of their interest in the long-term value of Spherix. These rights seek to achieve these goals by forcing a potential acquirer to negotiate with our board of directors (or go to court to try to force the Board of Directors to redeem the rights), because only the Board of Directors can redeem the rights and allow the potential acquirer to acquire our shares without suffering very significant dilution. However, these rights also could deter or prevent transactions that stockholders deem to be in their interests, and could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.
Each right entitles the registered holder to purchase one one-hundredth of a share (a “Unit”) of our Series A Preferred Stock. Each Unit of Series A Preferred Stock will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Units of Series A Preferred Stock will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Unit of Series A Preferred Stock will have 100 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Unit of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.
The rights will be exercisable only if a person or group acquires ten percent (10%) or more of our common stock (subject to certain exceptions stated in the plan) or announces a tender offer the consummation of which would result in ownership by a person or group of ten percent (10%) or more of our common stock. Our board of directors may redeem the rights at a price of $.001$0.001 per right. The rights will expire at the close of business on December 31, 2017 unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by the Company.
Series C Convertible Preferred Stock
On March 6, 2013, the Company and certain investors that participated in the November 2012 private placement transaction entered into separate Warrant Exchange Agreements pursuant to which thethose investors exchanged common stock purchase warrants acquired in the private placement transaction for shares of our Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock is convertible into one (1) share of common stock at the option of the holder. The Series C Convertible Preferred Stock was established on March 5, 2013 by the filing in the State of Delaware of a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock.
The exchanged Warrants were issued in November 2012 for an aggregate of 483,657 shares of common stock. The warrants were exercisable through November 7, 2017 at an exercise price of $6.53 per share.
Pursuant to the Warrant Exchange Agreements, the investors received in exchange for their warrants an aggregate of 229,337 shares of the Series C Convertible Preferred Stock, each of which is convertible into one (1) share of common stock. This is the same number of shares of common stock that would have been issued upon a “cashless exercise” of the exchanged warrants, as permitted by the terms of the warrants, based on the one-day volume weighted average price of our common stock on February 28, 2013 of $12.6439 as reported by Bloomberg. We have agreed to register the shares of common stock issuable upon conversion of the Series C Convertible Preferred Stock on the same basis as the shares of common stock issued in the November 2012 private placement transaction.
As of December 9, 2013,September 17, 2015, one share of Series C Convertible Preferred Stock was issued and outstanding.
Series D Convertible Preferred Stock
On April 2, 2013, we entered into the Merger Agreement with Nuta Technology Corp., North South Holdings, Inc. and the shareholders of North South Holdings, Inc., as amended on August 30, 2013. On September 10, 2013, we consummated the Merger. At the closing of the Merger, an aggregate of 500491 issued and outstanding shares of North South’s common stock were converted into the right to receive an aggregate of 1,203,153 shares of common stock and 500 shares of North South’s Series A Preferred Stock and 128107 shares of North South’s Series B Preferred Stock issued and outstanding were converted into the right to receive an aggregate of 1,379,685 shares of our newly designated Series D Convertible Preferred Stock.
Each share of Series D Preferred Stock has a stated value of $0.0001 per share and is convertible into ten (10) shares of common stock. Upon the liquidation, dissolution or winding up of our business, each holder of Series D Preferred Stock shall be entitled to receive, for each share of Series D Preferred Stock held, a preferential amount in cash equal to the greater of (i) the Stated Value or (ii) the amount the holder would receive as a holder of the Company’s common stock on an “as converted” basis. Each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to our stockholders and shall be entitled to such number of votes equal to the number of shares of common stock such shares of Series D Preferred are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation and the Conversion Limit limitations described below. At no time may shares of Series D Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99% of our issued and outstanding common stock, subject to an increase in such limitation up to 9.99% of the issued and outstanding common stock on 61 days’ written notice to us. The conversion ratio of the Series D Preferred Stock is subject to adjustment in the event of stock dividends, splits and fundamental transactions.
Additionally, subject to the beneficial ownership limitations described above, holders of Series D Preferred Stock may not convert such shares in excess of the “Conversion Limit”. The “Conversion Limit” is defined as that number of shares of common stock as shall equal 15% (the “Volume Percentage”) of the greater of (i) the trading volume of our common stock on such conversion date or (ii) the average trading volume of our common stock for ten trading days immediately prior to such conversion date. If our common stock trades at a price of at least $12.00 per share on the conversion date, then the Volume Percentage for purposes of the foregoing calculation shall equal 20%. Notwithstanding the foregoing, holders of the Series D Preferred Stock may convert such shares without regard to the aforementioned conversion limit if our common stock trades at a minimum price of $15.00 per share on the conversion date.
As of September 17, 2015, 4,725 shares of Series D Preferred Stock were issued and outstanding.
Series D-1 Convertible Preferred Stock
Our Series D-1 Convertible Preferred Stock (“Series D-1 Preferred Stock”) was established on November 22, 2013. Each share of Series D-1 Preferred Stock has a stated value of $0.0001 per share and is convertible into ten (10) shares of common stock. Upon the liquidation, dissolution or winding up of our business, each holder of Series D-1 Preferred Stock shall be entitled to receive, for each share of Series D-1 Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of the Company’s common stock on an “as converted” basis. Each holder of Series D-1 Preferred Stock shall be entitled to vote on all matters submitted to our stockholders and shall be entitled to such number of votes equal to the number of shares of common stock such shares of Series D-1 Preferred are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation. At no time may shares of Series D-1 Preferred Stock be converted if such conversion would cause the holder to hold in excess of 9.99% of our issued and outstanding common stock. The conversion ratio of the Series D Preferred Stock is subject to adjustment in the event of stock dividends, splits and fundamental transactions. The Company anticipates commencingcommenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which the holders of our outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares for shares of our Series D-1 Preferred Stock on a one-for-one basis.
As of September 17, 2015, 834 shares of Series E ConvertibleD-1 Preferred Stock
Series EH Preferred Stock was established on June 25, 2013.
On December 31, 2013, we designated 459,043 shares of preferred stock as Series H Preferred Stock. On December 31, 2013, we issued approximately $38.3 million of Series H Preferred Stock (or 459,043 shares) to Rockstar. Each share of Series EH Preferred Stock is convertible at the option of the holder at any time, into one (1) shareten (10) shares of common stock and has a stated value of $0.0001. Such$83.50. The conversion ratio is subject to adjustment in the caseevent of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We are prohibited from effecting the conversion of the Series EH Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially ownowns more than 4.99% (or, if such limitation is waived by the holder(which may be increased to 9.99% and subsequently to 19.99%, each upon no less than 61 days prior notice, 9.99%)days’ written notice), in the aggregate, of theour issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series EH Preferred Stock. AllHolders of the Series H Preferred Stock shall be entitled to vote on all matters submitted to our stockholders and shall be entitled to the number of votes equal to the number of shares of common stock into which the shares of Series H Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series H Preferred Stock provides a liquidation preference of $83.50 per share.
The shares of Series H Preferred Stock are not immediately convertible and do not possess any voting rights until such time as we have obtained stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, we obtained the required shareholder approval pursuant to NASDAQ Listing Rule 5635 and, as a result, all outstanding shares of our Series EH Preferred Stock are convertible and possess voting rights in accordance with its terms.
As of September 17, 2015, 439,043 shares of Series H Preferred Stock were held by North Southissued and retired in full on September 30, 2013.
Series F ConvertibleI Preferred Stock
On December 31, 2013, we designated 119,760 shares of preferred stock as Series FI Preferred Stock. On December 31, 2013, we issued approximately $20 million (or 119,760 shares) of Series I Preferred Stock was established on November 1, 2013.to Rockstar. Each share of Series FI Preferred Stock is convertible at the optioninto 20 shares of the holder at any time, into one (1) share ofour common stock and has a stated value of $0.0001. Such$167. The conversion ratio is subject to adjustment in the caseevent of stock splits, stock dividends, combination of shares and similar recapitalization transactions. Each share of Series F Preferred StockThe holder is entitled to one vote per share (subject to beneficial ownership limitation) and shall vote together with holders of our common stock. We are prohibited from effecting the conversion ofconverting the Series FI Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially ownowns more than 4.99% (which may be increased to 9.99% and subsequently to 19.99%, each upon 61 days’ written notice), in the aggregate, of theour issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series FI Preferred Stock. On November 6, 2013, we issued an aggregate of 304,250 shares of Series F Preferred Stock in a private placement. In November 2013, we conducted an exchange of our outstanding Series F Preferred Stock for shares of Series F-1 Preferred Stock (as described below). As of the date of this prospectus, no shares of Series F Preferred Stock were outstanding.
The Series I Preferred Stock has a mandatory redemption date of December 31, 2015 as to 100% of the Series F-1I Preferred Stock then outstanding and partial mandatory redemptions prior thereto, requiring a minimum of 25% of the total number of shares of Series I Preferred Stock issued to be redeemed (less the amount of any conversions occurring prior thereto) on or prior to each of June 30, 2014, December 31, 2014, June 30, 2015 and December 31, 2015 (each, a “Partial Redemption Date” and each payment, a “Redemption Payment”). On each Partial Redemption Date, we are required to pay Rockstar a Redemption Payment equal to the lesser of (i) such number of shares of Series I Preferred Stock as have a stated value of $5,000,000; or (ii) such number of shares of Series I Preferred Stock as shall, together with all voluntary and mandatory redemptions and conversions to common stock occurring prior to the applicable Partial Redemption Date, have a stated value of $5,000,000; or (iii) the remaining shares of Series I Preferred Stock issued and outstanding if such shares have a stated value of less than $5,000,000, in an amount of cash equal to its stated value plus all accrued but unpaid dividends, distributions and interest thereon, unless Rockstar, in its sole discretion, elects to waive such Redemption Payment or convert such shares (or a portion thereof) into common stock. No interest or dividends are payable on the Series I Preferred Stock unless we fail to make the first $5,000,000 Partial Redemption Payment due June 30, 2014, then interest shall accrue on the outstanding stated value of all outstanding shares of Series I Preferred Stock at a rate of fifteen (15%) per annum from January 1, 2014. Our obligations to pay the Redemption Payments and any interest payments in connection therewith are secured pursuant to the terms of a Security Agreement under which the Rockstar Patents serve as collateral security. No action can be taken under the Security Agreement unless we have failed to make a second redemption payment of $5,000,000 due December 31, 2014. The Security Agreement contains additional usual and customary “Events of Default” (as such term is defined in the Intellectual Property Security Agreement) under which Rockstar can take action, including a sale to a third party or reduction of secured amounts via transfer of the Rockstar Patents to Rockstar.
Additionally, in the event we consummate a Fundamental Transaction (as defined in the Certificate of Designation of Preferences, Rights and Limitations of Series I Convertible Preferred Stock), we are required to redeem such portion of the outstanding shares of Series I Preferred Stock as shall equal (i) 50% of the net proceeds of the Fundamental Transaction after deduction of the amount of net proceeds required to leave us with cash and cash equivalents on hand of $5,000,000 and up until the net proceeds leave us with cash and cash equivalents on hand of $7,500,000 and (ii) 100% of the net proceeds of the Fundamental Transaction thereafter.
The shares of Series I Preferred Stock are not immediately convertible and do not possess any voting rights until such time as we have obtained stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, we obtained the required shareholder approval pursuant to NASDAQ Listing Rule 5635 and, as a result, all outstanding shares of Series I Convertible Preferred Stock are convertible and possess voting rights in accordance with its terms.
In June 2014, we redeemed 84,219 shares of Series I Preferred Stock.
As of December 9, 2013, 2,006,714 options wereSeptember 17, 2015, 29,940 shares of Series I Preferred Stock remain issued and outstanding.
Warrants
As of September 17, 2015, we had outstanding warrants to purchase 7,804,828 shares of common stock at a weighted-average exercise price of $1.74 per share, which expire on October 13, 2015, January 24, 2016, October 27, 2016, August 7, 2017, March 24, 2019 and March 26, 2019, respectively.
Exchange Listing
Our common stock is listed on the Nasdaq Capital Market under our 2013 Equity Incentive Plan and 6,663 options were issued under our previously adopted 1997 Plan.
Transfer Agent and Registrar
Equity Stock Transfer is the transfer agent and registrar for our common stock is Equity Stock Transfer, with an address at 110 Greene Street, Suite 403, New York, NY 10012.
Limitations on Directors’ Liability
Our certificate of incorporation and bylaws contain provisions indemnifying our directors and officers to the fullest extent permitted by Delaware law.
In addition, as permitted by Delaware law, our certificate of incorporation provides that no director will be liable to us or our stockholders for monetary damages for breach of the director’s fiduciary duty as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of the director’s fiduciary duty as a director, except that a director will be personally liable for:
acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law;
This provision does not affect a director’s liability under the federal securities laws.
To the extent that our directors, officers and controlling persons are indemnified under the provisions contained in our certificate of incorporation or Delaware law against liabilities arising under the Securities Act of 1933, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
Provisions of Ourour Certificate of Incorporation and Bylaws, our Shareholder Rights Plan, and Delaware Law that May Have an Anti-Takeover Effect
Certain provisions set forth in our certificateAmended and Restated Certificate of incorporationIncorporation and Amended and Restated Bylaws, our Shareholder Rights Plan, and Delaware law which are summarized below, maycould have an anti-takeoverthe effect and may delay, deterof discouraging potential acquisition proposals or preventmaking a tender offer or takeover attempt thatdelaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management.
Certificate of Incorporation and Bylaws
In particular, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, among other things:
Shareholder Rights Plan
On January 1, 2013, we adopted a stockholder rights plan in which rights to purchase shares of Series A Preferred Stock were distributed as a dividend at the rate of one right for each share of common stock. The rights are designed to guard against partial tender offers and other abusive and coercive tactics that might be used in an attempt to gain control of Spherix or to deprive our stockholders of their interest in the long-term value of Spherix. These rights seek to achieve these goals by forcing a potential acquirer to negotiate with our board of directors (or go to court to try to force the Board of Directors to redeem the rights), because only the Board of Directors can redeem the rights and allow the potential acquirer to acquire our shares without suffering very significant dilution. However, these rights also could deter or prevent transactions that stockholders deem to be in their interests, and could reduce the stockholder’s best interests, including attemptsprice that investors or an acquirer might be willing to pay in the future for shares of our common stock.
Each right entitles the registered holder to purchase one one-hundredth of a share (a “Unit”) of our Series A Preferred Stock. Each Unit of Series A Preferred Stock will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Units of Series A Preferred Stock will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Unit of Series A Preferred Stock will have 100 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Unit of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.
The rights will be exercisable only if a person or group acquires ten percent (10%) or more of our common stock (subject to certain exceptions stated in the plan) or announces a tender offer the consummation of which would result in ownership by a premium being paid overperson or group of ten percent (10%) or more of our common stock. Our board of directors may redeem the marketrights at a price forof $0.001 per right. The rights will expire at the shares heldclose of business on December 31, 2017 unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by stockholders.
Delaware Takeover Statute
Section 203 of the Delaware General Corporation Law (“DGCL”)DGCL prohibits a Delaware corporation that is a public company from engaging in any “business combination” (as defined below) with any “interested stockholder” (defined generally as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with such entity or person) for a personperiod of three years following the date that such stockholder became an interested stockholder, unless:
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
Section 203 of the Delaware General Corporation LawDCGL defines “business combination” to include:
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
Disclosure of SEC Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and persons controlling us, we understand that it is the SEC’s opinion that such indemnification is against public policy as expressed in the Securities Act and may therefore be unenforceable.
The selling stockholders may,material terms and provisions of the warrants being issued in this offering are summarized below. The following description is subject to, and qualified in its entirety by, the form of warrant, which has been filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of warrant.
Form. The warrants will be issued as individual warrants to each of the investors.
Exercisability. The warrants are exercisable at any time after the date of issuance, and at any time up to the date that is years from the date of issuance, at which time any unexercised warrants will expire and cease to time, sell, transfer,be exercisable. The warrants will be exercisable, at the option of each holder, in whole or otherwise disposein part by delivering to us a duly executed exercise notice and by payment in full in immediately available funds for the number of any or all of its shares of common stock on any stock exchange, market, or trading facility on whichpurchased upon such exercise. If a registration statement registering the issuance of the shares are tradedof common stock underlying the warrants under the Securities Act of 1933, as amended, is not then effective or available, the holder may exercise the warrant through a cashless exercise, in whole or in private transactions. These dispositionspart, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant. No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to us.
Exercise Price; Anti-Dilution. The initial exercise price per share of common stock is $ per share of common stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock.
Transferability. Subject to applicable laws, the warrants may be at fixedoffered for sale, sold, transferred or assigned without our consent. There is currently no trading market for the warrants and a trading market is not expected to develop.
Exchange Listing. We do not plan to apply to list the warrants on the NASDAQ Capital Market, any other national securities exchange or any other nationally recognized trading system.
Fundamental Transactions. In the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
We are offering up to shares of our common stock and warrants to purchase up to shares of our common stock in this offering. Each share of common stock will be accompanied by a warrant to purchase up to shares of common stock. The common stock and warrants are immediately separable and will be issued separately. However, there is no minimum offering amount required as a condition to closing and we may sell significantly fewer shares of common stock and warrants in the offering.
In determining the offering price of the common stock and the exercise price of the warrants, we will consider a number of factors including, but not limited to, the current market price of our common stock, trading prices at prevailingof our common stock over time, the illiquidity and volatility of our common stock, our current financial condition and the prospects for our future cash flows and earnings, and market pricesand economic conditions at the time of sale, at prices relatedthe offering. Once the offering price is determined, the offering price for the common stock and the exercise price of the warrants will remain fixed for the duration of the offering.
Wainwright has agreed to act as our exclusive placement agent in connection with the offering pursuant to the prevailing market price, at varying prices determined atterms and conditions of an engagement agreement. The Placement Agent is not purchasing or selling any securities offered by this prospectus, and is not required to arrange for the timepurchaser or sale of any specific number or dollar amount of securities, but will use its reasonable best efforts to arrange for the sale or at negotiated prices.
We have agreed to pay to the Placement Agent a placement agent fee equal to seven percent (7%) of the aggregate gross proceeds to us from the sale of the securities in the offering (excluding any proceeds from the exercise of the warrants issued in the offering, for which no compensation shall be paid). In addition, we have agreed to (i) reimburse the Placement Agent with a non-accountable expense allowance of up to $50,000.00, subject to compliance with FINRA Rule 5110(f)(2)(D)(i) and (ii) pay the Placement Agent a management fee equal to 1% of the aggregate gross proceeds of this offering. We estimate total expenses of this offering, excluding the placement agent fees, will be approximately $ . The following methods when disposingtable shows the per share and total fees we will pay to the Placement Agent assuming the sale of all of the shares or interests therein:
| Per share | ||
| Total | ||
In addition, we have agreed to issue warrants to the selling stockholders from any salePlacement Agent (the “Placement Agent Warrants”) to purchase up to a number of shares of common stock equal to seven percent (7%) of the aggregate number of shares of common stock sold in this offering (excluding any shares of common stock issuable upon exercise of the warrants. The Placement Agent Warrants shall have the same terms as the warrants offered by it willthis prospectus, except that the expiration date shall be five years from the purchase priceeffective date of the registration statement of which this prospectus forms a part. Pursuant to FINRA Rule 5110(f)(2)(G)(vi), the Placement Agent Warrants will not have anti-dilution protection. Pursuant to FINRA Rule 5110(g)(1), neither the Placement Agent Warrants nor any shares of common stock issued upon exercise of the Placement Agent Warrants may be sold, transferred, assigned, pledged, or hypothecated, or be subject to any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security (i) by operation of law or by reason of reorganization, (ii) to any FINRA member firm participating in the offering and the officers and partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period, (iii) if the aggregate amount of our securities held by the holder of the Placement Agent Warrants or related person does not exceed 1% of the securities being offered, (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund, or (v) the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period. The Placement Agent Warrants and the shares underlying the Placement Agent Warrants are registered under the registration statement of which this prospectus forms a part. Because there is no minimum offering amount required as a condition to closing, the actual total proceeds received by us and total offering commissions and warrants issuable to the Placement Agent, if any, are not presently determinable and may be substantially less discounts or commissions, if any. The selling stockholders reservesthan the maximum amount set forth above.
In addition, within the six-month period following the consummation of this offering, we have granted a right of first refusal to the Placement Agent pursuant to which it has the right to accept and, together withact as the lead underwriter or lead placement agent, if the Company or its agents from timesubsidiaries decides to time, to reject, in whole or in part, any proposed purchaseraise funds by means of common stock to be made directly or through agents. We would not receive any of the proceeds from any such sale.
The engagement agreement provides that we will indemnify the shares in open market transactions in reliance upon Rule 144 promulgatedPlacement Agent against specified liabilities, including liabilities under the Securities Act provided that it meets the criteria and conform to the requirements of that rule.
Nixon Peabody LLP, New York, New York will pass upon the validity of the issuanceshares of common stock offered hereby and the binding nature of the securitieswarrants offered herebyhereby. Certain legal matters in connection with this offering will be passed upon for usWainwright by Baxter, Baker, Sidle, ConnEllenoff Grossman & Jones, P.A.Schole LLP.
The auditedconsolidated financial statements of Spherix Incorporated and Subsidiaries as of December 31, 2014 and 2013 and for the years then ended December 31, 2012 and 2011, includedincorporated by reference in this prospectus and elsewhere in the registration statementProspectus have been so includedincorporated in reliance uponon the report, of Grant Thornton LLP, independent registered public accounting firm, uponwhich includes an explanatory paragraph as to the authority of said firmCompany’s ability to continue as experts in accounting and auditing in giving said report.
We have filed with the SEC a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act, with respectare required to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock that the selling stockholders are offering in this prospectus.
We have audited the accompanying consolidated balance sheets of Spherix Incorporated (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
| 2012 | 2011 | |||||||
| Revenue | $ | 19,922 | $ | - | ||||
| Operating expense | ||||||||
| Research and development expense | (727,091 | ) | (1,645,939 | ) | ||||
| Selling, general and administrative expense | (2,764,836 | ) | (2,548,007 | ) | ||||
| Total operating expense | (3,491,927 | ) | (4,193,946 | ) | ||||
| Loss from operations | (3,472,005 | ) | (4,193,946 | ) | ||||
| Other Income from Change in Fair Value of Warrants | 1,202,489 | 3,716,812 | ||||||
| Loss on issuance of warrants | (621,983 | ) | (4,983 | ) | ||||
| Interest income | 3,466 | 3,455 | ||||||
| Other income | - | 51,261 | ||||||
| Gain on settlement of obligations | - | 845,000 | ||||||
| (Loss) income from continuing operations before taxes | (2,888,033 | ) | 417,599 | |||||
| Income tax expense | - | (14,485 | ) | |||||
| (Loss) income from continuing operations | (2,888,033 | ) | 403,114 | |||||
| Discontinued operations | ||||||||
| Loss from discontinued operations | (968,991 | ) | (383,529 | ) | ||||
| Income tax expense | - | - | ||||||
| Loss from discontinued operations | (968,991 | ) | (383,529 | ) | ||||
| Net (loss) income | $ | (3,857,024 | ) | $ | 19,585 | |||
| Net (loss) income per share, basic | ||||||||
| Continuing operations | $ | (10.56 | ) | $ | 3.07 | |||
| Discontinued operations | $ | (3.54 | ) | $ | (2.92 | ) | ||
| Net (loss) income per share | $ | (14.10 | ) | $ | 0.15 | |||
| Net loss per share, diluted | ||||||||
| Continuing operations | $ | (10.56 | ) | $ | (2.37 | ) | ||
| Discontinued operations | $ | (3.54 | ) | $ | (2.77 | ) | ||
| Net loss per share | $ | (14.10 | ) | $ | (5.14 | ) | ||
| Weighted average shares outstanding, basic | 273,567 | 131,285 | ||||||
| Weighted average shares outstanding, diluted | 273,567 | 138,346 | ||||||
| ASSETS | 2012 | 2011 | ||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,498,237 | $ | 4,911,350 | ||||
| Trade accounts receivable, net of allowance of $0 and $8,174 | - | - | ||||||
| Other receivables | 3,425 | 293 | ||||||
| Prepaid research expenses | - | 209,780 | ||||||
| Prepaid expenses and other assets | 100,474 | 116,565 | ||||||
| Assets of segment held for sale | 104,265 | 289,927 | ||||||
| Total current assets | 4,706,401 | 5,527,915 | ||||||
| Property and equipment, net of accumulated depreciation | 24,009 | 85,374 | ||||||
| of $308,386 and $244,711 | ||||||||
| Patents, net of accumulated amortization of $0 and $2,146 | - | - | ||||||
| Deposit | 25,625 | 35,625 | ||||||
| Assets of segment held for sale, non-current | - | 6,108 | ||||||
| Total assets | $ | 4,756,035 | $ | 5,655,022 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 425,774 | $ | 269,996 | ||||
| Accrued salaries and benefits | 280,263 | 242,550 | ||||||
| Liabilities of segment held for sale | 25,040 | 380,136 | ||||||
| Total current liabilities | 731,077 | 892,682 | ||||||
| Deferred rent | 45,081 | 47,675 | ||||||
| Warrant liability | 3,125,393 | 916,621 | ||||||
| Total liabilities | 3,901,551 | 1,856,978 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity | ||||||||
| Preferred stock, $0.0001 par value, 5,000,000 shares authorized; | ||||||||
| 5,250 series B issued and 1 outstanding at December 31, 2012, | ||||||||
| and December 31, 2011 | - | - | ||||||
| Common stock, $0.0001 par value, 50,000,000 shares authorized; | ||||||||
| 814,114 and 155,150 issued, 813,713 and 154,749 | ||||||||
| outstanding at December 31, 2012 and 2011, respectively | 82 | 16 | ||||||
| Paid-in capital in excess of par value | 36,630,406 | 35,717,008 | ||||||
| Treasury stock, 401 shares | (464,786 | ) | (464,786 | ) | ||||
| Accumulated deficit | (35,311,218 | ) | (31,454,194 | ) | ||||
| Total stockholders' equity | 854,484 | 3,798,044 | ||||||
| Total liabilities and stockholders' equity | $ | 4,756,035 | $ | 5,655,022 | ||||
| Preferred Stock | Common Stock | Paid-in | Treasury Stock | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital in Excess of Par | Shares | Amount | Accumulated Deficit | Stockholders' Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2011 | 1 | $ | - | 107,181 | $ | 11 | 34,536,947 | 401 | (464,786 | ) | 31,473,779 | $ | 2,598,393 | |||||||||||||||||||||||
| Sale of common stock, net of | ||||||||||||||||||||||||||||||||||||
| offering costs of $103,196 | - | - | 47,969 | 5 | 1,144,527 | - | - | - | 1,144,532 | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 35,534 | - | - | - | 35,534 | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 19,585 | 19,585 | |||||||||||||||||||||||||||
| Balance, December 31, 2011 | 1 | - | 155,150 | 16 | 35,717,008 | 401 | (464,786 | ) | (31,454,194 | ) | 3,798,044 | |||||||||||||||||||||||||
| Sale of common stock, net of | ||||||||||||||||||||||||||||||||||||
| offering costs of $77,012 | - | - | 536,898 | 54 | 858,647 | - | - | - | 858,701 | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | 122,250 | 12 | 56,436 | - | - | - | 56,448 | |||||||||||||||||||||||||||
| Fractional shares payment | - | - | (184 | ) | - | (1,685 | ) | - | - | - | (1,685 | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (3,857,024 | ) | (3,857,024 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2012 | 1 | $ | - | 814,114 | $ | 82 | 36,630,406 | 401 | (464,786 | ) | (35,311,218 | ) | $ | 854,484 | ||||||||||||||||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities | ||||||||
| Net (loss) income | (3,857,024 | ) | $ | 19,585 | ||||
| Adjustments to reconcile net (loss) income to net cash | ||||||||
| used in operating activities: | ||||||||
| Other Income from Change in Fair Value of Warrants | (1,202,489 | ) | (3,716,812 | ) | ||||
| Issuance costs of warrants accounted for at fair value | 245,513 | 230,604 | ||||||
| Loss on issuance of warrants | 621,983 | 4,983 | ||||||
| Gain on settlement of obligation | - | (845,000 | ) | |||||
| Depreciation and amortization | 63,675 | 66,308 | ||||||
| Stock-based compensation | 56,448 | 35,534 | ||||||
| Provision for doubtful accounts | (8,174 | ) | 8,174 | |||||
| Changes in assets and liabilities: | ||||||||
| Receivables | 5,042 | 262,333 | ||||||
| Prepaid expenses and other assets | 235,871 | 289,830 | ||||||
| Accounts payable and accrued expenses | 193,491 | (366,885 | ) | |||||
| Deferred rent | (2,594 | ) | (33,270 | ) | ||||
| Deferred compensation | - | (305,000 | ) | |||||
| Net cash used in activities of continuing operations | (3,648,258 | ) | (4,349,616 | ) | ||||
| Net cash used in activities of discontinued operations | (167,429 | ) | (10,044 | ) | ||||
| Net cash used in operating activities | (3,815,687 | ) | (4,359,660 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | (2,309 | ) | (2,374 | ) | ||||
| Net cash used in activities of continuing operations | (2,309 | ) | (2,374 | ) | ||||
| Net cash provided by (used in) activities of discontinued operations | 4,102 | (2,478 | ) | |||||
| Net cash provided by (used in) investing activities | 1,793 | (4,852 | ) | |||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock and warrants | 3,724,991 | 4,034,352 | ||||||
| Issuance cost of common stock and warrants | (322,525 | ) | (333,800 | ) | ||||
| Reverse stock split fractional share payment | (1,685 | ) | - | |||||
| Net cash provided by activities of continuing operations | 3,400,781 | 3,700,552 | ||||||
| Net cash provided by financing activities | 3,400,781 | 3,700,552 | ||||||
| Net decrease in cash and cash equivalents | (413,113 | ) | (663,960 | ) | ||||
| Cash and cash equivalents, beginning of year | 4,911,350 | 5,575,310 | ||||||
| Cash and cash equivalents, end of year | $ | 4,498,237 | $ | 4,911,350 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for taxes | $ | - | $ | 160,829 | ||||
| 2012 | 2011 | |||||||
| Revenue | $ | 728,312 | $ | 820,925 | ||||
| Direct cost and operating expense | (417,428 | ) | (388,065 | ) | ||||
| Selling, general and administrative expense | (1,279,875 | ) | (816,389 | ) | ||||
Loss from discontinued operations before taxes | $ | (968,991 | ) | $ | (383,529 | ) | ||
Fair Value Measurements of Warrants Using Significant Unobservable Inputs (Level 3) | ||||
| Balance at December 31, 2011 | $ | 3,125,000 | ||
| Change in fair value of Warrant Liability | (2,208,000 | ) | ||
| Balance at December 31, 2012 | $ | 917,000 | ||
| Diluted earnings per share Calculation | December 31, 2012 | December 31, 2011 | ||||||
| Net (loss) income | $ | (3,857,024 | ) | $ | 19,585 | |||
| Less other income from change in fair value of warrants assumed exercised | -- | (730,862 | ) | |||||
| Adjusted net loss | $ | (3,857,024 | ) | $ | (711,277 | ) | ||
| Diluted shares outstanding | ||||||||
| Weighted average shares outstanding, | 273,567 | 131,285 | ||||||
| Shares assumed exercised | -- | 7,061 | ||||||
| Diluted shares outstanding | 273,567 | 138,346 | ||||||
| Net loss per share, diluted | $ | (14.10 | ) | $ | (5.14 | ) | ||
| 2012 | 2011 | |||||||
| Computers | $ | 9,000 | $ | 7,000 | ||||
| Office furniture and equipment | 94,000 | 94,000 | ||||||
| Leasehold improvements | 229,000 | 229,000 | ||||||
| Total cost | 332,000 | 330,000 | ||||||
| Accumulated depreciation and amortization | (308,000 | ) | (245,000 | ) | ||||
| Property and equipment, net | $ | 24,000 | $ | 85,000 | ||||
| 2012 | 2011 | |||||||
| Accounts payable | $ | 210,000 | $ | 106,000 | ||||
| Accrued expenses | 218,000 | 164,000 | ||||||
| $ | 428,000 | $ | 270,000 | |||||
| 2012 | 2011 | |||||||
| Accrued Payroll | $ | 21,000 | $ | 29,000 | ||||
| Accrued annual bonuses | 173,000 | 176,000 | ||||||
| Accrued severance | 40,000 | - | ||||||
| Accrued vacation | 42,000 | 38,000 | ||||||
| Other | 4,000 | - | ||||||
| $ | 280,000 | $ | 243,000 | |||||
| Warrant | Exercise | Estimated fair value | Change in estimated fair value | |||||||||||||||||||||
| Date | Shares | Price | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
| 11/16/2009 | 5,522 | $ | 650.00 | $ | - | $ | 41,000 | $ | (40,000 | ) | $ | (524,000 | ) | |||||||||||
11/16/2009 | 414 | $ | 575.00 | - | - | - | (1,000 | ) | ||||||||||||||||
| 10/7/2010 | 10,500 | $ | 300.00 | 3,000 | 157,000 | (154,000 | ) | (1,069,000 | ) | |||||||||||||||
| 10/7/2010 | 630 | $ | 312.50 | - | - | - | (50,000 | ) | ||||||||||||||||
| 1/19/2011 | 10,673 | $ | 160.00 | 7,000 | 184,000 | (177,000 | ) | (1,277,000 | ) | |||||||||||||||
| 1/19/2011 | 640 | $ | 162.50 | - | 1,000 | (1,000 | ) | (65,000 | ) | |||||||||||||||
| 10/25/2011 | 26,628 | $ | 44.80 | 106,000 | 528,000 | (422,000 | ) | (709,000 | ) | |||||||||||||||
10/25/2011 | 799 | $ | 59.13 | - | 6,000 | (6,000 | ) | (22,000 | ) | |||||||||||||||
| 2/2/2012 | 10,648 | $ | 28.00 | 49,000 | - | (144,000 | ) | - | ||||||||||||||||
| 2/2/2012 | 1,597 | $ | 27.00 | - | - | (21,000 | ) | - | ||||||||||||||||
| 11/8/2012 | 483,657 | $ | 6.53 | 2,960,000 | - | (237,000 | ) | - | ||||||||||||||||
| 3,125,000 | $ | 917,000 | $ | (1,202,000 | ) | $ | (3,717,000 | ) | ||||||||||||||||
| As of December 31, 2011 | ||||||||||||||||||||||||
| Grant Date | 11/16/09 | 10/07/10 | 01/19/11 | 10/25/11 | ||||||||||||||||||||
| Shares | 5,522 | 10,500 | 10,673 | 26,628 | ||||||||||||||||||||
| Stock price | $ | 23.40 | $ | 23.40 | $ | 23.40 | $ | 23.40 | ||||||||||||||||
| Exercise price | $ | 650.00 | $ | 300.00 | $ | 160.00 | $ | 44.80 | ||||||||||||||||
| Expected terms (yrs) | 2.9 | 3.8 | 4.1 | 4.8 | ||||||||||||||||||||
| Risk-free interest rate | 0.36 | % | 0.60 | % | 0.60 | % | 0.83 | % | ||||||||||||||||
| Estimated volatility | 144.55 | % | 156.71 | % | 156.71 | % | 143.85 | % | ||||||||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||
| Grant Date | 11/16/09 | 10/07/10 | 01/19/11 | 10/25/11 | 02/02/12 | 11/08/12 | ||||||||||||||||||
| Shares | 5,522 | 10,500 | 10,673 | 26,628 | 10,648 | 483,657 | ||||||||||||||||||
| Stock price | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | $ | 6.83 | ||||||||||||
| Exercise price | $ | 650.00 | $ | 300.00 | $ | 160.00 | $ | 44.80 | $ | 28.00 | $ | 6.53 | ||||||||||||
| Expected terms (yrs) | 1.9 | 2.8 | 3.1 | 3.8 | 4.1 | 4.9 | ||||||||||||||||||
| Risk-free interest rate | 0.25 | % | 0.36 | % | 0.36 | % | 0.54 | % | 0.54 | % | 0.72 | % | ||||||||||||
| Estimated volatility | 110.99 | % | 101.94 | % | 101.94 | % | 133.28 | % | 133.28 | % | 146.03 | % | ||||||||||||
| As of the date of issuance for warrants issued in 2011 and 2012 | ||||||||||||||||||||||||
| Grant Date | 01/19/11 | 10/25/11 | 02/02/12 | 11/08/12 | ||||||||||||||||||||
| Shares | 10,673 | 26,628 | 10,648 | 483,657 | ||||||||||||||||||||
| Stock price | $ | 155.00 | $ | 51.40 | $ | 20.60 | $ | 7.31 | ||||||||||||||||
| Exercise price | $ | 160.00 | $ | 44.80 | $ | 28.00 | $ | 6.53 | ||||||||||||||||
| Expected terms (yrs) | 5 | 5 | 5 | 5 | ||||||||||||||||||||
| Risk-free interest rate | 1.95 | % | 1.01 | % | 0.71 | % | 0.65 | % | ||||||||||||||||
| Estimated volatility | 138.7 | % | 144.6 | % | 144.7 | % | 146.0 | % | ||||||||||||||||
| 11-16-2012 | 8-14-2012 | 5-15-2012 | 11-15-2011 | |||||||||||||
| Risk-free interest rate | 0.62 | % | 0.75 | % | 0.74 | % | 0.93 | % | ||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Expected life (years) | 5 | 5 | 5 | 5 | ||||||||||||
| Volatility | 91.3 | % | 111.8 | % | 122.7 | % | 130.0 | % |
| 2012 | 2011 | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | Shares | Weighted Average Exercise Price | |||||||||||||||||||
| Outstanding at beginning of year | 2,426 | $ | 53.60 | 316 | $ | 322.00 | ||||||||||||||||||
| Granted | 5,487 | $ | 10.93 | 2,250 | $ | 40.00 | ||||||||||||||||||
| Exercised | - | $ | - | - | $ | - | ||||||||||||||||||
| Expired or forfeited | (750 | ) | $ | 40.00 | (140 | ) | $ | 440.00 | ||||||||||||||||
| Outstanding at end of year | 7,163 | $ | 22.34 | 4.4 | $ | - | 2,426 | $ | 53.60 | |||||||||||||||
| Exercisable at end of year | 6,788 | $ | 21.36 | 4.5 | $ | - | 1,176 | |||||||||||||||||
| Weighted-average fair value of | ||||||||||||||||||||||||
| options granted during the year | $ | 8.44 | $ | 34.20 | ||||||||||||||||||||
| Price range of options | ||||||||||||||||||||||||
| Outstanding | $ | 9.80-$228.00 | $ | 40.00-$228.00 | ||||||||||||||||||||
| Exercised | $ | - | $ | - | ||||||||||||||||||||
| Expired or forfeited | $ | 40.00 | $ | 440.00 | ||||||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Number of Options | Weighted Average Exercise Price | |||||||||||||||||
| $ | 9.80-$15.20 | 5,488 | $ | 10.93 | 4.7 | 5,488 | $ | 10.93 | ||||||||||||||
| $ | 40.00 | 1,500 | $ | 40.00 | 3.9 | 1,125 | $ | 40.00 | ||||||||||||||
| $ | 228.00 | 175 | $ | 228.00 | 2.4 | 175 | $ | 228.00 | ||||||||||||||
| 7,163 | 6,788 | |||||||||||||||||||||
| 2012 | 2011 | |||||||
| U.S. Federal income tax expense | $ | - | $ | (13,000 | ) | |||
| State and local income tax expense | $ | - | $ | (1,000 | ) | |||
| Total income tax expense | $ | - | $ | (14,000 | ) | |||
| 2012 | 2011 | |||||||
| Current income tax expense | $ | - | $ | (14,000 | ) | |||
| Deferred income tax expense | $ | - | $ | - | ||||
| Total income tax expense | $ | - | $ | (14,000 | ) | |||
| 2012 | 2011 | |||||||
| Deferred tax assets | ||||||||
| Deferred rent | $ | 17,000 | $ | 19,000 | ||||
| Accrued vacation | 16,000 | 15,000 | ||||||
| Tax credit/grants | 82,000 | 82,000 | ||||||
| Deferred compensation | 16,000 | - | ||||||
| Net operating loss carryforward | 16,852,000 | 15,467,000 | ||||||
| Accrued bonus | 68,000 | 68,000 | ||||||
| Stock based compensation | 45,000 | 25,000 | ||||||
| Accrued expenses | 38,000 | 38,000 | ||||||
| Property and equipment | 19,000 | - | ||||||
| Warrants | 3,683,000 | 2,813,000 | ||||||
| Warrants - issuance costs | 553,000 | 211,000 | ||||||
| Other | 1,000 | 5,000 | ||||||
| Total deferred tax asset | 20,837,000 | 18,532,000 | ||||||
| Deferred tax liabilities | ||||||||
| Property and equipment | - | (3,000 | ) | |||||
| Change in accounting method - accrued bonus | - | (20,000 | ) | |||||
| - | (23,000 | ) | ||||||
| Valuation allowance | (20,837,000 | ) | (18,509,000 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
| 2012 | 2011 | |||||||
| U.S. Federal income tax benefit at the statutory rate of 34% | $ | 982,000 | $ | (142,000 | ) | |||
| Effect of permanent differences | 4,000 | (9,000 | ) | |||||
| Effect of permanent differences - Government Grant | - | 4,000 | ||||||
| Effect of permanent differences - Warrants | 114,000 | 1,184,000 | ||||||
| State income taxes benefit, net of federal tax benefit | 99,000 | 251,000 | ||||||
| Other | (1,000 | ) | (78,000 | ) | ||||
| Change in valuation allowance | (1,198,000 | ) | (1,224,000 | ) | ||||
| Income tax expense | $ | - | $ | (14,000 | ) | |||
| Year Ending December 31, | Operating Lease | |||
| 2013 | $ | 156,000 | ||
| 2014 | 161,000 | |||
| 2015 | 165,000 | |||
| 2016 | 170,000 | |||
| 2017 | 176,000 | |||
| 2018 | 44,000 | |||
| $ | 872,000 | |||
| September 30, 2013 | December 31, 2012 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | 2,541,743 | $ | 4,498,237 | ||||
| Other receivables | - | 3,425 | ||||||
| Prepaid expneses and other assets | 51,074 | 100,474 | ||||||
| Assets of segment held for sale | - | 104,265 | ||||||
| Total current assets | 2,592,817 | 4,706,401 | ||||||
| Other assets | ||||||||
Property and equipment, net of accumulated depreciation of $332,395 and $308,386 | - | 24,009 | ||||||
Patent portfolio, net of accumulated amortization of $133,785 and $0 | 4,967,911 | - | ||||||
| Deposit | 29,505 | 25,625 | ||||||
| Goodwill | 1,711,883 | - | ||||||
| Total assets | $ | 9,302,116 | $ | 4,756,035 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 486,136 | $ | 425,774 | ||||
| Accrued salaries and benefits | 48,505 | 280,263 | ||||||
| Accrued patent costs | 1,000,000 | - | ||||||
| Liabilities of segment held for sale | 2,551 | 25,040 | ||||||
| Total current liabilities | 1,537,192 | 731,077 | ||||||
| Deferred rent | 45,008 | 45,081 | ||||||
| Warrant liabilities | 39,923 | 3,125,393 | ||||||
| Total liabilities | 1,622,123 | 3,901,551 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity | ||||||||
| Convertible preferred stock, $0.0001 par value, 5,000,000 shares authorized; | ||||||||
Series A: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $1,000 per share | - | - | ||||||
Series B: 1 share issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $1,000 per share | - | - | ||||||
Series C: 1 and no shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Series D: 1,379,685 and no shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | 138 | - | ||||||
Series E: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Series F: No shares issued and outstanding, at September 30, 2013 and December 31, 2012; liquidation preference $0.0001 per share | - | - | ||||||
Common stock, $0.0001 par value, 50,000,000 shares authorized; 2,430,305 and 814,114 shares issued at September 30, 2013 and December 31, 2012, respectively; 2,429,904 and 813,713 shares outstanding at September 30, 2013 and December 31, 2012, respectively | 244 | 82 | ||||||
| Additional paid in capital | 57,239,275 | 36,630,406 | ||||||
Treasury stock at cost, 401 shares at September 30, 2013 and December 31, 2012, respectively | (464,786 | ) | (464,786 | ) | ||||
| Accumulated deficit | (49,094,878 | ) | (35,311,218 | ) | ||||
| Total stockholders' equity | 7,679,993 | 854,484 | ||||||
| Total liabilities and stockholders' equity | $ | 9,302,116 | $ | 4,756,035 | ||||
For the Three Months Ended September 30, 2013 (Unaudited) | For the Three Months Ended September 30, 2012 (Unaudited) | For the Nine Months Ended September 30, 2013 (Unaudited) | For the Nine Months Ended September 30, 2012 (Unaudited) | |||||||||||
| Revenues | $ | 1,837 | $ | 16,710 | $ | 7,811 | $ | 16,710 | ||||||
| Operating costs and expenses | ||||||||||||||
| Amortization of patents | 133,785 | - | 133,785 | - | ||||||||||
| Compensation and compensation related expenses (including stock based compensation) | 6,392,503 | 89,959 | 7,129,025 | 492,456 | ||||||||||
| Research and development expenses | 9,648 | 107,817 | 9,648 | 617,469 | ||||||||||
| Professional fees | 2,139,977 | 316,671 | 2,867,945 | 848,498 | ||||||||||
| Rent | 60,433 | 42,905 | 132,475 | 121,630 | ||||||||||
| Depreciation expense | 2,519 | 16,993 | 24,009 | 50,936 | ||||||||||
| Other selling, general and administrative expenses | 579,740 | 76,010 | 884,858 | 252,201 | ||||||||||
| Total operating expenses | 9,318,605 | 650,355 | 11,181,745 | 2,383,190 | ||||||||||
| Operating loss | (9,316,768) | (633,645) | (11,173,934) | (2,366,480) | ||||||||||
| Interest income | 202 | 830 | 739 | 2,774 | ||||||||||
| Fair value adjustments for warrant liabilities | 36,583 | 58,413 | (2,610,465) | 740,605 | ||||||||||
| Loss from continuing operations before taxes | (9,279,983) | (574,402) | (13,783,660) | (1,623,101) | ||||||||||
| Income tax expense | - | - | - | - | ||||||||||
| Loss from continuing operations | (9,279,983) | (574,402) | (13,783,660) | (1,623,101) | ||||||||||
| Discontinued operations | ||||||||||||||
| Loss from discontinued operations before tax | - | (133,148) | - | (323,423) | ||||||||||
| Income tax expense | - | - | - | - | ||||||||||
| Loss from discontinued operations | - | (133,148) | - | (323,423) | ||||||||||
| Net loss | $ | (9,279,983) | $ | (707,550) | $ | (13,783,660) | $ | (1,946,524) | ||||||
| Net loss per share, basic and diluted | ||||||||||||||
| Continuing operations | $ | (6.93) | $ | (2.76) | $ | (14.43) | $ | (8.09) | ||||||
| Discontinued operations | $ | - | $ | (0.64) | $ | - | $ | (1.61) | ||||||
| Net loss per share, basic and diluted | $ | (6.93) | $ | (3.40) | $ | (14.43) | $ | (9.70) | ||||||
| Weighted average shares outstanding, basic and diluted | 1,339,300 | 207,806 | 955,292 | 200,547 | ||||||||||
For the Nine Months Ended | For the Nine Months Ended | |||||||
| September 30, 2013 | September 30, 2012 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (13,783,660 | ) | $ | (1,946,524 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Provision for doubtful accounts | - | (8,174 | ) | |||||
| Depreciation | 24,009 | 50,936 | ||||||
| Fair value adjustments for warrant liabilities | 2,610,465 | (740,605 | ) | |||||
| Stock based compensation | 7,402,485 | 40,350 | ||||||
| Amortization of patent portfolio | 133,785 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 60,023 | 316,041 | ||||||
| Accounts receivable | - | 103,746 | ||||||
| Other receivables | 3,425 | - | ||||||
| Accounts payable, accrued expenses and accrued salaries and benefits | (171,396 | ) | (151,994 | ) | ||||
| Deferred payables | (73 | ) | 5,206 | |||||
| Net cash used in continuing operations | (3,720,937 | ) | (2,331,018 | ) | ||||
| Net cash provided by discontinued operations | 81,776 | 17,636 | ||||||
| Net cash used in operating activities | (3,639,161 | ) | (2,313,382 | ) | ||||
| Cash flows from investing activities | ||||||||
| Cash acquired in acquisition of North South | 2,684,363 | - | ||||||
| Purchase of property and equipment | - | (1,599 | ) | |||||
| Purchase of patent portfolio | (2,001,696 | ) | - | |||||
| Net cash provided by (used in) investing activities | 682,667 | (1,599 | ) | |||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of note payable | 500,000 | - | ||||||
| Proceeds received from issuance of preferred stock | 500,000 | 1,055,353 | ||||||
| Reverse stock split fractional share payment | - | (1,685 | ) | |||||
| Net cash provided by financing activiites | 1,000,000 | 1,053,668 | ||||||
| Net decrease in cash | (1,956,494 | ) | (1,261,313 | ) | ||||
| Cash at beginning of period | 4,498,237 | 4,911,350 | ||||||
| Cash at end of period | $ | 2,541,743 | $ | 3,650,037 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| Supplemental disclosure of non cash activity | ||||||||
| Issuance of Convertible Preferred Stock - Series C in connection with exchange of warrants | $ | 5,695,935 | $ | - | ||||
| Conversion of Convertible Preferred Stock - Series C into common stock | $ | 23 | $ | - | ||||
| Issuance of common stock in connection with cashless exercise of warrants | $ | 1 | $ | - | ||||
| Issuance of common stock in connection with acquisition of patent portfolio | $ | 1,000,000 | $ | - | ||||
| Accrued patent costs | $ | 1,000,000 | $ | - | ||||
| Acquisition of North South Holdings: | ||||||||
| Prepaid expenses | $ | (14,503 | ) | $ | - | |||
| Patent portfolio | (1,100,000 | ) | - | |||||
| Goodwill | (1,711,883 | ) | - | |||||
| Common and preferred stock issued | 5,510,749 | - | ||||||
| Cash acquired in acquisition of North South | $ | 2,684,363 | $ | - | ||||
We are subject to the information and periodic reporting requirements of its cash flows for the nine-month periods ended September 30, 2013Exchange Act and, 2012. This report should be read in conjunctionaccordance therewith, file periodic reports, proxy statements and other information with the Company’s Annual ReportSEC. Such periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website atwww.spherix.com. The reference to our website address does not constitute incorporation by reference of the information contained on Form 10-K,our website, and you should not consider the contents of our website in making an investment decision with respect to our common stock.
You may request and obtain a copy of any of the filings incorporated herein by reference, at no cost, by writing or telephoning us at the following address or phone number:
Spherix Incorporated
6430 Rockledge Drive #503
Bethesda, Maryland 20817
Attention: Anthony Hayes, Chief Executive Officer
Telephone: (646) 532-2964
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus omits some information contained in the registration statement in accordance with SEC rules and regulations. You should review the information and exhibits included in the registration statement of which does containthis prospectus is a part for further information about us and the securities we are offering. Statements in this prospectus concerning any document we filed as an exhibit to the registration statement or that we otherwise filed with the SEC are not intended to be comprehensive and are qualified by reference to these filings. You should review the complete document to evaluate these statements.
The SEC allows us to “incorporate by reference” information and disclosure, forwe file with it, which means that we can disclose important information to you by referring you to other documents. The information incorporated by reference is considered to be a part of this prospectus. Information contained in this prospectus supersedes information incorporated by reference that we have filed with the year ended December 31, 2012.
We incorporate by reference the following documents listed below (excluding any document or portion thereof to the extent such disclosure is furnished and Directional IP, LLC. (“Directional”). All significant intercompany balances and transactions have been eliminated in consolidation.
| • | Our Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014, filed with the SEC on April 30, 2015; | |
| • | Our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 30, 2015; | |
| • | Our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 31, 2014; | |
| • | Our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2015 and March 31, 2015, filed with the SEC on August 14, 2015 and May 8, 2015, respectively; | |
| • | Our Current Reports on Form 8-K filed with the SEC on February 3, 2015, March 4, 2015, March 20, 2015, March 27, 2015, July 2, 2015, July 2, 2015, July 13, 2015, July 15, 2015, July 17, 2015 and August 19, 2015, respectively. |
The Company’s business will require significant amounts of capitalSpherix Incorporated
Up to sustain operations and make the investments it needs to execute its longer term business plan. The Company’s working capital amounted to $1,055,625 and $3,975,324 at September 30, 2013 and December 31, 2012, respectively and, cash on hand amounted to $2,541,743 and $4,498,237, respectively. Upon closing of the Merger on September 10, 2013, the North South cash balance (approximately $2,684,363) became available for the operations of the Company.
PROSPECTUS
Rodman & Renshaw
In addition, the costsa unit of enforcing the Company’s patent rights may exceed its recoveries from such enforcement activities. Accordingly, in order for the Company to generate a profit from its patent enforcement and monetization activities, the revenues from such enforcement and monetization activities must be high enough to offset both the cash outlays and the contingent fees payable from such revenues, including any profit sharing arrangements with inventors or prior owners of the patents. The Company’s failure to monetize its patent assets or the occurrence of unforeseen circumstances that could have a negative impact on the Company’s liquidity could significantly harm its business.H.C. Wainwright & Co.
Should the Company be unsuccessful in its efforts to execute its business plan, it could become necessary for the Company to reduce expenses, curtail its operation or explore various alternative business opportunities or possibly suspend or discontinue its business activities., 2015
PART II
Revenue Recognition
For the Years Ending December 31 | Harris Patent Portfolio | CompuFill Patent Portfolio | Rockstar Patent Portfolio | Other Costs | Total Amortization | |||||||||||||||||
| 2013 | * | $ | 11,765 | $ | 10,294 | $ | 247,001 | $ | 10,344 | $ | 279,404 | |||||||||||
| 2014 | 47,059 | 41,176 | 795,348 | 41,376 | 924,959 | |||||||||||||||||
| 2015 | 47,059 | 41,176 | 672,310 | 41,376 | 801,921 | |||||||||||||||||
| 2016 | 47,059 | 41,176 | 672,310 | 41,376 | 801,921 | |||||||||||||||||
| 2017 | 47,059 | 41,176 | 433,918 | 41,376 | 563,529 | |||||||||||||||||
| Thereafter | 196,077 | 171,571 | 1,056,112 | 172,417 | 1,596,177 | |||||||||||||||||
| Total | $ | 396,078 | $ | 346,569 | $ | 3,876,999 | $ | 348,265 | $ | 4,967,911 | ||||||||||||
| September 30, 2013 | September 30, 2012 | |||||||
| Convertible preferred stock | 13,796,852 | 4 | ||||||
| Warrants to purchase common stock | 66,062 | 67,637 | ||||||
| Non-vested restricted stock awards | 250 | - | ||||||
| Options to purchase common stock | 2,012,163 | 2,425 | ||||||
| Total | 15,875,327 | 70,066 | ||||||
| Purchase Consideration: | ||||
| Value of common stock and convertible preferred stock issued to sellers | $ | 5,510,749 | ||
| Tangible assets acquired: | ||||
| Cash | 2,684,363 | |||
| Prepaid expenses | 14,503 | |||
| Net tangible assets acquired | 2,698,866 | |||
| Purchase consideration in excess of fair value of net tangible assets | 2,811,883 | |||
| Allocated to: | ||||
| Patent portfolios | 1,100,000 | |||
| Goodwill | 1,711,883 | |||
| $ | - |
| For the nine months ended September 30, 2013 | For the nine months ended September 30, 2012 | For the three months ended September 30, 2013 | For the three months ended September 30, 2012 | |||||||||||||
| Revenues | $ | 101,811 | $ | 16,710 | $ | 95,837 | $ | 16,710 | ||||||||
| Net loss | $ | (14,214,571 | ) | $ | (1,720,160 | ) | $ | (9,421,574 | ) | $ | (606,755 | ) | ||||
| Loss per share- basic and diluted | $ | (6.84 | ) | $ | (1.23 | ) | $ | (4.08 | ) | $ | (0.43 | ) | ||||
Preferred Stock | Number of Shares Issued | Par Value | Conversion to Common Stock | |||||||||
| Series “A" (1) | 0 | $ | .0001 | N/A | ||||||||
| Series “B" (2) | 1 | $ | .0001 | 1:1 | ||||||||
| Series “C" (3) | 1 | $ | .0001 | 1:1 | ||||||||
| Series “D” (4) | 1,379,685 | $ | .0001 | 10:1 | ||||||||
| Series “E” (5) | 0 | $ | .0001 | 1:1 | ||||||||
| Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2012 | 7,163 | $ | 22.34 | 4.4 | ||||||||||||
| Granted | 2,005,500 | $ | 7.08 | 9.5 | ||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Expired or forfeited | (500 | ) | $ | (25.00 | ) | |||||||||||
| Outstanding at September 30, 2013 | 2,012,163 | $ | 7.13 | 9.5 | $ | 1,724,730 | ||||||||||
| Options exercisable at September 30, 2013 | 36,663 | $ | 7.43 | 9.5 | $ | 25,800 | ||||||||||
Number of Units | Weighted Average Grant Date Fair Value | ||||
| Nonvested at January 1, 2013 | 122,500 | $6.83 | |||
| Granted | - | ||||
| Vested | (120,250) | ($6.80) | |||
| Forfeited | (2,000) | ($6.83) | |||
| Nonvested at September 30, 2013 | 250 | $6.83 | |||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Stock Options with: | ||||||||||||||||
| Service conditions only | $ | 4,716,070 | $ | - | $ | 4,718,214 | $ | 40,000 | ||||||||
| Combined market and service conditions | 306,250 | - | 306,250 | - | ||||||||||||
| Combined market and performance conditions | 1,555,535 | - | 1,555,535 | - | ||||||||||||
| Restricted stock | 816,000 | - | 822,486 | - | ||||||||||||
| $ | 7,393,855 | $ | - | $ | 7,402,485 | $ | 40,000 | |||||||||
| Fair value measurements at September 30, 2013 using | |||||||||||||||||
| September 30, 2013 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
| Liabilities: | |||||||||||||||||
| Fair value of warrant liabilities | $ | 39,923 | – | – | $ | 39,923 | |||||||||||
| Fair value measurements at December 31, 2012 using | ||||||||||||||||
| December 31, 2012 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Fair value of warrant liabilities | $ | 3,125,393 | – | – | $ | 3,125,393 | ||||||||||
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Warrants: | ||||||||
| Risk-free interest rate | 0.04% - 1.42 | % | 0.16% - 0.72 | % | ||||
| Expected volatility | 55.12%-72.94 | % | 91.79% - 146.03 | % | ||||
| Expected life (in years) | 0.1-3.3 | 0.8 - 4.9 | ||||||
| Expected dividend yield | - | - | ||||||
| Number of warrants | 66,062 | 550,664 | ||||||
| Fair value | $ | 39,923 | $ | 3,125,393 | ||||
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis for the nine months ended September 30:
| 2013 | 2012 | |||||||
| Beginning balance | $ | 3,125,393 | $ | 916,621 | ||||
| Issuance of new warrants | - | 214,288 | ||||||
| Fair value adjustments for | ||||||||
| warrant liabilities | 2,610,465 | (740,605 | ) | |||||
| Reclassification to | ||||||||
| stockholders’ equity | (5,695,935 | ) | - | |||||
| Ending balance | $ | 39,923 | $ | 390,304 | ||||
| Operating | ||||
| Year Ending December 31, | Leases | |||
| 2013 | $ | 44,819 | ||
| 2014 | 176,014 | |||
| 2015 | 165,427 | |||
| 2016 | 170,390 | |||
| 2017 | 175,502 | |||
| 2018 | 44,197 | |||
| $ | 776,349 | |||
| June 30, | ||||||||
| ASSETS | 2013 | December 31, | ||||||
| (Unaudited) | 2012 | |||||||
| Current assets: | ||||||||
| Cash | $ | 1,630,166 | $ | 549,047 | ||||
| Accounts receivable | 94,000 | - | ||||||
| Prepaid expenses | 29,425 | - | ||||||
| Total current assets | 1,753,591 | 549,047 | ||||||
| Other assets: | ||||||||
| Patent portfolio, net | 792,370 | 415,000 | ||||||
| Investment in Spherix Corp. | 500,000 | - | ||||||
| Total other assets | 1,292,370 | 415,000 | ||||||
| Total assets | $ | 3,045,961 | $ | 964,047 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 24,000 | $ | - | ||||
| Patent settlement and inventor royalty payables | 47,648 | - | ||||||
| Total current liabilities | 71,648 | - | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, par value $ 0.0001 per share; 1,000 shares authorized; Series A Convertible Preferred Stock; 500 shares, issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
| Series B Convertible Preferred Stock; 128 and no shares, issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
| Common Stock, par value $0.0001 per share; 75,000 shares authorized, 500 shares issued and outstanding at June 30, 2013 and December 31, 2012 | - | - | ||||||
| Additional paid in capital | 3,234,880 | 1,000,000 | ||||||
| Deficit accumulated during the development stage | (260,567 | ) | (35,953 | ) | ||||
| Total stockholders' equity | 2,974,313 | 964,047 | ||||||
| Total liabilities and stockholders' equity | $ | 3,045,961 | $ | 964,047 | ||||
| For the | For the | |||||||||||
| Period from | Period from | |||||||||||
For the Six Months | November 9, 2012 through | November 9, 2012through | ||||||||||
| June 30, 2013 | December 31, | June 30, 2013 | ||||||||||
| (Unaudited) | 2012 | (Unaudited) | ||||||||||
| Revenue | $ | 94,000 | $ | - | $ | 94,000 | ||||||
| Operating cost and expenses | ||||||||||||
| Cost of revenues | ||||||||||||
| Legal settlement and maintenance fees | 125,347 | - | 125,347 | |||||||||
| Inventor royalty fees | 30,208 | - | 30,208 | |||||||||
| Amortization of patents | 34,514 | - | 34,514 | |||||||||
| Director's fees | 35,460 | 5,100 | 40,560 | |||||||||
| Legal fees | 27,743 | 30,853 | 58,596 | |||||||||
| Professional fees | 55,480 | - | 55,480 | |||||||||
| Other fees and expenses | 9,862 | - | 9,862 | |||||||||
| Total operating expenses | 318,614 | 35,953 | 354,567 | |||||||||
| Net loss | $ | (224,614 | ) | $ | (35,953 | ) | $ | (260,567 | ) | |||
| Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Deficit Accumulated | |||||||||||||||||||||||||||||||||
| Additional Paid | During the Development | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Stage | Total | ||||||||||||||||||||||||||||
| Balance at November 9, 2012 | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||
| Issuance of shares to founders in exchange for intial capital contributions (500 shares of common stock at $0.0001 per share and 500 shares of convertible preferred stock at $2,000 per share) | 500 | - | - | - | 500 | - | 1,000,000 | - | 1,000,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (35,953 | ) | (35,953 | ) | |||||||||||||||||||||||||
| Balance at December 31, 2012 | 500 | - | - | - | 500 | - | 1,000,000 | (35,953 | ) | 964,047 | ||||||||||||||||||||||||||
| Issuance of Series B convertible preferred stock (unaudited) | - | - | 128 | - | - | - | 2,234,880 | - | 2,234,880 | |||||||||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (224,614 | ) | (224,614 | ) | |||||||||||||||||||||||||
| Balance at June 30, 2013 (Unaudited) | 500 | $ | - | 128 | $ | - | 500 | $ | - | $ | 3,234,880 | $ | (260,567 | ) | $ | 2,974,313 | ||||||||||||||||||||
For the Period from | For the Period from | |||||||||||
For the Six Months | November 9, 2012 through | November 9, 2012 through | ||||||||||
June 30, 2013 (Unaudited) | December 31, 2012 | June 30, 2013 (Unaudited) | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (224,614 | ) | $ | (35,953 | ) | $ | (260,567 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Amortization | 34,514 | - | 34,514 | |||||||||
| Changes in assets and liabilities which used cash: | ||||||||||||
| Changes in accounts receivable | (94,000 | ) | - | (94,000 | ) | |||||||
| Changes in prepaid expenses | (29,425 | ) | - | (29,425 | ) | |||||||
| Changes in accrued expenses | 71,648 | - | 71,648 | |||||||||
| Net cash used in operating activities | (241,877 | ) | (35,953 | ) | (277,830 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of patent portfolios | (411,884 | ) | (415,000 | ) | (826,884 | ) | ||||||
| Investment in Spherix Corp. | (500,000 | ) | - | (500,000 | ) | |||||||
| Net cash used in investing activities | (911,884 | ) | (415,000 | ) | (1,326,884 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of shares to founders in exchange for initial capital contributions | - | 1,000,000 | 1,000,000 | |||||||||
| Issuance of Series B convertible preferred stock | 2,234,880 | - | 2,234,880 | |||||||||
| Net cash provided by financing activities | 2,234,880 | 1,000,000 | 3,234,880 | |||||||||
| Net increase in cash | 1,081,119 | 549,047 | 1,630,166 | |||||||||
| Cash, beginning of period | 549,047 | - | - | |||||||||
| Cash, end of period | $ | 1,630,166 | $ | 549,047 | $ | 1,630,166 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid during the year for: | ||||||||||||
| Interest | $ | - | $ | - | $ | - | ||||||
| Income taxes | $ | - | $ | - | $ | - | ||||||
For the Years Ending December 31 | Harris Patent Portfolio | CompuFill Patent Portfolio | Other Costs | Total Amortization | ||||||||||||||
| 2013 | * | 23,529 | 20,588 | 4,523 | 48,640 | |||||||||||||
| 2014 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
| 2015 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
| 2016 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
| 2017 | 47,059 | 41,176 | 9,045 | 97,280 | ||||||||||||||
| Thereafter | 164,706 | 156,130 | 33,774 | 354,610 | ||||||||||||||
| Total | 376,471 | 341,422 | 74,477 | 792,370 | ||||||||||||||
Item | Amount to be paid | |||
| SEC registration fee | $ | 1,162 | ||
| FINRA filing fee | * | |||
| Printing and engraving expenses | * | |||
| Legal fees and expenses | * | |||
| Accounting fees and expenses | * | |||
| Blue Sky, qualification fees and expenses | * | |||
| Transfer Agent fees and expenses | * | |||
| Miscellaneous expenses | * | |||
| Total | $ | * | ||
| * | ||||
| To be provided in amendment. | ||||
| Deferred tax assets: | ||||
| Net operating loss carryforward | $ | 2,200 | ||
| Deferred start-up and organizational expenses | 11,822 | |||
| Valuation allowance | (14,022) | |||
| Net deferred tax asset | $ | – | ||
| SEC registration fee | $ | 2,559.45 | ||
Transfer agent’s fees and expenses | $ | 2,000 | * | |
Legal fees and expenses | $ | 15,000 | * | |
Printing fees and expenses | $ | 2,500 | * | |
Accounting fees and expenses | $ | 100,000 | * | |
Miscellaneous fees and expenses | $ | 1,000 | * | |
Total | $ | 123,059.45 | * | |
Section 145 of the General Corporation Law of the State of DelawareDCGL provides, in general, that a corporation incorporated under the laws of the State of Delaware, as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably entitled to indemnity for such expenses.
Our certificate of incorporation and bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the General Corporation Law of the State of Delaware,DCGL, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.
| II-1 |
We have entered into indemnification agreements with all of our executive officers and directors. These agreements provide, subject to limited exceptions and among other things, for the indemnification to the fullest extent permitted or required by Delaware law, provided however, that no director or officer shall be entitled to indemnification in connection with (i) any “claim” (as such term is defined in the agreement) initiated by him or her against the Company or the Company’s directors or officers unless the Company joins or consent to the initiation of such claim, or (ii) the purchase and sale of securities by him or her in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended. Our indemnification agreements also provide for the advancement of expenses (including attorneys’ fees) incurred by the indemnitee in connection with any action, suit, or proceeding (subject to the terms and conditions set forth therein). The indemnification agreements contain certain exclusions, including proceedings initiated by the indemnitee unless the Company has joined in or consented to the initiation of such claim.
We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the General Corporation LawDCGL would permit indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered in the Securities Act.
On June 15, 2015, the Company entered into a consulting agreement with a third party for three months of investor relations services. The Company agreed to pay the consultant a monthly fee of $5,000 for three months commencing on June 15, 2015, and granted 45,000 shares of restricted stock valued at $27,000 in the aggregate. The restricted stock awards vest monthly for each of the Statethree months following the grant date.
On June 10, 2015, the Company entered into a consulting agreement with a third party for three months of Delaware would permit indemnification.
Each of the above issuances was made in reliance on exemptions under Section 4(a)(2) under the Securities Act of 1933, as amended, and the Company received no proceeds from these issuances.
On December 31, 2013, we issued (i) 199,990 shares of common stock, (ii) 459,043 shares of Series H Preferred Stock, each of which is convertible into ten shares of common stock and (iii) 119,760 shares of Series I Preferred Stock, each of which is convertible into twenty shares of common stock to Rockstar Consortium US LP (“Rockstar”) in consideration for the purchase of approximately 101 patents and patent applications and related rights.
These securities were sold and issued to “accredited investors,” as such term is defined in the Securities Act and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws.
In December 2013, we entered into separate Amendment and Exchange Agreements with the holders of our outstanding shares of Series D Preferred Stock pursuant to which such holders agreed to return their shares of Series D Preferred Stock to us for cancellation in consideration for which we issued such holder an equal number of shares of Series D-1 Preferred Stock. Each share of Series D-1 Preferred Stock is entitled to one vote per share (subject to beneficial ownership limitations described below) and shall vote together with holders of our common stock. Each share of Series D-1 Preferred Stock is convertible into one share of our common stock and has a stated value of $0.0001. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We are prohibited from effecting the conversion of the Series D-1 Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D-1 Preferred Stock.
The securities referenced above were sold and issued to “accredited investors,” as such term is defined in the Securities Act and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws.
| II-2 |
On November 26, 2013, we entered into separate Amendment and Exchange Agreements with the holders of our outstanding shares of Series F Preferred Stock pursuant to which such holders agreed to return their shares of Series F Preferred Stock to us for cancellation in consideration for which we issued such holder an equal number of shares of Series F-1 Preferred Stock. Each share of Series F-1 Preferred Stock is entitled to 91% of one vote per share (subject to beneficial ownership limitations described below) and shall vote together with holders of our common stock. Each share of Series F-1 Preferred Stock is convertible into one share of our common stock and has a stated value of $0.0001. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We are prohibited from effecting the conversion of the Series F-1 Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F-1 Preferred Stock.
The securities referenced above were sold and issued to “accredited investors,” as such term is defined in the Securities Act and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws.
On November 6, 2013, we sold an aggregate of 304,250 shares of Series F Preferred Stock and 48,438 shares of common stock to five accredited investors for gross proceeds of $2,235,000. The purchase price per share of common stock was $6.40 for $1,310,000 of such investment and $6.25 for $925,000 of such investment. No broker was utilized in connection with the sale. Each share of Series F Preferred Stock is entitled to one vote per share (subject to beneficial ownership limitation) and shall vote together with holders of our common stock. We are prohibited from effecting the conversion of the Series F Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially own more than 9.99% in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F Preferred Stock.
The securities referenced above were sold and issued to “accredited investors,” as such term is defined in the Securities Act and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws.
On July 24, 2013, we closed on the acquisition of a group of patents in the mobile communication sector from Rockstar. In consideration for the patents, we paid certain consideration to Rockstar, including 176,991 shares of the Company’s common stock. The Shares are subject to a lock-up agreement, subject to certain leak-out provisions, which shall expire on the earlier of (i) six months from the issuance of the shares and (ii) the date that our common stock achieves a trading volume of at least 50,000 shares per day and a closing price of at least $13 per share for a period of five consecutive days.
The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.
On June 25, 2013, we sold an aggregate of 100,000 shares of Series E Convertible Preferred Stock to an accredited investor for a per share price of $5.00 with gross proceeds to the Company of $500,000. Each share of Series E Convertible Preferred Stock is convertible, at the option of the holder at any time, into one (1) share of our common stock and has a stated value of $0.0001. Such conversion ratio is subject to adjustment in the case of stock splits, stock dividends, combination of shares and similar recapitalization transactions. We are prohibited from effecting the conversion of the Series E Convertible Preferred Stock to the extent that, as a result of such conversion, the holder will beneficially own more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series E Preferred Stock.
The securities referenced above were sold and issued to “accredited investors,” as such term is defined in the Securities Act and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended, and corresponding provisions of state securities laws.
On March 6, 2013, we entered into separate Warrant Exchange Agreements with certain investors that participated in the November 2012 private placement transaction pursuant to which such investors exchanged common stock purchase warrants acquired in the private placement transaction for shares of our Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock is convertible into one share of common stock at the option of the holder. Each share of Series C Preferred Stock has a stated value of $0.0001 per share and upon the liquidation, dissolution or winding up of the business of the Company, each holder of Series C Preferred Stock shall be entitled to receive, for each share held, a preferential amount in cash equal to the Stated Value. The holder of Series C Preferred Stock may not convert such shares to the extent such conversion would cause the holder to hold in excess of 4.99% of our issued and outstanding common stock, subject to an increase in such limitation to 9.99% upon the written notice by the holder to the Company.
| II-3 |
Warrants were issued in November 2012 for an aggregate of 483,657 shares of common stock. The Warrants were exercisable through November 7, 2017 at an exercise price of $6.53 per share.
Pursuant to the Warrant Exchange Agreements, the investors received in exchange for their warrants an aggregate of 229,337 shares of the Series C Convertible Preferred Stock, convertible into one (1) share of common stock. This is the same number of shares of common stock that would have been issued upon a “cashless exercise” of the exchanged warrants, as permitted by the terms of the warrants, based on the one-day volume weighted average price of the Company’s common stock on February 28, 2013 of $12.6439 as reported by Bloomberg.
The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.
See the Exhibit Index set forth on page II-7 to purchase an additional 483,657 shares of common stock at an exercise price of $6.53 per share. Subject to certain ownership limitations, the warrants are exercisablethis Registration Statement, which is incorporated herein by reference.
Insofar as indemnification for a period of five years.
The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
| II-4 |
(c) To remove from registration by means of a post-effective amendment any purchaser, eachof the securities being registered which remain unsold at the termination of the offering;
(d) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b) as part(1) or (4) or 497(h) under the Securities Act of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter),1933 shall be deemed to be part of and included in thethis registration statement as of the datetime it is first used after effectiveness. Provided, however,was declared effective; and
(e) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that no statement made incontains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(f) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is part of the registration statement or made in a document incorporated or deemed incorporated by reference intoin the registration statementprospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was madespecifically incorporated by reference in the registration statement or prospectus that was part of the registration statement or made in anyto provide such document immediately priorinterim financial information.
| II-5 |
Signatures
Pursuant to such date of first use.
Spherix Incorporated (Registrant) | |||||
| By: | /s/ Anthony Hayes | ||||
| Date: September 22, 2015 | Anthony Hayes Director and Chief Executive Officer | ||||
| By: | /s/ | ||||
| Date: September 22, 2015 | Frank Reiner Interim Chief Financial Officer | ||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Anthony Hayes his true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him/her and in his/her name, place and stead, in any and all capacities to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement, any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or all pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
| /s/ Anthony Hayes | ||||
Anthony Hayes | Chief Executive Officer and Director | September 22, 2015 | ||
| /s/ Robert J. Vander Zanden | |||||
Robert J. Vander Zanden | Chairman of the Board | ||||
| /s/ | |||||
Jeffrey Ballabon | Director | September 22, 2015 | |||
| /s/ Douglas T. Brown | |||||
Douglas T. Brown | Director | September 22, 2015 | |||
| /s/ Tim S. Ledwick | |||||
Tim S. Ledwick | Director | September 22, 2015 | |||
| /s/ Howard E. Goldberg | |||||
Howard E. Goldberg | Director | September 22, 2015 | |||
| II-6 |
EXHIBIT INDEX
| Exhibit No. | Description | |
| 1.1 | Placement Agency Agreement** | |
| 3.1 | Amended and Restated Certificate of Incorporation of Spherix Incorporated (incorporated by reference to Form 8-K filed April 25, 2014) | |
| 3.2 | Amended and Restated Bylaws of Spherix Incorporated (incorporated by reference to Form 8-K filed October 15, 2013) | |
| 4.1 | Specimen Certificate for common stock, par value $0.0001 per share, of Spherix Incorporated (incorporated by reference to Form S-3/A filed April 17, 2014) | |
| 4.2 | Rights Agreement dated as of January 24, 2013, between Spherix Incorporated and Equity Stock Transfer, LLC (incorporated by reference to Form 8-K filed January 30, 2013) | |
| 4.3 | Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (incorporated by reference to Form 8-K filed on March 7, 2013) | |
| 4.4 | Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Form 8-K filed on April 4, 2013) | |
| 4.5 | Certificate of Designation of Preferences, Rights and Limitations of Series D-1 Convertible Preferred Stock (incorporated by reference to Form 8-K filed on November 29, 2013) | |
| 4.6 | Certificate of Designation of Preferences, Rights and Limitations of Series F-1 Convertible Preferred Stock (incorporated by reference to Form 8-K filed on November 26, 2013) | |
| 4.7 | Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock (incorporated by reference to Form 8-K filed on January 2, 2014) | |
| 4.8 | Certificate of Designation of Preferences, Rights and Limitations of Series I Redeemable Convertible Preferred Stock (incorporated by reference to Form 8-K filed on January 2, 2014) | |
| 4.9 | Certificate of Designation of Preferences, Rights and Limitations of Series J Convertible Preferred Stock (incorporated by reference to Form 8-K/A filed on June 2, 2014) | |
| 4.10 | Form of Warrant (incorporated by reference to Form 8-K filed on March 26, 2014) | |
| 4.11 | Form of Common Stock Purchase Warrant (incorporated by reference to Form 8-K filed on July 17, 2015) | |
| 4.12 | Form of Warrant** | |
| 5.1 | Opinion of Nixon Peabody LLP regarding the validity of the common stock and warrants being registered** |
| II-7 |
| 10.1 | 1997 Stock Option Plan (incorporated by reference from the Company’s Proxy Statements for its May 1998, May 2001, May 2005, November 2011 and August 2012 annual meetings, as filed with the Commission) | |
| 10.2 | 2012 Equity Incentive Plan (incorporated by reference from the Company’s Information Statement on Form DEF 14c filed November 26, 2012) | |
| 10.3 | Lease Agreement dated October 4, 2007, between Elizabethean Court Associates III Limited Partnership and the Company (incorporated by reference to Form 10-Q filed November 19, 2007) | |
| 10.4 | Amendment to Office Building Lease, between Elizabethean Court Associates III Limited Partnership and the Company (incorporated by reference to Form 8-K filed March 23, 2012) | |
| 10.5 | Agreement and Plan of Merger dated April 2, 2013 (incorporated by reference to the Form 8-K filed on April 4, 2013) | |
| 10.6 | Spherix Incorporated 2013 Equity Incentive Plan (incorporated by reference to the Form 8-K filed on April 4, 2013) | |
| 10.7 | Spherix Incorporated 2014 Equity Incentive Plan (incorporated by reference from the Company’s Proxy Statement on Form DEF 14A filed December 20, 2013) | |
| 10.8 | Amendment to Spherix Incorporated 2014 Equity Incentive Plan (incorporated by reference from the Company’s Proxy Statement on Form DEF 14A filed March 28, 2014) | |
| 10.9 | First Amendment to Agreement and Plan of Merger dated August 30, 2013 (incorporated by reference to the Form 8-K filed on September 4, 2013) | |
| 10.10 | Form of Indemnification Agreement (incorporated by reference to the Form 8-K filed on September 10, 2013) | |
| 10.11 | Employment Agreement between Spherix Incorporated and Anthony Hayes (incorporated by reference to the Form 8-K filed on September 13, 2013) | |
| 10.12 | Indemnification Agreement between Spherix Incorporated and Alexander Poltorak (incorporated by reference to the Form 8-K filed on October 29, 2013) | |
| 10.13 | Indemnification Agreement between Spherix Incorporated and Richard Cohen (incorporated by reference to the Form 8-K filed on January 9, 2014) | |
| 10.14 | Indemnification Agreement between Spherix Incorporated and Jeffrey Ballabon (incorporated by reference to the Form 8-K filed on June 13, 2014) | |
| 10.15 | Patent Purchase Agreement between Spherix Incorporated and Rockstar Consortium US LP, including Amendment No. 1 thereto (incorporated by reference to the Form 8-K/A filed on November 19, 2013) |
| II-8 |
| 10.16 | Form of Series F Exchange Agreement (incorporated by reference to the Form 8-K filed on November 26, 2013) | |
| 10.17 | Form of Series D Exchange Agreement (incorporated by reference to the Form 8-K filed on December 30, 2013) | |
| 10.18 | Form of Voting and Support Agreement (incorporated by reference to the Form 8-K filed on January 2, 2014) | |
| 10.19 | Confidential Patent Purchase Agreement dated December 31, 2013 between Spherix Incorporated and Rockstar Consortium US LP (incorporated by reference to the Form S-1/A filed January 21, 2014) | |
| 10.20 | Consulting Agreement, effective as of August 10, 2015, between Spherix Incorporated and Howard E Goldberg, d/b/a Forward Vision Associates (incorporated by reference to Form 8-K filed on August 19, 2015) | |
| 10.21 | Form of Securities Purchase Agreement, dated July 15, 2015, by and between Spherix Incorporated and each of the Purchasers (as defined therein) (incorporated by reference to Form 8-K filed on July 17, 2015) | |
| 10.22 | Form of Securities Purchase Agreement** | |
| 21.1 | List of Subsidiaries (incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2014, filed on March 30, 2015) | |
| 23.1 | Consent of Marcum LLP, Independent Auditors* | |
| 23.2 | Consent of Nixon Peabody LLP (included in Exhibit 5.1)** | |
| 24.1 | Power of Attorney (included on signature page of this Form S-1)* |
* Filed herewith.
** To be filed with amendment.
| II-9 |