As filed with the U.S. Securities and
Exchange Commission on May 24, 2017
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 registrant as specified in
its charter)
_______________
Delaware
|
|
2836
|
|
52-0849320
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
One Rockefeller Plaza, 11
th
Floor
New York, NY 10020
Phone:
703-992-9325
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Anthony Hayes
Chief Executive Officer
Spherix Incorporated
One Rockefeller Plaza, 11
th
Floor
New York, NY 10020
Phone:
703-992-9325
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copies to:
Robert F. Charron, Esq.
Sarah E. Williams, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, New York 10105
Telephone: (212) 370-1300
___
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.
¨
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, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
|
Accelerated filer
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
x
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|
Emerging growth company
¨
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided to Section 7(a)(2)(B) of the Securities Act.
¨
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be
Registered
|
|
Proposed
Maximum
Aggregate
Offering Price(1)(2)
(3)
|
|
|
Amount of
Registration
Fee
|
|
Common Stock, $0.0001 par value per share
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,000,000
|
|
|
$
|
347.70
|
|
|
(1)
|
Estimated solely for the purpose of calculating the amount of the registration fee in accordance
with Rule 457(o) under the Securities Act of 1933, as amended.
|
|
(2)
|
Includes the offering price of any additional shares that the underwriter has the right to purchase from the Registrant.
|
|
(3)
|
Pursuant to Rule 416(a), the securities being registered hereunder include such indeterminate number of additional securities
as may be issuable to prevent dilution resulting from stock splits, stock dividends or similar transactions.
|
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 which
specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange
Commission, acting pursuant to Section 8(a), may determine.
The information in this preliminary prospectus is
not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and
Exchange Commission is 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 jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
|
Subject to Completion
|
Dated May 24, 2017
|
Shares of Common Stock
We are offering shares of our common stock, par value $0.0001
per share.
Our common stock is listed on the NASDAQ Capital Market under
the symbol “SPEX”. On May 22, 2017, the closing price as reported on the NASDAQ Capital
Market was 1.08 per share. This price will fluctuate based on the demand for our common stock.
Investing in our common stock involves
a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
|
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Per Share
|
|
|
Total(1)
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us(2)
|
|
$
|
|
|
|
$
|
|
|
(1) The public offering
price is $ per share of common stock.
(2) We estimate the
total expenses of this offering payable by us, excluding the underwriting discount, will be approximately $ .
We have granted the underwriter an option
for a period of 45 days from the date of this prospectus to purchase up to an additional shares of common stock at the public offering
price, less the underwriting discount.
We anticipate that delivery of the shares
against payment will be made on or about , 2017.
Prospectus dated
, 2017
TABLE OF CONTENTS
We and the underwriter have not authorized
anyone to provide any information or to make any representations other than those contained in or incorporated by reference in
this prospectus or in any free writing prospectuses 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 you. This
prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful
to do so. The information contained in or incorporated by reference in this prospectus is accurate only as of its date regardless
of the time of delivery of this prospectus or of any sale of common stock
.
To the extent there is a conflict between
the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference
filed with the U.S. Securities and Exchange Commission (the “SEC”) before the date of this prospectus, on the other
hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent
with a statement in another document incorporated by reference having a later date, the statement in the document having the later
date modifies or supersedes the earlier statement.
Neither we nor the underwriter have done
anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for
that purpose is required, other than in the United States. Persons who come into possession of this prospectus and any free writing
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 and any free writing prospectus applicable to that jurisdiction.
This prospectus and the documents incorporated
by reference in this prospectus contain market data and industry statistics and forecasts that are based on independent industry
publications and other publicly available information. Although we believe that these sources are reliable, we do not guarantee
the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware
of any misstatements regarding the market and industry data presented or incorporated by reference in this prospectus, these estimates
involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading
“Risk Factors” and any related free writing prospectus. Accordingly, investors should not place undue reliance on this
information.
PROSPECTUS SUMMARY
This summary highlights certain
information about us, this offering and selected information contained elsewhere in this prospectus and in the documents
incorporated by reference. This summary is not complete and does not contain all of the information that you should consider
before deciding whether to invest in our securities. For a more complete understanding of our company and this offering, we
encourage you to read and consider carefully the more detailed information contained in or incorporated by reference in this
prospectus, including the information contained under the heading “Risk Factors” beginning on page 11 of this
prospectus, and the information included in any free writing prospectus that we have authorized for use in connection with
this offering.
Throughout this prospectus, the terms “we,” “us,”
“our,” and “our company” refer to Spherix Incorporated, a Delaware corporation and its consolidated subsidiaries
unless the context requires otherwise.
Company Overview
We are an intellectual property company
that owns patented and unpatented intellectual property. Spherix Incorporated was formed in 1967 as a scientific research
company and for much of our history pursued drug development, including through Phase III clinical studies, which were largely
discontinued in 2012. In 2012 and 2013, we shifted our focus to being a firm that owns, develops, acquires and monetizes
intellectual property assets.
In July 2013, we acquired 7 patents in
the field of mobile communications from Rockstar Consortium US LP (“Rockstar”). This acquisition represented
the first transaction believed to have been completed by Rockstar with any publicly traded company. Rockstar was launched in 2011
as an intellectual property licensing company to manage a patent portfolio related to the pre-bankruptcy technology and businesses
of Nortel Networks (“Nortel”). Rockstar was formed by Apple, Inc., Microsoft Corporation, Sony Corporation,
Blackberry Limited and LM Ericsson Telephone Company.
In September 2013, we acquired North South
Holdings, Inc. (“North South”) and its 222 patents in the fields of wireless communications, satellite, solar, and
radio frequency and 2 patents in the field of pharmaceutical distribution. The 222 patents were developed by Harris Corporation,
a leader in defense communications and electronics and acquired by North South prior to our acquisition of North South.
In December 2013, we acquired an additional
101 patents and patent applications from Rockstar in consideration for approximately $60 million of our securities consisting of
common stock and preferred stock. The patents had been developed by Nortel and acquired by Rockstar following Nortel’s
bankruptcy in 2011. The December 2013 acquisition included patents covering internet access and video and data transmission,
among other things. We believe that many of these Nortel/Rockstar patents are standard essential patents, meaning they
potentially cover various industry standards in wide use (although there is no assurance that a court or third-party would agree
with such description).
Since our shift in focus to an intellectual
property monetization platform, we have not generated any significant revenues. We have incurred losses from operations
for the years ended December 31, 2016 and 2015 of $8.6 million and $52.0 million, respectively. Our net income attributable
to common stockholders was approximately $25.0 million, including $31.5 million of deemed capital contribution on extinguishment
of preferred stock for the year ended December 31, 2016. Our accumulated deficit was $141.7 million at December 31,
2016.
On November 23, 2015, we and RPX Corporation
(“RPX”) entered into a Patent License Agreement (the “RPX License Agreement”) under which the Company granted
RPX the right to sublicense various patent license rights to certain RPX clients. The consideration to the Company included: (i)
the transfer to the Company for cancellation of its remaining outstanding Series I Redeemable Convertible Preferred Stock (the
“Series I Preferred Stock”) then held by RPX, as to which a $5,000,000 mandatory redemption payment would have
been due from the Company on or by December 31, 2015; (ii) the transfer to the Company for cancellation of 13%, or 57,076 shares,
of its Series H Convertible Preferred Stock (the “Series H Preferred Stock”) then held by RPX, having a total carrying
amount of $4,765,846 at the time the stock was issued to Rockstar; (iii) cancellation of the only outstanding security interest
on 101 of the Company’s patents and patent applications acquired from Rockstar that originated at Nortel, which security
interest had previously been transferred to RPX by Rockstar (“RPX Security Interest”); and (iv) $300,000 in cash to
the Company.
In consideration of the above, we granted
RPX the rights to grant: (i) to Juniper Networks, Inc. (“Juniper”), a non-sublicensable, non-transferrable sublicense
solely to use the six patents that had been asserted against Juniper by the Company (“Asserted Patents”); and (ii)
to Apple, Blackberry, Cisco, Google, Huawei, Ericsson, Microsoft and Sony, to the extent those parties did not already have licenses
to our patents, a non-sublicensable, non-transferrable sublicense to use our existing portfolio. Prior to our ownership of the
patents originating at Nortel, each of Apple, Blackberry, Ericsson, Microsoft and Sony had previously been granted full licenses
to those patents. In addition, we separately granted Huawei a license with respect to Huawei’s network routers and switches.
We also granted RPX the rights to grant Cisco and Google a sublicense under patents transferred to us through November 23, 2017.
We have since dismissed our then-existing litigations against Cisco and Juniper and Cisco requested dismissal of its two petitions
requesting
inter partes
re-examination (“IPR”) of certain of our patents at the Patent Trial and Appeal
Board of the United States Patent and Trademark Office.
Further, we agreed, until May 23, 2016
(the “Standstill Period”) that: (a) we and RPX would engage in good faith negotiations for the grant of additional
license rights to RPX’s other members in exchange for additional consideration to us; (b) we would not divest, transfer,
or exclusively license any of our current patents; (c) neither RPX nor any RPX affiliate would challenge, or knowingly and intentionally
assist others in challenging, the validity, enforceability, or patentability of any of our patents in any court or administrative
agency having jurisdiction to consider the issue; and (d) we would not bring an action against current RPX clients for patent infringement.
Following the Standstill Period, as a result
of the release of the RPX Security Interest, the patents may be leveraged, divested, transferred or exclusively licensed in a manner
that is beneficial to us and our stockholders. We retained the right to bring claims under the patents at any time against other
parties who are not licensees or beneficiaries under the RPX License. We also retained rights, following the Standstill Period,
to bring claims under the patents against current RPX clients who did not become licensees or beneficiaries during the Standstill
Period and, with respect to Juniper, under all of the patents other than the six Asserted Patents.
In March 2016, we entered into an agreement
(which was subsequently amended in April and May 2016) with Equitable IP Corporation (“Equitable”) to facilitate the
monetization of our patents (the “Monetization Agreement”). Pursuant to the Monetization Agreement, the Company is
working together with Equitable to further develop and revise our ongoing litigation plan. See Note 4 to the Company’s audited
financial statements for additional details surrounding the Monetization Agreement.
On May 23, 2016, we and RPX, entered into
a second, separate Patent License Agreement (the “Second RPX License”) under which we granted RPX the right to sublicense
various patent rights only to current RPX clients (as of May 23, 2016). In exchange for the rights we granted under the Second
RPX License, we received the following consideration: (i) a cash payment made to us in May 2016 in the amount of $4,355,000; and
(ii) cancellation of the remaining 381,967 shares of our outstanding Series H Convertible Preferred Stock currently held by RPX,
having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar.
In consideration of the above, we granted
RPX the rights to grant to its current clients: (i) a fully paid portfolio license, to the extent such parties did not already
have licenses to the Company’s patents; (ii) a covenant-not-to-sue current RPX clients for supply of chipsets; (iii) a standstill
of litigation involving any patents acquired in the next five years.
In connection with the Second RPX License,
we also granted to Alcatel-Lucent a license to the portfolio acquired from North South.
Under a separate agreement between us and
RPX, we granted RPX the ability to grant to VTech Telecommunications Ltd. (“VTech”) a sublicense for a fully paid portfolio
license in exchange for an additional $20,000 in cash consideration.
The license granted under the terms of
the RPX License described herein does not extend to entities/companies that are not clients of RPX and provide chipsets or other
hardware to current RPX clients.
In January of 2017, we settled our patent
litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) and granted Uniden a license
limited to the patents we originally asserted against Uniden and VTech, including U.S. Patent Nos. 5,581,599 (the “599 Patent”);
5,752,195; 5,892,814; 6,614,899; and 6,965,614 (See “Legal Proceedings” for a description of the Uniden litigation).
The Company’s appeal at the Federal Circuit against the Patent and Trademark Office for its decision of patent invalidity
of the ‘599 Patent will continue without Uniden as a party (See “Legal Proceedings”).
Our principal executive offices are located
at One Rockefeller Plaza, 11
th
Floor New York, NY 10020, and our telephone number is 703-992-9325.
Our common stock trades on the NASDAQ Capital Market under the
symbol SPEX.
Available Information
Our principal Internet address is www.spherix.com. We
make available free of charge on www.spherix.com our annual, quarterly and current reports, and amendments to those reports, as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may also read and
copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
THE OFFERING
Common stock outstanding prior to this offering
|
4,943,929 shares.
|
|
|
Common stock offered
|
shares.
|
|
|
Option to purchase additional shares
|
We have granted the underwriter an option for a period of 45 days from the date of this prospectus to purchase up to an additional shares of common stock at the public offering price, less the underwriting discount.
|
|
|
Common stock to be outstanding after this offering
|
shares.
|
|
|
Use of proceeds
|
We estimate that our net proceeds from this offering will be approximately $ million. If the underwriter exercises its option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately $ million.
|
|
|
|
We intend to use the net proceeds of this offering
for
working capital and general corporate purposes.
|
|
|
Risk factors
|
See “Risk Factors” beginning on
page 11 of this prospectus, as well as other information included in this prospectus, for a discussion of factors you should
read and consider carefully before investing in our securities.
|
|
|
NASDAQ Capital Markets symbol
|
Our common stock is listed on the NASDAQ Capital Markets under the symbol “SPEX.”
|
The number of shares of our common stock
to be outstanding after this offering as shown above is based on 4,943,929 shares outstanding as of May 19, 2017 and
excludes as of that date:
|
·
|
312, 984 shares of our common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $82.39 per share;
|
|
·
|
1,250,311 shares of our common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.21 per share (without giving effect to any of the anti-dilution adjustment
provisions thereof); and
|
|
·
|
2,926 shares of common stock issuable upon the conversion of our Series
D and D-1 Preferred Stock.
|
|
·
|
269,115 shares of our common stock to be reserved for potential future
issuance pursuant to our 2012, 2013 and 2014 Equity Incentive Plans, combined.
|
Except as otherwise indicated herein, all information in this
prospectus assumes no exercise of the underwriters’ option to purchase up to an additional shares
of common stock.
SUMMARY OF CONSOLIDATED FINANCIAL DATA
The following table summarizes our consolidated
financial data. We have derived the following consolidated statements of operations data for the years ended December 31, 2016
and 2015 and the consolidated balance sheet data as of December 31, 2016 from our audited consolidated financial statements contained
in our annual report on Form 10-K for the fiscal year ended December 31, 2016 and incorporated by reference in this prospectus.
We have derived the summary statements of operations data for the three months ended March 31, 2017 and 2016 and the summary balance
sheet data as of March 31, 2017 from our unaudited interim condensed financial statements contained in our quarterly report for
the period ended March 31, 2017 and incorporated by reference in this prospectus. Our historical results for prior periods are
not necessarily indicative of results to be expected for any future period. The summary consolidated financial data presented below
should be read in conjunction with “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
”
and our consolidated financial statements and the related notes thereto contained in our filings referenced above and incorporated
by reference in this prospectus. The summary consolidated financial data in this section is not intended to replace our consolidated
financial statements and the related notes thereto.
Statement of Operations Data
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
327
|
|
|
$
|
72
|
|
|
$
|
877
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of patent portfolio
|
|
|
338
|
|
|
|
531
|
|
|
|
2,135
|
|
|
|
6,317
|
|
Compensation and related expenses (including stock-based compensation)
|
|
|
589
|
|
|
|
312
|
|
|
|
1,950
|
|
|
|
1,724
|
|
Professional fees
|
|
|
285
|
|
|
|
705
|
|
|
|
2,293
|
|
|
|
2,780
|
|
Impairment of goodwill and intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
2,713
|
|
|
|
40,600
|
|
Rent
|
|
|
22
|
|
|
|
22
|
|
|
|
84
|
|
|
|
88
|
|
Other selling, general and administrative
|
|
|
62
|
|
|
|
63
|
|
|
|
253
|
|
|
|
534
|
|
Total operating expenses
|
|
|
1,296
|
|
|
|
1,633
|
|
|
|
9,428
|
|
|
|
52,043
|
|
Loss from operations
|
|
|
(969
|
)
|
|
|
(1,561
|
)
|
|
|
(8,551
|
)
|
|
|
(52,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
172
|
|
|
|
(30
|
)
|
|
|
(182
|
)
|
|
|
276
|
|
Fair value adjustments for warrant liabilities
|
|
|
(122
|
)
|
|
|
1,542
|
|
|
|
2,257
|
|
|
|
269
|
|
Total other (expenses) income
|
|
|
50
|
|
|
|
1,512
|
|
|
|
2,075
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(919
|
)
|
|
$
|
(49
|
)
|
|
$
|
(6,476
|
)
|
|
$
|
(51,465
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
(919
|
)
|
|
$
|
(716
|
)
|
|
$
|
25,004
|
|
|
$
|
(42,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
(0.19
|
)
|
|
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
6.76
|
|
|
$
|
(24.98
|
)
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
6.51
|
|
|
$
|
(24.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
4,943,929
|
|
|
|
2,705,864
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
3,700,090
|
|
|
|
1,693,365
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
3,838,366
|
|
|
|
1,693,365
|
|
Balance Sheet Data
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
210
|
|
|
$
|
494
|
|
|
$
|
134
|
|
|
$
|
142
|
|
Marketable securities
|
|
|
5,083
|
|
|
|
1,468
|
|
|
|
6,025
|
|
|
|
3,392
|
|
Prepaid expenses and other assets
|
|
|
145
|
|
|
|
292
|
|
|
|
135
|
|
|
|
330
|
|
Total current assets
|
|
|
5,438
|
|
|
|
2,254
|
|
|
|
6,294
|
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5
|
|
|
|
7
|
|
|
|
6
|
|
|
|
5
|
|
Patent portfolios and patent rights, net
|
|
|
4,613
|
|
|
|
9,268
|
|
|
|
4,951
|
|
|
|
9,799
|
|
Deposit
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
Total assets
|
|
$
|
10,082
|
|
|
$
|
11,555
|
|
|
$
|
11,277
|
|
|
$
|
13,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
175
|
|
|
$
|
355
|
|
|
$
|
123
|
|
|
$
|
384
|
|
Accrued salaries and benefits
|
|
|
339
|
|
|
|
111
|
|
|
|
446
|
|
|
|
645
|
|
Warrant liabilities
|
|
|
824
|
|
|
|
1,417
|
|
|
|
702
|
|
|
|
2,959
|
|
Short-term deferred revenue
|
|
|
1,145
|
|
|
|
290
|
|
|
|
1,216
|
|
|
|
290
|
|
Short-term lease liabilities
|
|
|
187
|
|
|
|
178
|
|
|
|
183
|
|
|
|
178
|
|
Total current liabilities
|
|
|
2,670
|
|
|
|
2,351
|
|
|
|
2,670
|
|
|
|
4,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred revenue
|
|
|
3,009
|
|
|
|
188
|
|
|
|
3,245
|
|
|
|
259
|
|
Long-term lease liabilities
|
|
|
-
|
|
|
|
184
|
|
|
|
44
|
|
|
|
229
|
|
Total liabilities
|
|
|
5,679
|
|
|
|
2,723
|
|
|
|
5,959
|
|
|
|
4,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I redeemable convertible preferred stock, $0.0001 par value; no shares issued and outstanding at December 31, 2016 and December 31, 2015; liquidation preference of $167 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.0001 par value, 50,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series C: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series D: 4,725 shares issued and outstanding at December 31, 2016 and December 31, 2015 and 4,725 shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation value of $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series D-1: 834 shares issued and outstanding at December 31, 2016 and December 31, 2015 and 834 issued and outstanding at March 31, 2017 and March 31, 2016; liquidation value of $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series F-1: no shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series H: no shares and 381,967 shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares and 381,967 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively; liquidation preference $83.50 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series J: no shares issued and outstanding at December 31, 2016 and December 31, 2015 no shares issued and outstanding at March 31, 2017 and March 31, 2016; liquidation preference $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series K: no shares and 1,240 shares issued and outstanding at December 31, 2016 and December 31, 2015 and no shares and 50 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively; liquidation preference $1,000 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 4,943,941, 4,943,941 and 2,539,859 shares issued at March 31, 2017, December 31, 2016 and December 31, 2015, respectively; 4,943,929, 4,943,929 and 2,539,847 shares outstanding at March 31, 2017, December 31, 2016 and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in-capital
|
|
|
147,335
|
|
|
|
144,418
|
|
|
|
147,331
|
|
|
|
144,287
|
|
Treasury stock, at cost, 12 shares at March 31, 2017, December 31, 2016 and December 31, 2015
|
|
|
(264
|
)
|
|
|
(264
|
)
|
|
|
(264
|
)
|
|
|
(264
|
)
|
Accumulated deficit
|
|
|
(142,668
|
)
|
|
|
(135,322
|
)
|
|
|
(141,749
|
)
|
|
|
(135,273
|
)
|
Total stockholders' equity
|
|
|
4,403
|
|
|
|
8,832
|
|
|
|
5,318
|
|
|
|
8,750
|
|
Total liabilities and stockholders' equity
|
|
$
|
10,082
|
|
|
$
|
11,555
|
|
|
$
|
11,277
|
|
|
$
|
13,694
|
|
RISK FACTORS
There are numerous risks affecting our business, some of which
are beyond our control. An investment in our common stock involves a high degree of risk and may not be appropriate for investors
who cannot afford to lose their entire investment. If any of the following risks actually occur, our business, financial condition
or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may
lose all or part of your investment. In addition to the risks outlined below, risks and uncertainties not presently known to us
or that we currently consider immaterial may also impair our business operations. Potential risks and uncertainties that could
affect our operating results and financial condition include, without limitation, the following:
Risks Related to 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, expenses and difficulties
we face as an early stage company with a limited operating history. Investors should evaluate 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 Company’s. There can be no assurance that our efforts
will be successful or that we will be able to become profitable.
We continue to incur operating losses and may not achieve
profitability.
Our loss from operations for the three
months ended March 31, 2017 and for the years ended December 31, 2016 and 2015 was $1.0 million, $8.6 million and $52.0 million,
respectively. Our net loss attributable to common stockholders for the three months ended March 31, 2017 was $0.9 million, our
net income attributable to common stockholders for the year ended December 31, 2016 was $25.0 million, and our net loss attributable
to common stockholders for the year ended December 31, 2015 was $42.3 million. Our accumulated deficit for the three months ended
March 31, 2017 and for the year ended December 31, 2016 was $142.7 million and $141.7 million, respectively. We recognized $327,000
and $877,000 in revenue in the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. Our ability
to become profitable depends upon our ability to generate revenue from the monetization of intellectual property. We do not know
when, or if, we will generate any revenue from such monetization. Even though our revenue may increase, we expect to incur significant
additional losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure
to achieve and sustain profitability could negatively impact the market price of our common stock.
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 for our business 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 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.
Further impairment charges 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 changed 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. As a result of decline in the market value of our common stock during
the year ended December 31, 2016, we recorded a $2.7 million impairment 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 a material adverse effect on our reported financial
results for the period in which the charge is taken.
The focus of our business is to monetize
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 and license 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
seek to monetize the patent portfolios that we acquired from Rockstar and North South.
In March 2016, the Company entered into
an agreement (which was subsequently amended) with Equitable to facilitate the monetization of the Company’s patents (the
“Monetization Agreement”). Pursuant to the Monetization Agreement, the Company has worked together with Equitable to
develop and revise the Company’s ongoing litigation plan. Under the Monetization Agreement, Equitable is obligated to use
its best commercially reasonable efforts to monetize the Company’s patents. To that end, Equitable has filed ten litigations,
which are currently pending. The Company will share net monetization revenue derived from all monetization activity equally with
Equitable. To facilitate the litigation plan, approximately 186 of over 330 of the Company’s patents and applications have
been assigned to Equitable, which will pay all maintenance and prosecution fees going forward. No assigned patents may be transferred
by Equitable to a third party without the Company’s consent. In the event that all terms of the Monetization Agreement are
met by December 2017, the Company will further assign approximately 140 additional patents and applications to Equitable for monetization.
The Company has retained a grant-back license to practice all transferred patents.
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 our 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 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, lagging any potential revenues generated by such activity; 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.
|
|
·
|
If
we initiate a patent infringement suit against potential infringers, or if potential licensees initiate a declaratory judgment
action or administrative review action against us, such potential infringers and/or licensees may successfully invalidate our
patents, or a fact finder may find that the potential infringer’s products do not infringe our patents. Thus, we may not
successfully monetize the patents. These activities are inherently risky, time consuming and costly.
|
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.
We presently rely exclusively on
the patent assets we acquired from North South and Rockstar, which we are monetizing primarily through our agreement with Equitable. If
we are unable to commercialize, license or otherwise monetize such assets and generate revenue and profit through those assets
or by other means, there is a significant risk that our business will fail.
If our efforts to generate revenue from
our patent portfolios acquired from Rockstar and North South fail, we will have incurred significant losses. We may
not seek and may be unable to acquire additional assets and therefore may be wholly reliant on our present portfolios for revenue. If
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 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, we may be required to commence legal proceedings against certain large, well established and well-capitalized companies.
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. The
defendants in litigation brought by us are likely to be much larger than us and have substantially more resources than we do, which
would make success of our litigation efforts subject to factors other than the validity of our patents or infringement claims asserted. Furthermore,
as a public company, our level of cash resources and ability to incur expenditures on enforcing infringement claims is available
to the public, including the entities against whom we seek to enforce our patents, and defendants may engage in tactics in an effort
for us to utilize our remaining resources. The inability to successfully enforce our patents against larger more well-capitalized
companies could result in realization through settlement or election to not pursue certain infringers, or less value from our patents,
and could result in substantially lower than anticipated revenue realized from infringements and lower settlement values.
We anticipate that 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 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 include
ex parte
reexaminations,
inter partes
review, 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 significant legal fees to defend against such actions.
Federal courts are becoming more
crowded and, as a result, patent enforcement litigation is taking longer.
Our patent enforcement actions are almost
exclusively prosecuted in federal court. Federal trial courts that hear our patent enforcement actions also hear criminal cases.
Criminal cases always take priority over our actions. As a result, it is difficult to predict the length of time it will take to
complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings
before federal judges and, as a result, we believe that the risk of delays in our patent enforcement actions will have a greater
effect on our business in the future unless this trend changes.
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.
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.
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 December 31, 2016, our internal control over financial reporting was not effective, due to our lack of segregation of duties,
and lack of controls in place to ensure that all material transactions and developments impacting the financial statements are
reflected. 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.
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 activities.
Part of our 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:
|
·
|
patent applications we may file may not
result in issued patents or may take longer than we expect to result in issued patents;
|
|
·
|
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 could be complex,
uncertain and very expensive.
|
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.
We may be reliant on third parties
to generate revenue for us.
In early 2016, we entered into a Monetization
Agreement pursuant to which other more well-capitalized entities have the right to enforce our patent portfolio in exchange for
royalties from enforcement proceeds. We may also enter into similar such agreements in the future. These agreements generally do
not impose any affirmative obligation on the part of our contractual counterparties to enforce any rights under our patents. If
these counterparties do seek to enforce rights under our patents, legal proceedings against infringers of our patents may continue
for several or more years and it may be a significant period of time before we derive any income from these arrangements. These
arrangements may also preclude us from enforcing these patents ourselves. Failure of these third parties to successfully enforce
our patents may have an adverse effect on our revenues.
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 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. 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 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 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 the Innovation Act on October 23, 2013. The Innovation Act,
as passed by the House, has a number of major changes. Some of the 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 fee-shifting provisions which provide that, unless the non-prevailing party of a patent infringement
litigation positions were objectively reasonable, such non-prevailing party would have to pay the attorney’s fees of the
prevailing party.
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.
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.
This 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.
Following in the wake of the Supreme Court’s
Alice
decision, the lower courts have operated with a lack of guidance regarding patent eligibility. The Court of Appeals
for the Federal Circuit, which has exclusive jurisdiction over patent appeals, has increasingly entered one-sentence orders under
Federal Rule of Civil Procedure 36, in which it upholds decisions of patent invalidity with no guidance as to why invalidity was
upheld.
For example, in each of the following appeals from the U.S. district courts involving substantial
issues under the
Alice
doctrine, the Federal Circuit entered a Rule 36 order, saying only in one sentence that
the district court record supported the entry of judgment below.
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1.
|
Becton Dickinson and Co. v. Baxter Int’l Inc
., Appeal No. 15-1918 (decided May 9,
2016) re: remote pharmacy monitoring.
|
|
2.
|
IP Learn-Focus, LLC. v. Microsoft Corp
., Appeal No. 15-1863 (decided July 11, 2016) re:
a computer learning system comprising particular combinations of different types of sensors (e.g. optical sensors, nonoptical sensors
and imaging sensors) and software programming, applied to MS’s Kinect device.
|
|
3.
|
Novo Tranforma Techs. L.L.C. v. Sprint Spectrum, L. P
., Appeal No. 15-2012 (decided September
23, 2016) re: a payload delivery system that eliminates the incompatibility between different communication services employing
different media for communicating information.
|
|
4.
|
Broadband iTV Inc. v. Hawaiian Tele., Inc.,
Appeal No. 16-1082 (decided September 26,
2016) re: automated control of video-on-demand technology.
|
|
5.
|
Blue Spike LLC v. Google, Inc
., Appeal No. 16-1054 (decided October 10, 2016) re: alternatives
to digital watermarking by creating a “Signal Abstract”, a smaller digital representation of the digital signal that
can be used for identification purposes.
|
|
6.
|
Concaten, Inc. v. AmeriTrak Fleet Solutions, LLC,
Appeal No. 16-1112 (decided October
11, 2016) re: a snow management system where real-time data is collected from a plurality of working snowplows and that data was
then used to optimize the routing and operation of subsequent snowplow operations.
|
|
7.
|
GT Nexus, Inc. v. Inttra, Inc
., Appeal No. 16-1267 (decided October 11, 2016) re: a computer
network architecture called “common carrier system” that integrates existing automated carrier booking and tracking
systems and enables multiple shippers and multiple carriers to communicate across a common platform.
|
|
8.
|
Netflix Inc. v. Rovi Corp
., Appeal No. 15-1917 (decided November 7, 2016) re: automated
viewing recommendations and book-marking in interactive program guides.
|
|
9.
|
American Needle, Inc. v. Zazzle Inc.
, Appeal No. 16-1550 (decided November 10, 2016) re:
selling objects online using a two-dimensional format to preview merchandise in three dimensions.
|
|
10.
|
Personalized Media Commc’n LLC v. Amazon.com, Inc.
, Appeal No. 15-2008 (decided December
7, 2016) re: seven distinct network control applications from seven different and patentably distinct patents.
|
|
11.
|
MacroPoint LLC v. FourKites Inc
., Appeal No. 16-1286 (decided December 8, 2016) re: five
vehicle tracking applications.
|
|
12.
|
Voxathon LLC v. FCA US LLC
, Appeal No. 16-1614 (decided December 9, 2016) re: technology
for allowing drivers to access telephone calls through vehicle entertainment and data systems.
|
Several
of the parties receiving these Rule 36 judgments have requested re-hearings, asking the Federal Circuit to provide Section 101
guidance
en banc,
but to date, none of these requests have taken up by the Court of Appeals.
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
decided
Commil 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 effect 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.
On December 1, 2015, the Federal Rules
of Civil Procedure were amended to require a heightened pleading standard for a plaintiff when filing a patent infringement complaint.
Prior to the amendment, patent complaints could follow the general pleading provided in the model patent complaint provided by
Form 18. Form 18 has now been eliminated. Patent infringement complaints must now satisfy the pleading standards established by
the Supreme Court’s landmark decisions in
Twombly
and
Iqbal
, which require a patent plaintiff to demonstrate
that its claims are “plausible.” It may likely result in more challenges to the sufficiency of patent complaints, which
will increase the cost of litigation. This requirement may also impact the amount of research that is required before a patent
infringement complaint can be filed.
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 in their current or modified forms. Compliance with any new or existing laws or regulations could be difficult
and expensive, decrease the value of our intellectual property portfolio, increase the risk of unlicensed infringement of our intellectual
property, or otherwise affect the manner in which we conduct our business and negatively impact our business, prospects, financial
condition and results of operations.
Regulatory developments and pending
litigation may render our business model less profitable and may have a material adverse effect on our results of operations.
We may negotiate with leading technology
companies to invest in, aggregate and acquire or in-license additional portfolios of patents and other intellectual property for
monetization. Recent regulatory developments, as well as pending litigation in the industry that is continuing to establish new
laws and rules for the licensing and/or assertion of patents, may make this business model more difficult to execute, more risky
and/or less profitable. As noted, new draft legislation, if proposed and passed by Congress, might place more significant hurdles
to the enforcement of our patent rights, allow defendants increased opportunities to challenge our patents in court and in the
USPTO, and increase the risks and costs of patent litigation for all parties, including us. In addition, in various pending litigation
and appeals in the United States Federal courts, various arguments and legal theories are being advanced to potentially limit the
scope of damages a patent licensing company such as we might be entitled to. While we reject many of these arguments as improperly
limiting the rights granted to legitimate patent holders under the Constitution and US patent laws, any one of these pending cases
could result in new legal doctrines that could make our patent portfolios less valuable or more costly to enforce.
In addition, competition authorities in
various countries and regions, as well as judicial actions in the United States and abroad are examining the rights and obligations
of holders of standard essential patents (SEPs), and in some cases imposing restrictions and further obligations on the licensing
and enforcement of SEPs. These changes in law and/or regulation may make our licensing programs more difficult, may render some
or all SEP patents held by us unenforceable, or impose other restrictions, costs, impediments or harm to our patent portfolios.
We are exploring and evaluating strategic
alternatives and there can be no assurance that we will be successful in identifying, or completing any strategic alternative or
that any such strategic alternative will yield additional value for shareholders.
Our management and Board of Directors has
commenced a review of strategic alternatives which could result in, among other things, a sale, a merger, consolidation or business
combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in
one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that
the exploration of strategic alternatives will result in the identification or consummation of any transaction. In addition, we
may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring
strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage
the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure you
that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value
to our shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number
of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of
third parties in our business and the availability of financing to potential buyers on reasonable terms.
Our acquisitions of patent assets
may be time consuming, complex and costly, which could adversely affect our operating results.
Acquisitions of patent or other intellectual
property assets, which are 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, 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, 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 complete 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 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. 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.
In addition, we may acquire patents and
technologies that are in the early stages of 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 or 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.
We may be unsuccessful at integrating
future acquisitions.
If we find appropriate opportunities in
the future, we may acquire businesses to strategically increase the number of patents in our portfolio and pursue monetization.
If we acquire a business, the process of integration may produce unforeseen operating difficulties and expenditures, fail
to result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available
for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the
assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill
and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived
intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances
or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination,
which could then have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee
that we will be able to identify suitable acquisition opportunities, consummate any pending or future acquisitions or that we will
realize any anticipated benefits from any such acquisitions.
If we are unable to successfully
monetize our patent assets, or if we cannot obtain sufficient capital to see our legal proceedings to fruition, our business model
may be subject to change.
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.
Rockstar is 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 business.
We have limited capital and may seek to
negotiate acquisitions of patent or other intellectual property assets where we can defer payments, finance a portion of the acquisition
price or have an obligation to make contingent payments upon recovery of value from those assets. These types of debt
financing, 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, 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. We
may also finance our activities by issuance of debt which could require interest and amortization payments which we may not have
the ability to repay, in which case we could be in default under the terms of loan agreements. We may pledge our assets
as collateral and if we are in default under our agreements, we could lose our assets through foreclosure or similar processes
or become insolvent or bankrupt in which case investors could lose their entire investment.
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 results.
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 are required to spend significant time
and resources to maintain the effectiveness of our assets by paying maintenance fees and making filings with the USPTO. We
may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with
the 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. For
instance, in connection with
inter partes
review in our now-settled litigations with VTech and Uniden, the Patent Trial
and Appeals Board has found that certain portions of the claims relating to certain of our patents are invalid. 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:
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·
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our applications for patents, trademarks
and copyrights may not be granted and, if granted, may be challenged or invalidated;
|
|
·
|
issued trademarks, copyrights, or patents
may not provide us with any competitive advantages when compared to potentially infringing other properties;
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·
|
our efforts to protect our intellectual
property rights may not be effective in preventing misappropriation of our technology; or
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·
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our efforts may not prevent the development
and design by others of products or technologies similar to or competitive with, or superior to those we acquire and/or prosecute.
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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 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 results.
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 not able to 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
ability to identify unauthorized use of our intellectual property. 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 detect infringement
and may lose competitive position in the market before we do so, including situations which may damage our ability to succeed in
licensing negotiations or legal proceedings such as patent infringement cases we may bring. In addition, competitors
may design around our technologies or develop competing technologies. Intellectual property protection may also be unavailable
or limited in some foreign countries.
If we resort to legal proceedings to enforce
our intellectual property rights, the proceedings 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 technology. We
will enter into confidentiality and invention agreements with inventors, employees and consultants and common interest agreements
with parties associated with our litigation efforts. Nevertheless, these agreements may not be honored and they may
not effectively protect our right to our privileged, confidential or proprietary information or our patented or un-patented trade
secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques
or otherwise gain access to our trade secrets and know-how.
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 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 require 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 not able to maintain
compliance with applicable NASDAQ rules, we will no longer be able to rely upon that Instruction. If we cannot sell securities
under our shelf registration, we may be required to utilize more costly and time-consuming means of accessing the capital markets,
which could materially adversely affect our liquidity and cash position.
Risks Related to Ownership of Our Common
Stock
We face evolving regulation of corporate
governance and public disclosure that may result in additional expenses and continuing uncertainty.
As a public company, we incur significant
legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or SOX, the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel devote a substantial amount of time towards maintaining compliance
with these requirements. These rules, regulations and standards are subject to varying interpretations, 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 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, regulatory authorities may
initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
Our common stock may be delisted
from The NASDAQ Capital Market if we fail to comply 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:
|
·
|
a $1.00 minimum closing bid price;
|
|
·
|
stockholders’ equity of $2.5 million;
|
|
·
|
500,000 shares of publicly-held common
stock with a market value of at least $1 million;
|
|
·
|
300 round-lot stockholders; and
|
|
·
|
compliance with NASDAQ’s corporate
governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of NASDAQ’s
discretionary authority.
|
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 21, 2016, to regain compliance. On March 4, 2016,
our common stock underwent a 1-for-19 reverse stock split. As of the close of trading on March 17, 2016, the closing bid price
of our common stock was at least $1.00 per share for 10 consecutive trading days and, accordingly, we regained compliance with
NASDAQ’s continued listing requirements. There can be no assurance that we will be able to remain in compliance in the future.
In particular, our share price may continue to decline for a number of reasons, including many that are beyond our control. See
“
Our share price may be volatile and there may not be an active trading market for our common stock
”.
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.
Further, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Exchange
Act.
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, 2015 through March 31, 2017, the share price of our
common stock (on a split-adjusted basis) ranged from a high of $21.47 to a low of $0.85. 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 and 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. Our trading volumes are further adversely affected by the 1-for-19 reverse stock split that was
effective as of March 4, 2016. 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 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 Board 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.
Dividends on our common stock are
not likely.
During the last four years, we have not
paid cash dividends on our common stock, and we do not anticipate paying cash dividends on our common stock in the foreseeable
future. 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.
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:
|
·
|
fluctuations in results of our enforcement
and licensing activities or outcome of cases;
|
|
·
|
fluctuations in duration of judicial processes
and time to completion of cases;
|
|
·
|
the timing and amount of expenses incurred
to negotiate with licensees and obtain settlements from infringers;
|
|
·
|
the impact of our anticipated need for
personnel and expected substantial increase in headcount;
|
|
·
|
fluctuations in the receptiveness of courts
and juries to significant damages awards in patent infringement cases and speed to trial in the jurisdictions in which our cases
may be brought and the accepted royalty rates attributable to damages analysis for patent cases generally, including the royalty
rates for industry standard patents which we may own or acquire;
|
|
·
|
worsening economic conditions which cause
revenues or profits attributable to infringer sales of products or services to decline;
|
|
·
|
changes in the regulatory environment,
including regulation of NPE activities or patenting practices, that may negatively impact our or infringers practices;
|
|
·
|
the timing and amount of expenses associated
with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed
related to government enforcement actions;
|
|
·
|
Any changes we make in our Critical Accounting
Estimates described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections
of our periodic reports;
|
|
·
|
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.
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 December 31, 2016, we had outstanding
4,943,929 shares of common stock, of which our directors and executive officers owned 72,284 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:
|
·
|
we are current in our filings,
|
|
·
|
certain manner of sale provisions,
|
|
·
|
filing of Form 144, and
|
|
·
|
volume limitations limiting the sale of
shares within any three-month period to a number of shares that does not exceed the greater of 1% of the total number of outstanding
shares or, the average weekly trading volume during the four calendar weeks preceding the filing of a notice of sale.
|
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.
Risk Related to this Offering
Management will have broad discretion as to the use of
the net proceeds from this offering, and we may not use these proceeds effectively.
We intend to use the net proceeds from this offering for working
capital and general corporate purposes. Our management will have broad discretion in the application of the net proceeds from this
offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common
stock. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you
will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately.
Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our
product candidates and cause the price of our common stock to decline.
You will experience immediate and substantial dilution
in the net tangible book value per share of the common stock you purchase.
Because the price per share of our common stock being offered
is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution in
the net tangible book value of the common stock you purchase in this offering. Based on a public offering price of $
per share, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of approximately
($ ) per share in the net tangible book value of the common stock. See the section entitled
“Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase common
stock in this offering.
In addition, we have a significant number of stock options,
warrants and convertible preferred stock outstanding. To the extent that outstanding stock options, warrants have been or may be
exercised or other shares issued, you may experience further dilution.
Future sales of substantial amounts of our common stock
could adversely affect the market price of our common stock.
We may choose to raise additional capital due to market conditions
or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If additional
capital is raised through the sale of equity or convertible debt securities, or perceptions that those sales could occur, the issuance
of these securities could result in further dilution to investors purchasing our common stock in this offering or result in downward
pressure on the price of our common stock, and our ability to raise capital in the future.
The exercise of outstanding options and warrants to acquire
shares of our common stock would cause additional dilution, which could cause the price of our common stock to decline.
In the past, we have issued options and warrants to acquire
shares of our common stock. At March 31, 2017, there were 312,984 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $82.39 per share and 1,250,311 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $9.21 per share, and we may issue additional options, warrants and
other types of equity in the future as part of stock-based compensation, capital raising transactions or other strategic transactions.
To the extent these options and warrants are ultimately exercised, existing holders of our common stock would experience additional
dilution which may cause the price of our common stock to decline.
A large number of shares issued in this offering may be
sold in the market following this offering, which may depress the market price of our common stock.
A large number of shares issued in this offering may be sold
in the market following this offering, which may depress the market price of our common stock. Sales of a substantial number of
shares of our common stock in the public market following this offering could cause the market price of our common stock to decline.
If there are more shares of our common stock offered for sale than buyers are willing to purchase, then the market price of our
common stock may decline to a market price at which buyers are willing to purchase the offered shares of our common stock and sellers
remain willing to sell the shares. All of the securities issued in the offering will be freely tradable without restriction or
further registration under the Securities Act.
CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING STATEMENTS
This prospectus contains forward-looking
statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking
statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from
such statements. Forward-looking statements are identified by words such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “projects,” “targets”
and similar expressions. Such forward-looking statements may be contained in the sections “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” among other places
in this prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the
information available to management at this time and which speak only as of this date. We undertake no obligation to update or
revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of
some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements,
please read carefully the information under “Risk Factors.”
The identification in this document of
factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no
means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You
may rely only on the information contained in this prospectus.
We have not authorized anyone to provide
information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of our common
stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not
an offer to sell or solicitation of an offer to buy these securities in any circumstances under which the offer or solicitation
is unlawful.
DILUTION
If you purchase shares of our common stock
in this offering, you will experience dilution to the extent of the difference between the price per share you pay in this offering
and the net tangible book value per share of our common stock immediately after this offering. The net tangible book value of our
common stock on March 31, 2017 was approximately $(0.2) million, or approximately $(0.04) per share. Net tangible book value per
share is equal to the amount of our total tangible assets, less total liabilities, divided by the aggregate number of shares of
our common stock outstanding.
After giving effect to the assumed sale
by us of shares of our common stock in this offering at an assumed combined public offering price of $
per share of common stock, after deducting the underwriting discount and estimated offering expenses payable by us, our as adjusted
net tangible book value as of , 2017 would have been approximately $ , or approximately
$ per share of common stock. This represents an immediate increase in net tangible book value of approximately
$ per share to existing stockholders and an immediate dilution of approximately $ per
share to new investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution:
Assumed combined public offering price per share
|
|
$
|
[●]
|
|
Net tangible book value per share as of March 31, 2017
|
|
$
|
(0.04
|
)
|
Increase per share attributable to new investors in this offering
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share as of March 31, 2017 after giving effect to this offering
|
|
$
|
[●]
|
|
|
|
|
|
|
Dilution per share to investors participating in this offering
|
|
$
|
[●]
|
|
Each $ increase (decrease) in the assumed
public offering price of $ per share would increase (decrease) our as adjusted net tangible book value after
this offering by $ million, or $ per share, and the dilution per share to new investors
by $ per share, assuming that the number of shares of common stock offered by us, as set forth above, remains
the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease
the number of shares of common stock we are offering from the assumed number of shares of common stock set forth above. An increase
(decrease) of shares of common would increase (decrease) our as adjusted net tangible book value after
this offering by $ million, or $ per share, and the dilution per share to new investors
by $ per share, assuming that the combined public offering price remains the same and after deducting the
underwriting discount and estimated offering expenses payable by us. The information discussed above is illustrative only and will
adjust based on the actual public offering price, the actual number of shares that we offer in this offering, and other terms of
this offering determined at pricing.
The number of shares of our outstanding
common stock reflected in the discussion and table above is based on 4,943,929 shares of common stock outstanding as of May 19,
2017 and excludes, as of that date:
|
·
|
312, 984 shares of our common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $82.39 per share;
|
|
·
|
1,250,311 shares of our common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $ 9.21 per share (without giving effect to any of the anti-dilution adjustment
provisions thereof); and
|
|
·
|
2,926 shares of common stock issuable upon the conversion of our Series
D and D-1 Preferred Stock.
|
|
·
|
269,115 shares of our common stock to be reserved for potential future
issuance pursuant to our 2012, 2013 and 2014 Equity Incentive Plans, combined.
|
USE OF PROCEEDS
We estimate that our net proceeds from
this offering will be approximately $ million based on an assumed offering price of $ ,
the last reported sale price of our common stock on the NASDAQ Capitals Markets on , 2017. If the underwriter
exercises its option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately
$ million.
An $ increase (decrease) in the assumed
public offering price of $ per share of our common stock would increase (decrease) the expected net cash
proceeds of the offering to us by approximately $ . An increase (decrease) of in
the assumed number of shares sold in this offering would increase (decrease) the expected net cash proceeds of the offering to
us by approximately $ , assuming a public offering price of $ per share.
We intend to use the net proceeds of this
offering for working capital and general corporate purposes. As of the date of this prospectus, we cannot specify with certainty all of the particular
uses for the net proceeds we will have upon completion of the offering. Accordingly, we will retain broad discretion over the use
of these proceeds.
MARKET PRICE OF OUR COMMON STOCK
Our common stock is listed on the NASDAQ
Capital Market under the symbol “SPEX.”
The following table sets forth the quarterly
quotes of high and low prices for our common stock on the NASDAQ Capital Market, as applicable, for each quarterly period during
our fiscal years ended December 31, 2016 and 2015, and the quarter ended March 31, 2017.
Period
|
|
High
|
|
|
Low
|
|
2015
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
21.47
|
|
|
$
|
14.82
|
|
Second Quarter
|
|
$
|
15.58
|
|
|
$
|
9.12
|
|
Third Quarter
|
|
$
|
11.02
|
|
|
$
|
3.99
|
|
Fourth Quarter
|
|
$
|
10.07
|
|
|
$
|
2.66
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
2.66
|
|
|
$
|
1.71
|
|
Second Quarter
|
|
$
|
3.07
|
|
|
$
|
1.86
|
|
Third Quarter
|
|
$
|
2.36
|
|
|
$
|
1.26
|
|
Fourth Quarter
|
|
$
|
1.51
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.38
|
|
|
$
|
1.02
|
|
Second Quarter (through May 22, 2017)
|
|
$
|
1.27
|
|
|
$
|
1.05
|
|
Holders
As of May 22, 2017, the last reported
sales price reported on the NASDAQ Capital Market for our common stock was $1.08 per share. As of the date of this prospectus,
we had approximately 122 holders of our common stock. The number of record holders was determined from the records
of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security
brokers, dealers, and registered clearing agencies.
Dividends
During the last four years, we have not
declared or paid any cash dividends on our capital stock, and we do not anticipate paying cash dividends in the future.
Securities authorized for issuance
under Equity Compensation Plans Information
The following table provides information about our common stock
that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of
December 31, 2016.
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
|
|
|
|
|
|
future issuance under
|
|
|
|
Number of securities to
|
|
|
Weighted average
|
|
|
equity compensation
|
|
|
|
be issued upon exercise
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
of outstanding options,
|
|
|
outstanding options,
|
|
|
securities reflected in
|
|
Plan Category
|
|
warrants and rights (1)
|
|
|
warrants and rights
|
|
|
column (1)) (2)
|
|
Equity compensation plans approved by security holder
|
|
|
312,984
|
|
|
$
|
82.39
|
|
|
|
269,115
|
|
Equity compensation plans not approved by security holder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
312,984
|
|
|
|
|
|
|
|
269,115
|
|
|
(1)
|
Consists of options to acquire 282 shares of our common stock under the 2012 Equity Incentive Plan,
105,610 shares of our common stock under the 2013 Equity Incentive Plan and 207,092 shares of our common stock under the 2014 Equity
Incentive Plan.
|
|
(2)
|
Consists of shares of common stock available for future issuance under our equity incentive plans.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
You should read this discussion together
with the Financial Statements, related Notes and other financial information included elsewhere in this prospectus. The following
discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties.
These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements. All
references to “we,” “us,” “our” and the “Company” refer to Spherix Incorporated,
a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Overview
We are an intellectual property company
that owns patented and unpatented intellectual property. Spherix Incorporated was formed in 1967 as a scientific research company
and for much of our history pursued drug development including through Phase III clinical studies which were largely discontinued
in 2012. In 2012 and 2013, we shifted our focus to being a firm that owns, develops, acquires and monetizes intellectual property
assets. Through our acquisitions of 108 patents and patent applications from Rockstar Consortium US, LP and acquisition of several
hundred patents issued to Harris Corporation as a result of our acquisition of North South, we have expanded our activities in
wireless communications and telecommunication sectors including antenna technology, Wi-Fi, base station functionality and cellular.
Our activities generally include the acquisition
and development of patents through internal or external research and development. In addition, we seek to acquire existing rights
to intellectual property through the acquisition of already issued patents and pending patent applications, both in the United
States 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.
Critical Accounting Policies
Accounting for Warrants
We account for the issuance of common stock
purchase warrants issued in connection with the equity offerings in accordance with the provisions of Accounting Standards Codification
(“ASC”) 815,
Derivatives and Hedging
(“ASC 815”). We classify as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement). We classify as assets or liabilities any contracts
that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event
is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement). In addition, Under ASC 815, registered common stock warrants that require the issuance of
registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative
liabilities. We classify these derivative warrant liabilities on the consolidated balance sheet as a current liability.
We assess the classification of our common
stock purchase warrants as of the date of each offering and determined that such instruments met the criteria for liability classification. The
warrants are reported on the consolidated balance sheets as a warrant liability at fair value using the Black-Scholes
valuation method. Changes in the estimated fair value of the warrants result in the consolidated statement of operations
as “change in the fair value of warrant liabilities”.
Results of Operations
Three Months Ended March 31, 2017 Compared
to Three Months Ended March 31, 2016
During the three months ended March 31,
2017, revenue was approximately $0.3 million, which is the amortization of deferred revenue related to patent license agreements
we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”).
During the three months ended March 31, 2016, revenue was approximately $72,000, which is the amortization of deferred revenue
related to the RPX License Agreement dated November 23, 2015.
During the three months ended March 31,
2017 and 2016, we incurred a loss from operations of approximately $1.0 million and $1.6 million, respectively. The decrease in
net loss was primarily attributed to a $0.2 million decrease in amortization expenses related to the Rockstar patents acquired
by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016.
During the three months ended March 31,
2017 and 2016, other income was approximately $50,000 as compared to approximately $1.5 million of other income for the comparable
prior period. The decrease in other income was primarily attributed to a $1.7 million decrease in change in fair value
of warrant liabilities.
Fiscal Year Ended December 31, 2016
Compared to Fiscal Year Ended December 31, 2015
For the year ended December 31, 2016, we
incurred a loss from operations of $8.6 million, a decrease of $43.4 million, as compared to $52.0 million in 2015. The decrease
in net loss was primarily attributed to a $37.9 million decrease in impairment charge taken against the goodwill and intangible
assets, and $4.2 million decrease in amortization of patent portfolio expense, partially offset by a $226,000 increase in compensation
and related expenses. During the years ended December 31, 2016 and 2015, we recorded $2.1 million and $6.3 million, respectively,
in amortization expenses related to the Rockstar patents acquired by the Company during 2013.
For the year ended December 31, 2016, revenue
was approximately $0.9 million, which is the amortization of deferred revenue related to RPX License Agreements. For the year ended
December 31, 2015, the revenue was nominal.
For the year ended December 31, 2016, we
recorded income related to a non-cash fair value adjustment on our warrant liability of approximately $2.3 million, compared to
$269,000 of income in 2015. Fair value adjustments for warrant liabilities is the result of the change in the carrying amount of
the warrant liability caused by changes in the fair value as determined using a Black-Scholes valuation method. In addition,
during the year ended December 31, 2016, we recorded other expenses, net of $182,000 compared to other income, net of $276,000
in 2015. During the year ended December 2015, the Company received $295,000 related to the settlement of the Huawei
case in 2015.
For the year ended December 31, 2016, we
incurred a $31.5 million of deemed capital contribution on preferred stock related to the cancellation of 381,967 shares of Series
H Preferred Stock pursuant to the RPX license agreement compared with a $9.5 million of deemed capital contribution on preferred
stock related to the assignment to us of 29,940 shares of our Series I Preferred Stock and 57,076 shares of our Series H Preferred
Stock and the subsequent cancellation thereof pursuant to the RPX license agreement.
Liquidity and Capital Resources
We continue to incur ongoing administrative
and other expenses, including public company expenses, in excess of corresponding revenue.
We intend to finance our activities through:
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managing current cash and cash equivalents
on hand from our past equity offerings,
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seeking additional funds raised through
the sale of additional securities in the future,
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seeking additional liquidity through credit
facilities or other debt arrangements, and
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increasing revenue from the monetization
of its patent portfolios, license fees and new business ventures.
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Cash Flows from Operating Activities
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For the three months ended March 31, 2017 and 2016, net cash used in operations was approximately $0.8 million and $1.5 million,
respectively. The cash used in operating activities for the three months ended March 31, 2017 primarily resulted from $0.1
million of change in fair value of warrant liabilities and amortization expenses of $0.3 million, partially offset by $0.4 million
of changes in assets and liabilities. The cash used in operating activities for the three months ended March 31, 2016 primarily
resulted from $1.5 million of change in fair value of warrant liabilities and $0.7 million of changes in assets and liabilities,
partially offset by significant non-cash charges related to amortization expenses of $0.5 million and stock-based compensation
expense of $0.1 million.
For the year ended December 31, 2016, net
cash provided by operations was $70,000 compared to net cash used in operations of $4.6 million for the year ended December 31,
2015.
The cash provided by operating activities
for the year ended December 31, 2016 primarily resulted from significant non-cash charges related to impairment of intangibles
of $2.7 million, amortization expenses of $2.1 million, stock-based compensation expense of approximately $0.6 million and approximately
$3.5 million of deferred revenue, partially offset by approximately $6.5 million net loss and $2.3 million of change in fair value
of warrant liabilities. The cash used in operating activities for the year ended December 31, 2015 primarily resulted from our
net loss of $51.5 million and a fair value adjustment of warrant liabilities of $0.3 million, offset by significant non-cash charges
related to impairment of goodwill and intangibles of $40.6 million, amortization expenses of $6.3 million, stock-based compensation
expense of $0.4 million, plus a $0.2 million increase in cash from changes in operating assets and liabilities.
Cash Flows
from Investing Activities
-
For the three months ended March 31, 2017 and 2016,
net cash provided by investing activities was approximately $0.9 million and $1.9 million, respectively. The cash provided by investing
activities primarily resulted from our sale of marketable securities for the three months ended March 31, 2017 of $5.0 million,
partially offset by our purchase of marketable securities of $4.1 million. The cash provided by investing activities primarily
resulted from our sale of marketable securities for the three months ended March 31, 2016 of $5.3 million, partially offset by
purchase of marketable securities of $3.5 million, and purchase of property and equipment of $2,000.
For the year ended December 31, 2016, net
cash used in investing activities was approximately $3.0 million. The cash used in investing activities primarily resulted from
our purchase of marketable securities for the year ended December 31, 2016 of approximately $18.0 million and purchase of property
and equipment of approximately $4,000, partially offset by sale of marketable securities of approximately $15.1 million. For the
year ended December 31, 2015, net cash provided by investing activities was $0.1 million. We purchased $8.0 million and sold $8.1
million of marketable securities in 2015.
Cash Flows from Financing Activities
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For the three months ended March 31, 2017 and 2016, there were no financing activities.
Our business will require significant amounts
of capital to sustain operations and make the investments we need to execute our longer term business plan. Our accumulated deficit
amounted to approximately $142.7 million at March 31, 2017, compared to approximately $141.7 million at December 31, 2016. Our
existing liquidity is not sufficient to fund our operations, anticipated capital expenditures, working capital and other financing
requirements for the foreseeable future. We will need to obtain additional debt or equity financing, especially if we experience
downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense
levels resulting from being a publicly-traded company or from the litigations in which we participate. If we attempt to obtain
additional debt or equity financing, we cannot assume that such financing will be available to us on favorable terms, or at all.
Disputes regarding the assertion of patents
and other intellectual property rights are highly complex and technical. 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 or initiate inter parties reviews in an effort to avoid or limit liability and damages for patent infringement or
cause us to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the value of the patents
and preclude us from deriving revenue from the patents, the patents could be declared invalid by a court or the United States Patent
and Trademark Office, in whole or in part, or the costs could increase.
Should we be unsuccessful in our efforts
to execute our business plan, it could become necessary for us to reduce expenses, curtail operations or explore various alternative
business opportunities or possibly suspend or discontinue our business activities.
Pursuant to the RPX License Agreement,
the security interest that RPX held in favor of our patents acquired from Rockstar was extinguished. Accordingly, we now have greater
flexibility to monetize our patent portfolio, including through the sale of our patents or sublicensing our patents to third parties
who can pursue their own monetization strategies with respect to those patents in exchange for royalties or some other consideration.
We have filed a shelf registration statement
on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction
I.B.6. of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration
statement during any twelve-month period. At the time we sell securities pursuant to the registration statement, the
amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction
I.B.6. may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day
during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Based on this calculation
and primarily as a result of our sale of $2,500,000 of common stock for the purchase of common stock on August 8, 2016 we are not
currently eligible to sell any securities pursuant to our effective registration statement on Form S-3. Whether we sell securities
under the registration statement will depend on a number of factors, including the market conditions at that time, our cash position
at that time and the availability and terms of alternative sources of capital.
Rockstar will be entitled to receive a
contingent recovery percentage of future profits (“Participation Payments”) from licensing, settlements and judgments
against defendants with respect to patents purchased under the First Patent Purchase Agreement; however, no payment is required
unless the Company receives a recovery. The Participation Payments under the First Patent Purchase Agreement are equal to zero
percent until the Company recovers with respect to patents purchased under the First Patent Purchase Agreement at least (a) $8.0
million or (b) if we recover less than $17.0 million, an amount equal to $5.0 million plus $3.0 million times a fraction equal
to total recoveries minus $10.0 million, divided by $7.0 million (clause (a) or (b), as applicable, being the “Initial Return”),
in each case net of certain expenses. Once we obtain recoveries in excess of the Initial Return, we are required to
make a payment to Rockstar of $13.0 million, payable only from the proceeds of such recovery, within six months after such recovery.
In addition, no later than 30 days after the end of each quarter in which we make such a recovery, we are required to pay to Rockstar
a percentage of such recovery, net of certain expenses, scaling from 30% if such cumulative recoveries net of certain expenses
are less than or equal to $50.0 million, to 70% to the extent cumulative recoveries net of certain expenses are in excess of $1.0
billion.
Rockstar will also be entitled to receive
Participation Payments from licensing, settlements and judgments against defendants with respect to patents purchased under the
Second Patent Purchase Agreement; however, no payment is required unless we receive a recovery. The Participation Payments under
the Second Patent Purchase Agreement are equal to zero percent until we recover with respect to patents purchased under the Second
Patent Purchase Agreement at least $120.0 million, net of certain expenses. Once we obtain recoveries in excess of that
amount, we are required to pay to Rockstar 50% of our recovery in excess of that amount, no later than 30 days after the end of
each quarter in which we make such a recovery.
Our ability to fund these Participation
Payments or the $13.0 million contingent payment will depend on the liquidity of our assets, recoveries, alternative demands for
cash resources and access to capital at the time. Furthermore, our obligation to fund Participation Payments could adversely
impact our liquidity and financial position.
Net cash flows provided by financing activities
during the year ended December 31, 2016 was $2.9 million compared to net cash provided by financing activities of $3.8 million
in the year ended December 31, 2015. The cash provided by financing activities for the year ended December 31, 2016, primarily
resulted from approximately $2.1 million net proceeds from underwritten public offering of 1,592,357 shares of the Company’s
common stock and $0.8 million proceeds from exercise of 200,000 shares of warrants, partially offset by the payment for the cancellation
of common stock of approximately $4,000. Cash provided by financing activities for the year ended December 31, 2015, resulted from
the redemption of 5,601 shares of Series I Preferred Stock and proceeds received from the issuance of common stock, preferred stock
and warrants. In connection with the redemption of Series I Preferred Stock, we paid RPX $0.9 million. In July 2015, we sold 301,026
shares of our common stock and warrants to purchase up to an aggregate of 370,263 shares of our common stock (on a split-adjusted
basis), yielding net proceeds of approximately $1.3 million, excluding the proceeds, if any, from the exercise of the warrants.
In December 2015, we sold 726,315 shares of our common stock, 1,240 shares of our Series K Convertible Preferred Stock and warrants
to purchase up to an aggregate of 1,894,723 shares of our common stock, yielding net proceeds of approximately $3.4 million, after
deducting placement agent fees and other estimated offering expenses, excluding the proceeds, if any, from the exercise of the
warrants.
Contractual Obligations
Future minimum rental payments required
as of December 31, 2016, including Bethesda office lease obligation are as follows ($ in thousands):
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Lease Payments
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Year Ended December 31, 2017
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220
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Year Ended December 31, 2018
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45
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$
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265
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BUSINESS
Overview
We are a patent commercialization company
focused on generating revenues from the monetization of intellectual property, or IP. Such monetization includes, but
is not limited to, acquiring IP from patent holders in order to maximize the value of the patent holdings by conducting and managing
a licensing campaign, or through the settlement and litigation of patents. We intend to generate revenues and related
cash flows from the granting of intellectual property rights for the use of patented technologies that we own, that we manage for
others, or that others manage on our behalf by agreement. To date, we have generated minimal revenues and no assurance can be provided
that our business model will be successful.
We continually work to enhance our portfolio
of intellectual property through acquisition and strategic partnerships. Our mission is to partner with inventors, or other entities,
who own undervalued intellectual property. We then work with the inventors or other entities to commercialize the IP.
Our Products and Services
We acquire IP from patent holders in order
to maximize the value of their patent holdings by conducting and managing a licensing campaign. Some patent holders 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 laboratories and hospitals. Typically, we, or an operating subsidiary, acquire a patent portfolio
in exchange for securities of the Company, an upfront cash payment, a percentage of our operating subsidiary’s net recoveries
from the licensing and enforcement of the portfolio, or a combination of the foregoing.
Competition
We encounter significant competition from
others seeking to acquire interests in intellectual property assets and monetize such assets. This includes an increase in the
number of competitors seeking to acquire the same or similar patents and technologies that we may seek to acquire. Most
of our competitors 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 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 more 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 market 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.
The portfolio we are working with Equitable
to monetize pursuant to the Monetization Agreement is currently comprised of over 290 patents and patent applications (the “Portfolio”). The
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 the patents in the Portfolio are
publicly accessible on the Internet website of the U.S. Patent and Trademark Office at www.uspto.gov.
The lives of the patent rights in the Portfolio
have a wide duration ranging from 2017 to 2026.
Patent Enforcement Litigation
We, Equitable or its subsidiaries may often
be required to engage in litigation to enforce the patent rights associated with the Portfolio. Such patent enforcement related
litigation typically involves allegations of infringement by third parties of certain of the patented technologies claimed in the
Portfolio.
Employees
As of March 31, 2017, we have four full-time
employees, none of which are represented by a labor union or covered by a collective bargaining agreement.
PROPERTIES
Our main office is located in New York,
New York where we lease one office under a lease that expires in July 2018 with a monthly payment of $3,149 for one office. We
lease a space in Williamsburg, VA for $1,500 a month. We also lease office space in Longview, Texas under a renewable lease with
monthly payments of $1,958; and Bethesda, Maryland, under a lease with monthly payments of $15,107 that expires in March 2018.
We believe that the New York, Maryland, Virginia and Texas facilities are sufficient to meet our needs.
LEGAL PROCEEDINGS
In the ordinary course of business, we actively
pursue legal remedies to enforce our intellectual property rights and to stop unauthorized use of the technology in our patent
portfolio. Other than ordinary routine litigation incidental to the business and other than as set forth below, we know of no material,
active or pending legal proceedings against us, except for those described below.
Spherix Incorporated v. Uniden Corporation
et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas
On August 30, 2013, we initiated litigation
against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) 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 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 U.S. Patent No. 5,581,599 (the
“‘599 Patent”) and 6,614,899 (the “‘899 Patent”) in the United States Patent and Trademark
Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board “PTAB”) entered decisions instituting, on limited
grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued 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. On September 10, 2015, the Court stayed the case and ordered the parties to file a
status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered
the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final
decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of U.S. Patent No. 5,581,599 the 599 Patent and
all asserted claims of the ‘899 patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United
States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request,
the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further
Court intervention.The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain
in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ‘599
Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted
the parties’ motion to continue the stay. On January 12, 2017, we settled the case with Uniden and Uniden took
a license under the Asserted Patents. The appeal to the Federal Circuit continues with the Patent Office as an adverse party.
International License Exchange of America,
LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware
On April 26, 2016, we initiated litigation
against Fairpoint Communications, Inc. in
Spherix Incorporated v. Fairpoint Communications, Inc.
, Case No. 1:16-cv-00305-RGA,
in the United States District Court for the District of Delaware (the “Court”) for infringement of U.S. Patent No.
RE40,999 (the “999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ‘999
Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and
costs, a declaration that the case is exceptional under 35 U.S.C. § 285, and the Company’s attorney’s fees. On
October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America,
LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itself as the plaintiff, consistent
with our Monetization Agreement with Equitable. On November 17, 2016, the Court granted ILEA’s motion.
International License Exchange of America,
LLC Litigations
Under our Monetization Agreement with Equitable,
ILEA has filed the patent infringement litigations listed below.
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On August 12, 2016, litigation against Cincinnati
Bell, Inc., case number 1:16-cv-00715-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement
of U.S. Patent No. RE40,999 (“the ‘999 patent”), U.S. Patent No. 6,970,461, and U.S. Patent No. 7,478,167. On
March 8, 2017, Cincinnati Bell filed a motion to dismiss, alleging lack of personal jurisdiction and improper venue. On March
29, 2017, the parties filed a joint motion to stay all deadlines until April 29, 2017, stating that the parties have reached an
agreement in principal to resolve all claims asserted in the case. On April 3, 2017, the court granted the parties’ motion
to stay all deadlines until April 29, 2017. On May 5, 2017, the Court ordered the parties to file a joint status report by three
days from the date of the order. On May 5, 2017, the parties filed a joint stipulation of dismissal and the Court terminated the
case.
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On August 12, 2016, litigation against Frontier Communications
Corporation, case number 1:16-cv-00714-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement
of the ‘999 patent. On May 16, 2017, ILEA filed an agreed motion to stay all deadlines in the case, stating that the parties
had reached an agreement in principal in the case and needed time to finalize the written agreement. On May 19, 2017, the Court
granted the motion and stayed all deadlines until June 19, 2017.
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On August 12, 2016, litigation against Echostar Corporation,
case number 1:16-cv-00716-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the
‘999 patent. On April 17, 2017, ILEA filed a notice of voluntary dismissal of the case, and on April 18, 2017, the court
closed the case.
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On August 15, 2016, litigation against ATN International,
Inc. Commnet Wireless, LLC Choice Communications LLC, and Choice Communications, LLC (“Choice Wireless”), case number:
1:16-cv-00718-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999
patent. On April 12, 2017, the parties jointly dismissed the case by filing a stipulation dismissing the case with prejudice.
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On August 15, 2016, litigation against Sprint Corporation
and Clearwire Corporation case number 1:16-cv-00719-RGA, in the U.S. District Court for the District of Delaware, related to alleged
infringement of the ‘999 patent. On May 1, 2017, ILEA filed a notice of voluntary dismissal of the case, and the court closed
the case on May 2, 2017.
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On August 16, 2016, litigation against ViaSat, Inc.,
case number 1:16-cv-00720-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the
‘999 patent. On March 7, 2017, ViaSat filed a motion to dismiss, alleging failure to state a plausible claim of patent infringement.
On March 21, 2017, ILEA filed its brief in opposition to the motion to dismiss. On March 28, 2017, ViaSat filed its reply brief
on the motion to dismiss. On May 19, 2017, the Court issued an order granting ViaSat’s motion to dismiss, but granted ILEA
leave to amend the complaint no later than three weeks from the date of the order.
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On September 9, 2016, litigation against Fortinet
Inc., case number 1:16-cv-00795-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement
of the ‘999 patent. On March 7, 2017, Fortinet filed its answer to the Complaint and the case now proceeds to the disclosure
and discovery phase.
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On September 9, 2016, litigation against GTT Communications,
Inc., case number 1:16-cv-00796-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement
of the ‘999 patent. On May 19, 2017, the parties filed a motion to extend time to answer the complaint until June 5, 2017.
On May, 22, 2017, the Court granted the motion.
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On November 22, 2016, litigation against Alcatel-Lucent
SA and Alcatel-Lucent USA Inc., case number 1:16-cv-01077-RGA, in the U.S. District Court for the District of Delaware, related
to alleged infringement of the ‘999 patent and U.S. Patent Nos. 7,158,515; 6,222,848; 6,578,086; and 6,697,325. On March
28, 2017, ILEA filed a notice of voluntary dismissal of the case and on that date the court closed the case.
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On May 4, 2017, litigation against
NTT
Communications ICT Solutions Pty Ltd., NTT America, Inc., and NTT Security (US) Inc., case number 1:17-cv-00508-UNA, in the
U.S.
District Court for the District of Delaware, related to alleged infringement of the ‘999 patent and U.S. Patent No. 5,959,990
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On May 15, 2017, litigation against ADTRAN, Inc. case
number 1:17-cv-00562-RGA, in the U.S. District Court for the District of Delaware, related to alleged infringement of the ‘999
patent and U.S. Patent Nos. 5,959,990; 6.970,461; 7,478,167; 7,274,704; and 7,277,533.
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In July 2016, a lawsuit relating to the ‘999
Patent was dismissed in anticipation of settlement with the counterparty. In May 2017, settlement was reached, pursuant to which
the counterparty granted to Equitable the right to monetize a portfolio of 112 patents (the “Settlement Patents”).
Pursuant to the Company’s Monetization Agreement with Equitable, the Company is entitled to receive a portion of the net
revenue generated by Equitable’s monetization of the Settlement Patents.
Counterclaims
In the ordinary course of business, we, or
with our wholly-owned subsidiaries or monetization partners, will initiate litigation against parties whom we believe have infringed
on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated
by the defendants. Currently, there are no counterclaims pending against us. In the event such counterclaims are filed, we can
provide no assurance that the outcome of these claims will not have a material adverse effect on our financial position and results
from operations.
MANAGEMENT
Directors
The following table sets forth the name, age and position of each
current director of the Company.
|
|
|
|
|
|
Director
|
Name
|
|
Age
|
|
Position
|
|
Since
|
Robert J. Vander Zanden (1)(2)(3)
|
|
71
|
|
Director and Chairman of the Board
|
|
2004
|
Anthony Hayes
|
|
49
|
|
Chief Executive Officer Director, and Principal Accounting Officer
|
|
2013
|
Tim S. Ledwick (1)(2)
|
|
59
|
|
Director
|
|
2015
|
Eric Weisblum (1)(2)(3)
|
|
47
|
|
Director
|
|
2016
|
(1) Member of our Audit Committee.
(2) Member of our Compensation Committee.
(3) Member of our Nominating Committee.
The biographies of our current directors are as follows:
Dr. Robert J. Vander Zanden
Dr. Robert J. Vander Zanden, a Board member
since 2004, having served as a Vice President of R&D at 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. 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, as a consultant
to our 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 is qualified to serve as a director of the Company based on his expansive knowledge of, and experience
in, the patent monetization sector, as well as because of his intimate knowledge of the Company through his service as Chief Executive
Officer. On March 10, 2017, as a result of Mr. Frank Reiner’s resignation as Chief Financial Officer, Mr. Hayes began serving
as the Company’s Principal Accounting Officer.
Tim S. Ledwick
Mr. Tim S. Ledwick, who joined as a director
in 2015, 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 as Chair of the Audit Committee of Telkonet, Inc. (TKOI) a smart energy management technology
company. From 2007 to 2011, Mr. Ledwick provided CFO consulting services to AdvantageResourcing (former Advantage Human Resourcing,
Inc.) 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 transactions between $100 million and $1 billion. From 2002 through 2006, Tim
was a member of the Board of Directors and Executive Vice President-CFO of Dictaphone Corporation playing a lead role in developing
a business plan which revitalized the company, resulting in the successful sale of the firm and delivering a seven times return
to shareholders. From 2001-2002, Mr. Ledwick was brought on as CFO to lead the restructuring efforts of Lernout & 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 firm`s acquisition activity, tax analysis and capital raising. Mr. Ledwick is a member of the Connecticut
Society of Certified Public Accountants and received his B.B.A. in accounting from The George Washington University and his M.S.
in Finance from Fairfield University. The Board believes that Mr. Ledwick’s executive experience and financial
expertise qualifies him to serve as a director of the Company.
Eric Weisblum
Mr. Eric Weisblum, who joined as a director
in 2016, is
currently the Chief Executive Officer and a director of Point Capital Inc.
(OTC:PTCI),
where he has been employed since 2013 and prior to that was President of Sableridge Capital for five years
.
In addition to being an active investor in both public and private companies, Mr. Weisblum provides managerial assistance and guidance
to help companies execute on their business strategy. Mr. Weisblum has reviewed, invested and worked with numerous public and private
companies, and he has overseen the execution of M&A strategy in the micro-cap and small cap markets. Mr. Weisblum
also co-founded Whalehaven, a hedge fund that has invested in over 100 public companies to date. Prior to Whalehaven, Mr. Weisblum
was employed by M.H. Meyerson & Co. Inc., a full-service financial and investment-banking firm, with individual and institutional
accounts. At M.H. Meyerson, Mr. Weisblum traded equities on behalf of numerous established funds, and originated, structured, and
placed structured financing transactions. As a result, Mr. Weisblum brings with him nearly 20 years of experience in structuring
and trading financial instruments. Mr. Weisblum holds a B.A. from the University of Hartford’s Barney School of Business.
Executive Officers
The names of our executive officers and their
ages, positions, and biographies as of March 31, 2017 are set forth below. Mr. Hayes’ background is discussed above
under the section “Directors.”
Name
|
|
Age
|
|
Position
|
Anthony Hayes
|
|
49
|
|
Chief Executive Officer, Director & Principal Accounting Officer
|
Meetings of the Board of Directors and Committees
During the fiscal year ended December 31,
2016, our Board held a total of 18 regularly scheduled and special meetings, the Audit Committee held 3 meetings and the Compensation
Committee held 5 meetings. The Nominating Committee held 2 meetings during 2016. None of our incumbent directors attended
less than 100% of the Board or committee meetings.
Policy Regarding Attendance at Annual Meetings
of Stockholders
Our Company does not have a policy with regard
to Board members’ attendance at annual meetings. All of our directors attended our last annual meeting of stockholders.
Code of Ethics
We have adopted a Code of Ethics, which is
available on our website at
www.spherix.com
.
Audit Committee
We have a standing Audit Committee. The Audit
Committee members are Mr. Ledwick, Chair, Dr. Vander Zanden and Eric Weisblum. The Committee has authority to review our financial
records, deal with our independent auditors, recommend financial reporting policies to the Board, and investigate all aspects of
our business. The Audit Committee Charter is available for your review on our website at www.spherix.com. Each member of the Audit
Committee satisfies the independence requirements and other criteria established by NASDAQ and the SEC applicable to audit committee
members. The Board has determined that Mr. Ledwick meets the requirements of an audit committee financial expert as defined
in the SEC and NASDAQ rules.
Compensation Committee
The Compensation Committee oversees the
compensation for our executive officers and recommends various incentives for key employees to encourage and reward increased corporate
financial performance, productivity and innovation. Its current members Dr. Vander Zanden, Mr. Weisblum (Chairman), and Mr.
Ledwick. The Compensation Committee Charter is available on our website at
www.spherix.com
.
Nominating Committee
The Nominating Committee presents and recommends
to the Board, for approval by the Board, the proposed Board of Directors for election by the stockholders. Its members are Mr.
Weisblum and Dr. Vander Zanden (Chairman). The Nominating Committee Charter is available on our website at www.spherix.com. The
Nominating Committee does not have any formal minimum qualifications for director candidates. The Nominating Committee identifies
candidates by first evaluating current members of the Board who are willing to continue in service. If any member of the Board
does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Nominating Committee
then identifies the desired skills and experience of a new candidate(s).
Among other factors, when considering a prospective
candidate, the Nominating Committee considers a candidate’s business experience and skills, attributes pertinent to Company
business, personal integrity and judgment, and possible conflicts of interest. To date, the Nominating Committee has not utilized
the services of any search firm to assist it in identifying director candidates. The Nominating Committee’s policy is to
consider director candidate recommendations from its stockholders which are received prior to any annual meeting of stockholders,
including confirmation of the candidate’s consent to serve as a director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act
requires our directors and executive officers, and anyone who beneficially owns ten percent (10%) or more of our common stock,
to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of common stock. Anyone
required to file such reports also need to provide us with copies of all Section 16(a) forms they file.
Based solely upon a review of (i) copies
of the Section 16(a) filings received during or with respect to 2016 and (ii) certain written representations of our officers
and directors, we believe that all filings required to be made pursuant to Section 16(a) of the Exchange Act during and with respect
to 2016 were filed in a timely manner, with the exception of a Form 3 to be filed by Mr. Weisblum in August 2016, in connection
with his appointment to the Board of Directors. Mr. Weisblum filed a Form 5 on February 9, 2017 to report such deficiency.
EXECUTIVE AND DIRECTOR COMPENSATION
The following Summary of Compensation table
sets forth the compensation paid by our Company during the two years ended December 31, 2016, to all executive officers earning
in excess of $100,000 during any such year.
Summary of Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive
Plan
|
|
|
Change in Pension
Value
and Non-
Qualified Deferred
|
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Compensation
($)(1)
|
|
|
Compensation
Earnings
($)
|
|
|
Compensation
($)
|
|
|
Total ($)
|
|
Anthony Hayes, President, Chief
|
|
2016
|
|
|
350,000
|
|
|
|
225,000
|
|
|
|
-
|
|
|
|
6,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
581,222
|
|
Executive Officer and Director (1)
|
|
2015
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
700,000
|
|
Frank Reiner, Interim Chief Financial
|
|
2016
|
|
|
271,000
|
|
|
|
40,000
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
371,000
|
|
Officer (3)
|
|
2015
|
|
|
254,500
|
|
|
|
80,000
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394,500
|
|
Richard Cohen,
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Chief Financial Officer (5)
|
|
2015
|
|
|
120,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
|
(1)
|
Awards
pursuant to the Spherix Incorporated 2013 Incentive Compensation Plan and 2014 Incentive Compensation Plan.
|
|
(2)
|
On
January 28, 2014, the Compensation Committee adopted a resolution intended to grant Mr. Hayes options to purchase 15,789 shares
of common stock options with a term of five years and an exercise price of $110.77, subject to certain vesting conditions upon
agreement of the Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on January 28, 2014. On April 3,
2014 the Compensation Committee adopted a resolution intended to grant Mr. Hayes options to purchase 26,316 shares of common stock
options with a term of five years and an exercise price of $54.34 subject to certain vesting conditions upon agreement of the
Compensation Committee and Mr. Hayes. Such options were issued to Mr. Hayes on April 3, 2014. On July 15, 2014 the Compensation
Committee adopted a resolution intended to grant Mr. Hayes options to purchase 5,263 shares of common stock options with a term
of five years and an exercise price of $34.01 subject to certain vesting conditions upon agreement of the Compensation Committee
and Mr. Hayes. Such options were issued to Mr. Hayes on July 15 2014. On December 16, 2015 the Compensation Committee adopted
a resolution to award Mr. Hayes his 2015 target bonus in the amount of $350,000 which was paid on January 13, 2016. On May 3,
2016 the Compensation Committee adopted a resolution to grant Mr. Hayes options to purchase 3,947 shares of common stock options
with a term of ten years and an exercise price of $1.98 subject to certain vesting conditions upon agreement of the Compensation
Committee and Mr. Hayes. Such options were issued to Mr. Hayes on May 24, 2016. Amount of 2016 bonus is $225,000.
|
|
(3)
|
All
stock options to Mr. Reiner were granted in accordance with ASC Topic 718. On December 22, 2015, the Compensation
Committee adopted a resolution to pay Mr. Reiner a 2015 bonus of $40,000 in cash and $60,000 in shares of
common stock in respect of his performance for the 2015 fiscal year which, as of the close of trading on December 21, 2015,
would have constituted a total of 21,053 shares. The Compensation Committee also adopted to pay Mr. Reiner a deferred
2014 bonus of $20,000 in cash and $20,000 in cash in lieu of common stock for achieving the target in respective
employment agreement. On December 8, 2016, the members of the Compensation Committee adopted a resolution to pay Mr. Reiner a
bonus of $40,000 in cash and $60,000 in shares of common stock in respect of his performance for the 2016 fiscal year, which as
of the close of trading on December 8, 2016, would have constituted a total of 48,781 shares.
|
|
(4)
|
Mr.
Cohen resigned as a member of Chord and, simultaneously, as a member of our Board on June 30, 2015, and our monthly fee payable
to Chord was further reduced to $10,000 per month. Mr. Cohen’s involvement with the Company ceased on June 30, 2015, as
did any further compensation paid by the Company to Mr. Cohen.
|
Outstanding Equity Awards at December 31,
2016
|
|
Option Awards
|
|
|
|
Number of Securities
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
Underlying Unexercised
|
|
|
Option Exercise
|
|
|
Option Expiration
|
Name
|
|
Options (#) Exercisable
|
|
|
Options (#) Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
Anthony Hayes
|
|
|
39,472
|
|
|
|
-
|
|
|
$
|
134.52
|
|
|
4/1/2023
|
|
|
|
13,158
|
|
|
|
-
|
|
|
$
|
54.34
|
|
|
4/3/2019
|
|
|
|
5,263
|
|
|
|
-
|
|
|
$
|
34.01
|
|
|
7/15/2019
|
|
|
|
1,974
|
|
|
|
1,973
|
|
|
$
|
1.98
|
|
|
5/2/2021
|
Frank Reiner
|
|
|
5,263
|
|
|
|
-
|
|
|
$
|
88.73
|
|
|
3/15/2024
|
|
|
|
2,631
|
|
|
|
-
|
|
|
$
|
36.86
|
|
|
6/19/2024
|
Potential Payment upon Termination or Change in Control
Under the April 1, 2016 employment agreement
with Mr. Hayes, we have agreed to, in the event of termination by us without “cause” or pursuant to a change in control,
grant Mr. Hayes, in addition to reimbursement of any documented, unreimbursed expenses incurred prior to such date, (i) any unpaid
compensation and vacation pay accrued during the term of the Employment Agreement, and any other benefits accrued to him under
any of our benefit plans outstanding at such time, (ii) twelve (12) months base salary at the then current rate to be paid in a
single lump sum within thirty (30) days of Mr. Hayes’ termination, (iii) continuation for a period of twelve (12) months
of any benefits as extended to our executive officers from time to time, including but not limited to group health care coverage
and (iv) payment on a pro rata basis of any annual bonus or other payments earned in connection with any bonus plans to which Mr.
Hayes was a participant as of the date of termination. In addition, any options or restricted stock shall be immediately vested
upon termination of Mr. Hayes’s employment without “cause” or pursuant to a change in control.
Under the March 14, 2014 employment agreement
with Mr. Frank Reiner, in the event of a termination or non-renewal of his employment without “cause” or pursuant to
the consummation of a change in control, we have agreed to grant Mr. Reiner in addition to reimbursement of any documented, unreimbursed
expenses incurred prior to such date, (i) any unpaid compensation and vacation pay accrued during two years commencing on
March 14, 2014 or any then applicable extension of the term of Mr. Reiner’s employment, and any other benefits accrued to
him under any of our benefit plans outstanding at such time, (ii) twelve (12) months’ base salary at the then current rate
to be paid in a single lump sum within sixty (60) days of Mr. Reiner’s termination, (iii) continuation for a period of twelve
(12) months of any benefits as extended to our executive officers from time to time and (iv) payment on a pro rata basis of any
annual bonus or other payments earned in connection with any bonus plans to which Mr. Reiner was a participant as of the date of
termination. In addition, any options or restricted stock shall be immediately vested upon termination or non-renewal of Mr. Reiner’s
employment without “cause” or pursuant to a change in control. In March 2017, Mr. Reiner and the Company agreed not
to renew Mr. Reiner’s employment agreement and Mr. Reiner received his non-renewal compensation. On March 10, 2017, Mr. Reiner
and the Company entered into a separation agreement and general release, pursuant to which Mr. Reiner received payments due to
him under the terms of his employment agreement as well as a lump sum payment of $18,504 in lieu of his right to continue health
insurance coverage under the Company’s group health plan.
Executive Officer Agreements
On September 10, 2013, we entered into
an employment agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes served as the Chief Executive Officer for
a period of two years, subject to renewal. In consideration for his employment, we agreed to pay Mr. Hayes a signing bonus
of $100,000 and a base salary of $350,000 per annum. In addition, Mr. Hayes was entitled to receive an annual bonus in an
amount equal to up to 100% of his base salary if the Company met or exceeded certain criteria adopted by the Compensation Committee.
During the year ended December 31, 2015, Mr. Hayes waived his right to receive this bonus.
In February 2015, the members of the Compensation
Committee revised the annual bonus structure for Mr. Hayes and established an incentive target bonus (a “Target Bonus”).
The amount of the Target Bonus was (i) $350,000 in cash, 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 Compensation 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. In December 2015, the members of Compensation Committee evaluated the 2015 achievements and deemed that Mr. Hayes had
achieved the criteria for his Target Bonus by consummating five strategic transactions prior to December 31, 2015 that, together
reached the applicable bonus threshold. As such, Mr. Hayes’ Target Bonus of $350,000 was made to Mr. Hayes. No additional
discretionary bonus was made.
On April 1, 2016, we entered into an employment
agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes serves as the Chief Executive Officer for a period of one
year, subject to renewal. In consideration for his employment, we agreed to pay Mr. Hayes 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 we meet or exceed
certain criteria adopted by our Compensation Committee. We further agreed to grant executive restricted stock units, pursuant to
the Corporation’s 2014 Equity Incentive Plan, with respect to 118,512 shares of the Company’s common stock. One-half
of the grant shall vest if as of December 31, 2016, the Corporation has pro-forma cash of at least five million dollars ($5,000,000)
(cash plus any cash used for a Board-approved extraordinary acquisition or transaction reconstituting the Company’s core
operations, less accrued bonuses) and one-half shall vest upon the Company meeting certain agreed upon criteria. As of December
31, 2016, 59,256 restricted stock units were vested and 59,256 restricted stock units were forfeited.
As of the date of this report, the Compensation
Committee has not determined Mr. Hayes’ bonus for 2016.
On June 30, 2015, our Board of Directors accepted
the resignation of Richard Cohen as Chief Financial Officer, effective immediately. In connection therewith, we amended and restated
the Company’s consulting agreement with Chord Advisors, LLC (“Chord”) such that Chord would continue to provide
us with certain financial accounting and advisory services at a reduced monthly fee of $10,000 from $20,000.
In connection with Mr. Cohen’s resignation,
on June 30, 2015, the Board of Directors appointed Frank Reiner as Interim Chief Financial Officer, effective immediately. Pursuant
to Mr. Reiner’s employment 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 us.
Mr. Reiner’s base salary under his employment agreement was $235,000 per year, but in connection with being named Interim
Chief Financial Officer, the Board of Directors authorized an amendment to Mr. Reiner’s employment 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 our gross
proceeds from certain monetization of our intellectual property. In December 2016, the members of the Compensation Committee determined
to pay Mr. Reiner $60,000 in shares of common stock and a cash bonus of $40,000 in connection with his performance for the 2016
fiscal year. On March 10, 2017, Mr. Reiner and the Company entered into a separation agreement and general release, pursuant to
which Mr. Reiner received payments due to him under the terms of his employment agreement as well as a lump sum payment of $18,504
in lieu of his right to continue health insurance coverage under the Company’s group health plan.
Director Compensation
The following table summarizes the compensation
paid to non-employee directors during the year ended December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and Non-
|
|
|
|
|
|
|
|
|
|
Fees earned or
|
|
|
|
|
|
|
|
|
Non-Equity Incentive
Plan
|
|
|
Qualified
Deferred
Compensation
|
|
|
All Other
|
|
|
|
|
|
|
paid in cash ($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)
|
|
|
Compensation ($)
|
|
|
Earnings ($)
|
|
|
Compensation ($)
|
|
|
Total ($)
|
|
Jeffrey Ballabon (1)
|
|
|
68,796
|
|
|
|
-
|
|
|
|
6,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,018
|
|
Eric Weisblum (2)
|
|
|
21,033
|
|
|
|
-
|
|
|
|
4,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,802
|
|
Robert J. Vander Zanden (3)
|
|
|
81,200
|
|
|
|
-
|
|
|
|
6,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,422
|
|
Tim Ledwick (4)
|
|
|
70,400
|
|
|
|
-
|
|
|
|
6,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,622
|
|
Howard E. Goldberg (5)
|
|
|
57,139
|
|
|
|
-
|
|
|
|
6,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,361
|
|
|
(1)
|
All
stock options were granted in accordance with ASC Topic 718. Please the aggregate grant
date
fair value of the option awards computed in accordance with FASB ASC Topic 718 (column (d)).
|
|
(2)
|
Mr.
Ballabon was paid $68,796 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of 2016.
In addition, Mr. Ballabon was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise
price of $1.98, with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue. Mr.
Ballabon resigned as a director on October 26, 2016.
|
|
(3)
|
Mr.
Vander Zanden was paid $81,200 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of
2016. In addition, Mr. Vander Zanden was granted options to purchase 3,947 shares of common stock, with a term of five years and
an exercise price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of
the date of issue.
|
|
(4)
|
Mr.
Ledwick was paid $70,400 in cash compensation for his service as a director for the fourth quarter of 2015 and for all of 2016.
In addition, Mr. Ledwick was granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise
price of $1.98, vesting with 50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of
issue.
|
|
(5)
|
Mr. Goldberg was paid $57,139
in cash compensation for his service as a director in 2016. In addition, Mr. Goldberg was granted options to purchase 3,947 shares
of common stock, with a term of five years and an exercise price of $1.98, vesting with 50% vesting immediately and the remaining
50% vesting on the one year anniversary of the date of issue. Mr. Goldberg resigned as a director on October 26, 2016.
|
|
(6)
|
Mr.
Weisblum was paid $21,033 in cash compensation for his service as a director in 2016. In addition, Mr. Weisblum was
granted options to purchase 3,947 shares of common stock, with a term of five years and an exercise price of $1.98, vesting with
50% vesting immediately and the remaining 50% vesting on the one year anniversary of the date of issue.
|
Non-employee directors received the following annual compensation
for service as a member of the Board for the fiscal year ended December 31, 2016:
Annual Retainer
|
|
$
|
60,000
|
|
|
To be paid in cash in four equal quarterly installments.
|
Stock Options
|
|
|
3,947
|
|
|
Options to acquire shares of our common stock, pursuant to and subject to the available number of shares under the 2014 Plan, to be granted on the date of our Annual Meeting. The options will have an exercise price equal to the closing price on the trading day immediately preceding the date of issuance and be exercisable for a period of ten (10) years with 50% vesting immediately on the date of issue and the remaining 50% vesting on the one year anniversary date of the issue so long as the optionee has not been removed as a director of Spherix for cause.
|
Additional Retainer
|
|
$
|
5,000
|
|
|
To be paid to the Chairman of the Board upon election annually.
|
CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS
The current Board of Directors consists of
Mr. Tim S. Ledwick, Mr. Anthony Hayes, Dr. Robert J. Vander Zanden and Mr. Eric Weisblum. The Board of
Directors has determined that Dr. Vander Zanden, Mr. Ledwick and Mr. Weisblum are independent directors within the
meaning of the applicable NASDAQ rules. Our Audit, Compensation, and Nominating Committees consist solely of independent directors.
Richard Cohen was appointed our Chief Financial
Officer on January 6, 2014. In consideration for Mr. Cohen’s services, during 2015, the Company paid to Chord Advisors, LLC,
of which Mr. Cohen was chairman and an equity owner, a monthly fee of $20,000. Total fees of $120,000 were paid to Chord while
Mr. Cohen served as our Chief Financial Officer. In connection with the resignation of Mr. Cohen on June 30, 2015, our Board of
Directors appointed Frank Reiner as Interim Chief Financial Officer. 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 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
us. Mr. Reiner’s base salary under his employment agreement was $235,000 per year, but in connection with being named Interim
Chief Financial Officer, the Board of Directors authorized an amendment to Mr. Reiner’s employment agreement to increase
Mr. Reiner’s base salary to $271,000. On March 10, 2017, Mr. Reiner and the Company entered into a separation agreement and
general release, pursuant to which Mr. Reiner received payments due to him under the terms of his employment agreement as well
as a lump sum payment of $18,504 in lieu of his right to continue health insurance coverage under the Company’s group health
plan.
On August 10, 2015, we entered into a consulting
agreement with Mr. Howard E. Goldberg (d/b/a Forward Vision Associates, of which Mr. Goldberg is the sole proprietor and owner),
on an independent contractor basis, pursuant to which Mr. Goldberg will, among other services, provide advisory services to us
in areas including licensing, litigation and business strategies. Mr. Goldberg was also added as a director at that time. We will
pay Mr. Goldberg an agreed upon quarterly retainer amount of $20,400 (calculated on an hourly basis) and, if applicable, upon exhaustion
of each quarterly retainer, at an hourly rate to be paid in equity (for the first 50 hours above the quarterly retainer), and subsequently
(if applicable) at an hourly rate thereafter in cash. We will reimburse Mr. Goldberg for actual out-of-pocket expenses. The consulting
agreement with Mr. Goldberg has an initial term of one year, unless he has completed the desired services by an earlier date or
unless the agreement is earlier terminated pursuant to its terms. The consulting agreement with Mr. Goldberg may be extended by
written agreement of both us and Mr. Goldberg. For the year ended December 31, 2016 and 2015, the Company incurred $40,800 and
$42,287, respectively, consulting expenses related to this agreement. Mr. Goldberg resigned as a director of the Company on October
26, 2016 and as of August 2016, Mr. Goldberg no longer serves as a consultant to the Company.
We have not adopted written policies and procedures
specifically for related person transactions. Our Board of Directors is responsible to approve all related party transactions,
and approved each of the transactions set forth above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management
The following tables set forth certain information
concerning the number of shares of our common stock owned beneficially as of May 19, 2017 by (i) our officers and directors as
a group and (ii) each person (including any group) known to us to own more than 5% of our common stock. As of May 19, 2017 there
were 4,943,929 shares of common stock outstanding. Unless otherwise indicated, it is our understanding and belief that the stockholders
listed possess sole voting and investment power with respect to the shares shown.
Title of Class
|
|
Name of Beneficial
Owner
|
|
Amount
and Nature of
Ownership (1)
|
|
|
Percent
of Class Beneficially
Owned (2)
|
|
Y
Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Common
|
|
Robert J. Vander Zanden
|
|
|
26,365
|
(3)
|
|
|
1.98
|
%
|
Common
|
|
Anthony Hayes
|
|
|
99
,023
|
(4)
|
|
|
1.98
|
%
|
Common
|
|
Tim S. Ledwick
|
|
|
7,894
|
(5)
|
|
|
1.98
|
%
|
Common
|
|
Eric Weisblum
|
|
|
3,947
|
(6)
|
|
|
*
|
|
Common
|
|
All Directors and Officers as a Group
(4 persons)
|
|
|
137,229
|
|
|
|
2.72
|
%
|
|
*
|
Less
than 1% of the outstanding shares of the Company Common Stock.
|
(1) Under Rule 13d-3 of the Exchange Act a
beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares: (i) voting power, which includes the power to vote or to direct the voting of shares;
and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be
deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose
of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing
the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these acquisition rights.
(2) Based on 4,943,929 shares of our common
stock outstanding as of May 19, 2017 and takes into account the beneficial ownership limitations governing the Series D Preferred
Stock, Series D-1 Preferred Stock, and Series K Preferred Stock. Beneficial ownership limitations on our Series H Preferred Stock
prevent the conversion or voting of the stock if the number of shares of common stock to be issued pursuant to such conversion
or to be voted would exceed, when aggregated with all other shares of common stock or other voting stock owned by the same holder
at the time, the number of shares of common stock which would result in such holder beneficially owning more than 4.99% of all
of the common stock outstanding at such time. Beneficial ownership limitations on our Series D-1 Preferred Stock prevent the conversion
or voting of the stock if the number of shares of common stock to be issued pursuant to such conversion or to be voted would exceed,
when aggregated with all other shares of common stock owned by the same holder at the time, the number of shares of common stock
which would result in such holder beneficially owning more than 9.99% of all of the common stock outstanding at such time. Beneficial
ownership limitations on our Series K Preferred Stock prevent the conversion of the stock if the number of shares of common stock
to be issued pursuant to such conversion or to be voted would exceed, when aggregated with all other shares of common stock or
other voting stock owned by the same holder at the time, the number of shares of common stock which would result in such holder
beneficially owning more than 4.99% of all of the common stock outstanding at such time.
(3) Includes 7 shares of common
stock, 24,385 options for purchase of common stock exercisable as of May 19, 2017, and 1,973 options for purchase of common stock
exercisable within 60 days of May
19
, 2017.
(4) Includes 1,214 shares of common stock,
59,867 options for purchase of common stock exercisable as of May
19
, 2017, 1,973 options for purchase of common stock
exercisable within 60 days of May
19
, 2017, and
35,969
RSUs which have vested as of May
19
, 2017, net of
withholdings for tax obligations.
(5) Includes 5,921 options for purchase of
common stock exercisable as of May
19
, 2017, and 1,973 options for purchase of common stock exercisable within 60 days
of May
19
, 2017.
(6) Includes 1,974 options for purchase of
common stock exercisable as of May
19
, 2017, and 1,973 options for purchase of common stock exercisable within 60 days
of May
19
, 2017.
Effective January 1, 2013, the Company
and Equity Stock Transfer, LLC entered into a Rights Agreement, which was subsequently assigned to Transfer Online Inc. as Rights
Agent on June 20, 2016. The Rights Agreement
provides each stockholder of record a dividend distribution of one “right” for each outstanding share of common stock.
Rights become exercisable at the earlier of ten days following: (1) a public announcement that an acquirer has purchased or
has the right to acquire 10% or more of our common stock, or (2) the commencement of a tender offer which would result in
an offer or beneficially owning 10% or more of our outstanding common stock. All rights held by an acquirer or offer
or expire on the announced acquisition date, and all rights expire at the close of business on December 31, 2017, subject
to further extension. Each right entitles a stockholder to acquire, at a price of $7.46 per one nineteen-hundredth of a share of
our Series A Preferred Stock, subject to adjustments, which carries voting and dividend rights similar to one share of our common
stock. Alternatively, a right holder may elect to purchase for the stated price an equivalent number of shares of our common stock
at a price per share equal to one-half of the average market price for a specified period. In lieu of the stated purchase
price, a right holder may elect to acquire one-half of the common stock available under the second option. The purchase
price of the preferred stock fractional amount is subject to adjustment for certain events as described in the Agreement. At the
discretion of a majority of the Board of Directors and within a specified time period, we may redeem all of the rights at a price
of $0.001 per right. The Board may also amend any provisions of the Agreement prior to exercise.
DESCRIPTION OF CAPITAL STOCK
General
The following description of common stock summarizes
the material terms and provisions of the common stock and is not complete. For the complete terms of our common stock, please refer
to our Amended and Restated Certificate of 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, increases our authorized number of shares of common stock to 200,000,000 shares from 50,000,000 shares. 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.
Amended and Restated Certificate of Incorporation
On March 4, 2016, the Company implemented a
reverse stock split with a ratio of 1-for-19. The par value and other terms of the common stock were not affected by the reverse
stock split. In addition, the amendment to the Company’s certificate of incorporation that effected the reverse stock split
simultaneously reduced the number of authorized shares of common stock from 200,000,000 to 100,000,000.
Common Stock
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.
Preferred Stock
Our Amended and Restated Certificate of Incorporation
authorizes 50,000,000 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.
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.
The Company had designated separate series
of its capital stock as of March 31, 2017, December 31, 2016 and December 31, 2015 as summarized below:
|
|
Number of Shares Issued
and Outstanding as of
|
|
|
|
|
|
|
|
|
March
31, 2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
Par Value
|
|
|
Conversion Ratio
|
Series "A"
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.0001
|
|
|
N/A
|
Series "C"
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.0001
|
|
|
0.05:1
|
Series “D"
|
|
|
4,725
|
|
|
|
4,725
|
|
|
|
4,725
|
|
|
|
0.0001
|
|
|
0.53:1
|
Series “D-1"
|
|
|
834
|
|
|
|
834
|
|
|
|
834
|
|
|
|
0.0001
|
|
|
0.53:1
|
Series “F-1"
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.0001
|
|
|
0.05:1
|
Series “H"
|
|
|
-
|
|
|
|
-
|
|
|
|
381,967
|
|
|
|
0.0001
|
|
|
0.53:1
|
Series “I”
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.0001
|
|
|
1.05:1
|
Series “J”
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.0001
|
|
|
0.05:1
|
Series “K”
|
|
|
-
|
|
|
|
-
|
|
|
|
1,240
|
|
|
|
0.0001
|
|
|
263.16:1
|
On April 23, 2014, the Company filed a Certificate
of Elimination with the Secretary of State of the State of Delaware eliminating its 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 preferred stock. No shares of the foregoing series of preferred stock were outstanding.
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 $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.
As of March 31, 2017, December 2016, and December 2015, no shares
of Series A Preferred Stock were issued and outstanding.
Series C Convertible Preferred Stock
On March 6, 2013, the Company and certain investors
that participated in the Company’s November 2012 private placement transaction entered into separate Warrant Exchange Agreements
pursuant to which those investors exchanged common stock purchase warrants for 229,337 shares of the Company’s Series C Convertible
Preferred Stock (“Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible into
one-nineteenth of a share of common stock at the option of the holder. The Series C 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 Preferred Stock. Between May and September 2013, 229,336 shares of Series C Preferred Stock were converted
into an aggregate of 229,336 shares of common stock. In December 2015, the one remaining share of Series C Preferred Stock was
surrendered by the stockholder for cancellation.
As
of March 31, 2017,
December 2016, and December 2015, no shares
of Series of Series C Preferred Stock remained issued and outstanding, respectively.
Series D Convertible Preferred Stock
In connection with the acquisition of North
South’s patent portfolio in September 2013, the Company issued 1,379,685 shares of its Series D Convertible Preferred Stock
(“Series D Preferred Stock”) to the stockholders of North South. Each share of Series D Preferred Stock
has a stated value of $0.0001 per share and is convertible into ten-nineteenths of a share of common stock. Upon the
liquidation, dissolution or winding up of the Company’s 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 common stock on an “as converted” basis. Each
holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to its 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 Stock are convertible into
at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation and
the conversion 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 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 the Company. The conversion
ratio of the Series D Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares
and similar recapitalization transactions.
As of March 31, 2017, December 2016, and December
2015, 4,725 shares of Series D Preferred Stock remained issued and outstanding.
Series D-1 Convertible Preferred Stock
The Company’s 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- nineteenths of a share of common stock. Upon
the liquidation, dissolution or winding up of the Company’s 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 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 the Company’s 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 Stock
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 issued and outstanding common stock. The conversion ratio of the Series D-1 Preferred
Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization
transactions. The Company commenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which
the holders of the Company’s outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares
for shares of the Company’s Series D-1 Preferred Stock on a one-for-one basis.
As of March 31, 2017, December 2016, and December
2015, 834 shares of Series D-1 Preferred Stock remained issued and outstanding.
Series H Convertible Preferred Stock
On December 31, 2013, the Company designated 459,043 shares of preferred
stock as Series H Preferred Stock. On December 31, 2013, the Company issued approximately $38.3 million of Series H Preferred
Stock (or 459,043 shares) to Rockstar. Each share of Series H Preferred Stock is convertible into ten-nineteenths of a share
of common stock and has a stated value of $83.50. The conversion ratio is subject to adjustment in the event of stock splits,
stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting the
conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns 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 issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common
stock upon the conversion of the Series H Preferred Stock. Holders of the Series H Preferred Stock shall be entitled to vote
on all matters submitted to the Company’s 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 were not immediately convertible and did not possess any voting rights until such a time as the Company had obtained
stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, the Company obtained the required
stockholder approval and, as a result, all outstanding shares of Series H Preferred Stock are convertible and possess voting
rights in accordance with its terms. On May 28, 2014, 20,000 shares of Series H Preferred Stock were converted into 10,526
shares of common stock.
In January 2015, Rockstar transferred its remaining
outstanding Series H Preferred Stock to RPX Clearinghouse LLC, an affiliate of RPX.
According to the RPX License Agreement, on
November 23, 2015, RPX transferred to the Company for cancellation 57,076 shares of Series H Preferred Stock then held by RPX,
having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar.
In connection with a second, separate, licensing
agreement, on May 23, 2016, RPX transferred to the Company for cancellation of 100% of the remaining 381,967 shares of Series H
Preferred Stock held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar.
As
of March 31, 2017, December 2016, and December 2015,
none, none
and 381,967 shares of Series H Preferred Stock remained issued and outstanding, respectively.
Series I Redeemable Convertible Preferred
Stock
On December 31, 2013, the Company designated
119,760 shares of preferred stock as Series I Preferred Stock. On December 31, 2013, the Company issued approximately
$20 million (or 119,760 shares) of Series I Preferred Stock to Rockstar. Each share of Series I Preferred Stock was
convertible into twenty-nineteenths of a share of common stock and had a stated value of $167.00. The conversion ratio
was subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The
holder was prohibited from converting the Series I Preferred Stock to the extent that, as a result of such conversion, the holder
beneficially owned 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 the Company’s issued and outstanding shares of common stock calculated immediately after giving
effect to the issuance of shares of common stock upon the conversion of the Series I Preferred Stock. Holders of the
Series I Preferred Stock were entitled to vote on all matters submitted to its stockholders who were entitled to the number of
votes equal to the number of shares of common stock into which the shares of Series I Preferred Stock were convertible, subject
to applicable beneficial ownership limitations. The Series I Preferred Stock provided for a liquidation preference of
$167.00 per share.
The shares of Series I Preferred Stock were
not immediately convertible and did not possess any voting rights until such a time as the Company had obtained stockholder approval
of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, the Company obtained the required stockholder.
In January 2015, Rockstar transferred its remaining
outstanding Series I Preferred Stock, as well as its other stock in the Company to RPX Clearinghouse LLC.
In June 2015, the Company redeemed 5,601 shares
of Series I Preferred Stock. In accordance with this redemption, the Company paid RPX $0.9 million.
On November 23, 2015, as per RPX License Agreement,
RPX transferred to the Company for cancellation all remaining 29,940 shares of Series I Preferred Stock, as to which a $5,000,000
mandatory redemption payment would have been due from the Company on or by December 31, 2015.
As
of March 31, 2017, December 2016, and December 2015,
no
shares of Series I Preferred Stock remained issued and outstanding, respectively.
Series J Convertible Preferred Stock
On May 28, 2014, the Company designated 20,000,000
shares of preferred stock as Series J Preferred Stock. On May 28, 2014, the Company entered into a placement agency agreement with
Laidlaw & Company (UK) Ltd., as the placement agent, which provided for the issuance and sale in a registered direct public
offering (the “Series J Offering”) by the Company of 10,000,000 shares of Series J Preferred Stock which were convertible
into a total of 526,315 shares of common stock. The Series J Preferred Stock in the Series J Offering was sold at a public offering
price of $2.00 per share. The net offering proceeds to the Company from the sale of the shares were approximately $18.4 million,
after deducting placement agent fees ($1.32 million), legal fees ($0.18 million) and escrow fee ($0.04 million). The sale of the
Series J Preferred Stock was made pursuant to a subscription agreement between the Company and certain investors in the Series
J Offering.
The shares of Series J Preferred Stock carry
a liquidation preference equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of
common stock if such holder had converted the Series J Preferred Stock immediately prior to such liquidation, dissolution or winding
up. Each holder of Series J Preferred Stock is entitled to vote on all matters submitted to stockholders of the Company and is
entitled to a vote of 67.3% of the number of votes for each share of common stock into which the Series J Preferred Stock is convertible
owned at the record date for the determination of stockholders entitled to vote on such matter. Subject to certain ownership limitations
as described below, shares of Series J Preferred Stock are convertible at any time at the option of the holder into shares of common
stock in an amount equal to one-nineteenths of a share of common stock for each one share of Series J Preferred Stock surrendered. Subject
to limited exceptions, holders of shares of Series J Preferred Stock do not have the right to convert any portion of their Series
J Preferred Stock that would result in the holder, together with its affiliates, beneficially owning in excess of 9.99% of the
number of shares of common stock outstanding immediately after giving effect to its conversion; notwithstanding the foregoing,
some Investors elected to have the 9.99% beneficial ownership limitation to initially be 4.99%.
On May 28, 2014 all shares of Series J Preferred
Stock were converted into an aggregate of 526,315 shares of common stock.
As
of March 31, 2017, December 2016, and December 2015,
no shares
of Series J Preferred Stock are issued and outstanding.
Series K Convertible Preferred Stock
On December 2, 2015,
the Company designated 1,240 shares of preferred stock as Series K Preferred Stock. On December 7, 2015, the Company
issued 1,240 shares of Series K Preferred Stock in December 2015 Offering. Each share of Series K Preferred Stock is
convertible into five thousand-nineteenths of a share of common stock and has a stated value of $1,000. The conversion
ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization
transactions. The Series K Preferred do not generally have any voting rights but are convertible into shares of common stock. At
no time may shares of Series K Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99%
of the 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 the Company. The conversion ratio of the Series K Preferred Stock is
subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.
Since January 1, 2016, stockholders have converted
all 1,240 shares of Series K Preferred Stock into 326,315 shares of common stock.
As of March 31, 2017, December 2016, and December
2015, none, none and 1,240 shares, respectively, of Series K Preferred Stock are issued and outstanding.
Warrants
A summary of warrant activity for the three
months ended March 31, 2017 and the year ended December 31, 2016 is presented below:
|
|
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Total Intrinsic Value
|
|
|
Weighted Average
Remaining Contractual
Life
(in years)
|
|
Outstanding as of December 31, 2015
|
|
|
2,304,888
|
|
|
$
|
7.98
|
|
|
$
|
-
|
|
|
|
2.83
|
|
Exercised
|
|
|
(200,000
|
)
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(854,577
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Outstanding as of December 31, 2016
|
|
|
1,250,311
|
|
|
$
|
9.21
|
|
|
|
|
|
|
|
3.91
|
|
Exercisable as of December 31, 2016
|
|
|
1,250,311
|
|
|
$
|
9.21
|
|
|
$
|
-
|
|
|
|
3.91
|
|
Outstanding as of March 31, 2017
|
|
|
1,250,311
|
|
|
|
9.21
|
|
|
|
|
|
|
|
3.67
|
|
Exercisable as of March 31, 2017
|
|
|
1,250,311
|
|
|
|
9.21
|
|
|
|
|
|
|
|
3.67
|
|
Transfer Agent and Registrar
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.
Listing
Our common stock is listed on the NASDAQ Capital
Market under the symbol “SPEX”. We have not applied to list our common stock on any other exchange or quotation system.
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:
|
·
|
any
breach of his or her duty of loyalty to us or our stockholders;
|
|
·
|
acts
or omissions not in good faith which involve intentional misconduct or a knowing violation of law;
|
|
·
|
the
payment of dividends or the redemption or purchase of stock in violation of Delaware law; or
|
|
·
|
any
transaction from which the director derived an improper personal benefit.
|
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 our 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 Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws, our Shareholder Rights Plan, and Delaware law could
have the effect of discouraging potential acquisition proposals or making a tender offer or delaying 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:
|
•
|
authorize our board of directors to issue, without further action by the stockholders, up to 50,000,000 shares of undesignated preferred stock;
|
|
•
|
provide that stockholders must provide advance notice to nominate persons for election to our board of directors or submit proposals for consideration at stockholder meetings;
|
|
•
|
specify that special meetings of our stockholders can be called only by our board of directors or by any officer instructed by the board of directors to a call a special meeting;
|
|
•
|
provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum, or by the sole remaining director; and
|
|
•
|
provide the board of directors with the ability to alter the bylaws without stockholder approval.
|
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 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 nineteen-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 $0.001 per right. The stockholder rights plan provides that 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.
Delaware Takeover Statute
Section 203 of the 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 period of three years following the date
that such stockholder became an interested stockholder, unless:
|
•
|
before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
|
|
•
|
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
|
|
•
|
on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock that is not owned by the interested stockholder.
|
Section 203 of the DCGL defines “business
combination” to include:
|
•
|
any merger or consolidation involving the corporation and the interested stockholder;
|
|
•
|
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
|
|
•
|
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
|
|
•
|
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
|
|
•
|
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
|
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.
UNDERWRITING
[_____] is acting as the representative of the underwriters named
below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed
to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number
of shares of common stock set forth opposite its name below.
Underwriters
|
|
Number of Shares
|
|
|
|
|
|
Total
|
|
|
|
|
Subject to the terms and conditions set forth in the underwriting
agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement
if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments
of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The underwriters are not obligated
to purchase the shares of common stock covered by the underwriters' over-allotment option described below.
The underwriters are offering the shares subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions contained
in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions, Discounts and Expenses
The following table summarizes the underwriting discounts and commissions
we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the
underwriters pay to us for the shares.
|
|
Total
|
|
|
|
|
|
|
Per Share
|
|
|
Without
Over-Allotment
|
|
|
With
Over-Allotment
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The representative has advised us that the underwriters propose
to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus and to
selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $[_____]
per share. After the offering, the representatives may change the offering price and other selling terms.
We have agreed to pay a non-accountable expense allowance to the
representative of the underwriters of up to $[__], and we have agreed to pay legal expenses of the representative’s counsel
up to $[__]. We have also agreed to pay the expenses relating to the offering, including, but not limited to, (1) all actual
filing fees incurred in connection with the review of this offering by the Financial Industry Regulatory Authority, Inc.,
or FINRA, (2) all fees and expenses relating to the listing of our shares of common stock on the Nasdaq Capital Market, (3) all
actual fees, expenses and disbursements relating to the registration, qualification or exemption of the shares of common stock
being offered by this prospectus under state securities laws, or "blue sky" laws, or under the securities laws of foreign
jurisdictions designated by the representative, (4) all actual fees, expenses and disbursements relating to the registration,
qualification or exemption of our shares of common stock under the securities laws of such foreign jurisdictions as the representative
may reasonably designate, (5) the costs of all mailing and printing of the underwriting documents as the representative may
reasonably deem necessary, and (6) the legal fees and expenses and fees and expenses of any other agents and representatives
of the Company incurred as a result of the offering.
The expenses of the offering, not including the underwriting discount,
are estimated at approximately $[_______] and are payable by us.
Option to Purchase Additional Shares
We have granted an option to the underwriters, exercisable for 45 days
after the date of this prospectus to purchase up to [_______] additional shares at the public offering price,
less the underwriting discount. If the underwriters exercise this option, each underwriter will be obligated, subject to conditions
contained in the underwriting agreement, to purchase a number of additional Shares proportionate to that underwriter's initial
amount reflected in the above table.
Lock-Up Agreements
Pursuant to certain "lock-up" agreements, we, for a period
of ninety (90) days from the effective date of the offering, and our named executive officers and directors, for a period
of one hundred eighty (180) days from the effective date of the offering, have agreed, subject to certain exceptions, not
to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose
of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of
ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable
or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the
underwriter.
The representative may, in its sole discretion and at any time or
from time to time before the termination of the lock-up periods release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the underwriters and any of our stockholders who will execute a lock-up agreement,
providing consent to the sale of shares prior to the expiration of the lock-up period.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for
these liabilities.
Stabilization, Short Positions and
Penalty Bids
In connection with the offering, the underwriters may engage in
stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for
the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange
Act:
•Stabilizing transactions permit bids to purchase
the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•A short position involves a sale by the underwriters
of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate
short position. This short position may be either a covered short position or a naked short position. In a covered short position,
the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase
is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a
naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional
shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or
purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they
may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if
the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering.
•Syndicate covering transactions involve purchases
of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
•Penalty bids permit the representative to reclaim
a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing
or syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that
might otherwise exist in the open market. These transactions may be effected on the Nasdaq Capital Market or otherwise and, if
commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common
stock. In addition, neither we nor any of the underwriters make any representation that the representative will engage in these
transactions or that these transactions, once commenced, will not be discontinued without notice.
Listing and Transfer Agent
Our Common Stock is listed on The NASDAQ Capital Market and
trades under the symbol "SPEX." The transfer agent of our Common Stock is VStock Transfer, LLC, with an address at
18 Lafayette place, Woodmere, New York 11598.
Electronic Distribution
A prospectus in electronic format may be made available on the websites
maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree
to allocate a number of shares of common stock to underwriters and selling group members for sale to their online brokerage account
holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make
Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information
on the underwriters' websites and any information contained in any other website maintained by the underwriters is not part of
this prospectus or the registration statement of which this prospectus forms a part.
Other Relationships
From time to time, certain of the underwriters and their affiliates
have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the
ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However,
except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
Offer Restrictions Outside the United
States
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities
be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves
about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction
in which such an offer or a solicitation is unlawful.
LEGAL MATTERS
Ellenoff Grossman & Schole LLP, New York, New York, will pass
upon the validity of the shares of our common stock offered hereby. Certain legal matters in connection with this offer will be
passed upon for the underwriters by [__].
EXPERTS
Marcum LLP, an independent registered public accounting firm, has
audited our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016,
as set forth in their report dated March 31, 2017, which is incorporated by reference in this prospectus and elsewhere in the registration
statement. Our consolidated financial statements are incorporated by reference in reliance on Marcum LLP’s report, given
on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INORMATION AND INCORPORATION
BY REFERENCE
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed
with the registration statement. For further information about us and the common stock and warrants offered hereby, we refer you
to the registration statement and the exhibits filed with the registration statement. Statements contained in this prospectus regarding
the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily
complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document
filed as an exhibit to the registration statement. A copy of the registration statement and the filed exhibits may be inspected
without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies
of all or any part of the registration statement may be obtained from that office at prescribed rates. Please call the SEC at 1-800-SEC-0330
for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
We are subject to the information and reporting requirements of
the Exchange Act and, in accordance with this law, are required to file periodic reports, proxy statements and other information
with the SEC. These periodic reports, proxy statements and other information are available for inspection and copying at the SEC’s
public reference facilities and the website of the SEC referenced above. We make available free of charge, on or through the investor
relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. The information found on our website, other than as
specifically incorporated by reference in this prospectus, is not part of this prospectus.
The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important information to you by referring you to another document that we have filed
separately with the SEC. The information incorporated by reference is considered to be part of this prospectus. Information in
this prospectus supersedes information incorporated by reference that we filed with the SEC prior to the date of this prospectus.
We incorporate by reference into this prospectus and the registration statement of which this prospectus is a part the information
or documents listed below that we have filed with the SEC (Commission File No. 000-05576), excluding any portions of any Current
Report on Form 8-K that are not deemed “filed” pursuant to the General Instructions of Form 8-K:
|
•
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our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017;
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|
•
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Our Quarterly Report on Form 10-Q for the period ended March 31, 2017 filed with the SEC on May 12, 2017; and
|
|
•
|
our Current Reports on Form 8-K filed with the SEC on February 9, 2017 and March 25, 2017.
|
Any information in any of the foregoing documents
will automatically be deemed to be modified or superseded to the extent that information in this prospectus modifies or replaces
such information.
Shares of Common Stock
PRELIMINARY PROSPECTUS
, 2017
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate that expenses in connection with
the distribution described in this registration statement (other than brokerage commissions, discounts or other expenses relating
to the sale of the shares in this offering) will be as set forth below. We will pay all of the expenses with respect to the distribution,
and such amounts, with the exception of the Securities and Exchange Commission (“SEC”) registration fee and FINRA fee,
are estimates.
Legal fees and expenses
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Printing and engraving expenses
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Accounting fees and expenses
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SEC expenses
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FINRA expenses
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Travel and road show
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Directors and officers insurance
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NASDAQ listing and filing fees
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Miscellaneous expenses
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Total offering expenses (other than underwriting commissions)
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*To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DCGL 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 amended and restated 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 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.
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 DCGL 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 under 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 three months following the grant date.
On June 10, 2015, the Company entered into
a consulting agreement with a third party for three months of investor relations services. The Company has agreed to pay the consultant
a monthly fee of $10,000, payable in shares of common stock for each month of the term. The Company issued 15,625 and 25,641 shares
of common stock to this service provider on June 10, 2015 and July 10, 2015, respectively.
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 March 26, 2014, Spherix Incorporated (the "Company")
sold an aggregate of $4,446,081 of its securities in a private offering made solely to accredited investors (the “Investors”)
(the “Offering”) pursuant to Subscription Agreements, dated as of March 26, 2014 (the “Subscription Agreement”). Pursuant
to the Offering, Investors purchased (i) 1,185,614
shares (the “Shares”) of common stock, par
value $0.0001 per share, of the Company (“Common Stock”) and (ii) five year warrants to purchase an aggregate of 592,794 shares
of common stock of the Company, at an exercise price of $6.15 per share (the “Warrants”). The Warrants are
exercisable on the six month anniversary of the date of issuance by payment to the Company of the exercise price
of $6.15 per share, or if a registration statement covering the common stock underlying the Warrants is not then in effect, on
a cashless basis. Each Warrant may be callable at $0.01 per Warrant upon the consummation of a Company financing with
a per share offering price of at least $8.00 and net proceeds to the Company from such offering of at least $15 million.
The Shares and Warrants described were offered and sold solely to
“accredited investors” in reliance on the exemption from registration afforded by Rule 506 of Regulation D and Section
4(a)(2) of the Securities Act. In connection with the sale of the securities, the Company relied on the Investors'
written representations as to its status as an "accredited investor" as defined in Rule 501(a) of Regulation D. In
addition, neither the Company nor anyone acting on its behalf has offered or sold these securities by any form of general solicitation
or general advertising.
On April 17, 2014, the Company filed a registration statement with
the SEC to register the resale of all shares and the shares of common stock underlying the Warrants issued in the Offering (including
the placement agent warrant described below), which registration statement was declared effective on May 16, 2014. The Investors
have also been granted certain “piggy back” registration rights. The Company is subject to certain
penalties in the event that it fails to maintain the effectiveness of any registration statement covering the resale of such shares
.
Laidlaw & Company (UK) Ltd., a FINRA registered broker dealer, acted
as placement agent in connection with the Offering on a best-efforts basis and received a cash fee of $444,608, plus a non-accountable
expense allowance of $88,922, and was issued a five- year warrant to purchase 118,561
shares of common stock at an
exercise price of $4.67per share of common stock (the “Placement Agent Warrant”). The Placement Agent Warrant is exercisable
beginning on the six month anniversary of the date of issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|
(a)
|
Exhibits
.
The exhibits to the registration
statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.
|
|
(b)
|
Financial Statements.
Financial
statement schedules have been omitted, as the information required to be set forth therein is included in the Consolidated Financial
Statements or Notes thereto appearing in the prospectus made part of this registration statement.
|
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes
to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each purchaser.
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(1)
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To file, during any period in which offers or sales are being made, a post-effective amendment
to this registration statement to:
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|
(i)
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To include any prospectus required by Section 10(a)(3) of the Securities Act.
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(ii)
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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 Securities
and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
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(iii)
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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;
|
provided, however
,
that paragraphs (1)(i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by
those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained
in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
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(2)
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That, for the purpose of determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof;
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(3)
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To remove from registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering;
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(4)
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That, for the purpose of determining liability under the Securities Act to any purchaser, each
prospectus filed pursuant to Rule 424(b) as part 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, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus 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 made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use.
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The undersigned registrant hereby undertakes
that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement 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.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 24
th
day of May, 2017.
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SPHERIX INCORPORATED
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By:
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/s/
Anthony Hayes
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Anthony Hayes
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Chief Executive Officer, Director, and Principal Accounting Officer
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KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Anthony Hayes their true and lawful attorney-in-fact, with full power of substitution and
resubstitution for them and in their name, place and stead, in any and all capacities to sign any and all amendments including
post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney-in-fact or their substitute, each
acting alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities
Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the
dates indicated.
Name
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Position
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Date
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/s/
Anthony Hayes
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Chief Executive Officer, Director, and Principal Accounting Officer
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May 24, 2017
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Anthony Hayes
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/s/
Robert J. Vander Zanden
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Director and Chairman of the Board
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May 24, 2017
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Robert J. Vander Zanden
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/s/
Tim S. Ledwick
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Director
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May 24, 2017
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Tim S. Ledwick
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/s/
Eric Weisblum
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Director
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May 24, 2017
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Eric Weisblum
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INDEX TO EXHIBITS
Exhibit No.
|
|
Description
|
|
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1.1†
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Underwriting Agreement
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1.2
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Placement Agency Agreement, dated July 15, 2015, between Spherix Incorporated and Chardan Capital Markets LLC (incorporated by reference to Form 8-K filed July 17, 2015)
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3.1
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Amended and Restated Certificate of Incorporation of Spherix Incorporated, dated April 24, 2014 (incorporated by reference to Form 8-K filed April 25, 2014)
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3.2
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Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Spherix Incorporated, dated March 2, 2016 (incorporated by reference to Form 8-K filed March 18, 2016)
|
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3.2
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Amended and Restated Bylaws of Spherix Incorporated (incorporated by reference to Form 8-K filed October 15, 2013)
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3.3
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Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Spherix Incorporated, effective March 4, 2016 (incorporated by reference to Form 10-K filed March 29, 2016)
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4.1
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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)
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4.2
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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)
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4.3
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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)
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4.4
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Certificate of Designation of Preferences, Rights and Limitations of Series K Convertible Preferred Stock (incorporated by reference to Form 8-K filed on December 3, 2015)
|
4.5
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Form of Warrant (incorporated by reference to Form 8-K filed on March 26, 2014)
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4.6
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Form of Placement Agent Warrant (incorporated by reference to Form 8-K filed on March 26, 2014)
|
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4.7
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Form of Common Stock Purchase Warrant (incorporated by reference to Form 8-K filed July 17, 2015)
|
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4.8
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Form of Warrant (incorporated by reference to Form 8-K filed December 3, 2015)
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5.1†
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Opinion of EGS
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10.1
|
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2012 Equity Incentive Plan (incorporated by reference from the Company’s Information Statement on Form DEF 14c filed November 26, 2012)
|
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10.2
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Warrant Exchange Agreement dated March 1, 2013 between the Company and certain investors (incorporated by reference to Form 8-K filed March 7, 2013)
|
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10.3
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Agreement and Plan of Merger dated April 2, 2013 (incorporated by reference to the Form 8-K filed on April 4, 2013)
|
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10.4
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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)
|
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10.5
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Spherix Incorporated 2013 Equity Incentive Plan (incorporated by reference to the Form 8-K filed on April 4, 2013)
|
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10.6
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Spherix Incorporated 2014 Equity Incentive Plan (incorporated by reference from the Company’s Proxy Statement on Form DEF 14A filed December 20, 2013)
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10.7
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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)
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10.8
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Form of Indemnification Agreement (incorporated by reference to the Form 8-K filed on September 10, 2013)
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10.9
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Employment Agreement between Spherix Incorporated and Anthony Hayes (incorporated by reference to the Form 8-K filed on September 13, 2013)
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10.10
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Indemnification Agreement between Spherix Incorporated and Alexander Poltorak (incorporated by reference to the Form 8-K filed on October 29, 2013)
|
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10.11
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Indemnification Agreement between Spherix Incorporated and Richard Cohen (incorporated by reference to the Form 8-K filed on January 9, 2014)
|
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10.12
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Indemnification Agreement between Spherix Incorporated and Jeffrey Ballabon (incorporated by reference to the Form 8-K filed on June 13, 2014)
|
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10.13**
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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)
|
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10.14
|
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Form of Series F Exchange Agreement (incorporated by reference to the Form 8-K filed on November 26, 2013)
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10.15
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Form of Series D Exchange Agreement (incorporated by reference to the Form 8-K filed on December 30, 2013)
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10.16
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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)
|
|
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10.17
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Form of Subscription Agreement (incorporated by reference to the Form 8-K filed March 26, 2014)
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10.18
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Form of Registration Rights Agreement (incorporated by reference to the Form 8-K filed March 26, 2014)
|
|
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10.19
|
|
Form of Subscription Agreement (incorporated by reference to the Form 8-K filed on May 29, 2014)
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10.20
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|
Letter of Agreement, dated January 6, 2014, between Spherix Incorporated and Chord Advisors, LLC (incorporated by reference to the Form 10-K filed on March 30, 2015)
|
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10.21
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Letter of Agreement, dated April 11, 2014, between Spherix Incorporated and Chord Advisors, LLC (incorporated by reference to the Form 10-K filed on March 30, 2015)
|
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10.22
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Securities Purchase Agreement, dated July 15, 2015, between Spherix Incorporated and the purchasers party thereto (incorporated by reference to Form 8-K filed July 17, 2015)
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10.23
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Employment Agreement, dated as of March 14, 2014, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 10-K filed March 29, 2016)
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10.24
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Amendment to Employment Agreement, dated as of June 30, 2015, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 10-K filed March 29, 2016)
|
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10.25
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Consulting Services Agreement, dated 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 August 19, 2015)
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10.26
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|
Settlement and License Agreement, dated October 13, 2015, between Spherix Incorporated and Huawei Technologies Co., Ltd. (incorporated by reference to Form 10-K filed March 29, 2016)
|
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10.27
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|
Patent License Agreement, dated as of November 23, 2015, between Spherix Incorporated and RPX Corporation (incorporated by reference to Form 8-K filed November 30, 2015
|
|
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10.28
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|
Securities Purchase Agreement, dated as of December 2, 2015, between Spherix Incorporated and the investors party thereto (incorporated by reference to Form 8-K filed December 3, 2015)
|
10.29
|
|
Engagement Agreement, dated September 16, 2015, as amended, between Spherix Incorporated and H.C. Wainwright & Co., LLC (incorporated by reference to Form 8-K filed December 3, 2015)
|
|
|
|
10.30
|
|
Employment Agreement, effective as of April 1, 2016, between Spherix Incorporated and Anthony Hayes (incorporated by reference to Form 8-K filed May 26, 2016)
|
|
|
|
10.31
|
|
Separation Agreement and Release, dated March 10, 2017, between Spherix Incorporated and Frank Reiner (incorporated by reference to Form 8-K filed March 15, 2017)
|
10.32
|
|
Patent License Agreement, dated as of May 23, 2016, between Spherix Incorporated and RPX Corporation (incorporated by reference to Form 10-Q filed August 15, 2016)
|
|
|
|
10.33
|
|
Technology Monetization Agreement, dated as of March 11, 2016, and
amended as of April 22, 2016, April 27, 2016 and May 22, 2016, between Spherix Incorporated and Equitable IP Corporation (incorporated
by reference to Form 8-K filed August 2, 2016)
|
10.34
|
|
Underwriting Agreement, dated as of August 2, 2016, by and among
Spherix Incorporated and the underwriters named on Schedule I thereto (incorporated by reference to Form 8-K filed August 3, 2016)
|
10.35
|
|
Assignment and Assumption of Rights Agreement, dated as of June 16, 2016, by and between Spherix Incorporated and Transfer Online, Inc. (incorporated by reference to Form 8-K filed June 21, 2016)
|
|
|
|
21.1
|
|
List of Subsidiaries
(incorporated by reference to 10-K filed on March 31, 2017)
|
|
|
|
23.1*
|
|
Consent of Marcum LLP, independent registered public accounting firm
|
|
|
|
23.4
|
|
Power of Attorney (included on signature page)
(Incorporated by reference to Registrant’s Registration Statement on Form S-1 filed with the Commission
on May 24, 2017)
|
* Filed herewith.
** Pursuant to a Confidential Treatment Request
under Rule 24b-2 filed with and approved by the SEC, portions of this exhibit have been omitted
†To
be filed by amendment.
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