Filed Pursuant to Rule 424(b)(5)
under the Securities Act of 1933
in connection with
Registration Statements
Nos. 333-207078 and 333-208292
Dated December 3, 2015
PROSPECTUS
13,800,000 Class A Units
consisting of Common Stock and Warrants and
1,240 Class B Units
consisting of Series K Convertible Preferred Stock and
Warrants
(42,200,000 shares of Common Stock
underlying the Series K Convertible Preferred Stock and
Warrants)
We are offering up to 13,800,000 Class A Units (consisting of
one share of our common stock, a Series A warrant to purchase one
share of our common stock at an exercise price equal to the public
offering price of the Class A Units, (“Series A warrant”), and
a Series B warrant to purchase eight-tenths of a share of our
common stock at an exercise price equal to 125% of the public
offering price of the Class A Units, (“Series B warrant”)).
The shares of common stock, Series A warrants and Series B warrants
part of a Class A Unit are immediately separable and will be
issued separately in this offering.
We are also offering to those purchasers, if any, whose purchase of
Class A Units in this offering would otherwise result in the
purchaser, together with its affiliates and certain related
parties, beneficially owning more than 4.99% of our outstanding
common stock immediately following the consummation of this
offering, the opportunity, in lieu of purchasing Class A
Units, to purchase up to 1,240 Class B Units. Each Class B Unit
will consist of one share of our Class K Convertible Preferred
Stock, or the Series K Preferred, with a stated value of $1,000 per
share and convertible into shares of our common stock (on a 1 for
5,000 basis) at the public offering price of the Class A
Units, together with the equivalent number of Series A warrants and
Series B warrants as would have been issued to such purchaser if
they had purchased Class A Units based on the public offering
price. The Series K Preferred do not generally have any voting
rights but are convertible into shares of common stock. The shares
of Series K Preferred, Series A warrants and Series B warrants part
of a Class B Unit are immediately separable and will be issued
separately in this offering.
We are also offering the shares of common stock that are issuable
from time to time upon conversion of the Series K Preferred and
upon exercise of the Series A warrants and Series B warrants being
offered by this prospectus.
Assuming we sell all 13,800,000 of Class A Units (and 1,240
Class B Units) in this offering, we would issue in this offering an
aggregate of 13,800,000 shares of our common stock, 1,240 shares of
our Series K Preferred Stock (convertible into 6,200,000 shares of
Common Stock), Series A warrants to purchase 20,000,000 shares of
our common stock and Series B warrants to purchase up to
16,000,000 shares of our common stock.
Our common stock is listed on The NASDAQ Capital Market under the
symbol “SPEX”. The last reported sale price of our common stock on
The NASDAQ Capital Market on December 1, 2015 was $0.33 per share.
There is no established public trading market for the warrants, and
we do not expect a market to develop. In addition, we do not intend
to apply for a listing of the warrants on any national securities
exchange.
Investing in our common stock and warrants involves a high
degree of risk. You should consider carefully the risks and
uncertainties in the section entitled “Risk Factors”
beginning on page 14 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
| |
|
Per Class
A
Unit
(one
share
of
common
stock,
a
Series
A
warrant
for
one
share
and a
Series
B
warrant
for
eight-
tenths of
a
share) |
|
|
Per Class
B
Unit
(one
share
of
Series
K
Preferred
and a
Series A
warrant
for
one
share
and a
Series B
warrant
for
eight-tenths
of a
share) |
|
|
Total |
|
|
Public offering price |
|
$ |
0.200 |
|
|
$ |
1,000.00 |
|
|
$ |
4,000,000 |
|
|
Placement agent’s fees(1) |
|
$ |
0.016 |
|
|
$ |
80.00 |
|
|
$ |
320,000 |
|
| Proceeds
to Spherix Incorporated, before expenses |
|
$ |
0.184 |
|
|
$ |
920.00 |
|
|
$ |
3,680,000 |
|
| (1) |
We
have agreed to reimburse the placement agent for certain of its
expenses. See “Plan of Distribution” on page 54 of this prospectus
for a description of the compensation payable to the placement
agent. |
We have engaged H.C. Wainwright & Co., LLC (“Wainwright”
or the “Placement Agent”) to act as our exclusive placement agent
in connection with this offering. Wainwright is not purchasing or
selling the securities offered by us, and is not required to sell
any specific number or dollar amount of securities, but will use
its reasonable best efforts to arrange for the sale of the
securities offered. We estimate total expenses of this offering,
excluding the placement agent fees, will be approximately $190,000.
Because there is no minimum offering amount required as a condition
to closing in this offering, the actual public offering amount,
placement agent fees, and proceeds to us, if any, are not presently
determinable and may be substantially less than the total maximum
offering amounts set forth above. This offering will terminate on
December 7, 2015, unless the offering is fully subscribed before
that date or we decide to terminate the offering prior to that
date. In either event, the offering may be closed without further
notice to you. We may utilize a non-interest bearing escrow account
in connection with the closing of this offering.
CONCURRENT OFFERINGS
On January 24, 2014, our Registration Statement on Form S-1 (File
No. 333-192737) was declared effective under the Securities Act of
1933, as amended, with respect to the resale of 2,302,615 shares of
our common stock, including 1,236,130 shares of common stock
issuable upon conversion of outstanding shares of our Series D-1
Convertible Preferred Stock. Sales of common stock by the selling
stockholders pursuant to the Prospectus filed on January 28, 2014,
the related Prospectus Supplement filed on February 19, 2014, and
the Post-Effective Amendment on Form S-3, filed on April 9, 2014
and declared effective by the Securities and Exchange Commission on
April 11, 2014, or the potential of such sales, could have an
adverse effect on the market price of our common stock.
On February 3, 2014, we filed a Registration Statement on Form S-3
(File No. 333-193729) and amended such registration statement on
April 9, 2014 and May 1, 2014, with respect to the resale of
7,777,829 shares of our common stock, consisting of (i) 635,949
shares of common stock, (ii) 156,250 shares of common stock
issuable upon conversion of Series F-1 Convertible Preferred Stock,
of which no shares currently remain issued and outstanding (iii)
4,390,430 shares of common stock issuable upon conversion of
outstanding shares of Series H Convertible Preferred Stock, and
(iv) 2,395,200 shares of common stock issuable upon conversion of
Series I Convertible Redeemable Preferred Stock (“Series I
Preferred Stock”), of which 598,800 shares of the Series I
Preferred Stock remain outstanding as 1,796,400 shares of Series I
Preferred Stock have been redeemed by the company since issuance.
Upon being declared effective by the Securities and Exchange
Commission, the sale of such convertible preferred shares by the
selling stockholders, or the potential of such sales, could have an
adverse effect on the market price of our common stock.
On May 16, 2014, our Registration Statement on Form S-3 (File No.
333-195346) was declared effective under the Securities Act of
1933, as amended, with respect to (a) the resale of 1,778,409
shares of our common stock, including 592,794 shares of common
stock underlying warrants, and (b) the primary sale, in one or more
offerings, of any combination of securities described in the
prospectus included in the registration statement having an
aggregate initial offering price of up to $30,000,000. Sales of
common stock by the selling stockholders pursuant to the prospectus
included in such registration statement or in a prospectus
supplement, or the potential of such sales, could have an adverse
effect on the market price of our common stock. We sold 10,000,000
shares of Series J Convertible Preferred Stock (which shares were
later converted to shares of common stock) and issued an additional
125,000 shares of common stock pursuant to such registration
statement. The resale of such publicly tradable shares of our
common stock, or the potential of such sales, could have an adverse
effect on the market price of our common stock.
On November 18, 2014, our registration statement on Form S-3 (File
No. 333-198498) was declared effective under the Securities Act of
1933, as amended, with respect to (a) the primary sale, in one or
more offerings, of any combination of securities described in the
prospectus included in the registration statement having an
aggregate initial offering price of up to $30,000,000, which is
inclusive of (b) the remaining $9,775,000 from Registration
Statement from Form S-3 (File No. 333-195346). On July 15,
2015, we sold 5,719,532 shares of our common stock, par value
$.0001 per share and warrants to purchase up to 7,035,024 shares of
our Common Stock (issuable from time to time upon exercise of these
warrants) pursuant to such registration statement. The resale
of such publicly tradable shares of our common stock, or the
potential of such sales, could have an adverse effect on the market
price of our common stock.
Rodman &
Renshaw
a unit of H.C.
Wainwright & Co.
The date of this prospectus is December 3, 2015
TABLE OF CONTENTS
We have not authorized anyone to provide you with information other
than that contained in this prospectus or in any free writing
prospectus prepared by or on behalf of us or to which we have
referred you. We take no responsibility for, and can provide no
assurance as to the reliability of, any other information that
others may give to you. We are offering to sell, and are seeking
offers to buy, shares of our common stock and warrants only in
jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock or warrants. Our
business, financial condition, results of operations, and prospects
may have changed since that date.
No action is being taken in any jurisdiction outside the United
States to permit a public offering of our common stock or warrants
or possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this prospectus
in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this
offering and the distribution of this prospectus applicable to that
jurisdiction.
PROSPECTUS SUMMARY
The items in the following summary are described in more detail
later in this prospectus. This summary provides an overview of
selected information and does not contain all of the information
you should consider before buying our securities. Therefore, you
should read the entire prospectus, and any documents we incorporate
by reference, carefully before deciding to invest in our
securities. Investors should carefully consider the information set
forth under “Risk Factors” beginning on page 14 of this prospectus.
In this prospectus, unless the context otherwise requires,
references to “the Company,” “we,” “us,” “our,” or “Spherix” refer
to Spherix Incorporated.
About This Prospectus
You should rely only on the information contained or incorporated
by reference in this prospectus. We have not, and the Placement
Agent has not, authorized any person to provide you with different
or inconsistent information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not,
and the Placement Agent is not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this
prospectus and the documents incorporated by reference is accurate
only as of their respective dates. Spherix’s business, financial
condition, results of operations and prospects may have changed
since such dates.
We further note that the representations, warranties and covenants
made by us in any document that is filed as an exhibit to the
registration statement of which this prospectus is a part and in
any document that is incorporated by reference herein were made
solely for the benefit of the parties to such agreement, including,
in some cases, for the purpose of allocating risk among the parties
to such agreements, and should not be deemed to be a
representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
Our Business
Our Business Model
We are a patent commercialization company that realizes revenue
from the monetization of intellectual property, 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, or that we manage for others.
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.
Currently, we own over 330 patents and patent applications.
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 tend to have limited internal
resources and/or expertise to effectively address the unauthorized
use of their patented technologies or they simply make the
strategic business decision to outsource their intellectual
property licensing. They can include individual inventors, large
corporations, universities, research laboratories and hospitals.
Typically, we, or an operating subsidiary, acquires a patent
portfolio in exchange for a combination of 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
two.
Competition
We expect to 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.
Our portfolio is currently comprised of over 330 patents and patent
applications. Our patent portfolio includes both U.S.
and foreign patents and pending patent applications
in the wireless communications and telecommunication sectors
including data, optical and voice technology, antenna
technology, Wi-Fi, base station functionality, and
cellular. We also own patents related to artificial
sweetener and prescription refill technology.
Most of our patents are publicly accessible on the Internet website
of the U.S. Patent and Trademark Office at www.uspto.gov.
The lives of our patent rights have a wide
duration. Certain patents have already expired and the
latest patents do not expire until 2026.
Patent Enforcement Litigation
We may often be required to engage in litigation to enforce our
patents and patent rights. We are, or may become a party to ongoing
patent enforcement related litigation, alleging infringement by
third parties of certain of the patented technologies owned or
controlled by us. The material litigations in which we
are currently engaged are described in summary fashion below.
Guidance IP LLC v. T-Mobile Inc., Case No. 2:14-cv-01066-RSM, in
the United States District Court for the Western District of
Washington
On August 1, 2013, our wholly owned subsidiary Guidance initiated
litigation against T-Mobile Inc. (“T-Mobile”) in Guidance IP LLC
v. T-Mobile Inc., Case No. 6:13-cv-01168-CEH-GJK, in the United
States District Court for the Middle District of Florida for
infringement of U.S. Patent No. 5,719,584 (the “Asserted Patent”).
The complaint alleges that T-Mobile has manufactured, sold, offered
for sale and/or imported technology that infringes the Asserted
Patent. We sought relief in the form of a finding of infringement
of the Asserted Patent, an accounting of all damages sustained by
us as a result of T-Mobile’s infringement, actual damages, enhanced
damages under 35 U.S.C. Section 284, attorney’s fees and costs. On
April 24, 2014, the United States District Court for the Middle
District of Florida transferred the case to the United States
District Court for the Western District of Washington (“the
Court”). On July 14, 2014, the Court assigned the case a new case
number, 2:14-cv-01066-RSM. On January 29, 2015, the Court issued an
Order requiring the parties to serve Initial Disclosures by
February 26, 2015 and submit a Joint Status Report and Discovery
Plan to the Court by March 12, 2015, which were timely served and
filed. At present, the dispute between the parties has been
resolved. On April 30, 2015, the parties filed a dismissal without
prejudice of all claims, defenses and counterclaims, with all
attorneys’ fees, costs of court and expenses to be borne by each
party incurring the same.
Spherix Incorporated v. VTech Telecommunications Ltd. et al.,
Case No. 3:13-cv-03494-M, in the United States District Court for
the Northern District of Texas
On August 30, 2013, we initiated litigation against VTech
Telecommunications Ltd. and VTech Communications, Inc.
(collectively “VTech”) in Spherix Incorporated v. VTech
Telecommunications Ltd. et al., Case No. 3:13-cv-03494-M, in
the United States District Court for the Northern District of Texas
(“the Court”) for infringement of U.S. Patent Nos. 5,581,599;
5,752,195; 5,892,814; 6,614,899; and 6,965,614 (collectively, the
“Asserted Patents”). The complaint alleges that VTech has
manufactured, sold, offered for sale and/or imported technology
that infringes the Asserted Patents. We seek relief in the form of
a finding of infringement of the Asserted Patents, an accounting of
all damages sustained by us as a result of VTech’s infringement,
actual damages, enhanced damages under 35 U.S.C. Section 284,
attorney’s fees and costs. On November 11, 2013, VTech filed its
Answer with counterclaims requesting a declaration that the
Asserted Patents are non-infringed and invalid. On December 5,
2013, we filed our Answer to the counterclaims, in which we denied
that the Asserted Patents were non-infringed and invalid. On May
22, 2014, the Court entered a Scheduling Order for the case setting
trial to begin on January 11, 2016. On June 3, 2014, in an effort
to narrow the case, the parties filed a stipulation dismissing
without prejudice all claims and counterclaims related to U.S.
Patent No. 5,752,195. On September 4, 2014, VTech Communications,
Inc., together with Uniden America Corporation, filed a request for
inter partes review (“IPR”) of two of the Asserted Patents
in the United States Patent and Trademark Office. On March 3, 2015,
the Patent Trial and Appeal Board (“Board”) entered decisions
instituting, on limited grounds, IPR proceedings regarding a
portion of the claims for the two Spherix patents. The Board also
suggested an accelerated IPR schedule to culminate in an oral
hearing on or about September 28, 2015. The Board held a conference
call with the parties on March 17, 2015 to finalize the IPR
schedule. On October 27, 2014, the Court held a Technology Tutorial
Hearing for the educational benefit of the Court. The
Markman hearing was held on November 21 and 26, 2014. Both
the Technology Tutorial and the Markman hearing were held
jointly with the Spherix Incorporated v. Uniden Corporation et
al. case (see below). On March 19, 2015, the Court issued its
Markman order, construing a total of 13 claim terms that had
been disputed by the parties. On April 2, 2015, we filed an Amended
Complaint with Jury Demand and the parties filed a Settlement
Conference Report informing the Court that the parties have not yet
resumed settlement negotiations. The Court has ordered the parties
to hold a settlement conference not later than December 28, 2015.
On April 15, 2015, we filed a Motion to Compel Production of
Technical Documents against Defendants. On April 20, 2015, we filed
an Opposed Motion for Leave to Serve Supplemental Infringement
Contentions. Also on April 20, 2015, Defendants filed their Amended
Answer to our Amended Complaint with their counterclaims. On May 1,
2015, we filed our Answer to the counterclaims. On May 5, 2015, the
parties filed a Joint Stipulation and Motion to Modify the
Scheduling Order. On May 6, 2015, the Court entered the
Stipulation, in which the Court estimated the trial date to occur
in July of 2016 and ordered the parties to be ready for trial on or
after June 22, 2016. Our patent owner’s response to the petition in
the IPR was timely filed on May 26, 2015. On September 28, 2015,
the hearing in the IPR proceedings was held before the Board. On
October 9, 2015, the parties filed a Joint Motion to Stay the
litigaton pending the issuance of the Board’s final written
decisions in the IPR proceedings. On October 13, 2015, the Court
granted the stay and administratively closed the case until the
Board issues its final written decisions.
Spherix Incorporated v. Uniden Corporation et al., Case No.
3:13-cv-03496-M, in the United States District Court for the
Northern District of Texas
On August 30, 2013, we initiated litigation against Uniden
Corporation and Uniden America Corporation (collectively “Uniden”)
in Spherix Incorporated v. Uniden Corporation et al., Case
No. 3:13-cv-03496-M, in the United States District Court for the
Northern District of Texas (“the Court”) for infringement of U.S.
Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614
(collectively, the “Asserted Patents”). The complaint alleges that
Uniden has manufactured, sold, offered for sale and/or imported
technology that infringes the Asserted Patents. We seek relief in
the form of a finding of infringement of the Asserted Patents, an
accounting of all damages sustained by us as a result of Uniden’s
infringement, actual damages, enhanced damages under 35 U.S.C.
Section 284, attorney’s fees and costs. On April 15, 2014, Uniden
filed its Answer with counterclaims requesting a declaration that
the patents at issue are non-infringed and invalid. On April 28,
2014, we filed our Answer to the counterclaims, in which we denied
that the patents at issue were non-infringed and invalid. On May
22, 2014, the Court entered a scheduling order for the case setting
trial to begin on February 10, 2016. On June 3, 2014, in an effort
to narrow the case, the parties filed a stipulation dismissing
without prejudice all claims and counterclaims related to U.S.
Patent No. 5,752,195. On September 4, 2014, Uniden America
Corporation, together with VTech Communications, Inc., filed a
request for inter partes review (“IPR”) of two of the
Asserted Patents in the United States Patent and Trademark Office.
On March 3, 2015, the Patent Trial and Appeal Board (“Board”)
entered decisions instituting, on limited grounds, IPR proceedings
regarding a portion of the claims for the two Spherix patents. The
Board also suggested an accelerated IPR schedule to culminate in an
oral hearing on September 28, 2015. The Board held a conference
call with the parties on March 17, 2015 to finalize the IPR
schedule. On October 27, 2014, the Court held a Technology Tutorial
Hearing for the educational benefit of the Court. The
Markman hearing was held on November 21 and 26, 2014, with
both hearings occurring jointly with the Spherix Incorporated v.
VTech Telecommunications Ltd. et al. case (see above). On March
19, 2015, the Court issued its Markman order, construing a
total of 13 claim terms that had been disputed by the parties. On
April 2, 2015, we filed an Amended Complaint with Jury Demand and
the parties filed a Settlement Conference Report informing the
Court that the parties have not yet resumed settlement
negotiations. The Court has ordered the parties to hold a
settlement conference not later than January 20, 2016. On April 9,
2015, the parties filed a Joint Motion to Modify Patent Scheduling
Order. On April 10, 2015, the Court granted the Motion. On April
20, 2015, Defendants filed their Amended Answer to our Amended
Complaint with their counterclaims. On May 1, 2015, we filed our
Answer to the counterclaims. Our patent owner’s response to the
petition in the IPR was timely filed on May 26, 2015. On July 9,
2015, the Court issued a modified Scheduling Order setting the
Final Pretrial Conference for February 2, 2016 and confirming the
Trial Date beginning February 20, 2016. On September 9, 2015, the
parties jointly filed a motion to stay the case pending the
decision in the two IPR proceedings. On September 10, 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 Board issues its final
written decisions.
Spherix Incorporated v. Cisco Systems Inc., Case No.
1:14-cv-00393-SLR, in the United States District Court for the
District of Delaware
On March 28, 2014, we initiated litigation against Cisco Systems
Inc. (“Cisco”) in Spherix Incorporated v. Cisco Systems
Inc., Case No. 1:14-cv-00393- SLR, in the United States
District Court for the District of Delaware for infringement of
U.S. Patent Nos. RE40467; 6,697,325; 6,578,086; 6,222,848;
6,130,877; 5,970,125; 6,807,174; 7,397,763; 7,664,123; 7,385,998;
and 8,607,323 (collectively, the “Asserted Patents”). The complaint
alleges that Cisco has manufactured, sold, offered for sale and/or
imported technology that infringes the Asserted Patents. We seek
relief in the form of a finding of infringement of the Asserted
Patents, an accounting of all damages sustained by us as a result
of Cisco’s infringement, actual damages, enhanced damages under 35
U.S.C. Section 284, attorney’s fees and costs. On July 8, 2014, we
filed an amended complaint to reflect that certain of the patents
asserted were assigned to our wholly-owned subsidiary NNPT LLC
(“NNPT”), based in Longview, Texas. By the amended complaint, NNPT
was added as a co-plaintiff with us. On August 5, 2014, Cisco filed
a motion to dismiss certain claims alleged in the amended
complaint. On August 26, 2014, we and NNPT filed an opposition to
Cisco’s motion to dismiss. On September 5, 2014, Cisco filed its
reply brief regarding its motion to dismiss. On March 9, 2015,
Cisco moved to consolidate certain claims relating to alleged
obligations by us to license Cisco on two unrelated patents, which
Cisco had made against us on June 6, 2014 in the pending case
Bockstar Technologies LLC v. Cisco Systems, Inc., Case No.
1:13-cv-02020- SLR-SRF (see below). On March 23, 2015, we filed our
opposition to Cisco’s motion to consolidate. On March 31, 2015, the
Court granted Cisco’s motion to dismiss allegations of “willful”
infringement. Spherix’s allegations of patent infringement for the
eleven (11) patents continue. Spherix has the ability to re-allege
“willful” infringement at a later time. On April 3, 2015, Cisco
Systems, Inc. petitioned the U.S. Patent Office for an inter
partes review (“IPR”) of Spherix patents 7,397,763 and
8,607,323. The remaining nine patents Spherix has asserted against
Cisco were not part of the petitions and the time for Cisco to
petition the USPTO for an IPR on those remaining patents expired on
April 6, 2015. On April 10, 2015, Cisco withdrew its March 9, 2015
motion to consolidate claims from the Bockstar case. On May
5, 2015, Cisco filed its Answer to our amended complaint with
counterclaims under the Sherman Act, breach of contract, breach of
covenant of good faith and fair dealing implied in contract,
promissory estoppel, and requesting a declaration that the patents
at issue are non-infringed and invalid. On June 10, 2015, the Court
entered a Scheduling Order for the case. The Court set the
Markman hearing to occur in two phases, for two different
sets of patents, to occur on June 24, 2016 and September 8, 2016.
The Court set trial to begin on January 16, 2018. On July 13, 2015,
we filed our oppositions to Cisco’s IPR petitions. On July 20,
2015, we filed a motion to dismiss or transfer certain of Cisco’s
counterclaims. On September 22, 2015, the Patent Trial and Appeal
Board issued orders instituting the two IPR proceedings, Nos.
IPR2015-00999 and IPR2015-01001, as requested by Cisco.
Spherix Incorporated v. Juniper Networks, Inc., Case No.
1:14-cv-00578-SLR, in the United States District Court for the
District of Delaware
On May 2, 2014, we initiated litigation against Juniper Networks,
Inc. (“Juniper”) in Spherix Incorporated v. Juniper Networks,
Inc., Case No. 1:14-cv- 00578-SLR, in the United States
District Court for the District of Delaware for infringement of
U.S. Patent Nos. RE40467; 6,578,086; 6,130,877; 7,385,998;
7,664,123; and 8,607,323 (collectively, the “Asserted Patents”).
The complaint alleges that Juniper has manufactured, sold, offered
for sale and/or imported technology that infringes the Asserted
Patents. We seek relief in the form of a finding of infringement of
the Asserted Patents, an accounting of all damages sustained by us
as a result of Juniper’s infringement, actual damages, enhanced
damages under 35 U.S.C. Section 284, attorney’s fees and costs. On
July 8, 2014, we filed an amended complaint to reflect that certain
of the patents asserted were assigned to our wholly-owned
subsidiary NNPT LLC, based in Longview, Texas. By the amended
complaint, NNPT LLC was added as a co-plaintiff with us. On August
8, 2014, Juniper filed a motion to dismiss certain claims alleged
in the amended complaint. On August 29, 2014, we filed our
opposition to Juniper’s motion to dismiss. On September 15, 2014,
Juniper filed its reply brief regarding its motion to dismiss. On
March 31, 2015, the Court granted Juniper’s motion to dismiss
allegations of “willful” infringement. Spherix’s allegations of
patent infringement for the eleven (11) patents continue. Spherix
has the ability to reallege “willful” infringement at a later time.
On April 14, 2015, Juniper filed its Answer to our amended
complaint. On May 6, 2015, the Court held an in-person Scheduling
Conference in court and ordered the parties to submit the final
proposed Scheduling Order to the Court. On May 28, 2015, the Court
entered a Scheduling Order for the case setting the Markman
hearing for June 24, 2016 and trial to begin on May 15, 2017.
NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al.,
Case No. 2:14-cv-00677-JRG-RSP, in the United States District Court
for the Eastern District of Texas
On June 9, 2014, NNPT initiated litigation against Futurewei
Technologies, Inc., Huawei Device (Hong Kong) Co., Ltd., Huawei
Device USA Inc., Huawei Investment & Holding Co., Ltd., Huawei
Technologies Co., Ltd., Huawei Technologies Cooperatif U.A., and
Huawei Technologies USA Inc. (collectively “Huawei”), in NNPT,
LLC v. Huawei Investment & Holding Co., Ltd. et al., Case
No. 2:14-cv-00677-JRG-RSP, in the United States District Court for
the Eastern District of Texas (“the Court”), for infringement of
U.S. Patent Nos. 6,578,086; 6,130,877; 6,697,325; 7,664,123; and
8,607,323 (collectively, the “Asserted Patents”). On September 8,
2014, Huawei filed its answers to the complaint in which defendant
Huawei Technologies USA asserted counterclaims requesting a
declaration that the patents at issue were non-infringed and
invalid. On October 8, 2014, NNPT filed its Answer to the
counterclaims, in which it denied that the Asserted Patents were
non-infringed and invalid. On January 20, 2015, the Court held a
Scheduling Conference and set the Markman hearing for July
17, 2015 and trial to begin on February 8, 2016. On January 28,
2015, the Court appointed as mediator for the parties, Hon. David
Folsom, former Chief Judge of the United States District Court for
the Eastern District of Texas. On February 24, 2015, the Court
issued its Docket Control Order setting the Markman hearing
for July 17, 2015 and trial to begin on February 8, 2016. The Court
also set an August 14, 2015 deadline to complete mediation. On June
11, 2015, Huawei filed a request for inter partes review
(“IPR”) of two of the Asserted Patents in the United States Patent
and Trademark Office. On July 7, 2015, the Court reset the
Markman hearing date for August 5, 2015. The Markman
hearing was held on August 5, 2015 as scheduled. The parties held
an initial mediation on August 6, 2015. On August 17, 2015, the
Court issued its Markman Order. On August 20, 2015, the
mediator filed a report with the Court reporting that the parties
reached a settlement of the case on August 14, 2015. On August 31,
2015, the parties filed a Joint Motion to Stay and Notice of
Settlement. On September 9, 2015, the Court stayed the case and set
a status conference for October 2, 2015. On September 18, 2015, the
parties filed in the Patent Trial and Appeals Board (“Board”) a
joint motion to terminate the two IPR petitions file by Huawei,
Nos. IPR2015-01382 and IPR2015-01390. On September 24, 2015,
the Board issued orders terminating the two IPR proceedings. At the
October 2, 2015 status conference, Huawei’s counsel failed to
appear. On October 2, 2015, the Court issued an order stating that
“the parties shall appear for a hearing before the Court October
16, 2015 at 8:30 a.m., unless an Order of Dismissal has been
entered before then” and that “Defendants shall pay Plaintiff’s
reasonable expenses, including attorney’s fees, incurred for travel
to and attendance at the October 2, 2015 hearing.” On October 13,
2015, the Company received Huawei’s fully executed copy of a
confidential settlement and license agreement, the terms of which
are set forth in the Company’s Current Report on Form 8-K, dated
October 19, 2015, which is incorporated by reference in this
prospectus. On November 16, 2015, Huawei satisfied its payment
obligation of the consideration due under the confidential
settlement and license agreement. As a result, the parties have
filed a Stipulation and Joint Motion to Dismiss with Prejudice in
this litigation, and on November 17, 2015, the Court granted the
dismissal motion and terminated the case.
Spherix Incorporated v. Verizon Services Corp. et al., Case No.
1:14-cv-00721-GBL-TCB, in the United States District Court for the
Eastern District of Virginia
On June 11, 2014, we initiated litigation against Verizon Services
Corp.; Verizon South Inc.; Verizon Virginia LLC; Verizon
Communications Inc.; Verizon Federal Inc.; Verizon Business Network
Services Inc.; and MCI Communications Services, Inc. (collectively,
“Verizon”) in Spherix Incorporated v. Verizon Services Corp. et
al., Case No. 1:14-cv-00721-GBL-TCB, in the United States
District Court for the Eastern District of Virginia (“the Court”)
for infringement of U.S. Patent Nos. 6,507,648; 6,882,800;
6,980,564; and 8,166,533. On July 2, 2014, we filed an Amended
Complaint in the case in which we added allegations of infringement
of U.S. Patent No. 7,478,167. On August 15, 2014, Verizon filed a
motion to dismiss, or in the alternative, a motion for a more
definite statement. On September 9, 2014, the Court issued a
Scheduling Order adopting the parties’ Joint Proposed Discovery
Plan. According to the Scheduling Order, the Markman hearing
is currently scheduled for March 16, 2015. On September 12, 2014,
we filed our opposition to Verizon’s motion to dismiss, and on
September 26, 2014, Verizon filed its reply brief. On October 3,
2014, the Court held a hearing on the motion to dismiss and issued
a Minute Entry stating that motion was denied. The Court stated
that an Order would follow. On October 17, 2014, Verizon filed an
Answer to our Amended Complaint. The parties agreed to narrow the
case by dismissing without prejudice the claims under U.S. Patent
Nos. 6,507,648 and 6,882,800, with each party to bear its own costs
and attorneys’ fees as to the dismissed claims. The parties filed a
joint motion to that effect on October 27, 2014, which was granted
on October 30, 2014. The parties further agreed to narrow the case
by dismissing without prejudice the claims under U.S. Patent Nos.
8,166,533 and 7,478,167, and filed a joint motion to that effect on
November 6, 2014. On November 13, 2014, the Court granted the
parties’ Joint Motion to Dismiss the ‘533 Patent and the ‘167
Patent without prejudice, with each party to bear its own costs and
attorneys’ fees as to the dismissed claims. On December 18, 2014,
the Court set the case for a five day trial beginning on May 18,
2015. On January 9, 2015, we and Verizon each filed their motions
for summary adjudication and entry of proposed claim constructions.
On January 12, 2015, the Court set the motions for summary
adjudication for hearing on March 16, 2015 along with the
Markman hearing. On January 22, 2015, the parties filed
their oppositions to the motions for summary adjudication and entry
of proposed claim constructions, and on February 5, 2015, the
parties filed their reply briefs. On March 16, 2015, the Court held
the Markman hearing as scheduled. On March 25, 2015, the
Court reset the May 18, 2015 jury trial date to August 10, 2015. On
March 25, 2015, the Court clarified that the trial will be held on
August 10, 11, 12, 13 and 17 of 2015. On, June 11, 2015, Verizon
filed a request for inter partes review (“IPR”) of the
Asserted Patent in the United States Patent and Trademark Office.
On July 1, 2015, the Court granted Verizon’s motion for summary
judgment as to indefiniteness and non-infringement. On July 30,
2015, we filed a Notice of Appeal of the Court’s judgment in the
United States Court of Appeals for the Federal Circuit. On August
31, 2015, a settlement agreement between Spherix and Verizon was
entered into, resolving all outstanding litigation between the two
companies. On September 4, 2015, we filed an unopposed motion to
withdraw our Notice of Appeal. On September 8, 2015, the Court
granted the motion to withdraw the Notice of Appeal. On September
10, 2015, the parties filed a joint motion to terminated the IPR
proceeding. On September 14, 2015, the Patent Trial and Appeal
Board terminated Verizon’s petition.
Spherix Incorporated v. Verizon Services Corp. et al., Case No.
1:15-cv-0576-GBL-IDD, in the United States District Court for the
Eastern District of Virginia
On May 1, 2015, we initiated litigation against Verizon Services
Corp.; Verizon South Inc.; Verizon Virginia LLC; Verizon
Communications Inc.; Verizon Federal Inc.; Verizon Business Network
Services Inc.; MCI Communications Services, Inc.; Cellco
Partnership d/b/a Verizon Wireless; and Cisco Systems, Inc.
(collectively, “Defendants”) in Spherix Incorporated v. Verizon
Services Corp. et al., Case No. 1:15-cv-0576-GBL-IDD, in the
United States District Court for the Eastern District of Virginia
for infringement of U.S. Patent Nos. 5,959,990; 6,111,876;
RE40,999; RE44,775; RE45,065; RE45,081; RE45,095; and RE45,121
(collectively, the “Asserted Patents”). The complaint alleges that
Defendants has used, manufactured, sold, offered for sale and/or
imported technology that infringes the Asserted Patents. We seek
relief in the form of a finding of infringement of the Asserted
Patents, damages sufficient to compensate us for Defendants’
infringement, together with pre-and post-judgment interest and
costs, and our attorney’s fees. On June 30, 2014, we filed an
Amended Complaint to add allegations of infringement of U.S. Patent
Nos. RE45,521 and RE45,598. On July 15, 2015, Cisco filed a motion
to transfer the case to the District of Delaware. On July 17, 2015,
Verizon filed an Answer and Counterclaims to the Complaint. On July
17, 2015, the Court issued a Scheduling Order setting the Final
Pretrial Conference for November 19, 2015, with trial to be set
within 4-8 weeks of the pretrial conference. On July 31, 2015, we
filed our Opposition to Cisco’s motion to transfer. On August 5,
2015, the Court held an Initial Pretrial Conference in the case to
discuss the discovery plan for the case. On August 6, 2015, we
filed our answer to Verizon’s counterclaims. On August 11, 2015,
the Court issued its Scheduling Order regarding the discovery
schedule, setting discovery to be concluded by November 15, 2015.
On August 31, 2015, a settlement agreement between Spherix and
Verizon was entered into, resolving all outstanding litigation
between the two companies. Cisco was not a party to the agreement
and the case continues against Cisco. On September 1, 2015, the
Spherix and Verizon filed a joint motion to dismiss the Verizon
entities from the case. On September 2, 2015, the Court granted the
motion to dismiss Verizon. On September 23, 2015, Cisco filed a
Consent Motion to transfer the action to the District of Delaware,
and on September 25, 2015, the Court granted the motion. The case
has been transferred to the District of Delaware and assigned new
case number 1:15-cv-00869-SLR.
Cisco Systems, Inc. v. Spherix Incorporated, 1:15-cv-00559-SLR,
in the United States District Court for the District of
Delaware
On June 30, 2015, Cisco Systems, Inc. initiated litigation against
us in United States District Court for the District of Delaware,
requesting a declaration of non-infringement U.S. Patent No.
RE45,598, which issued on June 30, 2015, and, with respect to that
patent, alleging breach of contract, breach of covenant of good
faith and fair dealing implied in contract and promissory estoppel.
On August 28, 2015, we filed motions to dismiss the case in light
of our previously filed case, case No. 1:15-cv-0576-GBL-IDD, in the
Eastern District of Virginia, which involves U.S. Patent No.
RE45,598.
Counterclaims
In the ordinary course of business, we, along with our wholly-owned
subsidiaries, will initiate litigation against parties whom we
believe have infringed on our intellectual property rights and
technologies. The initiation of such litigation exposes us to
potential counterclaims initiated by the defendants. Currently, as
stated above, defendants in the cases Spherix Incorporated v.
VTech Telecommunications Ltd.; Spherix Incorporated v.
Uniden Corporation; Spherix Incorporated v. Cisco Systems Inc., and
NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al.
have filed counterclaims against us. We have evaluated the
counterclaims and believe they are without merit and have not
recorded a loss provision relating to such matters. 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.
Recent Developments
On November 23, 2015, we and RPX Corporation, a Delaware
corporation with a principal place of business at One Market Plaza,
Steuart Tower, Suite 800, San Francisco, CA 94105 (“RPX”), entered
into a Patent License Agreement (the “RPX License”) under which we
granted RPX the right to sublicense various patent license rights
to certain RPX members. The consideration to us includes: (i) the
cancellation of a $5,000,000 mandatory payment due from us on or by
December 31, 2015 related to the redemption of our Series I
Redeemable Convertible Preferred Stock (the “Series I Stock”); (ii)
the transfer to us for cancellation of all remaining 29,940 shares
of the Series I Stock; (iii) the transfer to us for cancellation of
13%, or 57,076 shares, of the Series H Convertible Preferred Stock
currently held by RPX, having a total carrying amount of $4,765,846
at the time the stock was issued to Rockstar Consortium US LP
(“Rockstar”); (iv) cancellation of the only outstanding security
interest on 101 of our patents and patent applications that
originated at Nortel Networks (“Nortel”), which security interest
had previously been transferred to RPX by Rockstar (“RPX Security
Interest”); and (v) $300,000 in cash to us.
In consideration of the above, we have 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 us (“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 Spherix’s 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, as
previously disclosed, we granted Huawei a license under a separate
litigation agreement 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 during the next two
years. We will dismiss our existing litigations against Cisco and
Juniper and, within five (5) business days of the effective date of
the RPX License, Cisco will request 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 have agreed, for a period of six (6) months from the
date of the RPX License (the “Standstill Period”) that: (a) we and
RPX will 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 will not divest, transfer,
or exclusively license any of our current patents; (c) neither RPX
nor any RPX affiliate will challenge, or knowingly and
intentionally assist others in challenging, the validity,
enforceability, or patentability of any patent owned by us in any
court or administrative agency having jurisdiction to consider the
issue; and (d) we will not bring an action against current RPX
members for patent infringement.
Following the Standstill Period, as a result of the release of the
RPX Security Interest, we may leverage, divest, transfer, or
exclusively license our patents in a manner that is beneficial to
us. We retain our rights to bring claims under our patents at any
time against other parties who are not licensees or beneficiaries
under the RPX License. We also retain our rights, following the
Standstill Period, to bring claims under our patents against
current RPX members who did not become licensees or beneficiaries
during the Standstill Period and, with respect to Juniper, under
all of our patents other than the six Asserted Patents.
Corporate Information
We were incorporated in Delaware in 1967. Our principal executive
office is located at 6430 Rockledge Drive, Suite 503, Bethesda, MD
20877. Our telephone number is (646) 532-2964 and our website
address is www.spherix.com. The information on our website is not a
part of, and should not be construed as being incorporated by
reference into, this prospectus.
THE OFFERING
| Class A Units offered by us |
We are offering up to 13,800,000 Class A Units.
Each Class A Unit will consist of one share of our common stock, a
Series A warrant to purchase one share of our common stock at an
exercise price equal to the public offering price of the Class A
Units, (“Series A warrant”), and a Series B warrant to
purchase eight-tenths of a share of our common stock at an exercise
price equal to 125% of the public offering price of the Class
A Units (“Series B warrant”). The Class A Units will not be
certificated and the share of common stock and warrants part of
such unit are immediately separable and will be issued separately
in this offering. |
| |
|
| |
This
prospectus also relates to the offering of shares of our common
stock issuable upon the exercise of the Series A warrants and
Series B warrants part of the Class A units. |
| |
|
| |
Assuming we sell all 13,800,000 Class A Units
(and 1,240 Class B Units) being offered in this offering, we would
issue in this offering an aggregate of 13,800,000 shares of our
common stock, 1,240 shares of our Series K Preferred (which are
convertible into 6,200,000 shares of Common Stock), Series A
warrants to purchase up to 20,000,000 shares of our common stock
and Series B warrants to purchase up to 16,000,000 shares of our
common stock. |
| |
|
| Class
B Units offered by us |
We
are also offering to those purchasers, if any, whose purchase of
Class A Units in this offering would otherwise result in the
purchaser, together with its affiliates and certain related
parties, beneficially owning more than 4.99% of our outstanding
common stock immediately following the consummation of this
offering, the opportunity, in lieu of purchasing Class A Units, to
purchase up to 1,240 Class B Units. Ownership of the Class B Units
alone will not increase the purchaser’s beneficial ownership
percentage of common stock unless and until a portion or all of
such Series K Preferred has been converted. In addition,
holders of Series K Preferred will be prohibited from converting
Series K Preferred into shares of our common stock if, as a result
of such conversion, the holder, together with its affiliates and
certain related parties, would own more than 4.99% of the total
number of shares of our outstanding common stock. However, any
holder may decrease or increase such ownership percentage to any
other percentage (not in excess of 9.99%), provided that any
increase in such percentage shall not be effective until 61 days
after such notice to us. Exceeding 4.99% ownership in shares
of our outstanding common stock will trigger certain SEC filing
requirements by such holder, including the submission of a Schedule
13G or Schedule 13D, as applicable, and Forms 3 and 4 on an annual
and periodic basis, respectively, while such ownership percentage
remains above 4.99%. Each Class B Unit will consist of one
share of our Class K Convertible Preferred Stock, or the Series K
Preferred, with a stated value of $1,000.00 per share and
convertible into an aggregate 6,200,000 shares of our common stock
at the public offering price of the Class A Units, together with
the equivalent number of Series A warrants and Series B warrants as
would have been issued to such purchaser if they had purchased
Class A Units based on the public offering price. The Series K
Preferred do not generally have any voting rights but are
convertible into shares of common stock (on a 1 for 5,000 basis).
The Class B Units will not be certificated and the share of Series
K Preferred and warrants part of such unit are immediately
separable and will be issued separately in this
offering. |
|
|
This prospectus also relates to the offering of
shares of our common stock issuable upon conversion of the Series K
Preferred Stock and upon exercise of the Series A warrants and
Series B warrants part of the Class B units. |
| |
|
| Series A and Series B Warrants |
Each Series A warrant included in the Units will have an exercise
price equal to the public offering price of the Class A Units, will
be exercisable upon issuance, and will expire six months from the
date of issuance.
Each Series B warrant included in the Units will have an exercise
price equal to 125% of the public offering price of the Class A
Units, will be exercisable upon issuance, and will expire five
years from the date of issuance.
|
| |
|
| |
There
is no established public trading market for the warrants, and we do
not expect a market to develop. In addition, we do not intend to
apply for a listing of the warrants on any national securities
exchange. |
| Common stock to be outstanding immediately after
this offering |
48,459,430 shares. (1) |
|
Use of proceeds |
We currently intend to use the net proceeds to
meet our working capital needs and general corporate purposes.
Pending use of the net proceeds, we intend to invest the net
proceeds in short-term, interest-bearing securities. See “Use of
Proceeds.” |
|
Risk factors |
You should read the “Risk Factors” beginning on
page 14 of this prospectus for a discussion of factors to consider
carefully before deciding to invest in shares of our common
stock. |
|
NASDAQ Capital Market
symbol |
“SPEX” |
The number of shares of common stock to be outstanding immediately
after this offering is based on 34,459,430 shares of our common
stock outstanding as of December 1, 2015.
| (1) |
The number of shares of our
common stock to be outstanding after this offering excludes the
shares of common stock that may be issued under the warrants or
upon conversion of any Series K Preferred Stock to be issued in
this offering, and also excludes the following: |
| |
• |
5,461,201 shares of common stock issuable upon
the exercise of stock options outstanding as of December 1, 2015,
having a weighted average exercise price of $4.72 per
share; |
| |
• |
7,794,328 shares of common stock issuable upon
the exercise of warrants outstanding as of December 1, 2015, having
a weighted average exercise price of $1.34 per share; |
| |
• |
3,875,261 shares of common stock reserved for
issuance upon conversion of our outstanding convertible preferred
stock as of December 1, 2015 without regard to the beneficial
ownership conversion limits applicable to such securities;
and |
| |
• |
an aggregate of 1,473,104 shares of common stock
reserved for future issuance under our equity plans as of December
1, 2015. |
Unless otherwise indicated, all information in this prospectus
reflects or assumes the following:
| |
• |
no exercise of outstanding options to purchase
common stock or warrants to purchase common stock after December 1,
2015; and |
| |
• |
no conversion or redemption of preferred stock
after December 1, 2015. |
SUMMARY SELECTED CONSOLIDATED
FINANCIAL INFORMATION
The following tables summarize our financial data for the periods
presented. The summary statement of operations data and balance
sheet data for each of the years ended December 31, 2014 and 2013
have been derived from our audited consolidated financial
statements. The audited financial statements as of December 31,
2014 and 2013, and the report thereon, were included in our Annual
Report on Form 10-K for the year ended December 31, 2014, which is
incorporated by reference into this prospectus. The summary
statement of operations data for the nine-months ended September
30, 2015 and 2014 and summary balance sheet data as of September
30, 2015 have been derived from our unaudited condensed
consolidated financial statements, which were included in our
Quarterly Report on Form 10-Q for the period ended September 30,
2015, which is incorporated by reference into this prospectus. Our
historical results are not necessarily indicative of the results to
be expected for any future periods.
You should read this data together with the financial statements
and related notes incorporated by reference into this prospectus,
as well as “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the other financial
information in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2014 and our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2015, and each of the notes
thereto, which are incorporated by reference into this
prospectus.
(In thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
|
Year Ended December 31 |
|
| |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
| Revenues |
|
$ |
2 |
|
|
$ |
9 |
|
|
$ |
10 |
|
|
$ |
27 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Revenues |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
| Amortization of
patent portfolio |
|
|
5,594 |
|
|
|
7,354 |
|
|
|
9,831 |
|
|
|
267 |
|
|
Compensation and related expenses (including stock-based
compensation) |
|
|
1,001 |
|
|
|
12,532 |
|
|
|
13,710 |
|
|
|
9,783 |
|
| Research and
Development |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
| Professional
fees |
|
|
2,067 |
|
|
|
3,692 |
|
|
|
4,520 |
|
|
|
4,143 |
|
| Impairment of
goodwill and intangible assets |
|
|
37,212 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Rent |
|
|
66 |
|
|
|
208 |
|
|
|
864 |
|
|
|
134 |
|
| Depreciation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
| Other
selling, general and administrative |
|
|
440 |
|
|
|
979 |
|
|
|
1,696 |
|
|
|
1,010 |
|
| Total
operating expenses |
|
|
46,380 |
|
|
|
24,765 |
|
|
|
30,621 |
|
|
|
15,374 |
|
| Loss from
operations |
|
|
(46,378 |
) |
|
|
(24,756 |
) |
|
|
(30,611 |
) |
|
|
(15,347 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income
(expenses), net |
|
|
32 |
|
|
|
34 |
|
|
|
31 |
|
|
|
— |
|
| Fair
value adjustments for warrant liabilities |
|
|
(774 |
) |
|
|
47 |
|
|
|
48 |
|
|
|
(2,618 |
) |
| Total
other (expenses) income |
|
|
(742 |
) |
|
|
81 |
|
|
|
79 |
|
|
|
(2,618 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(47,120 |
) |
|
$ |
(24,675 |
) |
|
$ |
(30,532 |
) |
|
$ |
(17,965 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share, basic and
diluted |
|
$ |
(1.56 |
) |
|
$ |
(1.47 |
) |
|
$ |
(1.55 |
) |
|
$ |
(13.64 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of common shares outstanding, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted |
|
|
30,141,115 |
|
|
|
16,735,940 |
|
|
|
19,736,842 |
|
|
|
1,317,472 |
|
| |
|
As of September 30 |
|
|
As of December 31 |
|
| |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
| Balance Sheet
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash
Equivelants |
|
$ |
157 |
|
|
$ |
5,550 |
|
|
$ |
805 |
|
|
$ |
3,125 |
|
| Working Captial (deficit) |
|
|
(1,640 |
) |
|
|
5,433 |
|
|
|
3,182 |
|
|
|
1,773 |
|
| Total Assets |
|
|
14,891 |
|
|
|
64,841 |
|
|
|
61,158 |
|
|
|
69,853 |
|
| Long-term lease liabilities |
|
|
274 |
|
|
|
— |
|
|
|
407 |
|
|
|
— |
|
| Total Stockholder’s Equity |
|
|
7,025 |
|
|
|
58,721 |
|
|
|
53,586 |
|
|
|
48,302 |
|
RISK FACTORS
Investing in our common stock and warrants involves a high
degree of risk. Before investing in our common stock and warrants,
you should consider carefully the risks described below, together
with the other information contained in this prospectus. If any of
the risks set forth below occur, our business, financial condition,
results of operations and future growth prospects could be
materially and adversely affected. In these circumstances, the
market price of our common stock could decline, and you may lose
all or part of your investment.
Risks Associated with Our Business
Because we have a limited operating history to evaluate our
company, the likelihood of our success must be considered in light
of the problems, expenses, difficulties, complications and delays
frequently encountered by an early-stage company.
Since we have a limited operating history in our current business
of patent licensing and monetization, it will make it difficult for
investors and securities analysts to evaluate our business and
prospects. You must consider our prospects in light of
the risks, 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.
During the nine months ended September 30, 2015, we incurred a loss
from operations of $46.4 million, compared to $24.8 million for the
same period in 2014. Our net loss for the nine months ended
September 30, 2015 and 2014 was $47.1 million and $24.7 million,
respectively. Our accumulated deficit was $130.9 million at
September 30, 2015.
We have incurred losses from operations in prior years, including
2014 and 2013. Our net loss for the years ended December
31, 2014 and December 31, 2013 was $30.5 million and $18.0 million,
respectively. Our accumulated deficit was $83.8 million
at December 31, 2014 and $53.3 million at December 31,
2013. We may not achieve profitable operations.
We expect to need additional capital to fund our growing
operations, and if we are unable to obtain sufficient capital we
may be forced to limit the scope of our operations.
We expect that as our business continues to grow we will need
additional working capital. If adequate additional debt
and/or equity financing is not available on reasonable terms or at
all, we may not be able to continue to expand our business or pay
our outstanding obligations, and we will have to modify our
business plans accordingly. These factors would have a
material and adverse effect on our future operating results and our
financial condition.
If we reach a point where we are unable to raise needed additional
funds to continue as a going concern, we will be forced to cease
our activities and dissolve the Company. In such an
event, we will need to satisfy various creditors and other
claimants, severance, lease termination and other
dissolution-related obligations and we may not have sufficient
funds to pay to our stockholders.
Our independent registered public accounting firm has expressed
substantial doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future financing.
In their reports for each of our last two fiscal years, our
independent registered public accountants stated that our
consolidated financial statements for the years ended
December 31, 2014 and 2013, respectively, were prepared
assuming that we would continue as a going concern. Our
ability to continue as a going concern, which may hinder our
ability to obtain future financing, is an issue raised as a result
of recurring losses from operations. We continue to
experience net operating losses. Our ability to continue
as a going concern is subject to our ability to generate a profit
and/or obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities,
increasing sales or obtaining loans from various financial
institutions where possible. Our continued net operating
losses increase the difficulty in meeting such goals and there can
be no assurances that such methods will prove successful.
An impairment charge could have a material adverse effect on our
financial condition and results of operations.
We were required to assess goodwill for impairment if events occur
or circumstances change that would more likely than not reduce our
enterprise fair value below its book value. In addition, we are
required to test our finite-lived intangible assets for impairment
if events occur or circumstances change that would indicate the
remaining net book value of the finite-lived intangible assets
might not be recoverable. These events or circumstances could
include a significant change in the business climate, including a
significant sustained decline in an entity’s market value, legal
factors, operating performance indicators, competition, sale or
disposition of a significant portion of our business, potential
government actions and other factors. As a result of certain events
that occurred during the quarter ended June 30, 2015, we recorded a
$37.2 million charge to our intangible assets. If the fair value of
our reporting units or finite intangible assets is less than their
book value in the future, we could be required to record additional
impairment charges. A continued decline of the market price of our
common stock could result in additional impairment charges in the
future. The amount of any impairment could be significant and could
have a material adverse effect on our reported financial results
for the period in which the charge is taken. There were no
indicators of additional impairment during the third quarter of
2015.
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 several
hundred patent assets and although we may seek to commercialize and
develop products, alone or with others, there is no assurance that
we will be able to successfully commercialize or develop products
and such commercialization and development is not a core focus of
our business. There is significant risk involved in
connection with our activities in which we acquire and seek to
monetize the patent portfolios that we acquired from Rockstar and
North South. Our business is commonly referred to as a
non-practicing entity model (or “NPE”) since we do not currently
commercialize or develop products under the recently acquired
patents. As an entity, we have limited prior experience
as an NPE. The acquisition of the patents and an NPE
business model could fail to produce anticipated benefits, or could
have other adverse effects that we do not currently
foresee. Failure to successfully monetize 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; and |
| • |
The
integration of a patent portfolio will be a time consuming and
expensive process that may disrupt our operations. If
our integration efforts are not successful, our results of
operations could be harmed. In addition, we may not
achieve anticipated synergies or other benefits from such
acquisition. |
Therefore, there is no assurance that the monetization of the
patent portfolios we acquire will be successful, will occur timely
or in a timeframe that is capable of prediction or will generate
enough revenue to recoup our investment.
We presently rely exclusively on the patent assets we acquired
from North South Holdings, Inc. (“North South”) and Rockstar
Consortium US LP (“Rockstar”). 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 and
well established and well capitalized companies. For
instance, we are currently involved in litigation against Cisco
Systems, Uniden, VTech Telecommunications, Verizon Services, Huawei
and Juniper Networks, each of whom is much larger and better
capitalized than we are. We may allege that such
companies infringe on one or more of our patents. Our
viability could be highly dependent on the outcome of this
litigation, and there is a risk that we may be unable to achieve
the results we desire from such litigation. 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. 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, the Court issued a Markman Order
interpreting certain key claims in favor of the defendants in one
of our actions against Verizon, resulting in the dismissal of our
claims against Verizon with respect to one of our patents.
Additionally, we anticipate that our legal fees and other expenses
will be material and will negatively impact our financial condition
and results of operations and may result in our inability to
continue our business.
Parties who are alleged infringers of our patent rights may also
challenge the validity of our patents in proceedings before the
United States Patent and Trademark Office. These
potential proceedings 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 signification legal fees to
defend against such actions.
We have been the subject of litigation and, due to the nature of
our business, may be the target of future legal proceedings that
could have an adverse effect on our business and our ability to
monetize our patents.
In the ordinary course of business, we, along with our wholly-owned
subsidiaries, will initiate litigation against parties whom we
believe have infringed on our intellectual property rights and
technologies. The initiation of such litigation exposes us to
potential counterclaims initiated by the defendants. Currently,
defendants in the cases Spherix Incorporated v. VTech
Telecommunications Ltd.; Spherix Incorporated v. Uniden
Corporation; Spherix Incorporated v. Cisco Systems
Inc., and NNPT, LLC v. Huawei Investment & Holding
Co., Ltd. et al. have filed counterclaims against us. We have
evaluated the counterclaims and believe they are without merit.
The Company may become subject to similar actions in the future
which will be costly and time consuming to defend, the outcome of
which are uncertain.
We may seek to internally develop additional new inventions and
intellectual property, which would take time and be
costly. Moreover, the failure to obtain or maintain
intellectual property rights for such inventions would lead to the
loss of our investments in such 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.
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. The Securities Purchase Agreement also provides
the investors an 18-month right of participation for an amount up
to 100% of such subsequent financing of common stock (or common
stock equivalents or a combination thereof), including any
financing that may be consummated pursuant to this prospectus
during such period, on the same terms and conditions of such
transaction. Last, proceeds we received under the Securities
Purchase Agreement are not permitted to be used for satisfaction of
the Company’s debt. 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 September 16, 2011, the Leahy-Smith America Invents Act
(the “Leahy-Smith Act”), was signed into law. The
Leahy-Smith Act includes a number of significant changes to United
States patent law. These changes include provisions that
affect the way patent applications will be prosecuted and may also
affect patent litigation. The U.S. Patent Office has
been developing regulations and procedures to govern administration
of the Leahy-Smith Act, and many of the substantive changes to
patent law associated with the Leahy-Smith Act recently became
effective. Accordingly, it is too early to tell what, if
any, impact the Leahy-Smith Act will have on the operation of our
business. However, the Leahy-Smith Act and its
implementation could increase the uncertainties and costs
surrounding the prosecution of patent applications and the
enforcement or defense of our issued patents, all of which could
have a material adverse effect on our business and financial
condition.
On June 4, 2013, the Obama Administration issued executive
orders and legislative recommendations. The legislative
measures recommended by the Obama Administration include requiring
patentees and patent applicants to disclose the “Real
Party-in-Interest”, giving district courts more discretion to award
attorney’s fees to the prevailing party, requiring public filing of
demand letters such that they are accessible to the public, and
protecting consumers against liability for a product being used
off-the shelf and solely for its intended use.
The executive orders require the United States Patent and Trademark
Office (the “USPTO”) to make rules to require the disclosure of the
Real Party-in-Interest by requiring patent applicants and owners to
regularly update ownership information when they are involved in
proceedings before the USPTO (e.g. specifying the “ultimate parent
entity”) and requiring the USPTO to train its examiners to better
scrutinize functional claims to prevent allowing overly broad
claims.
On 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.
Representative Goodlatte reintroduced the Innovation
Act as H.R. 9 on February 2, 2015. The bill has 22
co-sponsors, made up of 11 Democrats and 11
Republicans. On February 5, 2015, the bill was referred
to the House Committee on the Judiciary for further consideration,
and on March 17, 2015, the bill was referred to the House
Subcommittee on Courts, Intellectual Property, and the
Internet.
On March 3, 2015, S.632 known as the “Support Technology and
Research for Our Nations Growth Patents Act of 2015” (“the STRONG
Act”) was introduced into the Senate by Senator Christopher Coons.
The STRONG Act prescribes a number of changes in current patent
law, including how the USPTO and the Patent Trial and Appeal Board
(PTAB) handle post-issuance patent proceedings. One change proposed
by the Act is that the PTAB construe patent claims under the same
“ordinary and customary meaning” standard in inter partes and post
grant review proceedings as applied in district court litigation.
The Act also provides additional grounds for a patent owner to
submit claim amendments during a post-issuance review. The Act
directs the Supreme Court to eliminate the model complaint for
patent infringement. It also authorizes state attorneys general to
act in preventing bad faith demand letters from being sent to
accused infringers. The Act would allow such behavior to be treated
as an unfair or deceptive act or practice in violation of the
Federal Trade commission Act.
On April 29, 2015, the Energy and Commerce Committee voted to
advance a bill to the full U.S. House of Representatives known as
the “Targeting Rogue and Opaque Letters Act” (“the TROL Act”) (H.R.
2045). This bill is aimed at halting misleading demand letters sent
by patent “trolls.” The bill would give the Federal Trade
Commission and state attorneys general the authority to impose
civil penalties on companies that send misleading and bad faith
letters to recipients demanding that they license patents.
Also on April 29, 2015, a group of bipartisan Senators introduced
S. 1137, another new patent reform bill titled, the “Protecting
American Talent and Entrepreneurship” (the “PATENT Act”). The bill
includes provisions requiring patent plaintiffs to clearly identify
each patent and claim allegedly infringed, the products or
processes, accused of infringing, and how the infringement occurs.
The bill also provides that if end users of a product are sued for
infringement, the manufacturer can step-in to litigate and the suit
against the users will be stayed. A fee-shifting provision is also
included that provides winning parties a chance to show that the
losing party’s position and conduct were not “objectively
reasonable.”
On April 29, 2014, the U.S. Supreme Court relaxed the standard
for fee shifting in patent infringement
cases. Section 285 of the Patent Act provides that
attorneys’ fees may be awarded to a prevailing party in a patent
infringement case in “exceptional cases.”
In Octane Fitness, LLC v. Icon Health & Fitness,
Inc., the Supreme Court overturned the U.S. Court of Appeals
for the Federal Circuit decisions limiting the meaning of
“exceptional cases.” The U.S. Supreme Court held that an
exceptional case “is simply one that stands out from others with
respect to the substantive strength of a party’s litigation
position” or “the unreasonable manner in which the case was
litigated.” The U.S. Supreme Court also rejected the
“clear and convincing evidence” standard for making this
inquiry. The Court held that the standard should be a
“preponderance of the evidence.”
In Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.,
the U.S. Supreme Court held that a district court’s grant of
attorneys’ fees is reviewable by the U.S. Court of Appeals for the
Federal Circuit only for “abuse of discretion” by the district
court instead of the de novo standard that gave no
deference to the district court.
These pair of decisions lowered the threshold for obtaining
attorneys’ fees in patent infringement cases and increased the
level of deference given to a district court’s fee-shifting
determination.
These two cases will make it much easier for district courts to
shift a prevailing party’s attorneys’ fees to a non-prevailing
party if the district court believes that the case was weak or
conducted in an abusive manner. Defendants that get sued
for patent infringement by non-practicing entities may elect to
fight rather than settle the case because these U.S. Supreme Court
decisions make it much easier for defendants to get attorneys’
fees.
On June 19, 2014, the U.S. Supreme Court decided Alice
Corp. v. CLS Bank International in which the Court
addressed the question of whether patents related to software are
patent eligible subject matter. The Supreme Court did
not rule that patents related to software were per
se invalid or that software-related inventions were
unpatentable. The Supreme Court outlined a test that the
courts and the USPTO must apply in determining whether
software-related inventions qualify as patent eligible subject
matter. We must now wait and see how the federal
district courts and the USPTO will apply this
ruling. The test outlined by the Supreme Court could
potentially affect the value of some of the patents we hold.
On January 20, 2015, the U.S. Supreme Court decided another patent
case, Teva Pharmaceuticals USA, Inc. v. Sandoz,
Inc. In Teva, the Court overturned the
long-standing practice that claim construction decision made by
district courts were given de novo review on
appeal. Instead, the Supreme Court held that when claim
construction is based on extrinsic evidence, a district court’s
findings of subsidiary facts are to be reviewed for clear error,
while its ultimate claim construction is to be reviewed de
novo. This change in how claim construction decisions
are reviewed on appeal may have an impact on how parties handle
patent litigation in the district courts. This could
increase our litigation expenses. The full impact of
the Teva decision on patent litigation at the
district court level is yet to be determined.
On May 26, 2015, the U.S. Supreme Court 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
affect of this ruling is yet to be seen as it is implemented by the
district courts. However, this ruling has eliminated a defense
available to parties accused of inducing patent infringement. This
result could be beneficial to our patent enforcement efforts.
It is impossible to determine the extent of the impact of any new
laws, regulations or initiatives that may be proposed, or whether
any of the proposals will become enacted as laws in their current
or modified forms. Compliance with any new or existing
laws or regulations could be difficult and expensive, affect the
manner in which we conduct our business and negatively impact our
business, prospects, financial condition and results of
operations.
Our acquisitions of patent assets may be time consuming, complex
and costly, which could adversely affect our operating
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.
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.
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.
In January 2015, Rockstar transferred its remaining outstanding
Series I Preferred Stock, as well as its other stock in Spherix
(including our Series H Convertible Preferred Stock) to RPX
Clearinghouse LLC (“RPX”), an affiliate of RPX Corporation. Since
RPX’s business model is to lower the risk of patent litigation
against entities such as Spherix, RPX may take stances that are
adverse to Spherix and its other stockholders.
RPX will be entitled to receive a contingent recovery percentage of
future profits from licensing, settlements and judgments against
defendants with respect to patents purchased by us from
Rockstar. In particular, once we recover a certain
amount of proceeds pertaining to the patents acquired from Rockstar
in June 2013, which amount will not exceed $8.0 million, net of
certain expenses, we will be required to make a payment of up to
$13.0 million to Rockstar within six months of such
recovery. Furthermore, once we recover a certain level
of proceeds pertaining to each portfolio of patents we acquired
from Rockstar, we will be required to make participation payments
to RPX which, depending on how much we recover, could range from
30% of the amount we recover to 70% of the amount we recover in any
given quarter, net of certain expenses. Our ability to
fund these payments, as well as other payments that may become due
in respect of our acquisition of patents from Rockstar in December
2013, will depend on the liquidity of our assets, recoveries,
alternative demands for cash resources and access to capital at the
time. Furthermore, our obligation to fund these payments
could materially adversely impact our liquidity and financial
position.
In certain acquisitions of patent assets, we may seek to defer
payment or finance a portion of the acquisition
price. This approach may put us at a competitive
disadvantage and could result in harm to our 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 will be 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. 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:
| • |
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; |
| • |
our
efforts to protect our intellectual property rights may not be
effective in preventing misappropriation of our technology;
or |
| • |
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. |
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 intellectual property
ownership. In addition, we believe that our trade
secrets and non-patented technology may be key to identifying and
differentiating our products and services from those of our
competitors. We may be required to spend significant
resources to monitor and police our intellectual property
rights. If we fail to successfully enforce our
intellectual property rights, the value of our products and
services could be diminished and our competitive position may
suffer.
We rely on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and licensing arrangements to
establish and protect our proprietary
rights. Third-parties could copy or otherwise obtain and
use our property without authorization or develop similar
information and property independently, which may infringe upon our
proprietary rights. We may not be able to 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.
We face evolving regulation of corporate governance and public
disclosure that may result in additional expenses and continuing
uncertainty.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Dodd–Frank Wall
Street Reform and Consumer Protection Act, Securities and Exchange
Commission (“SEC”) regulations and NASDAQ Stock Market LLC rules
are creating uncertainty for public companies. We are
presently evaluating and monitoring developments with respect to
new and proposed rules and cannot predict or estimate the amount of
the additional costs we may incur or the timing of these
costs. These new or changed laws, 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.
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, 2014 our
internal control over financial reporting was not effective, due to
the Company’s lack of segregation of duties, and difficulty in
applying complex accounting principles, including fair value of
derivatives, options and warrants as well as stock based
compensation accounting. We are currently in the processes of
reassessing our disclosures controls. We can provide no
assurance as to conclusions of management with respect to the
effectiveness of our internal control over financial reporting in
the future.
With respect to the year ended December 31, 2014, under the
supervision and with the participation of our management, we
conducted an evaluation of the effectiveness of the design and
operations of our disclosure controls and procedures. Based
upon this evaluation, our management concluded that our disclosure
controls and procedures were not effective as of December 31,
2014.
If we make acquisitions, it could divert management’s attention,
cause ownership dilution to our shareholders and be difficult to
integrate.
Following our acquisition of North South in September 2013, we have
grown rapidly and we expect to continue to evaluate and consider
future acquisitions. Acquisitions generally involve
significant risks, including difficulties in the assimilation of
the assets, services and technologies we acquire or industry
overlay on which the patent assets read, diversion of management’s
attention from other business concerns, overvaluation of the
acquired assets, and the acceptance of the acquired assets and/or
claims. Acquisitions may not be successful, which can
have a number of adverse effects upon us including adverse
financial effects and may seriously disrupt our management’s
time. The integration of acquired assets may place a
significant burden on management and our internal
resources. The diversion of management attention and any
difficulties encountered in the integration process could harm our
business.
If we fail to manage our existing assets and patent inventory
and third party relationships (such as attorneys and experts)
effectively, our revenue and profits could decline and should we
fail to acquire additional revenues from license fees, our growth
could be impeded.
Our success depends in part on our ability to manage our existing
portfolios of patent assets and manage our third party
relationships necessary to monetize our assets
effectively. Our attorneys and experts are not bound by
long-term contracts that ensure us a consistent access to expertise
necessary to enforce our patents, which is crucial to our ability
to generate license revenues and prosecute
infringers. In addition, attorneys and experts can
change the cost of the services they provide, such as contingent
fees that we are required to pay, and our arrangements often
required an increasing percentage of recoveries to be devoted to
attorney’s fees depending on the length of time or stage of the
case prior to settlement or recovery, reducing the residual amount
available to us following conclusion of a case. If an
attorney, seller, inventor or expert decides not to provide needed
assistance in connection with a case, or provides assistance to
prospective licensees or defendants, we may not be able to timely
replace this expertise with that from other sources or prevent such
assistance to others from damaging our claims and prospects for
recovery or licensing thus resulting in potentially lost cases,
opportunities, or revenues and potentially diminishing the value of
our patent assets. The ability to utilize attorneys,
sellers’ personnel, inventors or experts will depend on various
factors, some of which are beyond our control.
We may be unable to issue securities under our shelf
registration statement, which may have an adverse effect on our
liquidity.
We have filed a shelf registration statement on Form S-3 with the
SEC. The registration statement, which has been declared
effective, was filed in reliance on Instruction I.B.6. of Form S-3,
which imposes a limitation on the maximum amount of securities that
we may sell pursuant to the registration statement during any
twelve-month period. At the time we sell securities
pursuant to the registration statement, the amount of securities to
be sold plus the amount of any securities we have sold during the
prior twelve months in reliance on Instruction I.B.6. may not
exceed one-third of the aggregate market value of our outstanding
common stock held by non-affiliates as of a day during the 60 days
immediately preceding such sale as computed in accordance with
Instruction I.B.6. Based on this calculation and as a result
of our sale of common stock and warrants that closed on July 21,
2015, we are currently ineligible to sell securities pursuant to
our effective registration statement on Form
S-3. Whether we sell securities under the
registration statement will depend on a number of factors,
including availability of our existing S-3 under the 1/3 limitation
calculations set forth in Instruction I.B.6 of Form S-3, the market
conditions at that time, our cash position at that time and the
availability and terms of alternative sources of capital.
Furthermore, Instruction I.B.6. of Form S-3 requires that the
issuer have at least one class of common equity securities listed
and registered on a national securities exchange. If we are 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
Our common stock may be delisted from The NASDAQ Capital Market
if we fail to become compliant with continued listing standards by
March 21, 2016.
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. |
Over the past several years, including at certain times prior to
entering into our new line of business, we had several instances of
NASDAQ deficiencies.
On April 20, 2012, the Company received a deficiency notice
from NASDAQ regarding the bid price of our common
stock. Following a 1 for 20 reverse stock split, on
October 8, 2012, NASDAQ provided confirmation to us that we
regained compliance with Marketplace Rule 5550(a)(2) since the
closing bid price of its common stock had traded at $1.00 per share
or greater for at least ten (10) consecutive business
days. This was the second time the Company employed a
reverse stock split to avoid NASDAQ delisting.
On September 25, 2012, the Company received written
notification from NASDAQ advising that the minimum number of
publicly held shares of our common stock had fallen below the
minimum 500,000 shares required for continued listing on the NASDAQ
Capital Market pursuant to NASDAQ Rule 5550(a)(4). As a
result of our November 2012 private placement transaction, the
Company was advised by NASDAQ that it regained compliance with Rule
5550(a) (4).
On December 31, 2012, our total stockholders’ equity was
$854,000, and was below the $2.5 million listing standard required
by NASDAQ. In March 2013, we exchanged warrants issued
in November 2012 for Series C Preferred Stock, effectively
increasing total stockholders’ equity to approximately $2.8
million.
On March 24, 2015, we received a deficiency notice from NASDAQ that
the bid price of our common stock no longer met NASDAQ’s continued
listing requirements. According to the notice, in order
to regain compliance with the NASDAQ listing rules, our common
stock would need to have a closing bid price of at least $1.00 per
share for at least 10 consecutive trading days no later than
September 21, 2015. On September 22, 2015, we received a letter
from NASDAQ granting us an additional 180 days, or until March 21,
2016, to regain compliance. It is unknown at this time if we will
be able to regain compliance with the minimum bid price requirement
within the additional time allowed in order to continue our common
stock listing on the Nasdaq Capital Market. Continued listing
during this period is also contingent on our continued compliance
with all listing requirements other than for the minimum bid price.
While we hope to regain compliance in the ordinary course of
business, we may consider a reverse stock split, if necessary to
continue our listing, and have committed to NASDAQ to do so if
necessary. However, even if we do effect such a reverse stock
split, our stockholders may bring actions against us in connection
with that reverse stock split that could divert management
resources, cause us to incur significant expenses or cause our
common stock to be further diluted.
If we fail to comply with NASDAQ’s continued listing standards, we
may be delisted and our common stock will trade, if at all, only on
the over-the-counter market, such as the OTC Bulletin Board or
OTCQX market, and then only if one or more registered broker-dealer
market makers comply with quotation requirements. In
addition, delisting of our common stock could depress our stock
price, substantially limit liquidity of our common stock and
materially adversely affect our ability to raise capital on terms
acceptable to us, or at all.
Finally, delisting of our common stock would likely result in our
common stock becoming a “penny stock” under the Securities Exchange
Act. The principal
result or effect of being designated a “penny stock” is that
securities broker-dealers cannot recommend the shares but must
trade it on an unsolicited basis. Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk
disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of
risks of the penny stock market. A broker-dealer must also provide
the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and sales person in the
transaction, and monthly account statements indicating the market
value of each penny stock held in the customer’s account. In
addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules;
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the trading
activity in the secondary market for shares that become subject to
those penny stock rules.
Our share price may be volatile and there may not be an active
trading market for our common stock.
There can be no assurance that the market price of our common stock
will not decline below its present market price or that there will
be an active trading market for our common stock. The
market prices of technology or technology related companies have
been and are likely to continue to be highly
volatile. Fluctuations in our operating results and
general market conditions for technology or technology related
stocks could have a significant impact on the volatility of our
common stock price. We have experienced significant
volatility in the price of our common stock. From
January 1, 2013 through September 30, 2015, the share price of
our common stock (on a split-adjusted basis) has ranged from a high
of $27.86 to a low of $0.20. The reason for the volatility in
our stock is not well understood and may
continue. Factors that may have contributed to such
volatility include, but are not limited to:
| • |
developments regarding regulatory
filings; |
| • |
our
funding requirements and the terms of our financing
arrangements; |
| • |
technological innovations; |
| • |
introduction of new technologies by us or our
competitors; |
| • |
material changes in existing
litigation; |
| • |
changes in the enforceability or other matters
surrounding our patent portfolios; |
| • |
government regulations and laws; |
| • |
public sentiment relating to our
industry; |
| • |
developments in patent or other proprietary
rights; |
| • |
the
number of shares issued and outstanding; |
| • |
the
number of shares trading on an average trading day; |
| • |
performance of companies in the non-performing
entity space generally; |
| • |
announcements regarding other participants in the
technology and technology related industries, including our
competitors; |
| • |
block
sales of our shares by stockholders to whom we have sold stock in
private placements, or the cessation of transfer restrictions with
respect to those shares; and |
| • |
market speculation regarding any of the
foregoing. |
We could fail in future financing efforts or be delisted from
The NASDAQ Capital Market if we fail to receive stockholder
approval when needed.
We are required under the NASDAQ rules to obtain stockholder
approval for any issuance of additional equity securities that
would comprise more than 20% of the total shares of our common
stock outstanding before the issuance of such securities sold at a
discount to the greater of book or market value in an offering that
is not deemed to be a “public offering” by NASDAQ. Funding of our
operations 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. 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.
If we cannot manage our growth effectively, we may not establish
or maintain profitability.
Businesses which grow rapidly often have difficulty managing their
growth. If our business continues to grow as rapidly as it has
since September 2013 and as we anticipate, we will need to expand
our management by recruiting and employing experienced executives
and key employees capable of providing the necessary support.
We cannot assure you that our management will be able to manage our
growth effectively or successfully. Our failure to meet these
challenges could cause us to continue to lose money, which will
reduce our stock price.
It may be difficult to predict our financial performance because
our quarterly operating results may fluctuate.
Our revenues, operating results and valuations of certain assets
and liabilities may vary significantly from quarter to quarter due
to a variety of factors, many of which are beyond our control. You
should not rely on period-to-period comparisons of our results of
operations as an indication of our future performance. Our results
of operations may fall below the expectations of market analysts
and our own forecasts. If this happens, the market price of our
common stock may fall significantly. The factors that may affect
our quarterly operating results include the following:
| |
• |
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.
Our largest shareholders can exert significant control over our
business and affairs and may have actual or potential interests
that may depart from those of our other shareholders.
Our largest outside stockholders own a substantial percentage of
our outstanding voting capital. The interests of such persons may
differ from the interests of other stockholders. There can be no
assurance that our significant stockholders will, in future matters
submitted for stockholder approval, vote in favor of such matter,
even if such matters are recommended for approval by management or
are in the best interest of stockholders, generally. As a result,
in addition to their positions with us, such persons will have the
ability to vote their significant holdings in favor of proposals
presented to our stockholders for approval, including proposals
to:
| |
• |
elect
or defeat the election of our directors; |
| |
• |
amend
or prevent amendment of our certificate of incorporation or
bylaws; |
| |
• |
effect or prevent a merger, sale of assets or
other corporate transaction; and |
| |
• |
control the outcome of any other matter submitted
to the shareholders for vote. |
In addition, such holder’s stock ownership may discourage a
potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium
over our stock price. Our significant stockholders could also
utilize their significant ownership interest to seek to influence
management and decisions of the Company.
Because an increasing amount of our outstanding shares may
become freely tradable, sales of these shares could cause the
market price of our common stock to drop significantly, even if our
business is performing well.
As of December 1, 2015, we had outstanding 34,459,430 shares
of common stock, of which our directors and executive officers own
34,368 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.
Risks Related to the Offering
Our stock price is volatile and subject to numerous
factors.
The market price of our common stock has been, and we expect will
continue to be, subject to significant volatility. The value of our
common stock may decline regardless of our operating performance or
prospects. Factors affecting our market price include:
| |
• |
our perceived prospects and
liquidity; |
| |
• |
progress or any lack of progress (or perceptions
related to progress) in timely overcoming the remaining substantial
technical and commercial challenges related to our Conductus wire
initiative; |
| |
• |
variations in our operating results and whether
we have achieved key business targets; |
| |
• |
changes in, or our failure to meet, earnings
estimates; |
| |
• |
changes in securities analysts’ buy/sell
recommendations; |
| |
• |
differences between our reported results and
those expected by investors and securities analysts; |
| |
• |
announcements of new contracts by us or our
competitors; |
| |
• |
market reaction to any acquisitions, joint
ventures or strategic investments announced by us or our
competitors; and |
| |
• |
general economic, political or stock market
conditions. |
Recent events have caused stock prices for many companies,
including ours, to fluctuate in ways unrelated or disproportionate
to their operating performance. The general economic, political and
stock market conditions that may affect the market price of our
common stock are beyond our control. The market price of our common
stock at any particular time may not remain the market price in the
future.
We have a significant number of outstanding warrants and
options, and future sales of the shares obtained upon exercise of
these options or warrants could adversely affect the market price
of our common stock.
As of December 1, 2015, we had outstanding options exercisable for
an aggregate of 5,461,201 shares of common stock at a weighted
average exercise price of $4.72 per share and warrants to purchase
up to 7,794,328 shares of our common stock at a weighted average
exercise price of $1.34 per share. We have registered the issuance
of all the shares issuable upon exercise of the options and
warrants, and they will be freely tradable by the exercising party
upon issuance. The holders may sell these shares in the public
markets from time to time, without limitations on the timing,
amount or method of sale. As our stock price rises, the holders may
exercise their warrants and options and sell a large number of
shares. This could cause the market price of our common stock to
decline.
Our corporate governance structure may prevent our acquisition
by another company at a premium over the public trading price of
our shares.
It is possible that the acquisition of a majority of our
outstanding voting stock by another company could result in our
stockholders receiving a premium over the public trading price for
our shares. Provisions of our restated certificate of incorporation
and bylaws and of Delaware corporate law could delay or make more
difficult an acquisition of our company by merger, tender offer or
proxy contest, even if it would create an immediate benefit to our
stockholders. For example, our restated certificate of
incorporation does not permit stockholders to act by written
consent, and our bylaws generally require ninety days advance
notice of any matters to be brought before the stockholders at an
annual or special meeting.
In addition, our board of directors has the authority to issue up
to 50,000,000 shares of preferred stock and to determine the terms,
rights and preferences of this preferred stock, including voting
rights of those shares, without any further vote or action by the
stockholders. At December 1, 2015, 49,612,473 shares of preferred
stock remained unissued. The rights of the holders of common stock
may be subordinate to, and adversely affected by, the rights of
holders of preferred stock that may be issued in the future. The
issuance of preferred stock could also make it more difficult for a
third party to acquire a majority of our outstanding voting stock,
even at a premium over our public trading price.
Further, our certificate of incorporation also provides for a
classified board of directors with directors divided into three
classes serving staggered terms. These provisions may have the
effect of delaying or preventing a change in control of us without
action by our stockholders and, therefore, could adversely affect
the price of our stock or the possibility of sale of shares to an
acquiring person.
We do not anticipate declaring any cash dividends on our common
stock.
We have never declared or paid cash dividends on our common stock
and do not plan to pay any cash dividends in the near future. Our
current policy is to retain all funds and earnings for use in the
operation and expansion of our business. In addition, no dividends
can be paid without the consent of the holders of the Series I
Preferred Stock so long as the Series I Preferred Stock remains
outstanding. Absent a material transaction or change in this
policy, investors must look solely to the potential for
appreciation in the market price of the shares of our common stock
to obtain a return on their investment.
There is no public market for the warrants to purchase shares of
our common stock being offered by us in this offering.
There is no established public trading market for the warrants
being offered in this offering, and we do not expect a market to
develop. In addition, we do not intend to apply to list the
warrants on any national securities exchange or other nationally
recognized trading system, including the NASDAQ Capital Market.
Without an active market, the liquidity of the warrants will be
limited.
You will experience immediate dilution in the book value per
share of common stock as a result of this offering.
Investors in this offering will experience immediate dilution in
their net tangible book value (deficit) per share to the extent of
the difference between the public offering price per share of
common stock and the “adjusted” net tangible book value (deficit)
per share after giving effect to the offering. Our net tangible
book value (deficit) as of September 30, 2015 was approximately
($6.89) million, or ($0.20) per share of our common stock based on
34,402,763 shares outstanding. As a result of our issuance of
$4,000,000 of shares of common stock in this offering at an assumed
offering price of $0.20 per share, and after deducting
placement agent’s fees and estimated offering expenses payable by
us, our net tangible book value as of September 30, 2015, would
have been approximately ($3.38) million, or ($0.06) per share
of our common stock. This calculation excludes the proceeds, if
any, from the exercise of the warrants issued in this offering.
This amount represents an increase in net tangible book value of
$0.14 per share to our existing stockholders and an immediate
dilution in net tangible book value of $0.26 per share to investors
in this offering. These amounts do not take into account the
potential material decrease in our net book value related to any
warrant derivative liability we record related to the warrants
issued in this offering. See “— We may record a material warrant
derivative liability, which could impact our ability to remain
listed on The NASDAQ Capital Market.” See the section titled
“Dilution” below.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains, and may incorporate by reference,
forward-looking statements. Such forward-looking statements include
those that express plans, anticipation, intent, contingency, goals,
targets or future development and/or otherwise are not statements
of historical fact. These forward-looking statements are based on
our current expectations and projections about future events and
they are subject to risks and uncertainties known and unknown that
could cause actual results and developments to differ materially
from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by
terminology, such as “expects,” “anticipates,” “intends,”
“estimates,” “plans,” “believes,” “seeks,” “may,” “should”, “could”
or the negative of such terms or other similar expressions.
Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially
from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed
throughout this prospectus.
You should read this prospectus and any accompanying prospectus
supplement and the documents that we reference herein and therein
and have filed as exhibits to the registration statement, of which
this prospectus is part, completely and with the understanding that
our actual future results may be materially different from what we
expect. You should assume that the information appearing in this
prospectus and any accompanying prospectus supplement is accurate
as of the date on the front cover of this prospectus or such
prospectus supplement only. Because the risk factors referred to
above, as well as those described in the section entitled Risk
Factors beginning on page 14 of this prospectus and incorporated
herein by reference, could cause actual results or outcomes to
differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue
reliance on any forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of the
information presented in this prospectus and any accompanying
prospectus supplement, and particularly our forward-looking
statements, by these cautionary statements.
We claim the protection of the safe harbor contained in the Private
Securities Litigation Reform Act of 1995. We caution investors that
any forward-looking statements presented in this prospectus or the
documents incorporated by reference herein or therein, or those
that we may make orally or in writing from time to time, are based
upon management’s beliefs and assumptions and are made based on
information available to us as of the time made and the actual
outcome will be affected by known and unknown risks, trends,
uncertainties and factors that are beyond our control or ability to
predict. Although we believe that our assumptions are reasonable,
they are not guarantees of future performance and some will
inevitably prove to be incorrect. As a result, our actual future
results can be expected to differ from our expectations, and those
differences may be material. Accordingly, investors should use
caution in relying on past forward-looking statements, which are
based on known results and trends at the time they are made, to
anticipate future results or trends.
USE OF PROCEEDS
Except as otherwise provided in this prospectus, we currently
intend to use the net proceeds from the sale of the securities
offered by us in this prospectus for general corporate purposes,
which may include working capital, capital expenditures, research
and development expenditures, regulatory affairs expenditures,
acquisitions of new intellectual properties, technologies and
investments, monetization of our patents and the repayment,
refinancing, redemption or repurchase of certain existing or future
indebtedness or capital stock. The precise amount and timing of the
application of these proceeds will depend on our funding
requirements and the availability and costs of other funds.
We will have significant discretion in the use of any net proceeds.
Investors will be relying on the judgment of our management
regarding the application of the proceeds of any sale of our
securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock
and do not anticipate paying any in the foreseeable future. We
currently intend to retain all of our future earnings, if any, to
finance the operation and expansion of our business. Any future
determination relating to our dividend policy will be made at the
discretion of our board of directors and will depend on a number of
factors, including future earnings, capital requirements, financial
conditions, future prospects, contractual restrictions and
covenants and other factors that our board of directors may deem
relevant.
DILUTION
If you invest in our securities offered in this offering, your
ownership interest will be diluted to the extent of the difference
between the public offering price per share of our common stock and
the as-adjusted net tangible book value per share of our common
stock immediately after this offering.
Net tangible book value per share is determined by dividing our
total tangible assets less our total liabilities by the number of
shares of common stock outstanding. Our historical net tangible
book value (deficit) as of September 30, 2015 was approximately
($6.89) million, or ($0.20) per share.
Dilution per share to new investors represents the difference
between the amount per share paid by purchasers of shares of common
stock and warrants in this offering and the as-adjusted net
tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale of an
assumed $12,000,000 of Units in this offering (which represents the
sale of all the securities offered hereby) by us at a public
offering price of $0.20 per share, and after deducting the
estimated placement agent fees and expenses and estimated offering
expenses payable by us, our as-adjusted net tangible book value as
of September 30, 2015 would have been ($3.38) million, or
($0.06) per share. This represents an immediate increase in net
tangible book value of $0.14 per share to existing
stockholders and an immediate dilution of $0.26 per share to
investors participating in this offering, as illustrated in the
following table:
| Public
offering price per share |
|
|
|
|
|
$ |
0.20 |
|
| Historical net tangible book
value per share as of September 30, 2015 |
|
$ |
(0.20 |
) |
|
|
|
|
| Increase in as-adjusted net
tangible book value per share attributable to new
investors |
|
|
0.14 |
|
|
|
|
|
| As-adjusted net tangible book value per share
after this offering |
|
|
(0.06 |
) |
|
|
|
|
| Dilution per share to investors
participating in this offering |
|
|
|
|
|
$ |
0.26 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Each $0.02 increase (decrease) in the public offering price of
$0.20 per share, would increase (decrease) the as adjusted net
tangible book value by approximately $0.4 million, or
approximately $0.00 per share, and increase (decrease) the
dilution per share to new investors by approximately $0.02 per
share, and after deducting estimated placement agent fees and
expenses and estimated offering expenses payable by us. An increase
of 100,000 shares in the number of shares offered by us would
increase the as adjusted net tangible book value by approximately
$0.00 million, or $0.00 per share, and the dilution per share
to new investors would be approximately $0.00 per share, assuming
that the assumed public offering price remains the same and after
deducting the estimated placement agent fees and expenses and
estimated offering expenses payable by us. Similarly, a decrease of
100,000 shares in the number of shares offered by us would decrease
the as adjusted net tangible book value by approximately $0.00
million, or approximately $0.00 per share, and the dilution per
share to new investors would be approximately $0.00 per share. The
as adjusted information discussed above is illustrative only and
will adjust based on the actual public offering price and other
terms of this offering determined at pricing.
The foregoing calculations exclude the common stock that may be
issued under any warrants to be issued in this offering, and also
excludes the following:
| |
• |
5,461,201 shares of common stock issuable upon
the exercise of stock options outstanding, having a weighted
average exercise price of $4.72 per share; |
| |
• |
7,794,328 shares of common stock issuable upon
the exercise of warrants outstanding, having a weighted average
exercise price of $1.34 per share; |
| |
• |
3,875,261 shares of common stock reserved for
issuance upon conversion of our outstanding convertible preferred
stock without regard to the beneficial ownership conversion limits
applicable to such securities; and |
| |
• |
an aggregate of 1,473,104 shares of common stock
reserved for future issuance under our equity plans. |
Unless otherwise indicated, all information in this prospectus
reflects or assumes the following:
| |
• |
no exercise of outstanding options to purchase
common stock or warrants to purchase common stock after December 1,
2015; and |
| |
• |
no conversion of preferred stock after December
1, 2015. |
The information above assumes only Class A Units are sold in this
offering. To the extent we sell any Class B Units, the same
aggregate number of common stock equivalents resulting from this
offering would be convertible under the Series K Preferred issued
as part of the Class B Units.
Furthermore, we may choose to raise additional capital through the
sale of equity or convertible debt securities due to market
conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. New
investors will experience further dilution if any of our
outstanding options or warrants are exercised, new options are
issued and exercised under our equity incentive plans or we issue
additional shares of common stock, other equity securities or
convertible debt securities in the future.
MANAGEMENT
Directors and Executive Officers of Spherix Incorporated
Our current Board of Directors and their respective ages and
positions as of December 1, 2015:
| Name |
|
Age |
|
|
Director
Since |
| Robert J. Vander Zanden, Director and Chairman of
the Board |
|
|
70 |
|
|
2004 |
| Anthony Hayes, Chief Executive Officer and
Director |
|
|
47 |
|
|
2013 |
| Douglas T. Brown, Director |
|
|
62 |
|
|
2004 |
| Jeffrey Ballabon, Director |
|
|
53 |
|
|
2014 |
| Tim
S. Ledwick, Director |
|
|
58 |
|
|
2015 |
| Howard E. Goldberg, Director |
|
|
69 |
|
|
2015 |
Dr. Robert J. Vander Zanden
Dr. Robert J. Vander Zanden, a Board member since 2004, having
served as a Vice President of R&D with Kraft Foods
International, brings a long and distinguished career in applied
technology, product commercialization, and business knowledge of
the food science industry to us. Additionally, Mr. Vander Zanden
has specific experience in developing organizations designed to
deliver against corporate objectives. Dr. Vander Zanden holds
a Ph.D. in Food Science and an M.S. in Inorganic Chemistry from
Kansas State University, and a B.S. in Chemistry from the
University of Wisconsin – Platteville, where he was named a
Distinguished Alumnus in 2002. In his 30-year career, he has been
with ITT Continental Baking Company as a Product Development
Scientist; with Ralston Purina’s Protein Technology Division as
Manager Dietary Foods R&D; with Keebler as Group Director,
Product and Process Development (with responsibility for all
corporate R&D and quality); with Group Gamesa, a Frito-Lay
Company, as Vice President, Technology; and with Nabisco as Vice
President of R&D for their International Division. With the
acquisition of Nabisco by Kraft Foods, he became the Vice President
of R&D for Kraft’s Latin American Division. Dr. Vander Zanden
retired from Kraft Foods in 2004. He currently holds the title of
Adjunct Professor and Lecturer in the Department of Food, Nutrition
and Packaging Sciences at Clemson University, where he also is a
member of their Industry Advisory Board. His focus on achieving
product and process innovation through training, team building and
creating positive working environments has resulted in his being
recognized with many awards for product and packaging innovation.
Dr. Vander Zanden is not now, nor has he been for the past
five years, a director of a public, for-profit company other than
us. Mr. Vander Zanden executive experience provides him with
valuable business expertise which the Board believes qualifies him
to serve as a director of the Company.
Anthony Hayes
Mr. Anthony Hayes, a director and Chief Executive Officer since
2013, has served as the Chief Executive Officer of North South
since March 2013 and, since June 2013, 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.
Douglas T. Brown
Mr. Douglas T. Brown, a Board Member since 2004, brings to the
Board a broad understanding of financial statements, financial
markets, and other business aspects. He is currently Senior
Vice President and Manager of the Corporate Banking Government
Contracting Group for PNC Bank N.A., Washington, DC. Mr. Brown
has been with PNC and its predecessor bank, Riggs Bank, since 2001
and previously worked for Bank of America, N.A. and its predecessor
banks for 16 years as a Loan Officer, as well as a manager of Loan
Officers in the Mid-Atlantic region. Subsequent to 1990,
the majority of Mr. Brown’s customers are companies that provided
services to the Federal Government and State governments.
Mr. Brown holds a B.A. degree in Political Science from
American University and a graduate degree from The Stonier Graduate
School of Banking at the University of Delaware. He is not now, nor
has he been for the past five years, a director of a public,
for-profit company other than us. Mr. Brown’s executive
corporate finance experience provides him with valuable expertise
which the Board believes qualifies him to serve as a director of
our Company.
Jeffrey Ballabon
Mr. Jeffrey Ballabon, Spherix Board Member since 2014, is a
founding partner of B2 Strategic, an international consulting firm.
Prior to his work at B2, Mr. Ballabon was CEO of Innovative
Communications Technologies, Inc. where he managed litigation and
licensing efforts that ultimately led to the company’s spin-off as
a public company. He is well known in New York and Washington
circles as a media expert, political innovator and business
visionary with a practical focus on successful, results-oriented
outcomes. He has headed communications, government relations and
public policy departments of major media corporations including CBS
News, Primedia and Court TV. He has provided policy and government
affairs representation to investment funds, non-profits and
political candidates. Mr. Ballabon twice has been a Presidential
Appointee and served as Legislative Counsel to US Senator John
Danforth (R-MO) and as Republican Counsel to the Consumer
Subcommittee of the US Senate Committee on Commerce, Science,
and Transportation. Currently, he serves on the Executive
Committee of the Federalist Society’s Intellectual Property
Practice Group and is a member of the Board of Directors of
American Innovators for Patent Reform.
Tim S. Ledwick
Mr. Time S. Ledwick is currently the Chief Financial Officer of
Management Health Solutions, a private equity-backed company that
provides software solutions and services to hospitals focused on
reducing costs through superior inventory management practices. In
addition, since 2012 he has served on the board and Chair of the
Audit Committee of Telkonet, Inc. (TKOI) a smart energy management
technology company. From 2007 to 2011, Mr. Ledwick provided CFO
consulting services to a $150 million services firm and, in
addition, from 2007-2008 also acted as special advisor to The
Dellacorte Group, a middle market financial advisory firm focused
on 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,
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 BBA in Accounting from The George
Washington University and his MS in Finance from Fairfield
University.
Howard E. Goldberg
Mr. Howard E. Goldberg has vast operational experience spanning a
professional services and management career of forty-eight years.
During the most recent twenty-three years of that career Mr.
Goldberg has been actively involved in the wireless telecom
industry, including thirteen years in building a strong position in
monetization of IP and participation to global standards at
InterDigital, Inc., serving as President, CEO and Director from
1999 to 2005. Earlier experience included diversified activities
such as lead with Sensormatic Electronics turnaround team and
serving as staff lead for International Corporate Finance Team at
the Securities and Exchange Commission, Washington D.C. Mr.
Goldberg has practiced as a CPA with one of the Big Eight public
accounting firms and has practiced securities and corporate law
with a large regional law firm prior to the most recent twenty
three years spent in senior management positions and in a
consulting services role. He is also a member of the Project
Faculty at The Wharton School of the University of Pennsylvania,
teaching in the MBA program.
Non-Director Executive Officers
The following table sets forth information regarding our
non-director executive officers as of December 1, 2015:
| Name |
|
Age |
|
|
Position |
| Frank
Reiner |
|
|
52 |
|
|
Interim Chief
Financial Officer |
| |
|
|
|
|
|
|
Frank Reiner
Mr. Frank Reiner is a seasoned and
experienced patent licensing and monetization professional.
Prior to joining Spherix in 2014 Frank was located in Silicon
Valley and employed as the Vice President of Global Licensing for
the Kudelski Group where his primary role was licensing a digital
video patent portfolio. Prior to that Mr. Reiner was the Vice
President of Patent Licensing and Acquisition for Flextronics
International Ltd. where he managed patent assertions made against
Flextronics designed products and was responsible for building a
defensive patent portfolio via internal innovation, invention and
through patent acquisitions. Previously, Mr. Reiner was a
Partner at Intellectual Value Creation Services, LLC whose charter
was to work as a patent monetization team for the IP Investment
Group at Coller Capital supporting patent acquisitions, sales and
licensing both from a technical and business perspective. Mr.
Reiner started his patent and licensing career at InterDigital
Communications, LLC as the Senior Director of Licensing where he
was responsible for InterDigital’s patent licensing program in the
cellular and wireless space. He participated in numerous patent
license negotiations and patent infringement litigations, and he
supported, patent prosecution and the management of existing patent
license agreements. Mr. Reiner started his career as a software
engineer in the defense industry where he developed high-end
aircraft and tank simulators for the U.S. military. He
achieved multiple positions of higher responsibility at General
Electric, Martin Marietta and Lockheed Martin. He received a
BS in Computer Science from Embry-Riddle Aeronautical University
and an MBA from Villanova University.
EXECUTIVE COMPENSATION
The following describes the compensation earned in fiscal 2014 and
2013 by each of the executive officers identified below in the
Summary Compensation Table, who are referred to collectively as our
“named executive officers.” Our named executive officers with
respect to the fiscal year that ended on December 31, 2014 are
Anthony Hayes, Chief Executive Officer, and Frank Reiner, Interim
Chief Financial Officer. The principal terms of our employment
agreements with Mr. Hayes and Mr. Reiner are described below in the
“Executive Compensation — Employment Agreements” section of this
prospectus.
Our revised Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2014, which includes the Part III information of
Form 10-K, is incorporated herein by reference. The data therein is
supplemented, in relevant part, by the tables set forth below.
Summary Compensation Table **
Name and
Principal
Position |
|
Year |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock Award
($) |
|
|
Option
Award
($) |
|
|
Non-Equity
Incentive
Plan
Compensation
($)(1) |
|
|
Change in
Pension
Value and
Non-
Qualified
Deferred
Compensation
Earnings ($) |
|
|
All Other
Compensation
($) |
|
|
Total ($) |
|
| Anthony Hayes, |
|
|
2014 |
|
|
|
350,000 |
|
|
|
250,000 |
|
|
|
— |
|
|
|
805,651 |
|
|
|
— |
|
|
|
— |
|
|
|
6,400 |
|
|
|
1,412,051 |
|
| Chief Executive Officer (2) |
|
|
2013 |
|
|
|
92,885 |
|
|
|
200,000 |
|
|
|
— |
|
|
|
4,885,558 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,178,443 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Frank Reiner, Interim |
|
|
2014 |
|
|
|
182,917 |
|
|
|
— |
|
|
|
46,700 |
|
|
|
384,838 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
614,454 |
|
| Chief Financial Officer (3) |
|
|
2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Harvey Kesner, |
|
|
2014 |
|
|
|
14,250 |
|
|
|
— |
|
|
|
— |
|
|
|
2,244,944 |
|
|
|
— |
|
|
|
— |
|
|
|
14,250 |
|
|
|
2,273,444 |
|
| Interim CEO and Director (4) |
|
|
2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,531,674 |
|
|
|
— |
|
|
|
— |
|
|
|
423,300 |
|
|
|
8,954,974 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Robert Lodder, |
|
|
2014 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Former President (5) |
|
|
2013 |
|
|
|
126,424 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
233,398 |
|
|
|
359,822 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Richard Cohen, |
|
|
2014 |
|
|
|
240,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
240,000 |
|
| Chief Financial Officer (6) |
|
|
2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Robert Clayton CFO, Treasurer |
|
|
2014 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| and Corporate Secretary (7) |
|
|
2013 |
|
|
|
135,255 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
212,180 |
|
|
|
347,435 |
|
| (2) |
In
2013, Mr. Hayes received a $100,000 signing bonus, a $100,000
annual bonus and 750,000 stock options valued on the date of grant
in accordance with ASC Topic 718. On January 28, 2014,
the Compensation Committee adopted a resolution intended to grant
Mr. Hayes 300,000 stock options with a term of five years and an
exercise price of $5.83 that would be subject to certain vesting
conditions upon agreement of the Compensation Committee and Mr.
Hayes. The parties failed to reach agreement prior to the date of
this Annual Report on From 10-K and accordingly the stock options
subject to specific performance targets were determined not to be
issued, but may be issued at a future date at the discretion of the
Compensation Committee. In accordance with the ASC Topic 718 the
failure to finalize performance targets result in the stock options
not being considered to have been granted and therefore not
outstanding. On April 3, 2014, Mr. Hayes received
500,000 stock options with a term of five years and valued on the
date of grant, with 50% vesting immediately and the remaining 50%
vesting upon our Company’s receipt of gross proceeds of at least
$30 million by April 3, 2015 from an offering of its securities. On
June 30, 2014, Mr. Hayes received a bonus in the aggregate amount
of $250,000. On July 3, 2014, Mr. Hayes received 100,000
stock options with a term of five years and an exercise price of
$1.79, vesting immediately. Mr. Hayes also received
$6,400 in cash for his service as a director of our Company during
2014. All stock options to Mr. Hayes were granted in accordance
with ASC Topic 718. |
| (3) |
Includes 150,000 stock options valued on the date
of grant in accordance with ASC Topic 718. |
| (4) |
Mr.
Kesner served as our interim Chief Executive Officer from February
27, 2013 to September 10, 2013. Mr. Kesner was paid
$14,250 as compensation for his Board of Director duties during
2014. During 2013, Mr. Kesner was paid $150,000 as
compensation for his CEO duties and $28,300 as compensation for his
Board of Director duties. Other Compensation includes
$250,000 consulting fee paid to Paradox Capital Partners in 2013, a
firm of which Mr. Kesner is manager and member, for services
rendered in the merger of North South. Mr. Kesner’s
compensation does not include legal fees paid to a law firm with
which Mr. Kesner is associated, in the amount of $449,935 and
$730,938 as of December 31, 2014 and 2013,
respectively. On January 28, 2014, Mr. Kesner received
675,000 stock options with a term of five years and an exercise
price of $5.83, vesting in two equal annual installments with 50%
vesting immediately on the date of issuance and the remaining 50%
on the one-year anniversary of the date of issuance. On April 3,
2014, Mr. Kesner received 200,000 stock options with a term of five
years, valued on the date of grant and vesting immediately. Mr.
Kesner resigned his positions as Director on May 28, 2014.
Pursuant to his resignation, the Board approved the accelerated
vesting of 837,500 previously granted stock options to vest on the
date of Mr. Kesner’s resignation. All stock options to Mr. Kesner
were granted in accordance with ASC Topic 718. |
| (5) |
Mr.
Lodder resigned as our President in February 2013. We
paid Mr. Lodder severance of $233,398 as required by the terms of
his prior employment agreement. |
| (6) |
Mr.
Cohen was appointed our Chief Financial Officer on January 6,
2014. In consideration for Mr. Cohen’s services, we
agreed to pay Chord Advisors LLC (“Chord”), of which Mr. Cohen is
chairman, a monthly fee of $20,000 ($5,000 of which was payable in
shares of our Common Stock). In April 2014, we modified
this agreement to pay Chord a monthly fee of $20,000 in cash, and
no fees were paid to Chord in the form of our Common
Stock. |
| (7) |
Mr.
Clayton resigned as Chief Financial Officer, Treasurer and
Corporate Secretary in March 2013. We paid Mr. Clayton a
severance of $212,180 as required by the terms of his prior
employment agreement. |
Outstanding Equity Awards at Fiscal Year-End
The following table shows information regarding outstanding equity
awards at December 31, 2014 for our named executive officers.
Our Form 10-K/A, which includes the Part III information of Form
10-K, is incorporated herein by reference. The data therein is
supplemented, in relevant part, by the tables set forth below.
| |
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Securities
Underlying Unexercised
Options |
|
|
|
|
|
|
|
|
Number
of Shares
or Units
of Stock that
Have Not Vested
(#) |
|
|
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested ($) |
|
| Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Option
Exercise
Price
($) |
|
|
Option
Expiration
Date |
|
|
|
| Anthony Hayes |
|
|
687,500 |
|
|
|
62,500 |
|
|
|
7.08 |
|
|
|
4/1/2023 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
2.86 |
|
|
|
4/3/2019 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
100,000 |
|
|
|
— |
|
|
|
1.79 |
|
|
|
7/15/2019 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
| Frank
Reiner |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
4.67 |
|
|
|
3/15/2024 |
|
|
|
|
|
|
|
|
|
| |
|
|
50,000 |
|
|
|
— |
|
|
|
1.94 |
|
|
|
6/19/2024 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
4.67 |
|
Employment and Change of Control Agreements
Anthony Hayes
Pursuant to Mr. Hayes’ Employment Agreement with the Company, dated
as of September 10, 2013, Mr. Hayes shall serve as the Chief
Executive Officer of the Company for a period of two years, subject
to renewal. In consideration for his employment, the Company paid
Mr. Hayes a signing bonus of $100,000, and is currently paying him
a base salary of $350,000 per annum. In addition, Mr. Hayes is
entitled to receive an annual bonus in an amount equal to up to
100% of his base salary if the Company meets or exceeds certain
criteria adopted by the Company’s compensation
committee. In the event Mr. Hayes’ employment is
terminated, other than for “Cause” (as defined in his Employment
Agreement) or by Mr. Hayes without “Good Reason” (as defined in his
Employment Agreement), Mr. Hayes will be entitled to receive
severance benefits equal to twelve months of his base
salary, continued coverage under the Company’s benefit plans
for a period of twelve months and payment of his pro-rated earned
annual bonus.
Frank Reiner
Pursuant to Mr. Reiner’s Employment Agreement with the Company,
dated as of March 14, 2014 (the “Agreement”), the term of Mr.
Reiner’s employment is one year and automatically extends for
additional one-year terms unless no less than 60 days’ prior
written notice of non-renewal is given by Mr. Reiner or the
Company. Mr. Reiner’s base salary under the Agreement was $235,000
per year, but in connection with being named Interim Chief
Financial Officer, the Board authorized an amendment to the
Agreement to increase Mr. Reiner’s base salary to $271,000. Mr.
Reiner is also entitled to receive an annual bonus if the
Compensation Committee of the Board determines that performance
targets have been met. The amount of the annual bonus is determined
based on the Company’s gross proceeds from certain monetizations of
the Company’s intellectual property. Mr. Reiner is also eligible to
participate in all employee benefits plans from time to time in
effect for the Company’s other senior executive officers.
CERTAIN RELATIONSHIPS AND
RELATED-PARTY TRANSACTIONS
Since January 1, 2014, there has not been, nor is there currently
proposed, any transaction or series of related transactions to
which we were or will be a party in which the amount involved
exceeded or will exceed $120,000 and in which the other parties
included or will include any of our directors, executive officers,
holders of 5% or more of our voting securities, or any member of
the immediate family of any of the foregoing persons, other than
compensation arrangements with directors and executive officers,
which are described in the “Management,” and “Executive
Compensation” sections of our Form 10-K/A and the transactions
described below.
On September 10, 2013, the Company entered into an employment
agreement with Mr. Anthony Hayes pursuant to which Mr. Hayes serves
as the Chief Executive Officer of the Company for a period of two
years, subject to renewal. In consideration for his
employment, the Company agreed to pay Mr. Hayes a signing bonus of
$100,000 and a base salary of $350,000 per annum. Mr.
Hayes will be entitled to receive an annual bonus in an amount
equal to up to 100% of his base salary if the Company meets or
exceeds certain criteria adopted by the Company’s compensation
committee. In the event Mr. Hayes’ employment is
terminated, other than for “Cause,” or by Mr. Hayes without “Good
Reason,” as both terms are defined in Mr. Hayes’ employment
agreement, Mr. Hayes will be entitled to receive severance benefits
equal to twelve months of his base salary, continued coverage under
the Company’s benefit plans for a period of twelve months and
payment of his pro-rated earned annual bonus.
As it relates to Mr. Hayes 2013 annual bonus, the Company paid Mr.
Hayes $100,000 during the year ended December 31, 2013. In April of
2014, compensation Committee of the Board of Directors approved to
pay Mr. Hayes the remaining amount of his 2013 bonus due of
$250,000. The bonus was paid as of June 30, 2014.
As it relates to Mr. Hayes 2014 annual bonus, during the year ended
December 31, 2014, the Compensation Committee of the Board of
Directors approved a bonus payout of $175,000 for services provided
in 2014. The Company has included such bonus in accrued
expenses on the consolidated balance sheet as of December 31,
2014.
In February 2015, the members of the Compensation Committee revised
the annual bonus structure to be paid to Mr. Hayes and established
an incentive target bonus per the Employment Agreement. The amount
of such target bonus shall be (i) $350,000 in cash, which shall be
payable in a single lump-sum payment promptly following the
consummation of a qualifying strategic transaction, and (ii) a
discretionary bonus to be determined by the 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.
On January 6, 2014, the Company’s board of directors appointed
Richard Cohen as its Chief Financial Officer, and Michael Pollack
resigned as the interim Chief Financial Officer of the Company,
effective January 3, 2014. Mr. Cohen served as the Company’s Chief
Financial Officer pursuant to an agreement with Chord Advisors LLC
(“Chord”), of which Mr. Cohen is Chairman. In consideration for Mr.
Cohen’s services, the Company agreed to pay Chord a monthly fee of
$20,000, $5,000 of which was initially payable in shares of the
Company’s common stock. In April 2014, the Company modified this
agreement to pay Chord a monthly fee of $20,000 in cash. The
previous $15,000 payable in shares was forgiven by Chord.
On June 30, 2015, the Board of Directors accepted the resignation
of Richard Cohen as Chief Financial Officer of the Company,
effective immediately. In connection therewith, the Company amended
and restated its consulting agreement with Chord, such that it will
continue to provide the Company with certain financial accounting
and advisory services, with the monthly fee to Chord reduced from
$20,000 to $10,000 per month since its affiliate will no longer
serve as the Company’s Chief Financial Officer.
In connection with the resignation of Mr. Cohen, on June 30, 2015,
the Board appointed Frank Reiner, the Interim Chief Financial
Officer of the Company, effective immediately. Pursuant to Mr.
Reiner’s Employment Agreement with the Company, dated as of March
14, 2014, as amended, the term of Mr. Reiner’s employment is one
year and automatically extends for additional one-year terms unless
no less than 60 days’ prior written notice of non-renewal is given
by Mr. Reiner or the Company. Mr. Reiner’s base salary under the
agreement was $235,000 per year, but in connection with being named
Interim Chief Financial Officer, the Board authorized an amendment
to the agreement to increase Mr. Reiner’s base salary to $271,000.
Mr. Reiner is also entitled to receive an annual bonus if the
Compensation Committee of the Board determines that performance
targets have been met. The amount of the annual bonus is determined
based on the Company’s gross proceeds from certain monetization of
the Company’s intellectual property. Mr. Reiner is also eligible to
participate in all employee benefits plans from time to time in
effect for the Company’s other senior executive officers.
On August 10, 2015, the Company entered into a consulting agreement
with Mr. 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 the Company in areas
including licensing, litigation and business strategies. The
Company 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. The Company will reimburse Mr. Goldberg
for actual out-of-pocket expenses. Mr. Goldberg’s consulting
agreement has an initial term of one year, unless Mr. Goldberg has
completed the desired services by an earlier date or unless the
agreement is earlier terminated pursuant to its terms. The
agreement may be extended by written agreement of both the Company
and Mr. Goldberg. The agreement was approved by all of the
independent directors of the Company. Mr. Goldberg is also a
director of the Company.
Indemnification Agreements
We have entered into indemnification agreements with all of our
executive officers and directors. These agreements provide that,
subject to limited exceptions and among other things, we will
indemnify each of our executive officers and directors to the
fullest extent permitted by law and advance expenses to each
indemnitee in connection with any proceeding in which a right to
indemnification is available.
SECURITY OWNERSHIP OF BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information relating to the
beneficial ownership of our common stock as of September 30, 2015
by:
| |
• |
each person, or group of affiliated persons,
known by us to beneficially own more than 5% of our outstanding
shares of common stock; |
| |
• |
each of our directors; |
| |
• |
each of our named executive officers;
and |
| |
• |
all directors and executive officers as a
group. |
Our Form 10-K/A, which includes the Part III information of Form
10-K, is incorporated herein by reference. The data therein is
supplemented, in relevant part, by the tables set forth below.
The number of shares beneficially owned by each entity, person,
director, executive officer or selling stockholder is determined in
accordance with the rules of the SEC and the information is not
necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares
over which the individual or entity has sole or shared voting power
or investment power as well as any shares that the individual or
entity has the right to acquire within 60 days of April 1,
2015 through the exercise of any stock option, warrants or other
rights. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common
stock held by that person or entity.
The percentage of shares beneficially owned is computed on the
basis of 34,402,763 shares of our common stock outstanding as of
September 30, 2015. Shares of our common stock that a person or
entity has the right to acquire within 60 days of September 30,
2015 are deemed outstanding for purposes of computing the
percentage ownership of the person or entity holding such rights,
but are not deemed outstanding for purposes of computing the
percentage ownership of any other person or entity, except with
respect to the percentage ownership of all directors and executive
officers as a group. Unless otherwise indicated below, the address
for each beneficial owner listed is c/o Spherix Incorporated, at
6430 Rockledge Drive, Suite 503, Bethesda, MD 20877.
| |
|
Shares Beneficially Owned
Prior to the
Offering |
|
| Name and Address of Beneficial Owner
|
|
Number(1) |
|
|
Percent of
Class(2) |
|
| Directors, Officers and
Named Executive Officers: |
|
|
|
|
|
|
|
|
| Robert J.
Vander Zanden(3) |
|
|
426,258 |
|
|
|
1.22 |
% |
| Anthony Hayes(4) |
|
|
1,123,081 |
|
|
|
3.16 |
% |
| Douglas T. Brown(5) |
|
|
426,260 |
|
|
|
1.22 |
% |
| Jeffrey Ballabon(6) |
|
|
150,000 |
|
|
|
0.43 |
% |
| Tim S. Ledwick(7) |
|
|
75,000 |
|
|
|
0.22 |
% |
| Howard E. Goldberg(8) |
|
|
75,000 |
|
|
|
0.22 |
% |
| Frank Reiner(9) |
|
|
161,000 |
|
|
|
0.47 |
% |
| All current directors and
executive officers as a group (seven persons) |
|
|
2,399,099 |
|
|
|
6.52 |
% |
| (1) |
Represents shares of common stock
and shares of restricted stock held as of September 30, 2015 plus
shares of common stock that may be acquired upon exercise of
options, warrants and other rights exercisable within 60 days
of September 30, 2015. |
| (2) |
Based on 34,402,763 shares of our
Common Stock outstanding as of September 30, 2015 and takes into
account the beneficial ownership limitations governing the Series C
Preferred Stock, Series D Preferred Stock, Series D-1 Preferred
Stock, Series F Preferred Stock, Series H Preferred Stock and
Series I Preferred Stock. Beneficial ownership limitations on our
Series H Preferred Stock and Series I Preferred Stock prevents 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. |
| (3) |
Includes 143 shares of Common
Stock and 426,115 options for purchase of Common Stock exercisable
within 60 days of September 30, 2015. |
| (4) |
Includes 23,081 shares of Common
Stock and 1,100,000 options for purchase of Common Stock
exercisable within 60 days of September 30, 2015. |
| (5) |
Includes 144 shares of Common
Stock and 426,116 options for purchase of Common Stock exercisable
within 60 days of September 30, 2015. |
| (6) |
Consists of 150,000 options for
purchase of Common Stock exercisable within 60 days of September
30, 2015. |
| (7) |
Consists of 75,000 options for
purchase of Common Stock exercisable within 60 days of September
30, 2015. |
| (8) |
Consists of 75,000 options for
purchase of Common Stock exercisable within 60 days of September
30, 2015. |
| (9) |
Includes 11,000 shares of Common
Stock and 150,000 options for purchase of Common Stock exercisable
within 60 days of September 30, 2015. |
DESCRIPTION OF
CAPITAL STOCK
General
The following description of common stock and preferred stock,
summarizes the material terms and provisions of the common stock
and preferred stock and is not complete. For the complete terms of
our common stock and preferred stock, please refer to our 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, increased our authorized number of shares of common stock
and preferred stock to 200,000,000 shares from 50,000,000 shares
and to 50,000,000 shares from 5,000,000 shares, respectively. The
Amended and Restated Certificate of Incorporation also requires us
to indemnify our directors, officer and agents and advance expenses
to such persons to the fullest extent permitted by Delaware
law.
Additionally, on April 23, 2014, we filed a Certificate of
Elimination with the Secretary of State of the State of Delaware
eliminating our Series B Convertible Preferred Stock, Series E
Convertible Preferred Stock and Series F Convertible Preferred
Stock and returning them to authorized but undesignated shares of
our preferred stock. None of the foregoing series of preferred
stock were outstanding. On November 26, 2013, we issued an
aggregate of 304,250 shares of Series F-1 Convertible Preferred
Stock in exchange for 304,250 shares of Series F Preferred Stock,
which shares were convertible into 304,250 shares of common stock.
All shares of Series F-1 Convertible Preferred Stock have been
converted into common stock, and no shares of Series F-1
Convertible Preferred Stock remain outstanding. On June 2, 2014, we
issued 10,000,000 shares of Series J Convertible Preferred Stock,
which shares were convertible into a total of 10,000,000 shares of
common stock. All shares of Series J Convertible Preferred Stock
have been converted into common stock, and no shares of Series J
Convertible Preferred Stock remain outstanding.
Our authorized capital stock consists of 200,000,000 shares of
common stock, $0.0001 par value, and 50,000,000 shares of preferred
stock, $0.0001 par value. The authorized and unissued shares of
common stock and the authorized and undesignated shares of
preferred stock are available for issuance without further action
by our stockholders, unless such action is required by applicable
law or the rules of any stock exchange or automated quotation
system on which our securities may be listed or traded. If the
approval of our stockholders is not so required, our board of
directors may determine not to seek stockholder approval.
Common Stock
Subject to the rights of the preferred stock, holders of common
stock are entitled to receive such dividends as are declared by our
board of directors out of funds legally available for the payment
of dividends. We presently intend to retain any earnings to fund
the development of our business. Accordingly, we do not anticipate
paying any dividends on our common stock for the foreseeable
future. Any future determination as to declaration and payment of
dividends will be made at the discretion of our board of
directors.
In the event of the liquidation, dissolution, or winding up of the
Company, each outstanding share of our common stock will be
entitled to share equally in any of our assets remaining after
payment of or provision for our debts and other liabilities.
Holders of common stock are entitled to one vote per share on
matters to be voted upon by stockholders. There is no cumulative
voting for the election of directors, which means that the holders
of shares entitled to exercise more than fifty percent (50%) of the
voting rights in the election of directors are able to elect all of
the directors.
Holders of common stock have no preemptive rights to subscribe for
or to purchase any additional shares of common stock or other
obligations convertible into shares of common stock which we may
issue after the date of this prospectus.
All of the outstanding shares of common stock are fully paid and
non-assessable. Holders of our common stock are not liable for
further calls or assessments.
The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights
of the holders of shares of any series of preferred stock that we
may designate in the future.
Our common stock is currently traded on The NASDAQ Capital Market
under the symbol “SPEX.” If we fail to meet any of the
continued listing standards of The NASDAQ Capital Market, our
common stock could be delisted from The NASDAQ Capital
Market. These continued listing standards include
specifically enumerated criteria, such as:
|
• |
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. It is unknown at this time if we will
be able to regain compliance with the minimum bid price requirement
within the additional time allowed in order to continue our common
stock listing on the Nasdaq Capital Market. Continued listing
during this period is also contingent on our continued compliance
with all listing requirements other than for the minimum bid price.
While we hope to regain compliance in the ordinary course of
business, we may consider a reverse stock split, if necessary to
continue our listing, and have committed to NASDAQ to do so if
necessary. However, even if we do effect such a reverse stock
split, our stockholders may bring actions against us in connection
with that reverse stock split that could divert management
resources, cause us to incur significant expenses or cause our
common stock to be further diluted.
If we fail to comply with NASDAQ’s continued listing standards, we
may be delisted and our common stock will trade, if at all, only on
the over-the-counter market, such as the OTC Bulletin Board or
OTCQX market, and then only if one or more registered broker-dealer
market makers comply with quotation requirements. In
addition, delisting of our common stock could depress our stock
price, substantially limit liquidity of our common stock and
materially adversely affect our ability to raise capital on terms
acceptable to us, or at all.
Finally, delisting of our common stock would likely result in our
common stock becoming a “penny stock” under the Securities Exchange
Act. The principal
result or effect of being designated a “penny stock” is that
securities broker-dealers cannot recommend the shares but must
trade it on an unsolicited basis. Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk
disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of
risks of the penny stock market. A broker-dealer must also provide
the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and sales person in the
transaction, and monthly account statements indicating the market
value of each penny stock held in the customer’s account. In
addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules;
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the trading
activity in the secondary market for shares that become subject to
those penny stock rules.
Preferred Stock
Our 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.
We will fix the rights, preferences, privileges and restrictions of
the preferred stock of each series in the certificate of
designation relating to that series. We will file as an exhibit to
the registration statement of which this prospectus is a part, or
will incorporate by reference from a current report on Form 8-K
that we file with the SEC, the certificate of designation that
describes the terms of the series of preferred stock we are
offering. This description will include the terms of such preferred
stock, including but not limited to, any or all of the following,
as required:
| |
• |
the
title and stated value; |
| |
• |
the
number of shares we are offering; |
| |
• |
the
liquidation preference per share; |
| |
• |
the
purchase price; |
| |
• |
the
dividend rate, period and payment date and method of calculation
for dividends; |
| |
• |
whether dividends will be cumulative or
non-cumulative and, if cumulative, the date from which dividends
will accumulate; |
| |
• |
any
contractual limitations on our ability to declare, set aside or pay
any dividends; |
| |
• |
the
procedures for any auction and remarketing, if any; |
| |
• |
the
provisions for a sinking fund, if any; |
| |
• |
the
provisions for redemption or repurchase, if applicable, and any
restrictions on our ability to exercise those redemption and
repurchase rights; |
| |
• |
any
listing of the preferred stock on any securities exchange or
market; |
| |
• |
whether the preferred stock will be convertible
into our common stock, and, if applicable, the conversion price, or
how it will be calculated, and the conversion period; |
| |
• |
whether the preferred stock will be exchangeable
into debt securities, and, if applicable, the exchange price, or
how it will be calculated, and the exchange period; |
| |
• |
voting rights, if any, of the preferred
stock; |
| |
• |
preemptive rights, if any; |
| |
• |
restrictions on transfer, sale or other
assignment, if any; |
| |
• |
whether interests in the preferred stock will be
represented by depositary shares; |
| |
• |
a
discussion of any material or special United States federal income
tax considerations applicable to the preferred stock; |
| |
• |
the
relative ranking and preferences of the preferred stock as to
dividend rights and rights if we liquidate, dissolve or wind up our
affairs; |
| |
• |
any
limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with the series of preferred stock
as to dividend rights and rights if we liquidate, dissolve or wind
up our affairs; and |
| |
• |
any
other specific terms, preferences, rights or limitations of, or
restrictions on, the preferred stock. |
If we issue shares of preferred stock under this prospectus, after
receipt of payment therefor, the shares will be fully paid and
non-assessable.
The DGCL provides that the holders of preferred stock will have the
right to vote separately as a class on any proposal involving
certain fundamental changes in the rights of holders of that series
of preferred stock. This right is in addition to any voting rights
provided for in the applicable certificate of designation.
Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of our common
stock. Preferred stock could be issued quickly with terms designed
to delay or prevent a change in control of our Company or make
removal of management more difficult. Additionally, the issuance of
preferred stock could have the effect of decreasing the market
price of our common stock.
Series A Preferred Stock
Our board of directors has designated 500,000 shares of our
preferred stock as Series A Participating Preferred Stock (“Series
A Preferred Stock”).
On January 1, 2013, we adopted a stockholder rights plan in which
rights to purchase shares of Series A Preferred Stock were
distributed as a dividend at the rate of one right for each share
of common stock. The rights are designed to guard against partial
tender offers and other abusive and coercive tactics that might be
used in an attempt to gain control of Spherix or to deprive our
stockholders of their interest in the long-term value of Spherix.
These rights seek to achieve these goals by forcing a potential
acquirer to negotiate with our board of directors (or go to court
to try to force the Board of Directors to redeem the rights),
because only the Board of Directors can redeem the rights and allow
the potential acquirer to acquire our shares without suffering very
significant dilution. However, these rights also could deter or
prevent transactions that stockholders deem to be in their
interests, and could reduce the price that investors or an acquirer
might be willing to pay in the future for shares of our common
stock.
Each right entitles the registered holder to purchase one
one-hundredth of a share (a “Unit”) of our Series A Preferred
Stock. Each Unit of Series A Preferred Stock will be entitled to an
aggregate dividend of 100 times the dividend declared per share of
common stock. In the event of liquidation, the holders of the Units
of Series A Preferred Stock will be entitled to an aggregate
payment of 100 times the payment made per share of common stock.
Each Unit of Series A Preferred Stock will have 100 votes, voting
together with the common stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of
common stock are exchanged, each Unit of Series A Preferred Stock
will be entitled to receive 100 times the amount received per share
of common stock. These rights are protected by customary
anti-dilution provisions.
The rights will be exercisable only if a person or group acquires
ten percent (10%) or more of our common stock (subject to certain
exceptions stated in the plan) or announces a tender offer the
consummation of which would result in ownership by a person or
group of ten percent (10%) or more of our common stock. Our board
of directors may redeem the rights at a price of $0.001 per right.
The rights will expire at the close of business on December 31,
2017 unless the expiration date is extended or unless the rights
are earlier redeemed or exchanged by the Company.
Series C Convertible Preferred Stock
On March 6, 2013, the Company and certain investors that
participated in the November 2012 private placement transaction
entered into separate Warrant Exchange Agreements pursuant to which
those investors exchanged common stock purchase warrants acquired
in the private placement transaction for shares of our Series C
Convertible Preferred Stock. Each share of Series C Convertible
Preferred Stock is convertible into one (1) share of common stock
at the option of the holder. The Series C Convertible Preferred
Stock was established on March 5, 2013 by the filing in the State
of Delaware of a Certificate of Designation of Preferences, Rights
and Limitations of Series C Convertible Preferred Stock.
The exchanged Warrants were issued in November 2012 for an
aggregate of 483,657 shares of common stock. The warrants were
exercisable through November 7, 2017 at an exercise price of $6.53
per share.
Pursuant to the Warrant Exchange Agreements, the investors received
in exchange for their warrants an aggregate of 229,337 shares of
the Series C Convertible Preferred Stock, each of which is
convertible into one (1) share of common stock. This is the same
number of shares of common stock that would have been issued upon a
“cashless exercise” of the exchanged warrants, as permitted by the
terms of the warrants, based on the one-day volume weighted average
price of our common stock on February 28, 2013 of $12.6439 as
reported by Bloomberg. We have agreed to register the shares of
common stock issuable upon conversion of the Series C Convertible
Preferred Stock on the same basis as the shares of common stock
issued in the November 2012 private placement transaction.
As of December 1, 2015, one share of Series C Convertible Preferred
Stock was issued and outstanding.
Series D Convertible Preferred Stock
On April 2, 2013, we entered into the Merger Agreement with Nuta
Technology Corp., North South Holdings, Inc. and the shareholders
of North South Holdings, Inc., as amended on August 30, 2013. On
September 10, 2013, we consummated the Merger. At the closing of
the Merger, an aggregate of 491 issued and outstanding shares of
North South’s common stock were converted into the right to receive
an aggregate of 1,203,153 shares of common stock and 500 shares of
North South’s Series A Preferred Stock and 107 shares of North
South’s Series B Preferred Stock issued and outstanding were
converted into the right to receive an aggregate of 1,379,685
shares of our newly designated Series D Convertible Preferred
Stock.
Each share of Series D Preferred Stock has a stated value of
$0.0001 per share and is convertible into ten (10) shares of common
stock. Upon the liquidation, dissolution or winding up of our
business, each holder of Series D Preferred Stock shall be entitled
to receive, for each share of Series D Preferred Stock held, a
preferential amount in cash equal to the greater of (i) the Stated
Value or (ii) the amount the holder would receive as a holder of
the Company’s common stock on an “as converted” basis. Each holder
of Series D Preferred Stock shall be entitled to vote on all
matters submitted to our stockholders and shall be entitled to such
number of votes equal to the number of shares of common stock such
shares of Series D Preferred are convertible into at such time,
taking into account the beneficial ownership limitations set forth
in the governing Certificate of Designation and the Conversion
Limit limitations described below. At no time may shares of Series
D Preferred Stock be converted if such conversion would cause the
holder to hold in excess of 4.99% of our issued and outstanding
common stock, subject to an increase in such limitation up to 9.99%
of the issued and outstanding common stock on 61 days’ written
notice to us. The conversion ratio of the Series D Preferred Stock
is subject to adjustment in the event of stock dividends, splits
and fundamental transactions.
Additionally, subject to the beneficial ownership limitations
described above, holders of Series D Preferred Stock may not
convert such shares in excess of the “Conversion Limit”. The
“Conversion Limit” is defined as that number of shares of common
stock as shall equal 15% (the “Volume Percentage”) of the greater
of (i) the trading volume of our common stock on such conversion
date or (ii) the average trading volume of our common stock for ten
trading days immediately prior to such conversion date. If our
common stock trades at a price of at least $12.00 per share on the
conversion date, then the Volume Percentage for purposes of the
foregoing calculation shall equal 20%. Notwithstanding the
foregoing, holders of the Series D Preferred Stock may convert such
shares without regard to the aforementioned conversion limit if our
common stock trades at a minimum price of $15.00 per share on the
conversion date.
As of December 1, 2015, 4,725 shares of Series D Preferred
Stock were issued and outstanding.
Series D-1 Convertible Preferred Stock
Our Series D-1 Convertible Preferred Stock (“Series D-1 Preferred
Stock”) was established on November 22, 2013. Each share of Series
D-1 Preferred Stock has a stated value of $0.0001 per share and is
convertible into ten (10) shares of common stock. Upon the
liquidation, dissolution or winding up of our business, each holder
of Series D-1 Preferred Stock shall be entitled to receive, for
each share of Series D-1 Preferred Stock held, a preferential
amount in cash equal to the greater of (i) the stated value or (ii)
the amount the holder would receive as a holder of the Company’s
common stock on an “as converted” basis. Each holder of Series D-1
Preferred Stock shall be entitled to vote on all matters submitted
to our stockholders and shall be entitled to such number of votes
equal to the number of shares of common stock such shares of Series
D-1 Preferred are convertible into at such time, taking into
account the beneficial ownership limitations set forth in the
governing Certificate of Designation. At no time may shares of
Series D-1 Preferred Stock be converted if such conversion would
cause the holder to hold in excess of 9.99% of our issued and
outstanding common stock. The conversion ratio of the Series D
Preferred Stock is subject to adjustment in the event of stock
dividends, splits and fundamental transactions. The Company
commenced an exchange with holders of Series D Convertible
Preferred Stock pursuant to which the holders of our outstanding
shares of Series D Preferred Stock acquired in the Merger could
exchange such shares for shares of our Series D-1 Preferred Stock
on a one-for-one basis.
As of December 1, 2015, 834 shares of Series D-1 Preferred
Stock were issued and outstanding.
Series H Preferred Stock
On December 31, 2013, we designated 459,043 shares of preferred
stock as Series H Preferred Stock. On December 31, 2013, we issued
approximately $38.3 million of Series H Preferred Stock (or 459,043
shares) to Rockstar. Each share of Series H Preferred Stock is
convertible into ten (10) shares 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. We are 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 our 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 our stockholders and
shall be entitled to the number of votes equal to the number of
shares of common stock into which the shares of Series H Preferred
Stock are convertible, subject to applicable beneficial ownership
limitations. The Series H Preferred Stock provides a liquidation
preference of $83.50 per share.
The shares of Series H Preferred Stock are not immediately
convertible and do not possess any voting rights until such time as
we have obtained stockholder approval of the issuance, pursuant to
NASDAQ Listing Rule 5635. On April 16, 2014, we obtained the
required shareholder approval pursuant to NASDAQ Listing Rule 5635
and, as a result, all outstanding shares of Series H Preferred
Stock are convertible and possess voting rights in accordance with
its terms.
As of September 30, 2015, 439,043 shares of Series H Preferred
Stock were issued and outstanding. On November 23, 2015, RPX and
the Company entered into a License Agreement which will result in
the cancellation of 13% (or 57,076 shares) of Series H Preferred
Stock. See our Form 8-K filed on November 30, 2015 for a
description of the License Agreement, which is incorporated by
reference herein.
Series I Preferred Stock
On December 31, 2013, we designated 119,760 shares of preferred
stock as Series I Preferred Stock. On December 31, 2013, we issued
approximately $20 million (or 119,760 shares) of Series I Preferred
Stock to Rockstar. Each share of Series I Preferred Stock is
convertible into 20 shares of our common stock and has a stated
value of $167. The conversion ratio is subject to adjustment in the
event of stock splits, stock dividends, combination of shares and
similar recapitalization transactions. The holder is prohibited
from converting the Series I 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
our 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 shall be entitled to vote on all
matters submitted to our stockholders and shall be entitled to the
number of votes equal to the number of shares of common stock into
which the shares of Series I Preferred Stock are convertible,
subject to applicable beneficial ownership limitations. The Series
I Preferred stock provides for a liquidation preference of $167 per
share.
The Series I Preferred Stock has a mandatory redemption date of
December 31, 2015 as to 100% of the Series I Preferred Stock then
outstanding and partial mandatory redemptions prior thereto,
requiring a minimum of 25% of the total number of shares of Series
I Preferred Stock issued to be redeemed (less the amount of any
conversions occurring prior thereto) on or prior to each of June
30, 2014, December 31, 2014, June 30, 2015 and December 31, 2015
(each, a “Partial Redemption Date” and each payment, a “Redemption
Payment”). On each Partial Redemption Date, we are required to pay
Rockstar a Redemption Payment equal to the lesser of (i) such
number of shares of Series I Preferred Stock as have a stated value
of $5,000,000; or (ii) such number of shares of Series I Preferred
Stock as shall, together with all voluntary and mandatory
redemptions and conversions to common stock occurring prior to the
applicable Partial Redemption Date, have a stated value of
$5,000,000; or (iii) the remaining shares of Series I Preferred
Stock issued and outstanding if such shares have a stated value of
less than $5,000,000, in an amount of cash equal to its stated
value plus all accrued but unpaid dividends, distributions and
interest thereon, unless Rockstar, in its sole discretion, elects
to waive such Redemption Payment or convert such shares (or a
portion thereof) into common stock. No interest or dividends are
payable on the Series I Preferred Stock unless we fail to make the
first $5,000,000 Partial Redemption Payment due June 30, 2014, then
interest shall accrue on the outstanding stated value of all
outstanding shares of Series I Preferred Stock at a rate of fifteen
(15%) per annum from January 1, 2014. Our obligations to pay the
Redemption Payments and any interest payments in connection
therewith are secured pursuant to the terms of a Security Agreement
under which the Rockstar Patents serve as collateral security. No
action can be taken under the Security Agreement unless we have
failed to make a second redemption payment of $5,000,000 due
December 31, 2014. The Security Agreement contains additional usual
and customary “Events of Default” (as such term is defined in the
Intellectual Property Security Agreement) under which Rockstar can
take action, including a sale to a third party or reduction of
secured amounts via transfer of the Rockstar Patents to
Rockstar.
Additionally, in the event we consummate a Fundamental Transaction
(as defined in the Certificate of Designation of Preferences,
Rights and Limitations of Series I Convertible Preferred Stock), we
are required to redeem such portion of the outstanding shares of
Series I Preferred Stock as shall equal (i) 50% of the net proceeds
of the Fundamental Transaction after deduction of the amount of net
proceeds required to leave us with cash and cash equivalents on
hand of $5,000,000 and up until the net proceeds leave us with cash
and cash equivalents on hand of $7,500,000 and (ii) 100% of the net
proceeds of the Fundamental Transaction thereafter.
The shares of Series I Preferred Stock are not immediately
convertible and do not possess any voting rights until such time as
we have obtained stockholder approval of the issuance, pursuant to
NASDAQ Listing Rule 5635. On April 16, 2014, we obtained the
required shareholder approval pursuant to NASDAQ Listing Rule 5635
and, as a result, all outstanding shares of Series I Convertible
Preferred Stock are convertible and possess voting rights in
accordance with its terms.
In June 2014, we redeemed 84,219 shares of Series I Preferred
Stock. In accordance with this redemption, we paid Rockstar $14.1
million. This payment fully satisfied the Redemption Payments due
on June 30, 2014 and December 31, 2014 and satisfied approximately
$4.1 million of the $5.0 million Redemption Payment due on June 30,
2015. On June 30, 2015, we paid Rockstar (thru RPX) the balance of
$935,297.09, which constituted the full balance of the $5.0 million
payment due June 30, 2015.
As of September 30, 2015, 29,940 shares of Series I Preferred Stock
were issued and outstanding. On November 23, 2015, RPX and the
Company entered into a License Agreement which will result in the
cancellation of all the remaining shares of Series I Preferred
Stock and the obligations and restrictions thereunder. See our Form
8-K filed on November 30, 2015 for a description of the License
Agreement, which is incorporated by reference herein.
Series K Preferred Stock
The following summary of certain terms and provisions of our Series
K Convertible Preferred Stock, or Series K Preferred, offered in
this offering is subject to, and qualified in its entirety by
reference to, the terms and provisions set forth in our certificate
of designation of preferences, rights and limitations of Series K
Preferred.
Our board of directors has designated 1,240 of the 50,000,000
authorized shares of preferred stock as Series K Preferred
Stock.
Rank. The Series K Convertible Preferred Stock will rank on
parity to our common stock.
Conversion. Each share of the Series K Preferred is
convertible into shares of our common stock (subject to adjustment
as provided in the related certificate of designation of
preferences, rights and limitations) at any time at the option of
the holder at a conversion price equal to the stated value of the
Series K Preferred. Holders of Series K Preferred will be
prohibited from converting Series K Preferred into shares of
our common stock if, as a result of such conversion, the holder,
together with its affiliates, would own more than 4.99% of the
total number of shares of our common stock then issued and
outstanding. Ownership of the Class B Units alone will not increase
the purchaser’s beneficial ownership percentage of common stock
unless and until a portion or all of such Series K Preferred has
been converted. In addition, holders of Series K Preferred
will be prohibited from converting Series K Preferred into shares
of our common stock if, as a result of such conversion, the holder,
together with its affiliates and certain related parties, would own
more than 4.99% of the total number of shares of our outstanding
common stock. However, any holder may increase or decrease such
percentage to any other percentage not in excess of 9.99%, provided
that any increase in such percentage shall not be effective until
61 days after such notice to us. Exceeding 4.99% ownership in
shares of our outstanding common stock will trigger certain SEC
filing requirements by such holder, including the submission of a
Schedule 13G or Schedule 13D, as applicable, and Forms 3 and 4 on
an annual and periodic basis, respectively, while such ownership
percentage remains above 4.99%.
Liquidation Preference. In the event of our liquidation,
dissolution or winding-up, holders of Series K Preferred will
receive the same amount that a holder of common stock would receive
if the Series K Preferred were fully converted into shares of our
common stock at the conversion price (disregarding for such
purposes any conversion limitations) which amounts shall be paid
pari passu with all holders of common stock.
Voting Rights. Shares of Series K Preferred will generally
have no voting rights, except as required by law and except that
the affirmative vote of the holders of a majority of the then
outstanding shares of Series K Preferred is required to,
(a) alter or change adversely the powers, preferences or
rights given to the Series K Preferred, (b) amend our
certificate of incorporation or other charter documents in any
manner that adversely affects any rights of the holders, or
(c) increase the number of authorized shares of Series K
Preferred.
Dividends. Shares of Series K Preferred will not be entitled
to receive any dividends, unless and until specifically declared by
our board of directors. The holders of the Series K Preferred will
participate, on an as-if-converted-to-common stock basis, in any
dividends to the holders of common stock.
Exchange Listing. We do not plan on making an application to
list the Series K Preferred on the NASDAQ Capital Market, any other
national securities exchange or other nationally recognized trading
system. Our common stock is listed on the NASDAQ Capital Market
under the symbol “SPEX”
Restrictive Covenant. We are restricted from selling
additional equity securities for the 90 day period following the
closing, subject to certain exceptions.
Warrants
As of December 1, 2015, we had outstanding warrants to purchase
7,804,827 shares of common stock at a weighted-average exercise
price of $1.74 per share, which expire on October 13, 2015, January
24, 2016, October 27, 2016, August 7, 2017, March 24, 2019 and
March 26, 2019, respectively.
Exchange Listing
Our common stock is listed on the Nasdaq Capital Market under the
trading symbol “SPEX.”
Transfer Agent and Registrar
Equity Stock Transfer is the transfer agent and registrar for our
common stock.
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:
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any
breach of his or her duty of loyalty to us or our
stockholders; |
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acts
or omissions not in good faith which involve intentional misconduct
or a knowing violation of law; |
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the
payment of dividends or the redemption or purchase of stock in
violation of Delaware law; or |
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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:
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authorize our board of directors to issue,
without further action by the stockholders, up to 50,000,000 shares
of undesignated preferred stock; |
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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; |
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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; |
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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 |
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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
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.
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:
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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; |
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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 |
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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:
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any
merger or consolidation involving the corporation and the
interested stockholder; |
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any
sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested
stockholder; |
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• |
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; |
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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 |
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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.
DESCRIPTION OF SECURITIES WE ARE
OFFERING
We are offering up to 13,800,000 Class A Units and up to 1,240
Class B Units. Class A Units consist of one share of our
common stock, a Series A warrant to purchase one share of our
common stock at an exercise price equal to the public offering
price of the Class A Units (“Series A warrant”), and a Series
B warrant to purchase eight-tenths of a share of our
common stock at an exercise price equal to 125% of the public
offering price of the Class A Units (“Series B warrant”).
Class B Units consist of one share of our Class K Convertible
Preferred Stock, or the Series K Preferred, with a stated
value of $1,000 per share and convertible into shares of our common
stock at the public offering price of the Class A Units,
together with the equivalent number of Series A warrants and Series
B warrants as would have been issued to such purchaser if they had
purchased Class A Units based on the public offering price.
The shares of common stock, Series A warrant and Series B warrant
part of a Class A Unit and the Series B Preferred, Series A
warrants and Series B warrants part of a Class B Unit are each
immediately separable and will be issued separately in this
offering.
Common Stock and Series K Preferred
The material terms of our common stock, our Series K Preferred and
our other capital stock are described in the section of this
prospectus titled “Description of Capital Stock” beginning on page
46 of this prospectus.
Warrants to Purchase Common Stock
The material terms of the Series A warrants and Series B
warrants to be issued are summarized below. This summary does not
purport to be complete in all respects. This description is subject
to and qualified entirely by the terms of the form of warrant filed
as an exhibit to the registration statement of which this
prospectus is a part.
The Series A warrants to be issued with each Unit will have an
exercise price of $0.20 per share (equal to the public offering
price of the Class A Units) and will be exercisable from their date
of issuance and at any time up to the date that is six months after
their original date of issuance. The Series B warrants to be issued
with each Unit will have an exercise price of $0.25 per share
(equal to 125% of the public offering price of the Class A
Units) and will be exercisable from their date of issuance and at
any time up to the date that is five years after their original
date of issuance.
Both the Series A warrants and the Series B warrants may not be
exercised by the holder to the extent that the holder, together
with its affiliates, would beneficially own, after such exercise
more than 9.99% of the shares of common stock then
outstanding.
The warrants are exercisable for cash or, solely in the absence of
an effective registration statement or prospectus, by cashless
exercise.
The exercise price of the warrants is subject to adjustment in the
case of stock dividends or other distributions on shares of common
stock or any other equity or equity equivalent securities payable
in shares of common stock, stock splits, stock combinations,
reclassifications or similar events affecting our common stock, and
also, subject to limitations, upon any distribution of assets,
including cash, stock or other property to our stockholders.
In addition, in the event we consummate a merger or consolidation
with or into another person or other reorganization event in which
our common shares are converted or exchanged for securities, cash
or other property, or we sell, lease, license, assign, transfer,
convey or otherwise dispose of all or substantially all of our
assets or we or another person acquire 50% or more of our
outstanding common shares, then following such event, the holders
of the warrants will be entitled to receive upon exercise of the
warrants the same kind and amount of securities, cash or property
which the holders would have received had they exercised the
warrants immediately prior to such fundamental transaction. Any
successor to us or surviving entity shall assume the obligations
under the warrants.
Prior to the exercise of any warrants to purchase common stock,
holders of the warrants will not have any of the rights of holders
of the common stock purchasable upon exercise, including voting
rights, however, the holders of the warrants will have certain
rights to participate in distributions or dividends paid on our
common stock to the extent set forth in the warrants.
In addition, the warrants provide that if, at any time while such
warrants are outstanding, we (1) consolidate or merge with or
into another corporation, (2) sell all or substantially all of
our assets or (3) are subject to or complete a tender or
exchange offer pursuant to which holders of our common stock are
permitted to tender or exchange their shares for other securities,
cash or property and has been accepted by the holders of 50% or
more of the outstanding Common Stock, (4) effect any
reclassification, reorganization or recapitalization of our common
stock or any compulsory share exchange pursuant to which our common
stock is converted into or exchanged for other securities, cash or
property, or (5) engage in one or more transactions with
another party that results in that party acquiring more than 50% of
our outstanding shares of common stock (each, a “Fundamental
Transaction”), then the holder of such warrants shall have the
right thereafter to receive, upon exercise of the warrant, the same
amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of the number of warrant shares then
issuable upon exercise of the warrant, and any additional
consideration payable to holders of our common stock as part of the
Fundamental Transaction. Any successor to us or surviving entity
shall assume the obligations under the warrant.
The provisions of the Series A warrants and Series B warrants may
be amended as a single class if we obtain the written consent of
holders representing not less than a majority of shares of our
common stock then exercisable under the Series A warrants and
Series B warrants collectively (in which case such amendments shall
be binding on all holders of the warrants). However, the number of
shares of our common stock exercisable, the exercise price or the
exercise period may not be amended without the written consent of
the holder of each such warrant.
We do not plan on applying to list the Series K Preferred or any of
the warrants on the NASDAQ Capital Market, any other national
securities exchange or any other nationally recognized trading
system.
PLAN OF DISTRIBUTION
We are offering up to 13,800,000 Class A Units (consisting of
one share of our common stock, a Series A warrant to purchase one
share of our common stock at an exercise price equal to the public
offering price of the Class A Units (“Series A warrant”),
and a Series B warrant to purchase eight-tenths of a share of our
common stock at an exercise price equal to 125% of the public
offering price of the Class A Units (“Series B warrant”)), and
1,240 Class B Units consisting of Series K Preferred Stock and
warrants. The shares of common stock, Series A warrants and Series
B warrants part of a Class A Unit are immediately separable
and will be issued separately in this offering. However, there
is no minimum offering amount required as a condition to closing
and we may sell significantly fewer shares of common stock and
warrants in the offering.
In determining the offering price of the units and the exercise
price of the warrants, we will consider a number of factors
including, but not limited to, the current market price of our
common stock, trading prices of our common stock over time, the
illiquidity and volatility of our common stock, our current
financial condition and the prospects for our future cash flows and
earnings, and market and economic conditions at the time of the
offering. Once the offering price is determined, the offering price
for the units and the exercise price of the warrants will remain
fixed for the duration of the offering.
Wainwright has agreed to act as our exclusive placement agent
in connection with the offering pursuant to the terms and
conditions of an engagement agreement. The Placement Agent is not
purchasing or selling any securities offered by this prospectus,
and is not required to arrange for the purchaser or sale of any
specific number or dollar amount of securities, but will use its
reasonable best efforts to arrange for the sale of the securities
offered by this prospectus. We will enter into securities purchase
agreements directly with certain institutional investors which will
purchase securities in this offering. We will not enter into
securities purchase agreements with all other investors and such
investors shall rely solely on this prospectus in connection with
the purchase of securities in this offering. The Placement Agent
may retain one or more sub-agents or selected dealers in connection
with the offering.
We have agreed to pay to the Placement Agent a placement agent fee
equal to eight percent (8%) of the aggregate gross
proceeds to us from the sale of the securities in the offering
(excluding any proceeds from the exercise of the warrants issued in
the offering, for which no compensation shall be paid). In
addition, we have agreed to (i) reimburse the Placement Agent with
a non-accountable expense allowance of up to $50,000.00, subject to
compliance with FINRA Rule 5110(f)(2)(D)(i) and (ii) pay the
Placement Agent a management fee equal to 1% of the aggregate gross
proceeds of this offering. We estimate total expenses of this
offering, excluding the placement agent fees, will be approximately
$240,000. The following table shows the per share and total
fees we will pay to the Placement Agent assuming the sale of all of
the shares offered pursuant to this prospectus.
| Per Class A Unit |
|
$ |
.016 |
|
| Per Class B Unit |
|
$ |
80.00 |
|
| Total |
|
$ |
320,000 |
|
Because there is no minimum offering amount required as a condition
to closing, the actual total proceeds received by us and total
offering commissions and warrants issuable to the Placement Agent,
if any, are not presently determinable and may be substantially
less than the maximum amount set forth above.
In addition, subject to the consummation of an offering, within the
six-month period following the effectiveness date of commencement
of sales of this offering, we have granted a right of first refusal
to the Placement Agent pursuant to which it has the right to act as
the lead underwriter or lead placement agent, if the Company or its
subsidiaries decides to raise funds by means of a public offering
or a private placement of equity or equity derivative securities
using an underwriter or placement agent. Also, in the event the
Placement Agent’s engagement has been terminated and no offering
has been consummated, the Placement Agent shall be entitled to a
tail fee for a period of six months with respect to a private
placement or public offering, but solely with respect to investors
who were directly introduced by the Placement Agent to the
Company.
The engagement agreement provides that we will indemnify the
Placement Agent against specified liabilities, including
liabilities under the Securities Act of 1933, as amended. The
Placement Agent is deemed to be an underwriter within the meaning
of Section 2(a)(11) of the Securities Act, and any commissions
received by it and any profit realized on the resale of the
securities sold by it while acting as principal might be deemed to
be underwriting discounts or commissions under the Securities Act.
As an underwriter, the Placement Agent would be required to comply
with the Securities Act and the Securities Exchange Act of 1934, as
amended (“Exchange Act”), including without limitation, Rule 10b-5
and Regulation M under the Exchange Act. These rules and
regulations may limit the timing of purchases and sales of shares
of common stock and warrants by the Placement Agent acting as
principal. Under these rules and regulations, the Placement
Agent:
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|
may not engage in any stabilization activity in
connection with our securities; and |
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|
may
not bid for or purchase any of our securities or attempt to induce
any person to purchase any of our securities, other than as
permitted under the Exchange Act, until it has completed its
participation in the distribution. |
Company Lock-up Agreement
We have agreed in the securities purchase agreement to a lock-up
period of 90 days immediately following the closing date for the
issuance and sale of securities, although we will be permitted to
issue stock options to directors, officers, employees and
consultants under our existing plans, and for strategic
transactions and certain other exempt issuances under the
Securities Purchase Agreement. The placement agent may, in its sole
discretion and without notice, waive the terms of this Company
lock-up agreement.
LEGAL MATTERS
Nixon Peabody LLP, New York, New York will pass upon the validity
of the shares of the securities offered hereby. Certain legal
matters in connection with this offering will be passed upon for
Wainwright by Ellenoff Grossman & Schole LLP.
EXPERTS
The consolidated financial statements of Spherix Incorporated and
Subsidiaries as of December 31, 2014 and 2013 and for the
years then ended incorporated by reference in this Prospectus have
been so incorporated in reliance on the report, which includes an
explanatory paragraph as to the Company’s ability to continue as a
going concern, of Marcum, LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
We are required to file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read
and copy any document filed by us at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public
reference room. Our filings with the SEC are also available to the
public at the SEC’s Internet web site at
http://www.sec.gov.
We have filed a registration statement, of which this prospectus is
a part, covering the securities offered hereby. As allowed by SEC
rules, this prospectus does not include all of the information
contained in the registration statement and the included exhibits,
financial statements and schedules. You are referred to the
registration statement, the included exhibits, financial statements
and schedules for further information. This prospectus is qualified
in its entirety by such other information.
We are subject to the information and periodic reporting
requirements of the Exchange Act and, in accordance therewith, file
periodic reports, proxy statements and other information with the
SEC. Such periodic reports, proxy statements and other information
are available for inspection and copying at the public reference
room and website of the SEC referred to above. We maintain a
website at www.spherix.com. The reference to our website
address does not constitute incorporation by reference of the
information contained on our website, and you should not consider
the contents of our website in making an investment decision with
respect to our common stock.
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE
This prospectus omits some information contained in the
registration statement in accordance with SEC rules and
regulations. You should review the information and exhibits
included in the registration statement of which this prospectus is
a part for further information about us and the securities we are
offering. Statements in this prospectus concerning any document we
filed as an exhibit to the registration statement or that we
otherwise filed with the SEC are not intended to be comprehensive
and are qualified by reference to these filings. You should review
the complete document to evaluate these statements.
The SEC allows us to “incorporate by reference” information we file
with it, which means that we can disclose important information to
you by referring you to other documents. The information
incorporated by reference is considered to be a part of this
prospectus. Information contained in this prospectus supersedes
information incorporated by reference that we have filed with the
SEC prior to the date of this prospectus.
We incorporate by reference the following documents listed below
(excluding any document or portion thereof to the extent such
disclosure is furnished and not filed):
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Our Amended
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2014, filed with the SEC on April 30,
2015; |
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Our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014,
filed with the SEC on March 30, 2015; |
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Our Annual Report on
Form 10-K for the fiscal year ended December 31, 2013,
filed with the SEC on March 31, 2014; |
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Our
Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 2015, June 30, 2015 and March 31, 2015,
filed with the SEC on November 5, 2015, August 14, 2015 and
May 8, 2015, respectively; |
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• |
Our
Current Reports on Form 8-K filed with the SEC on February 3, 2015,
March 4, 2015, March 20, 2015, March 27, 2015, July 2, 2015, July
2, 2015, July 13, 2015, July 15, 2015, July 17, 2015, August 19,
2015, October 19, 2015 and November 30, 2015,
respectively. |
We will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of any or all of the reports
or documents incorporated by reference, free of cost to the
requester, upon written or oral request to us at the following
address or phone number:
Spherix Incorporated
6430 Rockledge Drive #503
Bethesda, Maryland 20817
Attention: Anthony Hayes, Chief Executive Officer
Telephone: (646) 532-2964
Copies of the above reports may also be accessed from our web site
at http://www.spherix.com.
Spherix Incorporated
13,800,000 Class A Units
consisting of Common Stock and Warrants and
1,240 Class B Units consisting of
Series K Convertible Preferred Stock and Warrants
(42,200,000 shares of Common
Stock underlying the Series K Convertible Preferred Stock and
Warrants)
PROSPECTUS
Rodman & Renshaw
a unit of H.C. Wainwright &
Co.
December 3, 2015
