SEC filing summary
Entity and period: The supplied filing is Spherix Incorporated’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015—not a filing under the name Dominari Holdings Inc. The figures below are in U.S. dollars; financial-statement amounts are generally in thousands unless noted.
Business context and financial performance
Spherix describes itself as an intellectual-property company focused on monetizing patent portfolios through licensing, settlements and litigation. It reported owning more than 330 patents and patent applications. Revenue remained nominal: $0 for Q2 2015 and $2,000 for the first six months of 2015.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $3,000 | $2,000 | $7,000 |
| Operating loss | $43.303 million | $11.586 million | $44.419 million | $19.594 million |
| Net loss, as reported | $40.308 million | $11.568 million | $44.394 million | $19.531 million |
| Basic and diluted loss per share | $1.41 | $0.69 | $1.55 | $1.80 |
| Weighted-average shares | 28.618 million | 16.879 million | 28.615 million | 10.845 million |
The company recorded a $37.2 million noncash impairment charge in Q2, comprising $35.5 million against patent assets and $1.7 million against goodwill. Patent portfolios’ net carrying value fell to $14.6 million from $55.0 million at year-end 2014; goodwill was reduced to zero. The company also reported $4.9 million of patent amortization for the first half.
Cash, liquidity and obligations
- At June 30, 2015, cash and cash equivalents were $87,000, marketable securities were $775,000, and current liabilities were $971,000. Working capital was reported as a $40,000 deficit.
- For the first half, operating cash use was $2.463 million, investing activities provided $2.680 million, and financing activities used $935,000. Cash declined by $718,000 to $87,000. The investing cash flow principally reflects purchases and sales of marketable securities.
- Total liabilities were $1.290 million, including $494,000 in short- and long-term lease liabilities. The balance sheet reports no conventional borrowing balance. Separately, $5.0 million of Series I redeemable preferred stock remained outstanding, due for redemption on December 31, 2015.
- After quarter-end, a July 2015 registered offering of common shares and warrants generated approximately $1.3 million in net proceeds. The filing says proceeds are for working capital and general corporate purposes and may not be used to redeem the Series I preferred stock or satisfy debt, other than ordinary-course payables.
Material changes, outlook and risks
- The first-half net loss increased to $44.4 million from $19.5 million, principally due to the impairment charge. Cost reductions lowered professional fees and stock-based compensation compared with 2014; management also reversed a $350,000 CEO target-bonus accrual after deciding a qualifying strategic transaction was no longer probable.
- Management said existing liquidity was insufficient to fund operations and other requirements for the foreseeable future, and disclosed substantial doubt about the company’s ability to continue as a going concern. It expected to rely on additional financing and/or increased patent-monetization revenue; availability and terms of financing were uncertain.
- The company lacked sufficient cash or working capital for the $5.0 million Series I redemption due at year-end. The preferred-stock agreements may impose interest, collateral remedies, or use of proceeds from certain financings and recoveries. RPX alleged that the going-concern disclosures constituted a default; Spherix disputed the allegation and said it believed the claim lacked merit.
- Patent litigation and related proceedings create material cost and outcome uncertainty. Defendants sought inter partes reviews and asserted counterclaims; the company recorded no provision for those counterclaims. In a separate Verizon case, the court granted summary judgment on indefiniteness and non-infringement in July 2015, and Spherix appealed.
- Nasdaq had notified the company that its share price did not meet the $1.00 minimum bid requirement, with a compliance deadline of September 21, 2015. The filing warned of possible delisting and discussed a potential reverse stock split. The July offering also imposed financing restrictions, including a 60-day issuance restriction, a variable-rate financing prohibition while warrants remained outstanding, and investor participation rights in certain future financings.
- Management concluded disclosure controls and procedures were ineffective as of June 30, 2015 because of insufficient segregation of duties and inadequate controls to ensure material transactions and developments were reflected in the financial statements. Remediation was in progress.
Reporting inconsistency: The Q2 statement of operations reports an operating loss of $43.303 million and other expense of $5,000, but a net loss of $40.308 million; those figures do not reconcile arithmetically. The filing text does not provide a clear explanation for the difference. Verify against the filed financial statements and any subsequent correction.
Important facts for investors to verify
- Whether the company met the December 2015 $5.0 million preferred-stock redemption obligation, and whether any default or collateral action followed.
- Cash available after the July offering, the company’s subsequent financing access, and whether ongoing cash needs could be met.
- The status and outcomes of significant patent cases, appeals and inter partes reviews, including related legal costs and any recoveries.
- Nasdaq listing compliance, any reverse stock split, and the resulting effect on share count and liquidity.
- The Q2 net-loss discrepancy and progress in remediating the disclosed material weakness in controls.