Business context and reporting period
The supplied filing is Spatializer Audio Laboratories, Inc.’s Form 10-K for the fiscal year ended December 31, 2013—not an Enveric Biosciences filing. Spatializer states that its operating business closed in 2007; it had no operating activities and was a shell company. It was seeking an acquisition or merger partner.
Financial performance and condition
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue and gross profit | $0 | $0 |
| General and administrative expense | $27,211 | $22,690 |
| Other income from debt forgiveness | $28,500 | $0 |
| Net loss | $161 | $24,621 |
| Net cash used in operating activities | $21,632 | $24,850 |
| Cash and cash equivalents at year-end | $249 | $1,381 |
| Total assets | $4,468 | $5,600 |
| Current liabilities | $24,695 | $25,666 |
| Stockholders’ deficit | $20,227 | $20,066 |
Operating margins are not meaningful because the company reported no revenue. Current liabilities comprised $22,695 of accounts payable and accrued liabilities and $2,000 of officer advances. The filing reports $20,500 of net cash from financing activities in 2013, including $100,000 of stock issuance offset by a $100,000 share redemption and $20,500 of officer-loan proceeds.
Changes, outlook and risks
- G&A expense increased about 20% year over year. The reported net loss narrowed substantially, mainly because a former officer forgave $28,500 of company debt; without that unusual income, ongoing expenses continued to exceed revenue.
- On November 27, 2013, the company issued 6,515,912 shares to Lone Star Value Investors, LP for $100,000 and repurchased the same number of shares from two former directors/officers for $100,000. On January 15, 2014, it issued Lone Star an additional 3,267,974 shares for $50,000. The filing reports 15,409,999 shares outstanding as of February 28, 2014.
- Management said the company might not maintain sufficient liquidity to pursue a transaction and could be forced to dissolve or seek bankruptcy protection. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The financial statements include no adjustments for that uncertainty.
- There is no operating revenue, no employees, and no stated operating or transaction guidance. The company identified illiquid, volatile OTC trading and the uncertainty of finding a merger or acquisition partner as risks. It reported no legal proceedings or off-balance-sheet arrangements.
- Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness. The company had no audit committee.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Spatializer Audio Laboratories, Inc., not Enveric Biosciences.
- Review current cash, unpaid obligations, and the use and availability of the January 2014 $50,000 financing; year-end cash was only $249.
- Check the status and terms of any proposed merger or acquisition and whether financing is sufficient to continue pursuing it.
- Verify the related-party stock issuance, share repurchase, debt forgiveness, and resulting ownership. The filing reports Jeffrey E. Eberwein/Lone Star ownership of 63.49% as of February 28, 2014.
- Assess the going-concern warning, OTC trading liquidity, and potential limits on the use of tax-loss carryforwards after a change of control.