Filing summary
Issuer and period: The supplied 10-Q identifies the registrant as Spherix Incorporated, not Dominari Holdings Inc. It reports the quarter and nine months ended September 30, 2012; financial statements are unaudited except the December 31, 2011 balance-sheet figures.
Business context and financial results
Spherix operated two segments: Health Sciences, providing technical and regulatory consulting, and Biospherics, developing proprietary products, including SPX106T for dyslipidemia. Health Sciences generated 97% of revenue in the first nine months of 2012. The filing says no substantial Biospherics revenue is expected until technology is sold or licensed.
| Metric | Three months ended Sept. 30, 2012 | Three months ended Sept. 30, 2011 | Nine months ended Sept. 30, 2012 | Nine months ended Sept. 30, 2011 |
|---|---|---|---|---|
| Revenue | $194,301 | $198,464 | $609,966 | $690,817 |
| Direct costs | $111,135 | $87,399 | $354,600 | $336,714 |
| Gross profit and margin, calculated | $83,166; 42.8% | $111,065; 56.0% | $255,366; 41.9% | $354,103; 51.3% |
| Research and development | $107,817 | $371,327 | $617,470 | $1,131,329 |
| Selling, general and administrative | $742,142 | $653,651 | $2,310,163 | $2,271,369 |
| Operating loss | $(766,793) | $(913,913) | $(2,672,267) | $(3,048,595) |
| Net loss | $(765,963) | $(913,318) | $(2,669,493) | $(2,162,393) |
| Net loss per share, basic and diluted | $(3.69) | $(7.13) | $(13.31) | $(17.13) |
Cash flow and liquidity: Net cash used in operations was $2.313 million for the first nine months of 2012, versus $3.094 million in 2011. Investing activities used $1,599; financing provided $1.054 million, primarily from common-stock issuance. Cash declined by $1.261 million to $3.650 million. At September 30, working capital was $3.1 million and total liabilities were $794,000. The balance sheet reports no debt.
Changes, outlook and risks
- Revenue decreased 2% in the quarter and 12% year to date, which management attributed mainly to lower effective billing rates. R&D expense declined substantially following completion of SPX106T preclinical studies; no further studies were then planned. SG&A rose modestly, which management attributed to the timing of the annual meeting.
- 2011 results included $53,007 of other income and an $845,000 gain on settlement of obligations; neither item recurred in 2012. The prior-period gains helped make the 2011 nine-month net loss smaller despite a higher operating loss.
- Management expected negative operating cash flow for the foreseeable future and said development and administrative spending could continue without corresponding revenue. It believed September cash plus the subsequent November financing would fund operations for the next 12 months, but cautioned that future fundraising was necessary and not assured. Failure to raise funds could force the company to stop development and dissolve.
- In November 2012, Spherix raised approximately $2.3 million net through a private placement of 483,657 shares and warrants for an equal number of shares. The five-year warrants, with a $6.53 exercise price, required shareholder approval to become effective. Registration-rights deadlines may trigger monetary penalties; investors also received participation rights in future offerings for two years.
- NASDAQ confirmed bid-price compliance on October 8, 2012 after a 1-for-20 reverse split. Separately, the company had received notice that its publicly held shares were below the 500,000 minimum; it believed the November placement raised the public float to 690,741 and would satisfy the requirement. This was the second reverse split used to address delisting risk. The company’s Form S-3 shelf registration expired October 1, 2012.
- On November 13, the company expanded its board to eight members and said it would review strategy and explore alternatives, potentially including divestitures, winding down businesses, or entering a new business through acquisitions. No specific plan or new business was identified.
- Revenue and receivables were concentrated: three customers generated 40% of nine-month 2012 revenue, and three contracts represented 70% of September 30 trade receivables. Cash exceeding FDIC insurance limits was $3.5 million. The office lease was extended through March 31, 2018, with annual base rent of $152,500 from April 2012 and 3% annual increases.
Management concluded disclosure controls were effective at a reasonable-assurance level as of September 30, 2012, and reported no material changes in internal control over financial reporting during the quarter.
Investor facts to verify
- Confirm the issuer identity: this filing is for Spherix Incorporated, despite the request metadata naming Dominari Holdings Inc.
- Assess whether the November financing and management’s stated 12-month runway are adequate given ongoing operating losses, planned spending, and the need for further capital.
- Verify subsequent NASDAQ public-float compliance, shareholder approval and effectiveness of the warrants, and registration-rights obligations.
- Monitor the board’s strategic review and any concrete decisions on existing businesses, acquisitions, or additional financing.
- Review customer and contract concentration, cash exposure above FDIC limits, and the long-term lease commitment.