Filing summary
Entity and period: The supplied filing is Spherix Incorporated’s unaudited Form 10-Q for the quarter ended September 30, 2019, not a filing identified as Dominari Holdings Inc. The filing reports results for the three and nine months ended September 30, 2019, compared with 2018. Unless noted otherwise, financial amounts below are in thousands of dollars.
Business context and financial position
Spherix described itself as a technology-development company, with activities focused on biotechnology and blockchain, alongside limited intellectual-property monetization. Its investments included Hoth Therapeutics and DatChat; it was also pursuing an acquisition of assets from CBM BioPharma.
| Metric | September 30, 2019 | December 31, 2018 |
|---|---|---|
| Cash and cash equivalents | $313 | $17 |
| Marketable securities | $938 | $2,700 |
| Total current assets | $1,303 | $2,905 |
| Investments | $8,130 | $10,345 |
| Total assets | $9,433 | $13,251 |
| Total liabilities | $852 | $1,153 |
| Stockholders’ equity | $8,581 | $12,098 |
Working capital was approximately $451. The balance sheet reports no borrowings; total liabilities consisted of current liabilities. The company held 1,735,714 Hoth shares valued at $7.649 million, based on a September 30 market price of $4.41 per share.
Results and cash flows
The statements report expenses and losses but no revenue line; the filing describes ongoing expenses as exceeding corresponding non-financing revenue. Gross margin and operating margin are therefore not meaningfully reported.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating expenses | $902 | $1,951 | $2,503 | $4,790 |
| Operating loss | $(902) | $(1,951) | $(2,503) | $(4,790) |
| Other income (expense), net | $(2,461) | $60 | $(2,653) | $1,015 |
| Net loss | $(3,363) | $(1,891) | $(5,156) | $(3,775) |
| Loss per share, basic and diluted | $(1.38) | $(0.94) | $(2.35) | $(2.03) |
For the nine months, operating cash used was $2.229 million, investing activities provided $1.215 million, and financing activities provided $1.310 million. Cash increased $296 thousand to $313 thousand. Investing cash flow primarily reflected $8.416 million of marketable-security sales and $6.651 million of purchases; financing included stock-sale proceeds.
Changes, outlook, risks and unusual items
- Operating losses declined year over year, largely because 2018 included patent amortization and an intangible-asset impairment. Net losses nevertheless increased, driven mainly by investment fair-value changes.
- Q3 2019 included a $2.435 million loss from changes in investment fair value. Management attributed this chiefly to Hoth’s share price declining from $5.82 at June 28 to $4.41 at September 30. For the nine months, the filing reported a $2.765 million investment fair-value loss, including a $1.0 million loss related to DatChat and an approximately $1.8 million unrealized Hoth loss.
- The company reported substantial doubt about its ability to continue as a going concern within one year of the filing. It cited recurring operating losses and cash-flow deficits and said additional financing may be needed; financing might not be available on favorable terms or at all. No formal financial guidance was provided.
- The CBM asset purchase agreement contemplated $8.0 million of consideration: $7.0 million in equity and $1.0 million cash, with the cash payment tied to qualifying equity financing. Stockholders approved the transaction on September 5, 2019, but the filing does not establish that it had closed by the reporting date; closing conditions and a December 31, 2019 termination date applied.
- On October 2, 2019, the board approved a distribution of 100,000 Hoth shares to Spherix stockholders of record on October 21, 2019, at one Hoth share per 29 Spherix shares, with fractional shares rounded down.
- Management concluded disclosure controls were ineffective at September 30, 2019, citing material weaknesses including lack of segregation of duties and insufficient controls to ensure material transactions and developments were reflected in the financial statements.
- The filing reported no pending material legal claims or counterclaims and no off-balance-sheet arrangements. It also disclosed strategic-alternative and acquisition risks, including possible failure or delay of the CBM transaction, integration challenges, dilution, and additional transaction costs.
Most important facts to verify
- Confirm the filing belongs to the intended company: its cover and financial statements identify Spherix Incorporated, whereas the request metadata names Dominari Holdings Inc.
- Check current liquidity and financing needs against the going-concern warning, including the company’s ability to raise capital.
- Verify the status and final terms of the CBM asset acquisition and the related equity and cash obligations.
- Review the valuation and subsequent performance of the Hoth investment, including the impact of the Hoth share distribution.
- Assess dilution from the stock offerings, warrants, and any additional financing, as well as remediation of the disclosed control weaknesses.