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SPEX > SEC Filings for SPEX > Form 10-Q on 19-Aug-2013All Recent SEC Filings

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Form 10-Q for SPHERIX INC


19-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are an intellectual property company that owns patented and unpatented intellectual property. We were formed in 1967 as a scientific research company and for much of our history pursued drug development including through Phase III clinical studies which were discontinued in 2012. We are exploring opportunities to extend our expertise in D-Tagatose drug development to sports and nutritional supplement products relying on this natural sweetener as a GRAS ingredient.

-12-

Through our recently announced acquisition of seven patents from Rockstar Consortium US, LP and planned acquisition of patents issued to Harris Corporation we intend to expand our activities in wireless communications and telecommunication sectors including antenna technology, Wi-Fi, base station functionality, and cellular.

Using our patented technologies we employ strategies seeking to permit us to derive value from licensing, commercialization, settlement and litigation from our patents. We intend to continue to seek to obtain patents from inventors and patent owners to monetize patent portfolios.

Revenue

During the six months ended June 30, 2013, the Company earned $4,000 from the sale of D-Tagatose and $1,973 on royalties from a licensing agreement. No substantial revenue is expected from our sports and nutritional supplement efforts until we are successful in selling or licensing our technology or there is a commercial market developed by us or in collaboration with others. Revenue from continuing operations for the three months ended June 30, 2013 and 2012 was insignificant.

Research and Development

Research and development ("R&D") expenditures consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers, and other expenses related to our drug development efforts. We expense our research and development costs as they are incurred, including the Company's supply of D-Tagatose, of which the Company held an estimated 8 metric tons at June 30, 2013. The decrease in R&D costs reflects the completion of SPX106T preclinical studies in late 2012. Research and development costs for the three month and six month periods ended June 30, 2012, were $138,249 and $509,652, respectively.

Selling, General and Administrative

Our selling, general and administrative ("S,G&A") expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, professional fees and other corporate expenses, including facilities-related expenses. S,G&A increased $245,749 to $1,813,770 for the six months ended June 30, 2013 from $1,568,021 in the comparable prior year period, principally as a result of contractually required severance, separation and retention payments, intellectual property consulting services and costs associated with the merger with North South. S,G&A for the three month period ended June 30, 2013, were $940,530 versus $530,691 for the three month period ended June 30, 2012, for the same reasons.

Fair Value Adjustments for Warrant Liabilities

Fair value adjustments for warrant liabilities is the result of the change in the carrying amount of the warrant liability caused by changes in the fair value as determined using a Black-Scholes option valuation method. The change from the beginning of the year was the result of a decrease in the Company's stock price during the first six months 2013, which resulted change of fair value for this period. The increase in the Company's stock price led to the opposite result in the same six month period ended June 30, 2012.

Interest

Interest income for the six months ended June 30, 2013 was consistent with the prior year and primarily derived from interest earned on bank and financial institutions from deposits of the net proceeds of our equity offerings.

Liquidity and Capital Resources

The Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding revenue.

The Company intends to finance its activities through:

completing the Merger with North South,

managing current cash and cash equivalents on hand from our past equity offerings,

seeking additional funds raised through the sale of additional securities in the future,

increasing revenue from inventory and asset sales, the monetization of its patent portfolios, license fees, and new business ventures.

Working capital was $2,643,825 and $3,975,324 at June 30, 2013 and December 31, 2012, respectively and, cash on hand was $3,019,894 and $4,498,237, respectively. In addition, on August 16, 2013, the Company obtained the approval a majority of our shareholders necessary to complete the Merger with North South. Closing of the Merger is subject only to the expiration of the statutory twenty (20) calendar day period, which will expire on September 2, 2013. At closing, the Company will be relieved of $500,000 of indebtedness through an interparty cancellation of the North South Note, and the North South cash balance (a minimum of $2.0 million) will become available for the operations of the Company. The Company used the proceeds of the North South Note to fund certain expenses incurred in connection with the North South Merger.

-13-

Management believes that the approval that the Company received to complete the acquisition of North South is currently critical to the realization of its business plans. Management anticipates that the acquisition of North South will enable the Company to improve its financial condition and provide opportunities to for the Company to generate revenue and operating cash flows by monetizing North South's portfolio of patents.

Management does not foresee any circumstances that would preclude the Company from completing the Merger upon the completion of the required waiting period. Notwithstanding management's expectation, management further believes that should the Company not consummate the Merger with North South that the Company sufficient resources to continue its current operations through at least July 1, 2014, which would include the Company pursuing its current intention to either merger with or acquire one or more businesses with the intention of increasing our shareholder value.

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