Spherix Inc. (SPEX), the patent monetization company run by Anthony Hayes, said its net loss in 2014 widened by 70% to $30.6 million on higher operating expense and lower revenue.
The $1.55 cent a share loss compared with a net loss of $17.97 million, or $13.64 a share a year ago.
Operating expenses doubled to $30.6 million from $15.3 million, while revenue fell to $10,000 from $27,000.
The Bethesda, Maryland-based company’s accumulated deficit stood at $83.8 million as of Dec. 31, 2014 and it was down to cash and cash equivalents of only $805,000 as of Dec. 31, 2014.
The company said it used $9.5 million in cash for continuing operations in 2014, versus $5.2 million, a year ago.
James McIlree, an analyst at Chardan Capital Markets, said in a note today to investors that Spherix has a burn rate of about $1.6 million a quarter. "At that rate the company will need to raise cash, cut expenses or partner on potential settlements, or all three," he said. "This will weigh on the shares until resolved."
As of December 31, Spherix had federal and state net operating loss carryovers of approximately $11 million, which expire in 2034.
During 2014, the company said management analyzed the likelihood of the use of the NOL and as a result reduced the gross deferred tax asset to about $5 million. Moreover, it found that only NOLs of approximately $11 million are deemed available for potential carryover.
The earnings picture comes almost two months after Spherix on February 3 announced that its board had rejected an unsolicited takeover bid at a 15% premium from Marathon Patent Group (MARA) because it undervalued the company.
Shares of Spherix fell 5% or 4.76 cents to 91 cents on Monday and then another 16.48% or 15 cents to 76 cents in after hours trading. They’ve traded between 74 cents and $4.15 over the past year.
Spherix also indicated that on March 24 it received a letter from the listing qualifications staff of Nasdaq indicating that, based upon the closing bid price of the company’s common stock for the last 30 consecutive business days, the common stock no longer met the requirement to maintain a minimum closing bid price of $1.00 per share.
The company said the notice has no immediate effect and that it has 180 days or until Sept. 21 to regain compliance with the minimum listing price rule.
Spherix also noted that its internal control over financial reporting and its disclosure controls and procedures were not effective as of December 31, 2014 and December 31, 2013, respectively.
“Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2014, our internal control over financial reporting was not effective, due to the company’s lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected,” the company said in a filing with the Securities and Exchange Commission on Monday.
“We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.”
The company said it expects to need additional capital to fund its “growing” operations.
“If we are unable to obtain sufficient capital we may be forced to limit the scope of our operations."
Spherix also noted that if adequate additional debt and/or equity financing is not available, it may not be able to continue to expand its business and it will have to modify business plans.
“These factors would have a material and adverse effect on our future operating results and our financial condition,” the company said.
“If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the company.”
“In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.”
Spherix said it cannot tap an existing shelf registration until May 30, 2015.
Spherix also noted that its independent registered public accounting firm has expressed doubt about its ability to continue as a going concern, which may hinder its ability to obtain future financing.
In the meantime, Chardan's McIlree estimates that Spherix existing patent litigation campaigns may be worth anywhere from $150 million to $1 billion.
"The company's enforcement campaign is still in its early stages and covers large , growing markets," he said. "Spherix has yet to assert the claims of its standard essential patents so our estimates of the value of the current campaigns can be low by a wide margin."
Spherix owns some 300 patents which it bought from North South Holdings and the Rockstar Consortium.
The company also said in the filing that in August it settled a patent infringement lawsuit against AT&T Corp. in the U.S. District Court for the Northern District of Texas for an “immaterial settlement amount.” Elsewhere in the filing the company said it received $30,000 in the settlement with AT&T.
That left the company with a similar dispute still active against T-Mobile Inc. and T-Mobile America Inc. in U.S. District Court in the Western District of Washington.
It also is still litigating infringement cases against VTech Telecommunications and VTech Communications in U.S. District Court in the Northern District of Texas and against Uniden Corp. in the same court.
Both cases recently had Markman or claims construction hearings that Spherix described as favorable. The rulings also are expected to help the company’s case in several Inter Partes Reviews before the U.S. Patent and Appeals Board.
The company also has separate active cases against Verizon Services Corp., Huawei, Cisco Systems Inc. and Juniper Networks Inc.
McIlree estimates that the Cisco and Juniper cases could together exceed $100 million, while the Verizon and Huawei cases could each exceed $50 million. He estimates the VTech and Uniden cases could together raise $34 million.
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