Dominari Holdings Inc. - Annual Report: 2012 (Form 10-K)

 

 

 

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Delaware		52-0849320
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

 

Title of each class		Name of each exchange on which registered
Common Stock ($0.0001 par value per share)		NASDAQ Capital Market

 

 

 

 

 

 

 

 

 

 

 

 

              Our principal Internet address is www.biospherics.com.  We make available free of charge on www.biospherics.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).

 

·	utilize our clinical development experience to manage and drive drug candidates through the clinical development process to approval;

·	identify and explore licensing and partnership opportunities for drug candidates;

·	seek to acquire medically important drug candidates in early-stage to mid-stage clinical development; and

·	commercialize our drug candidates, either alone or more likely in partnership

 

Title		Filing Date		Status
D-Tagatose-Based Compositions And Methods For Preventing And Treating Atherosclerosis, Metabolic Syndrome And Symptoms Thereof		November 4, 2009		Pending*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WE DO NOT CURRENTLY HAVE THE RESOURCES TO BECOME A FULL SCALE BIOTECHNOLOGY COMPANY AND WE MAY NOT BE ABLE TO ATTRACT A NECESSARY BUYER/LICENSEE/PARTNER/STRATEGIC PARTNER BEFORE WE EXPEND ALL OF OUR FUNDS.  We intend to seek a sale, license, or partner for SPX106T.    There can be no assurance, however, that we will attract a buyer, licensee or partner.  We have limited resources.  We will need to raise additional funds within the next twelve months to continue operations and would likely require additional capital raises thereafter to fully pursue the triglycerides and other dyslipidemias opportunity and we may not be able to do so in a timely fashion.

 

·	a product candidate may not be considered safe or effective;

·	the manufacturing processes or facilities we have selected may not meet the applicable requirements;  and

·	changes in approval policies or adoption of new regulations may require additional work on our part.

 

 

 

·	one or more of our current service providers, manufacturers and other partners may encounter difficulties during challenging economic times, which would directly affect our ability to attain our goals on schedule and on budget;

·	our ability to collect on trade receivables may be negatively impacted by slow payments or bad debt;

·	our efforts to raise additional capital may be negatively impacted;

·	additional funding may not be available or, if it is available, may not be on terms and conditions we deem acceptable;

·	any additional funding derived from the sale of equity securities is likely to result in significant dilution to our existing stockholders; and

·	failure to secure the necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business strategy, financial performance, and stock price and could require us to delay or abandon the clinical development plans.

 

 

·	ongoing discussions with the FDA regarding the scope or design of our trial;

·	delays in receiving, or the inability to obtain, required approvals from reviewing entities at clinical sites selected for participation in our trial;

·	a lower than anticipated retention rate of patients in the trial;

·	the need to repeat the trial or conduct another trial as a result of inconclusive or negative results or unforeseen complications in testing;

·	inadequate supply or deficient quality of materials necessary to conduct our trial;

·	serious and unexpected drug-related side effects experienced by participants in our clinical trials;

·	the placement by the FDA of a clinical hold on a trial; or

·	any restrictions on or post-approval commitments with regard to any regulatory approval we ultimately obtain that render the drug candidate not commercially viable.

 

 

 

 

 

·	We must secure one or more manufacturers for our products and we must repeat certain key studies and/or bridge the materials supplied by the current manufacturer(s) to the previously supplied materials to gain FDA approval.
·	We must demonstrate that the product will be accepted in the market place. Even if the clinical trial is successful, the market may not accept the drug formulation or dosing.

 

·	timing of market introduction of competitive drugs;

·	lower demonstrated clinical safety and efficacy compared to other drugs;

·	lack of cost-effectiveness;

·	lack of availability of reimbursement from managed care plans and other third-party payors;

·	inconvenient administration;

·	prevalence and severity of adverse side effects;

·	drug interactions with other widely prescribed medications;

·	potential advantages of alternative treatment methods;

·	safety concerns with similar drugs marketed by others;

·	the reluctance of the target population to try new therapies and of physicians to prescribe these therapies;  and

·	ineffective sales, marketing and distribution support.

 

THE BIOTECHNOLOGY BUSINESS HAS A SUBSTANTIAL RISK OF PRODUCT LIABILITY CLAIMS.  THE DEFENSE OF ANY PRODUCT LIABILITY CLAIM BROUGHT AGAINST US WILL DIVERT MANAGEMENT TIME AND REQUIRE SIGNIFICANT EXPENSE.  We could be exposed to significant potential product liability risks that are inherent in the development, manufacture, sales and marketing of drugs and related products.  Our insurance may not, however, provide adequate coverage against potential liabilities.  Furthermore, product liability insurance is becoming increasingly expensive.  As a result, we may be unable to maintain current amounts of insurance coverage or obtain additional or sufficient insurance at a reasonable cost to protect against losses that could have a material adverse effect on us.  If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully against us.  Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to redirect significant financial and managerial resources to such defense, and adverse publicity is likely to result.

 

 

 

WE FACE EVOLVING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE THAT MAY RESULT IN ADDITIONAL EXPENSES AND CONTINUING UNCERTAINTY.  Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, SEC regulations and NASDAQ Stock Market LLC rules are creating uncertainty for public companies.  We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of these costs.  For example, compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act has to date required the commitment of significant resources to document and test the adequacy of our internal control over financial reporting.  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, 2012, our internal control over financial reporting was not effective, as a result of the reclassification from equity to liability of  warrants issued between November 2009 and February 2012.  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.  These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.  This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.  We are committed to maintaining high standards of corporate governance and public disclosure.  As a result, we intend to invest the resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.  If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.

 

·	relatively small amounts of our stock trading on any given day;

·	fluctuations in our operating results;

·	announcements of technological innovations or new products that we or our competitors make;

·	developments with respect to patents or proprietary rights; and

·	recent economic downturn and market instability.

·	a $1.00 minimum closing bid price;

·	shareholders’ equity of $2.5 million;

·	500,000 shares of publicly-held common stock with a market value of at least $1 million;

·	300 round-lot stockholders; and

·	compliance with NASDAQ’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of NASDAQ’s discretionary authority.

 

       On December 31, 2012, the Company’s Total Shareholders' Equity was $854,000, and was below the $2.5 million listing standard required by NASDAQ.  In March 2013, the Company exchanged with certain investors the warrants issued in November 2012 for Series C Preferred Stock, effectively increasing Total Stockholders’ Equity by approximately $2.7 million.  

 

 
 

 

        IF WE MAKE A SIGNIFICANT ACQUISITION THAT REQUIRES THE ISSUANCE OF OUR SHARES WE MAY BE REQUIRED TO REAPPLY FOR NASDAQ LISTING.  Reapplying for NASDAQ listing would require us to satisfy the more stringent original listing standards of the NASDAQ Capital Market, which has substantially higher standards than the continuing listing standards.

 

 

 

 

 

 

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Period		High				Low
2012
First Quarter		$	35.40			$	15.60
Second Quarter		$	22.40			$	10.00
Third Quarter		$	11.98			$	7.22
Fourth Quarter		$	11.76			$	5.85
2011
First Quarter		$	218.00			$	70.00
Second Quarter		$	117.20			$	45.60
Third Quarter		$	69.60			$	24.60
Fourth Quarter		$	68.40			$	22.60

 

 

 

 

 

 

Following both reverse stock splits, the Company’s common stock price increased and the Company regained compliance with the NASDAQ minimum bid price rule.

 

 

 

On February 2, 2012, the Company entered into a securities purchase agreement with certain investors to sell an aggregate of 53,240 shares of its common stock and warrants to purchase up to an additional 10,648 shares of its common stock to such investors for gross proceeds of approximately $1.15 million.  The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase 0.2 of a share of common stock.  The purchase price per unit was $21.60.  Subject to certain ownership limitations, the warrants are exercisable for a five-year period at an exercise price of $28.00 per share.  The net proceeds to the Company from the registered direct offering, after deducting placement agent fees and the Company’s offering expenses, and excluding the proceeds, if any, from the exercise of the warrants issued in the offering, were approximately $1.1 million.  The common stock issued in the February 2012 offering and the common stock that may be issued pursuant to the exercise of the warrants have been registered pursuant to a Form S-3 registration statement (File No. 333-161531), which became effective on October 1, 2009.  The warrants are classified as a liability and the common stock is classified as permanent equity.

 

 

 

 

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			7,163	1		$	22.34				2,750	3
Equity compensation plans not approved by securities holders			1,399	2		$	97.27				N/A
Total			8,562								2,750

 

The above warrant shares and exercise prices have been retroactively adjusted to reflect the  2011 and 2012 reverse stock splits.

 

 

 

 

 

(i)	warrants to purchase an aggregate of 5,522 and 414 shares of the Company’s common stock, issued in November 2009 at an exercise price of $650.00 and $575.00 per share, respectively;

(ii)	warrants to purchase an aggregate of 10,500 and 630 shares of the Company’s common stock, issued in October 2010 at an exercise price of $300.00 and $312.50 per share, respectively;

(iii)

warrants to purchase an aggregate of 10,673 and 640 shares of the Company’s common stock, issued in January 2011 at an exercise price of $160.00 and $162.50 per share, respectively;

(iv)	warrants to purchase an aggregate of 26,628 and 799 shares of the Company’s common stock, issued in October 2011 at an exercise price of $44.80 and $59.13 per share, respectively;

(v)	warrants to purchase an aggregate of 10,648 and 1,597 shares of the Company’s common stock, issued in February 2012 at an exercise price of $28.00 and $27.00 per share, respectively;  and

(vi)	warrants to purchase an aggregate of 483,657 shares of the Company’s common stock, issued in November 2012 at an exercise price of $6.53 per share;

Under the guidance of ACS 815, warrant instruments that could potentially require net cash settlement in the absence of express language precluding such settlement, should be initially classified as derivative liabilities as their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash.  In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations.  The Audit Committee, together with management, determined that the financial statements in the Affected Periods should be restated to reflect the Warrants as liabilities, with subsequent changes in their estimated fair value recorded as non-cash income or expense in each Affected Period.

 

 

 

 

 

·	an increase in our authorized capital stock to 50,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share;

·	the adoption of the Spherix Incorporated 2012  Equity Incentive Plan, pursuant to which up to 125,000 shares of common stock may be issued to employees, officers and directors via stock options and grants of restricted stock;  and

·	approval of the issuance of up to 483,657 shares of our common stock pursuant to the exercise of our Series B Warrants issued in our November 2012 private placement transaction.

 

On November 30, 2012, but effective as of December 3, 2013, Dr. Claire L. Kruger resigned as the Chief Executive Officer/Chief Operating Officer of the Company.    Dr. Robert A. Lodder, Aris Melissaratos and Thomas B. Peter also resigned as members of our Board of Directors.

 

 

 

 

 

 

 

 

Other Income from change in fair value of warrants is the result of decreases 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 difference between the other income from change in fair value of warrants realized in 2011 compared to 2012 is the result of a more pronounced change in the Company’s stock price for the year ending 2011.

 

 

 

 

 

 

 

 

 

 

The Company assessed the classification of its Common Stock purchase warrants as of the date of each offering and through December 31, 2012 and determined that such instruments met the criteria for liability classification.  The warrants are reported on the consolidated balance sheet as a liability at fair value using the Black-Scholes valuation method.  Changes in the estimated fair value of the warrants result in the recognition of other income or expense.

 

 

·	the remaining proceeds of our equity offerings; and

·	additional funds we will seek to raise through the sale of additional securities in the future.

 

 

 

 

 

	Page
Report of Independent Registered Public Accounting Firm	28
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011	29
Consolidated Balance Sheets as of December 31, 2012 and 2011	30
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2012 and 2011	31
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011	32
Notes to Consolidated Financial Statements	33

March 20, 2013