Stockholders' Equity and Redeemable Convertible Preferred Stock

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Stockholders' Equity and Redeemable Convertible Preferred Stock

Preferred Stock

The Company had designated separate series of its capital stock as of June 30, 2015 and December 31, 2014 as summarized below:

	Number of Shares Issued
	and Outstanding as of
	June 30, 2015		December 31,  2014		Par Value		Conversion Ratio
Series “A”		—		—	$	0.0001	N/A
Series “C”		1		1		0.0001	1:1
Series “D”		4,725		4,725		0.0001	10:1
Series “D-1”		834		834		0.0001	10:1
Series “F-1”		—		—		0.0001	1:1
Series “H”		439,043		439,043		0.0001	10:1
Series “I”		29,940		35,541		0.0001	20:1
Series “J”		—		—		0.0001	1:1

Series I Redeemable Convertible Preferred Stock

In connection with the agreement to acquire Rockstar patents entered on December 31, 2013, the Company and Rockstar entered into a series of agreements which require the Company to redeem $20 million of stated value of Series I Convertible Preferred Stock in $5 million increments on each of the 6, 12, 18 and 24 months anniversary of the purchase. In the event that such payments are not timely made, Rockstar may employ certain remedies, including the imposition of interest at a rate of 15% per annum from the closing date on unpaid and unconverted amounts due and after the 12 month anniversary can reduce the redemption obligations through sale or recovery of patents in the acquisition at a value equal to unconverted amounts due which have been pledged as collateral for such obligations. Rockstar has filed a UCC-1 covering its redemption obligations and the right to foreclose on the collateral. The redemption obligation is also required to be satisfied in the event that the Company engage in certain capital raising transactions (among other instances, where such transactions result in net proceeds to us in excess of $7.5 million) and from recoveries on other assets. The obligation to utilize capital from financings and from other sources or the loss of patents to Rockstar upon a default could adversely impact our liquidity and financial position.

During the quarter ended June 30, 2014, the Company redeemed 84,219 shares of Series I Preferred Stock. In accordance with this redemption, the Company paid Rockstar $14.1 million.

In January 2015, Rockstar transferred its remaining outstanding Series I Redeemable Convertible Preferred Stock, as well as its other stock in Spherix (including the Company’s Series H Convertible Preferred Stock) to RPX Clearinghouse LLC (“RPX”), an affiliate of RPX Corporation.

During the quarter ended June 30, 2015, the Company redeemed 5,601 shares of Series I Preferred Stock. In accordance with this redemption, the Company paid RPX $0.94 million.

As of June 30, 2015, 29,940 shares of Series I Preferred Stock with an aggregate remaining redemption price of $5.0 million remained issued and outstanding

Warrants

A summary of warrant activity for the six months ended June 30, 2015 is presented below: 

			Weighted Average			Total Intrinsic		Weighted Average  Remaining Contractual
	Warrants		Exercise Price			Value		Life (in years)
Outstanding as of December 31, 2014		769,803		$	13.70	$	—		4.03
Issued		—			—		—		—
Outstanding as of June 30, 2015		769,803		$	13.70	$	—		3.54

All warrants outstanding as of December 31, 2014 and June 30, 2015 were exercisable as of such dates.

Stock Options

On April 3, 2014, pursuant to and subject to the available number of shares reserved under the 2014 Plan, the Company issued 500,000 non-qualified options with a term of five years and an exercise price of $2.86 to Anthony Hayes, the director and Chief Executive Officer of the Company. 50% of the options vested immediately, and the remaining 50% vesting upon the Company’s receipt of gross proceeds of at least $30 million by April 3, 2015 from an offering of its securities (the “Performance Condition”).  Since the Performance Condition was not satisfied by April 3, 2015, 250,000 options were forfeited.  As a result, the Company reversed $0.4 million of option expense related to this grant during the six months ended June 30, 2015.

On May 24, 2015, 176 options granted on May 25, 2010 were expired.

A summary of option activity under the Company’s employee stock option plan for the six months ended June 30, 2015 is presented below:

								Weighted Average
				Weighted Average		Total Intrinsic		Remaining Contractual
	Number of Shares			Exercise Price		Value		Life (in years)
Outstanding as of December 31, 2014		5,243,877		$	4.97	$	—		6.0
Employee options forfeited		(250,000	)		—		—		—
Employee options expired		(176	)		—		—		—
Outstanding as of June 30, 2015		4,993,701			5.07	$	—		5.6
Options vested and expected to vest		4,993,701			5.07		—		5.6
Options vested and exercisable		4,993,576		$	5.06	$	—		5.6

A summary of option activity under the Company’s non-employee stock option plan for the six months ended June 30, 2015 is presented below: 

								Weighted Average
			Weighted Average			Total Intrinsic		Remaining Contractual
	Number of Shares		Exercise Price			Value		Life (in years)
Outstanding as of December 31, 2014		55,000		$	5.16	$	—		6.4
Non-employee options granted		—			—		—		—
Outstanding as of June 30, 2015		55,000			5.16		—		5.9
Options vested and expected to vest		55,000			5.16		—		5.9
Options vested and exercisable		55,000		$	5.16	$	—		5.9

Stock-based compensation associated with the amortization of stock option expense was approximately $0.01 million and $6.8 million for the three months ended June 30, 2015 and 2014, and was approximately $0.1 million and $10.2 million for the six months ended June 30, 2015 and 2014, respectively.  Unamortized compensation cost for these awards amounted to $0.01 million at June 30, 2015, and will be amortized over 0.1 years. 

Restricted Stock Awards

On January 5, 2015, the Company issued 2,500 shares of fully vested common shares to an employee. 

On June 10, 2015, the Company entered into a consulting agreement with a third party for three months of services. The Company has agreed to pay the consultant a monthly fee of $10,000, payable in shares of Common Stock for each month of the term. $20,000 of this stock payable was accrued in accrued expenses account on condensed consolidated balance sheet as of June 30. 2015.

On June 15, 2015, the Company entered into a consulting agreement with a third party. The Company has agreed to pay the consultant a monthly fee of $5,000 for three months commencing on June 15, 2015, and granted 45,000 shares of restricted stock. The restricted stock awards vest monthly for each of the three months following the grant date.

A summary of the restricted stock award activity for the six months ended June 30, 2015 is as follows:

				Weighted Average
				Grant Day Fair
	Number of Units			Value
Nonvested at December 31, 2014		7,500		$	2.63
Granted		60,625			0.61
Vested		(23,125	)		1.23
Nonvested at June 30, 2015		45,000		$	—

Stock-based Compensation

Stock-based compensation for the three months and six months ended June 30, 2015 and 2014 was comprised of the following (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Employee restricted stock awards	$	—	$	12	$	11	$	14
Employee stock option awards		14		6,757		90		10,150
Non-employee restricted stock awards		33		175		33		176
Non-employee option awards		—		48		—		48
Total compensation expense	$	47	$	6,992	$	134	$	10,388