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EXCEL - IDEA: XBRL DOCUMENT - STANDARD DIVERSIFIED INC. | Financial_Report.xls |
EX-31.1 - EX-31.1 - STANDARD DIVERSIFIED INC. | a14-9819_1ex31d1.htm |
EX-32.1 - EX-32.1 - STANDARD DIVERSIFIED INC. | a14-9819_1ex32d1.htm |
EX-32.2 - EX-32.2 - STANDARD DIVERSIFIED INC. | a14-9819_1ex32d2.htm |
EX-31.2 - EX-31.2 - STANDARD DIVERSIFIED INC. | a14-9819_1ex31d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number 000-22400
SPECIAL DIVERSIFIED OPPORTUNITIES INC.
(Exact name of Registrant as specified in its charter)
Delaware |
|
56-1581761 |
(State or other jurisdiction of |
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(I.R.S. employer |
|
|
|
1521 Concord Pike, Suite 301 |
|
19803 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: (302) 824-7062
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company x |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: x No: o
As of April 30, 2014, there were 21,027,640 outstanding shares of the Registrants common stock, par value $.01 per share.
SPECIAL DIVERSIFIED OPPORTUNITIES INC.
PART I FINANCIAL INFORMATION
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
|
March 31, |
|
December 31, |
| ||
|
|
2014 |
|
2013 |
| ||
ASSETS |
|
|
|
|
| ||
Current Assets : |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
24,321 |
|
$ |
24,598 |
|
Restricted cash |
|
1,300 |
|
1,300 |
| ||
Other current assets |
|
121 |
|
66 |
| ||
Total current assets |
|
25,742 |
|
25,964 |
| ||
Total assets |
|
$ |
25,742 |
|
$ |
25,964 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current Liabilities : |
|
|
|
|
| ||
Accrued expenses |
|
$ |
743 |
|
$ |
625 |
|
Total current liabilities |
|
743 |
|
625 |
| ||
|
|
|
|
|
| ||
Stockholders Equity: |
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|
|
|
| ||
Preferred stock, $.01 par value, 20,920,648 shares authorized, no shares issued or outstanding |
|
|
|
|
| ||
Common stock, $.01 par value, 50,000,000 shares authorized, 21,434,267 issued at March 31, 2014 and December 31, 2013 |
|
217 |
|
217 |
| ||
Additional paid-in capital |
|
44,143 |
|
44,143 |
| ||
Treasury stock, 406,627 common shares at cost at March 31, 2014 and December 31, 2013, respectively |
|
(555 |
) |
(555 |
) | ||
Accumulated deficit |
|
(18,806 |
) |
(18,466 |
) | ||
Total stockholders equity |
|
24,999 |
|
25,339 |
| ||
Total liabilities and stockholders equity |
|
$ |
25,742 |
|
$ |
25,964 |
|
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
|
|
Three Months Ended March 31, |
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|
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2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Revenues |
|
$ |
|
|
$ |
|
|
Gross profit |
|
|
|
|
| ||
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
| ||
Selling, general and administrative |
|
340 |
|
454 |
| ||
Total operating expenses |
|
340 |
|
454 |
| ||
|
|
|
|
|
| ||
Operating loss |
|
(340 |
) |
(454 |
) | ||
|
|
|
|
|
| ||
Interest income (expense), net |
|
|
|
(2 |
) | ||
|
|
|
|
|
| ||
Loss from continuing operations before taxes |
|
(340 |
) |
(456 |
) | ||
|
|
|
|
|
| ||
Income tax expense (benefit) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Loss from continuing operations, net of taxes |
|
(340 |
) |
(456 |
) | ||
|
|
|
|
|
| ||
Loss from discontinued operations |
|
|
|
(1,138 |
) | ||
|
|
|
|
|
| ||
Net loss |
|
$ |
(340 |
) |
$ |
(1,594 |
) |
|
|
|
|
|
| ||
Basic loss per share from continuing operations |
|
$ |
(0.02 |
) |
$ |
(0.02 |
) |
Basic loss per share from discontinued operations |
|
0.00 |
|
(0.06 |
) | ||
|
|
|
|
|
| ||
Basic net loss per share |
|
$ |
(0.02 |
) |
$ |
(0.08 |
) |
|
|
|
|
|
| ||
Shares used in computing basic net loss per share |
|
21,027,640 |
|
20,619,165 |
| ||
|
|
|
|
|
| ||
Diluted loss per share from continuing operations |
|
$ |
(0.02 |
) |
$ |
(0.02 |
) |
Diluted loss per share from discontinued operations |
|
0.00 |
|
(0.06 |
) | ||
|
|
|
|
|
| ||
Diluted net loss per share |
|
$ |
(0.02 |
) |
$ |
(0.08 |
) |
|
|
|
|
|
| ||
Shares used in computing diluted net loss per share |
|
21,027,640 |
|
20,619,165 |
|
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Net loss |
|
$ |
(340 |
) |
$ |
(1,594 |
) |
Foreign currency translation adjustment |
|
|
|
(49 |
) | ||
|
|
|
|
|
| ||
Comprehensive loss |
|
$ |
(340 |
) |
$ |
(1,643 |
) |
The accompanying notes are an integral part of these statements
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Cash Flows from Operating Activities : |
|
|
|
|
| ||
Net loss |
|
$ |
(340 |
) |
$ |
(1,594 |
) |
Less: Loss from discontinued operations |
|
|
|
1,138 |
| ||
Loss from continuing operations |
|
(340 |
) |
(456 |
) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities : |
|
|
|
|
| ||
Deferred income tax provision |
|
|
|
2 |
| ||
(Increase) in : |
|
|
|
|
| ||
Other current assets |
|
(55 |
) |
(439 |
) | ||
Increase in : |
|
|
|
|
| ||
Accrued expenses |
|
118 |
|
468 |
| ||
Net operating activities from discontinued operations |
|
|
|
(1,357 |
) | ||
Net cash used in operating activities |
|
(277 |
) |
(1,782 |
) | ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities : |
|
|
|
|
| ||
Net investing activities from discontinued operations |
|
|
|
(277 |
) | ||
Net cash used in investing activities |
|
|
|
(277 |
) | ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities : |
|
|
|
|
| ||
Proceeds from employee stock purchase plan |
|
|
|
2 |
| ||
Net financing activities from discontinued operations |
|
|
|
(13 |
) | ||
Net cash provided by (used in) financing activities |
|
|
|
(11 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash |
|
|
|
(49 |
) | ||
|
|
|
|
|
| ||
Net decrease in Cash and Cash Equivalents |
|
(277 |
) |
(2,119 |
) | ||
|
|
|
|
|
| ||
Cash and Cash Equivalents, Beginning of Period |
|
24,598 |
|
18,145 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents, End of Period |
|
$ |
24,321 |
|
$ |
16,026 |
|
|
|
|
|
|
| ||
Supplemental Cash Flow Disclosure : |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash paid for taxes, net of tax refunds |
|
10 |
|
27 |
| ||
|
|
|
|
|
| ||
Cash paid for interest |
|
|
|
5 |
| ||
|
|
|
|
|
| ||
Noncash investing activity, purchase of property and equipment |
|
|
|
145 |
| ||
|
|
|
|
|
| ||
Noncash investing activity, capital lease obligations |
|
|
|
45 |
|
The accompanying notes are an integral part of these statements.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
1. ASSET SALE
On April 5, 2013, Special Diversified Opportunities Inc. (f/k/a Strategic Diagnostics Inc.) (SDOI or the Company), SDIX LLC, a Delaware limited liability company (the Purchaser) and OriGene Technologies, Inc., a Delaware corporation and the sole equity holder of the Purchaser (Parent or OriGene), entered into an Asset Purchase Agreement (the Asset Purchase Agreement) pursuant to which the Company agreed, subject to certain terms and conditions including approval of the Companys stockholders, to sell to the Purchaser substantially all of the Companys rights, title and interest in substantially all of the Companys non-cash assets related to the Life Sciences Business (the Asset Sale).
At a special meeting of the stockholders of the Company held on July 10, 2013, the stockholders approved the Asset Sale as contemplated by the Asset Purchase Agreement. On July 12, 2013, the Company completed the Asset Sale.
Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser acquired all of the Companys rights, title, and interest in substantially all of the assets, equipment, inventory, and intellectual property (the Purchased Assets) related exclusively to the Companys Life Sciences Business, the product portfolio in respect of which includes a full suite of integrated capabilities, including antibody and assay design, development and production and the Companys Advanced Technologies Business. The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. The Parent unconditionally guaranteed Purchasers obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets was $16.0 million, which is subject to a post-closing working capital adjustment.
The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1.3 million of the purchase price was placed in escrow to be governed by the terms of a separate escrow agreement (Note 4, Discontinued Operations). The Asset Purchase Agreement contains indemnification provisions pursuant to which the Company and the Purchaser have agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.
The Asset Purchase Agreement also contains restrictive covenants, including, that SDOI not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchasers employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchasers customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.
As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.
The Company, the Purchaser and OriGene are engaged in a dispute over matters related to the Asset Sale. In May 2014, the parties reached preliminary agreement on the terms of a settlement of the disputes. (Note 4, Discontinued Operations)
In accordance with Accounting Standards Codification (ASC) 360, Property, Plant and Equipment, the results of operations, cash flow activity and assets and liabilities of the Life Sciences business were reclassified as a discontinued operation within the consolidated financial statements for the three months ended March 31, 2013. (Note 4, Discontinued Operations)
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Prior to the completion of the Asset Sale, the Company was a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
The Company supplied products, custom services and critical reagents used across the life science research and development markets. The Companys Genomic Antibody Technology® (GAT) was used in proteomic research, disease understanding and drug/biomarker discovery among academic, biotech, in-vitro diagnostic and large pharmaceutical customers.
Basis of Presentation and Interim Financial Statements
The accompanying unaudited consolidated interim financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements and should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013. In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations. The interim operating results are not necessarily indicative of the results to be expected for the entire year.
Revenue Recognition
The following description relates to the manner in which the Company recognized revenues generated through its past business operations prior to the completion of the Asset Sale.
Revenues composed of sales of certain antibodies and immunochemical reagents were recognized upon the shipment of the product and transfer of title, or when related services were provided. Revenues associated with such products or services were recognized when persuasive evidence of an order existed, shipment of product had occurred or services had been provided, the price was fixed or determinable and, collectability was reasonably assured. Management was required to make judgments based on actual experience about whether or not collectability was reasonably assured.
The Company entered into contracts related to the production of custom antibodies, which provided for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project was typically longer than 30 days but less than 12 months and effort was expended over the life of the project. Revenues related to sales of custom antibody projects were recognized when a projects specifications had been met and/or the related materials had been shipped.
Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project were billed monthly and recognized as revenue as the services and other deliverables were provided.
Use of Estimates
The preparation of the consolidated interim financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements, and the reported amounts of revenues and expenses during the period. These estimates include those made in connection with assessing the
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
valuation of accounts receivables, inventories, deferred tax assets and long-lived assets. Actual results could differ from these estimates.
3. BASIC AND DILUTED LOSS PER SHARE
Basic loss per share (EPS) is computed by dividing net loss available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS, except that the dilutive effect of converting or exercising all potentially dilutive securities is also included in the denominator such as stock options and restricted stock units. Basic loss per share excludes potentially dilutive securities. For the three month periods ended March 31, 2014 and 2013, conversion of stock options with exercise prices less than the market share price and unvested restricted shares totaling 0 and 495,000, respectively, into common share equivalents were excluded from this calculation because they were anti-dilutive, due to the net loss incurred in each of the periods.
|
|
Three Months Ended |
| ||
|
|
March 31, |
| ||
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
21,027,640 |
|
20,619,165 |
|
|
|
|
|
|
|
Shares used in computing basic loss per share |
|
21,027,640 |
|
20,619,165 |
|
|
|
|
|
|
|
Dilutive effect of stock options and unvested restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted loss per share |
|
21,027,640 |
|
20,619,165 |
|
4. DISCONTINUED OPERATIONS
On July 12, 2013, the Company completed the sale of its Life Sciences products assets to SDIX LLC for approximately $16.0 million before transaction fees. These assets included intellectual property, inventory, commercial contracts and equipment. The Company recognized a gain on the sale of these assets, after transaction fees, of $2.3 million.
At the closing of the Asset Sale, $1.3 million of the purchase price was placed in escrow to satisfy any indemnification claims brought by April 12, 2014. This amount is included in Restricted Cash on the Companys Balance Sheet at March 31, 2014 and December 31, 2013. In addition, the Asset Purchase Agreement provides for an adjustment to the purchase price based upon the actual working capital, as defined, on the closing date as compared to a working capital target amount. The Company will record any changes to the purchase price resulting from a working capital adjustment as additional gain or loss on sale of assets upon the settlement of such payment.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
4. Discontinued Operations (Continued)
Pursuant to the working capital adjustment provisions of the Asset Purchase Agreement, the Company indicated to the Purchaser and OriGene that the Company believes that application of these provisions requires Purchaser to make a payment to the Company of approximately $1.0 million under the Asset Purchase Agreement. Purchaser and OriGene disputed the Companys determination of this amount, and indicated to the Company that they believe that the Company owes the Purchaser approximately $400 pursuant to such provisions. The Purchaser and OriGene have also indicated that they believe they may have claims for indemnification under the Asset Purchase Agreement. The Company initiated formal legal action in Delaware to compel Purchaser and OriGene to comply with the working capital adjustment provisions of the Asset Purchase Agreement. Purchaser and OriGene filed a counter claim alleging a number of causes of action including breach of the Asset Purchase Agreement, fraud and tortious interference and seeking damages of more than $6.0 million, which includes $3.0 million of punitive damages that Purchaser and OriGene have since acknowledged they are not entitled to. In April 2014, the Company received an Indemnification Claim Notice from the Purchaser and OriGene making indemnification claims of approximately $630. The Company believes OriGenes claims to be without merit and has defended such claims vigorously, including filing a motion to dismiss certain of OriGenes claims.
In May 2014, the Company, the Purchaser and OriGene reached a preliminary agreement to settle all claims by all parties. The terms of the settlement call for the release of the $1.3 million in escrow to the Company, as well as the payment by the Purchaser and OriGene to the Company of an additional $250 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. The settlement is subject to the negotiation of definitive agreements, which the Company expects to complete during the second quarter of 2014.
In accordance with ASC 360, Property, Plant and Equipment, the results of operations, cash flow activity and assets and liabilities of the Life Sciences business were reclassified separately as a discontinued operation within the consolidated interim financial statements for the three months ended March 31, 2013.
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
4. Discontinued Operations (Continued)
The following tables presents key information associated with the operating results of the discontinued operation for the reporting periods included in the Companys consolidated balance sheets and consolidated statements of operations:
Results of Operations of Discontinued Operations
|
|
Three Months Ended |
| |
|
|
March 31, |
| |
|
|
2013 |
| |
|
|
|
| |
Revenues |
|
$ |
3,383 |
|
|
|
|
| |
Cost of sales |
|
1,705 |
| |
|
|
|
| |
Gross profit |
|
1,678 |
| |
|
|
|
| |
Operating expenses: |
|
|
| |
Research and development |
|
486 |
| |
Selling, general and administrative |
|
2,327 |
| |
Total operating expenses |
|
2,813 |
| |
|
|
|
| |
Operating loss |
|
(1,135 |
) | |
|
|
|
| |
Interest expense, net |
|
3 |
| |
|
|
|
| |
Loss from discontinued operations |
|
$ |
(1,138 |
) |
5. SHARE-BASED COMPENSATION
Under various plans, executives, key employees and outside directors receive awards of options to purchase common stock. The Company has a stock option plan (the 2000 Plan) which authorizes the granting of incentive and nonqualified stock options and restricted stock units. Incentive stock options are granted at not less than 100% of fair market value at the date of grant (110% for stockholders owning more than 10% of the Companys common stock). Nonqualified stock options are granted at not less than 85% of fair market value at the date of grant. A maximum of 8,000,000 shares of common stock are issuable under the 2000 Plan. Certain additional options have been granted outside the 2000 Plan. These options generally follow the provisions of the 2000 Plan. The Company issues new shares to satisfy option exercises and the vesting of restricted stock awards.
SPECIALDIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
The Company also has an Employee Stock Purchase Plan (the ESPP). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP. The Companys ESPP is compensatory and therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP. The Company issues new shares to satisfy shares purchased under the ESPP.
Share-based compensation expense recorded in the three month periods ended March 31, 2014 and 2013 is summarized as follows:
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Stock options |
|
$ |
|
|
$ |
77 |
|
Employee stock purchase plan |
|
|
|
|
| ||
Restricted stock awards |
|
|
|
43 |
| ||
|
|
|
|
|
| ||
Total share-based compensation expense |
|
$ |
|
|
$ |
120 |
|
Share-based compensation expense is included in discontinued operations, and is recorded as a net operating activity from discontinued operations in the operating activities section of the Companys consolidated statements of cash flows.
No options were exercised in the three month periods ended March 31, 2014 and 2013. Proceeds received from employee payments into the ESPP in the three month periods ended March 31, 2013 were $2. This amounts is recorded in the cash flows from financing activities section of the Companys consolidated statements of cash flows.
Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the three months ended March 31, 2014 is summarized as follows:
|
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Weighted |
|
Aggregate |
| |
|
|
Number |
|
|
|
Average Remaining |
|
Instrinsic |
| |
|
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of Shares |
|
Price Range |
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Contractual term |
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Value |
| |
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|
|
|
|
|
|
|
|
| |
Balance, January 1, 2014 |
|
1,479,494 |
|
$ 1.25 - $ 4.60 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Granted |
|
|
|
|
|
|
|
|
| |
Cancelled / Forfeited |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance, March 31, 2014 |
|
1,479,494 |
|
$ 1.25 - $ 4.60 |
|
4.1 years |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| |
Vested and excercisable at March 31, 2014 |
|
1,129,494 |
|
$ 1.25 - $ 4.60 |
|
3.4 years |
|
$ |
|
|
SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
The following table provides additional information about the Companys stock options outstanding and exercisable at March 31, 2014:
The Company had no unvested restricted stock as of December 31, 2013 and March 31, 2014.
6. INCOME TAXES
The Company evaluates its deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required. The Company had a full valuation allowance offsetting its U.S. federal and state net deferred tax assets which primarily represent net operating loss carryforwards (NOLs) at December 31, 2013. During the three month period ended March 31, 2014, the Companys management concluded that the full valuation allowance for U.S. federal and state net deferred tax assets is appropriate as the facts and circumstances during the first three months of 2014 did not change managements conclusion that a full valuation allowance is necessary.
The Company is subject to U.S. federal income tax, as well as income taxes of multiple state jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At March 31, 2014, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.
As of March 31, 2014, the Company provided a liability for approximately $619 of unrecognized tax benefits. For the three months ended March 31, 2014, unrecognized tax benefits did not change. For federal purposes, post-1992 tax years remain open to examination as a result of earlier net operating losses being utilized in recent years. For state purposes, the statute of limitations remains open in a similar manner for states that have generated net operating losses. The Company does not expect that the total amount of unrecognized tax benefits related to positions taken in prior periods will change significantly during the next 12 months.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements reflecting the current expectations of Special Diversified Opportunities Inc. and its subsidiaries (the Company or SDOI). In addition, when used in this quarterly report, the words anticipate, enable, estimate, intend, expect, believe, potential, may, will, should, project and similar expressions as they relate to the Company are intended to identify said forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated at this time. Such risks and uncertainties include factors more fully described in the Companys public filings with the SEC including, without limitation, the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
Introductory Note
On April 5, 2013, Special Diversified Opportunities Inc. (f/k/a Strategic Diagnostics Inc.) (SDOI or the Company), SDIX LLC, a Delaware limited liability company (the Purchaser) and OriGene Technologies , Inc., a Delaware corporation and the sole equity holder of the Purchaser (Parent or OriGene) entered into an Asset Purchase Agreement (the Asset Purchase Agreement) pursuant to which the Company agreed, subject to certain terms and conditions including approval of the Companys stockholders, to sell to Purchaser substantially all of the Companys rights, title and interest in substantially all of the Companys non-cash assets related to the Life Sciences Business (the Asset Sale).
At a special meeting of the stockholders of the Company held on July 10, 2013, the stockholders approved the Asset Sale as contemplated by the Asset Purchase Agreement. On July 12, 2013, the Company completed the Asset Sale.
Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser acquired all of the Companys right, title, and interest in the Purchased Assets related exclusively to the Companys Life Sciences Business, the product portfolio in respect of which includes a full suite of integrated capabilities, including antibody and assay design, development and production and the Companys Advanced Technologies Business. The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. The Parent unconditionally guaranteed Purchasers obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets was $16.0 million, which is subject to a post-closing working capital adjustment.
The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1.3 million of the purchase price was placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contains indemnification provisions pursuant to which the Company and the Purchaser have agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.
The Asset Purchase Agreement also contains restrictive covenants, including, that the Company not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchasers employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchasers customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.
As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.
Pursuant to the working capital adjustment provisions of the Asset Purchase Agreement, we indicated to the Purchaser and OriGene that we believe that application of these provisions requires Purchaser to make a payment to us of approximately $1.0 million under the Asset Purchase Agreement. Purchaser and OriGene disputed our determination of this amount, and indicated to us that they believe that we owe Purchaser approximately $400,000 pursuant to such provisions. Purchaser and OriGene also indicated that they believe they may have claims for indemnification under the Asset Purchase Agreement. We have initiated formal legal action in Delaware to compel Purchaser to comply with the working capital adjustment provisions of the Asset Purchase Agreement and Purchasers have filed a counterclaim seeking compensatory and punitive damages for various alleged causes of action including breaches of the Asset Purchase Agreement, fraud, tortious interference and defamation. In addition, in April 2014, we received an Indemnification Claim Notice from the Purchaser and OriGene making indemnification claims of approximately $630,000. We believe Purchasers and OriGenes claims to be without merit and have defended such claims vigorously, including filing a motion to dismiss certain of the claims.
In May 2014, the parties reached a preliminary agreement to settle all claims. The terms of the settlement call for the release of the $1.3 million in escrow to us, as well as the payment by the Purchaser and OriGene to us of an additional $250,000 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. The settlement is subject to the negotiation of definitive agreements, which we expect to complete during the second quarter of 2014.
Overview
Prior to the completion of the Asset Sale, the Company was a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
Results of Operations
Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013
Selling, general and administrative
Selling, general and administrative expenses were $340,000 for the three months ended March 31, 2014 and $454,000 for the three months ended March 31, 2013. The decrease is primarily attributable to lower personnel costs in 2014. These costs reflect the levels of personnel and professional fees related to the minimal operations that the Company has been conducting following the consummation of the Asset Sale.
Income taxes
The Company recorded no income tax provision for the three-month periods ended March 31, 2014 and March 31, 2013. The Company has full valuation allowances placed against U.S. federal and state deferred tax assets.
Loss from continuing operations
Loss from continuing operations was $340,000, or $0.02 per diluted share, for the three-month period ended March 31, 2014, and $456,000, or $0.02 per diluted share, for the three-month period ended March 31, 2013. Diluted shares utilized in these computations were 21.0 million and 20.6 million for the 2014 and 2013 three-month periods respectively.
Loss from discontinued operations
The Company experienced no loss from discontinued operations in the three months ended March 31, 2014, after experiencing a loss from discontinued operations of the Companys life sciences assets of $1.1 million, or $0.06 per diluted share, in the three-month period ended March 31, 2013.
Net loss
Net loss was $340,000 or $0.02 per diluted share, for the three-month period ended March 31, 2014, compared to a net loss of $1.6 million, or $0.08 per diluted share, for the same period in 2013. Diluted shares utilized were 21.0 million and 20.6 million for the 2014 and 2013 periods, respectively.
Liquidity and Capital Resources
The net cash used in operating activities was $277,000 for the first three months of 2014 compared to net cash used in operating activities of $1.8 million for the first three months of 2013. The net cash used in operating activities in 2014 was primarily the result of the net loss incurred partially offset by an increase in accrued expenses. The net cash used in operating activities for the 2013 period was primarily the result of the net loss incurred and the use of cash by discontinued operations.
There was no cash used in investing activities in the three months ended March 31, 2014. Net cash used in investing activities of $277,000 for the first three months of 2013 related to the capital expenditures in the discontinued operations for the period.
There was no net cash used in financing activities in the three months ended March 31,2014. Net cash used in financing activities of $11,000 for the first three months of 2013 was attributable to scheduled debt repayments. The Companys working capital (current assets less current liabilities) was $25.0 million at March 31, 2014 compared to $25.3 million at December 31, 2013.
For the three months ended March 31, 2014, the Company satisfied all of its cash requirements from cash available and on-hand.
Based upon its cash and cash equivalents on hand, the Company believes it has, or has access to, sufficient resources to meet its operating requirements through at least the next 12 months
The Companys ability to meet its long-term capital needs will depend on a number of factors, including government regulation, its successful sale of additional common stock and/or the Company successfully locating and obtaining other financing, and the success of the Companys plan to make future acquisitions. Accordingly, no assurance can be given that the Company will be able to meet the future liquidity requirements that may arise from these inherent and similar uncertainties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has limited exposure to changing interest rates, and is currently not engaged in hedging activities.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Change in Internal Control over Financial Reporting
No change in the Companys internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting
31.1 |
|
Certifications of the Principal Executive Officer of Special Diversified Opportunities Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934 |
31.2 |
|
Certifications of the Principal Financial Officer of Special Diversified Opportunities Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934 |
32.1 |
|
Certification of the Principal Executive Officer of Special Diversified Opportunities Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
32.2 |
|
Certification of the Principal Financial Officer of Special Diversified Opportunities Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
101.INS |
|
XBRL Instance document |
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SPECIAL DIVERSIFIED OPPORTUNTIES INC. |
|
|
Date: May 15, 2014 |
/s/ Philip T. Blazek |
|
Philip T. Blazek |
|
|
|
|
Date: May 15, 2014 |
/s/ Kevin J. Bratton |
|
Kevin J. Bratton |