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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 September 30, 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)

Registrant’s 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):

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 October 31, 2014, there were 21,027,640 outstanding shares of the Registrant’s common stock, par value $.01 per share.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC.

INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SPECIAL DIVIERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
(unaudited)

The accompanying notes are an integral part of these statements.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)
(unaudited)

The accompanying notes are an integral part of these statements.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)
(unaudited)

The accompanying notes are an integral part of these statements

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

The accompanying notes are an integral part of these statements.

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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 ultimate parent 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 stockholder approval, to sell to the Purchaser substantially all of the Company’s rights, title and interest in substantially all of the Company’s 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 Company’s rights, title, and interest in substantially all of the assets, equipment, inventory, and intellectual property (the “Purchased Assets”) related exclusively to the Company’s 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 Company’s Advanced Technologies Business.  The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement.  Parent unconditionally guaranteed Purchaser’s obligations in the Asset Purchase Agreement.  The purchase price for the Purchased Assets was $16,000, which was 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, $1,300 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 Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s 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.

In May 2014, the Company, the Purchaser and OriGene reached a settlement of all outstanding disputes over matters related to the Asset Sale (Note 4, Discontinued Operations).  Under the terms of the settlement, the Company received additional proceeds of $250 for the working capital adjustment and the $1,300 held in escrow was released.

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 and nine month periods ended September 30, 2013 (Note 4, Discontinued Operations).

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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

The Company is a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. The Company’s board of directors is exploring strategic alternatives to deploy the proceeds of the Asset Sale, which may include future acquisitions, a merger with another company, or other actions to redeploy capital, including, without limitation, distribution of cash to our shareholders.

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 Company’s 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 Company’s 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 and 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 project’s specifications had been met and 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.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)

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 valuation of accounts receivable, 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 and nine month periods ended September 30, 2014 and 2013, there were no conversion of stock options with exercise prices less than the market share price and unvested restricted shares into common share equivalents excluded from this calculation because they were anti-dilutive, due to the net loss incurred in each of the periods.

4.                         DISCONTINUED OPERATIONS

On October 16, 2012, the Company completed the sale of its Food Pathogens and AG-GMO products assets to Romer Labs for approximately $12,075, net of 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 $9,882.

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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 Company had the opportunity to receive additional consideration of up to $600 if it was able to meet certain conditions by April 30, 2013 as provided for in the Asset Purchase Agreement.  As of June 30, 2013, the Company received $150 pursuant to this additional consideration, and it was recorded in income (loss) from discontinued operations as a gain on sale of assets in the Company’s financial results for the three month period ended June 30, 2013.  On July 26, 2013, the Company received an additional $150 pursuant to this additional consideration, which was recorded as a gain on sale of assets in the three month period ended September 30, 2013.  The Company will not receive the remaining $300 related to this additional consideration.

On July 12, 2013, the Company completed the sale of its Life Sciences products assets to SDIX LLC for approximately $16,000 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 $2,300 before any working capital adjustment as provided for in the Asset Purchase Agreement.

At the closing of the Asset Sale, $1,300 of the purchase price was placed in escrow to satisfy any indemnification claims brought by April 12, 2014. This amount was included in Restricted Cash on the Company’s balance sheet at December 31, 2013. In addition, the Asset Purchase Agreement provided 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.

In May 2014, the Company, the Purchaser and OriGene reached a settlement of all claims by all parties. The terms of the settlement called for the release of the $1,300 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. This payment was recorded in income (loss) from discontinued operations as gain on sale on the Consolidated Statements of Operations for the three months ended June 30, 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 periods ended September 30, 2013.

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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 table presents key information associated with the operating results of the discontinued operation for the reporting periods included in the Company’s consolidated statements of operations:

Results of Operations of Discontinued Operations

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 Company’s 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.

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 Company’s 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.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)

Share-based compensation expense recorded in the three and nine month periods ended September 30, 2014 and 2013 is summarized as follows:

Share-based compensation expense is a component of selling, general and administrative expense, and is recorded as a non-cash expense in the operating activities section of the Company’s consolidated statements of cash flows.

No options were exercised in the nine month periods ended September 30, 2014 and 2013.  Proceeds received from employee payments into the ESPP in the nine month periods ended September 30, 2014 and 2013 were $0 and $4, respectively.  These amounts are recorded in the cash flows from financing activities section of the Company’s 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 nine months ended September 30, 2014 is summarized as follows:

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)

During the nine month period ended September 30, 2014, there were 23,076 options granted with a weighted average grant date fair value, based on a Black-Scholes option pricing model, of $0.40 per share.  The assumptions used in the Black-Scholes model are as follows: dividend yield 0%, expected volatility 37.9%, risk-free interest rate 1.71% and expected life of 5.5 years.  The Company uses the Simplified Method for determining the expected life of options granted to employees which is computed using the sum of the average vesting period and the contractual life of the option and dividing by two, for all periods presented.  The Company uses the contractual life of the option to determine the expected life of the option for nonemployees.

The following table provides additional information about the Company’s stock options outstanding and exercisable at September 30, 2014:

The Company had no unvested restricted stock as of December 31, 2013 or September 30, 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 nine month period ended September 30, 2014, the Company’s 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 nine months of 2014 did not change management’s 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 September 30, 2014, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.

The Company has provided a liability for approximately $619 of unrecognized tax benefits as of December 31, 2013 and September 30, 2014.  For federal purposes, tax years subsequent to 1996 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 operating losses. The Company does not expect that the total amounts of unrecognized tax benefits related to positions taken in prior period will change significantly during the next 12 months.

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SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)

7. SUBSEQUENT EVENT

On October 15, 2014 (the “Rights Dividend Declaration Date”), the Company’s Board of Directors (the “Board of Directors”) adopted a Section 382 rights plan (the “Section 382 Rights Plan”) and declared a dividend distribution of one Right (as defined below) for each outstanding share of common stock of the Company to stockholders of record at the close of business on October 29, 2014.

The Section 382 Rights Plan is intended to act as a deterrent to any person (an “Acquiring Person”) acquiring (together with all affiliates and associates of such person) beneficial ownership of 4.99% or more of the Company’s outstanding Common Stock within the meaning of Section 382 of the Code, without the approval of the Board of Directors. Stockholders who beneficially own 4.99% or more of the Company’s outstanding Common Stock as of the Rights Dividend Declaration Date will not be deemed to be an Acquiring Person, but such person will be deemed an Acquiring Person if such person (together with all affiliates and associates of such person) becomes the beneficial owner of securities representing a percentage of the Common Stock that exceeds by 1.0% or more the lowest percentage of beneficial ownership of the Common Stock that such person had at any time since the Rights Dividend Declaration Date.

The Rights.  On the Rights Dividend Declaration Date, the Board of Directors authorized the issuance of one right (a “Right”) for each outstanding share of the Common Stock to the Company’s stockholders of record as of October 29, 2014. Subject to the terms, provisions and conditions of the Section 382 Rights Agreement, if the Rights become exercisable, each Right would initially represent the right to purchase from the Company one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock, par value $0.01 per share, for a purchase price of $5.00 per Right (the “Purchase Price”). If issued, each fractional share of Series A Junior Participating Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of the Common Stock. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including any dividend, voting or liquidation rights.

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Item 2. Management’s 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 Company’s public filings with the SEC including, without limitation, the Company’s 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 ultimate parent 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 stockholder approval, to sell to Purchaser substantially all of the Company’s rights, title and interest in substantially all of the Company’s 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 Company’s right, title, and interest in the Purchased Assets related exclusively to the Company’s 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 Advanced Technologies Business.  The Purchaser also assumed and agreed to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement.  Parent unconditionally guaranteed Purchaser’s obligations in the Asset Purchase Agreement.  The purchase price for the Purchased Assets was $16.0 million, which was 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 Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.

In May 2014, the Company, the Purchaser and OriGene reached a settlement of all claims by all parties. The terms of the settlement called 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 $250,000 pursuant to the working capital adjustment provisions of the Asset Purchase Agreement. This payment was recorded as gain on sale on the Consolidated Statements of Operations for the three months ended June 30, 2014.

As a result of the Asset Sale, the Company no longer owns its historical operating assets, and its past business operations have been discontinued.

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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. The Company is presently a shell company and the Company’s board of directors is exploring strategic alternatives to deploy the proceeds of the Asset Sale.

Results of Operations

Three Months Ended September 30, 2014 versus Three Months Ended September 30, 2013

Selling, general and administrative

Selling, general and administrative expenses were $261,000 for the three month period ended September 30, 2014 and $427,000 for the three month period ended September 30, 2013.  The decrease was primarily attributable to lower personnel costs and professional fees. Selling, general and administrative expenses 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 September 30, 2014 and September 30, 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 $261,000, or $0.01 per diluted share, for the three month period ended September 30, 2014 and $428,000, or $0.02 per diluted share, for the three month period ended September 30, 2013. Diluted shares used in these computations were 21.0 million and 21.1 million for the 2014 and 2013 periods, respectively.

Income  from discontinued operations

Income from the Company’s discontinued operations was $3.0 million, or $0.14 per diluted share, for the three month period ended September 30, 2013.  There was no income from discontinued operations for the 2014 period.  Income from discontinued operations in the 2013 period includes the gain of $3.3 million on the sale of the Company’s Life Science assets and $150,000 received as additional consideration on the sale of the Food Pathogen and AG-GMO assets sold in 2012, partially offset by an operating loss of $395,000 for the Life Science products sold from July 1, 2013 through the closing date of the Asset Sale.  Diluted shares utilized in the computation were 21.1 million for the 2013 three month period.

Net loss

Net loss was $261,000, or $0.01 per diluted share, for the three month period ended September 30, 2014, compared to net income of $2.6 million, or $0.14 per diluted share, for the same period in 2013. Diluted shares utilized were 21.0 million and 21.1 million for the 2014 and 2013 periods, respectively.

Nine Months Ended September 30, 2014 versus Nine Months Ended September 30, 2013

Selling, general and administrative

Selling, general and administrative expenses were $946,000 for the nine month period ended September 30, 2014 and $1.4 million for the nine month period ended September 30, 2013.  The decrease was primarily attributable to lower personnel costs and lower professional fees.

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Income taxes

The Company recorded no income tax provision for the nine month periods ended September 30, 2014 and September 30, 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 $944,000, or $0.04 per diluted share, for the nine month period ended September 30, 2014, and $1.4 million, or $0.07 per diluted share, for the nine month period ended September 30, 2013.  Diluted shares utilized in these computations were 21.0 million and 20.8 million for the 2014 and 2013 nine month periods, respectively.

Income  from discontinued operations

Income from the Company’s discontinued operations was $250,000 for the nine month period ended September 30, 2014, representing the working capital adjustment on the Asset Sale in accordance with the settlement with the Purchaser and OriGene. Income from the Company’s discontinued operations for the nine months ended September 30, 2013 was $635,000, including $300,000 of additional consideration received in connection with the sale of the Company’s food safety assets. Income from discontinued operations was $0.01 per diluted share for the nine month period ended September 30, 2014 as compared with $0.03 per diluted share for the nine month period ended September 30, 2013.

Net loss

Net loss was $694,000, or $0.03 per diluted share, for the nine month period ended September 30, 2014, compared to a net loss of $732,000, or $0.04 per diluted share, for the same period in 2013. Diluted shares utilized were 21.0 million and 20.8 million for the 2014 and 2013 periods, respectively.

Liquidity and Capital Resources

Net cash used in operating activities was $875,000 for the first nine months of 2014 compared to net cash used in operating activities of $2.4 million for the first nine months of 2013.  The net cash used in operating activities for the 2014 period was primarily the result of the net loss incurred coupled with a decrease in accrued expenses.  The net cash used in operating activities for the 2013 period was primarily the result of the net loss incurred, a decrease in accrued expenses and an increase in other current assets.

Net cash provided by investing activities of $1.3 million for the first nine months of 2014 was attributable to the receipt of the Asset Sale proceeds that had been placed in escrow at the closing. These funds were released in connection with the settlement agreement with SDIX LLC and OriGene.  Net cash provided by investing activities of $9.6 million for the first nine months of 2013 related to the net proceeds from the Asset Sale partially offset by capital expenditures for the purchase of manufacturing and laboratory equipment as well as leasehold improvements in the discontinued operations for the period.

There was no cash used in financing activities in the nine months ended September 30, 2014.  Net cash used in financing activities of $237,000 for the first nine months of 2013 was the due to the purchase of employee restricted shares for withholding taxes plus the  financing activities from discontinued operations, primarily scheduled debt repayments.

The Company’s working capital (current assets less current liabilities) was $24.6 million at September 30, 2014 compared to $25.3 million at December 31, 2013.

For the nine months ended September 30, 2014, the Company satisfied all of its cash requirements from cash on-hand.

Based upon its cash and cash equivalents on hand, the Company believes it has sufficient resources to meet its operating requirements through at least the next 12 months.

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The Company’s 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 Company’s 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 September 30, 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 recorded within the time periods specified in the SEC’s 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 Company’s 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

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PART II — OTHER INFORMATION

Item 6. Exhibits

* Filed herewith.

+ Furnished herewith.

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SIGNATURES

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.

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