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EX-32.1 - EXHIBIT 32.1 - STANDARD DIVERSIFIED INC.t1600713_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - STANDARD DIVERSIFIED INC.t1600713_ex31-1.htm
 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2016

 

¨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   (I.R.S. employer
incorporation or organization)   identification no.)
     
1521 Concord Pike, Suite 301    
Wilmington, DE   19803
(Address of principal executive offices)   (Zip Code)

 

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: ¨

 

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: ¨

 

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 ¨   Accelerated filer ¨
     
Non-accelerated filer ¨   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: ¨

 

As of October 31, 2016, there were 21,037,640 outstanding shares of the Registrant’s common stock, par value $.01 per share.

 

 
   

 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC.

 

INDEX

 

  Item   Page
PART I FINANCIAL INFORMATION  
ITEM 1. Financial Statements (Unaudited)  
Consolidated Balance Sheets – September 30, 2016 and December 31, 2015 2
Consolidated Statements of Operations – Three and Nine months ended September 30, 2016 and 2015 3
Consolidated Statements of Cash Flows – Nine months ended September 30, 2016 and 2015 4
Notes to Consolidated Interim Financial Statements 5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 13
ITEM 4. Controls and Procedures 13
PART II OTHER INFORMATION 14
ITEM 6. Exhibits 14
SIGNATURES 15

 

 1 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SPECIAL DIVIERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

 

   September 30,   December 31, 
   2016   2015 
ASSETS          
Current Assets :          
Cash and cash equivalents  $13,112   $23,467 
Marketable securities, available for sale   9,981    - 
Other current assets   36    46 
Total current assets   23,129    23,513 
Total assets  $23,129   $23,513 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities :          
Accrued expenses  $433   $351 
           
Total current liabilities   433    351 
           
Stockholders' Equity:          
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, 21,444,267 and 21,436,767 shares issued at September 30, 2016 and December 31, 2015, respectively   217    217 
Additional paid-in capital   44,307    44,172 
Treasury stock, 406,627 common shares at cost at September 30, 2016 and December 31, 2015   (555)   (555)
Accumulated deficit   (21,273)   (20,672)
Total stockholders' equity   22,696    23,162 
Total liabilities and stockholders' equity  $23,129   $23,513 

 

The accompanying notes are an integral part of these statements.

 

 2 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2016   2015   2016   2015 
                 
Operating expenses:                    
Selling, general and administrative  $274   $268   $610   $810 
Total operating expenses   274    268    610    810 
                     
Operating loss   (274)   (268)   (610)   (810)
                     
Interest income, net   8    -    9    - 
                     
Loss before taxes   (266)   (268)   (601)   (810)
                     
Income tax expense   -    -    -    - 
                     
Net loss  $(266)  $(268)  $(601)  $(810)
                     
Basic and diluted net loss per share  $(0.01)  $(0.01)  $(0.03)  $(0.04)
                     
Shares used in computing basic and diluted net loss per share   21,037,640    21,027,640    21,035,973    21,027,640 

 

The accompanying notes are an integral part of these statements.

 

 3 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

   Nine Months 
   Ended September 30, 
   2016   2015 
Cash Flows from Operating Activities:          
Net loss  $(601)  $(810)
Adjustments to reconcile net loss to net cash used in operating activities:          
Share-based compensation expense   2    6 
(Increase) decrease in:          
Other current assets   10    (25)
Increase (decrease) in:          
Accrued expenses   82    (81)
Net cash used in operating activities   (507)   (910)
           
Purchase of marketable securities   (9,981)   - 
Net cash used in investing activities   (9,981)   - 
           
Cash Flows from Financing Activities:          
Proceeds from disgorgement of profit realized by an insider on short-swing transaction   133    - 
Net cash provided by financing activities   133    - 
           
Net decrease in Cash and Cash Equivalents   (10,355)   (910)
           
Cash and Cash Equivalents, Beginning of Period   23,467    24,818 
           
Cash and Cash Equivalents, End of Period  $13,112   $23,908 
           
Supplemental Cash Flow Disclosure:          
           
Cash paid for taxes, net of tax refunds  $20   $22 

 

The accompanying notes are an integral part of these statements.

 

 4 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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, 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 Company's stockholders, 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.

 

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 has been exploring strategic alternatives to maximize shareholder value going forward including deploying the proceeds of the Asset Sale in business acquisition opportunities, merging with another company, or other actions to redeploy our capital, including, without limitation, distribution of cash to our shareholders.

 

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, 2015. 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.

 

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 expenses during the period. These estimates include those made in connection with assessing the valuation of deferred tax assets. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. As of September 30, 2016 and December 31, 2015, cash and cash equivalents consisted of the following:

 

 5 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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 (Continued)

 

   September 30, 2016   December 31, 2015 
         
Bank checking operating accounts  $3,092   $23,467 
           
Money market funds   27    - 
           
U.S. Treasury Bills and U.S Government Agencies   9,993    - 
           
Total Cash and cash equivalents  $13,112   $23,467 

 

Marketable Securities, Available for Sale

 

Marketable securities consist of securities with original maturities greater than three months, and are comprised of U.S. Treasury Bills and securities issued by U.S. government agencies. Marketable securities have been classified as current assets in the accompanying Consolidated Balance Sheet as of September 30, 2016 based upon the nature of the securities and their intended use to fund operations.

 

Management determines the appropriate classification of securities at the time of purchase. The Company has classified its investment portfolio as available for sale in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 320, Investments-Debt and Equity Securities. The Company's available for sale securities are carried at fair value with unrealized gains and losses reported in other comprehensive income (loss). Realized gains and losses are determined using the specific identification method and are included in interest income (expense).

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation using the fair value method, which requires that compensation costs related to employee share based payment transactions are measured in the financial statements at the fair value on the date of grant and are recognized over the vesting period of the award.

 

3.Fair Value Measurements

 

The Company measures certain assets at fair value in accordance with Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

 

·Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets.
·Level 2—Valuations based on observable inputs other than Level 1 and quoted prices in active markets for similar assets.
·Level 3—Valuations based on inputs that are unobservable.

 

 6 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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

 

3.FAIR VALUE MEASUREMENTS (Continued)

  

The Company has used Level 1 inputs to determine the fair value of its cash equivalents and marketable securities available for sale. As of September 30, 2016, cost represented fair value of the Company's cash equivalents and marketable securities.

 

4.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, 2016 and 2015, outstanding common stock options representing 674,570 and 1,034,570 shares, respectively, and 342,500 and 15,000 unvested restricted shares, respectively, were excluded from the computation of diluted EPS.

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2016   2015   2016   2015 
                     
Weighted average common shares outstanding   21,037,640    21,027,640    21,035,973    21,027,640 
                     
Shares used in computing basic and diluted loss per share   21,037,640    21,027,640    21,035,973    21,027,640 

 

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.

 

 7 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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

 

5.SHARE-BASED COMPENSATION (Continued)

 

Share-based compensation expense recorded in the three and nine month periods ended September 30, 2016 and 2015 is summarized as follows:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2016   2015   2016   2015 
                 
Stock options  $-   $2   $-   $4 
Restricted Stock Awards   1    2    2    2 
                     
Total share-based compensation expense  $1   $4   $2   $6 

 

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, 2016 and 2015. 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, 2016 is summarized as follows:

   

                          Weighted   Aggregate  
    Number                     Average Remaining   Instrinsic  
    of Shares     Price Range   Contractual term   Value  
                                 
Balance, January 1, 2016     684,570     $ 1.24       - $ 3.74        
                                           
Granted     -                                    
Cancelled / Forfeited     (10,000 )   $ 1.24                            
                                           
Balance, September 30, 2016     674,570     $ 1.24       -   $ 3.74    3.4 years   $ -  
                                           
Vested and excercisable at
September 30, 2016
    664,570     $ 1.24       -   $ 3.74    3.3 years   $ -  

 

 

 8 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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

 

5.SHARE-BASED COMPENSATION (Continued)

 

The following table provides additional information about the Company’s stock options outstanding and exercisable at September 30, 2016:

 

    Options Outstanding   Options Exercisable 
        Weighted Average       Wtd. Average 
Range of   Number of   Remaining    Exercise   Number of   Exercise 
Exercise Prices   Shares   Contractual Life    Price   Shares   Price 
                           
 $  1.24   -   $  1.85    467,528    3.3   Years    $1.51    457,528   $1.52 
 $  2.00   -   $  2.25    175,000    4.0   Years    $2.13    175,000   $2.13 
 $  3.69   -   $  3.74    32,042    1.6   Years    $3.72    32,042   $3.72 
 $  1.24   -   $  3.74    674,570    3.4   Years    $1.78    664,570   $1.79 

 

The Company grants restricted stock awards ("RSA"), which is the right to receive shares of common stock. In May 2016, the Company issued to non-employee directors RSA's aggregating 340,000 shares with performance based vesting. These shares vest upon the achievement of certain corporate goals within 18 months of the grant date. No expense has been recognized for these awards at September 30, 2016; the expense will be recognized when the corporate goals are achieved.

 

The Company had 342,500 and 7,500 shares of unvested restricted stock as of September 30, 2016 and December 31, 2015, respectively.

 

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, 2015. During the nine month period ended September 30, 2016, 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 2016 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, 2016, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.

 

As of September 30, 2016, the Company had approximately $628 of unrecognized tax benefits, $622 of which were recorded as a reduction to existing net operating loss and tax credit carryforwards, and therefore require no accrual for interest or penalty. The remaining $6 includes de minimis interest and penalties where required. For the nine months ended September 30, 2016, 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 subsequent 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.

 

 9 

 

SPECIAL DIVERSIFIED OPPORTUNITIES INC. AND SUBSIDIARY

 

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

 

7.DISGORGEMENT OF SHORT SWING PROFIT

 

On February 29, 2016, the Company was informed by B. Riley & Co., LLC ("B. Riley") that it had sold 3,504,172 shares of the Company's common stock in a transaction that is matchable against B. Riley's purchase of 742,344 shares of the Company's common stock in December 2015. In accordance with Section 16(b) of the Securities Exchange Act of 1934 which provides that any profit realized by an insider on short-swing transactions must be disgorged to the Company, B. Riley paid the Company $133 for the disgorgement of profits in connection with these matchable transactions. This amount was credited to additional paid-in capital during the quarter ended March 31, 2016.

 

8.RIGHTS PLAN

 

On April 27, 2016 (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 May 16, 2016.

 

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 May 16, 2016. 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 B 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 B 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.

 

 10 

 

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 subsidiary (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, 2015.

 

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, 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 Company's stockholders, 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.

 

Overview

 

The Company is presently a shell company and the Company's board of directors has been exploring strategic alternatives to maximize shareholder value going forward, including deploying the proceeds of the Asset Sale in business acquisition opportunities, merging with another company, or other actions to redeploy our capital, including, without limitation, distribution of cash to our shareholders.

 

Results of Operations

 

Three Months Ended September 30, 2016 versus Three Months Ended September 30, 2015

 

Selling, general and administrative

 

Selling, general and administrative expenses include personnel costs, professional fees and other expenses related to the Company's current level of activity while the Company explores its future direction and opportunities. Selling, general and administrative expenses increased from $268,000 for the three months ended September 30, 2015 to $274,000 for the three months ended September 30, 2016. The increase was primarily attributable to increased legal expenses and management and board costs associated with the evaluation of potential acquisitions. This increase was offset by lower personnel costs in the 2016 period as well as the absence of costs associated with the 2015 Annual Meeting of Stockholders as the 2016 annual meeting has not occurred yet.

 

Income taxes

 

The Company recorded no income tax provision for the three month periods ended September 30, 2016 and September 30, 2015. The Company has a full valuation allowance offsetting its U.S. federal and state net deferred tax assets.

 

 11 

 

Net loss

 

Net loss was $266,000, or $0.01 per diluted share, for the three month period ended September 30, 2016, compared to a net loss of $268,000, or $0.01 per diluted share, for the same period in 2015.

 

Nine Months Ended September 30, 2016 versus Nine Months Ended September 30, 2015

 

Selling, general and administrative

 

Selling, general and administrative expenses decreased from $810,000 for the nine month period ended September 30, 2015 to $610,000 for the nine month period ended September 30, 2016. The decrease was primarily attributable to lower personnel costs as well as the absence of costs associated with the 2015 Annual Meeting of Stockholders as the 2016 annual meeting has not occurred yet. This decrease was partially offset by an increase in professional fees and management and board costs associated with the evaluation of potential acquisitions.

 

Income taxes

 

The Company recorded no income tax provision for the nine month periods ended September 30, 2016 and September 30, 2015. The Company has a full valuation allowance offsetting its U.S. federal and state net deferred tax assets.

 

Net loss

 

Net loss was $601,000, or $0.03 per diluted share, for the nine month period ended September 30, 2016, compared to a net loss of $810,000, or $0.04 per diluted share, for the same period in 2015.

 

Liquidity and Capital Resources

 

The net cash used in operating activities was $507,000 for the first nine months of 2016 compared to net cash used in operating activities of $910,000 for the first nine months of 2015. The net cash used in operating activities for the 2016 period was primarily the result of the net loss incurred partially offset by a increase in accrued expenses and a decrease in prepaid expenses. The net cash used in operating activities for the 2015 period was primarily the result of the net loss incurred, combined with an increase in other current assets and a decrease in accrued expenses.

 

The Company used $9,981,000 to purchase marketable securities, available for sale in the nine months ended September 30, 2016. There was no cash used in investing activities in the nine months ended September 30, 2015.

 

Net cash provided by financing activities of $133,000 in the nine months ended September 30, 2016 represents cash received from B. Riley for the disgorgement of profits on matchable transactions as discussed in Note 7 of the Notes to the Consolidated Interim Financial Statements. There was no cash provided by financing activities in the nine months ended June 30, 2015.

 

The Company’s working capital (current assets less current liabilities) was $22.7 million at September 30, 2016 compared to $23.2 million at December 31, 2015.

 

For the nine months ended September 30, 2016, 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 sufficient resources to meet its operating requirements through at least the next 12 months. The Company has invested a portion of its cash balance in short term investment instruments as of September 30, 2016.

 

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 or enter into a merger transaction. 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.

 

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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 Chief Financial Officer (who is our principal executive and accounting 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 Chief Financial Officer concluded that, as of September 30, 2016, 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 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

   

31.1* Certifications of the Principal Executive Officer and 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 and 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

 

 
*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.

 

    SPECIAL DIVERSIFIED OPPORTUNITIES INC.
     
Date: November 14, 2016   /s/ Kevin J. Bratton
    Kevin J. Bratton
Vice President - Finance and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)

 

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