Commitment and Contingencies

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

7. Commitment and Contingencies

Leases

The Company’s offices are located in Tysons Corner, Virginia and Bethesda, Maryland, where it leases 837 and 5,000 square feet of office space under leases that expire on August 31, 2014 and March 31, 2018, respectively. The Company’s monthly lease payment for the Virginia office space is $1,883 per month and $13,090 per month for the Maryland office space.  The Company’s subsidiary, Nuta Technology Corp., is located in the Tysons Corner, Virginia office.  The capacity of the Tysons Corner and Bethesda facilities are adequate for the Company’s current needs.  The Company also leases office space in New York, NY on a month-to-month basis at a monthly rate of $6,000. The Virginia lease runs from March 1, 2013 through August 31, 2014.

Future minimum rental payments required as of March 31, 2014, remaining under the non-cancelable leases are as follows (in thousands):

	Operating Lease
December 31, 2014	$	128
December 31, 2015		161
December 31, 2016		165
December 31, 2017		170
December 31, 2018		43
	$	667

Legal Proceedings

In the ordinary course of business, the Company actively pursues legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology.  From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of our business.  There were no pending material claims or legal matters as of the date of this report other than the following matters:

Spherix Incorporated v. Elizabethean Court Associates III Limited Partnership

The Company has commenced a lawsuit against the landlord of the Bethesda, Maryland office claiming that the assignment of the lease to the purchaser of the Spherix Consulting business was permitted under the lease and seeking termination of the lease as a result of the landlord's failure to consent to such assignment.  The lawsuit, Spherix Incorporated v.  Elizabethean Court Associates III Limited Partnership ("Elizabethean"), Case No., 377142 was decided in favor of Elizabethean on March 28, 2014.  On April 24, 2014 Elizabethean filed a motion for an award of attorneys' fees and costs.  The Company intends to oppose the motion.  The Company will continue to use the leased property in the normal course of its business and make the monthly rental payments in accordance with the terms of the lease.

Charter Communications, Inc., Wideopenwest Finance LLC a/k/a Wow! Internet, Cable & Phone, Knology, Inc., Cequel Communications, LLC, d/b/a Suddenlink Communications, and Cable One, Inc.  v Rockstar Consortium US LP, Bockstar Technologies LLC, Constellation Technologies LLC, and Spherix Incorporated.

On January 17, 2014, an action was filed by several cable operators in the United States District Court for the District of Delaware (No 1:99-mc-09999) against Rockstar, Bockstar Technologies LLC, Constellation Technologies LLC and the Company (collectively, the “Defendants”).  The complaint (the “Complaint”) was filed by Charter Communications, Inc., WideOpenWest Finance, LLC a/k/a WOW! Internet, Cable & Phone, Knology, Inc., Cequel Communications, LLC d/b/a Suddenlink Communications, and Cable One, Inc.  (collectively, the “Plaintiffs”).  Plaintiffs are in the communications, cable and/or wireline industries and allege that Rockstar has accused the Plaintiffs of practicing various communication and networking technologies (including many well-established technical standards), related to those industries.  The complaint states that in many instances such technical standards are designed into the equipment Plaintiffs purchase from vendors, and must be implemented to interoperate with other communications providers and their end user customers.  Rockstar owns (and since December 31, 2013, the Company owns) patents alleged to be infringed by Plaintiffs activities.  The relief sought against the Company is principally for a declaratory judgment that Plaintiffs do not infringe the patents, requiring that the Plaintiffs be granted a patent license, that the Company has misused the patents and it and the other Defendants have waived and are estopped from enforcing the patents in the marketplace, that the Company is liable to Plaintiffs for entering into an illegal conspiracy, and assessing corresponding damages, for direct and consequential damages, attorney’s fees and costs.  The Company cannot predict the outcome of this matter, however, the Company’s preliminary assessment is that the lawsuit is completely without merit and intends to vigorously defend it position.  The Company has not accrued a loss for this matter.

Registration Penalty

As stipulated in the Registration Rider of the December 2013 Rockstar patent acquisition agreement, the Company was required to both (i) file a registration statement for the securities issued as consideration in the agreement by February 3, 2013 (unless a later date was consented to by Rockstar), and (ii) such registration statement was to be declared effective by the SEC within sixty (days) after its filing.  Failure to comply with the registration requirement required that the Company issue to Rockstar additional consideration ("Additional Rockstar Shares") in the form of shares of Common Stock equal to five (5%) percent of the number of shares of Common Stock and Preferred H Stock (taken together) issued to Rockstar (subject to certain beneficial ownership restrictions).  Additionally, if the issuance of "Additional Rockstar Shares" would have resulted in violation of certain beneficial ownership limitations, then the issuance of such "Additional Rockstar Shares" would be deferred until such time as the issuance would not cause Rockstar to exceed the applicable Beneficial Ownership set out with in the agreement.

The Company filed a registration statement which was declared effective until April 16, 2014.  Since the Company is required to deliver shares under a registration payment arrangement, the transfer of that consideration is probable, and the number of shares to be delivered could be reasonably estimated, the Company’s closing share price at March 31, 2014 was used to measure the contingent liability in accordance with ASC 450 “Contingencies”.  The Company recorded an accrued expense of $0.7 million based on its obligation to issue 239,521 common shares at a closing price of $2.99 on March 31, 2014.