UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2019March 31, 2020

☐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 000-05576

SPHERIX INCORPORATED

(Exact name of Registrant as specified in its charter)

One Rockefeller Plaza

New York, NY 10020

(Address of principal executive offices)

(212) 745-1374

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically 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 such files.) Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of eachSecurities registered pursuant to Section 12(b) of the Registrant’s classes of Common Stock, as of the latest practicable date.Act:

As of November 11, 2019,May 13, 2020, there were 2,886,49134,920,219 shares of the Company’s common stock issued and outstanding.

Spherix Incorporated and SubsidiariesAIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED)

Form 10-Q

For the Quarter Ended September 30, 2019March 31, 2020

Index

Part I. Financial InformationPART I - FINANCIAL INFORMATION

ItemItem 1. Financial Statements

AIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED AND SUBSIDIARIESINCORPORATED)

Condensed Consolidated Balance Sheets

($ in thousands except share and per share amounts)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

AIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED AND SUBSIDIARIESINCORPORATED)

Condensed Consolidated Statements of Operations

($ in thousands except share and per share amounts)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

AIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED AND SUBSIDIARIESINCORPORATED)

Consolidated Statements of Changes in Stockholders’ Equity

($ in thousands except share and per share amounts)

(Unaudited)

For the Three Months Ended September 30, 2019March 31, 2020 

During the nine months ended September 30, 2019, the Company sold a total of 239,3597,142,858 shares of common stock under the ATM for aggregate totalat a price of $1.05 per share of common stock and Common Warrant. The Company also offered 3,897,113 pre-funded warrants (“Pre-Funded Warrants”) to purchase shares of common stock with a purchase price of $1.0499 each Pre-Funded Warrant. The exercise price of each Pre-Funded Warrant was $0.0001 per share and each Common Warrant was $1.05 per share.

This offering resulted in gross proceeds of approximately $0.6$7.5 million at an average selling pricebefore deducting the placement agent’s fee and related offering expenses of $2.51 per share, resulting in net proceeds of approximately $0.5 million after deducting commissions and other transaction costs.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)$1.0 million.

Registered Common Stock and Warrant Financing

On May 29, 2019,March 9, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) for the sale bysecurities purchase agreement with certain purchasers, pursuant to which the Company of 221,000agreed to issue and sell, in a registered direct offering, 2,090,909 shares of the Company’s common stockat a purchasean offering price of $2.60 $2.75 per share, and pre-funded common stock purchaseshare.

The Company also issued placement agent warrants to the placement agent (the “Placement Agent Warrant”) to purchase up to 86,692167,273 shares of common stock at a purchasewith an exercise price of $2.5999$3.4375 per Warrant, which represents the per share purchase price, less a $0.0001 per share exercise price for each of the warrants (“Penny Warrants”). The Company sold the shares and warrants for net proceeds of approximately $787 thousand which transaction closed on May 31, 2019. share.

Common Stock

The Company has determined that the Placement Agent Warrant Exchange

should be accounted as a component of stockholders’ equity. On June 6, 2019,the issuance date, the Company entered into an amendment toestimated the Purchase Agreement, pursuant to which the Purchaser surrendered an aggregate of 115,269 shares to the Company and the Company issued 115,269 Penny Warrants to the Purchaser in order to limit the Purchaser’s beneficial ownership.

The exchange of 115,269 Penny Warrants do not meet the definition of a derivative under ASC 815 because their fair value at issuance is equal to the fair value of Placement Agent Warrant at $0.2 million using the sharesBlack-Scholes option pricing model using the following primary assumptions: fair value of common stock underlying the warrant. As such, they have the characteristicswarrants is $1.83, expected life of a prepaid forward sale5 years, volatility rate of equity. Since the shares underlying the Penny Warrants are issuable for little or no consideration, they are considered outstanding in the context122.29%, risk-free interest rate of earnings per share, as discussed in ASC 260-10-45-13.0.63% and expected dividend rate of 0%. 

AIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Warrants

A summary of warrant activity for the ninethree months ended September 30, 2019March 31, 2020 is presented below:

On May 29, 2019, the Company entered into the Master Service Agreement (“MSA”) with a consultant, World Wide Holdings, LLC (“Consultant”). In consideration for services provided by Consultant, the Company paid to Consultant three warrants (the “Consultant Warrant”), with each warrant immediately exercisable for 33,333 shares of common stock with a $0.01 strike price. The Company issued each ofDuring the three warrants on June 28, July 28 and August 27, 2019, respectively. The Company recorded $0.2 and $0.3 million in stock-based compensation during the three and nine months ended September 30, 2019 related to this arrangement. On July 12, 2019,March 31, 2020, the Company issued 33,3333,897,113 and 6,798,593 shares of common stock upon exercise of one Consultantthe Pre-Funded Warrant and Common Warrants, respectively, which resulted in gross proceeds of approximately $333.$7.1 million.

Stock Options

A summary of option activity under the Company’s stock option plan for the nine months ended September 30, 2019 is presented below:

SPHERIX INCORPORATED AND SUBSIDIARIESNote 9. Commitments and Contingencies

Notes to Consolidated Financial Statements

(Unaudited)

Stock-based Compensation

Stock-based compensation for the three and nine months ended September 30, 2019 and 2018 was comprised of the following ($ in thousands):

Legal Proceedings

In the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology. From timeOther than ordinary routine litigation incidental to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. The Company knowsbusiness, we know of no material, active or pending material claims legal proceedings against us.

Risks and Uncertainties – COVID-19

Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or legal matters against itsearch for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this report.uncertainty.

Note 9.10. Subsequent Events

Common Stock Offering

On October 2, 2019,April 14, 2020, the Board of Directors approvedCompany, entered into a distributionsecurities purchase agreement with certain purchasers, pursuant to which the Company’s stockholders of 100,000Company agreed to issue and sell14,000,000 shares of Hoth Therapeutics, Inc. (“Hoth”) held by the Company. Accordingly, each of the Company’s stockholderscommon stockat an offering price of $1.00 per share.

The registered offering resulted in gross proceeds to the Company of approximately $14.0 million, before deducting the placement agent’s fee and other related offering expenses.

The Nasdaq Stock Market Deficiency Notice

On April 28, 2020, the Company, received one (1) share of Hotha staff deficiency notice from Nasdaq informing the Company that its common stock failed to comply with the $1.00 minimum bid price required for every twenty-nine (29)continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). Nasdaq’s letter advised the Company that, based upon the closing bid price during the period from March 16, 2020 to April 27, 2020, the Company no longer meets this requirement.

Given the current extraordinary market conditions, Nasdaq has determined to toll the compliance periods for the bid price and market value of publicly held shares requirements through June 30, 2020. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has been provided with a compliance period of Company180 calendar days from June 30, 2020, or until December 28, 2020, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock held asmust meet or exceed $1.00 per share for a minimum of 5 p.m. Eastern Time on October 21, 2019, the dividend record date. The Company did not distribute fractional shares of Hoth common stock, and any fractional shares were rounded down10 consecutive business days prior to the nearest whole share.December 28, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-Q. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements. All references to “we,” “us,” “our” and the “Company” refer to Aikido Pharma Inc. (formerly Spherix Incorporated,Incorporated), a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.

Overview

We are a technology development company committed to the fostering of innovative ideas.AIkido Pharma Inc., formerly known as Spherix Incorporated (the “Company”), was initially formed in 1967 asand is currently a scientific researchbiotechnology company with a diverse portfolio of small-molecule anti-cancer therapeutics in development. The Company’s platform consists of patented technology from leading universities and researchers and we are currently in the process of developing an innovative therapeutic drug platform through strong partnerships with world renowned educational institutions, including the University of Texas at Austin, the University of Maryland, Baltimore and Wake Forest University. Our diverse pipeline of therapeutics includes therapies for muchpancreatic cancer, acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL). The Company is also developing a broad spectrum antiviral platform that may potentially inhibit replication of our history pursued drug developmentmultiple viruses including through Phase III clinical studies which were largely discontinued in 2012. In 2012Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and 2013, we shifted our focus to being a firm that owns, develops, acquiresMarburg virus.

The Company previously focused its efforts on owning, developing, acquiring and monetizesmonetizing intellectual property assets. Such monetization included, but was not limited to, acquiring IP from patent holders in order to maximize the value of the patent holdings by conducting and managing a licensing campaign, commercializing the IP, or through the settlement and litigation of patents.  

Our activities generally include the acquisition and development of patents through internal or external research and development. In addition, we seek to acquire existing rights to intellectual property through the acquisition of already issued patents and pending patent applications, both in the United States and abroad. We may alone, or in conjunction with others, develop products and processes associated with technology development and monetizing related intellectual property.

Since March 1, 2013,May 2016, the Company has received limited funds from its IPintellectual property monetization. In addition to ourits patent monetization efforts, since the fourth quarter of 2017, we havethe Company has been transitioning to focus its efforts as a technology and biotechnology development company. These efforts have focused on biotechnology research and blockchain technology research. The Company’s investment in biotechnology research development includes investments in:includes: (i) an investment in Hoth Therapeutics Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema, (ii) an investment in DatChat, Inc. (“DatChat”), a privately held personal privacy platform focused on encrypted communication, internet security and digital rights management, and (iii) a proposedthe acquisition of assets of CBM BioPharma, Inc. (“CBM”), a pharmaceutical company focusing on the development of cancer treatments.

Pursuant toAs a Share Purchase Agreement, dated as of May 15, 2019, the Company purchased (i) 50,000 shares of common stock of CBM BioPharma, Inc. (“CBM”) and (ii) certain securities and uncertificated rights of DatChat from an existing shareholder of CBM and DatChat for an aggregate purchase price of $350,000. The investment represents a 20% interest in CBM, and the securities and rights of DatChat that were purchased from the existing shareholder of CBM include: (a) a senior convertible note issued by DatChat with outstanding principal of $300,000, with an initial conversion rate of $0.20 per share (b) a warrant to purchase 2,250,000 shares of DatChat common stock at an initial exercise price of $0.20 per share, (c) an option to acquire an additional $300,000 senior convertible note and a warrant to purchase 1,500,000 shares of DatChat common stock, (d) a contingent option to purchase 500,000 shares of DatChat common stock from an existing DatChat stockholder, and (e) a contingent option to put 200,000 shares of DatChat common stock, subject to certain terms and conditions. The transaction closed on May 22, 2019.

On February 20, 2019, Hoth closed on its initial public offering of 1,250,000 shares of its common stock at an initial offering price to the public of $5.60 per share, which commenced trading on The Nasdaq Capital Market on February 15, 2019 under the symbol “HOTH”. Asresult of the dateCompany’s biotechnology research development and associated investments and acquisitions, our business portfolio now focuses on the treatment of this report,three different cancers, including pancreatic cancer, acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL). Our AML and ALL compounds, developed at the CompanyWake Forest University, are targeted therapeutics designed to overcome multiple resistance mechanisms observed with the current standard of care. DHA-dFdC, our pancreatic drug candidate developed at the University of Texas at Austin, is a new compound that we hope will become the next generation of chemotherapy treatment for advanced pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and its affiliates own approximately 19% of Hoth.is well tolerated in preclinical toxicity tests. Preclinical studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that gemcitabine, a current standard therapy), has documented efficacy against pancreatic tumors in a clinically relevant transgenic mouse model and has demonstrated activities against other cancers, including leukemia, lung and melanoma. In addition, we are constantly seeking to grow our pipe to treat unmet medical needs in oncology.

In October 2018,addition, the Company entered intoowns an agreement and plan of merger (the “CBM Merger Agreement”) with CBM, pursuantexclusive world-wide license to which all shares of capital stock of CBM would be converted into the right to receive an aggregate of 3,529,411 shares of the Company’s common stock with CBM continuing as the surviving corporation in the merger. On May 15, 2019, the Company restructured the terms of its proposed merger with CBM and entered into an Asset Purchase Agreement (the “APA”) with CBM, whereby the Company agreed to purchase certain assets of CBM (the “Asset Acquisition”), including, among other things:

As consideration for the Asset Acquisition, the Company agreed to pay aggregate consideration of $8,000,000 to CBM consisting of (i) an aggregate number of shares of common stock equal to $7,000,000 (the “Stock Consideration”) comprised of (A) an aggregate number of shares of common stock equal to 9.9% of the issued and outstanding shares of common stock as of the date that the acquisition closes (the “Closing Date”) (the “Common Stock Consideration”) based on a per share purchase price of $3.61, subject to adjustment (the “Buyer Common Stock Price”), which ultimately limits CBM’s maximum voting control of the Company to 9.9% of the Company’s issued and outstanding common stock, and (B) such number of shares of nonvoting Series L Preferred Stock as shall be equal to the Stock Consideration less the value of the shares of common stock comprising the Common Stock Consideration, with each share constituting the Stock Consideration valued at the Buyer Common Stock Price, and (ii) cash consideration in the amount of $1,000,000 (the “Cash Consideration Amount”, and together with the Stock Consideration, the “Purchase Consideration”). The Cash Consideration Amountpatented technology from the Purchase ConsiderationUniversity of Maryland Baltimore (“UMB”). Our license is held back and becomes payable to CBM upon the consummation by the Company of the first sale by Spherix of common stock, Series L convertible preferred stock or any other equity or equity-linked financing of Spherix to investors in one or more transactions for which Spherix receives aggregate gross proceeds of greater than $2,000,000 (a “Qualified Financing”) after the Closing Date. Upon consummation of a Qualified Financing by the Company, the Company will retain the first $2,000,000 of gross proceeds received in connection with such Qualified Financing and CBM will receive 100% of the gross proceeds of such Qualified Financing received by the Company in excess of $2,000,000 as well as the gross proceeds of any subsequent equity financings by the Company until the Cash Consideration Amount is satisfied in full.

Upon the execution of the APA, the Company and CBM agreed to terminate the CBM Merger Agreement, including all schedules and exhibits thereto, and all ancillary agreements contemplated thereby, and waived that certain termination fee due to CBM pursuant to the CBM Merger Agreement.

Additionally, at or prior to the Closing, the Company, CBM, and a mutually agreeable escrow agent (the “Escrow Agent”), shall enter into an escrow agreement in form and substance reasonably satisfactory to the parties (the “Escrow Agreement”), pursuant to which the Company shall deposit with the Escrow Agent 10% of the Stock Consideration (including any equity securities paid in the future as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the (“Escrow Shares”), to be held in a segregated escrow account (the “Escrow Account”) and disbursed by the Escrow Agent. Such Escrow Shares shall be held in the Escrow Account for a periodbroad spectrum antiviral drug platform. The licensed technology is a broadly acting pan-viral inhibitory compound with efficacy against multiple viral pathogens. The technology works to inhibit replication of six months following closingmultiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and shall serve as a security for, and a source of payment for, CBM’s obligations to the Company and its representatives and any successor or assign thereof under the APA. Any Escrow Shares remaining in escrow and not subject to pending indemnification claims after the six month escrow period expires shall be released from the Escrow Account and disbursed to CBM.

Marburg virus. The obligations of the Company and CBM to consummate the transaction are subject to: (a) all necessary approvals being obtainedtechnology is covered by any relevant governmental authorities or any third parties, and the shareholders of the Company and CBM, (b) the absence of any law being enacted, issued, promulgated, enforced or entered, or any order by any federal or national, state or provincial, municipal or local government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, political subdivision, court, tribunal, official arbitrator or arbitral body in each case whether domestic or foreign (each a “Governmental Authority”) which makes the transaction illegal, and (c) no pending action being brought by a third-party non-affiliate to enjoin or restrict the transaction; (d) the Company holding a special meeting of its stockholders to approve, among other things, the issuance of the Stock Consideration; and (e) certain customary closing conditions, including but not limited to the accuracy of certain representations and warranties, the performance in all material respects of each parties’ obligations, agreements and covenants under the APA, and no Material Adverse Effect having occurredtwo patent applications already on file with respect to either the Company or CBM since the date of the APA. “Material Adverse Effect” means, with respect to CBM, any event, fact, condition, change, circumstance, occurrence or effect, which, either individually or in the aggregate with all other events, facts, conditions, changes, circumstances, occurrences or effects, (a) has had, or would reasonably be expected to have, a material adverse effect on the business, operations, properties, prospects, assets, liabilities, value, condition (financial or otherwise), licenses or results of operations of CBM’s business or the Purchased Assets or the Assumed Liabilities (each such term as defined in the APA) or (b) does or would reasonably be expected to materially impair or delay the ability of CBM to perform its obligations under the APA and the ancillary documents or to consummate the transactions contemplated hereby and thereby; provided, however, that a Material Adverse Effect will not include any adverse effect or change resulting from any change, circumstance or effect relating to (A) the economy in general, (B) securities markets, regulatory or political conditions in the United States (including terrorism orPatent and Trademark Office. The UMB inventors are Drs. Matthew Frieman, Alexander MacKerell and Stuart Watson. The Company has also executed a Sponsored Research Agreement with UMB to support the escalationdevelopment of any war, whether declared or undeclared or other hostilities), (C) changes in applicable laws or generally accepted accounting principles or the application or interpretation thereof or (D) a natural disaster (provided, that in the cases of clauses (A) through (D), CBM’s business is not disproportionately affected by such event as compared to other similar companies and businesses in similar industries and geographic regions as CBM’s business).technology.

Critical Accounting Policies

The APA may be terminated (i) by mutual written consent of

Our critical accounting policies are disclosed in our annual report on Form 10K for the Company and CBM, (ii) by written notice by the Company or CBM if any of the conditions to Closing are not satisfied or waived byyear ended December 31, 2019 (unless a condition to Closing is due to breach or violation of the Company or CBM of any representation, warranty, covenant or obligation under the APA), (iii) by written notice by the Company or CBM if a Governmental Authority has issued an order or taken action restraining, enjoining or prohibiting the transactions contemplated by the APA (unless a condition to Closing is due to breach or violation of the Company or CBM of any representation, warrant, covenant or obligation under the APA), (iv) by written notice of the Company ifand there is has been an incurable material breach by CBM of any of its representations, warranties, covenants or obligations, (v) by written notice of CBM if there is has been an incurable material breach by the Company of any of its representations, warranties, covenants or obligations, (vi) by written notice by the Buyer if there shall have been a Material Adverse Effect onno material changes to such policy or estimates during the Company following the date of the APA, or (vii) by written notice by the Company or CBM in the event that Company’s stockholders did not approve the issuance of the Stock Consideration at a special meeting of Company .. In the event that the APA is terminated on or prior to Decemberthree months ended March 31, 2019 (i) by CBM as a result of a material breach by the Company of any of its representations, warranties, covenants or agreements under the APA, which such breach is not cured within 20 days after written notice by CBM2020.

Recently Issued Accounting Pronouncements

See Note 3 to the Company, or (ii) by either the Company or CBM in the event that the Company’s stockholders did not approve the issuancecondensed consolidated financial statements for a discussion of the Stock Consideration at a duly held special meeting of the Company, the Company will issue to CBM or CBM’s designee an aggregate of 250,000 shares of the Company’s common stock (the “Buyer Termination Fee”) within two business days of termination, it being understood that in no event will CBM be entitled to the Buyer Termination Fee on more than one occasion.recent accounting standards.

In connection with the APA, at Closing, Spherix and CBM shall enter into that certain Leak-Out Agreement, whereby CBM will agree that for a period of 21 months following the Closing Date (such period, the “Restricted Period”), neither CBM nor any affiliate of CBM, collectively, shall sell, dispose or otherwise transfer, directly or indirectly, during any calendar month during the Restricted Period, shares acquired pursuant to the APA in an amount more than 5% of the issued and outstanding shares of Spherix common stock as of the end of each month immediately preceding any such disposition following the Closing Date. Such restriction shall be subject to certain exceptions, including but not limited to transfers of Stock Consideration to certain permitted transferees. Additionally, so long as the bid price of Spherix common stock is at or above $1.00 (subject to adjustment), CBM and its affiliates may sell shares: (a) at a bona-fide sales price greater than $4.25 (subject to adjustment), provided that sales on the applicable date (excluding sales made pursuant to clause (b) below, if any) do not exceed 20% of the trading volume of Spherix common stock as reported by Bloomberg, LP for such date or (b) at a bona-fide sales price greater than $5.00 (subject to adjustment). Additionally, CBM agrees that in the event that, during the Restricted Period, Spherix engages the services of an investment bank to undertake a registered offering of Spherix’s equity securities, if required by the lead investment bank, CBM shall enter into a reasonable and customary lock-up with such investment bank for a period of at least 30 days but no more than 90 days upon closing of the transaction, provided, that such lock-up shall in no event extend beyond the Restricted Period. The transactions contemplated by the APA were approved by the Company’s stockholders at a special meeting held on September 5, 2019 (the “Special Meeting”).

On May 30, 2019, the Company entered into Amendment No. 1 (the “Amendment”) to the APA, pursuant to which the APA was amended to include a termination fee whereby, in the event that the APA is terminated on or prior to December 31, 2019 (i) by CBM as a result of a material breach by the Company of any of its representations, warranties, covenants or agreements under the APA, which such breach is not cured within 20 days after written notice by CBM to the Company, or (ii) by either the Company or CBM in the event that the issuance of the equity portion of the consideration to be paid to CBM by the Company pursuant to the APA is not approved by the Company’s stockholders at a duly held special meeting of the Company, the Company will issue to CBM or CBM’s designee an aggregate of 250,000 shares of the Company’s Common Stock (the “Buyer Termination Fee”) within two business days of termination, it being understood that in no event will CBM be entitled to the Buyer Termination Fee on more than one occasion.

On May 10, 2019, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of one-for-4.25 (the “Reverse Stock Split”). The Reverse Stock Split, which was approved by the Company’s board of directors under authority granted by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders held on April 15, 2019, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on May 9, 2019. the context otherwise requires, all references in this report to shares of our common stock, including prices per share of our common stock, reflect the Reverse Stock Split.

On May 29, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single accredited investor (the “Purchaser”) pursuant to which the Company sold 221,000 shares (the “Shares”) of Common Stock at a purchase price of $2.60 per share, and pre-funded common stock purchase warrants to purchase up to 86,692 shares of Common Stock (the “Warrants”) at a purchase price of $2.5999 per Warrant, which represents the per Share purchase price, less a $0.0001 per share exercise price for each of the Warrants. The Company sold the Shares and Warrants for aggregate gross proceeds of approximately $799,991 which transaction closed on May 31, 2019. On June 6, 2019, the Company entered into an amendment (the “Amendment”) to the Purchase Agreement, pursuant to which the Purchaser surrendered an aggregate of 115,269 Shares to the Company and the Company issued an aggregate of 115,269 Warrants to the Purchaser in order to limit the Purchaser’s beneficial ownership in the Company to 4.99%. The Warrants are immediately exercisable for $0.0001 per share until exercised in full, except that a holder will not have the right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage upon notice to the Company, but in no event in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice. The Warrants may also be exercisable on a “cashless” basis. The Company received net proceeds of approximately $799,979 from the sale of the Shares and Warrants.

On August 9, 2019, the Company entered into an At-the-Market Offering Agreement with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time to time through H.C. Wainwright, shares of the Company’s common stock having an aggregate offering price of up to $1.2 million (the “Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares. During the nine months ended September 30, 2019, the Company sold a total of 239,359 shares of common stock under the ATM for aggregate total gross proceeds of approximately $0.6 million at an average selling price of $2.51 per share, resulting in net proceeds of approximately $0.5 million after deducting commissions and other transaction costs.

Results of Operations

Three months ended September 30, 2019March 31, 2020 compared to three months ended September 30, 2018March 31, 2019 

During the three months ended September 30, 2019 and 2018,March 31, 2020, we incurred a loss from operations of approximately $0.9$2.4 million and $2.0as compared to $0.7 million respectively.during the comparable prior year period. The decreaseincrease in net loss in the 2019 period was primarily attributed to $0.3 million decrease$1.0 increase in amortization of patent portfolioresearch and $1.1 million decreasedevelopment expense incurred in impairment of intangible assets,connection with the license acquired, and partially offset by $0.4$0.6 million increase in professional fees related with investor relationship services.general and administrative expenses. During the 1st quarter of 2020, we raised over $2.0 million of proceeds, therefore a payment of $1.0 million was due to CBM under the CBM Purchase Agreement. We recorded the payment to CBM as a component of research and development license acquired.

During the three months ended September 30, 2019 and 2018,March 31, 2020, other expense was approximately $2.5$5.9 million and other income wasas compared to approximately $60,000, respectively.$0.4 million during the comparable prior year period. The decreaseincrease in other incomeexpense was primarily attributed to a $2.4$5.0 million decrease in change in investments recorded at fair value, and $88,000 decrease in change in fair value of warrant liabilities. During the three months ended September 30, 2019, we recorded a $2.4 million unrealized loss on our investment in Hoth as the closing stock price Hoth decreased from $5.82 as of June 28, 2019 to $4.41 as of September 30, 2019.

Nine months ended September 30, 2019 compared to nine months ended September 30, 2018  

During the nine months ended September 30, 2019 and 2018, we incurred a loss from operations of approximately $2.5 million and $4.8 million, respectively. The decrease in net loss in the 2019 period was primarily attributed to $1.0 million decrease in amortization of patent portfolio, $1.1 million decrease in impairment of intangible assets, $0.4 million decrease in compensation and related expenses and $98,000 decrease in acquisition costs related to the DatChat and CBM transaction, and partially offset by $0.3$0.9 million increase in professional fees related to investor relationship services. 

During the nine months ended September 30, 2019 and 2018, other expense was approximately $2.7 million and other income was approximately $1.0 million, respectively. The decrease of other income was primarily attributed to a $3.4 million decrease in change in fair value of investments and a $0.5 million decrease in the fair value of warrant liabilities, and partially offset by $0.3 million decrease in other expenses. During the nine months ended September 30, 2019, we recorded a loss of $1.0 million related to our investment in DatChat and an $1.8 million unrealized losslosses on our investment in Hoth as the closing stock price Hoth increased from $5.81 as of the IPO date to $4.41 as of September 30, 2019.marketable securities.

Liquidity and Capital Resources

We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While we continue to implement our business strategy, we intend to finance our activities through:

Our ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis.  Our business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer-term business plan to support new technologies and help advance innovation. Our working capital amounted to approximately $0.5 million at September 30, 2019. Absent generation of sufficient revenue from the execution of our long-term business plan, we will need to obtain additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or operations. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available to the Company on favorable terms, or at all.

Because of recurring operating losses, net operating cash flow deficits,We plan to pursue our plans regarding research and an accumulated deficit,development which will require resources beyond those currently available, including third party capital. During this time, we do not expect to generate revenue as there is substantial doubt about our ability to continue as a going concern within one year from the date of this filing. The condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term development timeline and our liquidity due to the worldwide spread of the COVID-19 virus. However, we are continuing to assess the effect on our operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.

Cash Flows from Operating Activities - For the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, net cash used in operations was approximately $2.2$1.4 million and $2.3$0.9 million, respectively. The cash used in operating activities for the ninethree months ended September 30,March 31, 2020 primarily resulted from a net loss of $8.3 million, and partially offset by reduction in fair value of investment of $5.1 million and $1.0 million research and development expense related with license acquired. The cash used in operating activities for the three months ended March 31, 2019 primarily resulted from a net loss of $5.2$1.1 million, $0.1 million unrealized loss on marketable securities and $84,000 changes in assets and liabilities, and partially offset by $2.8 million change in fair value of our investment. The cash used in operating activities for the nine months ended September 30, 2018 primarily resulted from a net lossinvestment of $3.8 million, $0.7 million change in fair value of our investment in Hoth and $0.6 million change in fair value of warrant liabilities, partially offset by impairment of intangible assets of $1.1 million and amortization of patent portfolio expenses of $1.0$0.5 million.

Cash Flows from Investing Activities - For the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, net cash (used in) and provided by investing activities was approximately $1.2$(17.2) million and net$1.3 million, respectively. The cash used in investing activities was approximately $0.5for the three months ended March 31, 2020 primarily resulted from our purchase of marketable securities of $20.4 million respectively.and research and development expense related with license acquired of $1.0 million, partially offset by our purchase of marketable securities of $4.2 million since we invest excess cash into marketable securities. The cash provided by investing activities primarily resulted from our sale of marketable securities for the ninethree months ended September 30,March 31, 2019 of $8.4$4.4 million, partially offset by our purchase of marketable securities of $6.7$2.8 million. The cash used in investing activities primarily resulted from our purchase of marketable securities for the nine months ended September 30, 2018 of $13.3 million, and purchase of investment at fair value of $0.7 million, partially offset by our sale of marketable securities of $13.5 million. 

Cash Flows from Financing Activities -Cash provided by financing activities for the ninethree months ended September 30, 2019March 31, 2020 was $1.3$18.8 million, which reflects the net proceeds of $0.8$6.5 from investors in exchange of issuance of common stock, common warrants and prefunded warrants, net proceeds of $5.1 from investors in exchange of issuance of common stock, and prefunded common stock warrants, and net proceeds of $0.5$7.1 million from the issuanceexercise of common stock as part of our ATM offering.warrants and prefunded warrants. Cash provided by financing activities for the ninethree months ended September 30, 2018March 31, 2019 was approximately $2.7 million, which related to issuance of 2,222,222 shares of its common stock.$0.

Off-balance sheet arrangements.

None.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

With respect to the quarter ended September 30, 2019,March 31, 2020, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective as of September 30, 2019March 31, 2020 due to the material weaknesses in our internal controls over financial reporting. We have a lack of segregation of duties, and a lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected.

Changes in Internal Control over Financial Reporting:

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2019March 31, 2020 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1.Legal Proceedings

In the past, in the ordinary course of business, we actively pursued legal remedies to enforce our intellectual property rights and to stop unauthorized use of our technology. From timeOther than ordinary routine litigation incidental to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Webusiness, we know of no material, active or pending material claims or legal mattersproceedings against us as of the date of this report.us.  

Counterclaims Item 1A. Risk Factors

In the ordinary course of business, we, or with our wholly-owned subsidiaries or monetization partners, will initiate litigation against parties whom we believe have infringed on our intellectual property rights and technologies. The initiation of such litigation exposes us to potential counterclaims initiated by the defendants. Currently, there are no counterclaims pending against us. In the event such counterclaims are filed, we can provide no assurance that the outcome of these claims will not have a material adverse effect on our financial position and results from operations.  

Investing in our common stock is subject to a number of risks and uncertainties. You should carefully consider the risk factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, in other reports we file with the SEC, and below.

Risks Related to Our Business

Because we have a limited operating history to evaluate our Company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an early-stage company.

Since we have a limited operating history in our current business of technology and biotechnology development, it will make it difficult for investors and securities analysts to evaluate our business and prospects.  You must consider our prospects in light of the risks, expenses and difficulties we face as an early stage company with a limited operating history.  Investors should evaluate an investment in our securities in light of the uncertainties encountered by early stage companies in an intensely competitive industry.  There can be no assurance that our efforts will be successful or that we will be able to become profitable.

Our cancer treatment business is pre-revenue, pre-development and subject to the risks of an early stage biotechnology company.

Since the Company’s primary focus for the foreseeable future will likely be our cancer treatment business, shareholders should understand that we are primarily an early stage biotechnology company with no history of revenue-generating operations, and our only assets consist of our proprietary drug and the know-how of our officers. Therefore we are subject to all the risks and uncertainties inherent in a new business, in particular new businesses engaged in the early detection of certain cancers. DHA-dFdC is in its early stages of development, and we still must establish and implement many important functions necessary to commercialize the biotechnology.

Accordingly, you should consider the Company’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their pre-revenue and pre-development generating stages, particularly those in the biotechnology field. Shareholders should carefully consider the risks and uncertainties that a business with no operating history will face. In particular, shareholders should consider that there is a significant risk that we will not be able to:

Any of the foregoing risks may adversely affect the Company and result in the failure of our business. In addition, we expect to encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. At some point, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be able to reach such achievements, which would have a material adverse effect on our Company.

We continue to incur operating losses and may not achieve profitability.

Our loss from operations for the three months ended March 31, 2020 and 2019 was $2.4 million and $0.7 million, respectively. Our net loss for the three months ended March 31, 2020 and 2019 was $8.3 million and $1.1 million, respectively. Our accumulated deficit was $152.6 million at March 31, 2020. Our ability to become profitable depends upon our ability to generate revenue from biotechnology products. We do not know when, or if, we will generate any revenue from such biotechnology products. Even though our revenue may increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our common stock.

We expect to need additional capital to fund our growing operations and if we are unable to obtain sufficient capital, we may be forced to limit the scope of our operations.

We expect that for our business to grow we will need additional working capital.  If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business or pay our outstanding obligations, and we will have to modify our business plans accordingly.  These factors would have a material adverse effect on our future operating results and our financial condition. 

If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company.  In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of March 31, 2020, our internal control over financial reporting was not effective, due to our lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the years ended December 31, 2019 and 2018, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. 

We may seek to internally develop additional new inventions and intellectual property, which would take time and be costly.  Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.

Part of our business may include the internal development of new inventions or intellectual property that we will seek to monetize. For example, in December 2019, we acquired substantially all of the assets of CBM, including the acquisition of certain licensing rights with respect to patents and other intellectual property related to pioneering drug compounds that were developed at the University of Wake Forest and the University of Texas at Austin, in the areas of acute myeloid leukemia (AML), acute lymphoblastic leukemia (ALL), acral lentiginous melanoma and pancreatic cancer (collectively, the “University Developments”). Should we choose to assist in the development of the University Developments and/or internally develop any other inventions or intellectual property, such aspect of our business will require significant capital and will take time to achieve.  Such activities may also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.

Our ability to raise additional capital may be adversely affected by certain of our agreements.

Our ability to raise additional capital for use in our operating activities may be adversely impacted by the terms of a securities purchase agreement, dated as of July 15, 2015 (the “Securities Purchase Agreement”), between us and the investors who purchased securities in our July 2015 offering of our common stock and warrants for the purchase of our common stock. The Securities Purchase Agreement provides that, until the warrants issued thereunder are no longer outstanding, we will not effect or enter into a variable rate transaction, which includes issuances of securities whose prices or conversion prices may vary with the trading prices of or quotations for the shares of our common Stock at any time after the initial issuance of such securities, as well as the entry into agreements where our stock would be issued at a future-determined price. These warrants may remain outstanding as late as January 22, 2021, when the warrants expire in accordance with their terms. These restrictions may have an adverse impact on our ability to raise additional capital, or to use our cash to make certain payments that we are contractually obligated to make.

We may also identify targets with patent or other intellectual property assets that cost more than we are prepared to spend with our own capital resources.  We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us.  Acquisitions involving issuance of our securities could be dilutive to existing stockholders and could be at prices lower than those prices reflected in the trading markets.  These higher costs could adversely affect our operating results and, if we incur losses, the value of our securities will decline.  The integration of acquired assets may place a significant burden on management and our internal resources.  The diversion of management attention and any difficulties encountered in the integration process could harm our business.

As we are targeting technology companies in the development stage, their patents and technologies are in the early stages of adoption.  Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees or others adopt our patents and technologies in their products and services.  As a result, there can be no assurance as to whether technologies we acquire or develop will have value that can be realized through licensing or other activities.

We are exploring and evaluating strategic alternatives and there can be no assurance that we will be successful in identifying, or completing any strategic alternative or that any such strategic alternative will yield additional value for shareholders.

Our management and board of directors (“Board of DirectorsDirectors”) has commenced a review of strategic alternatives which could result in, among other things, a sale, a merger, consolidation or business combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. For example, on October 10, 2018, we entered into an agreement and plan of merger with CBM, pursuant to which all shares of capital stock of CBM would be converted into 3,529,411 shares of the Company’s common stock. On May 15, 2019, we restructured the Company restructured the terms of its proposed merger with CBM and entered into the APA, pursuant to which the Company agreed to purchase certain assets of CBM, including, among other things, a license agreement relating to certain technologies in the areas of acute myeloid leukemia (“AML”), acute lymphoblastic leukemia (“ALL”) and pancreatic cancer and contracts with a chief scientist and an advisory board. CBM is a privately held pharmaceutical company focused on the development of cancer treatments. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction, and there can be no assurance that the transaction with CBM will close.transaction. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure you that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.

We may be unsuccessful at integrating future acquisitions.

If we find appropriate opportunities in the future, we may acquire businesses to strategically increasefurther the number of patents in our portfolio and pursue monetization.Company’s strategic business objectives. For example, on June 30, 2017,in December 2019, we acquired a stake in Hoth Therapeutics, Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth has a sublicense from Chelexa Biosciences, Inc. to use Chelexa’s BioLexa products forsubstantially all of the treatment of eczema and such sublicense includes the right to further sublicense to third parties to make, use, have made, import, offer for sale and sell BioLexa products. There can be no guarantee that Hoth will be successful in its efforts to monetize its sublicense agreement with Chelexa. In addition, on March 12, 2018, we entered into an agreement and plan of merger with DatChat, pursuant to which we were going to acquire 100% ownership of DatChat, which is a privately held personal privacy platform focused on encrypted communication, internet security and digital rights management, which we subsequently terminated on August 8, 2018. Most recently, on October 10, 2018, we entered into an agreement and plan of merger with CBM, pursuant to which CBM would be the surviving corporation in the merger. On May 15, 2019, we restructured the Company restructured the terms of its proposed merger with CBM and entered into the APA, pursuant to which the Company agreed to purchase certain assets of CBM, including amongthe acquisition of certain licensing rights with respect to patents and other things, a license agreement relatingintellectual property related to certain technologiespioneering drug compounds that were developed at the University of Wake Forest and the University of Texas at Austin, in the areas of acute myeloid leukemia (“AML”)(AML), acute lymphoblastic leukemia (“ALL”)(ALL), acral lentiginous melanoma and pancreatic cancer and contracts with a chief scientist and an advisory board.cancer. There can be no guarantee that we will be successful in closingable to successfully integrate the transaction contemplated by the agreement with CBMbusiness or that we will be successful in managing the operationsassets of CBM which is ininto the early stages of development of cancer treatments.Company.

As we acquire businesses or substantial stakes in certain businesses, the process of integration may produce unforeseen operating difficulties and expenditures, fail to result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that we will be able to identify suitable acquisition opportunities, consummate any pending or future acquisitions or that we will realize any anticipated benefits from any such acquisitions.

If the CBM Asset Acquisition is completed, the Company may not be able to successfully integrate the business of CBM and realize the anticipated benefits of the Asset Acquisition.

Realization of the anticipated benefits of the CBM asset acquisition will depend on our ability to successfully integrate our businesses and operations with CBM. We will be required to devote significant management attention and resources to integrating its business practices, operations, and support functions. The process of integrating CBM’s operations could cause an interruption of, or loss of momentum in, our business and financial performance, and in CBM’s business and financial performance as well. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business, financial results.

Our pre-CBM acquisition stockholders will have a reduced ownership and voting interest after the Asset Acquisitionacquisition of CBM’s assets and will exercise less influence over our management and policies than they did prior to the Asset Acquisition.acquisition.

Our pre-acquisition stockholders currently havehad the right to vote in the election of our boardBoard of directorsDirectors on other matters affecting us. When, and ifAs a result of the Asset Acquisition occurs,CBM Purchase Agreement, because of the issuance of shares of common stock to the CBM shareholders, our currentpre-acquisition stockholders will hold a percentage ownership of the post-acquisition companyCompany that is much smaller than the pre-acquisition stockholder’s currentprevious percentage ownership of ours.ownership. Because of this, our currentpre-acquisition stockholders will have less influence over the management and policies of the Company than they now have after the consummation of the Asset Acquisition.acquisition of CBM’s assets.

Any failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and harm our brand, our business and our operating results.

Our ability to operate our new line of business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our acquired patent assets and other intellectual property.  To protect our proprietary rights, we will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions.  No assurances can be given that any of the measures we undertake to protect and maintain our assets will have any measure of success.

We are required to spend significant time and resources to maintain the effectiveness of our assets by paying maintenance fees and making filings with the USPTO.  We may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with the USPTO prior to issuance of patents.  Further, there is a material risk that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business. 

Despite our efforts to protect our intellectual property rights, any of the following or similar occurrences may reduce the value of our intellectual property:

Moreover, we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business or enforce our patents against infringers in foreign countries. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would be reduced or eliminated, and our business would be harmed.

We may be at risk for delay in technology development and other economic repercussions as a result of the COVID-19 pandemic.

We may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.

Additionally, New York, where our U.S. operations are based, is currently significantly affected by COVID-19, which led to measures taken by the New York government trying to contain the spread of COVID-19, such as shelter in place, closure of schools and travel restrictions. Additional travel and other restrictions may be put in place to further control the outbreak in U.S. Accordingly, our operation and business have been and will continue to be adversely affected as the results of the COVID-19 pandemic.

The extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures taken to control it may have a significant negative impact on not only our business, but economic activities globally. The magnitude of this negative effect on the continuity of our business operations in the U.S. remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations, and as a result affect our stock price and create more volatility.

Risks Related to the Product Development, Regulatory Approval, Manufacturing and Commercialization

We are early in our development efforts and currently have no clinical-stage product candidates. If we are unable to clinically develop and ultimately commercialize DHA-dFdC or other product candidates, or experience significant delays in doing so, our business will be materially harmed.

We are early in our development efforts and have no clinical-stage product candidates as of the date of this prospectus. We have the exclusive U.S. rights to develop DHA-dFdC for the treatment of cancer in the licensed field. We are presently planning on filing an IND for DHA-dFdC, and we hope to begin human testing for this indication in 2021, although no assurance can be given that we will be able to achieve this goal.

Therefore, our ability to generate product or royalty revenues, which we do not expect will occur for several years, if ever, will depend heavily on our ability to develop and eventually commercialize our product candidate. The positive development of our product candidate will depend on several factors, including the following:

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to clinically develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.

If we are unable to convince physicians as to the benefits of DHA-dFdC as a therapy for cancer, if and when it is approved, we may incur delays or additional expense in our attempt to establish market acceptance.

Use of DHA-dFdC as a cancer therapy will require physicians to be informed regarding the intended benefits of the product for a new indication. The time and cost of such an educational process may be substantial. Inability to carry out this physician education process may adversely affect market acceptance of DHA-dFdC as a therapy for cancer. We may be unable to timely educate physicians in sufficient numbers regarding our intended application of DHA-dFdC to achieve our marketing plans or to achieve product acceptance. Any delay in physician education or acceptance may materially delay or reduce demand for our product candidate. In addition, we may expend significant funds toward physician education before any acceptance or demand for DHA-dFdC as a therapy for cancer is created, if at all.

Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidate.

The risk of failure for product candidates in clinical development is high. It is impossible to predict when our sole product candidate, DHA-dFdC for the treatment of cancer, will prove effective and safe in humans or will receive regulatory approval for the treatment of any disease, the indication for which is licensed to us. Before obtaining marketing approval from regulatory authorities for the sale of DHA-dFdC as a cancer therapy, we must conduct one or more clinical trials to demonstrate the safety and efficacy of our product candidate in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, the outcome of early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidate, including:

If we are required to conduct additional clinical trials or other testing of our product candidate beyond those that we currently contemplate, if we are unable to complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know which, if any, of our clinical trials will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the right to commercialize our product candidate or allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidate and may harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in any future clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue future clinical trials for DHA-dFdC or our present or future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidate, and patients who would otherwise be eligible for our future clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Patient enrollment is affected by other factors including:

Our inability to enroll a sufficient number of patients for any future clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidate, which would cause the value of our company to decline and otherwise materially and adversely affect our company.

If serious adverse or unacceptable side effects are identified during the development of our product candidate, we may need to abandon or limit such development, which would adversely affect our company.

If clinical testing of our product candidates results in undesirable side effects or demonstrates characteristics that are unexpected, we may need to abandon such development or limit such development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound.

For the foreseeable future, we expect to expend our limited resources primarily to pursue a particular product candidate, leaving us unable to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of clinical and commercial development.

Because we have limited financial and managerial resources, we will focus for the foreseeable future primarily on the clinical development of DHA-dFdC for the treatment of prostate cancer. As a result, we may forego or be unable to pursue opportunities with other product candidates or for indications other than those we intend to pursue that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on research and development programs related to DHA-dFdC for the treatment of cancer may not yield any commercially viable therapies. Because of this concentration of our efforts, our business will be particularly subject to significant risk of failure of our one current product candidate.

We expect to rely on collaborations with third parties for key aspects of our business. If we are unable to secure or maintain any of these collaborations, or if these collaborations do not achieve their goals, our business would be adversely affected.

We presently have very limited capabilities for drug development and do not yet have any capability for manufacturing, sales, marketing or distribution. Accordingly, we expect to enter into collaborations with other companies that we believe can provide such capabilities. These collaborations may also provide us with important funding for our development programs.

There is a risk that we may not be able to maintain our current collaboration or to enter into additional collaborations on acceptable terms or at all, which would leave us unable to progress our business plan. We will face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to maintain or reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of our product candidate, reduce or delay its development program, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.

Moreover, even if we are able to maintain and/or enter into such collaborations, such collaborations may pose a number of risks, including the following:

Our business could be materially harmed if any of the foregoing or similar risks comes to pass with respect to our key collaborations.

Even if any of our product candidates receive marketing approval for any indication, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

Even if DHA-dFdC for the treatment of cancer receives marketing approval for any indication, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments such as chemotherapy, immunotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments. If our product candidate does not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of DHA-dFdC for the treatment of cancer, if approved for commercial sale, will depend on a number of factors, including: