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, 20192020

☐ 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, 2019,12, 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, 20192020

Index

Part I. Financial InformationPART I - FINANCIAL INFORMATION

Item 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, 2019 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 athat certain Securities Purchase Agreement, (the “Purchase Agreement”) for the sale by and among the Company of 221,000and certain purchasers, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,090,909 shares of the Company’s common stock at 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 share.

The Company has determined that the Placement Agent Warrant which representsshould be accounted as a component of stockholders’ equity. On the per share purchase price, less a $0.0001 per share exercise price for eachissuance date, the Company estimated the aggregate fair value of Placement Agent Warrant at $0.2 million using the Black-Scholes option pricing model using the following primary assumptions: fair value of common stock underlying the warrants (“Penny Warrants”). The Company sold the sharesis $1.83, expected life of 5 years, volatility rate of 122.29%, risk-free interest rate of 0.63% and warrants for net proceedsexpected dividend rate of approximately $787 thousand which transaction closed on May 31, 2019. 0%.

Common Stock Warrant Exchange

On June 6, 2019,April 14, 2020, the Company, entered into an amendment tothat certain Securities Purchase Agreement, by and among the Purchase Agreement,Company and certain purchasers, pursuant to which the Purchaser surrenderedCompany agreed to issue and sell 14,000,000 shares of the Company’s common stock at an aggregateoffering price of 115,269 shares$1.00 per share.

The registered offering resulted in gross proceeds to the Company of $14.0 million, before deducting the placement agent’s fee and the Company issued 115,269 Penny Warrants to the Purchaser in order to limit the Purchaser’s beneficial ownership.other related offering expenses.

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 equalAIKIDO PHARMA INC.

(Formerly SPHERIX INCORPORATED)

Notes to the fair value of the shares underlying the warrant. As such, they have the characteristics of a prepaid forward sale of equity. Since the shares underlying the Penny Warrants are issuable for little or no consideration, they are considered outstanding in the context of earnings per share, as discussed in ASC 260-10-45-13.Condensed Consolidated Financial Statements

(Unaudited)

Warrants

A summary of warrant activity for the nine months ended September 30, 20192020 is presented below:

On May 29, 2019,During 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 of 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, 2019,2020, the Company issued 33,3333,897,113 and 6,860,903 shares of common stock upon exercise of one Consultantthe Pre-Funded Warrant and Common Warrants, respectively, which resulted in gross proceeds of approximately $333.$7.2 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

On October 2, 2019,The Company evaluated events that have occurred after the Board of Directors approved a distribution tobalance sheet date through the Company’s stockholders of 100,000 shares of Hoth Therapeutics, Inc. (“Hoth”) held bydate the Company. Accordingly, each offinancial statements were issued. Based upon the Company’s stockholders received one (1) share of Hoth common stock for every twenty-nine (29) shares of Company common stock held as of 5 p.m. Eastern Time on October 21, 2019,evaluation and transactions, the dividend record date. The Company did not distribute fractional shares of Hoth common stock, andidentify any fractional shares were rounded down toother subsequent events that would have required adjustment or disclosure in the nearest whole share.financial statements.

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.

PursuantAs a result of the Company’s biotechnology research development and associated investments and acquisitions, our business portfolio now focuses on the treatment of three different cancers, including pancreatic cancer, AML and ALL. Our AML and ALL compounds, developed at Wake 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 (“UTA”), is a Share Purchase Agreement, dated asnew compound that we hope will become the next generation of May 15, 2019,chemotherapy treatment for advanced pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and 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. DHA-dFdC is being developed for oral administration in a solid lipid nanoparticle carrier matrix, which has also been licensed from UTA, and is intended to be a second-line treatment for advanced pancreatic cancer. The Company’s license with UTA (the “License”) is a royalty-bearing exclusive license that, unless terminated earlier, continues until the last date of expiration or termination of the patent rights granted under the License (the “Patent Rights”). With regard to DHA-dFdC, the Patent Rights include several filed U.S. patent applications (a “U.S. Patent Application”) and an application filed under the Patent Cooperation Treaty (“PCT”) that is currently being prosecuted to secure rights in foreign countries. From these applications, one patent, U.S. Patent No. 10,463,684 (the “684 Patent”), contains items covering the compound DHA-dFdC. Assuming all maintenance fees are timely paid, the 684 Patent is expected to expire on October 27, 2035. The Company’s license with UTA also covers a non-provisional U.S. Patent Application filed with respect to the lipid nanoparticle carrier matrix for the drug, which was filed on June 6, 2019. In June of 2020, at the request of the Company, purchased (i) 50,000 sharesUTA filed both a U.S. non-provisional utility patent application as well as a PCT application relating to the lipid nanoparticle carrier matrix. Patent prosecution on all pending patent applications is currently underway. The Company is currently engaged in Chemistry, Manufacturing and Controls (“CMC”) activities related to DHA-dFdC. Manufacturing activities thus far have confirmed the critical chemical steps required for the manufacturing and scalability of common stockthe process. In tandem, the Company is developing the solid lipid nanoparticle delivery system and is currently optimizing the manufacturing process for size and consistency of CBM BioPharma, Inc.the particles. The Company expects these activities, as well as the development of the final formulation to comprise most of the CMC activities through the end of the year. Optimization of the formulation will require in vitro studies as well as some preliminary animal studies. During the first half of 2021, optimization of the formulation and biological studies, including animal toxicology testing and pharmacology testing, are scheduled to occur. To the extent costs are incurred relating to governmental regulations, including under the FDA and environmental regulations, those costs will be borne by our Contract Manufacturing Organizations and Contract Research Organizations and will be passed on to the Company as part of their fees. FDA approval will eventually be required to begin administering DHA-dFdC to patients as part of any clinical trials. The animal studies performed next year will be a necessary prerequisite to filing an Investigational New Drug Application (“CBM”IND”) with the FDA. The Company’s development activities in the first half of 2021 will also include preparing the IND for submission to the FDA. The Company’s formulation is a new chemotherapy oral dosage form “repurposing” the chemotherapeutic agent gemcitabine, enabling it to be developed for use in patients following a special regulatory pathway codified in Section 505(b)(2) of the FDA rules. Section 505(b)(2) was enacted to enable sponsors to seek New Drug Application (“NDA”) approval for novel repurposed drugs without the need for such sponsors to undertake certain time consuming and (ii) certain securitiesexpensive safety studies. Proceeding under this regulatory pathway, we hope to be able to rely upon all of the publicly available safety and uncertificated rightstoxicology data with respect to gemcitabine in our FDA submissions. We believe that this path will dramatically reduce the required clinical development efforts, costs and risks as compared to what would be required of DatChat from an existing shareholderus if we were required to conduct the entire scope of CBM and DatChattrials required for an aggregate purchase price of $350,000. The investment representsnew chemical entities that are not eligible to be reviewed pursuant to the Section 505(b)(2) regulatory pathway. We estimate that by using the Section 505(b)(2) regulatory pathway, the clinical development process may be several years shorter than is required for a 20% interest in CBM,new chemical entity, and the securitiesFDA approval process may be six to nine months shorter than the typical eighteen month period, which we believe may result in lower development costs 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”.shorter development time. As of the date hereof, we have not submitted an IND or an NDA to the FDA. During the first half of this report,2021, we hope to schedule and attend the Companyfirst of a series of meetings with the FDA to review the requirements for submission and its affiliates own approximately 19%activation of Hoth.an IND with respect to the DHA/dFdC formulated in SLNs for second-line treatment of advanced pancreatic cancer. At that meeting, we will present to the FDA our proposed clinical trial plan for the treatment of advanced pancreatic cancer. As part the meeting, as is standard, the FDA will provide us with general guidance with respect to specific animal studies, dosing schedules and suggested human safety studies before we commence clinical trials in patients. In addition, we are constantly seeking to grow our pipeline to treat unmet medical needs in oncology.

In October 2018,addition, the Company entered intoowns an agreementexclusive world-wide license to patented technology from the University of Maryland Baltimore (“UMB”). Our license is for a broad-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 multiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and plan of merger (the “CBM Merger Agreement”)Marburg virus. The technology is covered by two patent applications already on file with CBM, pursuantthe United States Patent and Trademark Office. The Company’s license covers two U.S. Nonprovisional Applications, which were consolidated and timely filed as a PCT application on June 5, 2020, commencing patent prosecution. Any patents issued from this application are expected to which all shares of capital stock of CBM would be converted intoexpire 20 years later, on June 5, 2040, unless the right to receive an aggregate of 3,529,411 sharesterm is extended by the patent office. Publication 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%results 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 Amount from the Purchase Consideration 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”), pursuantwork 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 period of six months following closing and shall serve as a security for, and a source of payment for, CBM’s obligations tois licensed is expected later this year. Currently, the Company and its representativesUMB are collaborating to identify chemical structures that are as effective as, or more effective than, the lead compounds covered in the PCT application. The UMB inventors are Drs. Matthew Frieman, Alexander MacKerell and any successor or assign thereof underStuart Watson. The Company has also executed a Sponsored Research Agreement with UMB to support the APA. Any Escrow Shares remaining in escrow and not subject to pending indemnification claims afterdevelopment of the six month escrow period expires shall be released from the Escrow Account and disbursed to CBM.technology.

The obligations of the Company and CBM to consummate the transaction are subject to: (a) all necessary approvals being obtained 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 occurred 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 or the escalation 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).Critical Accounting Policies

The APA may be terminated (i) by mutual written consent ofOur 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 on the Company following the date of the APA,no material changes to such policy 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 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 Company’s stockholders did not approve the issuance 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.

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,estimates 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, 2019,2020.

Recently Issued Accounting Pronouncements

See Note 3 to the Company soldcondensed consolidated financial statements for a totaldiscussion 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.

recent accounting standards.

Results of Operations

Three months ended September 30, 20192020 compared to three months ended September 30, 2018  2019

During the three months ended September 30, 2019 and 2018,2020, we incurred a loss from operations of approximately $1.0 million, as compared to $0.9 million and $2.0 million, respectively.during the comparable prior year period. The decreaseincrease in net loss in the 2019 period was primarily attributed to $0.3$0.2 million decreaseincrease in amortization of patent portfolioresearch and $1.1 million decrease in impairment of intangible assets,development expense, and partially offset by $0.4$0.2 million increasedecrease in professional fees related with investor relationship services.general and administrative expenses.

During the three months ended September 30, 2019 and 2018,2020, other expense was approximately $1.1 million as compared to approximately $2.5 million and other income was approximately $60,000, respectively.during the comparable prior year period. The decrease in other incomeexpense was primarily attributed to a $2.4$1.8 million decreaselower loss in change in investments recorded at fair value, and $88,000 decrease inthe 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.and partially offset by $0.4 million increase in losses on marketable securities.

Nine months ended September 30, 20192020 compared to nine months ended September 30, 2018  2019

During the nine months ended September 30, 2019 and 2018,2020, we incurred a loss from operations of approximately $5.2 million as compared to $2.5 million and $4.8 million, respectively.during the comparable prior year period. The decreaseincrease 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 million increase in professional fees relatedresearch and development expense incurred in connection with the license acquired, $0.9 million increase in other research and development expense, and $0.6 million increase in general and administrative expenses. During the nine months ended September 30, 2020, we raised over $2.0 million of proceeds, therefore a payment of $1.0 million was due to investor relationship services. CBM pursuant to that certain Asset Purchase Agreement, dated as of May 15, 2019, by and between the Company and CBM, as amended (the “CBM Purchase Agreement”). We recorded the payment to CBM as a component of research and development license acquired.

During the nine months ended September 30, 2019 and 2018,2020, other expense was approximately $7.5 million as compared to approximately $2.7 million andduring the comparable prior year period. The increase in other income was approximately $1.0 million, respectively. The decrease of other incomeexpense was primarily attributed to a $3.4$4.6 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 loss 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.and $0.2 million increase in losses on 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. We do not expect to incur revenue until any of our biotechnology products are fully developed. While we continue to implement our business strategy, we intend to finance our activities through:

Our ultimate success is dependent onWe have funded our ability to obtain additional financingoperations from proceeds from the sale of equity and generate sufficient cash flow to meet our obligations on a timely basis. Our businessdebt securities, including pre-funded warrants. We will require significant amounts ofadditional capital to sustain operations and make the investments it needswe need to execute itsour longer-term business planplan. Our ability to support new technologies and help advance innovation. Our working capital amounted to approximately $0.5 million at September 30, 2019. Absent generationsuccessfully raise sufficient funds through the sale of sufficient revenue from the execution of our long-term business plan, we will need to obtain additional debt or equity financing, especiallysecurities when needed is subject to many risks and uncertainties and, even if we experience downturnswere successful, future equity issuances would result in dilution to our businessexisting stockholders and future debt securities may contain covenants that are more severelimit our operations or longer than anticipated,ability to enter into certain transactions.

Our current cash is sufficient to fund operations for at least the next 12 months; however, we may need to raise additional funding through strategic relationships, public or if we experience significant increases in expense levels resulting from being a publicly-traded companyprivate equity or operations.debt financings, grants or other arrangements to develop and seek regulatory approvals for our existing and new product candidates. If we attemptsuch funding is not available, or not available on terms acceptable to obtain additional debt or equity financing, we cannot assume that such financing willus, our current development plan and plans for expansion of our general and administrative infrastructure may be availablecurtailed.

In addition to the Companyforegoing, based on favorable terms, or at all.

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about our ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements have been prepared assuming thatcurrent assessment, we will continue as a going concern, and do not includeexpect any adjustmentsmaterial impact on our long-term development timeline and our liquidity due to reflect the possible future effectsworldwide spread of the COVID-19 virus. However, we are continuing to assess the effect on our operations by monitoring the recoverabilityspread of COVID-19 and classification of assets, or the amounts and classification of liabilities that may result fromactions implemented to combat the outcome of this uncertainty.virus throughout the world.

Cash Flows from Operating Activities - For the nine months ended September 30, 20192020 and 2018,2019, net cash used in operations was approximately $3.6 million and $2.2 million, respectively. The cash used in operating activities for the nine months ended September 30, 2020 primarily resulted from a net loss of $12.7 million, and $2.3partially offset by reduction in fair value of investment of $7.4 million respectively.and $1.2 million research and development expense related with license acquired. The cash used in operating activities for the nine months ended September 30, 2019 primarily resulted from a net loss of $5.2 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 loss 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 million.

Cash Flows from Investing Activities - For the nine months ended September 30, 20192020 and 2018,2019, net cash (used in) provided by investing activities was approximately $(27.2) million and $1.2 million, and netrespectively. The cash used in investing activities was approximately $0.5for the nine months ended September 30, 2020 primarily resulted from our purchase of marketable securities of $98.5 million respectively.and research and development expense related with license acquired of $1.2 million, partially offset by our sale of marketable securities of $72.0 million since we invest excess cash into marketable securities until additional cash is needed. The cash provided by investing activities primarily resulted from our sale of marketable securities for the nine months ended September 30, 2019 of $8.4 million, partially offset by our purchase of marketable securities of $6.7 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 nine months ended September 30, 2020 was $31.6 million, which reflects the net proceeds of $6.6 million from investors in exchange of issuance of common stock, common warrants and prefunded warrants, net proceeds of $17.8 million from investors in exchange of issuance of common stock, and net proceeds of $7.2 million from the exercise of common warrants and prefunded warrants. Cash provided by financing activities for the nine months ended September 30, 2019 was $1.3 million, which reflects the net proceeds of $0.8 million from investors in exchange of issuance of common stock and prefunded common stock warrants, and net proceeds of $0.5 million from the issuance of common stock as part of our ATM offering. Cash provided by financing activities for the nine months ended September 30, 2018 was approximately $2.7 million, which related to issuance of 2,222,222 shares of its common stock.

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, 2019,2020, 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, 20192020 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, 20192020 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 matters against us as of the date of this report.

Counterclaims 

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 pendingproceedings 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.  

InvestingItem 1A. Risk Factors