Securities that could potentially dilute loss per share in the future as follows:

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The newthis guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The FASB has subsequently issued ASU No. 2016-10, Revenue from Contracts with Customer (Topic 606) Identifying Performance Obligations and Licensing to address issues arising from implementation of the new revenue recognition standard. ASU 2014-09 and ASU 2016-10 are effective for interim and annual periods beginning January 1, 2018, and may be adopted earlier, but not before January 1, 2017. The revenue standards are required to be adopted by taking either a full retrospective or a modified retrospective approach. The Company is currently evaluating the impact that ASU 2014-09 and 2016-10 will have on the Company’s financial statements and determining the transition method, including the period of adoption, that it will apply.

In January 2016, the FASB issued ASU No. 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to presentreported separately in other comprehensive income the portion of the total change in the fair value of a liability resultingour condensed consolidated balance sheets from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU No. 2016-01 will have on its consolidated financial statements.instruments using another accounting method.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), which supersedes FASB ASC Topic 840,Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In March 2016, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations(“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. The amendments in ASU 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2016-08 on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective on January 1, 2020. Early adoption will be available on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its consolidated statements of cash flows.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

In January 2017, the FASB issued ASU No. 2017-04,Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting forGoodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In May 2017,2019, the Financial Accounting Standards Board (the FASB)(“FASB”) issued ASU 2017-09,No. 2019-12, “Compensation-Stock CompensationIncome Taxes (Topic 718)740): Scope of ModificationSimplifying the Accounting for Income Taxes (“ASU 2019-12”), (ASU 2017-09).which is intended to simplify various aspects related to accounting for income taxes. ASU 2017-09 provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying2019-12 removes certain exceptions to the guidancegeneral principles in Topic 718,740 and also clarifies and amends existing guidance to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date.improve consistent application. This ASUguidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.2020, with early adoption permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption of this ASU isdid not expected to have a material impact on the Company’sits consolidated financial position or results of operations.statements.

In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

In March 2016, the FASB issued ASU No. 2016-09,Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. Effective on January 1, 2017, the Company began accounting for forfeitures as they occur. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election under ASU 2016-09, the Company estimated their forfeiture rate at 0%, or they did not have a significant history of forfeitures.

Note 4. Investment in Hoth Therapeutics, Inc.

On June 30, 2017 (the “Closing Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Hoth Therapeutics, Inc., a Nevada corporation (“Hoth”), for the purchase of an aggregate of 6,800,000 shares of common stock, par value $0.0001 (the “Shares”), of Hoth, for a purchase price of $675,000. As of the Closing Date, Hoth had a total of 17,000,000 shares of common stock issued and outstanding. Hoth is a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema. Hoth’s primary asset is a sublicense agreement with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa has granted Hoth an exclusive sublicense to use its BioLexa products for the treatment of eczema.

SPHERIX INCORPORATED AND SUBSIDIARIESAIKIDO PHARMA INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Under

Note 4. License agreement with Silo Pharma Inc.

Effective January 5, 2021, the Purchase Agreement, followingCompany entered into an exclusive patent license agreement (the “License Agreement”) with Silo Pharma Inc., a Delaware corporation and Silo Pharma Inc., a Florida corporation, and their affiliates/subsidiaries (collectively, “Silo Pharma”). On April 12, 2021, the occurrence of a Going Public Event (as defined below), Hoth covenants to timely file all reports required to be filed under the Securities Exchange Act of 1934 (the “Exchange Act”) and to take all necessary steps to cause the Shares to be approved for listing or quotation on a trading market such as NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX. A “Going Public Event” means (i)Company entered into an initial public offering of Hoth’s securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) Hoth’s entry into a merger, consolidation, transfer or share exchange transaction pursuant to which Hoth becomes subjectamendment to the reporting requirementsLicense Agreement (“Amendment”). The Amendment amended a portion of the Exchange Act.license fees included in the original License Agreement and converted 500 shares of the Company’s Series M Convertible Preferred Stock into an aggregate of 625,000 restricted shares of the Company’s common stock, par value $0.001 per share, effective as of January 5, 2021.

As consideration for the license of the Licensed Patents, the Company issued and delivered to Silo Pharma 625,000 shares of the Company’s restricted stock. The Company adopted the fair value option for this investment and will record any change in fair valuepaid a one-time nonrefundable cash payment of $0.5 million to Silo Pharma. The Company shall also pay Silo Pharma a running royalty equal 2% of “net sales” (as such term is defined in the statement of operations (see Note 6)License Agreement).

Note 5. Intangible Assets

Patent Portfolio and Patent RightsInvestments in Marketable Securities

The Company’s intangible assets with finite lives consist of its patentsrealized gain or loss, unrealized gain or loss, and patent rights. For all periods presented, all of the Company’s identifiable intangible assets were subject to amortization. The carrying amountsdividend income related to acquired intangible assetsmarketable securities for the three months ended March 31, 2021 and 2020, which are recorded as a component of September 30, 2017gains and (losses) on marketable securities on the consolidated statements of operations, are as follows ($ in thousands):

The amortization expenses related to acquired intangible assets for the nine months ended September 30, 2017 and 2016 are as follows ($Note 6. Investment in thousands):

Hoth Therapeutics, Inc.

The Company has concluded that the Monetization Agreement did not constitute a sale of the patents. The Company’s retention of the right to use the patents, the requirement for the Company’s consent to any sale, and the significant economic benefitsfollowing summarizes the Company retained with respect to the litigation, licensing and sale proceeds, did not meet the saleinvestment in Hoth as of patent criteria. The Monetization Agreement has been treated as an agreement to outsource its licensing activities to an outside servicer for contingent fees based on the success of the servicer’s efforts. As such, the Company will not remove the patents from its consolidated balance sheet, and will record its share of litigation, licensing, and sales proceeds, if any, when those proceeds are received, or when due if the other revenue recognition criteria are met under ASC 605,Revenue Recognition.March 31, 2021:

Note 6.7. Fair Value of Financial Assets and Liabilities

Financial instruments, including cash and cash equivalents, accounts and other receivables, marketable securities, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The Company uses three levels of inputs that may be used to measure fair value:

Level 1 - quoted prices in active markets for identical assets or liabilities

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

AIKIDO PHARMA INC.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the Company’s assets and liabilities that are measured at fair value at September 30, 2017March 31, 2021 and December 31, 20162020 ($ in thousands):

There were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2017.

Level 2 Valuation Techniques

The fair values of Level 2 marketable securities are determined using one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 Valuation Techniques

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Financial assets consist of the Company’s investment in Hoth. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “change in fair value of warrant liabilities” in the Company’s consolidated statements of operations.

On July 21, 2015, the Company issued the July 2015 Warrants to purchase an aggregate of 370,263 shares of common stock to the investors in the July 2015 Financing. The July 2015 Warrants became exercisable on January 22, 2016 for a period of 5 years at an exercise price of $8.17 per share. The warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the July 2015 Warrants) at the Company and therefore are classified as liabilities. The July 2015 Warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.

On December 7, 2015, the Company issued Series A warrants to purchase up to 1,052,624 shares of common stock and Series B warrants to purchase up to 842,099 shares of common stock contained in such offering. Series A Warrants had an exercise price of $3.80 per share and were exercisable at any time between December 7, 2015 and May 6, 2016. 852,624 shares of Series A warrants expired unexercised on May 24, 2016, and no Series A Warrants remain outstanding as of December 31, 2016. Series B Warrants have an exercise price of $4.75 per share and are exercisable at any time between December 7, 2015 and December 6, 2020. The Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the consolidated balance sheet as a current liability.

The Series B warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and as of September 30, 2017 is as follows:

The value of the Company’s investment in Hoth was determined based on a valuation which takes into consideration, when applicable, cash received, cost of the investment, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The values at which the Company’s investment in Hoth is carried on its books are adjusted to estimated fair value at the end of each quarter taking into account general economic and stock market conditions and those characteristics specific to Hoth.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis:

Convergent Investment

WhileOn January 29, 2021, the Company believes its valuation methods are appropriate and consistentpurchased an 8% convertible promissory note (“Convertible Note”) issued by Convergent Therapeutics, Inc. (“Convergent”) with other market participants,a principal amount of $2 million pursuant to a Note Purchase Agreement with Convergent. The Company paid a purchase price for the useConvertible Note of different methodologies or assumptions to determine$2 million. The Company will receive interest on the fair value of certain financial instruments could result in a different estimate of fair valueConvertible Note at the reporting date.rate of 8% per annum payable upon conversion or maturity of the Convertible Note. The Convertible Note shall mature on January 29, 2023.

The decisionCompany has elected to electmeasure the purchase of the Convertible Note from Convergent using the fair value option which is irrevocable once elected, is determined on an instrument by instrument basis and applied to an entire instrument. The net gains or losses, if any, on an investment for whichat each reporting date. Under the fair value option, has been elected, are recognized asbifurcation of an unrealized gainembedded derivative is not necessary, and all related gains and losses on investmentthe host contract and derivative due to change in the Consolidated Statementsfair value will be reflected in interest income and other, net in the condensed consolidated statements of Operations.operations.

SPHERIX INCORPORATED AND SUBSIDIARIESAIKIDO PHARMA INC.

Notes to Condensed Consolidated Financial Statements

The fair value of the investment in Hoth at September 30, 2017 was approximately $1.0 million. The underlying stock price of Hoth was estimated to be $0.15 per share based on Hoth’s fundraising activity and the Option Pricing Method Backsolve in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issues as Compensation. The valuation of the underlying shares included the following assumptions: risk-free rate – 1.39%, company volatility - 75%, expected term or time to maturity – 1.5 years.

Note 7. RPX License Agreement

On November 23, 2015, the Company and RPX Corporation (“RPX”) entered into a Patent License Agreement (the “RPX License Agreement”) under which the Company granted RPX the right to sublicense various patent license rights to certain RPX clients. The consideration to the Company included: (i) the transfer to the Company for cancellation of its remaining outstanding Series I Redeemable Convertible Preferred Stock (the “Series I Preferred Stock”), as to which a $5,000,000 mandatory redemption payment would have been due from the Company on or by December 31, 2015; (ii) the transfer to the Company for cancellation of 13%, or 57,076 shares, of its Series H Convertible Preferred Stock (the “Series H Preferred Stock”) then held by RPX, having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar; (iii) cancellation of the only outstanding security interest on 101 of the Company’s patents and patent applications that originated at Nortel Networks (“Nortel”) and were purchased by the Company from Rockstar, which security interest had previously been transferred to RPX by Rockstar (“RPX Security Interest”); and (iv) $300,000 in cash to the Company. While the license granted to RPX is non-exclusive and the duration of the license is for the life of the patents, the Company’s ongoing obligations in the arrangement is to provide certain specific RPX licensors with a non-exclusive license to any new patents that may be acquired by or exclusively licensed to the Company during the two-year period following the effective date of the agreement. Therefore, the Company will recognize $0.6 million revenue ratably over the two-year period that it is obligated to provide these RPX licensees with licenses to such new patents. During the years ended December 31, 2016 and 2015, the Company recorded approximately $290,000 and $31,000, respectively, in revenue related to the amortization of the license.

On May 23, 2016, the Company, and RPX, entered into a second, separate, Patent License Agreement (the “RPX License”) under which the Company granted RPX the right to sublicense various patent rights only to current RPX clients (as of May 23, 2016). In exchange for the rights granted by the Company under the RPX License, the Company received the following consideration: (i) a cash payment made to the Company in May 2016 in the amount of $4,355,000; and (ii) cancellation of 100% of the remaining 381,967 shares of the Company’s outstanding Series H Convertible Preferred Stock currently held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar Consortium US LP (“Rockstar”).

In consideration of the above, the Company granted RPX the rights to grant to its current clients: (i) a fully paid portfolio license, to the extent such parties did not already have licenses to the Company’s patents; (ii) a covenant-not-to-sue current RPX clients for supply of chipsets; (iii) a standstill of litigation involving any patents acquired in the next five years (“Standstill”).

The Company also granted to Alcatel-Lucent a license to the portfolio acquired from the Harris Corporation.(Unaudited)

During the three and nine months ended September 30, 2017, the Company recorded approximately $314,000 and $932,000, respectively, in revenue related to the amortization of the license.

UnderThe Convertible Note is disclosed as a separate agreement between the Company and RPX, dated May 23, 2016, the Company granted RPX the ability to grant to VTech Telecommunications Ltd. (“VTech”) a sublicense for a fully paid portfolio license in exchange for an additional $20,000 in cash consideration.

The license granted under the terms of the RPX License described herein does not extend to entities/companies that are not clients of RPX and provide chipsets or other hardware to current RPX clients.

The carrying value of Series Hnoncurrent Convertible Preferred Stock on the extinguishment date was estimated at approximately $31.9 million. The fair value on the same date was estimated at approximately $414,000 based upon equivalent common shares that the Series H Convertible Preferred Stock could have converted into at the closing price on May 23, 2016. This resultedNote investment in the Company receiving cash from RPXcondensed consolidated balance sheets. As of $4.4 million, a deemed capital contribution of approximately $31.5 million, short term deferred revenue $1.1 million and long term deferred revenue of $3.7 million.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

A summary of information with respect the RPX transaction on May 23, 2016 is as follows:

The deferred revenue will be amortized over a 5-year service period as the RPX License includes a standstill agreement which requires Spherix to provide the licensee with the right to use any future acquired patents for five years.

ASC 260-10-S99-2,Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, requires the gain or loss on extinguishment of equity-classified preferred stock to be included in net income per common stockholder used to calculate earnings per share (similar to the treatment of dividends paid on preferred stock). The difference between (1)March 31, 2021, the fair value of the Convertible Note was measured at $2.0 million, taking into consideration transferredcost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. The value at which the Company’s Convertible Note is carried on its books is adjusted to estimated fair value at the end of each quarter, taking into account general economic and stock market conditions and those characteristics specific to the holders ofunderlying investments. No change in fair value was recorded during the preferred stockthree months ended March 31, 2021.

Interest accrues on the unpaid principal balance on a quarterly basis and (2) the carrying amount of the preferred stock (net of issuance costs) is subtracted from (or added to) netrecognized in interest income to arrive at income available to common stockholders in the calculationcondensed consolidated statements of earnings per share.operations. The Company recorded an interest income receivable of approximately $27,000 on the Convertible Note as of March 31, 2021.

Note 8. Net Loss per Share

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at March 31, 2021 and 2020 are as follows:

Note 9. Stockholders’ Equity and Redeemable Convertible Preferred Stock

Restated Certificate of IncorporationPublic Offering

On March 4, 2016,February 19, 2021, the Company implemented a Reverse Stock Splitconsummated the public offering pursuant to an amended and restated underwriting agreement (the “Underwriting Agreement”) with a ratioH.C. Wainwright & Co., LLC, as representative to the underwriters named therein (the “Underwriter”), pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the “Offering”) an aggregate of 1-for-19. The46,875,000 shares (the “Shares”) of common stock, $0.0001 par value per share, of the Company (the “Common Stock”). The Company received gross proceeds of approximately $75 million before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On February 23, 2021, the Underwriter partially exercised its over-allotment option and purchased an additional 7,030,927 Shares, resulting in aggregate proceeds of approximately $86.2 million, before deducting underwriting discounts and commissions and other terms ofexpenses. The total net proceeds received from these two offerings were approximately $78.0 million.

In connection with the common stock were not affected byOffering, the Reverse Stock Split. In addition,Company issued the amendmentUnderwriter warrants (the “Underwriter’s Warrants”) to the Company’s certificate of incorporation that effected the Reverse Stock Split simultaneously reduced the number of authorizedpurchase up to 4,312,473 shares of Common Stock, from 200,000,000 to 100,000,000.

Common Stock

On July 18, 2017, the Company entered into an underwriting agreement with Laidlaw & Company (UK) Ltd. with respect to the issuance and sale of an aggregate of 1,250,000 sharesor 8% of the Company’s common stock, par value $0.0001 per share,Shares sold in a firm commitment underwritten public offering which closed on July 24, 2017. Each share was soldthe Offering. The Underwriter’s Warrants will be exercisable for a period of five years from February 19, 2021 at an exercise price of $2.00 for aggregate gross proceeds of $2,500,000, with net proceeds of approximately $2.1 million, after deducting the underwriting discounts and commissions (equivalentper share, subject to 8% of gross proceeds) and estimated offering expenses. 

Preferred Stock

The Company had designated separate series of its capital stock as of September 30, 2017 and December 31, 2016 as summarized below:

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statementsadjustment.

Warrants

A summary of warrant activity for the ninethree months ended September 30, 2017March 31, 2021 is presented below:

AIKIDO PHARMA INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock Options

Also approved by the Company’s stockholders on February 26, 2016 was an amendment to the Company’s 2014 Equity Incentive Plan, which increased the number of shares of common stock authorized to be issued pursuant to the 2014 Plan from 4,161,892 to 8,250,000 prior to effectuation of the 1:19 reverse stock split. As a result of the split, the total share authorization under the plan was reduced to 434,210 shares.

During the second quarter ended June 30, 2017, pursuant to and subject to the available number of shares reserved under the 2014 Plan, the Company issued an aggregate of 15,788 options to purchase common stock of the Company to four of its directors. The aggregate grant date fair value of these options was approximately $12,000. These stock options vest over one year.  

A summary of stock option activity under the Company’s employee stock option plan for the ninethree months ended September 30, 2017March 31, 2021 is presented below:

A summary of option activity under the Company’s non-employee stock option plan for the nine months ended September 30, 2017 is presented below:

Stock-based compensation associated with the amortization of stock option expense was approximately $2,000$0.1 million and $5,000$0 for the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. All stock compensation was recorded as a component of general and wasadministrative expenses.

Estimated future stock-based compensation expense relating to unvested stock options is approximately $13,000$70,000 and $26,000 for the nine months ended September 30, 2017 and 2016, respectively. will be recorded through July 2021.

Restricted Stock UnitsAwards

On March 14, 2017, 35,969Pursuant to the patent license agreement effective January 5, 2021 with Silo Parma Inc., the Company issued and delivered to Silo Pharma 625,000 shares of the Company’s restricted stock units (“RSUs”) were delivered to Anthony Hayes. 23,287 shares of common stock were withheld (atas consideration for the closing pricelicense of the Company's commonlicensed patents. This restricted stock on the NASDAQ Capital Market on March 14, 2017) to satisfy the tax obligation relating to the vesting of the RSUs.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Stock-based Compensation

Stock-based compensation for the threeaward vested immediately. The Company recorded approximately $0.5 million in research and nine months ended September 30, 2017 and 2016 was comprised of the following ($ in thousands):

Stock-based compensation was approximately $2,000 and $54,000 fordevelopment expense related with license acquired during the three months ended September 30, 2017 and 2016, and was approximately $13,000 and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively. Unamortized stock-based compensation expense was immaterial at September 30, 2017.March 31, 2021 related to this arrangement.

Note 9.10. Commitments and Contingencies

Legal Proceedings

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

Risks and counterclaimsUncertainties – COVID-19

Management continues to evaluate the impact of the COVID-19 pandemic on the industry and legal actions arising inhas concluded that while it is reasonably possible that the ordinary coursevirus could have a negative effect on the Company’s financial position, results of business. There were no pending material claims its operations and/or legal matterssearch for drug candidates, the specific impact is not readily determinable as of the date of this report other than the following matters:

Spherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas

On August 30, 2013, we initiated litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) inSpherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas (“the Court”) for infringement of U.S. Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”).these consolidated financial statements. The complaint allegesconsolidated financial statements do not include any adjustments that Uniden has manufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patents. We sought relief in the form of a finding of infringement of the Asserted Patents, an accounting of all damages sustained by us as amight result of Uniden’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On June 3, 2014, in an effort to narrow the case, the parties filed a stipulation dismissing without prejudice all claims and counterclaims related to U.S. Patent No. 5,752,195. On September 4, 2014, Uniden America Corporation, together with VTech Communications, Inc., filed a request forinter partes review (“IPR”) of U.S. Patent No. 5,581,599 (the “’599 Patent���) and 6,614,899 (the “’899 Patent”) in the United States Patent and Trademark Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board (“PTAB”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued itsMarkman order, construing a total of 13 claim terms that had been disputed by the parties. On April 2, 2015, we filed an Amended Complaint with Jury Demand and the parties filed a Settlement Conference Report informing the Court that the parties have not yet resumed settlement negotiations. On September 10, 2015, the Court stayed the case and ordered the parties to file a status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of the ’599 Patent and all asserted claims of the ’899 Patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request, the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further Court intervention. The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ’599 Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted the parties’ motion to continue the stay. On January 12, 2017, we settled the case with Uniden and Uniden took a license under the Asserted Patents and the appeal to the Federal Circuit continued with the Patent and Trademark Office (“PTO”) as an adverse party. On July 25, 2017, after full briefing and oral argument, the Federal Circuit issued an order affirming the PTAB’s decision relating to the ’599 Patent.

International License Exchange of America, LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

On April 26, 2016, we initiated litigation against Fairpoint Communications, Inc. inSpherix Incorporated v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware (the “Court”) for infringement of U.S. Patent No. RE40,999 (the ’999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ’999 Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and costs, a declaration that the case is exceptional under 35 U.S.C. § 285, and the Company’s attorney’s fees. On October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America, LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itself as the plaintiff, consistent with our Monetization Agreement with Equitable. On November 17, 2016, the Court granted ILEA’s motion. On June 22, 2017, the Court entered a Scheduling Order setting the Markman hearing for August 22, 2018 and jury trial for October 28, 2019. On August 31, 2017, the parties filed a joint stipulation of dismissal and, on September 1, 2017, the Court terminated the case.

International License Exchange of America, LLC Litigations

Under our Monetization Agreement with Equitable, ILEA has filed the patent infringement litigations listed below.

SPHERIX INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

In July 2016, a lawsuit relating to the ’999 Patent was dismissed in anticipation of settlement with the counterparty. In May 2017, settlement was reached, pursuant to which the counterparty granted to Equitable the right to monetize a portfolio of 112 patents (the “Settlement Patents”). Pursuant to the Company’s Monetization Agreement with Equitable, the Company is entitled to receive a portion of the net revenue generated by Equitable’s monetization of the Settlement Patents.

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 pending against us. In the event such counterclaims are filed, we can provide no assurance that the outcome of these claims willthis uncertainty.

Note 11. Subsequent Events

The Company evaluated events that have occurred after the balance sheet date through the date the financial statements were issued. Based upon the evaluation and transactions, the Company did not identify any other subsequent events that would have a material adverse effect on ourrequired adjustment or disclosure in the consolidated financial position and results from operations.statements.

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 Spherix Incorporated,Aikido Pharma Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.

Overview

OverviewAIkido Pharma Inc. was initially formed in 1967. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics in development. The Company’s pipeline consists of patented technology from leading universities and researchers. We are currently in the process of developing our innovative therapeutic drug pipeline 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 oncology therapeutics include treatments for pancreatic cancer, acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL). The Company is also developing a broad-spectrum antiviral platform, in which the lead compounds have activity against multiple viruses including Influenza virus, Ebolavirus and Marburg virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19.

We are an intellectual property company that owns patented and unpatented intellectual property. Spherix Incorporated was formed in 1967 as a scientific research company and for much of our history pursued drug development including through Phase III clinical studies which were largely discontinued in 2012. In 2012 and 2013, we shifted our focus to being a firm that owns, develops, acquires and monetizes intellectual property assets. Through our acquisitions of 108 patents and patent applications from Rockstar Consortium US, LP and acquisition of several hundred patents issued to Harris Corporation asAs a result of the Company’s biotechnology research and development and associated investments and acquisitions, our acquisitionbusiness portfolio now focuses on the treatment of North South,three different cancers and multiple types of viral infections. Our pancreatic drug candidate, DHA-dFdC, developed at and licensed from 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 is well tolerated in preclinical toxicity tests. Preclinical studies have expanded ouralso indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that gemcitabine, a current standard therapy), targets pancreatic tumors and has demonstrated activities in wireless communicationsagainst other cancers, including leukemia, lung and telecommunication sectors including antenna technology, Wi-Fi, base station functionalitymelanoma. Our AML and cellular.ALL compound, developed at the Wake Forest University, is a targeted therapeutic designed to overcome multiple resistance mechanisms observed with the current standard of care.

Our activities generally includebroad-spectrum antiviral platform was developed at the acquisitionUniversity of Maryland Baltimore (“UMB”), which granted the Company an exclusive worldwide Master License Agreement (MLA”) to technology covered by three separate patent applications. The licensed technology comprises broadly acting pan-viral inhibitory compounds targeting multiple viral pathogens. The technology was invented by UMB scientists Drs. Matthew Frieman, Alexander MacKerell and Stuart Watson. The Company has also executed a Sponsored Research Agreement with UMB to support the development of patents through internal or external research and development. the technology under the direction of these inventors at UMB.

In addition, we seekare constantly seeking to acquire existinggrow our pipeline of treatments in oncology indications. For example, in January 2021, the Company invested in Convergent Therapeutics, Inc., which has exclusive rights to intellectual property throughtechnology related to next-generation dual-action peptide receptor radionuclide therapy (“PRRT”) for prostate cancer covered by multiple issued U.S. and foreign patents. Convergent is currently conducting advanced human trials relating to prostate cancer treatments utilizing PRRT that targets the acquisitionprostate-specific membrane antigen (“PSMA”) present on prostate cancer cells. The technology was developed under the direction of already issued patents and pendingDr. Neil Bander, Professor of Urologic Oncology at Weill Cornell Medicine. In addition, the Company was granted a license to four patent applications bothfor the use of psilocybin in cancer indications.

Additionally, on January 6, 2021 the Company announced that it entered into an exclusive patent license agreement with Silo Pharma Inc. (“Silo Pharma”) pursuant to which Silo Pharma granted the Company a worldwide exclusive, sublicensable, royalty-bearing license to certain Silo Pharma owned provisional patent applications directed to the use of psilocybin in cancer treatment, and any patents issuing therefrom, including all continuations, continuations-in-part, divisions, extensions, substitutions, reissues, re-examinations, and any applications and all patents issuing from any applications and patents that claim domestic benefit or foreign priority to the provisional patent applications. The license is for “Field of Use” (as defined in the United Statesexclusive patent license agreement) of “treatment of cancer and abroad. We may alone, or in conjunction with others, develop productssymptoms caused by cancer, including but not limited to pain, nausea, neuroinflammation, brain and processes associated with our intellectual propertyneural dysfunction, depression, seizures, confusion, dizziness, numbness/tingling, dysfunction of the senses and license our intellectual property to others seeking to develop products or processes or whose products or processes infringe our intellectual property rights through legal processes. Using our patented technologies, we employ strategies seeking to permit us to derive value from licensing, commercialization, settlement and litigation from our patents. We will continue to seek to obtain patents from inventors and patent owners to monetize patent portfolios.all other symptoms that are caused by cancer of any type.”

Critical Accounting Policies

Our critical accounting policies are disclosed in our annual report on Form 10K for the year ended December 31, 2020 and there have been no material changes to such policy or estimates during the three months ended March 31, 2021.

Recently Issued Accounting Pronouncements

See Note 3 to the condensed consolidated financial statements for a discussion of recent accounting standards.

Results of Operations

Three months ended September 30, 2017March 31, 2021 compared to three months ended September 30, 2016March 31, 2020

During the three months ended September 30, 2017 and 2016, revenue was approximately $0.3 million, which represents the amortization of deferred revenue related to the two patent license agreements we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”). During the three months ended September 30, 2017, we recognized $73,000 and $0.2 million from November 2015 and May 2016 RPX License transactions, respectively. Both the November 2015 and May 2016 RPX License transactions use the straight-line method to amortize the deferred revenue over the contract life of 2 years and 5 years, respectively. 

During the three months ended September 30, 2017 and 2016,March 31, 2021, we incurred a loss from operations of approximately $1.0$2.3 million, and $1.5as compared to $2.4 million respectively.during the comparable prior year period. The decrease in net loss was primarily attributed to (i) a $0.2 million$13,000 decrease in amortization expenses related to the Rockstar patents acquired by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016research and (ii) a $0.3 milliondevelopment expense and $ $92,000 decrease in compensationgeneral and administrative expenses, partially offset by $23,000 increase in research and development expense related expenses due to further cost cutting implemented in the first quarter of 2017.  with license acquisition.

During the three months ended September 30, 2017,March 31, 2021, other incomeexpense was approximately $1.4$1.7 million as compared to approximately $1.0$5.9 million forduring the comparable prior year period. The increase in other income was primarily attributed to an increase in fair value of our investment in Hoth Therapeutics, Inc. (“Hoth”).

Net income attributable to common stockholders was a net income of $0.5 million in the three months ended September 30, 2017 compared to net loss of $0.4 million in the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

During the nine months ended September 30, 2017 and 2016, revenue was approximately $1.0 million and $0.6 million, respectively, which represents the amortization of deferred revenue related to the two patent license agreements we entered into with RPX Corporation (“RPX”) on November 23, 2015 and May 22, 2016 (the “RPX License Agreements”). During the nine months ended September 30, 2017, we recognized $0.2 million and $0.7 millionper share went down from November 2015 and May 2016 RPX License transactions, respectively. Both the November 2015 and May 2016 RPX License transactions use the straight-line method to amortize the deferred revenue over the contract life. 

During the nine months ended September 30, 2017 and 2016, we incurred a net loss from operations of approximately $2.7 million and $4.7 million, respectively. The decrease in net loss was primarily attributed to (i)operating losses and a $0.6 million decrease in amortization expenses related to the Rockstar patents acquired by the Company during 2013 due to a $2.7 million impairment of intangible assets in 2016 and (ii) a $1.1 million decrease in professional fees due to further cost cutting implementedsignificant increase in the first quarternumber of 2017.

During the nine months ended September 30, 2017 and 2016, other income was approximately $0.4 million as compared to approximately $2.1 million of other income for the comparable prior period.shares outstanding. The decrease in other incomeexpense was primarily attributed to a $2.3$4.6 million decreaselower loss in the change in fair value of warrant liabilities,investment in Hoth, and waspartially offset by an$0.5 million increase in fair value of our investment in Hoth.losses on marketable securities.

Net loss attributable to common stockholders was a net loss of $2.3 millionThe Company experienced very little or no revenue in the nine months ended September 30, 2017 compared to net income of $28.9 million in the nine months ended September 30, 2016. The changelast two years and we don’t expect any revenue until a biotechnology product is attributed to the decrease of deemed capital contribution on extinguishment of preferred stock. During the nine months ended September 30, 2016, we incurred a one-time $31.5 million of deemed capital contribution on preferred stock related to the cancellation of 381,967 shares of Series H Preferred Stock pursuant to the RPX license agreement,fully developed which capital contribution ismay not reflected in the nine months ended September 30, 2017.occur for many years.

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:through managing current cash on hand from our past equity offerings.

During the first quarter of 2021, the Company consummated a public offering of 53,905,927 shares of common stock (including the underwriter overallotment). The Company received net proceeds of approximately $78.0 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Therefore, the Company has adequate cash to fund its operations for at least the next twelve months.

Moving forward, the Company intends to manage its cash through an investment committee focused on asset preservation and reasonable risk allocation. Further, the Company intends to grow its drug platform through additional licensing efforts that are similar to those the Company has already entered into and disclosed. In addition, the Company is seeking partnerships with academic institutions and private enterprise to find, fund and advance new drug compounds that can be brought to commercialization.

Management continues to evaluate 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 consolidated financial position, results of its consolidated operations and/or search for drug candidates, the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cash Flows from Operating Activities - For the ninethree months ended September 30, 2017,March 31, 2021 and 2020, net cash used in operations was approximately $2.5 million.$1.1 million and $1.4 million, respectively. The cash used in operating activities for the ninethree months ended September 30, 2017March 31, 2021 primarily resulted from $0.3a net loss of $4.0 million, changeand partially offset by $2.0 million unrealized loss on marketable securities 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, 2020 primarily resulted from a net loss of $8.3 million, and partially offset by reduction in fair value of warrant liabilities and $1.2 millioninvestment of changes in assets and liabilities, and partially offset by amortization expenses of $1.0 million. During the nine months ended September 30, 2016, we generated approximately $0.9 million of cash in operating activities. The cash provided by operating activities for the nine months ended September 30, 2016 primarily resulted from significant non-cash charges related to amortization expenses of $1.6 million, stock-based compensation expense of approximately $0.4$5.1 million and approximately $3.8$1.0 million of deferred revenue, partially offset by approximately $2.6 million of net lossresearch and $2.1 million of change in fair value of warrant liabilities.development expense related with license acquired.

Cash Flows from Investing Activities - For the ninethree months ended September 30, 2017,March 31, 2021 and 2020, net cash provided byused in investing activities was approximately $0.6 million.$71.8 million and $17.2 million, respectively. The cash provided byused in investing activities for the three months ended March 31, 2021 primarily resulted from our purchase of marketable securities of $83.6 million and purchase of convertible note of $2.0 million, partially offset by our sale of marketable securities of $14.3 million since we invest excess cash into marketable securities until additional cash is needed. The cash used in investing activities for the ninethree months ended September 30, 2017March 31, 2020 primarily resulted from our purchase of $12.5marketable securities of $20.4 million and research and development expense related with license acquired of $1.0 million, partially offset by our purchase of marketable securities of $11.3 million. During the nine months ended September 30, 2016,$4.2 million since we used approximately $3.6 million ofinvest excess cash investing activities.  The cash used in investing activities primarily resulted from our purchase ofinto marketable securities for the nine months ended September 30, 2016 of approximately $15.7 million and purchase of marketable securities, partially offset by sale of marketable securities of approximately $12.1 million.securities.

Cash Flows from Financing Activities -Cash provided by financing activities for the ninethree months ended September 30, 2017March 31, 2021 was approximately $2.1$78.1 million, which related toreflects the net proceeds of $78.0 million from investors in exchange of issuance of common stock.stock and warrants and net proceeds of $84,000 from the exercise of common warrants. Cash provided by financing activities for the ninethree months ended September 30, 2016March 31, 2020 was approximately $2.9$18.8 million, which related to approximately $2.1 millionreflects the net proceeds of $6.5 from theinvestors 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 $0.8net proceeds of $7.1 million proceeds from the exercise of 200,000 shares ofcommon warrants partially offset by the payment for the cancellation of common stock of approximately $4,000.and prefunded warrants.

Our business will require significant amounts of capital to sustain operations and make the investments we need to execute our longer term business plan. Our working capital amounted to approximately $2.6 million at September 30, 2017, and net loss amounted to approximately $2.3 million for the nine months ended September 30, 2017. On July 24, 2017, we closed on a firm commitment underwritten offering for aggregated gross proceeds of $2,500,000. In addition, the fair value of our marketable securities held as of September 30, 2017 was $4.7 million. Our accumulated deficit amounted to approximately $144.1 million at September 30, 2017. 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 from the litigations in which we participate. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available to us on favorable terms, or at all. Off-balance sheet arrangements.

Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical.  We may be forced to litigate against others to enforce or defend our intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which we are involved may allege defenses and/or file counterclaims or initiate inter parties reviews in an effort to avoid or limit liability and damages for patent infringement or cause us to incur additional costs as a strategy. If such efforts are successful, they may have an impact on the value of the patents and preclude us from deriving revenue from the patents, the patents could be declared invalid by a court or the United States Patent and Trademark Office, in whole or in part, or the costs could increase.

Should we be unsuccessful in our efforts to execute our business plan, it could become necessary for us to reduce expenses, curtail operations or explore various alternative business opportunities or possibly suspend or discontinue our business activities.None.

Pursuant to the RPX License Agreement, the security interest that RPX held in favor of our patents acquired from Rockstar was extinguished. Accordingly, we now have greater flexibility to monetize our patent portfolio, including through the sale of our patents or sublicensing our patents to third parties who can pursue their own monetization strategies with respect to those patents in exchange for royalties or some other consideration.

We have filed a shelf registration statement on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction I.B.6. of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period.  At the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6.  Based on this calculation and primarily as a result of our sale of $2,500,000 of Common Stock for the purchase of Common Stock on August 8, 2016 we are not currently eligible to sell any securities pursuant to our effective registration statement on Form S-3. Whether we sell securities under the registration statement will depend on a number of factors, including the market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital.

Rockstar will be entitled to receive a contingent recovery percentage of future profits (“Participation Payments”) from licensing, settlements and judgments against defendants with respect to patents purchased under the First Patent Purchase Agreement; however, no payment is required unless the Company receives a recovery. The Participation Payments under the First Patent Purchase Agreement are equal to zero percent until the Company recovers with respect to patents purchased under the First Patent Purchase Agreement at least (a) $8.0 million or (b) if we recover less than $17.0 million, an amount equal to $5.0 million plus $3.0 million times a fraction equal to total recoveries minus $10.0 million, divided by $7.0 million (clause (a) or (b), as applicable, being the “Initial Return”), in each case net of certain expenses.  Once we obtain recoveries in excess of the Initial Return, we are required to make a payment to Rockstar of $13.0 million, payable only from the proceeds of such recovery, within six months after such recovery. In addition, no later than 30 days after the end of each quarter in which we make such a recovery, we are required to pay to Rockstar a percentage of such recovery, net of certain expenses, scaling from 30% if such cumulative recoveries net of certain expenses are less than or equal to $50.0 million, to 70% to the extent cumulative recoveries net of certain expenses are in excess of $1.0 billion.  

Rockstar will also be entitled to receive Participation Payments from licensing, settlements and judgments against defendants with respect to patents purchased under the Second Patent Purchase Agreement; however, no payment is required unless we receive a recovery. The Participation Payments under the Second Patent Purchase Agreement are equal to zero percent until we recover with respect to patents purchased under the Second Patent Purchase Agreement at least $120.0 million, net of certain expenses.  Once we obtain recoveries in excess of that amount, we are required to pay to Rockstar 50% of our recovery in excess of that amount, no later than 30 days after the end of each quarter in which we make such a recovery.  

Our ability to fund these Participation Payments or the $13.0 million contingent payment will depend on the liquidity of our assets, recoveries, alternative demands for cash resources and access to capital at the time. Furthermore, our obligation to fund Participation Payments could adversely impact our liquidity and financial position.

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, 2017,March 31, 2021, 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, 2017.March 31, 2021 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.

However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. We believe that the foregoing steps will remediate the material weakness identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

Management is in the process of determining how best to make the required changes that are needed to implement an effective system of internal control over financial reporting. Our management acknowledges the existence of this problem, and intends to develop procedures to address it to the extent possible given our limitations in financial and human resources.

Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

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, 2017March 31, 2021 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 pursuepursued legal remedies to enforce our intellectual property rights and to stop unauthorized use of the technology in our patent portfolio.technology. Other than ordinary routine litigation incidental to the business, and other than as set forth below, we know of no material, active or pending legal proceedings against us, except for those described below.us.

Spherix Incorporated v. Uniden Corporation et al., Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas

On August 30, 2013, we initiated litigation against Uniden Corporation and Uniden America Corporation (collectively “Uniden”) inSpherix Incorporated v. Uniden Corporation et al , Case No. 3:13-cv-03496-M, in the United States District Court for the Northern District of Texas (“the Court”) for infringement of U.S. Patent Nos. 5,581,599; 5,752,195; 6,614,899; and 6,965,614 (collectively, the “Asserted Patents”). The complaint alleges that Uniden has manufactured, sold, offered for sale and/or imported technology that infringes the Asserted Patents. We seek relief in the form of a finding of infringement of the Asserted Patents, an accounting of all damages sustained by us as a result of Uniden’s infringement, actual damages, enhanced damages under 35 U.S.C. Section 284, attorney’s fees and costs. On June 3, 2014, in an effort to narrow the case, the parties filed a stipulation dismissing without prejudice all claims and counterclaims related to U.S. Patent No. 5,752,195. On September 4, 2014, Uniden America Corporation, together with VTech Communications, Inc., filed a request forinter partesreview (“IPR”) of U.S. Patent No. 5,581,599 (the “’599 Patent”) and 6,614,899 (the “’899 Patent”) in the United States Patent and Trademark Office. On March 3, 2015, the U.S. Patent Trial and Appeal Board “PTAB”) entered decisions instituting, on limited grounds, IPR proceedings regarding a portion of the claims for the two Spherix patents. On March 19, 2015, the Court issued itsMarkman order, construing a total of 13 claim terms that had been disputed by the parties. On April 2, 2015, we filed an Amended Complaint with Jury Demand and the parties filed a Settlement Conference Report informing the Court that the parties have not yet resumed settlement negotiations. On September 10, 2015, the Court stayed the case and ordered the parties to file a status report within 10 days of the Patent Office issuing its decision in the IPR proceedings. On October 13, 2015, the Court ordered the case administratively closed until the PTAB issued its final written decisions. On February 3, 2016, the PTAB issued its final decisions in the IPR proceedings, finding invalid eight of the 15 asserted claims of U.S. Patent No. 5,581,599 the ’599 Patent and all asserted claims of the ’899 patent. Our deadline to file a Notice of Appeal of the PTAB’s decision to the United States Court of Appeals for the Federal Circuit was set for April 6, 2016. On February 29, 2016, at the parties’ joint request, the Court ordered that the stay of the case remain in effect for 30 days so the parties may work to resolve the case without further Court intervention. The parties timely filed a Joint Status Report on March 31, 2016, in which we requested that the stay remain in effect pending the Federal Circuit issuing a ruling in connection with the appeal of IPR2014-01431 relating to the ’599 Patent. On April 1, 2016, we filed our Patent Owner’s Notice of Appeal in IPR2014-01431. On April 11, 2016, the Court granted the parties’ motion to continue the stay.  On January 12, 2017, we settled the case with Uniden and Uniden took a license under the Asserted Patents and the appeal to the Federal Circuit continued with the Patent Office as an adverse party. On July 25, 2017, after full briefing and oral argument, the Federal Circuit issued an order affirming the PTAB’s decision relating to the ’599 Patent.

International License Exchange of America, LLC v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware

On April 26, 2016, we initiated litigation against Fairpoint Communications, Inc. inSpherix Incorporated v. Fairpoint Communications, Inc., Case No. 1:16-cv-00305-RGA, in the United States District Court for the District of Delaware (the “Court”) for infringement of U.S. Patent No. RE40,999 (the “999 Patent”). In the Complaint, we sought relief in the form of a finding of infringement of the ’999 Patent, damages sufficient to compensate us for Fairpoint’s infringement together with pre-and post-judgment interest and costs, a declaration that the case is exceptional under 35 U.S.C. § 285, and the Company’s attorney’s fees. On October 13, 2016, Fairpoint filed its answer with no counterclaims. On November 16, 2016, International License Exchange of America, LLC, a wholly-owned subsidiary of Equitable (“ILEA”), filed a motion to substitute itself as the plaintiff, consistent with our Monetization Agreement with Equitable. On November 17, 2016, the Court granted ILEA’s motion. On June 22, 2017, the Court entered a Scheduling Order setting the Markman hearing for August 22, 2018 and jury trial for October 28, 2019. On August 31, 2017, the parties filed a joint stipulation of dismissal and, on September 1, 2017, the Court terminated the case. 

International License Exchange of America, LLC Litigations

Under our Monetization Agreement with Equitable, ILEA has filed the patent infringement litigations listed below.