PRER14A 1 spexpre14a_amn2july2013.htm REVISED PRELIMINARY SCHEDULE 14A (AMENDMENT 2) spexpre14a_amn2july2013.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN
PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.  2 )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]
Check the appropriate box:

[X]
Preliminary Proxy Statement

[   ]
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[   ]
Definitive Proxy Statement

[   ]
Definitive Additional Materials

[   ]
Soliciting Material Pursuant to Rule 14a-12.
 
 
 



 
 
SPHERIX INCORPORATED
(Name of Registrant as Specified in its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[   ]
No fee required.
 
[   ]
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
(1)
Title of each class of securities to which transaction applies.
     
 
 
(2)
Aggregate number of securities to which transaction applies:
     
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):  Unit price of $8.4650 estimated pursuant to  Rules 457(c) under the Securities Act solely for the purpose of calculating the registration fee, based on the average of the high and low prices of the Registrant’s common stock as reported on the NASDAQ Capital Market on May 7, 2013
     
 
 
(4)
Proposed maximum aggregate value of transaction:
     
 
 
(5)
Total fee paid:  
     
 
[X]
Fee paid previously with preliminary materials.
 
[   ]
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
(1)
Amount Previously Paid:
     
 
 
(2)
Form, Schedule or Registration Statement No.:
     
 
 
(3)
Filing Party:
     
 
 
(4)
Date Filed:
     
 
 
 


 

SPHERIX INCORPORATED
7927 Jones Branch Drive, Suite 3125
Tysons Corner, VA 22102
(703) 992-9260

NOTICE OF CONSENT SOLICITATION

*, 2013

To our Stockholders:

We are soliciting your consent to approve:

(1)  the issuance of an aggregate of (a) 118,483 shares of common stock, par value $0.0001 per share (the “Common Stock”) of Spherix Incorporated, a Delaware corporation (the “Company” or “us” or “we” or “our ” or “Spherix ”) and (b) 1,488,152 shares of newly designated Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) which is convertible into shares of Common Stock on a one-for-ten basis (collectively, the “Merger Consideration”) as consideration for the acquisition of North South Holdings, Inc., a Delaware corporation (“North South”), by our wholly-owned subsidiary Nuta Technology Corp., a Virginia corporation (“Nuta Virginia”) pursuant to an Agreement and Plan of Merger dated as of April 2, 2013 (the “Merger” and the agreement, the “Merger Agreement”) in accordance with NASDAQ listing rules; (2) the 2013 Equity Incentive Plan (the “2013 Plan”) of the Company; and (3) the retention of the law firm associated with the Company’s current interim Chief Executive Officer as special counsel to the Company and its subsidiaries (collectively, the “Proposals”).  On April 1, 2013, the Company’s board of directors unanimously approved the Merger, the issuance of the Merger Consideration, adoption of the 2013 Plan and the retention of Sichenzia Ross Friedman Ference LLP (“SRFF”).   The Company’s board of directors has deemed it advisable to seek stockholder approval of the issuance of the Merger Consideration, in accordance with NASDAQ listing rules, of the 2013 Plan, as required under applicable law to preserve the intended tax consequences of the 2013 Plan and as otherwise in accordance with the rules of NASDAQ , and as otherwise deemed advisable by the board of directors and of the retention of SRFF as a matter of good corporate governance, and has decided to seek the written consent of stockholders through a consent solicitation process rather than holding a special meeting of stockholders, in order to eliminate the costs and management time involved in holding a special meeting.  The Proposals are described in more detail in the accompanying Consent Solicitation Statement.

We have established the close of business on July 10 , 2013, as the record date for determining stockholders entitled to submit written consents.  Stockholders holding a majority of our outstanding voting capital, which consists of our common stock , voting together with the record holders of our Series C Convertible Preferred Stock, as of the close of business on the record date , must vote in favor of the Proposals to be approved by stockholders.

This solicitation is being made on the terms and subject to the conditions set forth in the accompanying Consent Solicitation Statement and Written Consent.  To be counted, your properly completed Written Consent must be received before 5:00 p.m. Eastern Time, on *, 2013, subject to early termination of the consent solicitation by our board of directors if a majority approval is received, or extension of the time of termination by our board of directors (the “Expiration Time”).

Failure to submit the Written Consent will have the same effect as a vote against the Proposals.  We recommend that all stockholders consent to the Proposals, by marking the box entitled “FOR” with respect to each Proposal and submitting the Written Consent by one of the methods set forth in the form of Written Consent which is attached as Appendix B to the Consent Solicitation Statement.  If you sign and send in the Written Consent form but do not indicate how you want to vote as to the Proposals, your consent form will be treated as a consent “FOR” each Proposal.

By Order of the Board of Directors of Spherix Incorporated.

 
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SPHERIX INCORPORATED
7927 Jones Branch Drive, Suite 3125
Tysons Corner, VA 22102
(703) 992-9260

CONSENT SOLICITATION STATEMENT

General

This Consent Solicitation Statement dated *, 2013 is being furnished in connection with the solicitation of written consents of the stockholders of Spherix Incorporated, a Delaware corporation (the “Company,” “Spherix,” “us,” “we,” or “our”) with regard to the following proposals:

(1)  
To approve the issuance of an aggregate of (a) 118,483 shares of common stock, par value $0.0001 per share (the “Common Stock”) of the Company and (b) 1,488,152 shares of newly designated Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) which is convertible into shares of Common Stock on a one-for-ten basis (collectively, the “Merger Consideration”) as consideration for the acquisition of North South Holdings, Inc. a Delaware corporation (“North South”), by our wholly-owned subsidiary Nuta Technology Corp., a Virginia corporation (“Nuta Virginia”) pursuant to an Agreement and Plan of Merger dated as of April 2, 2013 (the “Merger” and the agreement, the “Merger Agreement”) in accordance with NASDAQ listing rules, including waiver of our Shareholder Rights Plan (the “Rights Plan”) and Delaware anti-takeover laws, as a result of the Merger;

(2)  
To approve the Spherix Incorporated 2013 Equity Incentive Plan (the “2013 Plan”) as attached as Appendix A to this Consent Solicitation Statement, including the reservation of 2,800,000 shares of Common Stock for issuance thereunder; and
 
(3)  
To approve and ratify the retention of Sichenzia Ross Friedman Ference LLP as special counsel to the Company and its subsidiaries.

Our board of directors unanimously adopted the Proposals and recommends that stockholders vote FOR the approval of the Proposals.  The board of directors has decided to seek written consent rather than calling a special meeting of stockholders, in order to eliminate the costs and management time involved in holding a special meeting.  Written consents are being solicited from all of our stockholders of record pursuant to Section 228 of the Delaware General Corporation Law and Section 1.12 of our Amended and Restated Bylaws.

Voting materials, which include this Consent Solicitation Statement and a Written Consent form (attached as Appendix B), are being mailed to all stockholders on or about *, 2013.  Our board of directors set the close of business on July 10 , 2013, as the record date for the determination of stockholders entitled to act with respect to the consent solicitation (the “Record Date”).  As of the Record Date, the Company had 900,962 shares of Common Stock outstanding of record, held by approximately 688 registered holders of record and 142,261 shares of Series C Convertible Preferred Stock outstanding, held by approximately 8 registered holders of record who are entitled to vote together with the holders of our Common Stock, subject to certain beneficial ownership limitations .
 
Any beneficial owner of Spherix who is not a record holder must arrange with the person who is the record holder or such record holder’s assignee or nominee to: (i) execute and deliver a Written Consent on behalf of such beneficial owner; or (ii) deliver a proxy so that such beneficial owner can execute and deliver a Written Consent on its own behalf.
 
Stockholders who wish to consent must deliver their properly completed and executed Written Consents to the Corporate Secretary of Spherix in accordance with the instructions set forth in the Written Consent. Spherix reserves the right (but is not obligated) to accept any Written Consent received by any other reasonable means or in any form that reasonably evidences the giving of consent to the approval of the Proposals.  

Requests for copies of this Consent Solicitation Statement should be directed to Spherix Incorporated at the address or telephone number set forth above.

 
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Spherix expressly reserves the right, in its sole discretion and regardless of whether any of the conditions of the Consent Solicitation have been satisfied, subject to applicable law, at any time prior to 5:00 p.m. Eastern Time, on *, 2013 (the “Expiration Date”) to (i) terminate the consent solicitation for any reason, including if the consent of stockholders holding a majority of the Company’s outstanding voting capital has been received, (ii) waive any of the conditions to the consent solicitation, or (iii) amend the terms of the consent solicitation.
 
The final results of this solicitation of written consents will be published in a Current Report on Form 8-K (the “Form 8-K”) by the Company.  This Consent Solicitation Statement and the Form 8-K shall constitute notice of taking of a corporate action without a meeting by less than unanimous written consent as permitted by applicable law and Section 1.12 of our Amended and Restated Bylaws.
 
All questions as to the form of all documents and the validity and eligibility (including time of receipt) and acceptance of consents and revocations of consents will be determined by Spherix, in its sole discretion, which determination shall be final and binding.
 
 Revocation of Consents
 
Written consents may be revoked or withdrawn by any stockholder at any time before the Expiration Date. A notice of revocation or withdrawal must specify the record stockholder’s name and the number of shares being withdrawn.  After the Expiration Date, all written consents previously executed and delivered and not revoked will become irrevocable.  Revocations may be submitted to the Corporate Secretary of the Company by the same methods as written consents may be submitted, as set forth in the form of Written Consent attached hereto as Appendix B.
 
Solicitation of Consents
 
Our board of directors is sending you this Consent Solicitation Statement in connection with its solicitation of stockholder consent to approve the Proposals.  Spherix will pay for the costs of solicitation.  We will pay the reasonable expenses of brokers, nominees and similar record holders in mailing consent materials to beneficial owners of our common stock and Series C Convertible Preferred Stock. Because the approval of holders of a majority of the Company’s outstanding voting capital is required to approve the Proposals, not returning the Written Consent will have the same effect as a vote against the Proposals.
 
Other than as discussed above, Spherix has made no arrangements and has no understanding with any other person regarding the solicitation of consents hereunder, and no person has been authorized by Spherix to give any information or to make any representation in connection with the solicitation of consents, other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized. In addition to solicitations by mail, consents may be solicited by directors, officers and other employees of Spherix who will receive no additional compensation therefor.

Members of our management beneficially own shares of our Common Stock and intend to submit their consents “For” the Proposals.  As a result, approximately 9 ,391 shares held by our interim Chief Executive Officer will be voted in favor of the Proposals constituting approximately 1.04 % of our presently issued and outstanding Common Stock (prior to issuance of the Merger Consideration).  In addition, four of our principal stockholders beneficially own approximately 28.36 % of our issued and outstanding Common Stock.  Each of these principal stockholders is expected to vote “For” the Proposals.  As a result, it is likely that we will obtain the requisite approval of the Proposals.  Certain of the principal stockholders are also persons known to be associated with North South and are expected to vote “For” and will receive a portion of the Merger Consideration and therefore may be deemed to be interested in the transactions.  See “Security Ownership of Certain Beneficial Owners and Management”.   In the event our management and principal stockholders do not vote in favor of Proposal 1 or Proposal 2, as anticipated, or if we do not otherwise obtain the requisite approvals for Proposal 1 or Proposal 2, we may have to abandon either of such Proposals or attempt to obtain the required approvals at a later date.  In the event holders of a majority of our outstanding voting capital do not vote in favor of Proposal 3, our Board of Directors, in its sole discretion, may determine to still retain SRFF, as discussed herein, or seek to retain other legal counsel.
 
 
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No Appraisal Rights

Under the Delaware General Corporation Law and our charter documents, holders of our common stock will not be entitled to statutory rights of appraisal, commonly referred to as dissenters’ rights or appraisal rights (i.e., the right to seek a judicial determination of the “fair value” of their shares and to compel the purchase of their shares for cash in that amount) with respect to the Proposals.

No Poison Pill/Control Share Acquisition Rights Under the Merger

The board of directors has waived the effectiveness of the holders of the Company’s rights under the Company’s January 1, 2013 Rights Plan.  As a result, stockholders will not receive any distribution of rights in connection with the issuance of in excess of 10% of the Common Stock in connection with the Merger, and there will be no effect under the Delaware state law Control Share Acquisition statute which prohibits certain acquisitions with interested stockholders under Section 203 of the Delaware General Corporation Law.

No Change of Control/Change in Control

The board of directors has determined that the Merger Consideration shall not constitute a Change of Control or Change in Control under any agreement that provides for acceleration or other effects of issuance of voting securities of the Company.  In connection with the approval of Proposal No. 1, a vote in favor of such proposal by any holder that is also a purchaser of our Units offered in our private placement which closed on November 7, 2012 shall also be deemed to have waived any change of control/change in control trigger feature in such Units.
 
Householding Matters
 
Stockholders that share a single address will receive only one Consent Solicitation Statement and Written Consent at that address, unless we have received instructions to the contrary from any stockholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, if a stockholder of record residing at such an address wishes to receive a separate copy of this Consent Solicitation Statement or of future consent solicitations or proxy statements   (as applicable), he or she may write to us at: Spherix Incorporated, 7927 Jones Branch Drive, Suite 3125, Tysons Corner, Virginia 22102, Attention: Chief Executive Officer. We will deliver separate copies of this Consent Solicitation Statement and form of Written Consent promptly upon written request. If you are a stockholder of record receiving multiple copies of our Consent Solicitation Statement and form of Written Consent, you can request householding by contacting us in the same manner. If you own your shares through a bank, broker or other stockholder of record, you can request additional copies of this Consent Solicitation Statement and form of Written Consent or request householding by contacting the stockholder of record.

As of the Record Date, the closing price of our common stock was $ 6.00 per share and our total market capitalization was approximately $ 5.4 million.
 
INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS IN THE PROPOSALS
 
Members of the board of directors and executive officers of Spherix are eligible to receive grants under the terms of the 2013 Plan. Accordingly, members of the board of directors and the executive officers of Spherix have a substantial interest in Proposal 2, adoption of the 2013 Plan.  Members of the board of directors and executive officers of Spherix do not have any interest in any other Proposal that is not shared by all other stockholders of Spherix, other than Proposal 3, approval of certain legal services which may from time to time be provided by persons associated with our interim Chief Executive Officer.
 
 
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PROPOSAL TO APPROVE THE ISSUANCE OF AN AGGREGATE OF (A) 118,483 SHARES OF COMMON STOCK AND (B) 1,488,152 SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK PURSUANT TO THE AGREEMENT AND PLAN OF MERGER BY AND BETWEEN THE COMPANY, NUTA TECHNOLOGY CORP., NORTH SOUTH HOLDINGS, INC. AND THE STOCKHOLDERS OF NORTH SOUTH HOLDINGS, INC.

Background
 
As previously reported in our Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 4, 2013, on April 2, 2013, we entered into an Agreement and Plan of Merger with our wholly-owned subsidiary, Nuta Technology Corp., a Virginia corporation (“Nuta Virginia”), North South Holdings, Inc., a Delaware corporation (“North South”) and the shareholders of North South , in an effort to augment our biotechnology research and development business with a new business segment focused on the acquisition and monetization of intellectual property assets.  The transaction will be accounted for using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and was based on the historical financial statements of the Company and North South.
 
Under the acquisition method of accounting, the assets acquired and liabilities assumed will be recorded as of the completion of the acquisition of North South, primarily at their respective fair values and added to those of the Company.  Financial statements and reported results of operations of the Company issued after completion of the acquisition of North South will reflect these values, but will not be retroactively restated to reflect the historical financial position or results of operations of North South.
 
Under ASC 805, acquisition-related transaction costs (i.e., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred.
 
In connection with the acquisition of North South, total acquisition-related transaction costs to be incurred by the Company and North South are estimated to be approximately $140,000, on a pre-tax basis, consisting of acquisition-related transaction costs to be incurred by the Company, including costs related to legal and accounting fees.  The majority of the estimated acquisition-related transaction costs will be expensed by the Company in the quarter ending June 30, 2013.

Upon consummation of the transactions contemplated by the Merger Agreement, Nuta Virginia will be the owner or assignee of certain patents, licenses and applications (the “North South Patent Portfolio”). At the Effective Time (as defined in the Merger Agreement) of the Merger, North South will be merged with and into Nuta Virginia, with Nuta Virginia surviving the Merger as the surviving corporation (the “Merger”) and an aggregate of 5 00 issued and outstanding shares of North South’s common stock will be converted into the right to receive an aggregate of 118,483 shares of the Company’s Common Stock and 500 shares of North South’s Series A Preferred Stock and 128 shares of North South’s Series B Preferred Stock issued and outstanding will be converted into the right to receive an aggregate of 1,488,152 shares of the Company’s newly designated Series D Preferred Stock, which is convertible into shares of the Company’s Common Stock on a one - for - ten basis (collectively with the 118,483 shares of Common Stock , the “Merger Consideration”).  At the Effective Time of the Merger, from the Merger Consideration, 150,000 shares of the Series D Preferred Stock (the “Escrow Shares”) shall be delivered to an escrow agent and shall be held pursuant to an escrow agreement to secure the Company from certain claims that may arise with respect to the representations, warranties, covenants or indemnification obligations of North South’s shareholders for a period of twelve (12) months following the closing of the Merger.  The Escrow Shares are the sole remedy for indemnifiable losses payable under the Merger Agreement.

 
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The closing of the Merger is subject to the satisfaction of certain closing conditions, including the approval of our stockholders holding a majority of our outstanding voting Common Stock in favor of the issuance of the Merger Consideration, receipt of a fairness opinion and satisfaction of certain additional conditions.  A copy of the letter of intent relating to the Merger is included as an exhibit to our Current Report on Form 8-K, filed with the SEC on February 22, 2013.

Each share of Series D Preferred Stock has a stated value of $0.0001 per share (the “Stated Value”) and is convertible into ten (10) shares of Common Stock. Upon the liquidation, dissolution or winding up of the business of the Company, each holder of Series D Preferred Stock shall be entitled to receive, for each share of Series D Preferred Stock held, a preferential amount in cash equal to the greater of (i) the Stated Value or (ii) the amount the holder would receive as a holder of the Company’s Common Stock on an “as converted” basis.  Each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to the shareholders of the Company and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D Preferred are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation and the Conversion Limit limitations described below.  At no time may shares of Series D Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99% of the issued and outstanding Common Stock of the Company, subject to an increase in such limitation up to 9.99% of the issued and outstanding Common Stock on 61 days’ written notice to the Company.  The Series D Preferred Stock is subject to adjustment in the event of stock dividends, splits and fundamental transactions.

Additionally, subject to the beneficial ownership limitations described above, holders of Series D Preferred Stock may not convert such shares in excess of the “Conversion Limit”.  The “Conversion Limit” is defined as that number of shares of Common Stock as shall equal 15% (the “Volume Percentage”) of the greater of (i) the trading volume of the Company’s Common Stock on such conversion date or (ii) the average trading volume of the Company’s Common Stock for ten trading days immediately prior to such conversion date.  If the Company’s Common Stock trades at a price of at least $12.00 per share on the conversion date, then the Volume Percentage for purposes of the foregoing calculation shall equal 20%.  Notwithstanding the foregoing, holders of the Series D Preferred Stock may convert such shares without regard to the aforementioned conversion limit if the Company’s Common Stock trades at a minimum price of $15.00 per share on the conversion date.

Certain stockholders of North South are also stockholders of the Company.  The assurance and likelihood of obtaining the requisite consent for the issuance of the Merger Consideration is greatly increased due to the significant overlap in share ownership.  In connection with the approval of the Merger and the negotiation of the Merger Consideration, prior to the Closing, the board of directors will receive a Fairness Opinion that the Merger Consideration is fair to stockholders and the Company from a financial point of view, considering, among other things, the North South Patent Portfolio assets.

The issuance of the Merger Consideration is full consideration for the acquisition of the North South Patent Portfolio and will not have any effect (other than a dilutive effect, as further discussed below) upon the rights of existing security holders.  The issuance of the Merger Consideration will have a significant dilutive effect on our existing security holders.  Subsequent to the consummation of the Merger, we will have outstanding:  1,019,445 shares of Common Stock; 1 share of Series B Preferred Stock convertible into 1 share of Common Stock; 142,261 shares of Series C Preferred Stock convertible into an aggregate of 142,261 shares of Common Stock; 1,488,152 shares of Series D Preferred Stock convertible into an aggregate of 14,881,520 shares of Common Stock; 100,000 shares of Series E Preferred Stock convertible into an aggregate of 100,000 shares of Common Stock; warrants to purchase an aggregate of 116,708 shares of Common Stock and options to purchase aggregate of 2,019,062 shares of Common Stock. Upon the closing of the Merger, the shareholders of North South will hold approximately 11.6% of the outstanding Common Stock of the Company .
 
In connection with the Merger, the Company obtained an independent valuation of the Merger Consideration by Applied Economics LLC, a third party valuation firm (“Applied Economics”).  Applied Economics is a national corporate finance and financial advisory services firm based in Atlanta, Georgia that has experience in business and intangible asset valuation, transfer pricing analysis and providing fairness and solvency opinions and litigation support services.  The principal of Applied Economics has 22 years of financial industry experience, including in corporate finance and securities valuation.  
 
 
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Applied Economics was retained to provide a recommendation of the fair value of the Merger Consideration for financial reporting purposes in accordance with FASB Accounting Standards Codification (“ASC”) No. 805, Business Combinations (“ASC 805”). 
 
Prior to engaging them, Applied Economics provided an overview and general presentation of its services to the Company’s Board of Directors and its independent auditors.  Applied Economics has not had any material relationship with the Company in the last two years. 
 
Applied Economics concluded that the fair value of the Merger Consideration was $3,100,000 as of June 5, 2013. 
 
Applied Economics assessed the value of the Merger Consideration using available quantitative data as well as qualitative factors specific to the Company, the Common Stock, and the Series D Preferred Stock including the Company’s operating history, financial results, post-Merger business plan, capital resources, trading volume and stock price volatility of the Common Stock, recent reverse stock split, recent private placements, potential effects of dilution on the value of Common Stock and conversion features associated with the Series D Preferred Stock.  Applied Economics concluded that while the quoted trading price of Company’s Common Stock was $6.09 per share and the implied total market capitalization was approximately $5 million as of June 5, 2013, the Company’s Common Stock does not trade in an active, liquid market, as outlined under ASC 820, Fair Value Measurements, and, accordingly, applied a discount to the value of the fully diluted Common Stock price due to lack of marketability and applied a discount to the shares of Series D Preferred Stock.  Applied Economics concluded to a fair value for the Common Stock underlying the Merger Consideration of $26,102 and the Series D Preferred Stock underlying the Merger Consideration of $3,073,520.
 
Reasons for this Proposal
 
Our Common Stock is currently listed on The NASDAQ Capital Market, and therefore we are subject to the NASDAQ Listing Rules.
 
Pursuant to NASDAQ Stock Market Listing Rule 5635(d)(2), if an issuer intends to issue securities in a transaction that could result in the issuance of more than 20% of the issued and outstanding shares of the issuer’s common stock on a pre-transaction basis for less than the greater of book or market value for such stock, the issuer generally must obtain the prior approval of its stockholders prior to such issuance.  Shareholder Approval is required for issuance of the 118,483 shares of Common Stock and 1,488,152 shares of Series D Preferred Stock, which are convertible into shares of Common Stock on a one-for-ten basis.

Other than the shareholder approval sought herein, no other federal or state regulatory approvals are required to consummate the Merger.

 
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Information with Respect to North South

Description of North South
 
North South owns a patent portfolio consisting of 222 U.S. patents in wireless communications technology and 2 U.S. patents in pharmaceutical technology. North South is engaged in the development and monetization of intellectual property assets through the commercialization and development of such assets.  North South acquires and develops patents through internal and/or external research and development and acquires issued U.S. and foreign patents and pending patent applications.  Additionally, North South licenses its patents to companies seeking to develop products and processes that embody North South’s patented invention or to companies whose products and processes infringe North South’s intellectual property.   Currently, North South is developing an action plan for monetization of its portfolios and has developed a program around the acquisition of various other patents, is working with counsel and various other experts to review the patent portfolios, developing extensive claims analysis models, and has commenced discussions with litigation counsel, and reviewed the patent claims.  North South and Spherix have also been working to determine appropriate connections in order to strategically identify prospective early defendants and licensing candidates in a patent licensing campaign that will continue following closing of the Merger.
 
Subsequent to the consummation of the Merger, and through Nuta Virginia, our wholly-owned subsidiary, we will engage in an additional line of business.  Through Nuta Virginia, we intend to become engaged in the commercialization and development of intellectual property assets that are not related to our historical business of drug development and services, although the scope of our intellectual property procurement and development will continue to include pharmaceutical and drug patents.  Our activities will generally include the acquisition and development of patents through internal or external research and development.  In addition, we will seek to acquire existing rights to intellectual property through 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 our intellectual property 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.   Anthony Hayes is the Chief Executive Officer of North South and North South’s executive offices are located at 110 Greene Street, Suite 403, New York, NY 10012.  On May 4, 2013, we entered into a consulting agreement with Mr. Hayes in order to facilitate the transitioning of the oversight of North South’s patents, licenses and applications (the “North South Intellectual Property”) to us in consideration for (i) a cash payment of $30,000 and (ii) a ten year option to purchase 750,000 shares of our Common Stock at a per share purchase price of $7.08, subject to certain vesting requirements and satisfaction of certain conditions.  Such options shall vest on the latest to occur of: (i) shareholder approval of the Company’s 2013 Equity Incentive Plan; (ii) consummation of the merger with North South; and (iii) the appointment of Mr. Hayes as the Chief Executive Officer of the Company. In addition to the foregoing vesting schedule, the options shall only be exercisable in accordance with certain trigger events and milestones determined by the Company’s Board of Directors.  Mr. Hayes shall also advise us with respect to our planned entry into the IP commercialization business, including the development and implementation of a patent commercialization strategy.  It is expected that Mr. Hayes will assume the full-time position as the Company’s Chief Executive Officer following closing of the Merger.

Market Price of and Dividends on Common Equity and Related Stockholder Matters

Market Information

North South’s common stock is not traded on an exchange or quoted on a quotation system.

Holders

As of July 10, 2013, North South had 6 shareholders of record of its common stock, 6 shareholders of record of its Series A Preferred Stock and 11 shareholders of record of its Series B Preferred Stock.

Dividends

North South has never declared or paid cash dividends on its common stock and does not intend to pay any cash dividends on its common stock.

 
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Securities Authorized for Issuance Under Equity Compensation Plans.

North South does not have an equity compensation plan.

Selected Financial Data

Not applicable.

Supplementary Financial Information

Not applicable.

 
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NORTH SOUTH HOLDINGS INC.
 
(A COMPANY IN THE DEVELOPMENT STAGE)
 
FINANCIAL STATEMENTS
 
 
C O N T E N T S
     
 
 
Page
     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
11
     
BALANCE SHEETS AS OF DECEMBER 31, 2012 AND MARCH 31, 2013 (Unaudited)
 
12
     
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012, FOR THE THREE MONTHS ENDED MARCH 31, 2013 (Unaudited), AND FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH MARCH 31, 2013 (Unaudited)
 
13
     
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012, FOR THE THREE MONTHS ENDED MARCH 31, 2013 (Unaudited), AND FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH MARCH 31, 2013 (Unaudited)
  14
     
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH DECEMBER 31, 2012, FOR THE THREE MONTHS ENDED MARCH 31, 2013 (Unaudited), AND FOR THE PERIOD FROM NOVEMBER 9, 2012 (INCEPTION) THROUGH MARCH 31, 2013 (Unaudited)
  15
 
   
NOTES TO FINANCIAL STATEMENTS
  16

 
-10-

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
of North South Holdings Inc.
 
We have audited the accompanying balance sheet of North South Holdings Inc. (a company in the development stage) (the “Company”) as of December 31, 2012, and the related statements of operations, changes in stockholders’ equity and cash flows for the period from November 9, 2012 (inception) through December 31, 2012.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North South Holdings Inc. (a company in the development stage), as of December 31, 2012, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum LLP
Marcum LLP
New York, NY
July 11, 2013
 
 
-11-

 
 
NORTH SOUTH HOLDINGS INC.
 
(A COMPANY IN THE DEVELOPMENT STAGE )
 
BALANCE SHEETS
 
             
   
March 31,
     December  
   
2013
   
31,
 
   
(Unaudited)
   
2012
 
ASSETS
 
Current assets:
           
             
Cash
  $ 508,787     $ 549,047  
                 
Total current assets
    508,787       549,047  
                 
Patent portfolio, net
    436,091       415,000  
                 
Total assets
  $ 944,878     $ 964,047  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current liabilities:
               
                 
   Accrued expenses
  $ 3,000     $ -  
                 
Total current liabilities
    3,000       -  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity:
               
                 
Preferred stock, par value $ 0.0001 per share; 1,000 shares authorized; Series A Convertible Preferred Stock; 500 shares, issued and outstanding with an aggregate liquidation preference of $1,000,000
    -       -  
                 
Common Stock, par value $0.0001 per share; 75,000 shares authorized, 500 shares issued and outstanding
    -       -  
                 
Additional paid in capital
    1,000,000       1,000,000  
                 
Deficit accumulated during the development stage
    (58,122 )     (35,953 )
                 
Total stockholders' equity
    941,878       964,047  
                 
Total liabilities and stockholders' equity
  $ 944,878     $ 964,047  
                 
See the accompanying notes which are an integral part of these statements.
 
 
 
-12-

 
 
NORTH SOUTH HOLDINGS INC.
 
(A COMPANY IN THE DEVELOPMENT STAGE )
 
STATEMENTS OF OPERATIONS
 
 
   
For the
Three Months
Ended
March 31, 2013
(Unaudited)
   
For the
Period from
November 9, 2012
through
December 31, 2012
   
For the
Period from
November 9, 2012
through
March 31, 2013
(Unaudited)
 
                   
Revenue
  $ -     $ -     $ -  
                         
Operating expenses:
                       
                         
   Amortization
    12,969       -       12,969  
Director's fees
    9,000       5,100       14,100  
General and administrative
    200       30,853       31,053  
                         
Total operating expenses
    22,169       35,953       58,122  
                         
Net loss
  $ (22,169 )   $ (35,953 )   $ (58,122 )
                         
See the accompanying notes which are an integral part of these statements.
 
 
 
-13-

 
 
NORTH SOUTH HOLDINGS INC.
 
(A COMPANY IN THE DEVELOPMENT STAGE)
 
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 
   
Series A Convertible Preferred Stock
   
Common Stock
     
Additional Paid In
     
Accumulated During theDevelopment
   
Deficit
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Stage
   
Total
 
                                           
Balance at November 9, 2012
    -     $ -       -     $ -     $ -     $ -     $ -  
 
                                                       
Issuance of shares to founders in exchange for initial capital contributions (500 shares of common stock at $0.0001 per share and 500 shares of convertible preferred stock at $2,000  per share)
    500       -       500       -       1,000,000       -       1,000,000  
                                                         
Net loss
    -       -       -       -       -       (35,953 )     (35,953 )
                                                         
Balance at December 31, 2012
    500       -       500       -       1,000,000       (35,953 )     964,047  
                                                         
Net loss (unaudited)
    -       -       -       -       -       (22,169 )     (22,169 )
                                                         
Balance at March 31, 2013 (Unaudited)
    500     $ -       500     $ -     $ 1,000,000     $ (58,122 )   $ 941,878  
                                                         
See the accompanying notes which are an integral part of these statements.
 
 
 
-14-

 
 
NORTH SOUTH HOLDINGS INC.
 
(A COMPANY IN THE DEVELOPMENT STAGE )
 
STATEMENTS OF CASH FLOWS
 
 
   
For the
Three Months
Ended
March 31, 2013
(Unaudited)
   
For the
Period from
November 9, 2012
through
December 31, 2012
   
For the
Period from
November 9, 2012
through
March 31, 2013
(Unaudited)
 
Cash flows from operating activities:
                 
                   
Net loss
  $ (22,169 )   $ (35,953 )   $ (58,122 )
                         
Adjustments to reconcile net loss to net cash used in operating activities:
                       
       Amortization
    12,969       -       12,969  
Changes in operating assets and liabilities:
                       
       Accrued expenses
    3,000       -       3,000  
                         
Net cash used in operating activities
    (6,200 )     (35,953 )     (42,153 )
                         
Cash flows from investing activities:
                       
                         
Purchase of patent portfolios
    (34,060 )     (415,000 )     (449,060 )
                         
Net cash used in investing activities
    (34,060 )     (415,000 )     (449,060 )
                         
Cash flows from financing activities:
                       
                         
Issuance of shares to founders in exchange for initial capital contributions
    -       1,000,000       1,000,000  
                         
Net cash provided by financing activities
    -       1,000,000       1,000,000  
                         
Net (decrease) increase in cash
    (40,260 )     549,047       508,787  
                         
Cash, beginning of period
    549,047       -       -  
                         
Cash, end of period
  $ 508,787     $ 549,047     $ 508,787  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                 
                         
Cash paid during the year for:
                       
                         
Interest
  $ -     $ -     $ -  
                         
Income taxes
  $ -     $ -     $ -  
                         
See the accompanying notes which are an integral part of these statements.
 
 
 
-15-

 
 
(NOTE 1) ORGANIZATION:
 
North South Holdings Inc. ("North South" or the “Company”) was incorporated on November 9, 2012 in the state of Delaware. North South was formed to seek business opportunities in which to acquire patents from various entities and monetize the disposal of them through sales, litigation or licensing. The Company issued 500 shares of preferred stock and 500 shares of common stock to its founders in exchange for initial capital contributions of $1,000,000 in cash.
 
The Company is a "development stage enterprise” as its primary activities since inception have been the development of its business plan, negotiating strategic alliances and other agreements, and raising capital. To date, the Company has not generated any revenues from its operations.  As a development stage enterprise, the Company is subject to all of the risks and uncertainties typically faced by a newly formed business.
 
The Company’s financial statements as of March 31, 2013 and for the three months then ended, and for the period from November 9, 2012 (inception) through March 31, 2013 are unaudited.  In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial statements of the Company for such periods.
 
(NOTE 2) LIQUIDITY AND MANAGEMENT’S BUSINESS PLANS
 
The Company’s business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer term business plan. The Company had cash and working capital of $549,047 at December 31, 2012 and a net loss for the period from November 9, 2012 (inception) through December 31, 2012 of $35,953. The Company believes that it has sufficient liquidity to sustain operations through at least January 1, 2014.  The Company’s cash and working capital amounts were derived from the proceeds of an initial financing transaction in which it raised aggregate proceeds of $1 million through the issuance of Series A Preferred and common stock to its founding stockholders.  Subsequent to March 31, 2013, the Company raised approximately $2.3 million through the issuance of Series B Preferred Stock.
 
As disclosed in Note 4, the Company acquired a portfolio of patents from Harris Corporation in December 2012 and completed the purchase of two patents in April of 2013 that was effectuated through a transfer of the membership interests of Compufill LLC.  In order to license or otherwise monetize the patent assets acquired, the Company may commence legal proceedings against certain parties asserting that such parties infringe on one or more of the Company’s patents.  The Company’s viability is highly dependent on the outcome of its business plan and there is a risk that the Company may be unable to achieve the results it desires from any potential litigation or licensing agreement, which failure would harm the Company’s business to a great degree.
 
Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical.  The Company may be forced to litigate against others to enforce or defend its 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 the Company is involved may allege defenses and/or file counterclaims in an effort to avoid or limit liability and damages for patent infringement. If such defenses or counterclaims are successful, they may have an impact on the value of the patents and preclude the Company from deriving revenue from the patents.
 
 
-16-

 
 
(NOTE 2) LIQUIDITY AND MANAGEMENT’S BUSINESS PLANS (continued):
 
As a result, a negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact the Company’s business. Additionally, the Company anticipates that its legal fees and other expenses will be material and could have an adverse effect on its financial condition and results of operations if its efforts to monetize these patents are unsuccessful.  In addition, the costs of enforcing the Company’s patent rights may exceed its recoveries from such enforcement activities. Accordingly, in order for the Company to generate a profit from its patent enforcement and monetization activities, the revenues from such enforcement and monetization activities must be high enough to offset both the cash outlays and the contingent fees payable from such revenues. The Company’s failure to monetize its patent assets or the occurrence of unforeseen circumstances that could have a negative impact on the Company’s liquidity could significantly harm its business.  Should the Company be unsuccessful in its efforts to execute its business plan, it could become necessary for the Company to reduce expenses, curtail its operation or possibly suspend or discontinue its business activities.
 
(NOTE 3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
(A)  
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
 
(B)  
Intangible Assets – Patent Portfolios
 
Intangible assets are comprised of patents with original estimated useful lives between 8 and 9 years (20 year life of underlying patent, less the approximate 11 to 12 years elapsed since original patent application). The Company amortizes the cost of the intangible assets over their estimated useful lives on a straight line basis.  Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.
 
(C)  Impairment of Long-lived Assets
 
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.  The Company has not identified any such impairment losses.
 
(D)   Cash
 
The Company places its cash with high quality financial institutions. At times, cash balances maybe in excess of the amounts insured by the Federal Deposit Insurance Corporation.
 
 
-17-

 
 
(NOTE 3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued):
 
 (E)  Income Taxes
 
The Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
 
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2012. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.
 
The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of operations.
 
(F)    Concentrations of Market, Interest Rate and Credit Risk
 
Concentrations of market, interest rate and credit risk may exist with respect to the Company’s investments in patent portfolios and its other assets and liabilities. Market risk is a potential loss the Company may incur as a result of changes in the fair value of its investment in patent portfolios. Interest rate risk includes the risk associated with changes in prevailing interest rates. Credit risk includes the possibility that a loss may occur from the failure of counterparties to make payments according to the terms of a contract. The Company’s exposure to credit risk, if any, is limited to amounts recorded as assets on the balance sheets.
 
(G) Fair Value Measurements
 
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
 
Generally accepted accounting principles defined a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs for which there is little or no market data, which requires the Company to develop assumptions.
 
The carrying amounts reported for cash, approximate fair value.
 
(NOTE 4) INTANGIBLE ASSETS:
 
(A)  Harris Corporation Patent Purchase
 
On December 20, 2012, the Company purchased two hundred twenty two (222) patents from Harris Corporation (“Harris”) of Melbourne, Florida.  North South paid $320,000 to Harris plus $80,000 of commissions and $15,000 of legal fees.  North South also agreed to pay to Harris 5% of the gross amount of any judgment or settlement proceeds received by North South in any action for infringement claims pursued by North South, provided that Harris has complied with all reasonable requests for assistance in connection with such action.  Currently, no litigation is pending on these patents.  The technology covered by the portfolio includes: Solar, cellular, microwave communications, satellite communication, antenna technology, wifi and radio communication.
 
 
-18-

 
 
(NOTE 4) INTANGIBLE ASSETS (continued):
 
(B)  
CompuFill Purchase
 
On April 15, 2013, the Company completed a purchase of two patents for $350,000 that was effectuated through a transfer of the membership interests of CompuFill LLC (“CompuFill”).
 
CompuFill was organized as a California limited liability company on January 5, 2011.  CompuFill’s activities through the date of this purchase were limited to (i) a purchase of two specific patents from an unrelated party in exchange for a contractually defined share of any future revenues realized upon the monetization of such patents; (ii) the filing of one patent infringement litigation case against six (6) companies to monetize the two patents; (iii) settlement of that litigation case, and (iv) the filing of four (4) additional separate infringement claims in February 2013 that are being pursued by the Company subsequent of this transaction.
 
Richard Reichert, as the inventor of this patented technology, is entitled to receive 40% of all net profits generated from the Company’s licensing program.  Net profits are defined as gross profits, minus attorney’s fees and litigation cost and expenses.  In addition, CompuFill had previously retained the law firm of Stevens Love PLLC to handle the patent licensing
program.  Stevens Love PLLC is compensated on a contingency fee basis that is paid on sliding scale that ranges from 15% to 30% of all revenue generated from the licensing program.  Upon acquiring CompuFill, the Company agreed to have Stevens Love continue representing CompuFill at the contingency fee structure already in place.
 
In June 2013, the Company settled two of the four cases outstanding at the date these patents were purchased for $58,000 of proceeds, net of expenses.  The Company is obligated to remit 40% of the net settlement amount to Richard Reichert as described above.
 
The weighted-average remaining amortization period of the Company’s patents is approximately 8.5 years as of December 31, 2012.  Future amortization of all Patents at March 31, 2013 is as follows:
 
For the Years Ending
December 31
 
Harris
Patent Portfolio
   
Compufill
Patent Portfolio
   
Total
Amortization
 
2013
  $ 38,855     $ 27,451     $ 66,306  
2014
    48,824       41,176       90,000  
2015
    48,824       41,176       90,000  
2016
    48,824       41,176       90,000  
2017
    48,824       41,176       90,000  
Thereafter
    201,940       157,845       359,785  
Total
  $ 436,091     $ 350,000     $ 786,091  
 
(NOTE 5) STOCKHOLDERS’ EQUITY:
 
The Company is authorized to issue 76,000 shares of capital stock, consisting of 75,000 shares of common stock, par value $0.0001 per share, and 1,000 shares of preferred stock, par value $0.0001 per share.  Of the 1,000 shares of preferred stock, 500 shares have been designated by the Company as Series A Convertible Preferred Stock and 128 shares have been designated as Series B Convertible Preferred Stock.
 
 
-19-

 
 
(NOTE 5) STOCKHOLDERS’ EQUITY (continued):
 
In connection with the incorporation of North South, the Company issued 500 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”).  In connection with the formation of the Company each share of Series A Preferred Stock is convertible into 100 shares of common stock, provided however, that no holder shall have the right to convert any shares of Series A Preferred Stock to the extent that after giving effect to such conversion, the owner of such shares would have acquired beneficial ownership of 9.99% of the Company's outstanding common stock immediately after giving effect to such conversion.  The beneficial ownership limitations and conversion limits are fully set forth in the Certificate of Designation.  The Series B Preferred Stock ranks pari passu with the Series A Preferred Stock and ranks prior and superior to all of the common stock with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.  The rights of the shares of Series B Preferred Stock are pari passu with the preferences and relative rights of the Series A Preferred Stock.  The rights of the shares of common stock are subject to the preferences and relative rights of the Series B Preferred Stock.  The holders of the Company’s Series A Preferred Stock are not entitled to vote, except as otherwise required by applicable law, and in such case the holder is entitled to the same number of votes per share of common stock that the holder of these Series A Preferred Stock may convert into at the time of the vote.  In the event of a liquidation, dissolution or winding up of the business of the Company, the holder of the Series A Preferred Stock would have pari passu payment and distribution rights over the holders of the Series B Preferred Stock and preferential payment and distribution rights over holders of common stock.  The Series A Preferred Stock has an aggregate liquidation preference of the higher of its “stated value” ($2,000 per share) or distributions to common shareholders at December 31, 2012 and March 31, 2013.
 
In April 2013 the Company issued 128 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) for $2,234,880. Each share of Series B Preferred Stock is convertible into 100 shares of common stock, provided however, that no holder shall have the right to convert any shares of Series B Preferred Stock to the extent that after giving effect to such conversion, the owner of such shares would have acquired beneficial ownership of 9.99% of the Company's outstanding common stock immediately after giving effect to such conversion.  The beneficial ownership limitations and conversion limits are fully set forth in the Certificate of Designation. The Series B Preferred Stock ranks pari passu with the Series A Preferred Stock and ranks prior and superior to all of the common stock with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.  The rights of the shares of Series B Preferred Stock are pari passu with the preferences and relative rights of the Series A Preferred Stock.  The rights of the shares of common stock are subject to the preferences and relative rights of the Series B Preferred Stock. The holders of the Company’s Series B Preferred Stock are not entitled to vote, except as otherwise required by applicable law, and in such case the holder is entitled to the same number of votes per share of common stock that the holder of these Series B Preferred Stock may convert into at the time of the vote. In the event of a liquidation, dissolution or winding up of the business of the Company, the holder of the Series B Preferred Stock would have pari passu payment and distribution rights over holders the Series A Preferred Stock and preferential payment and distribution rights over holders of common stock.  The Series B Preferred Stock has an aggregate liquidation preference of the higher of its “stated value” ($2,000 per share) or distributions to common shareholders.
 
(NOTE 6)  INCOME TAXES:
 
Through December 31, 2012, the Company generated U.S. federal and state net operating loss carryovers for tax purposes of approximately $5,600.  The net operating loss carryover may be used to reduce taxable income through the year 2032. Section 382 of the Internal Revenue Code imposes certain limitations on the utilization of net operating loss carryovers and other tax attributes after a change in control. If the Company has a change in ownership, such change could significantly limit the possible utilization of such carryovers.
 
 
-20-

 
 
(NOTE 6)  INCOME TAXES (continued):
 
The income tax provision (benefit) consists of the following:
 
Current
 
December 31, 2012
 
Federal
  $  
State
     
       
Deferred
       
Federal
    (12,224 )
State
    (1,798 )
      (14,022 )
Change in valuation allowance
    14,022  
Total income tax provision
  $  
 
A reconciliation of the effective income tax rate and the statutory federal income tax rate for all periods is as follows:
 
       
U.S. federal statutory rate
   
(34)%
 
State income tax rate, net of federal benefit
   
(5)
 
Less: valuation allowance
   
39
 
Provision for income taxes
   
– %
 
 
The Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the Company’s history of losses since inception, management believes that it is more likely than not that future benefits of deferred tax assets will not be realized and as a result, as of December 31, 2012 and March 31, 2013, a full valuation allowance has been established. The tax effects of temporary differences that give rise to deferred tax assets are presented below:
 
Deferred tax assets:
     
Net operating loss carryforward
 
$
2,200
 
Deferred start-up and organizational expenses
   
11,822
 
Valuation allowance
   
(14,022)
 
Net deferred tax asset
 
$
 
 
(NOTE 7) COMMITMENTS AND CONTINGENCIES:
 
In November 2012, the Company entered into a letter agreement with the Chairman of the Board, President, Secretary and Treasurer (the “employee”).  The employment was “at will” in nature and provided a base salary of $3,000 per month.  The employee resigned from the Company subsequent to December 31, 2012 and on May 3, 2013, the Company entered into a letter agreement with the employee to pay a cash bonus of $17,460 on May 3, 2013.
 
 
-21-

 
 
(NOTE 7) COMMITMENTS AND CONTINGENCIES (continued):
 
On March 22, 2013, the Company entered into an employment agreement with Anthony Hayes to be the Company’s Chief Executive Officer.  This agreement provides for a base salary at an annual rate of $150,000 and shall be automatically renewed for successive six-month periods unless the Company or Anthony Hayes provides the other party thirty-days’ notice.  This employment agreement was amended on May 1, 2013, to set the annual rate of base compensation at $1 for the first six months.
 
On May 1, 2013, the Company entered into a letter agreement with its sole director of the Board of Directors.  This agreement provides for a base salary at a monthly rate of $3,000.  The Director’s employment shall be “at will”.
 
(NOTE 8) RELATED PARTY TRANSACTIONS:
 
A shareholder of the Company, through a separate unrelated entity, provides overhead and occupancy for North South at a nominal cost.

(NOTE 9) SUBSEQUENT EVENTS:
 
(A)  
Management has evaluated events that have occurred after the balance sheet dates but   before the date which the financial statements are issued.
 
(B)  
In April 2013 the Company, its shareholders, Spherix Incorporated, a Delaware corporation ("Spherix"), and Spherix's wholly owned subsidiary, Nuta Technology Corp., a Virginia corporation (“Nuta”) entered into an Agreement and Plan of Merger (the "Merger Agreement"). Upon closing of the transaction contemplated under the Merger Agreement (the "Merger"), the Company will merge with and into Nuta with Nuta as the surviving corporation.  Nuta will continue its operations in the State of Virginia as the record owner of the Company’s intellectual property.  The closing of the Merger is subject to customary closing conditions.
 
Pursuant to the terms and conditions of the Merger, at the closing of the Merger, all of the Company’s 500 issued and outstanding shares of common stock will be converted into the right to receive an aggregate of 118,483 shares of Spherix's common stock, par value $0.0001 per share (the “Spherix Common Stock”), and all of the Company’s 500 issued and outstanding shares of Series A Preferred Stock and all of the Company’s 128 issued and outstanding shares of Series B Preferred Stock will be converted into the right to receive an aggregate of 1,488,152 shares of Spherix's Series D Convertible Preferred Stock, par value $0.0001 per share, which is convertible into shares of Spherix Common Stock on a one-for-ten basis (collectively with the 118,483 shares of Spherix Common Stock, the “Merger Consideration”).

(C)  
On June 25, 2013, the Company purchased 100,000 shares of Series E Convertible Preferred Stock of Spherix Incorporated for a per share price of $5.00, or an aggregate of $500,000, pursuant to a subscription agreement in a private placement.

 
-22-

 
 
SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
    The unaudited pro forma condensed combined balance sheet as of March 31, 2013 combines the historical consolidated balance sheets of Spherix and North South, giving effect to the acquisition of North South by Spherix as if it had occurred on March 31, 2013.
 
    The unaudited pro forma condensed combined statements of loss for the fiscal period ended December 31, 2012 and for the three months ended March 31, 2013 are prepared by Spherix Incorporated (“Spherix”) and give effect to the following transactions as if they had occurred on January 1, 2012:
 
           • 
the anticipated acquisition of North South Holdings, Inc. (“North South”) by Spherix, including the related equity to be issued by Spherix to finance the acquisition
 
    The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the aforementioned transaction, (2) factually supportable, and (3) with respect to the statements of loss, expected to have a continuing impact on the combined results.  The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements.  In addition, the unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the:
 
           • 
separate audited consolidated financial statements of Spherix as of and for the year ended December 31, 2012 and the related notes, included in Spherix’s Annual Report on Form 10-K for the year ended December 31, 2012;
 
           • 
audited financial statements of North South as of and for the year ended December 31, 2012 and the related notes included herein;
 
           • 
separate unaudited consolidated financial statements of Spherix as of and for the three months ended March 31, 2013 and the related notes, included in Spherix’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013; and
 
           • 
unaudited financial statements of North South as of March 30, 2013 and for the period from November 9, 2012 (inception) through March 31, 2013 and the related notes included herein.
 
    The unaudited pro forma condensed combined financial information has been presented for informational purposes only.  The pro forma information is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated.  In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
 
    Any material transactions between Spherix and North South during the periods presented in the unaudited pro forma condensed combined financial statements have been eliminated.

 
-23-

 
 
SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (continued)
 
    The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under U.S. GAAP.  The accounting for the acquisition of North South is dependent upon certain valuations that are provisional and are subject to change.  Spherix will finalize these amounts as it obtains the information necessary to complete the measurement process.  Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information.  Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material.  Additionally, the differences, if any, could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and Spherix’s future results of operations and financial position.
 
    In addition, the unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisition North South, the costs to integrate the operations of Spherix, North South or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

 
-24-

 
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2013
                                     
   
Historical
   
North South
April 2013 (1)
   
Spherix
June 2013 (2)
   
Pro Forma
Adjustments (3), (4)
   
Pro Forma
Consolidated
 
ASSETS
 
Spherix
Incorporated
   
North South
Holdings, Inc.
                 
Current assets
                                   
Cash and cash equivalents
  $ 3,448,526     $ 508,787     $ 2,234,880     $ 500,000     $ 2,000,000     $ 5,948,526  
                      (350,000 )     (500,000 )     (1,893,667 )        
Trade accounts receivable
    1,315       -       -       -               1,315  
Other receivables
    3,508       -       -       -               3,508  
Prepaid expenses and other assets
    82,206       -       -       -               82,206  
          Total current assets
    3,535,555       508,787       1,884,880       -       106,333       6,035,555  
                                                 
Investment in Spherix by North South
                            500,000       (500,000 )     -  
Property and equipment, net of accumulated depreciation
    7,930       -       -       -               7,930  
Patent portfolios, net
    -       436,091       350,000       -       1,100,000       1,100,000  
                                      (786,091 )        
Deposit
    29,504       -       -       -               29,504  
          Total assets
  $ 3,572,989     $ 944,878     $ 2,234,880     $ 500,000     $ (79,758 )   $ 7,172,989  
                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                                               
Current liabilities
                                               
Accounts payable and accrued expenses
  $ 358,376     $ 3,000     $ -     $ -     $ -     $ 358,376  
                                      (3,000 )        
Accrued salaries and benefits
    85,277       -       -       -               85,277  
Liabilities of segment held for sale
    10,205       -       -       -               10,205  
          Total current liabilities
    453,858       3,000       -       -       (3,000 )     453,858  
                                                 
Deferred rent
    45,285       -       -       -               45,285  
Warrant liabilities
    215,853       -       -       -               215,853  
          Total liabilities
    714,996       3,000       -       -       (3,000 )     714,996  
                                                 
Commitments and contingencies
                                               
                                                 
Stockholders' equity
                                               
Convertible preferred stock, $0.0001 par value, 500 shares authorized; Series A: 500 shares issued and outstanding at March 31, 2013;
            -                                  
Convertible preferred stock, $0.0001 par value, 5,000,000 shares authorized; Series B: 1 share issued and outstanding at March 31, 2013; liquidation preference $1,000 per share
    -       -       -       -               -  
Series C: 229,337 shares issued and outstanding at March 31, 2013; liquidation preference $0.0001 per share
    23       -       -       -               23  
Series D: no shares issued and outstanding at March 31, 2013; liquidation preference $0.0001 per share
    -       -       -       -       149       149  
Series E: no shares issued and outstanding at March 31, 2013; liquidation preference $0.0001 per share
                            10       (10 )     -  
Common stock, $0.0001 par value, 50,000,000 shares authorized; 814,114 issued at at March 31, 2013 and 813,713 outstanding at March 31, 2013
    82       -       -       -       12       94  
Paid-in capital in excess of par value
    42,330,462       1,000,000       2,234,880       499,990       3,099,839       45,930,301  
                                      (499,990 )        
                                      (2,734,880 )        
Treasury stock, at cost, 401 shares at March 31, 2013
    (464,786 )     -       -       -               (464,786 )
Accumulated deficit
    (39,007,788 )     (58,122 )     -       -       58,122       (39,007,788 )
          Total stockholders' equity
    2,857,993       941,878       2,234,880       500,000       (76,758 )     6,457,993  
          Total liabilities and stockholders' equity
  $ 3,572,989     $ 944,878     $ 2,234,880     $ 500,000     $ (79,758 )   $ 7,172,989  
                           
See the accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.
 
The pro forma adjustments are explained in Note 5: Pro Forma Adjustments in Connection with the North South Acquisition.
 
-25-

 
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2012
 
   
Historical
   
 
             
   
Spherix
Incorporated
   
North South
Holdings,
Inc.
   
Discontinued
Operations
Eliminated
   
Pro Forma
Adjustments (5)
   
Pro Forma
Consolidated
 
                               
Revenue
  $ 19,922     $ -     $ -     $ -     $ 19,922  
                                         
Operating expense
                                       
Amortization of patents
    -       -       -       (129,412 )     (129,412 )
Research and development expense
    (727,091 )     -       -       -       (727,091 )
Selling, general and administrative expense
    (2,764,836 )     (35,953 )     -       -       (2,800,789 )
Total operating expense
    (3,491,927 )     (35,953 )     -       (129,412 )     (3,657,292 )
Loss from operations
    (3,472,005 )     (35,953 )     -       (129,412 )     (3,637,370 )
                                         
Other Income from Change in Fair Value of Warrants
    1,202,489       -       -       -       1,202,489  
Loss on issuance of warrants
    (621,983 )     -       -       -       (621,983 )
Interest income
    3,466       -       -       -       3,466  
(Loss) income from continuing operations before taxes
    (2,888,033 )     (35,953 )     -       (129,412 )     (3,053,398 )
Income tax expense
    -                               -  
(Loss) income from continuing operations
    (2,888,033 )     (35,953 )     -       (129,412 )     (3,053,398 )
                                         
Discontinued operations
                                       
Loss from discontinued operations
    (968,991 )     -       968,991       -       -  
Income tax expense
    -       -       -       -       -  
Loss from discontinued operations
    (968,991 )     -       968,991       -       -  
                                         
Net (loss) income
  $ (3,857,024 )   $ (35,953 )   $ 968,991     $ (129,412 )   $ (3,053,398 )
                                         
Net loss per share, basic and diluted
                                       
Continuing operations
  $ (10.56 )   $ (71.91 )   $ -             $ (7.79 )
Discontinued operations
  $ (3.54 )   $ -     $ 3.54             $ -  
Basic and diluted net loss per share
  $ (14.10 )   $ (71.91 )   $ 3.54             $ (7.79 )
                                         
Weighted average number of shares outstanding,
                                       
Basic and diluted
    273,567       500       273,567               392,050  

See the accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.
 
The pro forma adjustments are explained in Note 5: Pro Forma Adjustments in Connection with the North South Acquisition.
 
-26-

 
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three month period ended March 31, 2013
                               
   
Historical
   
 
             
   
Spherix
Incorporated
   
North South
Holdings, Inc.
   
Discontinued
Operations
Eliminated
   
Pro Forma
Adjustments (6)
   
Pro Forma
Consolidated
 
                               
Revenues
  $ 5,761     $ -     $ -     $ -     $ 5,761  
                                         
Costs of goods sold
    -       -       -       -       -  
Gross profit
    5,761       -       -       -       5,761  
                                         
Operating expenses
                                       
Amortization of patents
    -       (12,969 )             (19,384 )     (32,353 )
Research and development
    (43,068 )     -       -       -       (43,068 )
Selling, general and administrative
    (873,240 )     (9,200 )     -       -       (882,440 )
Total operating expenses
    (916,308 )     (22,169 )     -       (19,384 )     (957,861 )
Loss from operations
    (910,547 )     (22,169 )     -       (19,384 )     (952,100 )
                                         
Unrealized (loss) gain on the change in fair value of warrant liabilities
    (2,786,395 )     -       -       -       (2,786,395 )
Interest income
    372       -       -       -       372  
Loss from continuing operations
    (3,696,570 )     (22,169 )     -       (19,384 )     (3,738,123 )
Income tax expense
    -       -       -       -       -  
Loss from continuing operations
    (3,696,570 )     (22,169 )     -       (19,384 )     (3,738,123 )
                                         
Discontinued operations
                                       
Loss from discontinued operations
    -       -       -       -       -  
Income tax expense
    -       -       -       -       -  
Loss from discontinued operations
    -       -       -       -       -  
                                         
Net loss
  $ (3,696,570 )   $ (22,169 )   $ -     $ (19,384 )   $ (3,738,123 )
                                         
Net loss per share, basic and diluted
                                       
Continuing operations
  $ (5.35 )   $ (44.34 )   $ -             $ (4.62 )
Discontinued operations
  $ -     $ -     $ -             $ -  
Basic and diluted net loss per share
  $ (5.35 )   $ (44.34 )   $ -             $ (4.62 )
                                         
Weighted average number of shares outstanding,
                                       
Basic and diluted
    691,213       500       691,213               809,696  
           
See the accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.
 
The pro forma adjustments are explained in Note 5: Pro Forma Adjustments in Connection with the North South Acquisition.
 
-27-

 
 
SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (continued)
 
Note 1: Description of Transaction
 
    On April 2, 2013, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with its wholly owned subsidiary, Nuta Technology Corp., a Virginia corporation (“Nuta”), North South Holdings, Inc., a Delaware corporation ("North South"), the owner or assignee of certain patents, licenses and applications (the “North South Intellectual Property”), and the shareholders of North South (the "North South Shareholders").  Upon closing of the transaction contemplated under the Merger Agreement (the "Merger"), North South will merge with and into Nuta with Nuta as the surviving corporation.  Nuta will operate in the State of Virginia as the record owner of the North South Intellectual Property.  The closing of the Merger is subject to customary closing conditions, including the receipt of a fairness opinion that the Merger Consideration (as defined below) is fair to stockholders and the Company from a financial point of view, based on, among other things, the North South Intellectual Property assets, and the approval of the Company’s shareholders holding a majority of the outstanding voting capital of the Company to issue the Merger Consideration pursuant to NASDAQ listing standards.
 
    Pursuant to the terms and conditions of the Merger, at the closing of the Merger, all issued and outstanding shares of North South’s capital stock will be converted into the right to receive an aggregate of 118,483 shares of the Company’s common stock, par value $0.0001 per share and 1,488,152 shares of the Company’s newly designated Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”), which is convertible into shares of the Company’s Common Stock on a one-for-ten basis (collectively with the 118,483 shares of Common Stock, the “Merger Consideration”).  Each holder of Series D Preferred Stock is entitled to vote on all shareholder matters, equal to the number of shares of Common Stock such shares are convertible into at such time, unless the holder is precluded from affecting the conversion taking into account beneficial ownership limitations and conversion limits as set forth in the Certificate of Designation.
 
    At the effective time of the Merger, from the Merger Consideration, 150,000 shares of the Series D Preferred Stock (the “Escrow Shares”) shall be delivered to an escrow agent and shall be held pursuant to an escrow agreement to secure the Company from certain claims that may arise with respect to the representations, warranties, covenants or indemnification obligations of the North South Shareholders for a period of twelve (12) months following the closing of the Merger.  The Escrow Shares are the sole remedy for indemnifiable losses payable under the Merger Agreement.
 
Note 2: Basis of Presentation
 
    The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and was based on the historical financial statements of Spherix and North South.
 
    Under the acquisition method of accounting, the assets acquired and liabilities assumed will be recorded as of the completion of the North South Acquisition, primarily at their respective fair values and added to those of Spherix.  Financial statements and reported results of operations of Spherix issued after completion of the North South Acquisition will reflect these values, but will not be retroactively restated to reflect the historical financial position or results of operations of North South.
 
    Under ASC 805, acquisition-related transaction costs (i.e., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred.

 
-28-

 
 
SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (continued)
 
Note 2: Basis of Presentation (continued)
 
    In connection with the North South Acquisition, total acquisition-related transaction costs expected to be incurred by Spherix and North South are estimated to be approximately $140,000, consisting of acquisition-related transaction costs to be incurred by Spherix.  The estimated acquisition-related transaction costs will be expensed by Spherix in the quarter ending June 30, 2013.

Note 3: Accounting Policies
 
    Upon consummation of the North South Acquisition, Spherix will review, in detail, North South’s accounting policies.  As a result of that review, Spherix may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.  At this time, Spherix is not aware of any differences that would have a material impact on the combined financial statements.
 
    As a result, the unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies.
 
Note 4: Fair Value Consideration Transferred in Connection with the North South Acquisition
 
    The following is a preliminary estimate of the purchase consideration transferred in the North South Acquisition:

Payment for North South’s Intangible Assets
  $ 1,100,000  
Payment for North South’s Cash Balance
    2,000,000  
    Estimated Purchase Price   $ 3,100,000  
 
    The fair value of the stock transferred by Spherix as consideration based on an independent appraiser’s report dated June 5, 2013:
 

Fair value of Common Stock
  $ 26,102  
Fair value of Series D Convertible Preferred Stock
    3,073,520  
Rounding     378  
    Fair value of consideration for North South   $ 3,100,000  
   
    The fair value of the identifiable intangible assets and their weighted-average useful lives based on an independent appraiser’s report dated June 5, 2013 are as follows:
 
Patent Portfolios   $ 1,100,000  
 
    Intangible assets are comprised of patents with estimated useful lives between 8 and 9 years (20-year life of underlying patent, less the approximate 11 to 12 years elapsed since original patent application).  Once placed in service, Spherix will amortize the costs of intangible assets over their estimated useful lives on a straight-line basis.  Costs incurred to acquire patents, including legal costs, are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent.

 
-29-

 
 
SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (continued)
 
Note 5: Pro Forma Adjustments in Connection with the North South Acquisition
 
    This note should be read in conjunction with Note 1. Description of Transaction; Note 2. Basis of Presentation; and Note 4. Fair Value of Consideration Transferred in Connection with the North South Acquisition.  The following summarizes the pro forma adjustments in connection with the North South Acquisition to give effect to the acquisition as if it had occurred on January 1, 2012 for purposes of the pro forma condensed combined statements of income and on March 31, 2013 for purposes of the pro forma condensed combined balance sheet:
 
(1)  
To record the North South April 2013 issuance of Series B convertible preferred stock for $2,234,880, which occurred prior to the closing of the acquisition transaction, but subsequent to the March 31, 2013 balance sheet date.
 
 
    DR     CR  
Cash and cash equivalents
    2,234,880        
    Additional paid in capital             2,234,880  
 
On April 15, 2013, North South completed the purchase of two patents for $350,000 that was effectuated through a transfer of the membership interests of CompuFill LLC, which occurred prior to the closing of the acquisition transaction, but subsequent to the March 31, 2013 balance sheet date.
 
    DR     CR  
Patent portfolios
    350,000        
    Cash and cash equivalents             350,000  
(2)  
To record on June 25, 2013, the North South purchase of 100,000 shares of Spherix Series E Convertible Preferred Stock for a per share price of $5.00, or an aggregate of $500,000, pursuant to a subscription agreement in a private placement.
 
    DR     CR  
Cash and cash equivalents
    500,000        
    Series E Convertible Preferred Stock           10  
    Additional paid in capital             499,990  
 
In addition, a second recording is made to reflect the transfer of cash from North South and its related investment in Spherix.
 
    DR     CR  
Investment in Spherix by North South
     500,000        
    Cash and cash equivalents              500,000  
 
(3)  
To record Spherix’s issuance of 118,483 shares of Spherix’s common stock and 1,488,152 shares of Spherix’s Series D Convertible Preferred Stock as consideration to North South Shareholders for the acquisition of North South.  Spherix acquired cash of $2,000,000 and intangible assets $1,100,000 in exchange for common and preferred stock issued at a fair value of $3.1MM.
 
    DR     CR  
Cash and cash equivalents
    2,000,000        
Intangible assets, net     1,100,000          
    Series D Convertible Preferred Stock             149  
    Common Stock             12  
    Additional paid in capital             3,099,839  

 
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SPHERIX INCORPORATED and NORTH SOUTH HOLDINGS INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (continued)
 
Note 5: Pro Forma Adjustments in Connection with the North South Acquisition (continued)
 
(4)  
To eliminate North South Shareholders’ basis in the assets transferred to Spherix in the acquisition transaction.
 
    DR     CR  
Additional paid in capital
    2,734,880        
Accounts payable      3,000          
    Cash and cash equivalents              1,893,667  
    Intangible assets, net             786,091  
    Accumulated deficit             58,122  
 
To eliminate North South Shareholders’ basis in its investment of Spherix Series E Convertible Preferred Stock for $500,000.
 
    DR     CR  
Series E Convertible Preferred Stock
    10        
Additional paid in capital     499,990          
    Investment in Spherix by North South             500,000  
 
(5)  
To record amortization expense of the patent portfolios for the year ended December 31, 2012.
 
    DR     CR  
Amortization expense
    129,412        
    Accumulated amortization             129,412  
 
(6)  
To adjust amortization expense of the patent portfolios for the quarter ended March 31, 2013.
 
    DR     CR  
Amortization expense
    19,384        
Accumulated amortization             19,384  
 
End of Notes to
Unaudited Pro Forma Condensed Combined Financial Information

 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

North South was incorporated on November 9, 2012 in the state of Delaware.  North South was formed to seek business opportunities in which to acquire patents from various entities and monetize the disposal of them through sales, litigation or licensing.  As North South was formed in November 2012, there are no comparative periods for the prior year.

On April 2, 2013, North South entered into the Merger Agreement with Spherix, Nuta Virginia, and North South’s shareholders Upon closing of the Merger, North South will merge with and into Nuta Virginia with Nuta Virginia as the surviving corporation and the record owner of the North South Intellectual Property.  The closing of the Merger is subject to customary closing conditions, including the receipt of a fairness opinion that the Merger Consideration (as defined below) is fair to stockholders and Spherix from a financial point of view, based on, among other things, the North South Intellectual Property assets, and the approval of Spherix’s shareholders holding a majority of the outstanding voting capital of Spherix to issue the Merger Consideration pursuant to NASDAQ listing standards.
 
Pursuant to the terms and conditions of the Merger, at the closing of the Merger, an aggregate of 500 issued and outstanding shares of North South’s common stock will be converted into the right to receive an aggregate of 118,483 shares of Spherix’s Common Stock and 500 shares of North South’s Series A Preferred Stock and 128 shares of North South’s Series B Preferred Stock issued and outstanding will be converted into the right to receive an aggregate of 1,488,152 shares of Spherix’s Series D Convertible Preferred Stock, which is convertible into shares of Spherix’s Common Stock on a one-for-ten basis (collectively with the 118,483 shares of Common Stock, the “Merger Consideration”).

At the effective time of the Merger, from the Merger Consideration, 150,000 shares of the Series D Preferred Stock (the “Escrow Shares”) shall be delivered to an escrow agent and shall be held pursuant to an escrow agreement to secure Spherix from certain claims that may arise with respect to the representations, warranties, covenants or indemnification obligations of North South’s shareholders for a period of twelve (12) months following the closing of the Merger.  The Escrow Shares are the sole remedy for indemnifiable losses payable under the Merger Agreement.
 
Results of Operations

Three months ended March 31, 2013
 
    During the three months ended March 31, 2013, North South generated no revenues and incurred a net loss of $22,169.

    During the three months ended March 31, 2013, North South incurred total operating expenses of $22,169, consisting of amortization expense, legal fees and fees paid to members of its board of directors.

Period from November 9, 2012 (inception) to December 31, 2012
 
    During the period from November 9, 2012 (inception) to December 31, 2012, North South generated no revenues and incurred a net loss of $35,953.
 
    During the period from November 9, 2012 (inception) to December 31, 2012, North South incurred total operating expenses of $35,953, consisting of legal fees and fees paid to members of its board of directors.

 
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Liquidity and Capital Resources
 
    North South has incurred $58,122 in operating losses for the period from November 9, 2012 (inception) to March 31, 2013. As of March 31, 2013, North South had $508,787 in cash.   As of March 31, 2013, North South had working capital of $505,787 to fund operations. Subsequent to March 31, 2013, North South raised an additional $2,234,880 through the issuance and sale of its Series B Convertible Preferred Stock.
 
    Since inception, North South has sold 500 shares of common stock and 1,000 shares of preferred stock to its founders for gross aggregate proceeds of approximately $3.2 million.
 
    North South must raise additional funds or increase revenues in order to fund its continuing operations.  Additionally, as a condition to the closing of the Merger, unless waived by Spherix, North South is required to have a minimum of $2 million in cash at closing.  North South may not be successful in its efforts to raise additional funds or achieve profitable operations. Even if North South is able to raise additional funds through the sale of its securities or through the issuance of debt securities, or through loans from related parties, its directors or financial institutions, its cash needs could be greater than anticipated in which case North South could be forced to raise additional capital.
 
    At the present time, North South has no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to North South on commercially acceptable terms or at all.   

Recent Accounting Pronouncements
 
    There are no recently issued accounting pronouncements that are expected to have a material impact on the consolidated financial statements or notes thereto .

Off Balance Sheet Arrangements
 
    As of the date of this Report, North South did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K. 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    None.

Quantitative and Qualitative Disclosures About Market Risk

    Not Applicable.
 
Risks Associated with the Merger

Upon closing of the Merger of Nuta Virginia with North South, we intend to engage  in a new additional line of business.  We intend, through Nuta Virginia, to become engaged in the commercialization and development of intellectual property assets.  Our activities will generally include the acquisition and development of patents through internal or external research and development.  In addition, we will seek to acquire existing rights to intellectual property through acquisitions 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 our intellectual property 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.

A description of certain risks associated with the Merger and the new additional business we intend to pursue is included in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2013.  Below are certain risk factors contained therein:

 
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The Company intends to expand the focus of its business to commercializing, developing and monetizing intellectual property, including through licensing and enforcement. The Company may not be able to successfully monetize the patents which it acquires and thus it may fail to realize all of the anticipated benefits of such acquisition.
 
There is no assurance that the Company will be able to successfully commercialize, acquire, develop or monetize the patent portfolio that it acquires from North South. The acquisition of the patents could fail to produce anticipated benefits, or could have other adverse effects that the Company does not currently foresee. Failure to successfully monetize these patent assets may have a material adverse effect on the Company’s business, financial condition and results of operations.
 
In addition, the acquisition of the patent portfolio is subject to a number of risks, including, but not limited to the following:
 
●    There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During that time lag, material costs are likely to be incurred that would have a negative effect on the Company’s results of operations, cash flows and financial position; and
 
●    The integration of a patent portfolio will be a time consuming and expensive process that may disrupt the Company’s operations. If its integration efforts are not successful, the Company’s results of operations could be harmed. In addition, the Company may not achieve anticipated synergies or other benefits from such acquisition.
 
      Therefore, there is no assurance that the monetization of the patent portfolios to be acquired will generate enough revenue to recoup the Company’s investment.

The Company’s operating history makes it difficult to evaluate its current business and future prospects.
 
The Company has, prior to the acquisition of North South, been involved in businesses primarily involving research and development in furtherance of drug and pharmaceutical products and processes, including nutritional supplements and related services.  Prior to the consummation of the Merger, the Company’s business has consisted entirely of its biotechnology research and development unit. The Company not only has no operating history in executing its additional new business which includes, among other things, creating, commercializing, prosecuting, licensing, litigating or otherwise monetizing patent assets. The Company’s lack of operating history in this sector makes it difficult to evaluate its additional new business model and future prospects.
 
The Company will be initially reliant exclusively on the patent assets it acquired from North South. If the Company is unable to commercialize, license or otherwise monetize such assets and generate revenue and profit through those assets or by other means, there is a significant risk that the Company’s business will fail.
 
Upon closing of the Merger, the Company will acquire a portfolio of patent assets from North South that it plans to commercialize, license or otherwise monetize. If the Company’s efforts to generate revenue from such assets fail, the Company will have incurred significant losses and may be unable to acquire additional assets. If this occurs, the Company’s business will likely fail.

Upon closing of the Merger and commencement of its additional new line of business, the Company may commence legal proceedings against certain companies, and the Company expects such litigation to be time-consuming and costly, which may adversely affect its financial condition and its ability to operate its business.
 
To license or otherwise monetize its patent assets, which may constitute a significant focus of the Company’s future activities, the Company may be required to commence legal proceedings against certain companies, pursuant to which the Company may allege that such companies infringe on one or more of the Company’s patents. The Company’s viability could be highly dependent on the outcome of this litigation, and there is a risk that the Company may be unable to achieve the results it desires from such litigation, which failure would harm the Company’s business to a great degree. In addition, the defendants in this litigation are likely to be much larger than the Company and have substantially more resources than the Company does, which could make the Company’s litigation efforts more difficult.

 
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The Company anticipates that these legal proceedings may continue for several years and may require significant expenditures for legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. Once initiated, the Company may be forced to litigate against others to enforce or defend its 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 the Company is involved may allege defenses and/or file counterclaims in an effort to avoid or limit liability and damages for patent infringement. If such defenses or counterclaims are successful, they may preclude the Company’s ability to derive licensing revenue from the patents. A negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact the Company’s business. Additionally, the Company anticipates that its legal fees and other expenses will be material and will negatively impact the Company’s financial condition and results of operations and may result in its inability to continue its business.

The Company may seek to internally develop additional new inventions and intellectual property, which would take time and be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of the Company’s investments in such activities.
 
Part of the Company’s additional new business may include the internal development of new inventions or intellectual property that the Company will seek to monetize. However, this aspect of the Company’s business would likely require significant capital and would take time to achieve. Such activities could also distract our management team from its present business initiatives, which could have a material and adverse effect on the Company’s business. There is also the risk that the Company’s initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of the Company’s investments in time and resources in such activities.
 
In addition, even if the Company is able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, the Company would need to develop and maintain, and it would heavily rely upon, a proprietary position with respect to such inventions and intellectual property. However, there are significant risks associated with any such intellectual property the Company may develop principally including the following:
 
 patent applications the Company may file may not result in issued patents or may take longer than the Company expects to result in issued patents;
 
●   the Company may be subject to interference proceedings;
 
●   the Company may be subject to opposition proceedings in the U.S. or foreign countries;

●   any patents that are issued to the Company may not provide meaningful protection;
 
●   the Company may not be able to develop additional proprietary technologies that are patentable;
 
●   other companies may challenge patents issued to the Company;
 
●   other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate the Company’s technologies;
 
●   other companies may design around technologies the Company has developed; and
 
●   enforcement of the Company’s patents would be complex, uncertain and very expensive.

 
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The Company cannot be certain that patents will be issued as a result of any future applications, or that any of the Company’s patents, once issued, will provide the Company with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it will be the first to make its additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent the Company from commercializing the Company’s products or require the Company to obtain licenses requiring the payment of significant fees or royalties in order to enable the Company to conduct its business. As to those patents that the Company may license or otherwise monetize, the Company’s rights will depend on maintaining its obligations to the licensor under the applicable license agreement, and the Company may be unable to do so. The Company’s failure to obtain or maintain intellectual property rights for the Company’s inventions would lead to the loss the Company’s business .
 
    Moreover, patent application delays could cause delays in recognizing revenue from the Company’s internally generated patents and could cause the Company to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
 
New legislation, regulations or court rulings related to enforcing patents could harm the Company’s new line of business and operating results.
 
If Congress, the United States Patent and Trademark Office or courts implement new legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, these changes could negatively affect the Company’s new business model. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect the Company’s ability to assert its patent or other intellectual property rights.
 
In addition, on September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act recently became effective. Accordingly, it is too early to tell what, if any, impact the Leahy-Smith Act will have on the operation of the Company’s business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of the Company’s issued patents, all of which could have a material adverse effect on the Company’s business and financial condition.
 
On February 27, 2013, US Representatives DeFazio and Chaffetz introduced HR845.  In general, the bill known as the SHIELD Act (“Saving High-tech Innovators from Egregious Legal Disputes”), seeks to assess legal fee liability to plaintiffs in patent infringement actions for defendants costs.  In the event that the bill becomes law, the potential obligation to pay the legal fees of defendants in patent disputes could have a material adverse effect on the Company’s business or financial condition.
 
On June 4, 2013, the Obama Administration issued executive actions and legislative recommendations. The legislative measures recommended by the Obama Administration include requiring patentees and patent applicants to disclose the “Real Party-in-Interest”, giving district courts more discretion to award attorney’s fees to the prevailing party, requiring public filing of demand letters such that they are accessible to the public, and protecting consumers against liability for a product being used off-the shelf and solely for its intended use.
 
The executive actions includes ordering the USPTO to make rules to require the disclosure of the Real Party-in-Interest by requiring patent applicants and owners to regularly update ownership information when they are involved in proceedings before the USPTO (e.g. specifying the “ultimate parent entity”) and requiring the USPTO to train its examiners to better scrutinize functional claims to prevent allowing overly broad claims.

 
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  It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become enacted as laws. Compliance with any new or existing laws or regulations could be difficult and expensive, affect the manner in which the Company conducts its business and negatively impact the Company’s business, prospects, financial condition and results of operations.
 
The Company’s acquisitions of patent assets may be time consuming, complex and costly, which could adversely affect the Company’s operating results</