The following is intended to update the information contained in the Company's Annual Report as filed on Form 10-K for the year ended December 31, 2007, and the Company's Quarterly Reports on Form 10-Q for the periods ended March 31 and June 30, 2008, and presumes that readers have access to, and will have read, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in such Form 10-K and Forms 10-Q.

Certain statements in this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are identified by the use of forward-looking words or phrases such as "believes," "expects," is or are "expected,"

"anticipates," "anticipated," "should" and words of similar impact. These forward-looking statements are based on the Company's current expectations. Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. See the Company's Form 8-K filing dated October 10, 2007, for a more detailed statement concerning forward-looking statements.

Overview

Prior to August 15, 2007, the Company's principal segments of operation were InfoSpherix and BioSpherix. BioSpherix develops proprietary products for commercial applications. InfoSpherix provided contact center information and reservations services for government and industry. On August 15, 2007, the Company sold InfoSpherix. The sale allows Spherix to focus substantially all of its efforts on the BioSpherix Division's biotechnology products, where the principal focus is on the commercialization of Naturlose. The operations of InfoSpherix are reported in the accompanying financial statements as discontinued operations.

BioSpherix engages in product development, notably tagatose. The Company's current focus is on the non-food use of tagatose, which we will market under the name "Naturlose". Our principal efforts have been to explore whether Naturlose is an effective treatment for Type 2 diabetes. In April 2007, the Company commenced a Phase 3 clinical trial under a Food and Drug Administration (FDA) Investigational New Drug (IND) application process for this purpose. As a result, the Company expects to incur substantial development costs in the next few years, without any substantial corresponding revenue.

In July 2007, the Company started a new Health Sciences consulting business to provide technical and regulatory consulting services to biotechnology and pharmaceutical companies, as well as aiding the Company's own R&D activities.

The Company now operates via two principal segments, BioSpherix and Health Sciences.

On July 21, 2008, Nasdaq notified the Company that the bid price of the Company's common stock for the last thirty consecutive business days had closed below the minimum $1.00 per share required for continued listing on the Nasdaq. Nasdaq has recently extended the period the Company has to regain compliance with the bid price requirement, until April 23, 2009. If the Company does not regain compliance by April 23, 2009, Nasdaq will provide notice to the Company that the Common Stock will be delisted from Nasdaq. The Company will be holding a Special Meeting of Stockholders on November 17, 2008, to vote on a proposal to authorize the Board of Directors to effect a reverse split of the Company's common stock to address the bid price deficiency.

At September 30, 2008, the Company's stockholder's equity fell below the $10 million limit required for continued listing on the Nasdaq Global Market. Accordingly, the Company has transferred its listing from the Nasdaq Global Market to the Nasdaq Capital Market, which has a lower stockholder's equity limit of $2.5 million.

Results of Operations for the Three and Nine Months Ended September 30, 2008 and 2007

Revenue and Direct Contract and Operating Costs

Revenue and direct contract costs for the three and nine months ended September 30, 2008 are primarily related to the Company's new Health Sciences consulting business. In April 2008, the Company hired an experienced toxicologist to assist with the consulting projects and is planning on hiring additional staff.

No substantial revenue is expected from the BioSpherix segment until the Company is successful in selling or licensing its technology. As noted below, this is unlikely to occur until the Company's Phase 3 trials are completed.

Research and Development

Research and development expenditures relate solely to the BioSpherix segment and consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers and other expenses related to our efforts to commercialize Naturlose. We expense our research and development costs as they are incurred.

The Company's ongoing Phase 3 clinical trial in the use of Naturlose for the treatment of Type 2 diabetes is the primary focus of the BioSpherix division. The R&D expenditures for three and nine months ended September 30, 2007 consisted of start-up costs for the Phase 3 clinical trial and those of the same periods in 2008 consisted of costs related to both the Phase 3 clinical trial and a related Dose Range study.

Patient recruitment for the clinical trial has been slower than expected. To enhance enrollment and retention, the Company has successfully petitioned the Food and Drug Administration (FDA) to eliminate the need for pre-mixed solutions for the delivery of study medicine, which will be more convenient for the trial participants. The Company will also be conducting a portion of the Phase 3 trial in India where patient enrollment and retention is generally greater than in the U.S. and in July 2008, the Company signed an agreement with a Contract Research Organization (CRO) to oversee the work of two India CRO's hired to execute the trial in India. These changes are expected to enhance recruitment and compliance in the trial. The Company expects that the Dose Range study will most likely be completed in 2009 and the Phase 3 trial will most likely be completed in 2010, based on the current enrollment and retention numbers.

Selling, General and Administrative

Our selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, professional fees and other corporate expenses, including facilities-related expenses. The decrease between years for the three and nine months ended September 2008 is primarily the result of the relocation of the Company's headquarters to a smaller facility in Bethesda, Maryland, effective April 1, 2008, which decreased the Company's overhead costs.

Interest

The increase in interest income between years for the nine months ended September 30, 2008 is a direct result of the earnings on the investment of the proceeds the Company received in August 2007 from the sale of the InfoSpherix subsidiary. The decrease between years for the three months ended September 30, 2008 is a result of both a decrease in interest rates and a decrease in the Company's investment balance as funds are expended to cover the Company's clinical trials and administrative costs.

Income Tax

The prior year's income tax benefit (expense) is related to the sale of InfoSpherix in the third quarter of 2007.

Discontinued Operations

On August 15, 2007, the Company completed the sale of InfoSpherix for $17 million ($15 million at closing and $2 million following a 15-month escrow period), pursuant to the Stock Purchase Agreement dated June 25, 2007. The 2007 amounts included in the Consolidated Statements of Operations represent the net results of InfoSpherix in the periods ended September 30, 2007 as follows:

                                              Three Months Ended      Nine Months Ended
Discontinued operations                       September 30, 2007     September 30, 2007
Revenue                                      $          3,534,000    $        15,371,000

Direct cost and operating expense                      (2,815,000 )          (13,202,000 )
Selling, general and administrative
expense                                                  (359,000 )           (1,749,000 )
Interest revenue                                           38,000                170,000
Interest expense                                           (3,000 )              (21,000 )
Gain on sale of segment                                 8,739,000              8,567,000
Income from discontinued operations
before taxes                                 $          9,134,000    $         9,136,000

Liquidity and Capital Resources

Working capital as of September 30, 2008, was $10 million, which represents a $4.9 million decrease from working capital at December 31, 2007. R&D and marketing activity related to the commercialization of Naturlose accounted for approximately $3 million of the decrease in working capital.

On June 25, 2007, as part of the sale of InfoSpherix, the Company closed its line-of-credit with the Bank. Accordingly, we are operating our BioSpherix efforts solely from the net proceeds we received from the sale of InfoSpherix. The newly launched Health Sciences business is not expected to generate any substantial excess cash flow in the next twelve (12) months.

Spherix expects to expend approximately $6 million over the next year including $4 million in costs related to the Phase 3 clinical trial and other R&D and marketing activity related to the commercialization of Naturlose. The clinical trial is expected to be completed in 2010. The Company intends to finance the BioSpherix activities principally through proceeds from the sale of InfoSpherix and is considering raising additional funds through the sale of common stock and/or other means. While the Company completes its Phase 3 trial, it will be taking other steps to prepare for commercialization of Naturlose as a treatment for Type 2 diabetes on the assumption that the trials will be successful. These steps include additional dose range testing, exploring manufacturing alternatives and seeking marketing assistance. The Company's goal remains to attempt to attract a pharmaceutical company to purchase or license the technology at the earliest practicable stage. Our preliminary marketing analysis suggests that we may increase our chances of success by engaging in some directed marketing efforts as we proceed with the Phase 3 trials.

Spherix expects to receive in November 2008 the $2 million currently held in escrow from its sale of InfoSpherix.

The Company believes that its current financial resources may be sufficient to complete the Phase 3 trial, but will not be sufficient to prepare, submit and pursue the FDA application or take any other steps necessary to bring Naturlose to market as a Type 2 diabetes drug. The Company is therefore attempting to continue to develop Naturlose as a drug and to market, sell and/or license Naturlose to a pharmaceutical or other company which would complete the development. Additional funds may be required if the Phase 3 trials are further delayed, and will likely be required to engage in any substantial directed marketing activities noted above. The Company is considering the possibility of selling additional shares of its common stock as a means of raising additional funds.

Cash flow for the nine months ended September 30, 2008, consisted of $5.3 million used in operating activities (including approximately $3 million in R&D activity and related market research) and $3.1 used in investing activities
(principally $2.9 million the Company invested in short-term debt securities)
for a net decrease in cash and cash equivalents of $8.4 million.

Continued progress on the clinical trial of Naturlose as a treatment of Type 2 diabetes and on the other initiatives described above is dependent upon many factors including, but not limited to, the Company having sufficient funds and resources. The total cost of completing the Phase 3 trial is difficult to determine and can be affected by a number of factors, including, but not limited to, the time to complete the trial. As many of our costs are "fixed," any additional delays in the Phase 3 trial could cause us to expend all of our funds before the trial is complete.