Qualigen Therapeutics, Inc. [QLGN] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2024

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

For the transition period from _____________ to _____________

Qualigen Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-37428

26-3474527

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

5857 Owens Avenue, Suite 300, Carlsbad, California 92008

(Address of principal executive offices) (Zip Code)

(760) 452-8111

(Registrant’s telephone number, including area code)

n/a

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $.001 per share		QLGN		The Nasdaq Capital Market of The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of November 12, 2024, there were 736,431 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

		Page
PART I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

PART II.	Other Information	39

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2024			2023
ASSETS
Current assets
Cash and cash equivalents	$	388,152		$	401,803
Prepaid expenses and other current assets		626,760			764,964
Short-term note receivable - Marizyme		1,298,082			—
Total current assets		2,312,994			1,166,767
Other assets		—			866,481
Total Assets	$	2,312,994		$	2,033,248

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	1,638,447		$	2,222,983
Accrued expenses and other current liabilities		570,148			560,006
Warrant liabilities		274,042			54,600
Convertible debt		1,090,002			—
Convertible debt - related party		344,229			1,299,216
Convertible debt		344,229			1,299,216
Derivative liabilities		368,288			—
Derivative liabilities - related party		168,689			—
Derivative liabilities		168,689			—
Total current liabilities		4,453,845			4,136,805
Commitments and Contingencies (Note 10)		-			-
Stockholders’ Deficit
Qualigen Therapeutics, Inc. stockholders’ equity (deficit):
Common stock, $0.001 par value; 225,000,000 shares authorized; 548,284 and 107,243 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		65,314			43,262
Additional paid-in capital		119,999,588			114,655,565
Accumulated deficit		(122,205,753	)		(116,802,384	)
Total Stockholders’ Deficit		(2,140,851	)		(2,103,557	)
Total Liabilities & Stockholders’ Deficit	$	2,312,994		$	2,033,248

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(Unaudited)

	2024			2023			2024			2023
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2024			2023			2024			2023
EXPENSES
General and administrative	$	1,145,152		$	1,336,765		$	3,186,575		$	5,132,834
Research and development		123,429			1,441,598			1,242,101			3,898,061
Total expenses		1,268,581			2,778,363			4,428,676			9,030,895

LOSS FROM OPERATIONS		(1,268,581	)		(2,778,363	)		(4,428,676	)		(9,030,895	)

OTHER EXPENSE (INCOME), NET
(Gain) loss on change in fair value of warrant liabilities		(1,231	)		101,112			(361,137	)		(1,377,855	)
Loss on change in fair value of derivative liabilities		495,693			—			321,080			—
Interest expense		408,359			367,257			808,477			1,288,908
Interest income		(48,082	)		—			(48,082	)		—
Loss on issuance of convertible debt		—			—			358,279			—
(Gain) loss on voluntary conversion of convertible debt into common stock		27,790			—			(56,010	)		1,077,287
Loss on monthly redemptions of convertible debt into common stock		—			—			208,852			—
Gain on settlements of accounts payable		(348,305	)		—			(348,305	)		—
Loss on fixed asset disposal		—			21,747			—			21,747
Other income, net		(6,547	)		(33,454	)		(9,262	)		(33,534	)
Total other expense (income), net		527,677			456,662			873,892			976,553

LOSS BEFORE PROVISION FOR INCOME TAXES		(1,796,258	)		(3,235,025	)		(5,302,568	)		(10,007,448	)

(BENEFIT) PROVISION FOR INCOME TAXES		(2,198	)		—			800			—

NET LOSS FROM CONTINUING OPERATIONS		(1,794,060	)		(3,235,025	)		(5,303,368	)		(10,007,448	)

DISCONTINUED OPERATIONS
Income (loss) from discontinued operations, net of tax		—			159,507			—			(683,008	)
Loss on disposal of discontinued operations, net of tax		—			(619,545	)		(100,000	)		(619,545	)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS		—			(460,038	)		(100,000	)		(1,302,553	)

NET LOSS		(1,794,060	)		(3,695,063	)		(5,403,368	)		(11,310,001	)

Net loss attributable to non-controlling interest from discontinued operations		—			(38,526	)		—			(343,038	)

Net loss available to Qualigen Therapeutics, Inc.	$	(1,794,060	)	$	(3,656,537	)	$	(5,403,368	)	$	(10,966,963	)
Deemed dividend arising from warrant down-round provision	$	(27,587	)	$	—		$	(87,604	)	$	—

Net loss attributable to Qualigen Therapeutics, Inc	$	(1,821,647	)	$	(3,656,537	)	$	(5,490,972	)	$	(10,966,963	)

Net loss per common share, basic and diluted - continuing operations	$	(4.70	)	$	(32.01	)	$	(24.48	)	$	(99.64	)
Net income (loss) per common share, basic and diluted - discontinued operations	$	—		$	(4.17	)	$	(0.45	)	$	(9.55	)
Total net loss per common share, basic and diluted	$	(4.70	)	$	(36.18	)	$	(24.93	)	$	(109.19	)
Weighted-average number of shares outstanding, basic and diluted		387,878			101,049			220,221			100,434

Other comprehensive loss, net of tax
Net loss	$	(1,794,060	)	$	(3,695,063	)	$	(5,403,368	)	$	(11,310,001	)
Foreign currency translation adjustment from discontinued operations		—			—			—			(50,721	)
Other comprehensive loss		(1,794,060	)		(3,695,063	)		(5,403,368	)		(11,360,722	)
Comprehensive loss attributable to noncontrolling interest from discontinued operations		—			(38,526	)		—			(343,038	)
Comprehensive loss attributable to Qualigen Therapeutics, Inc.	$	(1,794,060	)	$	(3,656,537	)	$	(5,403,368	)	$	(11,017,684	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

	Shares		Amount		Capital				Deficit					Deficit
	Common Stock				Additional Paid-In				Accumulated					Total Stockholders’
	Shares		Amount		Capital				Deficit					Deficit
Balance at December 31, 2023		107,243	$	43,262	$	114,655,565		-	$	(116,802,384	)	-	-	$	(2,103,557	)
Monthly redemptions of convertible debt into common stock		22,771		1,138		545,094				—	-	-			546,232
Fair value of warrant modification for professional services		—		—		9,737		-		—		-	-		9,737
Stock-based compensation		—		—		58,651				—					58,651
Net loss		—		—		—				(2,032,751	)				(2,032,751	)
Balance at March 31, 2024		130,013	$	44,400	$	115,269,047		-	$	(118,835,135	)	-	-	$	(3,521,688	)
Voluntary conversion of convertible debt into common stock		28,000		1,400		278,801		-		—		-	-		280,201
Monthly redemptions of convertible debt into common stock		22,726		1,137		355,959				—					357,096
Stock issued upon partial exercise of warrants		11,538		577		149,423		-		—		-	-		150,000
Stock-based compensation		—		—		33,086				—					33,086
Net loss		—		—		—				(1,576,558	)				(1,576,558	)
Balance at June 30, 2024		192,278	$	47,514	$	116,086,316		-	$	(120,411,693	)	-	-	$	(4,277,863	)
Issuance of common stock and prefunded warrants in public offering		294,481		14,724		3,038,624		-		—		-	-		3,053,348
Voluntary conversion of convertible debt into common stock		38,222		1,911		452,972		-		—		-	-		454,883
Fair value of warrant modification for professional services		—		—		2,299				—					2,299
Stock issued upon partial exercise of warrants		20,460		1,023		264,958				—					265,981
Restricted share settlements issued to former Board members		2,843		142		142,209		-		—		-	-		142,351
Fair value of warrants reclassified from equity to liabilities		—		—		(14,998	)								(14,998	)
Stock-based compensation		—		—		27,208		-		—		-	-		27,208
Net loss		—		—		—				(1,794,060	)				(1,794,060	)
Balance at September 30, 2024		548,284	$	65,314	$	119,999,588		-	$	(122,205,753	)	-	-	$	(2,140,851	)

					Additional		Accumulated Other						Total Qualigen Therapeutics, Inc.						Total
	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Qualigen Therapeutics, Inc. Stockholders’			Noncontrolling			Total Stockholders’
	Shares		Amount		Capital		Income			Deficit			Equity			Interest			Equity
Balance at December 31, 2022		84,215	$	42,110	$	110,528,050	$	50,721		$	(103,385,172	)	$	7,235,709		$	1,530,881		$	8,766,590
Voluntary conversion of convertible debt into common stock		16,835		842		1,111,740		—			—			1,112,582			—			1,112,582
Stock-based compensation		—		—		247,657		—			—			247,657			4,569			252,226
Foreign currency translation adjustment		—		—		—		119,723			—			119,723			56,497			176,220
Net loss		—		—		—		—			(3,846,221	)		(3,846,221	)		(261,028	)		(4,107,249	)
Balance at March 31, 2023		101,049	$	42,952	$	111,887,447	$	170,444		$	(107,231,393	)	$	4,869,450		$	1,330,919		$	6,200,369
Balance		101,049	$	42,952	$	111,887,447	$	170,444		$	(107,231,393	)	$	4,869,450		$	1,330,919		$	6,200,369
Stock-based compensation		—		—		667,383		—			—			667,383			4,728			672,111
Foreign currency translation adjustment		—		—		—		(38,553)			—			(38,553)			(18,194)			(56,747)
Net loss		—		—		—		—			(3,464,205	)		(3,464,205	)		(43,484	)		(3,507,689	)
Balance at June 30, 2023		101,049	$	42,952	$	112,554,830	$	131,891		$	(110,695,598	)	$	2,034,075		$	1,273,969		$	3,308,044
Stock-based compensation		—		—		113,801		—			—			113,801			—			113,801
Net loss		—		—		—		—			(3,656,537	)		(3,656,537	)		(38,526	)		(3,695,063	)
Deconsolidation of discontinued operations		—		—		—		(131,891	)		—			(131,891	)		(1,235,443	)		(1,367,334	)
Balance at September 30, 2023		101,049	$	42,952	$	112,668,631	$	—		$	(114,352,135	)	$	(1,640,552	)	$	—		$	(1,640,552	)
Balance		101,049	$	42,952	$	112,668,631	$	—		$	(114,352,135	)	$	(1,640,552	)	$	—		$	(1,640,552	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2024			2023
	For the Nine Months Ended September 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,403,368	)	$	(11,310,001	)
Loss from discontinued operations, net of tax		(100,000	)		(1,302,553	)
Loss from continuing operations		(5,303,368	)		(10,007,448	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Stock-based compensation		118,945			1,028,841
Change in fair value of warrant liabilities		(361,137	)		(1,377,855	)
Change in fair value of derivative liabilities		321,080			—
Accrued interest on short-term note receivable - Marizyme		(48,082	)		—
(Gain) loss on voluntary conversion of convertible debt		(56,010	)		1,077,287
Loss on monthly redemptions of convertible debt into common stock		208,852			—
Accretion of discount on convertible debt		514,028			1,247,198
Loss on issuance of convertible debt		358,279			—
Loss on disposal of fixed assets		—			21,747
Fair value of warrant modification for professional services		12,036			—

Changes in operating assets and liabilities:
Prepaid expenses and other assets		554,685			(640,105	)
Accounts payable		(584,537	)		952,269
Accrued expenses and other current liabilities		207,249			443,330
Net cash used in operating activities - continuing operations		(4,057,980	)		(7,254,736	)
Net cash used in operating activities - discontinued operations		—			2,622,059
Net cash used in operating activities		(4,057,980	)		(4,632,677	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of short-term note receivable - Marizyme		(1,250,000	)		—
Net cash provided by investing activities - discontinued operations		350,000			3,980,541
Net cash provided by (used in) investing activities		(900,000	)		3,980,541

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of convertible notes payable		1,475,000			(440,000	)
Proceeds from issuance of common shares and prefunded warrants in public offering		3,053,348			—
Net proceeds from issuance of short term debt		2,000,000			—
Proceeds from warrant exercises		415,981			—
Payments on short term debt		(2,000,000	)		—
Net cash provided by (used in) financing activities - continuing operations		4,944,329			(440,000	)
Net cash provided by (used in) financing activities - discontinued operations		—			—
Net cash provided by (used in) financing activities		4,944,329			(440,000	)

Net change in cash and cash equivalents		(13,651	)		(1,092,136	)
Cash and cash equivalents from continuing operations- beginning of period		401,803			3,165,985
Cash and cash equivalents from continuing operations - end of period	$	388,152		$	2,073,849

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	61,020		$	—
Taxes	$	7,864		$	4,900

NONCASH FINANCING AND INVESTING ACTIVITIES:
Monthly redemptions of convertible debt into common stock	$	903,329		$	—
Voluntary conversion of convertible debt into common stock	$	735,083		$	1,112,582
Deemed dividend arising from warrant down-round provision	$	87,604		$	—
Exchange of derivative liability for warrant and convertible debt	$	675,625		$	—
Net transfers to equipment held for lease from inventory	$	—		$	83,271

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUALIGEN THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Organization

Ritter Pharmaceuticals, Inc. (the Company’s predecessor) was formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. In September 2008, this company converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc. On May 22, 2020, upon completing a “reverse recapitalization” transaction with Qualigen, Inc., Ritter Pharmaceuticals, Inc. was renamed Qualigen Therapeutics, Inc. (the “Company”). Qualisys Diagnostics, Inc. was formed as a Minnesota corporation in 1996, reincorporated to become a Delaware corporation in 1999, and then changed its name to Qualigen, Inc. in 2000. Qualigen, Inc. was a wholly-owned subsidiary of the Company. On July 20, 2023, the Company sold all of the issued and outstanding shares of common stock of Qualigen, Inc. to Chembio Diagnostics, Inc. (“Chembio”), a wholly-owned subsidiary of Biosynex, S.A. (“Biosynex”). Following the consummation of this transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio (see Note 5 – Discontinued Operations).

On May 26, 2022, the Company acquired 2,232,861 shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha”), a related party, in exchange for 7,000 reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 6,629 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share. These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, the Company also entered into a Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, with NanoSynex (the “NanoSynex Funding Agreement”), to, among other things, provide for the further funding of NanoSynex, and purchased 381,786 shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a nanotechnology diagnostics company domiciled in Israel. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex (the “NanoSynex Amendment”), which amended the NanoSynex Funding Agreement, to, among other things, eliminate most of the Company obligation for the further funding of NanoSynex. Pursuant to the terms of the NanoSynex Amendment, the Company lost its controlling interest in NanoSynex (see Note 5 -Discontinued Operations).

Reverse Stock Split

On October 28, 2024, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended (the “Amendment”) with the Secretary of State of Delaware to effect a 1-for-50 Reverse Stock Split of the Company’s common stock, which became effective on November 5, 2024. The Amendment did not reduce the number of authorized shares of common stock, which remains at 225,000,000, and did not change the par value of the common stock, which remains at $0.0001 per share. As a result of the Reverse Stock Split, every fifty shares of the common stock were combined into one issued and outstanding share of common stock and no fractional shares were issued. Stockholders who otherwise would be entitled to receive a fractional share in connection with the Reverse Stock Split will receive a cash payment in lieu thereof.

All share and per share information shown herein has been retroactively adjusted to reflect the effect of the Reverse Stock Split Amendment for all periods presented.

Basis of Presentation

Certain information or footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results, and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2023 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The interim results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its former wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar. For NanoSynex, the functional currency was the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex were translated into U.S. dollars with the effects of foreign currency translation adjustments reflected as a component of accumulated other comprehensive loss within the Company’s condensed consolidated statements of changes in stockholders’ equity (deficit).

As of July 20, 2023, NanoSynex was deconsolidated from these financial statements as the transactions contemplated by the NanoSynex Amendment resulted in a loss of control of a subsidiary that constitutes a business under ASC 810. The retained investment in NanoSynex is accounted for prospectively as an equity method investment. See Note 5 – Discontinued Operations for further information.

Discontinued Operations

On July 20, 2023, the Company completed the sale of Qualigen, Inc. to Chembio Diagnostics, Inc. The sale of Qualigen Inc. constituted a significant disposition and as such, the Company concluded that the disposition of ownership in Qualigen, Inc. represented a strategic shift that had a major effect on its operations and financial results. Therefore, Qualigen, Inc. is classified as discontinued operations for all periods presented herein.

On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, by and between the Company and NanoSynex (the “NanoSynex Funding Agreement”), a former majority owned subsidiary of the Company, to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in the deconsolidation of NanoSynex. The disposition represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the business of NanoSynex is classified as discontinued operations for all periods presented herein.

See Note 5 - Discontinued Operations for further information.

Equity Method Investments

Following deconsolidation of NanoSynex on July 20, 2023, the Company accounts for its retained investment under the equity method of accounting as it retained the ability to exercise significant influence over the operating and financial policies of the investee. Under the equity method, the Company recognizes its proportionate share earnings or losses each reporting period with an adjustment to the carrying value of the investment. As of December 31, 2023, the carrying value of the retained investment was zero, and therefore the Company has suspended application of the equity method as the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods. See Note 5 – Discontinued Operations for further information.

Accounting Estimates

Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of warrant liabilities, convertible debentures, derivative liabilities, and stock-based compensation. Actual results could materially vary from the estimates that were used.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents.

The Company maintains the majority of its cash in government money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and Signature Bank, and more recently in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the FDIC. While the Company did not have an account at any of these banks, in the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect the Company’s business and financial position.

Impairment of Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. During the nine months ended September 30, 2024 and 2023, no such impairment losses have been recorded.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily within the United States (and in Israel prior to the NanoSynex deconsolidation).

Research and Development

Except for acquired in process research and development (IPR&D), the Company expenses research and development costs as incurred including therapeutics license costs.

Patent Costs

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated statement of operations.

Derivative Financial Instruments and Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and comprehensive loss. Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 7-Warrant Liabilities and Note 8- Convertible Debt).

Fair Value Measurements

The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

●

Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;

●

Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active; and

●

Level 3 - Inputs that are unobservable.

Fair Value of Financial Instruments

Cash, accounts receivable, prepaids, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

Comprehensive Loss

Comprehensive loss consists of net income and foreign currency translation adjustments related to the discontinued operations of NanoSynex. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity (deficit) for all periods presented.

Stock-Based Compensation

Stock-based compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility, lower risk-free interest rates, and longer expected lives would result in an increase to stock-based compensation expense to employees and non-employees determined at the date of grant.

Income Taxes

Deferred income taxes are recognized for temporary differences in the basis of assets and liabilities for financial statement and income tax reporting that arise due to net operating loss carry forwards, research and development credit carry forwards and from using different methods and periods to calculate depreciation and amortization, allowance for doubtful accounts, accrued vacation, research and development expenses, and state taxes. A provision has been made for income taxes due on taxable income and for the deferred taxes on the temporary differences.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of the deferred income tax asset is dependent on generating sufficient taxable income in future years.

Foreign Currency Translation

The functional currency for the Company is the U.S. dollar. The functional currency for the discontinued operations of NanoSynex was the New Israeli Shekel (NIS). The financial statements of NanoSynex were translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex was reflected as a separate component of other comprehensive income (loss) (see Note 5 - Discontinued Operations).

Global Economic Conditions

Ongoing Wars in Ukraine and Israel

In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.

In October 2023, Hamas conducted terrorist attacks in Israel resulting in ongoing war. There continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which have resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Popular uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect the Company’s minority interest in NanoSynex, its results of operations, financial condition, cash flows and prospects (see Note 5 – Discontinued Operations).

Inflation and Global Economic Conditions

During the year ended 2023 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to government stimulus and recovery programs, government deficit spending and supply chain issues. The Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, the Company’s business may be adversely affected.

Impact of COVID-19 Pandemic

The COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of the pandemic, sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as clinics and small hospitals’ demand for Qualigen, Inc.’s FastPack™ diagnostic test kits was reduced sharply, largely due to deferral of patients’ non-emergency visits to physician offices. In July 2023 the Company sold Qualigen, Inc., its wholly-owned subsidiary, to Chembio (see Note 5 - Discontinued Operations).

Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update, among other things, requires disclosure of certain significant segment expenses. We will adopt the updated accounting guidance in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the adoption of the new accounting guidance will have a material impact to our consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.

We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.

NOTE 2 — LIQUIDITY AND GOING CONCERN

As of September 30, 2024, we had approximately $388,000 in cash and an accumulated deficit of $122.2 million. For the nine months ended September 30, 2024 and year ended December 31, 2023, we used cash of $4.0 million and $11 million, respectively, in operations.

The Company’s cash balances as of the date that these financial statements were issued, without additional financing, are expected to fund operations through the fourth quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued. There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. Between February 2024 and April 2024 the Company raised $1.5 million from the sale of Convertible Debentures (see Note 8 - Convertible Debt - Related Party). In July 2024 the Company raised an additional $2.0 million from the sale of a nonconvertible 18% Senior Note, which was subsequently repaid in September 2024. In September 2024, the Company raised additional net proceeds of approximately $3.1 million from the sale of common stock and prefunded warrants in a public offering. There can be no assurance that further financing can be obtained on favorable terms, or at all. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect the Company’s business prospects.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.

NOTE 3 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following at September 30, 2024 and December 31, 2023:

	September 30,		December 31,
	2024		2023
Prepaid insurance	$	313,703	$	566,011
Other prepaid expenses		63,057		25,053
Prepaid consulting		250,000		—
Prepaid research and development expenses		—		173,900
	$	626,760	$	764,964

NOTE 4 — SHORT-TERM NOTE RECEIVABLE - MARIZYME

Other current assets consisted of the following at September 30, 2024 and December 31, 2023:

SCHEDULE OF SHORT-TERM NOTE RECEIVABLE

	September 30,		December 31,
	2024		2023
Short-term note receivable - Marizyme	$	1,298,082	$	—
Total	$	1,298,082	$	—

On July 15, 2024, the Company advanced to Marizyme, Inc., $1,250,000 against which Marizyme had previously delivered its demand promissory note to the Company of like principal amount dated July 12, 2024 (the “Marizyme Note”). The Marizyme Note bears interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding principal or interest of the Marizyme Note at any time and from time to time, in whole or in part, without premium or penalty.

Under ASC 326-20, known as the current expected credit loss ("CECL") model, the Company was required to estimate credit losses expected over the life of an exposure (or pool of exposures) based on historical information, current information, and reasonable and supportable forecasts. The conclusion was that if the Company were to demand repayment of the loan mentioned above, management expects that the Company would be able to recover substantially all of its investment in a presumed liquidation of Marizyme’s assets, as the Company has seniority in any future bankruptcy or insolvency proceeding. As such, management estimates the expected credit losses on the Marizyme Note to be zero as of September 30, 2024.

The Company is also party to a Co-Development Agreement with Marizyme (see Note 11 - Research and License Agreements).

NOTE 5 — DISCONTINUED OPERATIONS

The summary of gain (loss) from discontinued operations, net of tax, for the three and nine months ended September 30, 2024 are as follows:

	Qualigen, Inc.		NanoSynex		Total		Qualigen, Inc.			NanoSynex		Total			Qualigen, Inc.		NanoSynex			Total			Qualigen, Inc.			NanoSynex			Total
			Three Months Ended September 30, 2024							Nine Months Ended September 30, 2024							Three Months Ended September 30, 2023									Nine Months Ended September 30, 2023
	Qualigen, Inc.		NanoSynex		Total		Qualigen, Inc.			NanoSynex		Total			Qualigen, Inc.		NanoSynex			Total			Qualigen, Inc.			NanoSynex			Total
Loss on disposal of discontinued operations, net of tax	$	—	$	—	$	—	$	—		$	—	$	—		$	90,778	$	68,729		$	159,507		$	(171,701	)	$	(511,307	)	$	(683,008	)
Income (loss) from discontinued operations, net of tax		—		—		—		(100,000	)		—		(100,000	)		3,859,465		(4,479,010	)		(619,545	)		3,859,465			(4,479,010	)		(619,545	)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS	$	—	$	—	$	—	$	(100,000	)	$	—	$	(100,000	)	$	3,950,243	$	(4,410,281	)	$	(460,038	)	$	3,687,764		$	(4,990,317	)	$	(1,302,553	)

Sale of Qualigen Inc.

On July 20, 2023, the Company completed the sale of Qualigen, Inc., its formerly wholly-owned subsidiary, to Chembio Diagnostics, Inc. for net cash consideration of $5.4 million, of which $4.9 million was received during the year ended December 31, 2023, and $450,000 was being held in escrow until January 20, 2025 to satisfy certain Company indemnification obligations. On June 4, 2024, the escrow account was settled early by mutual agreement of the Company and the buyer resulting in cash proceeds to the Company of $350,000 and a loss on disposal of discontinued operations of $100,000 for the nine months ending September 30, 2024. There was no other activity related to Qualigen, Inc. during the three and nine months ended September 30, 2024.

There were no assets and liabilities remaining related to Qualigen, Inc. as of September 30, 2024 or December 31, 2023.

The Company reclassified the following statement of operations items to discontinued operations for the three and nine months ended September 30, 2023:

	For the Three Months Ended September 30,		For the Nine Months September 30,
	2023		2023
REVENUES
Net product sales	$	426,920	$	3,661,121
Total revenues		426,920		3,661,121

EXPENSES
Cost of product sales		269,747		2,551,114
General and administrative		26,346		610,559
Research and development		2,612		206,819
Sales and marketing		37,288		405,626
Total expenses		335,993		3,774,118

OTHER EXPENSE (INCOME), NET
Loss on disposal of equipment held for lease		—		63,302
Other expense (income), net		149		(4,898	)
Loss on fixed asset disposal		—		300
Total other expense (income), net		149		58,704

INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC.		90,778		(171,701	)

Gain on sale of Qualigen, Inc.		3,859,465		3,859,465

INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC.	$	3,950,243	$	3,687,764

Amendment and Settlement Agreement with NanoSynex Ltd.

On July 20, 2023, the Company entered into and effectuated the NanoSynex Amendment, reducing its ownership from approximately 52.8% to approximately 49.97% of the voting equity of NanoSynex, and deconsolidation of the subsidiary. On November 22, 2023, the Company further agreed to eliminate the Company’s obligations to lend additional funds to NanoSynex by surrendering shares of Series A-1 Preferred Stock of NanoSynex in an amount that reduced the Company’s ownership in NanoSynex voting equity from approximately 49.97% to 39.90%.

On the date of deconsolidation, the Company recognized its retained investment at fair value, which during the preparation of these financial statements was determined to be de minimis based on various economic, industry, and other factors. As a result, the Company has discontinued recognition of its proportionate share of equity method losses following the date of initial recognition. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods.

There were no assets and liabilities recognized related to NanoSynex as of September 30, 2024 or December 31, 2023.

There was no activity related to NanoSynex during the three and nine months ended September 30, 2024. The Company reclassified the following statement of operations items to discontinued operations for the three and nine months ended September 30, 2023:

	For the Three Months Ended September 30,			For the Nine Months September 30,
	2023			2023
EXPENSES
Research and development	$	81,640		$	869,064
Total expenses		81,640			869,064

Loss on disposal of discontinued operations		4,479,010			4,479,010

(BENEFIT) PROVISION FOR INCOME TAXES		(150,369	)		(357,757	)

LOSS FROM DISCONTINUED OPERATIONS OF NANOSYNEX, LTD.		(4,410,281	)		(4,990,317	)

Loss attributable to noncontrolling interest		(1,276,969	)		(1,578,481	)

NET LOSS ATTRIBUTABLE TO STOCKHOLDERS	$	(3,133,312	)	$	(3,411,836	)

NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at September 30, 2024 and December 31, 2023:

	September 30,		December 31,
	2024		2023
Board compensation	$	97,597	$	129,499
Interest (Convertible debt)		68,318		10,004
License fees		4,907		32,975
Payroll		3,173		1,215
Professional fees		163,270		121,775
Research and development		61,515		104,402
Vacation		164,095		151,286
Other		7,273		8,850
	$	570,148	$	560,006

NOTE 7 — WARRANT LIABILITIES

In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company. The Series C Warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, based on the inclusion of a leveraged ratchet provision for subsequent dilutive issuances. As of December 31, 2022 there were 26,995 Series C Warrants outstanding with an exercise price of $66.00 per share.

On December 22, 2022, in conjunction with the issuance of the Debenture to Alpha (see Note 8 – Convertible Debt), the Company issued to Alpha a warrant to purchase 50,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant was $82.50 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha, in whole or in part, on or after June 22, 2023 and at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant. The fair value of this Alpha Warrant was included in Warrant liabilities-related party on the Company’s consolidated balance sheet as of December 31, 2022. On December 5, 2023, the Company entered into an Amendment No. 1 with regard to a Securities Purchase Agreement, with Alpha. This Amendment eliminated certain adjustment provisions of the Warrant. The Company determined the event resulted in equity classification for the Warrant and, accordingly, the Company remeasured the warrant liabilities to fair value, and reclassified to noncompensatory equity classified warrants (see Note 12 - Stockholders Equity).

On November 24, 2023, 21,952 Series C Warrants expired, and on December 5, 2023 the remaining Series C Warrants were repriced from an exercise price of $66.00 per share to an exercise price of $36.50 per share, with 4,074 additional ratchet Series C Warrants issued, resulting in 9,113 of these Series C Warrants outstanding and exercisable as of December 31, 2023.

On February 27, 2024, these Series C Warrants were repriced again as a result of a down-round provision triggered by a Securities Purchase Agreement with Alpha for the purchase of the February 2024 Debenture, from an exercise price of $36.50 per share to an exercise price of $13.00 per share, with 16,473 additional ratchet Series C Warrants issued, resulting in 25,586 of these Series C Warrants outstanding and exercisable, and on June 26, 2024 these remaining 25,586 Series C Warrants expired.

On April 12, 2024, in connection with an 8% Convertible Debenture in the principal amount of $1,100,000 issued to Yi Hua Chen (“Chen”) (see Note 8 – Convertible Debt), we issued a liability classified warrant to Chen purchase 36,001 shares of our common stock, exercisable until February 27, 2029. On September 6, 2024 as a result of the down-round provision triggered by shares sold in a public offering, the above warrants were repriced from $13.00 per share exercise price to $6.50 per share exercise price. The warrant remains outstanding and exercisable and was liability classified as of September 30, 2024 due to an insufficient number of authorized shares to settle the warrant prior to the receipt of shareholder approval, which was subsequently obtained on October 25, 2024. The fair value of the warrant was $565,582 on the issuance date and $257,492 at September 30, 2024. During the three and nine months ended September 30, 2024, the Company recorded a gain on change in fair value of warrant liabilities of $2,784 and $308,090 for this warrant.

As a result of a partial voluntary conversion of the 2024 Alpha Debenture on September 9, 2024, as of September 30, 2024 the Company no longer had sufficient shares to settle the 2024 Alpha Warrant in full until shareholder approval was obtained, and a portion (2,314 warrant shares) was reclassified to liabilities (see Note 12 - Stockholders’ Equity).

The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2024:

SCHEDULE OF WARRANTS ACTIVITY

	Common Stock Warrants
	Shares			Weighted– Average Exercise Price		Range of Exercise Price		Weighted– Average Remaining Life (Years)
Total outstanding – December 31, 2023		9,113		$	36.50	$	36.50 - $36.50		0.49
Granted		52,474		$	10.96	$	6.50 - $13.00		4.41
Exercised		—			—		—		—
Reclassified from equity		2,314		$	6.50	$	6.50 - $6.50		4.41
Expired		(25,586	)	$	13.00	$	13.00 - $13.00		—
Forfeited		—			—		—		—
Total outstanding – September 30, 2024		38,315		$	6.50	$	6.50 - $6.50		4.41
Exercisable		38,315		$	6.50	$	6.50 - $6.50		4.41

The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2023:

	Common Stock Warrants
	Shares		Weighted– Average Exercise Price		Range of Exercise Price		Weighted– Average Remaining Life (Years)
Total outstanding –December 31, 2022		76,992	$	76.72	$	66.00 - $82.50		3.9
Granted		—		—		—		—
Exercised		—		—		—		—
Expired		—		—		—		—
Forfeited		—		—		—		—
Total outstanding – September 30, 2023		76,992	$	76.72	$	66.00 - $82.50		3.16
Exercisable		76,992	$	76.72	$	66.00 - $82.50		3.16

The following table presents the Company’s fair value hierarchy for its warrant liabilities measured at fair value on a recurring basis as of September 30, 2024:

	Quoted
	Market		Significant
	Prices for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
Common Stock Warrant Liabilities	(Level 1)		(Level 2)		(Level 3)			Total
Balance as of December 31, 2023	$	—	$	—	$	54,600		$	54,600
Granted		—		—		565,582			565,582
Exercised		—		—		—			—
Reclassified from equity		—		—		14,997			14,997
Gain on change in fair value of warrant liabilities		—		—		(361,137	)		(361,137	)
Balance as of September 30, 2024	$	—	$	—	$	274,042		$	274,042

During the three and nine months ended September 30, 2024, warrants for 2,314 common shares with an exercise price of $6.50 with a fair value of $14,997 as of September 30, 2024 were reclassified from equity to liabilities. There were no transfers of financial assets or liabilities between category levels for the three and nine months ended September 30, 2023.

The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.

The following are the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of September 30, 2024 and 2023:

	September 30, 2024						September 30, 2023
	Actual			Weighted Average			Range			Weighted Average
Risk-free interest rate		3.61% — 3.61	%		3.61	%		4.523% — 5.401	%		4.83	%
Expected volatility (peer group)		119.5% — 119.5	%		119.5	%		57.9% — 134.5	%		108.41	%
Term of warrants (years)		4.41 — 4.41			4.41			0.14 — 4.73			3.16
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%

NOTE 8 — CONVERTIBLE DEBT

2022 Convertible Debenture (Related party)

On December 22, 2022, we issued to Alpha an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022 (the “2022 Securities Purchase Agreement”). The 2022 Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the 2022 Debenture is no longer outstanding, at Alpha’s option, into shares of our common stock (the “Conversion Shares”), at a price initially equal to $66.00 per share, subject to adjustment as described in the 2022 Debenture and other terms and conditions described in the 2022 Debenture. On July 13, 2023, we obtained stockholder approval, for purposes of complying with Nasdaq Listing Rule 5635(d), for the issuance to Alpha of more than 20% of our issued and outstanding shares of common stock pursuant to the terms and conditions of (a) the 2022 Debenture, and (b) the common stock purchase warrant dated December 22, 2022 issued by us to Alpha. Between January 9 and 12, 2023, we issued 16,832 shares of common stock upon Alpha’s partial voluntary conversion of the 2022 Debenture at a conversion price of $66.00 per share for a total of $1,111,078 principal. In October and December 2023, we issued 6,193 shares of common stock to Alpha in lieu of cash for monthly redemption payments on the 2022 Debenture at a weighted average price of $35.52 per share.

During the three and nine months ending September 30, 2024, we issued 30,378 and 103,865 shares of common stock, respectively to Alpha in lieu of cash for monthly redemption payments on and voluntary conversions of the 2022 Debenture at a weighted average conversion price of $13.00 and $13.66 per share, respectively, and a weighted average fair value of $12.97 and $15.19 per share, respectively.

During the three and nine months ending September 30, 2023, we issued 0 and 16,832 shares of common stock, respectively to Alpha in lieu of cash for monthly redemption payments on, and voluntary conversions of the 2022 Debenture at a weighted average conversion price of $0 and $66.00 per share, respectively, and a weighted average fair value of $0 and $66.09 per share, respectively.

Commencing June 1, 2023 (the “Initial Monthly Redemption Date”) and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the 2022 Debenture (each such date, a “Monthly Redemption Date”), we must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the 2022 Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, we may elect to pay all or a portion of a Monthly Redemption Amount in shares of our common stock, based on a conversion price equal to the lesser of (i) the then conversion price of the 2022 Debenture and (ii) 85% of the average of the VWAPs (as defined in the 2022 Debenture) for the five consecutive trading days ending on the trading day that is immediately before the applicable Monthly Redemption Date, subject to the Equity Conditions (as defined in the 2022 Debenture) having been satisfied or waived.

The 2022 Debenture accrued interest at the rate of 8% per annum, which did not begin accruing until December 1, 2023, and was payable on a monthly or quarterly basis. Interest may be paid in cash or shares of our common stock or a combination thereof at our option; provided that interest may only be paid in shares if the Equity Conditions have been satisfied or waived.

In December 2022, pursuant to the terms of the 2022 Securities Purchase Agreement, we entered into a registration rights agreement with Alpha (the “Registration Rights Agreement”), pursuant to which we agreed to file one or more registration statements, as necessary, and to the extent permissible, to register under the Securities Act the resale of the remaining shares (underlying the 2022 Debenture and the 2022 Warrant) not otherwise registered under the Company’s registration statement on Form S-3 (File No. 333-266430). The Registration Rights Agreement requires that the Company file, within 30 days after signing, a resale registration statement and use commercially reasonable efforts to cause the resale registration statement to be declared effective by the SEC on or before the 60^thcalendar day following the date of signing of the Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC). We filed a resale registration statement on Form S-3 pursuant to the requirements of the Registration Rights Agreement on December 2022 (File Number 333-269088), which registration statement was declared effective by the SEC on January 5, 2023. On September 1, 2023, we filed a Post-Effective Amendment No. 1 to Form S-3 on Form S-1 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on September 7, 2023. On May 1, 2024, we filed a Post-Effective Amendment No. 2 to Form S-1 on Form S-3 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on May 2, 2024.

The Company evaluated the 2022 Debenture and the 2022 Warrant and determined that the 2022 Warrant is a freestanding financial instrument. Initially, the 2022 Warrant is not considered indexed to the Company’s own stock, because the settlement amount would not equal the difference between the fair value of a fixed number of the Company’s equity shares and a fixed strike price and all of the adjustment features in Section 3(b) of the Alpha Warrant are not down round provisions, as defined in ASU 2017-11. Accordingly, the 2022 Warrant was classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.

The proceeds from the 2022 Debenture were allocated to the initial fair value of the 2022 Warrant, with the residual balance allocated to the initial carrying value of the 2022 Debenture. The Company has not elected the fair value option for the 2022 Debenture. The 2022 Debenture was recognized as proceeds received after allocating the proceeds to the 2022 Warrant, and then allocating remaining proceeds to a suite of bifurcated embedded derivative features (conversion option, contingent acceleration upon an Event of Default, and contingent interest upon an Event of Default), with the resulting difference, if any, allocated to the loan host instrument. The suite of derivative features was measured and determined to have no fair value.

The original issue discount of $0.3 million, the initial fair value of the 2022 Warrant of $2.8 million, the initial fair value of the suite of bifurcated embedded derivative features of $0, and the fees and costs paid to Alpha and other third parties of $0.1 million comprised the debt discount upon issuance. The debt discount is amortized to interest expense over the expected term of the 2022 Debenture using the effective interest method, in accordance with ASC 835-30. The debt host instrument of the 2022 Debenture will subsequently be measured at amortized cost using the effective interest method to accrete interest over its term to bring the 2022 Debenture’s initial carrying value to the principal balance at maturity.

On December 5, 2023, the Company and Alpha executed Amendment No. 1 with regard to Securities Purchase Agreement (the “SPA Amendment”), pursuant to which the Company and Alpha agreed to, among other things, reduce the Conversion Price of the 2022 Debenture from $66.00 per share to $36.50 per share and reduce the exercise price of the 2022 Warrant from $82.50 per share to $36.50 per share, in each case subject to certain adjustments. In addition, the SPA Amendment revised certain provisions of the 2022 Warrant to (i) limit the circumstances which would trigger a potential adjustment to the exercise price of the 2022 Warrant and (ii) clarify the treatment of the 2022 Warrant upon a Fundamental Transaction. The purpose of these revisions was to remove the terms that caused the 2022 Warrant to be liability-classified under U.S. GAAP. The Company performed an assessment and concluded that all remaining adjustment features in the revised language meet the FASB’s definition of a down-round feature. In addition, the 2022 Warrant was determined to meet all of the additional requirements for equity classification. Accordingly, as of December 5, 2023, the Company remeasured the 2022 Warrant to its fair value immediately prior to the modification and recognized the change in fair value in earnings. The incremental fair value impact from the 2022 Warrant modification of $0.09 million was included in the Company’s evaluation of the 2022 Debenture modification under ASC 470, discussed further below. The Company then reclassified the 2022 Warrant liability to equity at its post-modification fair value of $1.6 million.

In accordance with ASC 470-50, the Company determined that the modified terms of the 2022 Debenture were substantially different when compared to the original terms that existed prior to the SPA Amendment, and thus the event was required to be accounted for as a debt extinguishment. Accordingly, the Company derecognized the net carrying value of the original Debenture, and recorded the new debt instrument at its fair value of $1.4 million, and recorded a $0.6 million loss on debt extinguishment. The difference between the remaining 2022 Debenture principal and its fair value on December 5, 2023 was recorded as a debt discount and will be amortized to interest expense over the expected term of the Debenture using the effective interest method, in accordance with ASC 835-30.

During the three and nine months ended September 30, 2024, the Company recognized a gain of approximately $1,000, and a loss of approximately $124,000 respectively, upon debenture share redemptions, and recorded interest expense of approximately $28,000 and $162,000 (of which approximately $28,000 and $120,000 was attributable to discount accretion, respectively) for the three and nine months ended September 30, 2024 respectively, in other expenses in the condensed consolidated statements of operations related to the 2022 Debenture. As of September 30, 2024 and December 31, 2023, the fair value of the suite of bifurcated embedded derivative features related to the 2022 Debenture was $0.

During the three and nine months ended September 30, 2023, the Company recorded interest of approximately $368,000 and$1.3 million, respectively (of which approximately $350,000 and $1.2 million was attributable to discount amortization, respectively) in other expenses in the condensed consolidated statements of operations. As of September 30, 2023, the fair value of the Alpha Warrant was approximately $2.2 million, and the fair value of the suite of bifurcated embedded derivative features was $0.

On July 3, 2024 and July 5, 2024 Alpha voluntarily converted the remainder of the 2022 Debenture.

2024 Convertible Debenture (Related party)

On February 27, 2024, upon our receipt of a cash purchase price payment of $500,000 less expenses, we issued to Alpha an 8% Convertible Debenture (the “2024 Alpha Debenture”) in the principal amount of $550,000. The 2024 Alpha Debenture matures no later than December 31, 2024 and was convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at $30.56 per share, subject to adjustment as described in the 2024 Alpha Debenture. Except in respect of an Exempt Issuance, the 2024 Alpha Debenture contains a “ratchet” antidilution provision, with a $5.82 per share floor. Upon the closing of the public offering on September 6, 2024 per the terms of the antidilution provision, the conversion price of the 2024 Alpha Debenture was reduced from $30.56 to $6.50 per share. The 2024 Alpha Debenture accrues interest on its outstanding principal balance at the rate of 8% per annum, payable at maturity. In connection with this issuance, we also issued to Alpha a noncompensatory equity classified