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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, 2023

 

Or

 

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)

 

2042 Corte Del Nogal, Carlsbad, California 92011

(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 10, 2023, there were 5,181,058 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, 2023 and December 31, 2022   3
  Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022   4
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022   5
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022   6
  Notes to Condensed Consolidated Financial Statements   7
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   28
Item 3. Quantitative and Qualitative Disclosures About Market Risk   38
Item 4. Controls and Procedures   39
       
PART II. Other Information   40
       
Item 1. Legal Proceedings   40
Item 1A. Risk Factors   40
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities   40
Item 3. Defaults Upon Senior Securities   40
Item 4. Mine Safety Disclosures   40
Item 5. Other Information   40
Item 6. Exhibits   41

 

2
 

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,   December 31, 
   2023   2022 
ASSETS          
Current assets          
Cash  $2,073,849   $3,165,985 
Prepaid expenses and other current assets   1,375,730    1,366,704 
Current assets of discontinued operations       6,287,849 
Total current assets   3,449,579    10,820,538 
Property and equipment, net       26,242 
Other assets   866,481     
Non-current assets of discontinued operations       8,236,711 
Total Assets  $4,316,060   $19,083,491 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities          
Accounts payable  $1,571,831   $619,568 
Accrued vacation   163,701    165,040 
Accrued expenses and other current liabilities   1,144,188    699,519 
Warrant liabilities   92,900    788,100 
Warrant liabilities - related party   2,151,892    2,834,547 
Convertible debt - related party   832,100    60,197 
Current liabilities of discontinued operations       3,441,198 
Total current liabilities   5,956,612    8,608,169 
Non-current liabilities of discontinued operations       1,708,732 
Total liabilities   5,956,612    10,316,901 
Commitments and Contingencies (Note 10)   -    - 
Stockholders’ equity (deficit)          
Qualigen Therapeutics, Inc. stockholders’ equity (deficit):          
Common stock, $0.001 par value; 225,000,000 shares authorized; 5,052,463 and 4,210,737 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   42,952    42,110 
Additional paid-in capital   112,668,631    110,528,050 
Accumulated other comprehensive income       50,721 
Accumulated deficit   (114,352,135)   (103,385,172)
Total Qualigen Therapeutics, Inc. stockholders’ equity (deficit)   (1,640,552)   7,235,709 
Noncontrolling interest       1,530,881 
Total Stockholders’ Equity (deficit)   (1,640,552)   8,766,590 
Total Liabilities & Stockholders’ Equity (Deficit)  $4,316,060   $19,083,491 

 

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

 

3
 

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(Unaudited)

 

   2023   2022   2023   2022 
  

For the Three Months Ended

September 30,

  

For the Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
EXPENSES                
General and administrative  $1,336,765   $2,539,389   $5,132,834   $7,705,823 
Research and development   1,441,598    930,536    3,898,061    3,618,428 
Total expenses   2,778,363    3,469,925    9,030,895    11,324,251 
                     
LOSS FROM OPERATIONS   (2,778,363)   (3,469,925)   (9,030,895)   (11,324,251)
                     
OTHER EXPENSE (INCOME), NET                    
(Gain) loss on change in fair value of warrant liabilities   101,112    (321,300)   (1,377,855)   (1,019,342)
Interest expense (income), net   367,257    (4,631)   1,288,908    (15,763)
Loss on voluntary conversion of convertible debt           1,077,287     
Loss on fixed asset disposal   21,747        21,747     
Other income, net   (33,454)       (33,534)    
Total other expense (income), net   456,662    (325,931)   976,553    (1,035,105)
                     
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES   (3,235,025)   (3,143,994)   (10,007,448)   (10,289,146)
                     
(BENEFIT) PROVISION FOR INCOME TAXES   

            6,173 
                     
NET LOSS FROM CONTINUING OPERATIONS   (3,235,025)   (3,143,994)   (10,007,448)   (10,295,319)
                     
DISCONTINUED OPERATIONS                    
Income (loss) from discontinued operations   159,507    (911,882)   (683,008)   (2,207,864)
Loss on disposal of discontinued operations   (619,545)       (619,545)    
LOSS FROM DISCONTINUED OPERATIONS   (460,038)   (911,882)   (1,302,553)   (2,207,864)
                     
NET LOSS   (3,695,063)   (4,055,876)   (11,310,001)   (12,503,183)
                     
Net loss attributable to non-controlling interest from discontinued operations   (38,526)   (230,767)   (343,038)   (234,883)
                     
Net loss attributable to Qualigen Therapeutics, Inc.  $(3,656,537)  $(3,825,109)  $(10,966,963)  $(12,268,300)
                     
Net loss per common share, basic and diluted - continuing operations  $(0.64)  $(0.80)  $(1.99)  $(2.77)
Net loss per common share, basic and diluted - discontinued operations  $(0.08)  $(0.17)  $(0.19)  $(0.53)
Weighted—average number of shares outstanding, basic and diluted   5,052,463    3,944,406    5,021,691    3,715,462 
                     
Other comprehensive loss, net of tax                    
Net loss  $(3,695,063)  $(4,055,876)  $(11,310,001)  $(12,503,183)
Foreign currency translation adjustment from discontinued operations       88,523    (50,721)   154,063 
Other comprehensive loss   (3,695,063)   (3,967,353)   (11,360,722)   (12,349,120)
Comprehensive loss attributable to noncontrolling interest from discontinued operations   (38,526)   (230,767)   (343,038)   (234,883)
Comprehensive loss attributable to Qualigen Therapeutics, Inc.  $(3,656,537)  $(3,736,586)  $(11,017,684)  $(12,114,237)

 

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

 

4
 

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

   Shares   Amount   Capital   Income   Deficit   (Deficit)   Interest   (Deficit) 
                      

Total

Qualigen

         
               Accumulated       Therapeutics, Inc.       Total 
           Additional   Other       Stockholders’       Stockholders’ 
   Common Stock   Paid-In   Comprehensive   Accumulated   Equity   Noncontrolling   Equity 
   Shares   Amount   Capital   Income   Deficit   (Deficit)   Interest   (Deficit) 
Balance at December 31, 2022   4,210,737   $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   841,726    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   5,052,463   $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   5,052,463   $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   5,052,463   $42,952   $112,668,631   $   $(114,352,135)  $(1,640,552)  $   $(1,640,552)

 

           Additional   Other       Therapeutics, Inc.       Total 
   Common Stock   Paid-In   Comprehensive   Accumulated   Stockholders’   Noncontrolling   Stockholders’ 
   Shares  

Amount $

   Capital   Income   Deficit   Equity   Interest   Equity 
Balance at December 31, 2021   3,529,018   $     35,290   $101,274,073   $   $(84,744,629)  $16,564,734   $   $       16,564,734 
Stock issued upon exercise of warrants   536    5    4,711                             4,716        4,716 
Stock-based compensation           1,267,166            1,267,166        1,267,166 
Net Loss                   (4,319,787)   (4,319,787)       (4,319,787)
Balance at March 31, 2022   3,529,554   $35,295   $102,545,950   $   $(89,064,416)  $13,516,829   $   $13,516,829 
Common stock issued for business acquisition   350,000    3,500    1,841,000            1,844,500        1,844,500 
Prefunded warrants issued for business acquisition           1,746,816            1,746,816        1,746,816 
Foreign currency translation adjustment               65,540        65,540        65,540 
Estimated fair value of noncontrolling interest related to business acquisition                           4,000,000    4,000,000 
Fair value of warrant modification for business acquisition           696            696        696 
Stock-based compensation           1,423,282            1,423,282        1,423,282 
Net loss                   (4,123,404)   (4,123,404)   (4,116)   (4,127,520)
Balance at June 30, 2022   3,879,554   $38,795   $107,557,744   $65,540   $(93,187,820)  $14,474,259   $3,995,884   $18,470,143 
Stock issued upon exercise of warrants   331,464    3,315                3,315        3,315 
Foreign currency translation adjustment               88,523        88,523        88,523 
Stock-based compensation           1,409,504            1,409,504        1,409,504 
Net loss                   (3,825,109)   (3,825,109)   (230,767)   (4,055,876)
Balance at September 30, 2022   4,211,018   $42,110   $108,967,248   $154,063   $(97,012,929)  $12,150,492   $3,765,117   $15,915,609 

 

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

 

5
 

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Nine Months Ended September 30, 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(11,310,001)  $(12,503,183)
Loss from discontinued operations, net of tax   (1,302,553)   

(2,207,864

)
Loss from continuing operations   (10,007,448)   (10,295,319)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:          
Depreciation and amortization       9,122 
Stock-based compensation   1,028,841    4,099,952 
Change in fair value of warrant liabilities   (1,377,855)   (1,019,342)
Loss on voluntary conversion of convertible debt   1,077,287     
Accretion of discount on convertible debt   1,247,198     
Loss on disposal of fixed assets    21,747     
           
Changes in operating assets and liabilities:          
Prepaid expenses and other assets   (640,105)   (378,498)
Accounts payable   952,269    (291,166)
Accrued expenses and other current liabilities   443,330    (728,233)
Net cash used in operating activities - continuing operations   (7,254,736)   (8,603,484)
Net cash provided by (used in) operating activities - discontinued operations   2,622,059   

(2,406,331

)
Net cash used in operating activities   (4,632,677)   (11,009,815)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Net cash provided by investing activities - discontinued operations   3,980,541    

60,612

 
Net cash provided by investing activities   3,980,541    60,612 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net proceeds from warrant exercises       7,173 
Payments on convertible notes payable   (440,000)    
Net cash (used in)/provided by financing activities- continuing operations   

(440,000

)   7,173 
Net cash used in financing activities - discontinued operations        
Net cash (used in)/provided by financing activities   (440,000)   7,173 
           
Net change in cash and restricted cash   (1,092,136)   (10,942,030)
Effect of exchange rate changes on cash and restricted cash       27,523 
Cash and restricted cash - beginning of period   3,165,985    17,538,272 
Cash and restricted cash - end of period  $2,073,849   $6,623,765 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the year for:          
Interest  $   $ 
Taxes  $4,900   $3,501 
           
NONCASH FINANCING AND INVESTING ACTIVITIES:          
Net transfers to equipment held for lease from inventory  $83,271   $ 
Fair value of warrant liabilities on date of exercise  $   $858 
Voluntary conversion of convertible debt into common stock  $1,112,582   $ 

 

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

 

6
 

 

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. (our 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. (“Qualigen” or 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, we 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 Capital”), a related party, in exchange for 350,000 reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 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 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 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”), to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement. Pursuant to the terms of the NanoSynex Amendment, the Company lost its controlling interest in NanoSynex (see Note 5 -Discontinued Operations).

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), Regulation S-X and rules and regulations of the Securities and Exchange Commission (“SEC”).

 

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 U.S. 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 income within the Company’s consolidated statements of changes in stockholders’ equity.

 

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 an Amendment and Settlement Agreement with NanoSynex Ltd. (“NanoSynex”) (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, provide for the further funding 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 September 30, 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 in-process research and development, goodwill, warrant liabilities, and stock-based compensation. Actual results could vary from the estimates that were used.

 

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Reverse Stock Split

 

On November 23, 2022, the Company effected a 1-for-10, reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.

 

Cash

 

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 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 Federal Deposit Insurance Corporation (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 our 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 three and nine months ended September 30, 2023 and 2022, 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.

 

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Business Combinations

 

The Company accounts for business combinations using the acquisition method pursuant to Financial Accounting Standards Board’s (“FASB”) ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company’s financial results beginning on the respective acquisition date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

 

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 other comprehensive income (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-Related Party).

 

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 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.

 

9
 

 

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).

 

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 several terrorist attacks in Israel resulting in ongoing war across the country. In addition, there continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which 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 our 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 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, 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, our business would 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, clinics and small hospitals’ demand for Qualigen, Inc.’s FastPack™ diagnostic test kits reduced sharply, largely due to deferral of patients’ non-emergency visits to physician offices. In July 2023 we sold Qualigen, Inc., our wholly-owned subsidiary, to Chembio (see Note 5 - Discontinued Operations).

 

Other accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s condensed consolidated financial statements.

 

10
 

 

NOTE 2 — LIQUIDITY

 

As of September 30, 2023, we had approximately $2.1 million in cash and an accumulated deficit of $114.4 million. For the nine months ended September 30, 2023 and 2022, we used cash of $4.6 million and $11.0 million, respectively, in operations.

 

On July 20, 2023, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Chembio Diagnostics, Inc. (“Chembio”), Biosynex, S.A. (“Biosynex”) and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock (collectively, the “Shares”) of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business (the “Transaction”). The Transaction closed on July 20, 2023. Following the consummation of the Transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.

 

The aggregate net purchase price paid to the Company for the Shares was $5.2 million in cash, based on a base purchase price of $5.8 million, subject to certain post-closing adjustments, upward or downward, as applicable, for: (i) cash held by Qualigen, Inc. as of the closing of the Transaction; (ii) net working capital of Qualigen, Inc. as of the closing of the Transaction, (iii) certain indebtedness of Qualigen, Inc. as of the closing of the Transaction, and (iv) certain Transaction expenses as of the closing of the Transaction. Of the $5.2 million in cash, $450,000 is being held in escrow to satisfy certain Company indemnification obligations (the “Indemnity Escrow”). Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to the Company within five business days following the date that is 18 months after the closing. A post-closing adjustment resulting in a receivable from the Transaction of approximately $235,000 is reflected in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet as of September 30, 2023.

 

The Company’s cash balances as of the date that these financial statements were issued along with the proceeds from the above sale to Chembio, without additional financing, are expected to fund operations into the first quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which over time 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. In order to fully execute its business plan, the Company will require significant additional financing for planned research and development activities, capital expenditures, clinical testing for its QN-302 clinical trials and preclinical development of RAS, as well as commercialization activities.

 

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. In December 2021, the Company raised $8.8 million from the issuance of common stock to several institutional investors, and in December 2022 the Company raised $3.0 million from the sale of an 8% Senior Convertible Debenture (the “Debenture”) to a Alpha Capital (see Note 8 - Convertible Debt - Related Party). There can be no assurance that further financing can be obtained on favorable terms, or at all. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.

 

On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (“NanoSynex”) (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, provide for the further funding of NanoSynex. However, the Company intends to forfeit shares in lieu of additional funding (see Note 5 - Discontinued Operations).

 

11
 

 

To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of its common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company raises additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company. Additional funding may not be available to the Company on acceptable terms, or at all. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha Capital, the holder of the Debenture, or trigger certain adjustments to the Debenture and/or warrants held by Alpha Capital.

 

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, 2023 and December 31, 2022:

 

   September 30,   December 31, 
   2023   2022 
Prepaid insurance  $740,770   $1,329,033 
Other prepaid expenses   53,787    37,671 
Receivable from sale of Qualigen, Inc.   235,402     
Prepaid research and development expenses   345,771     
Prepaid expenses and other current assets  $1,375,730   $1,366,704 

 

Prepaid expenses attributable to Qualigen, Inc. and NanoSynex were disposed of as discontinued operations (see Note 5 - Discontinued Operations).

 

NOTE 4 — OTHER NON-CURRENT ASSETS

 

Other non-current assets consisted of the following at September 30, 2023:

  SCHEDULE OF OTHER NON CURRENT ASSETS

   September 30, 
   2023 
Funds held in escrow  $450,000 
Long-term research and development deposits   416,481 
Other non-current assets  $866,481 

 

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NOTE 5 — DISCONTINUED OPERATIONS

 

Sale of Qualigen Inc.

 

On July 20, 2023, the Company completed the sale of Qualigen, Inc. to Chembio Diagnostics, Inc. for cash consideration of $5.5 million, of which $4.7 million was received at closing and $450,000 is being held in escrow to satisfy certain Company indemnification obligations. An additional $235,402 post-closing working capital adjustment is presented in Other Current Assets on the condensed consolidated balance sheet. The Company received the post-closing working capital adjustment payment on November 2, 2023.

 

The assets and liabilities classified in discontinued operations for Qualigen, Inc. as of December 31, 2022 are as follows:

  ASSETS AND LIABILITIES CLASSIFIED IN DISCONTINUED OPERATIONS

   December 31, 
   2022 
Cash  $2,246,482 
Accounts receivable, net   512,088 
Inventory, net   1,586,297 
Prepaid expenses and other current assets   104,132 
Total current assets of discontinued operations   4,448,999 
Right-of-use assets   1,422,538 
Property and equipment, net   289,696 
Intangible assets, net   145,702 
Other assets   18,334 
Total non-current assets of discontinued operations   1,876,270 
Total assets of discontinued operations of Qualigen, Inc.  $6,325,269 
      
Accounts payable  $236,470 
Accrued vacation   187,906 
Accrued expenses and other current liabilities   518,766 
Deferred revenue, current portion   116,161 
Operating lease liability, current portion   240,645 
Total current liabilities of discontinued operations   1,299,948 
Operating lease liability, net of current portion   1,301,919 
Deferred revenue, net of current portion   49,056 
Total non-current liabilities of discontinued operations   1,350,975 
Total liabilities of discontinued operations of Qualigen, Inc.  $2,650,923 

 

The Company reclassified the following operations to discontinued operations for the three and nine months ended September 30, 2023 and 2022, respectively:

 

   2023   2022   2023   2022 
  

For the Three Months Ended

September 30,

  

For the Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
REVENUES                    
Net product sales  $426,920   $1,441,065   $3,661,121   $3,593,628 
Total revenues   426,920    1,441,065    3,661,121    3,593,628 
                     
EXPENSES                    
Cost of product sales   269,747    1,278,029    2,551,114    3,206,553 
General and administrative   26,346    78,632    610,559    471,804 
Research and development   2,612    268,127    206,819    942,484 
Sales and marketing   37,288    239,865    405,626    683,291 
Total expenses   335,993    1,864,653    3,774,118    5,304,132 
                     
OTHER EXPENSE (INCOME), NET                    
Loss on disposal of equipment held for lease           63,302     
Other expense (income), net   149    (1,139)   (4,898)   (795)
Loss on fixed asset disposal           300     
Total other expense (income), net   149    (1,139)   58,704    (795)
                     
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE DISPOSAL   

90,778

    

(422,449

)   

(171,701

)   

(1,709,709

)
                     
Gain on sale of Qualigen, Inc.   

3,859,465

        

3,859,465

     
                     
INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC.  $3,950,243  $(422,449)  $3,687,764   $(1,709,709)

 

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In connection with this transaction, the Company recorded a gain on the sale of Qualigen, Inc. in its condensed consolidated financial statements for the three and nine months ended September 30, 2023:

 

   Gain on sale of Qualigen, Inc. 
Fair value of consideration received  $5,489,337 
Working capital adjustment   235,402 
Total Assets of discontinued operations   (4,225,562)
Total Liabilities of discontinued operations   3,005,407 
Transaction expenses   (645,119)
Gain on sale of Qualigen, Inc.  $3,859,465 

 

Amendment and Settlement Agreement with NanoSynex Ltd.

 

On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex (the “NanoSynex Funding Agreement”), pursuant to which the Company agreed to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.7% of the voting equity of NanoSynex. In addition, the Company agreed to cancel approximately $3.0 million of promissory notes issued to the Company under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to the Company with respect to such notes. The surrender of shares reducing the Company’s interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023.

 

The NanoSynex Amendment supersedes any payment obligations contemplated by the original NanoSynex Funding Agreement and amended the Company’s obligations to provide funding to NanoSynex, except that Company agreed to provide future funding as follows: (i) $560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024, in each case issued in the form of a promissory note to the Company with a face value in the amount of such funding. However, in lieu of fulfilling such obligations, the Company may, and intends to, instead forfeit shares of Series A-1 Preferred Stock of NanoSynex in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that the Company should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that the Company originally paid in consideration for its Preferred A-1 shares of NanoSynex to the previous holder thereof, being $1.5716 per share.

 

The surrender of Series B Preferred Shares of NanoSynex was accounted for as a loss of control of a subsidiary that constitutes a business under ASC 810. As a result, on July 20, 2023, the Company deconsolidated NanoSynex’s related assets, liabilities, accumulated other comprehensive income, and the noncontrolling interest. Subsequently, the retained investment in NanoSynex is accounted for as an equity method investment. 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.

 

Based upon the magnitude of the disposition and because the Company is exiting certain research and development operations, 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.

 

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The assets and liabilities classified in discontinued operations for NanoSynex as of December 31, 2022 are as follows:

  ASSETS AND LIABILITIES CLASSIFIED IN DISCONTINUED OPERATIONS

   December 31, 
   2022 
Cash  $1,621,967 
Accounts receivable, net   26,499 
Prepaid expenses and other current assets   190,384 
Total current assets of discontinued operations   1,838,850 
Restricted cash   5,690 
Property and equipment, net   29,149 
Intangible assets, net   5,700,000 
Goodwill   625,602 
Total non-current assets of discontinued operations   6,360,441 
Total assets of discontinued operations of NanoSynex  $8,199,291 
      
Accounts payable  $1,273 
Accrued vacation   115,002 
Accrued expenses and other current liabilities   293,571 
R&D grant liability   780,682 
Short term debt-related party   950,722 
Total current liabilities of discontinued operations   2,141,250 
Deferred tax liability   357,757 
Total non-current liabilities of discontinued operations   357,757 
Total liabilities of discontinued operations of NanoSynex  $2,499,007 

 

The Company reclassified the following operations to discontinued operations for the three and nine months ended September 30, 2023 and 2022, respectively:

 

   2023   2022   2023   2022 
   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
EXPENSES                
Research and development  $81,640   $489,433   $869,064   $498,155 
Total expenses   81,640    489,433    869,064    498,155 
                     
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   (4,410,281)   (489,433)   (4,990,317)   (498,155)
                     
Loss attributable to noncontrolling interest   (1,276,969)   (230,767)   (1,578,481)   (234,883)
                     
NET LOSS ATTRIBUTABLE TO STOCKHOLDERS  $(3,133,312)  $(258,666)  $(3,411,836)  $(263,272)

 

In connection with this transaction, the Company recorded a loss on deconsolidation of NanoSynex in its condensed consolidated financial statements for the three and nine months ended September 30, 2023:

 

   Loss on deconsolidation of NanoSynex 
Fair value of NanoSynex interest retained  $ 
Net assets deconsolidated   (2,768,403)
Non-controlling interest share   1,235,443 
Accumulated OCI attributable to NanoSynex   131,891 
Forgiveness of debt   (3,077,941)
Loss from deconsolidation of NanoSynex  $(4,479,010)

 

15
 

 

NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following at September 30, 2023 and December 31, 2022:

 

   September 30,   December 31, 
   2023   2022 
Board compensation  $40,833    70,000 
Interest (Convertible debt - related party)   68,322    2,829 
License fees   167,200    150,130 
Payroll   35,939    1,247 
Professional fees   506,080    136,203 
Research and development   278,024    329,412 
Other   47,790    9,698 
Accrued expenses and other current liabilities  $1,144,188   $699,519 

 

Other accrued liabilities attributable to Qualigen Inc, and NanoSynex were disposed of as discontinued operations (see Note 5 - Discontinued Operations).

 

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, at $7.195 per share, subject to adjustment. As of September 30, 2023, the Series C Warrants had remaining terms ranging from 0.14 to 0.74 years. 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. On April 25, 2022, the Series C warrants were repriced from $7.195 to $6.00 with 49,318 additional ratchet Warrants issued. On May 26, 2022, the Series C warrants were repriced from $6.00 to $5.136 with 49,952 additional ratchet Warrants issued. As a result of these repricings, 247,625 warrants were forfeited and 346,896 warrants were reissued. On December 22, 2022, the Series C warrants were repriced again from $5.136 to $1.32 with 1,002,717 additional ratchet Warrants issued.

 

Additionally, on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha Capital (see Note 8 – Convertible Debt – Related Party), the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant. The fair value of this warrant is included in Warrant liabilities-related party on the company’s condensed consolidated balance sheet.

 

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   3,849,571   $1.53   $1.32 - $1.65    3.9 
Exercised                
Forfeited                
Expired                
Granted                
Total outstanding – September 30, 2023   3,849,571   $1.53   $1.32 - $1.65    3.16 
Exercisable   3,849,571   $1.53   $1.32 - $1.65    3.16 

 

16
 

 

The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2022:

 

   Common Stock Warrants 
   Shares  

Weighted– Average

Exercise

Price

  

Range of Exercise

Price

  

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding –December 31, 2021   248,161   $7.20         2.00 
Exercised   (536)   7.20           
Forfeited   (247,625)   7.20           
Expired                  
Granted   346,896                  5.10                              
Total outstanding – September 30, 2022   346,896   $5.10           
Exercisable   346,896   $5.10   $5.10    1.26 

 

The following table presents the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis as of September 30, 2023:

 

   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, 2022  $   $   $3,622,647   $3,622,647 
Exercises                
Gain on change in fair value of warrant liabilities                        (1,377,855)   (1,377,855)
Balance as of September 30, 2023  $   $   $2,244,792   $2,244,792 

 

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, 2023 and 2022:

   September 30, 2023   September 30, 2022 
   Range   Weighted
Average
   Range   Weighted
Average
 
Risk-free interest rate   4.523% — 5.401%   4.83%   3.99% — 4.09%   4.01%
Expected volatility (peer group)   57.9% — 134.5%   108.41%   91% — 93%   92.0%
Term of warrants (in years)   .144.73    3.16    1.141.74    1.26 
Expected dividend yield   0.00%   0.00%   0.00%   0.00%

 

 

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NOTE 8 — CONVERTIBLE DEBT - RELATED PARTY

 

On December 22, 2022, the Company issued to Alpha Capital 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 Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the Debenture is no longer outstanding, at Alpha Capital’s option, into shares of common stock of the Company (the “Conversion Shares”), at a price equal to $1.32 per share, subject to adjustment as described in the Debenture (the “Conversion Price”) and other terms and conditions described in the Debenture, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023. Additionally, on December 22, 2022, the Company issued to Alpha Capital a liability classified warrant (the “Alpha Warrant”) to purchase 2,500,000 shares of the Company’s common stock (see Note 7 - Warrant Liabilities). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the Conversion Price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.

 

The proceeds from the transaction were used to advance the Company’s QN-302 Investigative New Drug candidate towards clinical trials and other working capital purposes.

 

Commencing June 1, 2023 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 Debenture (each such date, a “Monthly Redemption Date”), the Company must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, the Company may elect to pay all or a portion of a Monthly Redemption Amount in shares of common stock of the Company, based on a Conversion Price equal to the lesser of (i) the then Conversion Price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The Company may also redeem some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to 105% of the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. The Company’s election to pay monthly redemptions in Conversion Shares or to effect an optional redemption is subject to the satisfaction of the Equity Conditions (as defined in the Debenture), including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.

 

The Debenture accrues interest at the rate of 8% per annum, which does not begin accruing until December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock of the Company or a combination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions have been satisfied, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.

 

Both the Debenture and the Alpha Warrant provide for adjustments to the Conversion Price and exercise price, respectively, in connection with stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain fundamental transactions. Both the Debenture and the Alpha Warrant include a beneficial ownership blocker of 9.99%, which may only be waived by Alpha Capital upon 61 days’ notice to the Company.

 

The Company filed a resale registration statement on Form S-3 (File Number 333-269088) on December 30, 2022 registering the resale by Alpha Capital of up to 5,157,087 shares of common stock of the Company which could be issued to Alpha Capital pursuant to the Debenture and the Alpha Warrant, which registration statement was declared effective by the SEC on January 5, 2023 (the “Original Registration Statement”). The Company later became ineligible to use the Original Registration Statement as a result of its failure to timely file its annual report on Form 10-K for the fiscal year ended December 31, 2022. Therefore, the Company filed a Post-Effective Amendment No. 1 to Form S-3 on Form S-1 (No. 333-269088)(the “Post-Effective Amendment No. 1”) on September 1, 2023 in order to maintain the registration of the resale by Alpha Capital of up to 3,958,537 shares of common stock of the Company issuable under the Debenture and the Alpha Warrant., which Post-Effective Amendment No. 1 was declared effective by the SEC on September 7, 2023. On September 29, 2023, we filed the final resale prospectus on Form 424(b)(3).

 

The Company evaluated the Debenture and the Alpha Warrant and determined that the Alpha Warrant is a freestanding financial instrument. The Alpha 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 Alpha Warrant is classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.

 

The proceeds from the Debenture were allocated to the initial fair value of the Alpha Warrant, with the residual balance allocated to the initial carrying value of the Debenture. The Company has not elected the fair value option for the Debenture. The Debenture was recognized as proceeds received after allocating the proceeds to the Alpha 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.

 

18
 

 

The original issue discount of $0.3 million, the initial fair value of the Alpha 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 Capital 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 Debenture using the effective interest method, in accordance with ASC 835-30. The debt host instrument of the Debenture will subsequently be measured at amortized cost using the effective interest method to accrete interest over its term to bring the Debenture’s initial carrying value to the principal balance at maturity.

 

Between January 9 and 12, 2023, the Company issued 841,726 shares of common stock upon Alpha Capital’s partial conversion of the Debenture at $1.32 per share for a total of $1,111,078 principal. Upon conversion, the Company recognized a loss on conversion of convertible debt of approximately $1.1 million, recorded to other expenses in the condensed consolidated statements of operations.

 

On September 22, 2023, the Company entered into a consent and waiver (the “Waiver”) with Alpha Capital. Pursuant to the Waiver, Alpha Capital consented to the Company’s election to pay all of the Monthly Redemption Amount for October 2023 in Conversion Shares (the “October Payment”) and waived the requirement of satisfaction of the Equity Conditions in relation to the October Payment only. On October 3, 2023 the Company issued 128,595 shares of common stock to Alpha Capital in satisfaction of the October Payment.

 

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.

 

Convertible debt-related party is comprised of the following as of September 30, 2023 and December 31, 2022:

   September 30, 2023   December 31, 2022 
Senior secured convertible debenture  $1,748,922   $3,300,000 
Discount on convertible debenture   (916,822)   (3,239,803)
Total convertible debt-related party  $832,100   $60,197 

 

As of September 30, 2023, there were no events of default or violation of any covenants under our financing obligations, except for the Equity Conditions in relation to the Company’s ability to elect to pay all of the Monthly Redemption Amount for October 2023 in Conversion Shares as described above.

 

NOTE 9 — EARNINGS (LOSS) PER SHARE

 

Basic loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted EPS is computed based on the sum of the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock options and warrants.

 

The following potentially dilutive securities have been excluded from diluted net loss per share as of September 30, 2023 and 2022 because their effect would be anti-dilutive:

 

   As of September 30, 
   2023   2022 
Shares of common stock subject to outstanding options   416,215    607,175 
Shares of common stock subject to outstanding warrants   4,059,934    1,080,873 
Total common stock equivalents   4,476,149    1,688,048 

 

NOTE 10 — COMMITMENTS AND CONTINGENCIES

 

NanoSynex Funding Commitment

 

On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (“NanoSynex”) (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex. However, the Company intends to forfeit shares in lieu of additional funding (see Note 5 - Discontinued Operations).

 

19
 

 

Litigation and Other Legal Proceedings

 

On November 9, 2021, the Company was named as a defendant in an action brought by Mediant Communications Inc. (“Mediant”) in the U.S. District Court for the Southern District of New York. The complaint alleged that Qualigen entered into an implied contract with Mediant, whereby Qualigen retained Mediant to distribute proxy materials and subsequently conduct shareholder vote tabulations. The Company filed a Motion to Dismiss with the District Court and on March 14, 2022 a hearing was held during which the presiding judge ruled in favor of the Motion to Dismiss. The Company and Mediant settled the litigation on April 5, 2022 in the amount of $96,558, at which time the amount was paid.

 

NOTE 11 — RESEARCH AND LICENSE AGREEMENTS

 

The University of Louisville Research Foundation

 

In March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with ULRF for development of several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company agreed to reimburse ULRF for sponsored research expenses of initially up to $693,000 for this program. This agreement was amended in February 2021, March 2022 and August 2023, with the current term of this agreement set to expire in December 2023 and the aggregate amount that the Company would reimburse ULRF for sponsored research expenses increased to approximately $2.9 million. In July 2020, the Company entered into an exclusive license agreement with ULRF for RAS interaction inhibitor drug candidates. Under the agreement, the Company took over development, regulatory approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to July 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $20,000 to $100,000) for such year.

 

Sponsored research expenses related to these agreements for the three months ended September 30, 2023 and 2022 were approximately $101,000 and $196,000, respectively, and for the nine months ended September 30, 2023 and 2022 were approximately $657,000 and $601,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs related to these agreements for the three months ended September 30, 2023 and 2022 were approximately $18,000 and $27,000, respectively, and for the nine months ended September 30, 2023 and 2022 were approximately $47,000 and $44,000, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.

 

20
 

 

Between June 2018 and April 2022, the Company entered into license and sponsored research agreements with the University of Louisville Research Foundation (“ULRF”) for QN-247, a novel aptamer-based compound that has shown promise as an anticancer drug. Under the agreements, the Company took over development, regulatory approval and commercialization of the compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received a $50,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock, and the Company agreed to reimburse ULRF for sponsored research expenses of up to approximately $805,000 and prior patent costs of up to $200,000. In addition, the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of anti-nucleolin agent-conjugated nanoparticles, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the last to expire of the licensed patents, (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2018, and (iv) payments ranging from $100,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $100,000 for first dosing in a Phase 1 clinical trial, $200,000 for first dosing in a Phase 2 clinical trial, $350,000 for first dosing in a Phase 3 clinical trial, $500,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also agreed to pay another $500,000 milestone payment for any additional regulatory marketing approval for each additional therapeutic (or diagnostic) indication. The Company must also pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $10,000 to $50,000) for such year.

 

The sponsored research agreement for QN-247 expired in August 2022 and there were no sponsored research expenses for the three months ended September 30, 2023 and 2022. For the nine months ended September 30, 2023 and 2022 were $0 and approximately $164,000 in sponsored research expenses related to these agreements, respectively, and these amounts are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs were $0 and approximately $5,000 related to these agreements for the three months ended September 30, 2023 and 2022, respectively, and approximately $22,000 and $74,000 related to these agreements for the nine months ended September 30, 2023 and 2022, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.

 

In June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of QN-165 as a treatment for COVID-19. Under the agreement, the Company took over development, regulatory approval and commercialization of the compound (for such use) from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $24,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company was required to enter into a separate sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) for at least $250,000. In November 2020, the Company executed a sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) supporting up to approximately $430,000 in research which satisfied this requirement. This sponsored research agreement expired in November 2021 and the exclusive license agreement was terminated on October 31, 2022.

 

There were no sponsored research expenses or license costs related to these agreements for the three months ended September 30, 2023 and 2022, or for the nine months ended September 30, 2023 and 2022.

 

UCL Business Limited

 

In January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is now being developed at Qualigen under the name QN-302 as a candidate for treatment for pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The License Agreement required a $150,000 upfront payment, reimbursement of past patent prosecution expenses (approximately $160,000), and (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments and a percentage of any non-royalty sublicensing consideration paid to Qualigen.

 

For the three months ended September 30, 2023 and 2022, there were license costs of $12,000 and $0, respectively and for the nine months ended September 30, 2023 and 2022, there were license costs of approximately $28,000 and $