NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following at March 31, 2021 and December 31, 2020:

NOTE 5 — PROPERTY AND EQUIPMENT, NET

Property and equipment, consistsnet consisted of the following:following at March 31, 2021 and December 31, 2020:

Depreciation expense relating to property and equipment was approximately $15,000 and $10,000 for the three months ended March 31, 2021 and 2020, respectively.

NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of approximately $1,300the following at March 31, 2021 and December 31, 2020:

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at March 31, 2021 and December 31, 2020:

Future maturities of notes payable are as follows as of March 31, 2021:

NOTE 8 – 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, pursuant to the Series C Warrant terms as adjusted. The Series C Warrants were classified as liabilities, but had minimal fair value prior to the merger with Ritter.

In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase an aggregate of 4,713,490 shares of the Company’s common stock at $0.72 per share, subject to adjustment. As of March 31, 2021, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 2.7 to 3.2 years. The warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, resulting from inclusion of a leveraged ratchet provision for subsequent dilutive issuances.

The following table summarizes the activity in the warrants received in exchange for the Series C Warrants for the three months ended March 31, 2021:

Of the 473,608 shares issued upon the exercise of warrants during the three months ended March 31, 2021, 192,373 shares were issued upon net-exercises rather than upon exercises for cash.

The following table summarizes the Series C Warrants activity for the three months ended March 31, 2020:

The following table presents the Company’s fair value hierarchy for its warrant liabilities (all of which arise under the warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis using Level 3 inputs as of March 31, 2021:

There were no transfers of financial assets or liabilities between category levels for the three months ended March 31, 2021.

During the three months ended March 31, 2021 the Company experienced $2.1 million in other income because the fair value of the warrant liabilities declined to $6.2 million from $8.3 million at December 31, 2020, primarily due to warrant exercises. For the three months ended March 31, 2020, change in fair value of warrant liabilities was recognized for each$0 because the fair value was immaterial at both the beginning and the end of the three months ended September 30, 2017March 31, 2020.

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 2016transitions 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 approximately $3,900 was recognized for the nine months ended September 30, 2017 and 2016, and classified in general and administrative expensedoes not expect to pay cash dividends in the accompanying unaudited condensed statementsforeseeable 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 operations.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 March 31, 2021:

NOTE 59 — COMMITMENTS AND CONTINGENCIES

Master Services Agreement

On December 30, 2015, the Company entered into a Master Service Agreement with Covance, Inc. (“Covance”), with an effective date of December 29, 2015. Pursuant to the terms of the Master Service Agreement, Covance (or one or more of its affiliates) will provide Phase 1, 2, 3, and 4 clinical services for a clinical study or studies to the Company and, at the request of the Company, assist with the design of such studies, in accordance with the terms of separate individual project agreements to be entered into by the parties. The term of the agreement is for three years and will renew automatically for successive one year periods unless Covance is no longer providing services under the agreement or either party has terminated the agreement upon written notice. The Company may terminate the Master Service Agreement or any individual project agreement entered into under the Master Service Agreement prior to the applicable study’s completion at any time for any reason upon 30 days written notice to Covance, except when the reason for termination is the safety of subjects, in which case it may be terminated immediately. Covance may not terminate any individual project agreement without cause, except when the reason for the termination is the safety of subjects, in which case it may be terminated immediately. In the event of a termination of the Master Service Agreement, Covance will be entitled to full payment for (i) work performed on the applicable project through the date work on such project is concluded and (ii) reimbursement for all non-cancellable and non-refundable expenses and financial obligations which Covance (or an affiliate) has incurred or undertaken on behalf of the Company.

Clinical Supply and Cooperation Agreement with Ricerche Sperimentali Montale (“Ricerche”) and Inalco SpA (“Inalco”)

Effective July 24, 2015, the Company entered into an amended Clinical Supply and Cooperation Agreement (the “Amended Supply Agreement”) with Ricerche and Inalco (collectively, “RSM”). The Amended Supply Agreement amends certain terms of the Clinical Supply and Cooperation Agreement, dated December 16, 2009, amended on September 25, 2010.

RITTER PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Pursuant to the terms of the Amended Supply Agreement, the Company purchased the exclusive worldwide assignment of all right, title and interest to a purified GOS product (“Improved GOS”), the composition of matter of the Improved GOS and any information relating to the Improved GOS, including certain specified technical information and other intellectual property rights (the “Improved GOS IP”) on July 30, 2015 for $800,000. The Company also issued 100,000 shares of its common stock to RSM pursuant to a stock purchase agreement. The shares issued to RSM were subject to a lock-up agreement, pursuant to which RSM agreed that it would not sell these shares for a period ending on the earlier of (i) the public release by the Company of the final results of its Phase 2b/3 clinical trial of RP-G28 and (ii) the filing of a Form 10-Q with the SEC for the fiscal quarter in which the Company receives the results of its Phase 2b/3 clinical trial of RP-G28, which condition was satisfied with the filing of the Company’s quarterly report on Form 10-Q on August 7, 2017.

Under the terms of the Amended Supply Agreement, if the Company fails to make any future option payment to RSM as required under the terms of the Amended Supply Agreement, the Company may be required to return the Improved GOS IP to RSM. The Amended Supply Agreement provides that the Company must pay RSM $400,000 within 10 days following FDA approval of a new drug application for the first product owned or controlled by the Company using Improved GOS as its active pharmaceutical ingredient and to pay RSM the sum of $250 per kilo for clinical supply of Improved GOS.

Lease AgreementLEASES

The Company leases office spaceits facilities under a long-term operating lease agreement expiring in October 2022. The tables below show the operating lease right-of-use assets and operating lease liabilities as of December 31, 2020 and the balances as of March 31, 2021, including the changes during the periods:

As of March 31, 2021, the Company’s operating leases have a weighted-average remaining lease term of 1.6 years and a weighted-average discount rate of 8.9%.

As of March 31, 2021, future minimum payments during the next five fiscal years and thereafter are as follows:

Total lease expense was approximately $86,000 and $84,000, respectively, for its headquartersthe three month periods ended March 31, 2021 and 2020. Lease expense was recorded in California. On July 9, 2015,cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.

NOTE 10 — RESEARCH AND LICENSE AGREEMENTS

The University of Louisville Research Foundation

Between June 2018 and September 2020, 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 will take 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 $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 would also pay another $500,000 milestone payment for any additional regulatory marketing approval for each additional therapeutic (or diagnostic) indication. 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 $10,000 to $50,000) for such year.

There was approximately $62,000 and $0 in sponsored research expenses related to these agreements for the three months ended March 31, 2021 and 2020, respectively, and these amounts are recorded in research and development expenses in the statements of operations. Minimum annual royalties of $0 and $10,000 related to these agreements are included in research and development expenses in the statements of operations for the three months ended March 31, 2021 and 2020, respectively. License costs were approximately $36,000 and $0 related to these agreements for the three months ended March 31, 2021 and 2020, respectively, and are included in research and development expenses in the statements of operations.

In March 2019, the Company entered into a leasesponsored research agreement and an option for a license agreement with Century Park, a California limited partnership, pursuant to whichULRF for development of several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company is leasing approximately 2,780 square feetwill reimburse ULRF for sponsored research expenses of office space in Los Angeles, Californiaup to $693,000 for its headquarters. The lease provides for athis program. In February 2021, the Company extended the term of sixty-one (61)this agreement for an additional 18 months commencing(expires July 2022) and increased the amount that the Company will reimburse ULRF for sponsored research expenses from $693,000 to approximately $1.4 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 will take 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 October 1, 2015. The Company paid no rentpatent-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 monththerapeutic 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 the term, paid base rent of $9,174 per month for months 2 through 13 of the term, and will pay base rent of $9,449 per month for months 14 to 25 with increasing base rent for each twelve-month period thereafter under the term of the lease to a maximum of $10,325 per month for months 50 through 61. The base rent payments do not include the Company’s proportionate share of any operating expenses, including real estate taxes.Licensed Product sales. The Company hasalso must pay ULRF shortfall payments if the optiontotal amounts actually paid with respect to extendroyalties and non-royalty sublicensee income for any year is less than the term of the leaseapplicable annual minimum (ranging from $20,000 to $100,000) for one five-year term, provided that the rent would be subject to market adjustment at the beginning of the renewal term.such year.

Rent expense, which is recognized on a straight-line basis over the lease term, was approximately $29,000 and $28,000Sponsored research expenses related to these agreements for the three months ended September 30, 2017March 31, 2021 and 2016,2020 were approximately $107,000 and $108,000, respectively, and $86,000 for the nine months ended September 30, 2017 and 2016, and isare recorded in generalresearch and administrativedevelopment expenses in the accompanying unaudited condensedstatements of operations. License costs related to these agreements for the three months ended March 31, 2021 and 2020 were approximately $46,000 and $0, respectively, and are included in research and development expenses in the statements of operations.

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 will take 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.

In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of QN-165 as a treatment for COVID-19, 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 patents, 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 June 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments 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 $5,000 to $50,000) for such year.

Sponsored research expenses related to these agreements for the three months ended March 31, 2021 and 2020 were approximately $69,000 and $0, respectively, and are recorded in research and development expenses in the statements of operations. License costs related to these agreements for the three months ended March 31, 2021 and 2020 were $0 for each period.

Advanced Cancer Therapeutics

In December 2018, the Company entered into a license agreement with Advanced Cancer Therapeutics, LLC (“ACT”), granting the Company exclusive rights to develop and commercialize QN-165, an aptamer-based drug candidate. In return, ACT received a $25,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock. In addition, the Company agreed to pay ACT (i) royalties, on net sales associated with the commercialization of QN-165, of 2% (only if patent-covered and only on net sales above a cumulative $3,000,000) or 1% (if not patent-covered, but only on net sales above a cumulative $3,000,000), until the 15th anniversary of the ACT license agreement and (ii) milestone payments of $100,000 for the Company raising a cumulative total of $2,000,000 in new equity financing after the date of the ACT license agreement, $100,000 upon any first QN-165-based licensed product receiving the CE Mark or similar FDA status, and $500,000 upon cumulative worldwide QN-165-based licensed product net sales reaching $3,000,000. For the three months ended March 31, 2021 and 2020, license costs of approximately $2,000 and $0 related to this agreement, respectively, are included in research and development expenses in the statements of operations.

LegalPrediction Biosciences

In November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences SAS to develop and manufacture diagnostic tests for use in the stroke point-of-care market. The Company is not currently involvedrecognizes development revenue and product sales over the performance period of the contract. For the three months ended March 31, 2021 and 2020, there was $0 and $45,000, respectively, in any legal matters arising incollaborative research revenue related to this agreement.

Sekisui Diagnostics

During the normal course of business. From time to time,year ended March 31, 2018, the Company could become involvedextended a strategic partnership entered into in disputesMay 2016 with Sekisui Diagnostics, LLC (“Sekisui”) until May 2022. The Company appointed Sekisui as its diagnostics commercial partner and various litigation matters that arise inexclusive worldwide distributor with the normal courseexception of business. These may include disputescertain customer accounts retained by Qualigen. The agreement contains a right of first refusal for Sekisui against any potential acquisition of the Company until May 2022.

There were product sales to Sekisui of approximately $1.0 million for both of the three month periods ended March 31, 2021 and lawsuits2020, related to intellectual property, licensing, contract law and employee relations matters. Periodically,this agreement.

Yi Xin

In October 2020, the Company reviews the statusentered into a Technology Transfer Agreement with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi Xin”), of significant matters, if any exist,Suzhou, China, for Yi Xin to develop, manufacture and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Becausesell new generations of such uncertainties, accruals arediagnostic test systems based on the best information available atCompany’s core FastPack technology. In addition, the time. As additional information becomes available,Technology Transfer Agreement authorized Yi Xin to manufacture and sell the Company’s current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.

Under the Technology Transfer Agreement, the Company reassessesreceived net cash payments of $250,000 in the potential liability relatedfinal quarter of the year ended December 31, 2020, classified as deferred revenue on the December 31, 2020 balance sheet, and a cash payment of $420,000 during the three months ended March 31, 2021. The Company will also receive low- to pending claimsmid-single-digit royalties on any future new-generations and litigation.current-generations product sales by Yi Xin. Of these amounts, the Company recognized approximately $38,000 in product sales and $479,000 in license revenue included in the statement of operations for the three months ended March 31, 2021. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.

The Company gave Yi Xin the exclusive rights for China – which is a market the Company has not otherwise entered – both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of the Company’s existing FastPack product lines. Yi Xin will also have the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack products); any such non-China sales would, until May 1, 2022, need to be through Sekisui. In addition, after May 1, 2022, Yi Xin will have the right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-US customers of those products). Also, after May 1, 2022, Yi Xin will have the right to buy Company-manufactured FastPack 1.0, IP and PRO products from the Company at distributor prices for resale in and for the United States (but not to or toward current US customers of those products); the Company did not license Yi Xin to sell in the United States market any Yi Xin-manufactured versions of those legacy FastPack 1.0, IP and PRO product lines, even after May 1, 2022. In the Technology Transfer Agreement, the Company confirmed that it would not, after May 1, 2022, seek new FastPack customers outside the United States.

RITTER PHARMACEUTICALS, INC.STA Pharmaceutical

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

In November 2020, the Company entered into a contract with STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, for GMP production of QN-165, the Company’s lead drug candidate for the treatment of COVID-19 and other viral diseases, for potential clinical trials in 2021. In connection with this agreement, the Company paid an upfront deposit of approximately $1.1 million which was classified as prepaid expenses on the December 31, 2020 balance sheet date, and all of which was included in research and development expenses in the statement of operations for the three months ended March 31, 2021.

NOTE 611 — STOCKHOLDERS’ EQUITY

As of March 31, 2021 and December 31, 2020, the Company had two classes of capital stock: common stock and Series Alpha convertible preferred stock.

Authorized Shares

Common Stock

On September 15, 2017, the Company amended its Amended and Restated Certificate of Incorporation to authorize the issuance of up to 225,000,000 sharesHolders of common stock $0.001 par value per share, and 15,000,000 sharesgenerally vote as a class with the holders of the preferred stock $0.001 par value per share.

As of September 30, 2017, the Company had 14,756,521 shares of common stock issued and outstanding. Each share of the Company’s common stock isare entitled to one vote and all shares rank equally asfor each share held. Subject to voting and other matters. There are currently no sharesthe rights of the holders of the preferred stock issued and outstanding. Any preferred stock issued into receive preferential dividends, the future will have the rights, preferences and privileges that the Company’s Board of Directors may determine from time to time.

Aspire Capital Financing Arrangement

On December 18, 2015, the Company entered into a common stock purchase agreement (the “2015 Aspire Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”), pursuant to which Aspire Capital was committed to purchase up to an aggregate of $10.0 million of the Company’s sharesholders of common stock overare entitled to receive dividends when and if declared by the approximate 30-month termBoard of Directors. Following payment of the 2015 Aspire Purchase Agreement. Asliquidation preference of September 30, 2017, the Company had issued an aggregatepreferred stock, as of 4,577,699 sharesMarch 31, 2021 any remaining assets would be distributed ratably among the holders of itsthe common stock to Aspire Capital underand, on an as-if-converted basis, the 2015 Aspire Purchase Agreement for approximate proceedsholders of $5.0 million.

On May 4, 2017, the Company terminated the 2015 Aspire Purchase Agreement and entered into a new commonSeries Alpha convertible preferred stock purchase agreement with Aspire Capital (the “2017 Aspire Purchase Agreement”), which provides that upon the terms and conditions set forth therein, Aspire Capital is committed to purchaseliquidation, dissolution or winding up to an aggregate of $6.5 million of shares of the Company’s common stock over the 30-month termaffairs of the 2017 Aspire Purchase Agreement. On any trading day on which the closing sale price of the Company’s common stock exceeds $0.25, the Company has the right, in its sole discretion, to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 100,000 shares of the Company’s common stock per trading day, for up to $6.5 million of the Company’s common stock in the aggregate at a per share price, calculated by reference to the prevailing market price of the Company’s common stock (as provided in the 2017 Aspire Purchase Agreement).

As a condition to the 2017 Aspire Purchase Agreement, the Company issued 137,324 shares of its common stock to Aspire Capital as a commitment fee. As of the date of this Quarterly Report, no sharesCompany. The holders of common stock have been sold to Aspire Capital under the 2017 Aspire Purchase Agreement.no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions.

October 2016 Public Offering

On OctoberAt March 31, 2016,2021, the Company closed a public offering, selling 2,127,660has reserved 13,886,590 shares of the Company’sauthorized but unissued common stock at a price to the public of $2.35 per share, for aggregate gross proceeds to the Company of approximately $5.0 million. The Company paid to the underwriters underwriting discounts and commissions of approximately $0.4 millionpossible future issuance. At March 31, 2021, shares were reserved in connection with the offering, and approximately $0.2 million of other expenses in connection with the offering.following:

RITTER PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSSeries Alpha Preferred Stock

This offering was made pursuant to a shelf registration statement on Form S-3, which was declared effective byIn the SEC on August 23, 2016. The shelf registration statement allows the Company to issue, from time to time at prices and on terms to be determined at or prior to the time of an offering, up to $150,000,000 of any combination of an indeterminate number ofthree-month period ended March 31, 2021, no shares of common stock, an indeterminate number of shares ofSeries Alpha convertible preferred stock an indeterminate principal amount of debt securities, an indeterminate number of warrants, rights and purchase contracts to purchase common stock or debt securities, and an indeterminate number of units. If any debt securities are issued at an original issue discount, then the offering price of such debt securities shall be in such greater principal amount as shall result in an aggregate offering price not to exceed $150,000,000, less the aggregate dollar amount of all securities previously issued hereunder. The securities registered also include such indeterminate number of shares of common stock and preferred stock that may be issued upon conversion or exchange of convertible or exchangeable securities being registered or pursuant to the anti-dilution provisions of any such securities.

October 2017 Public Offering

On October 3, 2017, the Company closed a public offering, selling an aggregate of (i) 34,550,000 Class A Units consisting of 34,550,000were converted into shares of the Company’s common stock, and there were 180 shares of Series Alpha preferred stock outstanding at March 31, 2021.

Alpha Securities Purchase Agreements

On July 10, 2020, the Company closed a Securities Purchase Agreement (dated July 8, 2020) with a single institutional investor for the purchase and sale for $8.0 million for (i) 1,140,570 shares of Company common stock, (ii) 780,198 pre-funded warrants (i.e., warrants to purchase 34,550,000 shares of the Company’sCompany common stock, at a public offeringfor which the exercise price of $0.40 per unit,is almost entirely prepaid) and (ii) 9,180 Class B Units consisting of 9,180 shares of Series A Convertible Preferred Stock, with a stated value of $1,000 per unit, and convertible into an aggregate of 22,950,000 shares of the Company’s common stock, and(iii) 1,920,768 two-year warrants to purchase an aggregate of 22,950,000 shares of the Company’sCompany common stock. The warrants havestock for an exercise price of $0.44, are exercisable upon issuance$5.25 per share. Both sets of warrants included a 9.99% beneficial-ownership blocker provision. The 780,198 pre-funded warrants were then exercised on July 21 and expire five years from the date of issuance.22, 2020.

TheOn August 4, 2020, the Company grantedclosed a Securities Purchase Agreement (dated August 2, 2020) with a single institutional investor for the underwriters a 45-day option to purchase an additional 8,625,000and sale for $10.0 million for (i) 1,717,106 shares of the Company’sCompany common stock, and/orand (ii) 1,287,829 two-year warrants to purchase an additional 8,625,000 shares of Company common stock for an exercise price of $6.00 per share. The warrants included a 9.99% beneficial-ownership blocker provision.

On December 18, 2020, the Company’sCompany closed a Securities Purchase Agreement (dated December 16, 2020) with a single institutional investor for the purchase and sale for $12,000,000 of (i) 2,370,786 shares of Company common stock. As of the closing of the offering, the underwriters have exercised their over-allotment option forstock, (ii) 1,000,000 pre-funded warrants (i.e., warrants to purchase 2,975,000 shares of Company common stock, for which the Company’sexercise price is almost entirely prepaid) (iii) 1,348,314 two-year warrants to purchase shares of Company common stock.

Aggregate gross proceedsstock for an exercise price of $4.07 per share, and (iv) 842,696 warrants (first exercisable 6 months after issuance, and with an expiration date 30 months after issuance) to thepurchase shares of Company from the public offeringcommon stock for an exercise price of $4.07 per share. The warrants included a 9.99% beneficial-ownership blocker provision. The 1,000,000 pre-funded warrants were approximately $23.0 million. The Company paid to the underwriters underwriting discounts and commissions of approximately $1.6 million in connection with the offering, and approximately $0.4 million of other expenses in connection with the offering of which approximately $0.3 million are recorded as deferred offering costs in the Company’s financial statements as of, and for the nine months ended September 30, 2017.

The securities described above were offered by the Company pursuant to a registration statement filed with the SEC that was declared effectiveexercised on September 28, 2017. The final prospectus relating to the offering was filed with the SEC on October 2, 2017.

February 4, 2021.

NOTE 7 — WARRANTS

The following represents a summary of the warrants outstanding at September 30, 2017 and changes during the period then ended:

RITTER PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 8 — STOCK-BASED COMPENSATION

Equity Incentive PlansStock Options and Warrants

The Company has issued equity awards pursuant to its 2015 Equityrecognizes all compensatory share-based payments as compensation expense over the service period, which is generally the vesting period.

In April 2020, the Company adopted the 2020 Stock Incentive Plan (the “2015“2020 Plan”), 2009 Stock which provides for the granting of incentive or nonstatutory common stock options to qualified employees, officers, directors, consultants and other service providers. At March 31, 2021 and 2020 there were 3,940,000 and 0 outstanding options respectively under the 2020 Plan and 2008 Stock Plan (collectively the “Plans”). The Plans permit the Company to grant non-statutory stockthere were 117,157 and 0 options incentive stock options and other equity awards to the Company’s employees, outside directors and consultants; however, incentive stock options may only be granted to the Company’s employees. Beginning June 29, 2015, no further awards may be granted under the 2009 Stock Plan or 2008 Stock Plan. However, to the extent awards under the 2008 Plan or 2009 Plan are forfeited or lapse unexercised or are settled in cash, the common stock subject to such awards will be available respectively for future issuance under the 2015 Equity Incentive Plan.

On June 2, 2017, the stockholders of the Company approved an amendment to the 2015 Plan at the 2017 annual meeting of stockholders, which among other things, increased the number of shares that may be issued pursuant to awards under the 2015 Plan by 838,000 shares of common stock.

On September 15, 2017, the stockholders of the Company approved an amendment to the 2015 Plan at a special meeting of stockholders, which among other things, increased the number of shares that may be issued pursuant to awards under the 2015 Plan by 25,858,711 shares of common stock. As of September 30, 2017, the aggregate number of shares of common stock authorized for issuance under the 2015 Plan, as amended, was 27,500,000.grant.

The following represents a summary of the options granted (under the 2020 Plan and otherwise) to employees and non-employeesnon-employee service providers that are outstanding at September 30, 2017March 31, 2021, and changes during the three-month period then ended:

There was approximately $1.3 million and $0 of compensation costs related to outstanding options for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was approximately $11.4 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.22 years.

No stock options were exercised during the three months ended March 31, 2021 and 2020.

The exercise price for an option issued under the Plans2020 Plan is determined by the Board of Directors, but will be (i) in the case of an incentive stock option (A) granted to an employee who, at the time of grant of such option, is a 10% stockholder, no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair market value per share on the date of grant; and (ii) in the case of a non-statutory stock option, no less than 100% of the fair market value per share on the date of grant. The options awarded under the Plans2020 Plan will vest as determined by the Board of Directors but will not exceed a ten-year period. The weighted average grant date fair value per share of options granted during the three months ended March 31, 2021 was $3.29.

Fair Value of Equity Awards

The Company utilizes the Black-Scholes option pricing model to value awards under its Plans. Key valuation assumptions include:

RITTER PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

The Company elected to adopt the amendments of ASU 2016-09 (described in Note 3) related to the presentation of excess tax benefits on the statement of cash flows using a prospective transition method but does not expect any impact on its financial statements.

The material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted for the periods presented were as follows:

Stock-Based Compensation

The Company recognized stock-basedrecorded share-based compensation expense for services within general and administrative expenseclassified it in the accompanyingcondensed consolidated statements of operations as follows:

Equity Classified Compensatory Warrants

In connection with the $4.0 million equity capital raise as part of approximately $203,000the May 2020 reverse recapitalization transaction, the Company issued common stock warrants to an advisor and $333,000its designees for the purchase of 811,431 shares of the Company’s common stock at an exercise price of $1.11 per share. The issuance cost of these warrants was charged to additional paid-in capital, and did not result in expense on the Company’s statements of operations.

In addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier (originally exercisable to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock) for the purchase of 668,024 shares of Company common stock at a weighted average exercise price of $2.34 per share. These are to be differentiated from the Series C Warrants described in Note 8.

No compensatory warrants were issued during the three months ended March 31, 2021.

The following table summarizes the equity classified compensatory warrant activity for the three months ended September 30, 2017 and 2016, respectively, and $746,000 and $1,042,000March 31, 2021:

The following table summarizes the compensatory warrant activity for the ninethree months ended September 30, 2017March 31, 2020:

There were no compensation costs related to outstanding warrants for the three months ended March 31, 2021 and 2016, respectively.approximately $8,000 for the three months ended March 31, 2020. As of September 30, 2017,March 31, 2021 and 2020, there was approximately $263,000 of totalno unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.1 years.nonvested warrants.

Noncompensatory Equity Classified Warrants

NoIn May 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to an investor for the purchase of 270,478 shares of Company common stock optionsat an exercise price of $1.11 per share (of which warrants for 200,000 shares were subsequently exercised in December 2020). In July 2020 the Company issued noncompensatory equity classified warrants to such investor for the purchase of 780,198 shares of Company common stock at an exercise price of $0.001 per share (which were subsequently exercised in July 2020), and 1,920,678 shares of Company common stock at an exercise price of $5.25 per share. In August 2020 the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,287,829 shares of Company common stock at an exercise price of $6.00 per share. Lastly, in December 2020, the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,000,000 shares of Company common stock at an exercise price of $0.01 per share (which were exercised during the threein February 2021) and nine months ended September 30, 2017. Approximately 8,000 options2,191,010 shares of Company common stock at an exercise price of $4.07 per share. No noncompensatory equity classified warrants were exercisedissued during the three months ended September 30, 2016,March 31, 2021.

The following table summarizes the noncompensatory equity classified warrant activity for the three months ended March 31, 2021:

NOTE 12 — RELATED PARTY TRANSACTIONS

In October 2017, Sekisui purchased all outstanding shares of the Company’s Series D and approximately 11,000 optionsSeries D-1 preferred stock from Gen-Probe Incorporated. As such, Sekisui became a related party as of October 2017. These Series D and Series D-1 preferred stock shares were exercised duringconverted into 1,980,233 shares of the Company’s common stock in connection with the reverse recapitalization transaction in May 2020. During the nine months ended September 30, 2016 with approximate proceedsDecember 31, 2020, Sekisui ceased to be a related party as to the CompanyCompany. In the attached financial statements, information for 2020 periods and dates is presented without distinct “related party” treatment for items pertaining to Sekisui.

NOTE 13 — SUBSEQUENT EVENTS

Management has evaluated subsequent events pursuant to the requirements of $9,000. The aggregate intrinsic value of stock options exercised duringASC Topic 855—Subsequent Events, from the nine months ended September 30, 2016 was approximately $18,000.balance sheet date through the date the financial statements were available to be issued, and has determined that there are no material subsequent events that require disclosure in these financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the audited financial statements and notes thereto as of and for the yearnine-months transition period ended December 31, 2016 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of2020, which are contained in our AnnualTransition Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2017 (the “2016 Annual Report”).March 31, 2021. As used in this report,Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “Ritter”“Qualigen” refer to Ritter Pharmaceuticals,Qualigen Therapeutics, Inc. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

SpecialCautionary Note Regarding Forward-LookingForward Looking Statements and Industry Data

This Quarterly Report contains forward-looking statements by the Company that involve substantial risks and uncertainties. Alluncertainties and reflect the Company’s judgment as of the date of this Report. These statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy,generally relate to future operations,events or the Company’s future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended toor operating performance. In some cases, you can identify forward-looking statements although not allbecause they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” or “continue” or the negative of these words or other similar terms or expressions that concern the Company’s expectations, strategy, plans or intentions. Such forward-looking statements contain these identifying words. These statements involve knownmay relate to, among other things, potential future development, testing and unknown risks, uncertaintieslaunch of products and other important factors thatproduct candidates. Actual events or results may causediffer from our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.expectations.

Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:

Our stock price could be harmed if any of the events or trends contemplated by the forward-looking statements fails to occur or is delayed or if any actual future event otherwise differs from expectations. Additional information concerning these and other risk factors affecting our business (including events beyond our control, such as epidemics and resulting changes) can be found in our prior filings with the SEC (including our Transition Report on Form 10-K for the nine-months transition period ended December 31, 2020), available at www.sec.gov. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report, and we disclaim any intent or obligation to update these forward-looking statements beyond the date of this Quarterly Report, except as required by law. This caution is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent in some future periods with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in other future periods.

AnyFuture filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statement that we make in this Quarterly Report speaksstatements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements speak only as of the date of such statement,on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date of this Quarterly Report. You should also read carefully the factors described in the “Risk Factors” section of our 2016 Annual Report and this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.on which they are made.

Overview

Ritter Pharmaceuticals, Inc. developsWe are a biotechnology company focused on developing novel therapeutics for the treatment of cancer and infectious diseases, as well as maintaining and expanding our core FDA-approved FastPack® System, which has been used successfully in diagnostics for 20 years. Our cancer therapeutics pipeline includes QN-247, RAS-F and STARS™. QN-247 (formerly referred to as ALAN or AS1411-GNP) is a DNA coated gold nanoparticle cancer drug candidate that has the potential to target various types of cancer with minimal side effects; the nanoparticle coating technology is similar to the core nanoparticle coating technology used in our blood-testing diagnostic products. The foundational aptamer of QN-247, QN-165 (formerly referred to as AS1411), is also a drug candidate for treating COVID-19 and other viral-based infectious diseases; we currently plan that our first clinical trial would be a trial of QN-165 against COVID-19. RAS-F is a family of RAS oncogene protein-protein interaction inhibitor small molecules for preventing mutated RAS genes’ proteins from binding to their effector proteins; preventing this binding could stop tumor growth, especially in pancreatic, colorectal and lung cancers. STARS is a DNA/RNA-based treatment device candidate for removal from circulating blood of precisely targeted tumor-produced and viral compounds.

Because our therapeutic candidates are still in the development stage, our only products that modulateare currently commercially available are the human gut microbiomeFastPack System diagnostic instruments and test kits. The FastPack System menu includes rapid point-of-care diagnostic tests for cancer, men’s health, hormone function and vitamin D status. Since inception, our sales of FastPack products have exceeded $100 million. We have always utilized a “razor and blades” pricing strategy, providing analyzers to treat gastrointestinal diseases.our customers (physician offices, clinics and small hospitals) at low cost in order to increase sales volumes of higher-margin test kits. Pursuant to a distribution agreement, we are required to rely on our diagnostics distribution partner Sekisui Diagnostics, LLC (“Sekisui”) for most FastPack distribution worldwide until May 2022. We are advancing human gutmaintain direct distribution for certain house accounts, including selling our total testosterone test kits to Low T Center, Inc. (“Low T”), the largest men’s health research by exploringgroup in the metabolic capacity ofUS, with 44 locations. We have licensed and technology-transferred our FastPack System technology to Yi Xin Zhen Duan Jishu (Suzhou) Ltd., for the gut microbiota and translating the functionality of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health. We completed a Phase 2a clinical trial of our leading product candidate, RP-G28, an orally administered, high purity oligosaccharide in November 2011.China diagnostics market.

We completed a Phase 2b/3 multi-center, randomized, double-blind, placebo-controlled, parallel group trial of RP-G28 in October 2016. The purpose of the trial wasdo not expect to evaluate the safety, efficacy and tolerability of two dosing regimens of RP-G28 in patients with moderate to severe lactose intolerance symptoms. Enrollment was initiated in March 2016 and completed in August 2016, achieving our projected enrollment time period. The trial aimed to evaluate a patient’s ability to consume dairy foods post-treatment with improved tolerance and reduced digestive symptoms. A total of 377 subjects were enrolled in the trial with 18 clinical sites participating throughout the United States. Patients underwent a 30-day treatment, followed by a 30-day post-treatment evaluation of dairy tolerance. On October 17, 2016, the last patient completed dosing and all monitoring visits.

We held a Type C meeting with the FDA in March 2017, prior to the unblinding of our Phase 2b/3 data, to discuss our development plans and Phase 2b/3 clinical trial. The focus of the meeting was to obtain the FDA’s feedback on our Phase 2b/3 clinical trial, including our statistical analysis plan (“SAP”) prior to unblinding any data.

The meeting with the FDA was constructive and productively focused on best defining clinically meaningful benefits to patients suffering from lactose intolerance and how to reflect these benefits in endpoints. We modified aspects of our SAP to address certain FDA recommendations, including a change to our primary endpoint, which was changed to combine abdominal pain with relevant secondary endpoints to establish a composite score (abdominal pain, abdominal cramping, abdominal bloating and abdominal gas). The protocol design and the assessment utilized to collect lactose intolerance symptoms remained unchanged.

Topline results of the trial were announced in March 2017. Due to inconsistent data results from one study site, the data from this site was excluded from the primary analysis population (Efficacy Subset mITT). After excluding the data from the one anomalous study site, results showed a clinically meaningful benefit to subjects in the reduction of lactose intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive outcome measures and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms, but also 30 days after taking the treatment, patients reported adequate relief from lactose intolerance symptoms and satisfaction with the results of the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater milk and dairy product consumption was also reported by patients.

A subset of subjectsbe profitable before products from our Phase 2b/3 clinical trial has been rolled into a 12-month extension study to evaluate long-term durability of treatment. The study is also evaluating each participant’s microbiome, expanding our knowledge of the effectstherapeutics pipeline are commercialized, because we foresee that RP-G28 may have on adapting the gut microbiota in a beneficial manner. The subjects are expected to complete the 12-month evaluation during the fourth quarter of 2017.

We held an End-of-Phase 2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products in August 2017. The purpose of the meeting was to obtain the FDA’s feedback on our Phase 3 program. We reached general consensus with the FDA on certain elements of our current Phase 3 program and have received clear guidance and recommendations on many necessary components of our Phase 3 program; including the clinical, non-clinical, and chemistry, manufacturing and controls (CMC) requirements needed to support an NDA submission.

We have incorporated much of this guidance into our Phase 3 program. Our current Phase 3 clinical program will consist of two confirmatory clinical trials of similar trial design and size as our Phase 2b/3 clinical trial and will include additional components that may allow for claims for durability of effect. These additional trials may be run in parallel.

Financial Overview

We have incurred net losses in each year since our inception, including net losses of approximately $5.6 million for the nine months ended September 30, 2017. We had an accumulated deficit of approximately $51.1 million as of September 30, 2017. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs, patent costs, stock-based compensation, and from general and administrative costs associated with our operations.

Revenue

We have not generated any revenue since our inception. Our ability to generate revenue in the future will depend almost entirely on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize RP-G28 in the United States. In the event we choose to pursue a partnering arrangement to commercialize RP-G28 or other products outside the United States, we would expect to initiate additional research and development and clinical trial activities in the future.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for RP-G28. Our research and development expenses consist primarily of:

From inception through September 30, 2017,on the therapeutics programs will significantly exceed the profits, if any, that we might have incurred approximately $21.9 million in research andfrom our diagnostics products. To experience losses while therapeutic products are still under development expenses. We plan to increase our research and development expensesis, of course, typical for the foreseeable future as we continue the development of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients and other indications, subject to the availability of additional funding.biotechnology companies.

The successful development of RP-G28Our condensed consolidated financial statements do not separate out our diagnostics-related activities and our therapeutics-related activities. Although to date all our reported revenue is highly uncertain. At this time, we cannot reasonably estimatediagnostics-related, our reported expenses represent the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of RP-G28 or the period, if any, in which material net cash inflows from RP-G28 may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of RP-G28 or if we experience significant delays in enrollment in anytotal of our clinical trials, we could be required to expend significant additional financial resourcesdiagnostics-related and time on the completion of clinical development.

Patent Costs

Patent costs consist primarily of professional fees for legal services to prosecute patents and maintain patent rights.

General and Administrative Expenses

General and administrative expenses include allocation of facilities costs, salaries, benefits, and stock-based compensation for employees, professional fees for directors, fees for independent contractors and accounting and legal services.

We expect that our general and administrative expenses will increase as we continue to operate as a public company and will increase further if RP-G28 is approved for commercialization. We believe that these increases will likely include increased costs for director and officer liability insurance, and increased fees for outside consultants, lawyers and accountants, among othertherapeutics-related expenses.

Interest IncomeCompletion of Reverse Recapitalization Transaction with Ritter

Interest income consistsOn May 22, 2020, we completed a “reverse recapitalization” transaction with Qualigen, Inc. (not to be confused with the Company); the Company’s merger subsidiary merged with and into Qualigen, Inc. with Qualigen, Inc. surviving as a wholly owned subsidiary of interest earnedthe Company. The Company, which had previously been known as Ritter Pharmaceuticals, Inc., was renamed Qualigen Therapeutics, Inc., and the former stockholders of Qualigen, Inc. acquired, via the recapitalization, a substantial majority of the shares of the Company. Ritter/Qualigen Therapeutics common stock, which was previously traded on our cash.the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on Nasdaq, on a post-reverse-stock-split adjusted basis, under the ticker symbol “QLGN” on May 26, 2020.

Because Qualigen, Inc. was the accounting acquirer in the reverse recapitalization transaction, all references to financial figures of “the Company” presented in the accompanying condensed consolidated financial statements and Notes are those of Qualigen, Inc.; the corresponding figures of Ritter Pharmaceuticals, Inc. have been disregarded. Moreover, references in this Quarterly Report to “our” pre-May 22, 2020-merger history, securities and agreements are references to the pre-May 22, 2020-merger history, securities and agreements of Qualigen, Inc., except where otherwise expressly specified.

We are no longer pursuing the gastrointestinal disease treatment business on which Ritter Pharmaceuticals, Inc. had focused before the reverse recapitalization transaction.

Critical Accounting PoliciesDistribution and EstimatesDevelopment Agreement with Sekisui

This discussionIn May 2016, through our wholly-owned diagnostics subsidiary Qualigen, Inc., we entered into a Distribution and analysis is based on our financial statements,Development Agreement (the “Distribution Agreement”) with Sekisui. Under the Distribution Agreement, Sekisui serves as the exclusive worldwide distributor for FastPack products (although we retain certain specific accounts for direct transactions). Sekisui’s exclusive distribution arrangements are effective until May 2022.

Under the Distribution Agreement, we began development of a proposed “FastPack 2.0” product line, which if successfully introduced by us would have been prepareddistributed by Sekisui. Between May 2016 and January 2018, Sekisui paid us a total of approximately $5.5 million upon the achievement of specified development milestones.

Under this program, we developed a FastPack 2.0 diagnostic test for a new whole blood vitamin D assay, and we then conducted a clinical trial of it in accordanceMarch 2019. We determined in May 2019 that it was uncertain whether the results of the trial would enable the test to receive FDA approval, and our FastPack 2.0 project with GAAP. The preparation of these financial statements requires usSekisui was discontinued. Currently no further FastPack 2.0 analyzer or test development is ongoing, and we have licensed and transferred our FastPack 2.0 technology to make estimatesYi Xin Zhen Duan Jishu (Suzhou) Ltd. for them to further develop and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilitiescommercialize.

We became obligated to pay Sekisui $0.9 million for $0.5 million in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments, research and development costs accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors we believeadvanced by Sekisui to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in our significant accounting policies as ofus and for the nine months ended September 30, 2017, as compared with the significant accounting policies describedreimbursement of $0.4 million in our 2016 Annual Report.certain out-of-pocket development and preclinical study expenses incurred by Sekisui. We satisfied these amounts (plus interest) by payment in full on July 21, 2020.

WhileOur expectation is that when we regain FastPack distribution rights from Sekisui, we will be able to improve the profitability of our significant accounting policies are more fully described in Note 3 to the financial statements included in this Quarterly Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.diagnostics business.

Fair ValueTechnology Transfer Agreement with Yi Xin

Through our wholly-owned diagnostics subsidiary Qualigen, Inc., we entered into a Technology Transfer Agreement dated as of Financial InstrumentsOctober 7, 2020 with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi Xin”), of Suzhou, China, for Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on our core FastPack technology. In addition, the Technology Transfer Agreement authorized Yi Xin to manufacture and sell our current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.

Under the Technology Transfer Agreement, we received net cash payments of $250,000 in the final quarter of calendar 2020, classified as deferred revenue as of the balance sheet date of December 31, 2020, and a cash payment of $420,000 during the three months ended March 31, 2021. In addition, we will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. Of these amounts, we recognized approximately $38,000 in product sales and $479,000 in license revenue included in the statement of operations for the three months ended March 31, 2021.

We provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.

We gave Yi Xin the exclusive rights for China – which is a market we have not otherwise entered – both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of our existing FastPack product lines. Yi Xin will also have the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of our existing generations of FastPack products); any such non-China sales would, until May 1, 2022, need to be through Sekisui. In addition, after May 1, 2022, Yi Xin will have the right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-US customers of those products). Also, after May 1, 2022, Yi Xin will have the right to buy Qualigen-manufactured FastPack 1.0, IP and PRO products from us at distributor prices for resale in and for the United States (but not to or toward current US customers of those products); we did not license Yi Xin to sell in the United States market any Yi Xin-manufactured versions of those legacy FastPack product lines, even after May 1, 2022.

In the Technology Transfer Agreement, we confirmed that we would not, after May 1, 2022, seek new FastPack customers outside the United States.

Yi Xin is a newly-formed company and is subject to many risks. There can be no assurance that Yi Xin will successfully commercialize any products or that we will receive any royalties from Yi Xin.

Warrant Liabilities

FairIn 2004, Qualigen, Inc. issued a series of Series C preferred stock warrants to investors and brokers in connection with a private placement. These warrants were subsequently extended and survived the May 2020 Ritter reverse recapitalization transaction and are now exercisable for Qualigen Therapeutics common stock. These warrants were so-called “exploding warrants” – they contained a provision that if Qualigen, Inc. issued shares (except in certain defined scenarios) at a price below the warrants’ exercise price, the exercise price would be re-set to such new price and the number of shares underlying the warrants would be increased in the same proportion as the exercise price decrease. For accounting purposes, such “exploding warrants” give rise to “warrant liabilities” (even though there is not any “liability” in the sense that we would be obligated to pay any cash sum to anyone). Although the fair value measurement guidelines are prescribed by accountingof the warrants was immaterial at March 31, 2020, the operation of the “double-ratchet” provisions in these “exploding warrants” in connection with the reverse-recapitalization transaction now allow the holders to exercise for a significantly higher number of shares than before and at a significantly lower price than the current market price of our shares. Accounting principles generally accepted in the United States of America (“U.S. GAAP”) require us to value financial instruments. The guidance includes a definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. Assets are classified in their entirety based on the lowest level of input that is significant torecognize the fair value measurement.

These two types of inputs create the following fair value hierarchy:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observablewarrants as warrant liabilities on our balance sheets and to reflect period-to-period changes in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable

The carrying amounts reported in the balance sheet for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Research and Development Costs

We expense the cost of research and development as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical study costs, contracted services, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730,Research and Development.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include fees due to service providers.

We base our expenses on our estimates of the services received and efforts expended pursuant to quotes and contracts with our service providers that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period.

Stock-based Compensation

Stock-based compensation cost for equity awards granted to employees and nonemployees is measured at the grant date based on the calculated fair value of the award usingwarrant liabilities on our statements of operations. The size of these warrant liabilities at March 31, 2021 was quite large ($6.2 million) and caused a significant distortion of our balance sheet at March 31, 2021 and our results of operations for the Black-Scholes option-pricing model,three months period ended March 31, 2021. Because this fair value will be determined each quarter on a “mark-to-market” basis, this item could result in significant variability in our future quarterly and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting periodannual statements of the equity grant). If we determine that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators,operations and balance sheets based on changes in our public market common stock price. Pursuant to U.S. GAAP, a quarter-to-quarter increase in our stock price would result in a (possibly quite large) increase in the fair value calculated forof the warrant liabilities and a quarter-to-quarter decrease in our stock options could change significantly. Higher volatility and longer expected livesprice would result in an increase to stock-based compensation expense to non-employees determined at the date of grant.