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 June 30,March 31, 20212022

 

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.)

 

2042 Corte Del Nogal, Carlsbad, California 92011

(Address of principal executive offices) (Zip Code)

 

(760(760)) 918-9165

(Registrant’s telephone number, including area code)

 

n/a

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

 

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

 

Title of each class Trading Symbol Name of each exchange on which registered

Common Stock, par value $.001 per share

 QLGN The Nasdaq Capital Market of The Nasdaq Stock Market LLC

 

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

 

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

 

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

 

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

 

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

 

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

 

As of August 12, 2021,May 10, 2022, there were 28,998,83135,295,541 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I.Financial Information1
   
Item 1.Condensed Consolidated Financial Statements (Unaudited)13
 Condensed Consolidated Balance Sheets as of June 30, 2021March 31, 2022 and December 31, 2020202113
 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 202024
 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30,March 31, 2022 and 2021 and 202035
 Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2022 and 2021 and 202046
 Notes to Condensed Consolidated Financial Statements (Unaudited)57
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2425
Item 3.Quantitative and Qualitative Disclosures About Market Risk3331
Item 4.Controls and Procedures3332
   
PART II.Other Information3433
   
Item 1.Legal Proceedings3433
Item 1A.Risk Factors3433
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3433
Item 3.Defaults Upon Senior Securities3533
Item 4.Mine Safety Disclosures3533
Item 5.Other Information3533
Item 6.Exhibits3534

 

2
 

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 March 31, December 31, 
 June 30, 2021  December 31, 2020  2022  2021 
ASSETS                
Current assets                
Cash and cash equivalents $15,232,402  $23,976,570 
Cash $13,610,894   17,538,272 
Accounts receivable, net  766,911   615,757   594,338   822,351 
Inventory, net  1,073,335   953,458   1,400,712   1,055,878 
Prepaid expenses and other current assets  2,033,857   2,678,894   1,097,822   1,379,896 
Total current assets  19,106,505   28,224,679   16,703,766   20,796,397 
Right-of-use assets  321,076   430,795   1,591,072   1,645,568 
Property and equipment, net  253,261   247,323   230,242   203,920 
Equipment held for lease, net  5,821   17,947   221   296 
Intangible assets, net  183,933   187,694   164,818   171,190 
Other assets  18,334   18,334   18,334   18,334 
Total Assets $19,888,930  $29,126,772  $18,708,453  $22,835,705 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable $784,474  $500,768  $997,406  $886,224 
Accrued expenses and other current liabilities  1,923,708   746,738   1,343,375   1,793,901 
Notes payable, current portion  —   131,766 
Deferred revenue, current portion  325,988   486,031   127,304   135,063 
Operating lease liability, current portion  270,640   254,739   155,525   134,091 
Warrant liabilities  4,112,100   8,310,100   1,002,100   1,686,200 
Total current liabilities  7,416,910   10,430,142   3,625,710   4,635,479 
Notes payable, net of current portion  —   6,973 
Operating lease liability, net of current portion  98,145   236,826   1,484,833   1,542,564 
Deferred revenue, net of current portion  112,057   158,271   81,081   92,928 
Total liabilities  7,627,112   10,832,212   5,191,624   6,270,971 
        
Stockholders’ equity                
Series Alpha convertible preferred stock, $0.001 par value; 7,000 shares authorized; 180 shares issued and outstanding as of June 30, 2021 and December 31, 2020  1   1 
Common stock, $0.001 par value; 225,000,000 shares authorized; 28,902,188 and 27,296,061 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively  28,902   27,296 
Common stock, $0.001 par value; 225,000,000 shares authorized; 35,295,541 and 35,290,178 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively  35,295   35,290 
Additional paid-in capital  88,058,267   85,114,755   102,545,950   101,274,073 
Accumulated deficit  (75,825,352)  (66,847,492)  (89,064,416)  (84,744,629)
Total stockholders’ equity  12,261,818   18,294,560   13,516,829   16,564,734 
Total Liabilities and Stockholders’ Equity $19,888,930  $29,126,772 
Total Liabilities & Stockholders’ Equity $18,708,453  $22,835,705 

 

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

1

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

                 
  For the Three Months
Ended June 30,		  For the Six Months
Ended June 30,		 
  2021  2020  2021  2020 
REVENUES                
Net product sales $1,117,935  $904,067  $2,538,776  $2,315,823 
License revenue  —   —   478,654   — 
Collaborative research revenue  —   —   —   45,000 
Total revenues  1,117,935   904,067   3,017,430   2,360,823 
                 
EXPENSES                
Cost of product sales  916,624   807,922   2,119,103   1,799,574 
General and administrative  2,952,100   1,979,614   5,826,038   2,897,993 
Research and development  4,508,466   597,345   8,007,840   835,403 
Sales and marketing  135,543   88,844   272,129   181,106 
Total expenses  8,512,733   3,473,725   16,225,110   5,714,076 
                 
LOSS FROM OPERATIONS  (7,394,798)  (2,569,658)  (13,207,680)  (3,353,253)
                 
OTHER (INCOME) EXPENSE, NET                
Loss (gain) on change in fair value of warrant liabilities  (2,075,100)  16,201,400   (4,198,000)  16,201,400 
Interest (income) expense, net  (12,718)  57,364   (30,061)  148,121 
Other (income), net  (2,352)  (250,114)  (2,894)  (251,272)
Total other (income) expense, net  (2,090,170)  16,008,650   (4,230,955)  16,098,249 
                 
LOSS BEFORE PROVISION FOR INCOME TAXES  (5,304,628)  (18,578,308)  (8,976,725)  (19,451,502)
                 
PROVISION (BENEFIT) FOR INCOME TAXES  605   597   1,135   (22)
                 
NET LOSS $(5,305,233) $(18,578,905) $(8,977,860) $(19,451,480)
                 
Net loss per common share, basic and diluted $(0.18) $(2.12) $(0.31) $(2.71)
Weighted—average number of shares outstanding, basic and diluted  28,850,451   8,746,250   28,510,014   7,174,233 

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

2

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Capital  Deficit  Total 
  Series A Convertible  Series B Convertible  Series C Convertible  Series D Convertible  Series D-1 Convertible  Series Alpha Convertible        Additional       
  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Common Stock  Paid-In  Accumulated    
  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Capital  Deficit  Total 
Balance at December 31, 2020  —  $—   —  $—   —  $—   —  $—   —  $—   180  $1   27,296,061  $27,296  $85,114,755  $(66,847,492) $18,294,560
Stock issued upon cash-exercise of warrants  —   —   —   —   —   —   —   —   —   —   —   —   1,319,625   1,320   243,261   —   244,581 
Stock issued upon net-exercise of warrants  —   —   —   —   —   —   —   —   —   —   —   —   192,373   192   (192)  —   —  
Stock issued for professional services  —  $—   —  $—   —  $—   —  $—   —  $—   —  —   25,000  25  101,725  —  101,750
Issuance of common stock for conversion of preferred stock                                                                    
Issuance of common stock for conversion of preferred stock, shares                                                                    
Issuance of common stock for conversion of notes payable and accrued interest                                                                    
Issuance of common stock for conversion of notes payable and accrued interest, shares                                                                    
Issuance of Series Alpha preferred shares upon closing of private placement                                                                    
Issuance of Series Alpha preferred shares upon closing of private placement, shares                                                                    
Effect of reverse recapitalization                                                                    
Effect of reverse recapitalization, shares                                                                    
Issuance of Series Alpha preferred stock for conversion of notes payable                                                                    
Issuance of Series Alpha preferred stock for conversion of notes payable, shares                                                                    
Shares and warrants issued to advisor upon closing of private placement                                                                    
Shares and warrants issued to advisor upon closing of private placement, shares                                                                    
Fair value of shares issued to advisor upon closing of private placement                                                                    
Fair value of warrants issued to advisor upon closing of private placement                                                                    
Stock-based compensation  —  —  —  —  —  —  —  —  —  —  —   —   —   —   1,262,123   —   1,262,123 
Net Loss  —   —   —   —   —   —   —   —   —   —   —   —   —   —   —   (3,672,627)  (3,672,627)
Balance at March 31, 2021  —   —   —   —   —   —   —   —   —   —   180   1   28,833,059   28,833   86,721,672   (70,520,119)  16,230,387 
Stock issued upon cash-exercise of warrants  —   —   —   —   —   —   —   —   —   —   —   —   69,129   69   49,669   —   49,738 
Stock-based compensation  —   —   —   —   —   —   —   —   —   —   —   —   —   —   1,286,926   —   1,286,926 
Net Loss  —   —   —   —   —   —   —   —   —   —   —   —   —   —   —   (5,305,233)  (5,305,233)
Balance at June 30, 2021  —   —   —   —   —   —   —   —   —   —   180   $1   28,902,188   $28,902   $88,058,267  $(75,825,352)  $12,261,818

  Series A Convertible  Series B Convertible  Series C Convertible  Series D Convertible  Series D-1 Convertible  Series Alpha Convertible        Additional       
  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Common Stock  Paid-In  Accumulated    
  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Shares  Amount $  Capital  Deficit  Total 
                                                    
Balance at December 31, 2019  2,412,887  $24,129   7,707,736  $77,077   3,300,715  $33,007   1,508,305  $15,083   643,511  $6,435   —  $—   5,602,214  $56,026  $45,153,733  $(46,428,550) $(1,063,060)
Stock-based compensation  —   —   —   —   —   —   —   —   —   —   —   —   —   —   7,866   —   7,866 
Net Loss  —   —   —   —   —   —   —   —   —   —   —   —   —   —   —   (872,576)  (872,576)
Balance at March 31, 2020  2,412,887  $24,129   7,707,736  $77,077   3,300,715  $33,007   1,508,305  $15,083   643,511  $6,435   —  $—   5,602,214  $56,026  $45,161,599  $(47,301,126) $(1,927,770)
Issuance of common stock for conversion of preferred stock  (2,412,887)  (24,129)  (7,707,736)  (77,077)  (3,300,715)  (33,007)  (1,508,305)  (15,083)  (643,511)  (6,435)  (740)  (1)  7,042,660   7,042   148,690   —   — 
Issuance of common stock for conversion of notes payable and accrued interest  —   —   —   —   —   —   —   —   —   —   —   —   1,775,096   1,775   1,582,633   —   1,584,408 
Issuance of Series Alpha preferred shares upon closing of private placement  —   —   —   —   —   —   —   —   —   —   5,010   5   -   4,009,995   —   —   4,010,000 
Effect of reverse recapitalization  —   —   —   —   —   —   —   —   —   —   —   —   (2,095,826)  (52,519)  863,405   —   810,886 
Issuance of Series Alpha preferred stock for conversion of notes payable  —   —   —   —   —   —   —   —   —   —   350   —   —   —   350,000   —   350,000 
Shares and warrants issued to advisor upon closing of private placement  —   —   —   —   —   —   —   —   —   —   —   —   1,217,147   1,217   1,103,891   —   1,105,108 
Fair value of shares issued to advisor upon closing of private placement  —   —   —   —   —   —   —   —   —   —   —   —   —   —   (902,250)  —   (902,250)
Fair value of warrants issued to advisor upon closing of private placement  —   —   —   —   —   —   —   —   —   —   —   —   —   —   (202,858)  —   (202,858)
Stock issued for professional services  —   —   —   —   —   —   —   —   —   —   —   —   46,967   47   239,953   —   240,000 
Stock-based compensation  —   —   —   —   —   —   —   —   —   —   —   —   —   —   358,625   —   358,625 
Net Loss  —   —   —   —   —   —   —   —   —   —   —   —   —   —   —   (18,578,905)  (18,578,905)
Balance at June 30, 2020  —  $—   —  $—   —  $—   —  $—   —  $—   4,620  $4   13,588,258  $13,588  $52,713,683  $(65,880,031) $(13,152,756)

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

 

3
 

 

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS

(Unaudited)

 

         
  For the Six Months
Ended June 30,		 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(8,977,860) $(19,451,480)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  53,736   82,833 
Amortization of right-of-use assets  109,719   50,318 
Accounts receivable reserves and allowances  3,645   19,951 
Inventory reserves  40,644   (2,828)
Stock-based compensation  2,549,049   366,491 
Change in fair value of warrant liabilities  (4,198,000)  16,201,400 
         
Changes in operating assets and liabilities:        
Accounts receivable  (154,799)  798,585 
Inventory and equipment held for lease  (89,617)  20,236 
Prepaid expenses and other assets  746,787   (1,016,203)
Accounts payable  283,706   188,840 
Accrued expenses and other current liabilities  1,176,970   1,072,220 
Lease liability  (122,780)  (54,775)
Deferred revenue  (206,257)  (57,668)
Net cash used in operating activities  (8,785,057)  (1,782,080)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment  (107,798)  (110,427)
Payments for patents and licenses  (6,893)  (382,732)
Net cash used in investing activities  (114,691)  (493,159)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of Series Alpha preferred shares upon closing of private placement  —   4,010,000 
Net proceeds from the issuance of notes payable  —   1,682,661 
Proceeds from warrant exercises  294,319   — 
Principal payments on notes payable  (138,739)  (1,164,000)
Net cash provided by financing activities  155,580   4,528,661 
         
Net change in cash and cash equivalents  (8,744,168)  2,253,422 
         
CASH AND CASH EQUIVALENTS – beginning of period  23,976,570   128,696 
CASH AND CASH EQUIVALENTS – end of period $15,232,402  $2,382,118 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for:        
Interest $1,683  $25,487 
Taxes $2,200  $3,014 

 

NONCASH FINANCING AND INVESTING ACTIVITIES:

        
Issuance of common stock for professional services $101,750  $240,000 
Issuance of common stock for conversion of debt $—  $1,350,198 
Issuance of common stock for conversion of accrued interest $—  $234,210 
Issuance of common stock for conversion of preferred stock $—  $148,690 
Issuance of preferred stock for conversion of debt $—  $350,000 
Fair value of shares issued to advisor upon closing of private placement $—  $902,250 
Fair value of warrants issued to advisor upon closing of private placement $—  $202,858 
Effect of reverse recapitalization $—  $810,886 
Initial measurement of operating lease right-of-use assets $—  $663,110 
Net transfers to inventory from equipment held for lease $1,304  $— 
  2022  2021 
  For the Three Months Ended March 31, 
  2022  2021 
REVENUES        
Net product sales $722,029  $1,420,842 
License revenue  0   478,654 
Total revenues  722,029   1,899,496 
EXPENSES        
Cost of product sales  828,848   1,202,479 
General and administrative  2,898,751   2,873,939 
Research and development  1,864,745   3,499,373 
Sales and marketing  138,323   136,587 
Total expenses  5,730,667   7,712,378 
         
LOSS FROM OPERATIONS  (5,008,638)  (5,812,882)
         
OTHER (INCOME), NET        
Gain on change in fair value of warrant liabilities  (683,242)  (552,808)
Interest income, net  (6,309)  (17,343)
Other income, net  (36)  (542)
Total other income, net  (689,587)  (570,693)
         
LOSS BEFORE PROVISION FOR INCOME TAXES  (4,319,051)  (5,242,189)
         
PROVISION FOR INCOME TAXES  736   530 
         
NET LOSS $(4,319,787) $(5,242,719)
         
Net loss per common share, basic and diluted $(0.12) $(0.19)
Weighted—average number of shares outstanding, basic and diluted  35,294,051   28,165,796 

 

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  Deficit  Total 
  Common Stock  Additional
Paid-In		  Accumulated    
  Shares  

Amount $

  Capital  Deficit  Total 
Balance at December 31, 2021 - 35,290,178  $35,290  $101,274,073  $(84,744,629) $16,564,734 
Stock issued upon exercise of warrants  5,363   5   4,711   —   4,716 
Stock-based compensation  —   —   1,267,166   —   1,267,166 
Net Loss - —   —   —   (4,319,787)  (4,319,787)
Balance at March 31, 2022 - 35,295,541  $35,295  $102,545,950  $(89,064,416) $13,516,829 

  Shares  Amount $  Shares  Amount $  Capital  Deficit  Total 
  Series Alpha Convertible        Additional       
  Preferred Stock  Common Stock  Paid-In  Accumulated    
  Shares  Amount $  Shares  Amount $  Capital  Deficit  Total 
Balance at December 31, 2020 $180  $1   27,296,061  $27,296  $85,114,755  $(66,847,492) $18,294,560 
Beginning Balance $180  $1   27,296,061  $27,296  $85,114,755  $(66,847,492) $18,294,560 
Stock issued upon exercise of warrants  —   —   1,319,625   1,320   1,813,353   —   1,814,673 
Stock issued upon net-exercise of warrants  —   —   192,373   192   (192)  —   — 
Stock issued for professional services  —   —   25,000   25   101,725   —   101,750 
Stock-based compensation  —   —   —   —   1,262,123   —   1,262,123 
Net Loss  —   —   —   —   —   (5,242,719)  (5,242,719)
Balance at March 31, 2021  180  $1   28,833,059  $28,833  $88,291,764  $(72,090,211) $16,230,387 
Ending Balance  180  $1   28,833,059  $28,833  $88,291,764  $(72,090,211) $16,230,387 

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)

  2022  2021 
  For the Three Months Ended March 31, 
  2022  2021 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(4,319,787) $(5,242,719)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  29,749   27,453 
Amortization of right-of-use assets  54,495   54,179 
Accounts receivable reserves and allowances  (88,129)  8,490 
Inventory reserves  4,074   29,615 
Common stock issued for professional services  —   101,750 
Stock-based compensation  1,267,166   1,262,123 
Change in fair value of warrant liabilities  (683,242)  (552,808)
         
Changes in operating assets and liabilities:        
Accounts receivable  316,142   (254,968)
Inventory and equipment held for lease  (348,908)  107,588 
Prepaid expenses and other assets  282,074   1,459,135 
Accounts payable  111,184   (15,217)
Accrued expenses and other current liabilities  (450,526)  1,122,686 
Operating lease liability  (36,297)  (60,710)
Deferred revenue  (19,606)  (127,701)
Net cash used in operating activities  (3,881,611)  (2,081,104)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment  (49,625)  (62,265)
Payments for patents and licenses  —   (6,737)
Net cash used in investing activities  (49,625)  (69,002)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net proceeds from warrant exercises  3,858   244,581 
Principal payments on notes payable  —   (123,133)
Net cash provided by financing activities  3,858   121,448 
         
Net change in cash  (3,927,378)  (2,028,658)
         
Cash - beginning of period  17,538,272   23,976,570 
Cash - end of period $13,610,894  $21,947,912 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid during the year for:        
Interest $—  $831 
Taxes $—  $100 
         
NONCASH FINANCING AND INVESTING ACTIVITIES:        
Fair value of shares issued for cashless warrant exercises $—  $722,970 
Fair value of warrant liabilities on date of exercise $858  $1,570,092 

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

 

Qualigen, Inc., now a subsidiary of Qualigen Therapeutics, Inc., was incorporated in Minnesota in 1996 to design, develop, manufacture and sell point-of-care quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and was reincorporated in Delaware in 1999. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment. In May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and Ritter was renamed Qualigen Therapeutics, Inc. All shares of Qualigen, Inc.’s capital stock were exchanged for Qualigen Therapeutics, Inc.’s capital stock in the merger. Ritter/Qualigen Therapeutics common stock, which was previously traded on the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, on a post-reverse-stock-split adjusted basis, under the trading symbol “QLGN” on May 26, 2020.

 

Qualigen, Inc. was determined to be the accounting acquirer in a reverse recapitalization based upon the terms of the merger and other factors. All references to financial figures of the Company presented in the accompanying condensed consolidated financial statements and in these Notes through May 22, 2020 are to those of Qualigen, Inc. All references to financial figures after May 22, 2020 are to those of Qualigen Therapeutics, Inc. and Qualigen, Inc.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s TransitionAnnual Report on Form 10-K for the fiscal year ended December 31, 20202021 filed with the SECSecurities Exchange Commission on March 31, 2021.2022, as amended on April 29, 2022 (the “2021 Annual Report”). In the opinion of management, the accompanying condensed consolidated interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Transition2021 Annual Report on Form 10-K have been omitted. The accompanying condensed consolidated balance sheet at December 31, 20202021 has been derived from the audited balance sheet at December 31, 20202021 contained in such Form 10-K.the 2021 Annual Report.

 

Principles of Consolidation

 

The Company’s unaudited interimaccompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. 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. All long-lived assets of the Company are located in the United States.

 

Accounting Estimates

 

Management uses estimates and assumptions in preparing its unaudited condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of warrant liabilities, stock-based compensation, write-off of patents and licenses, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs. Actual results could vary from the estimates that were used.

 

Cash and Cash Equivalents

 

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

The Company maintains its cash and cash equivalents in bank deposits which at times may exceed federally insured limits.limits and could potentially be subject to significant concentrations of credit risk on cash. The Company reviews the financial stability of its depository institutions on a regular basis, and has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks on cash and cash equivalents.accounts.

5

 

Inventory, Net

 

Inventory is recorded at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company reviews the components of its inventory on a periodic basis for excess or obsolete inventory, and records specific reserves for inventory components identified items.as excess or obsolete.

7

 

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 months ended March 31, 2022 and six months periods ended June 30, 2021, and 2020, 0 such impairment losses have been recorded. All long-lived assets of the Company are located in the U.S.

 

Accounts Receivable, Net

 

The Company grants credit to domestic physicians, clinics, and distributors. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. Customers can purchase certain products through a financing agreement that the Company has with an outside leasing company. Under the agreement, the leasing company evaluates the creditworthinesscredit worthiness of the customer. Upon acceptance of the product by the customer, the leasing company remits payment to the Company at a discount. This financing arrangement is without recourse to the Company.

 

The Company providesrecords an allowance for doubtful accounts and returns equal to the estimated uncollectible amounts or expected returns. The Company’s estimates are based on historical collections and returns and a review of the current status of trade accounts receivable.

 

Accounts receivable, net is comprised of the following at:

 SCHEDULE OF ACCOUNTS RECEIVABLE

 June 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Accounts Receivable $784,429  $629,630  $642,306  $958,448 
Less Allowance  (17,517)  (13,873)
Less Allowances  (47,968)  (136,097)
Accounts receivable, net $766,911  $615,757  $594,338  $822,351 

 

Research and Development

 

The Company expenses research and development costs as incurred.incurred including therapeutics license costs.

 

Shipping and Handling Costs

 

The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound and outbound freight are generally recorded in cost of sales which totaled approximately $28,00039,000 and $26,00030,000, respectively, for the three months ended June 30, 2021March 31, 2022 and 2020, and approximately $58,000 and $56,000, respectively, for the six months ended June 30, 2021 and 2020.2021. Other shipping and handling costs included in general and administrative, research and development, and sales and marketing expenses totaled approximately $4,000 and $6,0001,000 for the three months ended June 30.March 31, 2022 and 2021, and 2020, respectively, and approximately $5,000 and $6,000 for the six months ended June 30, 2021 and 2020, respectively.

 

Revenue from Contracts with Customers

 

Effective April 1, 2020,We apply the Company adopted Accounting Standards Codification (“ASC”) Topicfollowing five-step model in accordance with ASC 606, Revenue from Contracts with Customers, (“ASC 606”), usingin order to determine the modified retrospective approach. The adoptionrevenue: (i) identification of ASC 606 did not have a material impact on the measurement or on the recognition of revenue of contracts for which all revenue had not been recognized as of the adoption date of April 1, 2020. Therefore, no cumulative adjustment has been made to the opening balance of accumulated deficit at April 1, 2020. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the periods presented.

6

The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to whichcontract; (ii) determination of whether the company expects to be entitled in exchange for thosepromised goods or services.services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 

Product Sales

 

The Company generates revenue from selling FastPack System analyzers, accessories and disposable products used with the FastPack System. Disposable products include reagent packs which are diagnostic tests for PSA,prostate-specific antigen (“PSA”), testosterone, thyroid disorders, pregnancy, and Vitamin D.

 

The Company provides disposable products and equipment in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposable products and equipment at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment (“analyzer”) has been provided to the customer. The initial delivery of the equipment and reagent packs represents a single performance obligation and is completed upon receipt by the customer. The delivery of each subsequent individual reagent pack represents a separate performance obligation because the reagent packs are standardized, are not interrelated in any way, and the customer can benefit from each reagent pack without any other product. There are no significant discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 days.

 

8

The performance obligation arising from the delivery of the equipment is satisfied upon the delivery of the equipment to the customer. The disposable products are shipped Free on Board (“FOB”) shipping point. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, thus the customer obtains control and revenue is recognized at that point in time.

 

The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfilfulfill the promise to transfer the disposable products and not as a separate performance obligation.

 

The Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.

 

License Revenue

 

The Company enters into out-license agreements with counterparties to develop and/or commercialize its products in exchange for nonrefundable upfront license fees and/or sales-based royalties.

 

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable upfront fees allocated to the license when the license is transferred to the customer and the customer can benefit from the license. For licenses that are bundled with other performance obligations, management uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue recognition. During the three months ended June 30,March 31, 2022 and 2021, and 2020, the Company recognized license revenue of $0 and $0, respectively, and during the six months ended June 30, 2021 and 2020, the Company recognized license revenue ofapproximately $479,000 and $0, respectively.

 

7

Collaborative Research Revenue

Prior to the adoption of ASC 606, the Company recognized research revenue over the term of various agreements, as negotiated contracted amounts were earned or reimbursable costs were incurred related to those agreements. Negotiated contracted amounts were earned in relative proportion to the performance required under the applicable contracts. Any amounts received prior to satisfying these revenue recognition criteria were recorded as deferred revenue.

To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;Contract Asset and (v) recognize revenue when (or as) the entity satisfies the relevant performance obligations.

Collaborative research revenue is recognized as research services are performed over the development periods for each agreement. During the three months ended June 30, 2021 and 2020, the Company recognized collaborative research revenue of $0 and $0, respectively, and during the six months ended June 30, 2021 and 2020, the Company recognized collaborative research revenue of $0 and $45,000, respectively.

ContractLiability Balances

 

The timing of the Company’s revenue recognition may differ from the timing of payment by the Company’s customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provisionperformance of the related services, the Company records deferred revenue until the performance obligations are satisfied.

 

Prior to the adoption of ASC 606 effective April 1, 2020 (using the modified retrospective approach), the Company accounted for its revenue arrangements under ASC 605, Revenue Recognition (“ASC 605”). Under ASC 605, revenue arrangements with multiple deliverables were evaluated for proper accounting treatment. In these arrangements, the Company recorded revenue as separate units of accounting if the delivered items have value to the customer on a stand-alone basis, if the arrangement includes a general right of return relative to the delivered items, and if delivery orMultiple performance of the undelivered items is considered probable and substantially within the Company’s control.

Under ASC 605, revenues from product sales which included both the analyzer and various immunoassay products (“reagents”) were generally recognized upon shipment, as no significant continuing performance obligations remained post shipment. Cash payments received in advance were classified as deferred revenue and recorded as a liability. The Company was generally not contractually obligated to accept returns, except for defective products. Revenue was recorded net of an allowance for estimated returns.

8

Multiple element arrangements included contracts that combined both the Company’s analyzer and a customer’s future reagent purchases under a single contract. In some sales contracts, the Company provided analyzers at no charge to customers. Title to the analyzer was maintained by the Company and the analyzer was returned by the customer to the Company at the end of the purchase agreement.

 

During the three months ended June 30,March 31, 2022 and 2021, and 2020, product sales are stated net of an allowance for estimated returns of approximately $043,000 and $12,0000, respectively. During the six months ended June 30, 2021 and 2020, product sales are stated net of an allowance for estimated returns of approximately $0 and $24,000 respectively.

 

Deferred Revenue

 

Prior to the adoption of ASC 606, paymentsPayments received in advance from customers pursuant to certain collaborative research and license agreements, deposits against future product sales, multiple element arrangements and extended warranties are recorded as a current or non-current deferred revenue liability based on the time from the condensed consolidated balance sheetsheets date to the future date of revenue recognition. The adoption of ASC 606 had no material effect on deferred revenue.

 

Operating Leases

 

TheEffective April 1, 2020, the Company adopted ASC Topic 842,Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“(“Topic 842”) in the nine-months transition period ended December 31, 2020.. In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842. Refer to Recent Accounting Pronouncements below and Note 89 for more information.

 

9

Property and Equipment, Net

 

Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:

 SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT

Machinery and equipment5 years
Computer equipment3 years
Molds and tooling5 years
Office furnitureFurniture and equipmentfixtures5 years

9
 

 

Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company occasionally designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other direct costs attributable to the construction, are capitalized as construction in progress. No provision for depreciation is made on construction in progress until the relevant assets are completed and placed in service.

 

The Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or when conditions are present that indicate impairment.

 

Intangible Assets, Net

 

Intangibles consist of patent-related costs and costs for in-licenselicense agreements. Management reviews the carrying value of intangible assets that are being amortized on an annual basis or sooner when there is evidence that events or changes in circumstances may indicate that impairment exists. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized can be recovered.

 

If the Company determines that the carrying value of intangible assets will not be recovered from the undiscounted future cash flows expected to result from the use and eventual disposition of the underlying assets, the Company considers the carrying value of such intangible assets as impaired and reduces them by a charge to operations in the amount of the impairment.

 

Costs related to acquiring patents and licenses are capitalized and amortized over their estimated useful lives, which is generally 5 to 17 years, using the straight-line method. Amortization of patents and licenses commences once final approval of the patent or license has been obtained. Patent and licenseslicense costs are charged to operations if it is determined that the patent or license will not be obtained.

 

The carrying value of the patents of approximately $168,000 154,000and $169,000 159,000at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, are stated net of accumulated amortization of approximately $311,000 325,000and $303,000320,000, respectively. Amortization of patents charged to operations for the three months ended June 30,March 31, 2022 and 2021 and 2020 was approximately $3,000 5,000for each period, and for the six months ended June 30, 2021 and 2020 was approximately $6,000 3,000for each period., respectively. Total future estimated amortization of patent costs for the five succeeding years is approximately $8,000 14,000for the remaining sixnine months in the year ending December 31, 2021,2022, approximately $15,00018,000 for each of the yearsyear ending December 31, 2022 through 2023, approximately $11,000 15,000for year 2024, approximately $11,000 14,000for yearyears 2025 and 2026, and approximately $108,000 79,000thereafter.

 

The carrying value of the in-licenses of approximately $16,00011,000 and $19,00012,000 at June 30, 2021March 31, 2022 and December 31, 20202021, respectively, are stated net of accumulated amortization of approximately $403,000408,000 and $400,000407,000, respectively. Amortization of licenses charged to operations for the three months ended June 30,March 31, 2022 and 2021 and 2020 was approximately $2,000, and for the six months ended June 30, 2021 and 2020 was approximately $4,000 and $3,000, respectively.each period. Total future estimated amortization of license costs is approximately $4,0006,000 for the remaining sixnine months in the year ending December 31, 2021, approximately $7,000 for the year ending December 31, 2022, and approximately $5,000 for the year ending December 31, 2023.

 

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. Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte CarloMonte-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(See Note 7).

 

10
 

 

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

 

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-issuedCompany’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. The components of the deferred tax asset and liability are individually classified as current and noncurrent based on their characteristics.

 

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.

 

Sales and Excise Taxes

 

Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with corresponding tax payable. These balances are removed from the condensed consolidated balance sheet as cash is collected from customers and remitted to the tax authority.

 

11

Warranty Costs

 

The Company’s warranty policy generally provides for one year of coverage against defects and nonperformance within published specifications for sold analyzers and for the term of the contract for equipment held for lease. The Company accrues for estimated warranty costs in the period in which the revenue is recognized based on historical data and the Company’s best estimates of analyzer failure rates and costs to repair.

 

Accrued warranty liabilities were approximately $48,00072,000 and $25,00060,000, respectively, for the periods ended June 30, 2021as of March 31, 2022 and December 31, 20202021 and are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Warranty costs were approximately $20,00053,000 and $31,00025,000 for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and approximately $41,000 and $58,000 for the six months ended June 30, 2021 and 2020, respectively, and are included in cost of product sales in the condensed consolidated statements of operations.

 

11

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, employee stock purchase plan rights, restricted stock units, and warrants, and convertible preferred stock are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be anti-dilutive. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at June 30, 2021 and 2020, stock options, warrants, and convertible preferred stock exercisable or convertible for approximately 13.9 million shares and 16.5 million shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive. Comprehensive loss is the same as net loss for all periods presented.

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of the fiscal year beginning January 1, 2023, and early adoption is permitted. The Company has not completed its review of the impact of this standard on its condensed consolidated financial statements. However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect that the adoption of this standard will have a material effect on the Company’s condensed consolidated financial statements.

 

Impact of the COVID-19 Pandemic

In August 2018,

Events surrounding the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — ChangesSARS-CoV-2 virus that emerged in late 2019 and the ensuing global pandemic have had a dramatic impact on businesses globally and our business as well. Our sales of diagnostic products fell significantly during 2020 and our net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. Since then we have experienced some recovery in demand. The severity and duration of the pandemic and economic repercussions of the virus and government actions taken in response to the Disclosure Requirements for Fair Value Measurement,” an amendment to the accounting guidancepandemic remain uncertain and will ultimately depend on fair value measurements. The guidance modifies the disclosure requirements on fair value measurements,many factors, including the removalspeed of disclosuresglobal dissemination and effectiveness of the amount ofvaccination and reasons for transfers between Level 1containment efforts throughout the world, the duration and spread of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The guidance also adds certain disclosure requirements related to Level 3 fair value measurements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2018-13 on April 1, 2020 and the adoption of this guidance did not have a material impact on its financial statements.virus, as well as seasonality, variants or new outbreaks.

 

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with ConversionUnited States, federal, state, and Other Options (Subtopic 470-20)local government directives and Derivatives and Hedging—Contractspolicies have been put in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under prior U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify forplace throughout the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be ascourse of the beginningpandemic to manage public health concerns and address the economic impacts of the Company’s annual fiscal year. The Company is currently evaluatingpandemic, including reduced business activity and overall uncertainty presented by this new healthcare challenge. Similar actions have been taken by governments around the world. Our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates or as a result of the pandemic. To mitigate risks, we continue to evaluate the extent to which COVID-19 may impact of this standard on its consolidated financial statementsour business and related disclosures.operations and adjust risk mitigation planning and business continuity activities as needed.

 

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

12

 

NOTE 2 — LIQUIDITY

 

The Company has incurred recurring losses from operations and has an accumulated deficit at June 30, 2021, and theMarch 31, 2022. The Company expects to continue to incur losses subsequent to the condensed consolidated balance sheet date of June 30, 2021. The Company’s reverse recapitalization transaction with Ritter closed in May 2020 together with an associated new equity capital raise of approximately $4.0 million, and approximately $1.9 million in convertible notes payable were converted into shares of the Company’s capital stock.March 31, 2022. In July, August and December 2020,2021, the Company raised an additional $30.08.82 million through threea Securities Purchase AgreementsAgreement with a singleseveral institutional investor (see Note 10).investors. Based on the Company’s current cash position, and assuming currently planned expenditures and level of operations, the Company believes it has sufficient capital to fund operations for the 12-month period subsequent to the issuance of the interimaccompanying unaudited condensed financial information.statements. However, there is no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. Also, beyond such 12-month period, planned research and development activities, capital expenditures, clinical and pre-clinical testing, and commercialization activities of the Company’s products are expected to require significant additional financing. Additional financing may not be available on acceptable terms or at all.

 

12

NOTE 3 — INVENTORY, NET

Inventory, net consisted of the following at June 30, 2021March 31, 2022 and December 31, 2020:2021:

 SCHEDULE OF INVENTORY

 June 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Raw materials $779,936  $579,765  $819,434  $823,315 
Work in process  241,677   309,826   539,085   188,135 
Finished goods  51,722   63,867   42,193   44,428 
Inventory net $1,073,335  $953,458 
Total inventory $1,400,712  $1,055,878 

As of June 30, 2021 and December 31, 2020, total inventory is recorded net of inventory reserves of $149,000 and $108,000, respectively.

NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following at June 30, 2021March 31, 2022 and December 31, 2020:2021:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

 June 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Prepaid insurance $1,916,387  $1,307,864  $818,216  $1,197,726 
Prepaid manufacturing expenses  49,617   1,181,029   32,087   50,371 
Prepaid investor relations expenses  49,127   150,000 
Other prepaid expenses  18,726   40,001   247,519   131,799 
Prepaid expenses and other current assets $2,033,857  $2,678,894 
Prepaid expenses $1,097,822  $1,379,896 

 

NOTE 5 — PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following at June 30, 2021March 31, 2022 and December 31, 2020:2021:

 SCHEDULE OF PROPERTY AND EQUIPMENT

 June 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Machinery and equipment $2,409,946  $2,401,470  $2,493,222  $2,482,841 
Construction in progress–equipment  94,717   104,400 
Computer equipment  472,094   443,865   384,361   345,117 
Leasehold improvements  327,894   321,033   333,271   333,271 
Molds and tooling  260,002   260,002   260,002   260,002 
Office furniture and equipment  143,013   138,699 
Furniture and fixtures  143,013   143,013 
Property and equipment, gross  3,707,666   3,669,469   3,613,869   3,564,244 
Less Accumulated depreciation  (3,454,405)  (3,422,146)  (3,383,627)  (3,360,324)
Property and equipment, net $253,261  $247,323  $230,242  $203,920 

Depreciation expense relating to property and equipment was approximately $23,000 and $15,000 for the three months ended March 31, 2022 and 2021, respectively.

 

13
 

 

Depreciation expense relating to property and equipment was approximately $17,000 and $9,000 for the three months ended June 30, 2021 and 2020, respectively, and $32,000 and $18,000 for the six months ended June 30, 2021 and 2020, respectively.

NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following at June 30, 2021March 31, 2022 and December 31, 2020:2021:

 SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 June 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
Board compensation $50,776  $15,091  $17,500  $17,500 
Vacation  290,587   230,457 
Royalties  1,078   491 
Research and development  744,640   237,504 
Professional fees  271,377   58,261 
Warranty costs  47,854   24,871 
Payroll  176,275   4,566 
Patent and license fees  —   7,204 
Franchise, sales and use taxes  21,130   30,353   11,975   14,090 
Income taxes  2,261   3,326   4,356   3,620 
Payroll  105,877   682,036 
Professional fees  265,421   225,308 
Research and development  293,624   232,712 
Royalties  8,880   10,152 
Vacation  313,633   282,910 
Warranty liability  71,974   60,281 
Other  317,730   134,614   250,135   265,292 
Accrued expenses and other current liabilities $1,923,708  $746,738 
Accrued liabilities $1,343,375  $1,793,901 

 

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, 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 4,713,490shares of the Company’s common stock at $0.72per share, subject to adjustment. As of June 30, 2021,March 31, 2022, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 2.4 1.7to 3.0 2.2years. 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 CCommon Stock Warrants for the six months ended June 30, 2021:

SCHEDULE OF WARRANTS ACTIVITY

  

Common Stock Warrants (received in exchange for the

Series C Warrants)

 
  Shares  

Weighted–

Average

Exercise

Price

  

Range of Exercise

Price

  

Weighted–

Average

Remaining
Life (Years)

 
Total outstanding – December 31, 2020  3,378,596  $0.72         
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization  -   -         
Exercised  (542,737)  0.72         
Forfeited  (36,097)  0.72         
Expired  —   —         
Granted  —   —         
Total outstanding – June 30, 2021  2,799,762  $0.72         
Exercisable  2,799,762  $0.72  $0.72   2.5 

Of the 542,737 shares issued upon the exercise of warrants (previously received(received in exchange for the Series C Warrants) duringfor the sixthree months ended June 30, 2021, 156,861 shares were issued upon net-exercises rather than upon exercises for cash.March 31, 2022:

 SCHEDULE OF WARRANTS ACTIVITY

The following table summarizes the activity in the warrants received in exchange for the Series C Warrants activity for the six months ended June 30, 2020:

  

Common Stock Warrants (received in exchange for the Series C Warrants)

 
  Shares  

Weighted–

Average

Exercise

Price

  

Range of Exercise

Price

  

Weighted–

Average

Remaining Life (Years)

 
Total outstanding – December 31, 2021  2,481,614  $0.72       2.00 
Exercised  (5,363)  0.72         
Forfeited  —   —         
Expired  —   —         
Granted  —   —         
Total outstanding – March 31, 2022  2,476,251  $0.72         
Exercisable  2,476,251  $0.72  $0.72   1.76 

 

  

Common Stock Warrants (received in exchange for the

Series C Warrants)

 
  Shares  

Weighted–

Average

Exercise

Price

  

Range of Exercise

Price

  

Weighted– Average Remaining

Life (Years)

 
Total outstanding – December 31, 2019  —  $—         
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization  4,713,490   0.72         
Forfeited  —   —         
Expired  —   —         
Granted  —   —         
Total outstanding – June 30, 2020  4,713,490  $0.72         
Exercisable  4,713,490  $0.72  $0.72   3.82 

14
 

 

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

  

Common Stock Warrants (received in exchange for the Series C Warrants)

 
  Shares  

Weighted– Average

Exercise

Price

  

Range of Exercise

Price

  

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding –December 31, 2020  3,378,596  $0.72         
Exercised  (473,608)  0.72         
Forfeited  (36,097)  0.72         
Expired  —   —         
Granted  —   —         
Total outstanding – March 31, 2021  2,868,891  $0.72         
Exercisable  2,868,891  $0.72  $0.72   2.75 

The following table presents the Company’s fair value hierarchy for its warrant liabilities and exercises (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 June 30, 2021:March 31, 2022:

SCHEDULE OF FAIR VALUE HIERARCHY FOR WARRANT LIABILITIES

  Quoted          
  Market  Significant       
  Prices for  Other  Significant    
  Identical  Observable  Unobservable    
  Assets  Inputs  Inputs    
Warrant liabilities (Level 1)  (Level 2)  (Level 3)  Total 
Balance as of December 31. 2020 $—  $—  $8,310,100  $8,310,100 
Balance as of June 30, 2021  —   —  $4,112,100  $4,112,100 
  Quoted          
  Market  Significant       
  Prices for  Other  Significant    
  Identical  Observable  Unobservable    
Common Stock Warrant Assets  Inputs  Inputs    
liabilities (Level 1)  (Level 2)  (Level 3)  Total 
Balance as of December 31, 2021 $—  $—  $1,686,200  $1,686,200 
Exercises  —   —   (858)  (858)
Gain on change in fair value of warrant liabilities  —   —   (683,242)  (683,242)
Balance as of March 31, 2022 $—  $—  $1,002,100  $1,002,100 

 

There were no transfers of financial assets or liabilities between category levels for the three and six months ended June 30, 2021.

During the six months ended June 30, 2021 the Company recorded$4.2 million gain in other income because the fair value of the warrant liabilities declined to $4.1 million from $8.3 million at DecemberMarch 31, 2020, primarily due to a reduction in the stock price and to warrant exercises. For the six months ended June 30, 2020, change in fair value of warrant liabilities was $16.2 million due to the reverse recapitalization transaction.2022.

 

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 table shows the range of assumptions used in estimating the fair value of warrant liabilities as of June 30, 2021March 31, 2022 and December 31, 2020:2021:

SCHEDULE OF ASSUMPTIONS OF WARRANT LIABILITIES 

  June 30, 2021  December 31, 2020 
  Range 
Risk-free interest rate  0.34% — 0.46%  0.17% — 0.22% 
Expected volatility (peer group)  82.00 — 83.00 %  82.00% 
Term of warrants (in years)  2.41 — 2.99   2.90 — 3.49 
Expected dividend yield  0.00 %  0.00% 

  March 31, 2022  March 31, 2021 
  Range  Weighted Average  Range  Weighted Average 
Risk-free interest rate  2.03% — 2.29%  2.08%  0.28% — 0.42%  0.30%
Expected volatility (peer group)  88% — 101%  90.4%  81% — 84%  83.52%
Term of warrants (in years)  1.65 — 2.24   1.76   2.65 — 3.24   2.75 
Expected dividend yield  0.00%  0.00%  0.00%  0.00%

NOTE 8 — LEASESLOSS 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 table reconciles net loss and the weighted-average shares used in computing basic and diluted EPS in the respective periods:

SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED

  

For the Three Months Ended

March 31,

  

For the Three Months Ended

March 31,

 
  2022  2021 
       
Net loss used for basic earnings per share $(4,319,787) $(5,242,719)
         
Basic weighted-average common shares outstanding  35,294,051   28,165,796 
Dilutive potential shares issuable from stock options and warrants  —   — 
Diluted weighted-average common shares outstanding  35,294,051   28,165,796 

The following potentially dilutive securities have been excluded from diluted net loss per share as of March 31, 2022 and 2021 because their effect would be antidilutive:

SCHEDULE OF DILUTIVE SECURITIES EXCLUDED FROM DILUTED NET LOSS PER SHARE

  For the Three Months Ended
March 31,		  For the Three Months Ended
March 31,		 
  2022  2021 
Shares of common stock subject to outstanding options  4,864,023   4,033,856 
Shares of common stock subject to outstanding warrants  9,816,032   9,609,316 
Shares of common stock subject to conversion of Series Alpha Convertible Preferred Stock  —   243,418 
Total common stock equivalents  14,680,055   13,886,590 

NOTE 9 — COMMITMENTS AND CONTINGENCIES

 

Leases

The Company leases its facilities under a long-term operating lease agreement expiring in October 2022. agreement. On December 15, 2021, our wholly-owned subsidiary Qualigen, Inc. entered into a Second Amendment to Lease with Bond Ranch LP. This Amendment extended the Company’s triple-net leasehold on the Company’s existing 22,624-square-feet headquarters/manufacturing facility at 2042 Corte del Nogal, Carlsbad, California for the 61-month period of November 1, 2022 to November 30, 2027. Over the 61 months, the base rent payable by Qualigen, Inc. will total $1,950,710; however, the base rent for the first 12 months of the 61-month period will be only $335,966. Additionally, under the Second Amendment to Lease Qualigen, Inc. is entitled to a $339,360 tenant improvement allowance.

The tables below show the operating lease right-of-use assets and operating lease liabilities as of DecemberMarch 31, 2020 and June 30, 2021,2022, including the changes during the periods:

SCHEDULE OF OPERATING LEASE RIGHT OF USE ASSETS AND OPERATING LEASE LIABILITIES

  Operating lease
right-of-use assets		 
Net right-of-use assets at December 31, 2020  430,795 
Less amortization of operating lease right-of-use assets  (109,719)
Operating lease right-of-use assets at June 30, 2021 $321,076 
  Operating lease right-of-use assets 
Net right-of-use assets at December 31, 2021 $1,645,568 
Less amortization of operating lease right-of-use assets  (54,496)
Operating lease right-of-use assets at March 31, 2022 $1,591,072 

 

  Operating lease
liabilities		 
At December 31, 2020 $491,565 
Less principal payments on operating lease liabilities  (122,780)
Operating lease liabilities at June 30, 2021  368,785 
Less non-current portion  (98,145)
Current portion at June 30, 2021 $270,640 
  Operating lease liabilities 
Lease liabilities at December 31, 2021 $1,676,655 
Less principal payments on operating lease liabilities  (36,297)
Lease liabilities at March 31, 2022  1,640,358 
Less non-current portion  (1,484,833)
Current portion at March 31, 2022 $155,525 

 

As of March 31, 2022, the Company’s operating leases have a weighted-average remaining lease term of 5.6 years and a weighted-average discount rate of 8.9%.

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As of June 30, 2021, the Company’s operating leases have a weighted-average remaining lease term of 1.3 years and a weighted-average discount rate of 8.9%.

As of June 30, 2021,March 31, 2022, future minimum payments during the next five fiscal years and thereafter are as follows:

SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES

Year Ending December 31, Amount  Amount 
2021 (six months) $145,958 
2022  246,650 
2022 (nine months) $203,857 
2023  368,341 
2024  379,392 
2025  390,773 
2026  402,497 
2027  379,165 
Total  392,608   2,124,025 
Less present value discount  (23,823)  (483,667)
Operating lease liabilities $368,785  $1,640,358 

 

Total lease expense was approximately $86,000 for each of the three month periods ended June 30, 2021 and 2020, and approximately $172,000114,000 and $171,00086,000, respectively, for the six month periodsthree months ended June 30,March 31, 2022 and 2021, and 2020.respectively. Lease expense was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.

Termination of Sekisui Distribution Agreement

In March 2018, the Company extended a strategic partnership entered into in May 2016 with Sekisui Diagnostics, LLC (“Sekisui”). The Company appointed Sekisui as its diagnostics commercial partner and exclusive worldwide distributor with the exception of certain customer accounts retained by Qualigen; Sekisui’s distribution arrangement expired on March 31, 2022. Subsequent to the expiration of the agreement, in the second quarter of 2022 the Company will have a commitment to purchase leased FastPack rental systems back from Sekisui at Sekisui’s net book value, the amount of which has not yet been determined.

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. This amount is included in accounts payable and accrued expenses on the Company’s March 31, 2022 condensed consolidated balance sheet.

NOTE 910 — RESEARCH AND LICENSE AGREEMENTS

 

The University of Louisville Research Foundation

 

Between June 2018 and September 2020,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 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 $50,000convertible 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 $805,000and 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 $100,000 100,000to $5,000,000upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $100,000for first dosing in a Phase 1 clinical trial, $200,000for first dosing in a Phase 2 clinical trial, $350,000for first dosing in a Phase 3 clinical trial, $500,000for regulatory marketing approval and $5,000,000 $5,000,000 upon achieving a cumulative $500,000,000of Licensed Product sales; the Company would also pay another $500,000 $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 $10,000to $50,000) for such year.

 

1617
 

 

Sponsored research expenses related to these agreements for the three months ended June 30,March 31, 2022 and 2021 and 2020 were approximately $89,00087,000 and $2,000, and for the six months ended June 30, 2021 and 2020 were approximately $152,000 and $2,00062,000, respectively, and these amounts are recorded in research and development expenses in the condensed consolidated statements of operations. Minimum annual royalties of $0 for each period related to these agreements are included in research and development expenses in the statements of operations for the three months ended June 30, 2021 and 2020, respectively, and approximately $0 and $10,000 related to these agreements are included in research and development expenses in the statements of operations for the six months ended June 30, 2021 and 2020, respectively. License costs were approximately $17,00055,000 and $036,000 related to these agreements for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and approximately $53,000 and $0 related to these agreements for the six months ended June 30, 2021 and 2020, respectively, and are included in research and development expenses in the condensed consolidated statements of operations.

 

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 willagreed to reimburse ULRF for sponsored research expenses of up to $693,000for this program. In February 2021 and March 2022, the Company extended the term of this agreement for an additional 18 months (expires July 2022)until January 2023 and increased the amount that the Company will reimburse ULRF for sponsored research expenses from $693,000to approximately $1.42.7 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$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 $50,000to $5,000,000upon the achievement of certain regulatory and commercial milestones.Milestone payments for the first therapeutic indication would be $50,000for first dosing in a Phase 1 clinical trial, $100,000for first dosing in a Phase 2 clinical trial, $150,000for first dosing in a Phase 3 clinical trial, $300,000for regulatory marketing approval and $5,000,000upon achieving a cumulative $500,000,000of 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 $20,000to $100,000) for such year.

 

Sponsored research expenses related to these agreements for the three months ended June 30,March 31, 2022 and 2021 and 2020 were approximately $99,000184,000 and $139,000, respectively, and for the six months ended June 30, 2021 and 2020 were approximately $206,000 and $247,000107,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations. License costs related to these agreements for the three months ended June 30,March 31, 2022 and 2021 and 2020 were approximately $02,000 and $0, respectively, and for the six months ended June 30, 2021 and 2020 were approximately $40,000 and $046,000, respectively, and are included in research and development expenses in the condensed consolidated 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 $24,000for 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 $430,000in research which satisfied this requirement. This sponsored research agreement expired in November 2021.

 

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 June 30,March 31, 2022 and 2021 were $0and 2020 were approximately $25,000 and $0, respectively, and for the six months ended June 30, 2021 and 2020 were approximately $94,000 and $069,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations. LicenseThere were 0 license costs related to these agreements for the three months ended June 30, 2021March 31, 2022 and 2020 were approximately $16,000 and $0, respectively, and for the six months ended June 30, 2021 and 2020 were approximately $16,000 and $0, respectively.2021.

 

1718
 

 

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)$3,000,000) or 1% (if not patent-covered, but only on net sales above a cumulative $3,000,000)$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 June 30,March 31, 2022 and 2021, and 2020, there were 0license costs of $0and for the six months ended June 30, 2021 and 2020, there were approximately $2,000 and $0, respectively, in license costs related to this agreement.agreement which are included in research and development expenses in the condensed consolidated statements of operations.

 

Prediction 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 recognizes development revenue and product sales over the performance period of the contract. For both the three months ended June 30,March 31, 2022 and 2021, and 2020 there was $0 for each period, and for the six months ended June 30, 2021 and 2020, there was $0 and $45,000, respectively, in collaborative research revenue related to this agreement.

 

Sekisui Diagnostics

 

During the year endedIn March 31, 2018, the Company extended a strategic partnership entered into in May 2016 with Sekisui Diagnostics, LLC (“Sekisui”) until May 2022.. The Company appointed Sekisui as its diagnostics commercial partner and exclusive worldwide distributor with the exception of certain customer accounts retained by Qualigen. Sekisui’s distribution arrangement expired on March 31, 2022. The agreement contains a right of first refusal for Sekisui against any potential acquisition of the Company until Maywhich expired on March 31, 2022.

 

There were product sales to Sekisui of approximately $701,000403,000 and $420,0001,017,000, respectively, for the three months ended June 30,March 31, 2022 and 2021, and 2020, and product sales of approximately $1.7 million and $1.4 million related to this agreement, for the six months ended June 30, 2021 and 2020.agreement.

 

Yi Xin

 

In October 2020, the Company entered into a Technology Transfer Agreement 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 the Company’s core FastPack technology. In addition, the 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 received net cash payments of $250,000 in the final 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 first quarter of 2021. The Company will also receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. Of these amounts, theThe Company recognized $0 and approximately $38,000 in product sales and $0 and approximately $479,000 in license revenue included in the statement of operations for the sixthree months ended June 30, 2021. On the balance sheet at June 30,March 31, 2022 and 2021, the Company had deferred revenue of approximately $153,000 related to this agreement.respectively. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.

18

 

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 Spring 2022, need to be through Sekisui. In addition, after Spring. After March 31, 2022, Yi Xin will havehas 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-USnon-U.S. customers of those products). Also, after Spring 2022, Yi Xin will have, as well as 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 USU.S. 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 Spring 2022.lines. In the Technology Transfer Agreement, the Company also confirmed that it would not, after SpringMarch 31, 2022, seek new FastPack customers outside the United States.

 

STA Pharmaceutical

 

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, which was 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 six months ended June 30, 2021.

 

Research and development expenses related to this agreement for the three months ended June 30,March 31, 2022 and 2021 and 2020 were approximately $1.99,000 million and $01.1 , respectively, and for the six months ended June 30, 2021 and 2020 were approximately $3.1million, and $0, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations.

19

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 requires a $150,000upfront 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 March 31, 2022 and 2021, there were license costs of approximately $310,000 and $0, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations.

 

NOTE 1011 — STOCKHOLDERS’ EQUITY

 

As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had two classes of capital stock: common stock and Series Alpha convertible preferred stock.

 

Common Stock

 

Holders of common stock generally vote as a class with the holders of the preferred stock and are entitled to one vote for each share held. Subject to the rights of the holders of the preferred stock to receive preferential dividends, the holders of common stock are entitled to receive dividends when and if declared by the Board of Directors. Following payment of the liquidation preference of the preferred stock, as of June 30, 2021March 31, 2022 any remaining assets would be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series Alpha convertible preferred stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions.

 

At June 30, 2021,March 31, 2022, the Company has reserved 13,917,46114,680,055 shares of authorized but unissued common stock for possible future issuance.

At June 30, 2021,March 31, 2022, shares were reserved in connection with the following:

 

SCHEDULE OF RESERVED SHARES

Exercise of outstandingissued and future grants of stock options  4,133,8564,864,023 
Exercise of outstanding stock warrants  9,540,187
Conversion of outstanding Series Alpha preferred stock243,4189,816,032 
Total  13,917,46114,680,055 

Series Alpha Convertible Preferred Stock

 

In the six-month period ended June 30,As of March 31, 2022, and December 31, 2021, nothere were 0 shares of Series Alpha convertible preferred stock were converted into shares of the Company’s common stock, and there were 180 shares of Series Alpha preferred stock outstanding at June 30, 2021 and December 31, 2020.

19

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 shares of Company common stock, for which the exercise price is almost entirely prepaid) and (iii) 1,920,768 two-year warrants to purchase shares of Company common stock for an exercise price of $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 22, 2020.

On August 4, 2020, the Company closed a Securities Purchase Agreement (dated August 2, 2020) with a single institutional investor for the purchase and sale for $10.0 million for (i) 1,717,106 shares of Company common stock, and (ii) 1,287,829 two-year warrants to purchase 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 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, (ii) 1,000,000 pre-funded warrants (i.e., warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) (iii) 1,348,314 two-year warrants to purchase shares of Company common stock 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 purchase shares of Company common 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 exercised on February 4, 2021.outstanding.

 

Stock Options and Warrants

 

The Company recognizes 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 “2020 Plan”), which provides for the granting of incentive or nonstatutorynon statutory common stock options to qualified employees, officers, directors, consultants and other service providers. At June 30, 2021March 31, 2022 and December 31, 20202021 there were 4,040,0004,770,167 and 3,917,5004,748,000 outstanding options, respectively, under the 2020 Plan and on those dates there were 17,1572,786,990 and 139,6572,809,157 unused 2020 Plan shares available, respectively, for future grant. The shares available for future grant reflect a 2020 Plan amendment approved by the Company’s stockholders on August 9, 2021 where the number of shares of common stock available for issuance under the 2020 Plan was increased by 3,500,000.

20

 

The following represents a summary of the options granted (under the 2020 Plan and otherwise) to employees and non-employee service providers that are outstanding at June 30, 2021,March 31, 2022, and changes during the six-monththree-month period then ended:

SCHEDULE OF STOCK OPTION ACTIVITY

 Shares Weighted– Average
Exercise
Price		 

Range of Exercise

Price

 Weighted– Average Remaining
Life (Years)		  Shares  

Weighted–

Average

Exercise

Price

 

Range of

Exercise

Price

 

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – December 31, 2020  4,011,356  $7.05  $3.52—1,465.75   9.29 
Total outstanding – December 31, 2021  4,841,856  $6.07  $1.24 — $1,465.75   8.52 
Granted 127,000 2.12 1.80—3.29 9.83   25,000   1.05   1.05   9.79 
Expired — — — —   —   —   —   — 
Forfeited  (4,500)  3.68  3.52 — 4.97  —   (2,833) 3.00  1.24 - 4.97   — 
Total outstanding – June 30, 2021  4,133,856 $6.90 $1.80 — 1,465.75  8.82 
Total outstanding – March 31, 2022  4,864,023  $6.05  $1.05 — $1,465.75   8.28 
Exercisable (vested)  1,296,860 $11.50 $4.97 — 1,465.75  8.36   1,417,195  $10.83  $3.29 — $1,465.75   7.69 
Non-Exercisable (non-vested)  2,836,996 $4.80 $1.80 — 5.13  9.04   3,446,828  $4.08  $1.05 — $5.13   8.57 

 

There was approximately $1.3 million and $0.4 million of compensation cost related to outstanding options for each of the three months ended June 30, 2021March 31, 2022 and 2020, respectively, and approximately $2.5 million and $0.4 million of compensation cost related to outstanding options for the six months ended June 30, 2021 and 2020, respectively.2021. As of June 30, 2021,March 31, 2022, there was approximately $10.3 6.9million 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 1.98 1.35years.

 

NaN stock options were exercised during the six months ended June 30, 2021.

20
  Shares  

Weighted–

Average

Exercise

Price

  

Range of

Exercise

Price

  

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – December 31, 2020  4,011,356  $7.05  $3.52 - $1,465.75   9.29 
Granted  27,000   3.29   3.29   9.91 
Expired  —   —   —   — 
Forfeited  (4,500)  3.68  3.52 — 4.97   9.78 
Total outstanding – March 31, 2021  4,033,856  $7.03  $3.29 - $1,465.75   9.04 
Exercisable (vested)  108,856  $81.38  $4.97— $1,465.75   2.26 
Non-Exercisable (non-vested)  3,925,000  $4.96  $3.29 — $5.13   9.23 

 

The exercise price for an option issued under the 2020 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 2020 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 sixthree months ended June 30, 2021March 31, 2022 was $1.680.84.

 

Fair Value of Equity Awards

 

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

 

●Expected dividend yield. The expected dividend is assumed to be zero, as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.
●Expected stock-price volatility. The Company’s expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term.
●Risk-free interest rate.The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
●Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

 

21

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:

 SCHEDULE OF ASSUMPTIONS USED IN BLACK-SCHOLES OPTION-PRICING METHOD

 2022  2021 
 

For the three months

ended

March 31,

 
 

For the six months
ended
June 30, 2021

  2022  2021 
Expected dividend yield  0.00%  0.00%  0.00%
Expected stock-price volatility 102%  102%  102%
Risk-free interest rate 0.84% — 1.18%  1.58% — 1.67%  0.84% — 1.04%
Expected average term of options 6.0 
Expected average term of options (in years)  6.00   6.00 
Stock price $2.12  $1.05  $3.29 

 

The Company recorded share-based compensation expense and classified it in the unaudited condensed consolidated statements of operations as follows:

SCHEDULE OF SHARE-BASED COMPENSATION EXPENSE

 2022  2021 
 For the six months ended June 30,  

For the three months

ended

March 31,

 
 2021  2020  2022  2021 
General and administrative $2,201,499  $277,807  $1,113,384  $1,092,228 
Research and development  347,550   88,684   153,782   169,895 
Total $2,549,049  $366,491  $1,267,166  $1,262,123 

21

Equity Classified Compensatory Warrants

 

In connection with the $4.0 million equity capital raise as part of the May 2020 reverse recapitalization transaction, the Company issued common stock warrants to an advisor and its 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 7.

 

During the year ended December 31, 2021, the Company issued equity classified compensatory warrants to a service provider for the purchase of 600,000 shares of Company common stock at an exercise price of $1.32 per share. The fair value issuance cost of approximately $0.3 million using the Black-Scholes options pricing model for these warrants was charged to general and administrative expenses in the Company’s Consolidated Statements of Operations. In April 2022 these warrants were subsequently modified (see Note 13).

No compensatory warrants were issued during the sixthree months ended June 30, 2021.March 31, 2022.

 

The following table summarizes the activity in the common stock equity classified compensatory warrants received in exchange for the Series C convertible preferred stock equity classified compensatory warrants for the sixthree months ended June 30, 2021:March 31, 2022:

SCHEDULE OF WARRANT ACTIVITY

 Common Stock  Common Stock 
 Shares  

Weighted–

Average

Exercise
Price

  

Range of Exercise

Price

 Weighted–
Average
Remaining
Life (Years)		  Shares  

Weighted– Average

Exercise

Price

 

Range of

Exercise Price

 

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – December 31, 2020  1,294,217  $1.66         
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization - -     
Legacy Ritter warrants — —     
Granted — —     
Total outstanding – December 31, 2021  1,790,648  $1.52  $1.11 — $2.54   2.64 
Granted to advisor and its designees  —   —         
Exercised (38,390) 2.09       —   —         
Expired — —       —   —         
Forfeited  (65,179)  2.07       —   —         
Total outstanding – June 30, 2021  1,190,648 $1.62     
Total outstanding – March 31, 2022  1,790,648  $1.52  $1.11 — 2.54   2.39 
Exercisable  1,187,052 $1.62 $1.11 — 2.54  3.75   1,790,648  $1.52  $1.11 — $2.54   2.39 
Non-Exercisable  3,596 $2.54 $2.54  5.23   —  $—  $—   — 

 

Of the 38,390 shares issued upon the exercise of equity classified compensatory warrants during the six months ended June 30, 2021, 35,512 shares were issued upon net-exercises rather than upon exercises for cash.

22

 

The following table summarizes the activity in the common stock equity classified compensatory warrants received in exchange for the Series C convertible preferred stock equity classified compensatory warrants for the sixthree months ended June 30, 2020:March 31, 2021:

 

SCHEDULE OF WARRANT ACTIVITY Common Stock 
 Shares 

Weighted–

Average

Exercise
Price

 

Range of Exercise

Price

 

Weighted– Average Remaining

Life (Years)

  Common Stock 
Total outstanding – December 31, 2019 — $1.99     
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization 668,024 2.34     
Legacy Ritter warrants — —     
 Shares  

Weighted– Average

Exercise

Price

 

Range of

Exercise Price

 

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – December 31, 2020  1,294,217  $1.66         
Granted 811,431 1.11       —   —         
Exercised  (38,390)  2.09         
Expired — —       —   —         
Forfeited  —  —       (65,179)  2.07         
Total outstanding – June 30, 2020  1,479,455 $1.67     
Total outstanding – March 31, 2021  1,190,648  $1.61         
Exercisable  660,832 $2.34 $2.07 — 2.54  3.82   1,187,052  $1.60  $1.11 — $2.54   4.00 
Non-Exercisable  818,623 $1.12 $1.11 — 2.54  4.91   3,596  $2.54  $2.54   5.48 

There were 0no compensation costcosts related to outstanding equity classified compensatory warrants for the sixthree months ended June 30, 2021 and approximately $8,000March 31, 2022 or for the sixthree months ended June 30, 2020.March 31, 2021. As of June 30,March 31, 2022 and 2021, and 2020, there was were 0unrecognized compensation costcosts related to nonvested equity classified compensatory warrants.

22

 

Noncompensatory Equity Classified Warrants

 

In 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 at 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 in February 2021) and 2,191,010shares of Company common stock at an exercise price of $4.07 per share. No noncompensatory equity classified warrants were issued during the sixthree months ended June 30, 2021.March 31, 2022.

 

During the year ended December 31, 2021, with the exception of the warrants to purchase 270,478 shares of the Company’s common stock at an exercise price of $1.11 per share, the exercise prices of all outstanding warrants to purchase a total of 5,399,517 shares of the Company’s common stock were all modified to an exercise price of $2.00 per share on November 29, 2021 and each of their remaining terms extended by six months. The fair value of the modification cost of these warrant modifications of approximately $2.3 million was charged to additional paid-in capital and did not result in expense on the Company’s Consolidated Statements of Operations.

The following table summarizes the noncompensatory equity classified warrant activity for the sixthree months ended June 30, 2021:March 31, 2022:

SCHEDULE OF WARRANT ACTIVITY

 Common Stock  Common Stock 
 Shares  

Weighted–

Average

Exercise
Price

  

Range of Exercise

Price

 Weighted–
Average
Remaining
Life (Years)		  Shares  

Weighted–

Average

Exercise

Price

 

Range of

Exercise Price

 

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – December 31, 2020 6,549,777 $4.37     
Total outstanding – December 31, 2021  5,549,137  $2.01         
Legacy Ritter warrants  —   —         
Granted  —   —         
Exercised (1,000,000) 0.01       —   —         
Granted — —     
Expired — —       —   —         
Forfeited  —  —     —   —         
Total outstanding – June 30, 2021  5,549,777 $5.15     
Total outstanding – March 31, 2022  5,549,137  $2.01         
Exercisable  5,549,777 $5.15 $1.11 — 2,325.00  1.33   5,549,137  $2.01  $1.11 — $3.77   1.07 
Non-Exercisable  — $—  —  —   —  $—  $—   — 

 

NOTE 11 — RELATED PARTY TRANSACTIONS

In October 2017, Sekisui purchased all outstanding shares of the Company’s Series D and Series 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 converted 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 transition period ended December 31, 2020, Sekisui ceased to be a related party as to the Company. In the attached financial statements, information for 2020 periods and dates is presented without distinct “related party” treatment for items pertaining to Sekisui.

NOTE 12 — SUBSEQUENT EVENTS

Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, Subsequent Events, from the 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, except that effective July 1, 2021, the Company and Sekisui amended the scheduled termination date of the Sekisui Distribution and Development Agreement (see Note 9) to be March 31, 2022 instead of May 1, 2022, and by virtue of a 2020 Plan amendment approved by the Company’s stockholders on August 9, 2021, the number of shares of common stock available for issuance under the 2020 Plan was increased by 3,500,000.

23
 

NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)

As disclosed in 2021 Annual Report, our management identified an error in the previously issued March 31, 2021, June 30, 2021 and September 30, 2021 unaudited interim condensed consolidated financial statements in which the fair value of its exercised liability classified warrants had been inadvertently excluded from reclassification into shareholders’ equity. All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error as shown in the table below.

SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS

  As reported  Corrected 
  

For the Quarter

Ended

March 31, 2021

 
  As reported  Corrected 
Gain on change in fair value of warrant liabilities $(2,122,900) $(552,808)
Net loss $(3,672,627) $(5,242,719)
Net loss per common share $(0.13) $(0.19)

NOTE 13 — SUBSEQUENT EVENTS

On April 25, 2022, the Company amended the terms of outstanding warrants to purchase 600,000 shares of the Company’s common stock previously issued to GreenBlock, LLC on December 3, 2021 (300,000 of which had been transferred to an individual affiliated with GreenBlock, LLC), to reduce the exercise price of the warrants to $0.60 per share and extend the expiration date to September 14, 2023.

On April 29, 2022, the Company entered into a Series B Preferred Share Purchase Agreement (the “Series B Purchase Agreement”) with NanoSynex Ltd., a company established under the laws of the State of Israel (“NanoSynex”), pursuant to which it will acquire 381,786 newly authorized Series B preferred shares of NanoSynex, nominal value NIS 0.01 per share, for a total purchase price of $600,000, subject to certain closing conditions described in the Series B Purchase Agreement. As a condition to the Series B Purchase Agreement, the Company has agreed to, among other things, enter into a Master Agreement for the Operational and Technological Funding of NanoSynex (the “Funding Agreement”), pursuant to which the Company will agree to fund NanoSynex up to an aggregate of approximately $10.4 million over the following three years, subject to NanoSynex’s achievement of certain performance milestones specified in the Funding Agreement and the satisfaction of other terms and conditions described in the Funding Agreement.

Also on April 29, 2022, the Company entered into a Share Purchase Agreement (the “Series A-1 Purchase Agreement”) with Alpha Capital Anstalt (“Alpha”), pursuant to which it will acquire 2,232,861 Series A-1 preferred shares, nominal value NIS 0.01 each, of NanoSynex from Alpha in exchange for 3,500,000 shares of Company common stock and pre-funded warrants to purchase 2,432,203 shares of Company common stock, subject to certain closing conditions described in the Series A-1 Purchase Agreement.

Subject to the satisfaction of the applicable closing conditions set forth in the Series B Purchase Agreement and Series A-1 Purchase Agreement, the Company will acquire an approximate 53% interest in the voting securitiesof NanoSynex. The Company believes the NanoSynex share purchases result in a business combination which will be accounted for during the three and six months ended June 30, 2022, respectively.

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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(this “Quarterly Report”) and the audited financial statements and notes thereto as of and for the nine-months transition periodtwelve months ended December 31, 2020,2021, which are contained in our TransitionAnnual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021.2022 (as amended, the “2021 Annual Report.) As used in this Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “Qualigen” refer to Qualigen Therapeutics, Inc. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

 

Cautionary Note Regarding Forward Looking Statements

 

This Quarterly Report contains forward-looking statements by the CompanyQualigen Therapeutics, Inc. that involve risks and uncertainties and reflect the Company’sour judgment as of the date of this Quarterly Report. These statements generally relate to future events or the Company’sour future financial or operating performance. In some cases, you can identify forward-looking statements because 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’sour expectations, strategy, plans or intentions. Such forward-looking statements may relate to, among other things, potential future development, testing and launch of products and product candidates. Actual events or results may differ from our expectations.expectations due to a number of factors.

 

Some of the factors that we believe could cause actual resultsThese forward-looking statements include, but are not limited to, differ from those anticipated or predicted include:statements about:

 

 ●there can be no assurance that we willour ability to successfully develop any drugs or therapeutic devices;
 ●our ability to progress our drug candidates or therapeutic devices through preclinical and clinical development;
 ●there can be no assurance that preclinical orour ability to obtain the requisite regulatory approvals for our clinical development of our candidate drugs or therapeutic devices will be successful;trials and to begin and complete such trials according to any projected timeline;
 ●
●there can be no assurance thatour ability to complete enrollment in our clinical trials will be approved to begin by or will actually begin by or will proceed as contemplated by any projected timeline;
 ●
●there can be no assurance that clinical trials will complete enrollment as contemplated by any projected timeline;
●there can be no assurancethe likelihood that future clinical trial data will be favorable or that such trials will confirm any improvements over other products or lack negative impacts;
 ●our ability to successfully commercialize any drugs or therapeutic devices;
 ●there can be no assurance that any drugs or therapeutic devices will receive required regulatory approvals or that they will be commercially successful;
●there can be no assurance that we will be ableour ability to procure or earn sufficient working capital to complete the development, testing and launch of our prospective therapeutic products;
 ●
●there can be no assurancethe likelihood that patents will issue on our owned and in-licensed patent applications;
 ●our ability to protect our intellectual property;
 ●there can be no assurance that such patents, if any, and our current owned and in-licensed patents would prevent competition;ability to compete;
 ●
●there can be no assurance that we will be ableour ability to maintain or expand market demand and/or market share for our diagnostic products generally, particularly in viewlight of COVID-19-related deferral of patients’ physician-office visits and in view of FastPack reimbursement pricing challenges.
●there can be no assurance that adoption and placement of FastPack PRO System analyzers will be widespread;challenges; and
 ●
●there can be no assurance that we will be ableour ability to manufacturemaintain our FastPack PRO System analyzers successfully.diagnostic sales and marketing engine without interruption following the expiration of our distribution agreement with Sekisui.

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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. These risks and uncertainties include risks related to our financial position and our ability to raise additional capital as needed to fund our operations and product development; risks related to the initiation, cost, timing, progress and results of current and future research and development programs, preclinical studies and clinical trials and our ability to obtain and maintain regulatory approvals; risks related to our reliance on third party suppliers and manufacturers; risks related to market acceptance of our products and competition; risks related to the ongoing COVID-19 pandemic and the war in Ukraine, including instability in the global credit markets and supply chain disruptions. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. 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. 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.

25

 

Future 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 statements. 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 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 on which they are made.

 

Overview

 

We are a biotechnologydiversified life sciences company focused on developing novel therapeuticstreatments for the treatment of canceradult and infectious diseases, as well as operating our core FDA-approved FastPack® System, which has been used successfully in diagnosticspediatric cancers with potential for 20 years.Orphan Drug designation, while also commercializing diagnostics. Our cancer therapeutics pipeline includes QN-302, QN-247 RAS-F and STARS.RAS-F. Our investigational QN-302 compound is a small molecule G4 selective transcription inhibitor with strong binding affinity to G4s prevalent in cancer cells. Such binding could, by stabilizing the G4s against “unwinding,” help inhibit cancer cell proliferation. 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;cancer; the nanoparticle coatingconjugate technology is similar to the core nanoparticle coating technology used in our blood-testing diagnostic products. The foundational aptamer of QN-247 is QN-165 (formerly referred to as AS1411), is alsowhich the Company has deprioritized as a drug candidate for treating COVID-19 and other viral-based infectious diseases. 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 RAS-driven tumors such as pancreatic, colorectal and lung cancers. We are also identifying strategic partnering opportunities for STARS, is a DNA/RNA-based treatmenttherapeutic device candidateproduct concept for removal from circulating blood ofremoving precisely targeted tumor-produced and viral compounds.compounds from circulating blood.

 

On July 13, 2021, we filed an Investigational New Drug (IND) application with the FDA to seek approval to commence Phase 1b/2a clinical studies with QN-165 in hospitalized COVID-19 patients, but on August 11, 2021 the FDA informed us that additional preclinical studies would be required in order for such application to be cleared. There can be no assurance when (if ever) the FDA would clear this IND application or any other IND application we may file. We have decided to deprioritize this QN-165 program.

Because our therapeutic candidates are still in the development stage, our only products that are currently commercially available are theOur FastPack System diagnostic instruments and test kits.kits are sold commercially primarily in the United States, as well as certain European countries. The FastPack System menu includes a rapid, point-of-carehighly accurate immunoassay diagnostic teststesting system 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, providingprovide analyzers to our customers (physician offices, clinics and small hospitals) at low cost in order to increase sales volumes of higher-margin test kits. PursuantPrior to a distribution agreement, we are required to rely onMarch 31, 2022, most of our diagnostics distributionFastPack product sales were through our partner Sekisui Diagnostics, LLC (“Sekisui”) for most FastPackpursuant to a distribution worldwide until March 31, 2022. We maintainagreement, but we maintained 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 group in the US,United States, with 4440 locations. The distribution agreement with Sekisui expired on March 31, 2022, at which time the services provided by Sekisui reverted to us and as of April 1, 2022 we recognize 100% of the revenue from the sales of our FastPack diagnostic instruments and test kits. We have licensed and technology-transferred our FastPack System technology to Yi Xin Zhen Duan Jishu (Suzhou) Ltd., for the China diagnostics market.

25

We domarket and other markets outside of the United States in which the Company does not expect to be profitable before products from our therapeutics pipeline are commercialized, because we foresee that research and development expenses on the therapeutics programs will significantly exceed the profits, if any, that we might have from our diagnostics products. To experience losses while therapeutic products are still under development is, of course, typical for biotechnology companies.currently sell.

 

Our 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 diagnostics-related, our reported expenses represent the total of our therapeutics-related and diagnostics-related expenses.

 

Completion of Reverse Recapitalization Transaction with Ritter

On 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 the 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 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.

Distribution and Development Agreement with Sekisui

 

In May 2016, through our wholly-owned diagnostics subsidiary Qualigen, Inc., we entered into a Distribution and Development Agreement (the “Distribution Agreement”) with Sekisui. Under the Distribution Agreement, Sekisui servesserved as the exclusive worldwide distributor for FastPack products (although we retainretained certain specific accounts for direct transactions). Sekisui’s exclusive distribution arrangements are effective untilexpired on March 31, 2022.

 

Under the Distribution Agreement, we began development of a proposed “FastPack 2.0” product line for a new whole blood vitamin D assay, which if successfully introduced by us would have been distributed 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.milestones related to this product line.

 

Under this program, we developed a FastPack 2.0 diagnostic test for a new whole blood vitamin D assay, and we thenWe conducted a clinical trial of itFastPack 2.0 in March 2019. We2019, and determined in May 2019 that it was uncertain whether the results of the trial would enable the test to receive FDA approval, andapproval. As a result, we discontinued our FastPack 2.0 project with Sekisui was discontinued.Sekisui. Currently, no further FastPack 2.0 analyzer or test development is ongoing, and we have licensed and transferred our FastPack 2.0 technology to Yi Xin Zhen Duan Jishu (Suzhou) Ltd. for them to further develop and commercialize.commercialize as described below.

 

We became obligated to pay Sekisui $0.9 million for $0.5 million in research and development costs advanced by Sekisui to us and for the reimbursement of $0.4 million in 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.

Our expectation is that upon regaining FastPack distribution rights from Sekisui, we would be able to improve the profitability of our diagnostics business.

26
 

 

Technology Transfer Agreement with Yi Xin

 

Through our wholly-owned diagnostics subsidiary Qualigen, Inc., we entered into a Technology Transfer Agreement dated as of October 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$670,000, of which we recognized approximately $38,000 in the final quarter of calendar 2020, classified as deferredproduct sales and $632,000 in license revenue as of the balance sheet date of December 31, 2020, and a cash payment of $420,000 during the first quarter of 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, weThere were no product sales or license revenue for the three months ended March 31, 2022. We recognized approximately $38,000 in product sales and $479,000 in license revenue included in the condensed consolidated statement of operations for the six months ended June 30, 2021, but none in the three months ended June 30,March 31, 2021.

 

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

 

In the Technology Transfer Agreement (as amended in August 2021), 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 havehas 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 Spring 2022, need to be through Sekisui.. In addition, after SpringMarch 31, 2022, Yi Xin will havehas 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 SpringMarch 31, 2022, Yi Xin will havehas 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 SpringMarch 31, 2022.

 

In the Technology Transfer Agreement, we also confirmed that we would not, after Springthe March 31, 2022 the expiration of the Sekisui Distribution Agreement, 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

 

In 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” givethis provision gives 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 of 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 (“U.S. GAAP”) require us to recognize the fair value of these warrants as warrant liabilities on our condensed consolidated balance sheets and to reflect period-to-period changes in the fair value of the warrant liabilities on our statements of operations.

The size of these warrant liabilities at June 30, 2021March 31, 2022 was quite large ($4.1 million)$1.0 million, and caused a significant distortion of our balance sheet at June 30, 2021 and our results of operationsthe change in fair value was $0.7 million for the three months and six month periods ended June 30, 2021.March 31, 2022. Because this fair value will be determined each quarter on a “mark-to-market” basis, this item will usually result in significant variability in our future quarterly and annual statements of operations and condensed consolidated 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 of the warrant liabilities and a quarter-to-quarter decrease in our stock price would result in a (possibly quite large) decrease in the fair value of the warrant liabilities. Approximately 41%There were 2,476,251 and 2,481,614 of these “exploding warrants” were exercised or forfeited through June 30, 2021, which will tend to reduce the amplitude of this variability. (There were 2,799,762 and 3,378,596 of these “exploding warrants”warrants outstanding at June 30, 2021March 31, 2022 and December 31, 2021, respectively.

COVID-19 Update

The COVID-19 pandemic has had a dramatic impact on businesses globally and our business as well. Our sales of diagnostic products fell significantly during 2020 respectively.) Weand our net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. Since then we have experienced some recovery in demand. The severity and duration of the pandemic and economic repercussions of the virus and government actions taken in response to the pandemic remain uncertain and will ultimately depend on many factors, including the speed of global dissemination and effectiveness of the vaccination and containment efforts throughout the world, the duration and spread of the virus, as well as seasonality, variants or new outbreaks.

In the United States, federal, state, and local government directives and policies have been put in place throughout the course of the pandemic to manage public health concerns and address the economic impacts of the pandemic, including reduced business activity and overall uncertainty presented by this new healthcare challenge. Similar actions have been taken by governments around the world. Our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates or as a result of the pandemic. To mitigate risks, we continue to encourageevaluate the holders of these warrantsextent to exercise them,which COVID-19 may impact our business and if the number of outstanding “exploding warrants” is further reduced the potential amplitude of the changes in the warrant liabilities will correspondingly be further reduced.operations and adjust risk mitigation planning and business continuity activities as needed.

 

27
 

 

Results of Operations

 

Comparison of the Three Months Ended June 30,March 31, 2022 and 2021 and 2020

 

The following table summarizes our results of operations for the three months ended June 30, 2021March 31, 2022 and 2020:2021:

 

 

For the Three Months Ended

June 30,

  

For the Three Months Ended

March 31,

 
 2021  2020  2022  2021 
REVENUES                
Net product sales $1,117,935  $904,067  $722,029  $1,420,842 
License revenue  —   478,654 
Total revenues  1,117,935   904,067   722,029   1,899,496 
                
EXPENSES                
Cost of product sales  916,624   807,922   828,848   1,202,479 
General and administrative  2,952,100   1,979,614   2,898,751   2,873,939 
Research and development  4,508,466   597,345   1,864,745   3,499,373 
Sales and marketing  135,543   88,844   138,323   136,587 
Total expenses  8,512,733   3,473,725   5,730,667   7,712,378 
                
LOSS FROM OPERATIONS  (7,394,798)  (2,569,658)  (5,008,638)  (5,812,882)
                
OTHER EXPENSE (INCOME), NET        
Loss (gain) on change in fair value of warrant liabilities  (2,075,100)  16,201,400 
Interest (income) expense, net  (12,718)  57,364 
Other (income), net  (2,352)  (250,114)
Total other expense (income), net  (2,090,170)  16,008,650 
OTHER (INCOME), NET        
Gain on change in fair value of warrant liabilities  (683,242)  (552,808)
Interest income, net  (6,309)  (17,343)
Other income, net  (36)  (543)
Total other income, net  (689,587)  (570,693)
                
LOSS BEFORE PROVISION FOR INCOME TAXES  (5,304,628)  (18,578,308)  (4,319,051)  (5,242,189)
                
PROVISION FOR INCOME TAXES  605   597   736   530 
                
NET LOSS $(5,305,233) $(18,578,905) $(4,319,787) $(5,242,719)

 

Revenues

 

Net product sales

 

Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the three-month periods ended June 30,March 31, 2022 and 2021 and 2020 were approximately $1.1$0.7 million and $0.9$1.4 million, respectively, representing an increasea decrease of approximately $0.2$0.7 million, or 24%49%. This improvementdecline was due to a recovery from the effectstermination of the COVID-19 pandemic experiencedSekisui Distribution Agreement which caused Sekisui to reduce its purchases from us during the quarter as it sold off its remaining inventory prior year.to termination of the agreement on March 31, 2022.

 

However, net product sales for the second quarter of 2021 declined sequentially from the approximately $1.4 million figure of the first quarter of 2021, and our year-over-year increase in quarterly net product sales was restrained, in part as a result of sporadic problems with our manufacturing equipment during the second quarter of 2021 which affected our ability to supply.

License Revenue

 

InThere was no license revenue for three months ended March 31, 2022. During the three months ended June 30,March 31, 2021 salesthere was approximately $0.5 million, due to the recognition of our Testosterone test kits to end users exceeded sales of our Total PSA test kits to end users; in no previous calendar quarter had this occurred.

revenue from Yi Xin under the Technology Transfer Agreement.

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Expenses

 

Cost of Product Sales

 

Cost of product sales increaseddecreased during the three months ended June 30, 2021,March 31, 2022, to $916,000,$0.8 million, or 82%115% of net product sales, versuscompared to approximately $808,000,$1.2 million, or 89%85% of net product sales, during the three months ended June 30, 2020.March 31, 2021. This decrease of $0.4 million, and increase as a percentage of $109,000sales was primarily due to higher manufacturing labor costs and higher allocated manufacturing-support costsa reduction in production volumes compared to the prior period due to the termination of research and development personnel.the Sekisui Distribution Agreement which caused negative gross profit, as Sekisui sold off its remaining inventory during the three months ended March 31, 2022.

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General and Administrative Expenses

 

General and administrative expenses increased sharply from $2.0were approximately $2.9 million duringfor both the three months ended June 30, 2020, to $3.0 million duringMarch 31, 2022 and 2021. For the three months ended June 30, 2021. This increase was primarily due to $0.8 million in employee/director stock-based compensation expense, and aMarch 31, 2022, payroll related expenses increased by $0.2 million increaseand legal fees increased by $0.2 million, offset by a decrease in payroll and insurance expenses, all primarily relatedconsulting fees of $0.4 million compared to our public-company status during the three months ended June 30, 2021 in contrast to our private-company status during most of the three months ended June 30, 2020.March 31, 2021.

 

Research and Development Costs

 

Research and development costs include therapeutic and diagnostic research and product development costs. We have shifted our focus in this category toward therapeutics. Research and development costs increaseddecreased from $0.6$3.5 million for the three months ended June 30, 2020March 31, 2021 to $4.5$1.9 million for the three months ended June 30, 2021.March 31, 2022. Of the $0.6$1.9 million of research and development costs for the three months ended June 30, 2020, $0.34March 31, 2022, $1.6 million (58%(85%) was attributable to therapeutics and $0.25$0.3 million (42%(15%) was attributable to diagnostics. Of the $4.5$3.5 million of research and development costs for the three months ended June 30,March 31, 2021, $4.2$3.2 million (93%(91%) was attributable to therapeutics and $0.3 million (7%(9%) was attributable to diagnostics.

 

The increasedecrease in therapeutics research and development costs during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to $3.4a $2.6 million decrease in expensespre-clinical research costs related to the potential application of QN-165 tofor the treatment of COVID-19 ($2.5 million in drug compound manufacturing costs, and $0.9 million in other pre-clinical research costs for the three months ended June 30, 2021, as compared to $0.2(which has since been deprioritized), offset by an increase of $0.4 million in pre-clinical research costs for the three months ended June 30, 2020), as well asQN-302, which we acquired in January 2022, an increase of $0.4 million in pre-clinical research and development cost increasescosts for QN-247, an increase of about $0.2$0.1 million in pre-clinical research costs for QN-247,our RAS program, and an increase of about $0.5$0.1 million in payroll and professional servicerelated expenses. Of the $2.5 million in drug compound manufacturing costs during the three months ended June 30, 2021, $1.9 million consisted of expenses incurred with STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, our manufacturer of QN-165 for our anticipated clinical trials.

 

For the future, we expect our therapeutic research and development costs to continue to increase and to significantly outweigh our diagnostic research and development costs.costs, and to be relatively lower in periods when we are focusing on pre-clinical activities and meaningfully higher in periods when we are provisioning for and conducting clinical trials, if any.

 

Sales and Marketing Expenses

 

Sales and marketing expenses duringwere approximately $0.1 million for both the three months ended June 30, 2021 increased to approximately $136,000 as compared to approximately $89,000 during the three months ended June 30, 2020, primarily due to an increase in payrollMarch 31, 2022 and recruiting expenses related to our diagnostics business.2021.

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Other Expense (Income)Income

 

Change in Fair Value of Warrant Liabilities

 

During the three months ended June 30,March 31, 2022 and 2021, we experienced (primarily due to a decrease in our stock price during the period) a $2.1$0.7 million and $0.6 million gain, on change in the fair value of the warrant liabilities arising from our “exploding warrants” series (containing a “double-ratchet” provision) issued by Qualigen, Inc. many years ago to brokers and investors in connection with a 2004 private placement. By contrast, for the three months ended June 30, 2020, we experienced a $16.2 million lossrespectively, on change in fair value of warrant liabilities, primarily due to the reverse recapitalization transactiondeclines in our stock price and an associated increase in the market price of our common stock.warrant exercises during both periods. Typically, a decline in our stock price would result in a decline in the fair value of our warrant liabilities, generating an item of income; buta gain, while an increase in our stock price would result in an increase in the fair value of our warrant liabilities, generating a loss.

 

Because the fair value of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to continue to result in significant variability in our future quarterly and annual statements of operations based on unpredictable changes in our public market common stock price and the number of liability classified warrants outstanding at the end of each quarter.

 

Interest (Income) Expense,Income, Net

 

There was approximately $13,000$6,000 and $17,000 in net interest income during the three months ended June 30,March 31, 2022 and 2021, versus net interest expense of approximately $57,000 during the three months ended June 30, 2020. Interest on $1.7 million principal amount of convertible notes payable ceased to accrue when they automatically converted in May 2020 upon the closing of the reverse recapitalization transaction. In addition, between April 1, 2020 and December 31, 2020 we paid off our revolving factoring line of credit facility and repaid approximately $0.9 million to Sekisui. During the second quarter of 2021 we paid off our Equipment Financing Agreements which eliminated all of our outstanding notes payable.respectively.

 

Other (Income),Income, Net

 

ThereOther income was approximately $2,000 in other incomeimmaterial during the three months ended June 30, 2021, compared to approximately $250,000 in other income during the three months ended June 30, 2020, of which $250,000 resulted from a license option fee for our FastPack 2.0 technology during the prior period.

Comparison of the Six Months Ended June 30, 2021March 31, 2022 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:

  

For the Six Months Ended

June 30,

 
  2021  2020 
REVENUES        
Net product sales $2,538,776  $2,315,823 
License revenue  478,654   — 
Collaborative research revenue  

—

   45,000 
Total revenues  3,017,430   2,360,823 
         
EXPENSES        
Cost of product sales  2,119,103   1,799,574 
General and administrative  5,826,038   2,897,993 
Research and development  8,007,840   835,403 
Sales and marketing  272,129   181,106 
Total expenses  16,225,110   5,714,076 
         
LOSS FROM OPERATIONS  (13,207,680)  (3,353,253)
         
OTHER EXPENSE (INCOME), NET        
Loss (gain) on change in fair value of warrant liabilities  (4,198,000)  16,201,400 
Interest (income) expense, net  (30,061)  148,121 
Other (income), net  (2,894)  (251,272)
Total other expense (income), net  (4,230,955)  16,098,249 
         
LOSS BEFORE PROVISION FOR INCOME TAXES  (8,976,725)  (19,451,502)
         
PROVISION (BENEFIT) FOR INCOME TAXES  1,135   (22)
         
NET LOSS $(8,977,860) $(19,451,480)

Revenues

Our operating revenues are primarily generated from sales of diagnostic tests. Revenues during the six months ended June 30, 2021 were $3.0 million compared to $2.4 million during the six months ended June 30, 2020, an increase of $0.6 million. This increase was primarily due to recognition of license revenue from Yi Xin under the Technology Transfer Agreement, an item which had no counterpart in the six months ended June 30, 2020, as well as an increase in diagnostic product sales.

Net product sales

Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the six-month periods ended June 30, 2021 and 2020 were approximately $2.5 million and $2.3 million, respectively, representing an increase of approximately $0.2 million, or 10%. This improvement was due to a recovery from the effects of the COVID-19 pandemic during the prior year.

License revenue

License revenue during the six months ended June 30, 2021 was $479,000, due to the recognition of revenue from Yi Xin under the Technology Transfer Agreement in the first quarter of 2021. There was no license revenue during the six months ended June 30, 2020.

Collaborative research revenue

Collaborative research revenue is recognized as research services are performed over the development period for each agreement. There was no collaborative research revenue during the six months ended June 30, 2021, as compared to $45,000 during the six months ended June 30, 2020, which arose from our development work toward a cellular fibronectin assay for Prediction BioSciences SAS.

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Expenses

Cost of Product Sales

Cost of product sales increased during the six months ended June 30, 2021, to $2.1 million, or 83% of net product sales, versus approximately $1.8 million, or 78% of net product sales, during the six months ended June 30, 2020. This increase of $0.3 million, and increase in percentage, were primarily due to higher manufacturing labor costs and higher allocated manufacturing-support costs of research and development personnel.

General and Administrative Expenses

General and administrative expenses increased sharply from $2.9 million, during the six months ended June 30, 2020, to $5.8 million during the six months ended June 30, 2021. This increase was primarily due to $1.9 million in employee/director stock-based compensation expense, a $0.5 million increase in insurance expenses, and a $0.5 million increase in payroll expenses, all primarily related to our public-company status during the six months ended June 30, 2021 in contrast to our private-company status during most of the six months ended June 30, 2020.

Research and Development Costs

Research and development costs include therapeutic and diagnostic research and product development costs. We have shifted our focus in this category toward therapeutics. Research and development costs increased from $0.8 million for the six months ended June 30, 2020 to $8.0 million for the six months ended June 30, 2021. Of the $0.8 million of research and development costs for the six months ended June 30, 2020, $0.5 million (60%) was attributable to therapeutics and $0.3 million (40%) was attributable to diagnostics. Of the $8.0 million of research and development costs for the six months ended June 30, 2021, $7.3 million (91%) was attributable to therapeutics and $0.7 million (9%) was attributable to diagnostics.

The increase in diagnostic research and development costs was primarily due to increased stock-based compensation expense related to our public-company status, and wind-down costs related to the withdrawn COVID-19 antibody diagnostic test during the six months ended June 30, 2021. The increase in therapeutics research and development costs was primarily due to $5.9 million in expenses related to the potential application of QN-165 to treatment of COVID-19 ($4.2 million in drug compound manufacturing costs, and $1.6 million in other pre-clinical research costs for the six months ended June 30, 2021, as compared to $0.2 million in pre-clinical research costs for the six months ended June 30, 2020), as well as pre-clinical research and development cost increases of about $0.3 million for QN-247 and about $0.2 million for RAS. Of the $4.2 million in drug compound manufacturing costs during the six months ended June 30, 2021, $3.1 million consisted of payments made to STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, our manufacturer of QN-165 for our anticipated clinical trials.

For the future, we expect our therapeutic research and development costs to continue to increase and to significantly outweigh our diagnostic research and development costs.

Sales and Marketing Expenses

Sales and marketing expenses during the six months ended June 30, 2021 increased to approximately $272,000 as compared to $181,000 during the six months ended June 30, 2020, primarily due to an increase in payroll and recruiting expenses related to our diagnostics business.

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Other Expense (Income)

Change in Fair Value of Warrant Liabilities

During the six months ended June 30, 2021 we experienced (primarily due to a decrease in our stock price during the period) $4.2 million in other income because the fair value of the warrant liabilities arising from our “exploding warrants” series (containing a “double-ratchet” provision) issued by Qualigen, Inc. many years ago to brokers and investors in connection with a 2004 private placement declined to $4.1 million from $8.3 million at December 31, 2020. For the six months ended June 30, 2020, loss on change in fair value of warrant liabilities was $16.2 million due to the reverse recapitalization transaction and an associated increase in the market price of our common stock. Typically a decline in our stock price would result in a decline in the fair value of our warrant liabilities, generating an item of income; but an increase in our stock price would result in an increase in the fair value of our warrant liabilities, generating a loss.

Because the fair value of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to continue to result in significant variability in our future quarterly and annual statements of operations based on unpredictable changes in our public market common stock price and the number of warrants outstanding at the end of each quarter.

Interest (Income) Expense, Net

There was about $30,000 in net interest income during the six months ended June 30, 2021 versus net interest expense of approximately $148,000 during the six months ended June 30, 2020. Interest on $1.7 million principal amount of convertible notes payable ceased to accrue when they automatically converted in May 2020 upon the closing of the reverse recapitalization transaction. In addition, between April 1, 2020 and December 31, 2020 we paid off our revolving factoring line of credit facility and repaid approximately $0.9 million to Sekisui. During the second quarter of 2021 we paid off our Equipment Financing Agreements which eliminated all of our notes payable.

Other (Income), Net

There was approximately $3,000 in other income during the six months ended June 30, 2021, and approximately $251,000 in other income during the first six months of 2020, of which $250,000 resulted from a license option fee for our FastPack 2.0 technology.

 

Liquidity and Capital Resources

 

As of June 30, 2021,March 31, 2022, we had $15.2$13.6 million of cash and cash equivalents. However, we have sufferedcash. The Company has incurred recurring losses from operations and expecthas an accumulated deficit at March 31, 2022. The Company expects to continue to do so.incur losses subsequent to the condensed consolidated balance sheet date of March 31, 2022. In December 2021, the Company raised $8.82 million through a Securities Purchase Agreement with several institutional investors. Based on ourthe Company’s current cash position, and assuming currently planned expenditures and level of operations, we believe we havethe Company believes it has sufficient capital to fund operations for the twelve-month12-month period subsequent to the dateissuance of this Quarterly Report.the accompanying unaudited condensed financial statements. However, there is no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. Also, beyond such 12-month period, planned research and development activities, capital expenditures, clinical and pre-clinical testing, and commercialization activities of the Company’s products are expected to require significant additional financing. Additional financing may not be available on acceptable terms or at all.

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As a pre-clinical development-stage therapeutics biotechnology company, we expect to continue to have net losses and negative cash flow from operations, which over time will challenge our liquidity. 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 our business plan, including full clinical trials of therapeutic drug candidates, we will require significant additional financing. 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.

 

Our condensed consolidated balance sheet at June 30, 2021March 31, 2022 included $4.1$1.0 million of warrant liabilities. We do not consider that the warrant liabilities constrain our liquidity, as a practical matter. Our current liabilities at June 30, 2021March 31, 2022 included $0.8$1.0 million of accounts payable and $1.9$1.3 million of accrued expenses and other current liabilities.

Contractual Obligations and Commitments

On December 15, 2021, our wholly-owned subsidiary Qualigen, Inc. entered into a Second Amendment to Lease with Bond Ranch LP. This Amendment extended the Company’s triple-net leasehold on its existing 22,624-square-foot headquarters/manufacturing facility at 2042 Corte del Nogal, Carlsbad, California for the 61-month period of November 1, 2022 to November 30, 2027. Over the 61 months, the base rent payable will total $1,950,710; however, the base rent for the first 12 months of the 61-month period will be only $335,966. Additionally, Qualigen, Inc. is entitled to a $339,360 tenant improvement allowance. See Note 9 of the consolidated financial statements for additional details.

We have no material contractual obligations not fully recorded on our condensed consolidated balance sheets or fully disclosed in the notes to the financial statements.

We have obligations under various license and sponsored research agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing for product approval with the FDA or other regulatory agencies, product approval by the FDA or other regulatory agencies, product launch or product sales) or on the sublicense of our rights to another party. We have not included these commitments on our balance sheet because the achievement and timing of these events is not fixed and determinable. Certain milestones are in advance of receipt of revenue from the sale of products and, therefore, we may require additional debt or equity capital to make such payments.

These commitments include multiple license and sponsored research agreements with UofL Research Foundation (“ULRF”). Under these agreements, we will take over development, regulatory approval and commercialization of various drug compounds from ULRF and are responsible for maintenance of the related intellectual property portfolio. We agreed to reimburse ULRF for sponsored research expenses of up to $805,000 and prior patent costs of up to $200,000 for QN-247. As of March 31, 2022 we had up to $52,000 remaining due under this sponsored research agreement for QN-247. We also agreed to reimburse ULRF for sponsored research expenses of up to $2.7 million and prior patent costs of up to $112,000 for RAS. As of March 31, 2022 we had up to $1.4 million remaining due under this sponsored research agreement for RAS. We agreed to reimburse ULRF for sponsored research expenses of up to $430,000 and prior patent costs of up to $24,000 for QN-165. As of March 31, 2022 we had no remaining amounts due under this sponsored research agreement for QN-165. For these agreements we are required to make patent maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $5 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under these agreements, and we will be required to pay a percentage of any sublicense income.

On January 13, 2022, we 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 will be further 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 Agreement requires (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.

Termination of Sekisui Distribution Agreement

In March 2018, the Company extended a strategic partnership entered into in May 2016 with Sekisui Diagnostics, LLC (“Sekisui”). The Company appointed Sekisui as its diagnostics commercial partner and exclusive worldwide distributor with the exception of certain customer accounts retained by Qualigen. Sekisui’s distribution arrangement expired on March 31, 2022. Subsequent to the expiration of the agreement, in the second quarter of 2022 the Company will have a commitment to purchase leased FastPack rental systems back from Sekisui at Sekisui’s net book value, the amount of which has not yet been determined.

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We enter into contracts in the normal course of business, including with clinical sites, contract research organizations, and other professional service providers for the conduct of clinical trials, contract manufacturers for the production of our product candidates, contract research service providers for preclinical research studies, professional consultants for expert advice and vendors for the sourcing of clinical and laboratory supplies and materials. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

 

Cash Flows

 

The following table sets forth the significant sources and uses of cash and cash equivalents for the periods set forth below:

 

  

For the Six Months Ended

June 30,

 
  2021  2020 
Net cash provided by (used in):        
Operating activities $(8,785,057) $(1,782,080)
Investing activities  (114,691)  (493,159)
Financing activities  155,580   4,528,661 
Net increase (decrease) in cash and cash equivalents $(8,744,168) $2,253,422 

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  For the Three Months Ended 
  March 31, 
  2022  2021 
Net cash (used in) provided by:        
Operating activities $(3,881,611) $(2,081,104)
Investing activities  (49,625)  (69,002)
Financing activities  3,858   121,448 
Net increase (decrease) in cash $(3,927,378) $(2,028,658)

 

Net Cash Used in (Provided by) Operating Activities

 

During the sixthree months ended June 30, 2021,March 31, 2022, operating activities used $8.8$3.9 million of cash, primarily resulting from a net loss of $9.0$4.3 million. Cash flows from operating activities (as opposed to net loss) for the sixthree months ended June 30, 2021March 31, 2022 benefitted from the $0.7$1.2 million in employee/director stock-based compensation expense, a $0.3 million decrease in prepaid expenses and other assets, a $2.5$0.2 million decrease in accounts receivable, a $0.1 million increase in accounts payable, and depreciation and amortization of $0.1 million. Cash flows from operating activities (as opposed to net loss) for the three months ended March 31, 2022 were negatively impacted by a $0.5 million decrease in accrued expenses and other current liabilities, a $0.3 million increase in inventory, and a $0.7 million decrease in fair value of warrant liabilities.

During the three months ended March 31, 2021, operating activities used $2.1 million of cash, primarily resulting from a net loss of $5.2 million. Cash flows from operating activities (as opposed to net loss) for the three months ended March 31, 2021 benefitted from a $1.5 million decrease in prepaid expenses and other assets, $1.3 million in employee/director stock-based compensation expense, a $1.2$1.1 million increase in accrued expenses and other current liabilities and a $0.3$0.1 million increasedecrease in accounts payable, due to higher costs related to therapeutics research and development. On the other hand, cashinventory. Cash flows from operating activities (as opposed to net loss) for the sixthree months ended June 30,March 31, 2021 were disadvantagednegatively impacted by a $4.2$0.6 million decrease in fair value of warrant liabilities, and a $0.2 million increase in accounts receivable.receivable, and a $0.1 million decrease in deferred revenue. The decrease in prepaid expenses was primarily due to the expensing during the period of $1.1 million of previous prepaymentsupfront deposits paid to STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, our manufacturer of QN-165 for our then anticipated clinical trials, but was offset in part by an approximately $0.6 million increase of prepaid expenses for director and officer liability insurance.

During the six months ended June 30, 2020, operating activities used $1.8 million of cash, primarily resulting from a net loss of $19.5 million. Cash flows from operating activities (as opposed to net loss) for the six months ended June 30, 2020 benefitted from a $16.2 million increase in fair value of warrant liabilities due to the reverse-recapitalization and an associated increase in the market price of our common stock, a $0.4 million increase in employee/director stock-based compensation expense, a $0.8 million decrease in accounts receivable, a $1.1 million increase in accrued expenses and other current liabilities and a $0.2 million increase in accounts payable, due primarily to higher costs related to therapeutics research and development. Cash flows from operating activities (as opposed to net loss) for the six months ended June 30, 2020 were negatively impacted by a $1 million increase in prepaid expenses, primarily due to prepaid director and officer liability insurance policies purchased in connection with the reverse-recapitalization transaction.trials. QN-165 has since been deprioritized.

 

Net Cash Used in Investing Activities

 

During the sixthree months ended June 30, 2021,March 31, 2022, net cash used in investing activities was approximately $0.1 million,$50,000, primarily related to the purchase of property and equipment.

 

During the sixthree months ended June 30, 2020,March 31, 2021, net cash used in investing activities was approximately $0.5 million,$69,000, primarily related to payments for patentsthe purchase of property and licenses.equipment.

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash provided by financing activities for the sixthree months ended June 30,March 31, 2022 was approximately $4,000, due to net proceeds from exercise of warrants.

Net cash provided by financing activities for the three months ended March 31, 2021 was approximately $0.2$0.1 million, due to about $0.3$0.2 million of net proceeds from exercise of warrants, offset by approximatelya $0.1 million in principal payments on notes payable. Net cash provided by financing activities for the six months ended June 30, 2020 was $4.5 million, primarily due to $4.0 million in proceeds from the issuance of Series Alpha Preferred Stock and $1.7 million in proceeds from the issuance of notes payable, offset by $1.2 million in principal paymentspayment on notes payable.

 

3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Smaller reporting companies are not required to respond to this Item.

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4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021,March 31, 2022, the end of the period covered by this Quarterly Report.

 

Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as of June 30, 2021March 31, 2022 were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act’), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. We believe that a disclosure controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the disclosure controls system are met, and no evaluation of disclosure controls can provide absolute assurance that all disclosure control issues, if any, within a company have been detected.

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Changes in Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with U.S. GAAP.

As of December 31, 2020,2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework or 2013 Framework.(the “2013 Framework”). Based on this assessment, our management concluded that, as of December 31, 2020,2021, our internal control over financial reporting was not effective because of a material weakness in our internal control over financial reporting related to the lack of accounting department resources and/or policies and procedures to ensure recording and disclosure of items in compliance with generally accepted accounting principles. We have taken and are taking steps to remediate the material weakness, including implementing additional procedures and utilizing external consulting resources with experience and expertise in U.S. GAAP and public company accounting and reporting requirements to assist management with its accounting and reporting of complex and/or non-recurring transactions and related disclosures. Nevertheless, an internal control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal control can provide absolute assurance that all internal control issues and instances of fraud, if any, within a company are detected.

 

We believe thatExcept as described above, there were no changes to the Company’s internal control over financial reporting made during the quarter ended June 30, 2021 the remediation steps described above had a positive effect and haveMarch 31, 2022 that we believe materially improvedaffected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Notwithstanding the identified material weakness, our management believes that the condensed consolidated financial statements included in this Quarterly Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP. Nonetheless, we also believe that an internal control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal control can provide absolute assurance that all internal control issues and instances of fraud, if any, within a company are detected.

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently involvedThe information set forth in any legal matters. From time“Litigation and Other Legal Proceedings” in Note 9 to time, we could become involvedthe condensed consolidated financial statements included in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters.this Quarterly Report is incorporated herein by reference.

 

ITEM 1A. RISK FACTORS

 

Smaller reporting companies are not required to respond to this Item.

Please referThe Company’s business, reputation, results of operations and financial condition, as well as the price of its stock, can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of the Company’s 2021 Annual Report under the heading “Risk Factors.” When any one or more of these risks materialize, the Company’s business, reputation, results of operations and financial condition, as well as the price of its stock, can be materially and adversely affected. There have been no material changes to the Risk Factors section of our Transition Report on Form 10-K forCompany’s risk factors since the nine-months transition period ended December 31, 2020.2021 Annual Report.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unregistered Sales of Equity Securities

 

None

 

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable

 

ITEM 5. OTHER INFORMATION

 

None

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ITEM 6. EXHIBITS

 

    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit 

Filing

Date

           
3.1 Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 July 1, 2015
           
3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 September 15, 2017
           
3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 March 22, 2018
           
3.4 Certificate of Designation of Preferences, Rights and Limitations of Series Alpha Preferred Stock of the Company, filed with the Delaware Secretary of State on May 20, 2020 8-K   3.1 May 29, 2020
           
3.5 Certificate of Amendment to the Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 22, 2020 [reverse stock split] 8-K   3.2 May 29, 2020
           
3.6 Certificate of Merger, filed with the Delaware Secretary of State on May 22, 2020 8-K   3.3 May 29, 2020
           
3.7 Certificate of Amendment to the Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 22, 2020 [name change] 8-K   3.4 May 29, 2020
           
3.8 Amended and Restated Bylaws of the Company, through August 10, 2021        
           
10.1 

Hire offer letter from the Company to Tariq Arshad, dated April 22, 2021

 

        
10.2 Letter dated June 22, 2021 to A.G.P./Alliance Global Partners giving notice of termination of Sales Agreement        
           
31.1 Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.        
           
31.2 Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.        
           
32.1 Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.        

    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit 

Filing

Date

           
2.1 Agreement and Plan of Merger, among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen, Inc., dated January 15, 2020 8-K 001-37428 2.1 January 21, 2020
           
2.2 Amendment No. 1 to Agreement and Plan of Merger among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen, Inc., dated February 1, 2020 S-4 333-236235 Annex B April 6, 2020
           
2.3 Amendment No. 2 to Agreement and Plan of Merger among Ritter Pharmaceuticals, Inc., RPG28 Merger Sub, Inc. and Qualigen, Inc., dated March 26, 2020 S-4 333-236235 Annex C April 6, 2020
           
2.4 Contingent Value Rights Agreement, dated May 22, 2020, among the Company, John Beck in the capacity of CVR Holders’ Representative and Andrew J. Ritter in his capacity as a consultant to the Company. 8-K 001-37428 2.4 May 29, 2020
           
3.1 Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 July 1, 2015
           
3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 September 15, 2017
           
3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation 8-K 001-37428 3.1 March 22, 2018
           
3.4 Certificate of Designation of Preferences, Rights and Limitations of Series Alpha Preferred Stock of the Company, filed with the Delaware Secretary of State on May 20, 2020 8-K  001-37428 3.1 May 29, 2020
           
3.5 Certificate of Amendment to the Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 22, 2020 [reverse stock split] 8-K  001-37428 3.2 May 29, 2020
           
3.6 Certificate of Merger, filed with the Delaware Secretary of State on May 22, 2020 8-K  001-37428 3.3 May 29, 2020
           
3.7 Certificate of Amendment to the Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 22, 2020 [name change] 8-K  001-37428 3.4 May 29, 2020

34

3.8 Amended and Restated Bylaws of the Company, through August 10, 2021 10-Q  001-37428  3.8 August 16, 2021
           
4.1 Warrant Agency Agreement between Ritter Pharmaceuticals, Inc. and Corporate Stock Transfer, Inc. and Form of Warrant Certificate 8-K 001-37428 4.1 October 4, 2017
           
4.2 First Amendment to Warrant Agency Agreement between Ritter Pharmaceuticals, Inc. and Corporate Stock Transfer, Inc. 8-K 001-37428 4.1 May 7, 2018
           
4.3 Second Amendment to Warrant Agency Agreement between the Company and Equiniti Group plc, dated November 9, 2020 10-K 001-37428 4.3 March 31, 2021
           
4.4 Warrant, issued by the Company in favor of Alpha Capital Anstalt, dated May 22, 2020 [post-Merger] 8-K 001-37428 10.13 May 29, 2020
           
4.5 Form of Warrant, issued by the Company in favor of GreenBlock Capital LLC and its designees, dated May 22, 2020 [post-Merger] 8-K 001-37428 10.10 May 29, 2020
           
4.6 Common Stock Purchase Warrant for 1,920,768 shares in favor of Alpha Capital Anstalt, dated July 10, 2020 8-K 001-37428 10.2 July 10, 2020
           
4.7 Pre-Funded Common Stock Purchase Warrant for 1,920,768 shares in favor of Alpha Capital Anstalt, dated July 10, 2020 8-K 001-37428 10.3 July 10, 2020
           
4.8 Common Stock Purchase Warrant for 1,287,829 shares in favor of Alpha Capital Anstalt, dated August 4, 2020 8-K 001-37428 10.3 August 4, 2020
           
4.9 “Two-Year” Common Stock Purchase Warrant for 1,348,314 shares in favor of Alpha Capital Anstalt, dated December 18, 2020 8-K 001-37428 10.3 December 18, 2020
           
4.10 “Deferred” Common Stock Purchase Warrant for 842,696 shares in favor of Alpha Capital Anstalt, dated December 18, 2020 8-K 001-37428 10.4 December 18, 2020
           
4.11 “Prefunded” Common Stock Purchase Warrant for 1,000,000 shares in favor of Alpha Capital Anstalt, dated December 18, 2020 8-K 001-37428 10.5 December 18, 2020
           
4.12 Form of liability classified Warrant to Purchase Common Stock (“exploding warrant”) 10-K 001-37428 4.13 March 31, 2021

35

4.13 Form of “service provider” (non-“exploding”) compensatory equity classified Warrant 10-K 001-37428 4.14 March 31, 2021
           
4.14 Description of Common Stock 10-K 001-37428 4.7 March 31, 2020
           
4.15* Amended and Restated Common Stock Purchase Warrant to GreenBlock Capital LLC (300,000 shares)        
           
4.16* Amended and Restated Common Stock Purchase Warrant to Christopher Nelson (300,000 shares)        
           
10.1*† Series B Preferred Share Purchase Agreement between the Company and NanoSynex Ltd. dated April 29, 2022        
           
10.2*† 

Share Purchase Agreement between the Company and Alpha Capital Anstalt dated April 29, 2022

 

        
31.1* Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002        
           
31.2* Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002        
           
32.1* Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        

 

101.INS# Inline XBRL Instance Document.
   
101.SCH# Inline XBRL Taxonomy Extension Schema Document.
   
101.CAL# Inline XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.DEF# Inline XBRL Taxonomy Extension Definition Linkbase Document.
   
101.LAB# Inline XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE# Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed or furnished herewith.

†Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedules will be furnished to the SEC upon request.

+ Indicates management contract or compensatory plan or arrangement.

# XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

August 16, 2021May 13, 2022QUALIGEN THERAPEUTICS, INC.
   
 By:/s/ Michael S. Poirier
 Name:Michael S. Poirier
 Title:Chief Executive Officer

 

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