UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
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 Nogal5857 Owens Avenue, Suite 300, Carlsbad, California 9201192008
(Address of principal executive offices) (Zip Code)
(760) 918-9165452-8111
(Registrant’s telephone number, including area code)
n/a2042 Corte Del Nogal, Carlsbad, California92011
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $.001 per share | QLGN | The Nasdaq Capital Market of The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of November 11, 2022,10, 2023, there were shares of the registrant’s common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
2
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 6,618,141 | $ | 17,538,272 | ||||
Accounts receivable, net | 603,291 | 822,351 | ||||||
Inventory, net | 1,481,524 | 1,055,878 | ||||||
Prepaid expenses and other current assets | 1,692,472 | 1,379,896 | ||||||
Total current assets | 10,395,428 | 20,796,397 | ||||||
Restricted cash | 5,624 | — | ||||||
Right-of-use assets | 1,479,618 | 1,645,568 | ||||||
Property and equipment, net | 311,531 | 204,216 | ||||||
Intangible assets, net | 5,852,074 | 171,190 | ||||||
Goodwill | 4,896,223 | — | ||||||
Other assets | 18,334 | 18,334 | ||||||
Total Assets | $ | 22,958,832 | $ | 22,835,705 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 596,039 | $ | 886,224 | ||||
Accrued expenses and other current liabilities | 1,471,327 | 1,793,901 | ||||||
R&D grant liability | 905,603 | — | ||||||
Deferred revenue, current portion | 102,640 | 135,063 | ||||||
Operating lease liability, current portion | 198,373 | 134,091 | ||||||
Short term debt-related party | 941,261 | — | ||||||
Warrant liabilities | 666,000 | 1,686,200 | ||||||
Total current liabilities | 4,881,243 | 4,635,479 | ||||||
Operating lease liability, net of current portion | 1,365,459 | 1,542,564 | ||||||
Deferred revenue, net of current portion | 60,521 | 92,928 | ||||||
Deferred tax liability | 736,000 | — | ||||||
Total liabilities | 7,043,223 | 6,270,971 | ||||||
Stockholders’ equity | ||||||||
Qualigen Therapeutics, Inc. stockholders’ equity: | ||||||||
Common stock, $par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 42,110 | 35,290 | ||||||
Additional paid-in capital | 108,967,248 | 101,274,073 | ||||||
Accumulated other comprehensive income | 154,063 | — | ||||||
Accumulated deficit | (97,012,929 | ) | (84,744,629 | ) | ||||
Total Qualigen Therapeutics, Inc. stockholders’ equity | 12,150,492 | 16,564,734 | ||||||
Noncontrolling interest | 3,765,117 | — | ||||||
Total Stockholders’ Equity | 15,915,609 | 16,564,734 | ||||||
Total Liabilities & Stockholders’ Equity | $ | 22,958,832 | $ | 22,835,705 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 2,073,849 | $ | 3,165,985 | ||||
Prepaid expenses and other current assets | 1,375,730 | 1,366,704 | ||||||
Current assets of discontinued operations | — | 6,287,849 | ||||||
Total current assets | 3,449,579 | 10,820,538 | ||||||
Property and equipment, net | — | 26,242 | ||||||
Other assets | 866,481 | — | ||||||
Non-current assets of discontinued operations | — | 8,236,711 | ||||||
Total Assets | $ | 4,316,060 | $ | 19,083,491 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,571,831 | $ | 619,568 | ||||
Accrued vacation | 163,701 | 165,040 | ||||||
Accrued expenses and other current liabilities | 1,144,188 | 699,519 | ||||||
Warrant liabilities | 92,900 | 788,100 | ||||||
Warrant liabilities - related party | 2,151,892 | 2,834,547 | ||||||
Convertible debt - related party | 832,100 | 60,197 | ||||||
Current liabilities of discontinued operations | — | 3,441,198 | ||||||
Total current liabilities | 5,956,612 | 8,608,169 | ||||||
Non-current liabilities of discontinued operations | — | 1,708,732 | ||||||
Total liabilities | 5,956,612 | 10,316,901 | ||||||
Commitments and Contingencies (Note 10) | - | - | ||||||
Stockholders’ equity (deficit) | ||||||||
Qualigen Therapeutics, Inc. stockholders’ equity (deficit): | ||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively42,952 | 42,110 | ||||||
Additional paid-in capital | 112,668,631 | 110,528,050 | ||||||
Accumulated other comprehensive income | — | 50,721 | ||||||
Accumulated deficit | (114,352,135 | ) | (103,385,172 | ) | ||||
Total Qualigen Therapeutics, Inc. stockholders’ equity (deficit) | (1,640,552 | ) | 7,235,709 | |||||
Noncontrolling interest | — | 1,530,881 | ||||||
Total Stockholders’ Equity (deficit) | (1,640,552 | ) | 8,766,590 | |||||
Total Liabilities & Stockholders’ Equity (Deficit) | $ | 4,316,060 | $ | 19,083,491 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
3 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUES | ||||||||||||||||
Net product sales | $ | 1,441,065 | $ | 1,155,065 | $ | 3,593,628 | $ | 3,693,842 | ||||||||
License revenue | — | — | — | 478,654 | ||||||||||||
Total revenues | 1,441,065 | 1,155,065 | 3,593,628 | 4,172,496 | ||||||||||||
EXPENSES | ||||||||||||||||
Cost of product sales | 1,278,029 | 993,120 | 3,206,553 | 3,112,224 | ||||||||||||
General and administrative | 2,618,021 | 2,756,323 | 8,177,627 | 8,582,361 | ||||||||||||
Research and development | 1,688,096 | 2,083,315 | 5,059,067 | 10,091,155 | ||||||||||||
Sales and marketing | 239,865 | 130,217 | 683,291 | 402,347 | ||||||||||||
Total expenses | 5,824,011 | 5,962,975 | 17,126,538 | 22,188,087 | ||||||||||||
LOSS FROM OPERATIONS | (4,382,946 | ) | (4,807,910 | ) | (13,532,910 | ) | (18,015,591 | ) | ||||||||
OTHER INCOME, NET | ||||||||||||||||
Gain on change in fair value of warrant liabilities | 321,300 | 1,763,936 | 1,019,342 | 4,299,000 | ||||||||||||
Interest income, net | 4,631 | 6,801 | 15,763 | 36,863 | ||||||||||||
Other income, net | 1,139 | 702 | 795 | 3,596 | ||||||||||||
Total other income, net | 327,070 | 1,771,439 | 1,035,900 | 4,339,459 | ||||||||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (4,055,876 | ) | (3,036,471 | ) | (12,497,010 | ) | (13,676,132 | ) | ||||||||
PROVISION FOR INCOME TAXES | — | 1,011 | 6,173 | 2,146 | ||||||||||||
NET LOSS | (4,055,876 | ) | (3,037,482 | ) | (12,503,183 | ) | (13,678,278 | ) | ||||||||
Net loss attributable to noncontrolling interest | (230,767 | ) | — | (234,883 | ) | — | ||||||||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (3,825,109 | ) | $ | (3,037,482 | ) | $ | (12,268,300 | ) | $ | (13,678,278 | ) | ||||
Net loss per common share, basic and diluted | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.33 | ) | $ | (0.48 | ) | ||||
Weighted—average number of shares outstanding, basic and diluted | 39,444,058 | 29,026,211 | 37,154,623 | 28,683,972 | ||||||||||||
Other comprehensive loss, net of tax | ||||||||||||||||
Net loss | $ | (4,055,876 | ) | $ | (3,037,482 | ) | $ | (12,503,183 | ) | $ | (13,678,278 | ) | ||||
Foreign currency translation adjustment | 88,523 | — | 154,063 | — | ||||||||||||
Other comprehensive loss | (3,967,353 | ) | (3,037,482 | ) | (12,349,120 | ) | (13,678,278 | ) | ||||||||
Comprehensive loss attributable to noncontrolling interest | (230,767 | ) | — | (234,883 | ) | — | ||||||||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (3,736,586 | ) | $ | (3,037,482 | ) | $ | (12,114,237 | ) | $ | (13,678,278 | ) |
2023 | 2022 | 2023 | 2022 | |||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
EXPENSES | ||||||||||||||||
General and administrative | $ | 1,336,765 | $ | 2,539,389 | $ | 5,132,834 | $ | 7,705,823 | ||||||||
Research and development | 1,441,598 | 930,536 | 3,898,061 | 3,618,428 | ||||||||||||
Total expenses | 2,778,363 | 3,469,925 | 9,030,895 | 11,324,251 | ||||||||||||
LOSS FROM OPERATIONS | (2,778,363 | ) | (3,469,925 | ) | (9,030,895 | ) | (11,324,251 | ) | ||||||||
OTHER EXPENSE (INCOME), NET | ||||||||||||||||
(Gain) loss on change in fair value of warrant liabilities | 101,112 | (321,300 | ) | (1,377,855 | ) | (1,019,342 | ) | |||||||||
Interest expense (income), net | 367,257 | (4,631 | ) | 1,288,908 | (15,763 | ) | ||||||||||
Loss on voluntary conversion of convertible debt | — | — | 1,077,287 | — | ||||||||||||
Loss on fixed asset disposal | 21,747 | — | 21,747 | — | ||||||||||||
Other income, net | (33,454 | ) | — | (33,534 | ) | — | ||||||||||
Total other expense (income), net | 456,662 | (325,931 | ) | 976,553 | (1,035,105 | ) | ||||||||||
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (3,235,025 | ) | (3,143,994 | ) | (10,007,448 | ) | (10,289,146 | ) | ||||||||
(BENEFIT) PROVISION FOR INCOME TAXES | — | — | — | 6,173 | ||||||||||||
NET LOSS FROM CONTINUING OPERATIONS | (3,235,025 | ) | (3,143,994 | ) | (10,007,448 | ) | (10,295,319 | ) | ||||||||
DISCONTINUED OPERATIONS | ||||||||||||||||
Income (loss) from discontinued operations | 159,507 | (911,882 | ) | (683,008 | ) | (2,207,864 | ) | |||||||||
Loss on disposal of discontinued operations | (619,545 | ) | — | (619,545 | ) | — | ||||||||||
LOSS FROM DISCONTINUED OPERATIONS | (460,038 | ) | (911,882 | ) | (1,302,553 | ) | (2,207,864 | ) | ||||||||
NET LOSS | (3,695,063 | ) | (4,055,876 | ) | (11,310,001 | ) | (12,503,183 | ) | ||||||||
Net loss attributable to non-controlling interest from discontinued operations | (38,526 | ) | (230,767 | ) | (343,038 | ) | (234,883 | ) | ||||||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (3,656,537 | ) | $ | (3,825,109 | ) | $ | (10,966,963 | ) | $ | (12,268,300 | ) | ||||
Net loss per common share, basic and diluted - continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Net loss per common share, basic and diluted - discontinued operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Weighted—average number of shares outstanding, basic and diluted | ||||||||||||||||
Other comprehensive loss, net of tax | ||||||||||||||||
Net loss | $ | (3,695,063 | ) | $ | (4,055,876 | ) | $ | (11,310,001 | ) | $ | (12,503,183 | ) | ||||
Foreign currency translation adjustment from discontinued operations | — | 88,523 | (50,721 | ) | 154,063 | |||||||||||
Other comprehensive loss | (3,695,063 | ) | (3,967,353 | ) | (11,360,722 | ) | (12,349,120 | ) | ||||||||
Comprehensive loss attributable to noncontrolling interest from discontinued operations | (38,526 | ) | (230,767 | ) | (343,038 | ) | (234,883 | ) | ||||||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (3,656,537 | ) | $ | (3,736,586 | ) | $ | (11,017,684 | ) | $ | (12,114,237 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
4 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
- | Total | |||||||||||||||||||||||||||||||
Qualigen | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Accumulated Other | Therapeutics, Inc. | Total | ||||||||||||||||||||||||||||
Shares | Amount $ | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||
Balance at December 31, 2021 | - | 35,290,178 | $ | 35,290 | $ | 101,274,073 | $ | — | $ | (84,744,629 | ) | $ | 16,564,734 | $ | — | $ | 16,564,734 | |||||||||||||||
Stock issued upon exercise of warrants | 5,363 | 5 | 4,711 | — | — | 4,716 | — | 4,716 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,267,166 | — | — | 1,267,166 | — | 1,267,166 | ||||||||||||||||||||||||
Net loss | - | — | — | — | — | (4,319,787 | ) | (4,319,787 | ) | — | (4,319,787 | ) | ||||||||||||||||||||
Balance at March 31, 2022 | - | 35,295,541 | $ | 35,295 | $ | 102,545,950 | $ | — | $ | (89,064,416 | ) | $ | 13,516,829 | $ | — | $ | 13,516,829 | |||||||||||||||
Common stock issued for business acquisition | 3,500,000 | 3,500 | 1,841,000 | — | — | 1,844,500 | — | $ | 1,844,500 | |||||||||||||||||||||||
Prefunded warrants issued for business acquisition | — | — | 1,746,816 | — | — | 1,746,816 | — | 1,746,816 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 65,540 | — | 65,540 | — | 65,540 | ||||||||||||||||||||||||
Fair value of noncontrolling interest related to business acquisition | — | — | — | — | — | — | 4,000,000 | 4,000,000 | ||||||||||||||||||||||||
Fair value of warrant modification for business acquisition | — | — | 696 | — | — | 696 | — | 696 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,423,282 | — | — | 1,423,282 | — | 1,423,282 | ||||||||||||||||||||||||
Net loss | - | — | — | — | — | (4,123,404 | ) | (4,123,404 | ) | (4,116 | ) | (4,127,520 | ) | |||||||||||||||||||
Balance at June 30, 2022 | - | 38,795,541 | $ | 38,795 | $ | 107,557,744 | $ | 65,540 | $ | (93,187,820 | ) | $ | 14,474,259 | $ | 3,995,884 | $ | 18,470,143 | |||||||||||||||
Stock issued upon exercise of warrants | 3,314,641 | 3,315 | — | — | — | 3,315 | — | $ | 3,315 | |||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 88,523 | — | 88,523 | — | 88,523 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,409,504 | — | — | 1,409,504 | — | 1,409,504 | ||||||||||||||||||||||||
Net loss | - | — | — | — | — | (3,825,109 | ) | (3,825,109 | ) | (230,767 | ) | (4,055,876 | ) | |||||||||||||||||||
Balance at September 30, 2022 | - | 42,110,182 | $ | 42,110 | $ | 108,967,248 | $ | 154,063 | $ | (97,012,929 | ) | $ | 12,150,492 | $ | 3,765,117 | $ | 15,915,609 |
Shares | Amount | Capital | Income | Deficit | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||
Total Qualigen | ||||||||||||||||||||||||||||||||
Accumulated | Therapeutics, Inc. | Total | ||||||||||||||||||||||||||||||
Additional | Other | Stockholders’ | Stockholders’ | |||||||||||||||||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Equity | Noncontrolling | Equity | ||||||||||||||||||||||||||
Shares | Amount | Capital | Income | Deficit | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2022 | 4,210,737 | $ | 42,110 | $ | 110,528,050 | $ | 50,721 | $ | (103,385,172 | ) | $ | 7,235,709 | $ | 1,530,881 | $ | 8,766,590 | ||||||||||||||||
Voluntary conversion of convertible debt into common stock | 841,726 | 842 | 1,111,740 | — | — | 1,112,582 | — | 1,112,582 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 247,657 | — | — | 247,657 | 4,569 | 252,226 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 119,723 | — | 119,723 | 56,497 | 176,220 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (3,846,221 | ) | (3,846,221 | ) | (261,028 | ) | (4,107,249 | ) | ||||||||||||||||||||
Balance at March 31, 2023 | 5,052,463 | $ | 42,952 | $ | 111,887,447 | $ | 170,444 | $ | (107,231,393 | ) | $ | 4,869,450 | $ | 1,330,919 | $ | 6,200,369 | ||||||||||||||||
Stock-based compensation | — | — | 667,383 | — | — | 667,383 | 4,728 | 672,111 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | (38,553 | ) | — | (38,553 | ) | (18,194 | ) | (56,747 | ) | ||||||||||||||||||||
Net loss | — | — | — | — | (3,464,205 | ) | (3,464,205 | ) | (43,484 | ) | (3,507,689 | ) | ||||||||||||||||||||
Balance at June 30, 2023 | 5,052,463 | $ | 42,952 | $ | 112,554,830 | $ | 131,891 | $ | (110,695,598 | ) | $ | 2,034,075 | $ | 1,273,969 | $ | 3,308,044 | ||||||||||||||||
Stock-based compensation | — | — | 113,801 | — | — | 113,801 | — | 113,801 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (3,656,537 | ) | (3,656,537 | ) | (38,526 | ) | (3,695,063 | ) | ||||||||||||||||||||
Deconsolidation of discontinued operations | — | — | — | (131,891 | ) | — | (131,891 | ) | (1,235,443 | ) | (1,367,334 | ) | ||||||||||||||||||||
Balance at September 30, 2023 | 5,052,463 | $ | 42,952 | $ | 112,668,631 | $ | — | $ | (114,352,135 | ) | $ | (1,640,552 | ) | $ | — | $ | (1,640,552 | ) |
Shares | Amount $ | Shares | Amount $ | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||
Series Alpha Convertible | Total Qualigen | |||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Accumulated Other | Therapeutics, Inc. | Total | ||||||||||||||||||||||||||||||||||
Shares | Amount $ | Shares | Amount $ | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 180 | $ | 1 | 27,296,061 | $ | 27,296 | $ | 85,114,755 | $ | — | $ | (66,847,492 | ) | $ | 18,294,560 | $ | — | $ | 18,294,560 | ||||||||||||||||||||
Stock issued upon cash exercise of warrants | — | — | 1,319,625 | 1,320 | 1,813,353 | - | — | 1,814,673 | - | 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 | - | 101,750 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 1,262,123 | - | — | 1,262,123 | - | 1,262,123 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | - | (5,242,719 | ) | (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 | $ | — | $ | 16,230,387 | |||||||||||||||||||||
Stock issued upon cash exercise of warrants | — | — | 69,129 | 69 | 142,513 | - | — | 142,582 | - | 142,582 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 1,286,926 | - | — | 1,286,926 | - | 1,286,926 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | - | (5,398,077 | ) | (5,398,077 | ) | - | (5,398,077 | ) | |||||||||||||||||||||||||||
Balance at June 30, 2021 | 180 | $ | 1 | 28,902,188 | $ | 28,902 | $ | 89,721,203 | $ | — | $ | (77,488,288 | ) | $ | 12,261,818 | $ | — | $ | 12,261,818 | |||||||||||||||||||||
Stock issued upon cash exercise of warrants | — | — | 179,881 | 180 | 129,245 | - | — | 129,425 | - | 129,425 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 1,313,357 | - | — | 1,313,357 | - | 1,313,357 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | - | (3,037,482 | ) | (3,037,482 | ) | - | (3,037,482 | ) | |||||||||||||||||||||||||||
Balance at September 30, 2021 | 180 | $ | 1 | 29,082,069 | $ | 29,082 | $ | 91,163,805 | $ | — | $ | (80,525,770 | ) | $ | 10,667,118 | $ | — | $ | 10,667,118 |
Additional | Other | Therapeutics, Inc. | Total | |||||||||||||||||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | Noncontrolling | Stockholders’ | ||||||||||||||||||||||||||
Shares | Amount $ | Capital | Income | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
Balance at December 31, 2021 | 3,529,018 | $ | 35,290 | $ | 101,274,073 | $ | — | $ | (84,744,629 | ) | $ | 16,564,734 | $ | — | $ | 16,564,734 | ||||||||||||||||
Stock issued upon exercise of warrants | 536 | 5 | 4,711 | — | — | 4,716 | — | 4,716 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,267,166 | — | — | 1,267,166 | — | 1,267,166 | ||||||||||||||||||||||||
Net Loss | — | — | — | — | (4,319,787 | ) | (4,319,787 | ) | — | (4,319,787 | ) | |||||||||||||||||||||
Balance at March 31, 2022 | 3,529,554 | $ | 35,295 | $ | 102,545,950 | $ | — | $ | (89,064,416 | ) | $ | 13,516,829 | $ | — | $ | 13,516,829 | ||||||||||||||||
Common stock issued for business acquisition | 350,000 | 3,500 | 1,841,000 | — | — | 1,844,500 | — | 1,844,500 | ||||||||||||||||||||||||
Prefunded warrants issued for business acquisition | — | — | 1,746,816 | — | — | 1,746,816 | — | 1,746,816 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 65,540 | — | 65,540 | — | 65,540 | ||||||||||||||||||||||||
Estimated fair value of noncontrolling interest related to business acquisition | — | — | — | — | — | — | 4,000,000 | 4,000,000 | ||||||||||||||||||||||||
Fair value of warrant modification for business acquisition | — | — | 696 | — | — | 696 | — | 696 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,423,282 | — | — | 1,423,282 | — | 1,423,282 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (4,123,404 | ) | (4,123,404 | ) | (4,116 | ) | (4,127,520 | ) | ||||||||||||||||||||
Balance at June 30, 2022 | 3,879,554 | $ | 38,795 | $ | 107,557,744 | $ | 65,540 | $ | (93,187,820 | ) | $ | 14,474,259 | $ | 3,995,884 | $ | 18,470,143 | ||||||||||||||||
Balance | 3,879,554 | $ | 38,795 | $ | 107,557,744 | $ | 65,540 | $ | (93,187,820 | ) | $ | 14,474,259 | $ | 3,995,884 | $ | 18,470,143 | ||||||||||||||||
Stock issued upon exercise of warrants | 331,464 | 3,315 | — | — | — | 3,315 | — | 3,315 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 88,523 | — | 88,523 | — | 88,523 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,409,504 | — | — | 1,409,504 | — | 1,409,504 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (3,825,109 | ) | (3,825,109 | ) | (230,767 | ) | (4,055,876 | ) | ||||||||||||||||||||
Balance at September 30, 2022 | 4,211,018 | $ | 42,110 | $ | 108,967,248 | $ | 154,063 | $ | (97,012,929 | ) | $ | 12,150,492 | $ | 3,765,117 | $ | 15,915,609 | ||||||||||||||||
Balance | 4,211,018 | $ | 42,110 | $ | 108,967,248 | $ | 154,063 | $ | (97,012,929 | ) | $ | 12,150,492 | $ | 3,765,117 | $ | 15,915,609 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
5 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30 | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (12,503,183 | ) | $ | (13,678,278 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 99,661 | 82,404 | ||||||
Amortization of right-of-use assets | 165,949 | 166,657 | ||||||
Accounts receivable reserves and allowances | 87,370 | 15,295 | ||||||
Inventory reserves | 12,417 | 20,040 | ||||||
Common stock issued for professional services | — | 101,750 | ||||||
Stock-based compensation | 4,099,952 | 3,862,406 | ||||||
Change in fair value of warrant liabilities | (1,019,342 | ) | (4,299,000 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 203,697 | (33,088 | ) | |||||
Inventory and equipment held for lease | (438,063 | ) | (138,885 | ) | ||||
Prepaid expenses and other assets | (313,166 | ) | 1,077,381 | |||||
Accounts payable | (294,513 | ) | 407,933 | |||||
Accrued expenses and other current liabilities | (539,907 | ) | 1,052,693 | |||||
R&D grant liability | (393,033 | ) | — | |||||
Operating lease liability | (112,823 | ) | (187,671 | ) | ||||
Deferred revenue | (64,830 | ) | (267,047 | ) | ||||
Net cash used in operating activities | (11,009,814 | ) | (11,817,410 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (74,743 | ) | (117,463 | ) | ||||
Payments for patents and licenses | — | (6,893 | ) | |||||
Net cash acquired in business combination | 135,354 | — | ||||||
Net cash provided by (used in) investing activities | 60,611 | (124,356 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from warrant exercises | 7,173 | 423,744 | ||||||
Principal payments on notes payable | — | (138,739 | ) | |||||
Net cash provided by financing activities | 7,173 | 285,005 | ||||||
Net change in cash and restricted cash | (10,942,030 | ) | (11,656,761 | ) | ||||
Effect of exchange rate changes on cash and restricted cash | 27,523 | — | ||||||
Cash and restricted cash - beginning of period | 17,538,272 | 23,976,570 | ||||||
Cash and restricted cash - end of period | $ | 6,623,765 | $ | 12,319,809 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | — | $ | 1,233 | ||||
Taxes | $ | 3,501 | $ | 2,200 | ||||
NONCASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
Net transfers from equipment held for lease to inventory | $ | — | $ | 1,304 | ||||
Fair value of shares issued for cashless warrant exercises | $ | — | $ | 722,970 | ||||
Fair value of warrant liabilities on date of exercise | $ | 858 | $ | 1,841,900 | ||||
ACQUISITION: | ||||||||
Fair value of assets acquired | $ | (5,896,278 | ) | — | ||||
Fair value of liabilities assumed, net of goodwill | 2,439,620 | — | ||||||
Fair value of Alpha Capital/Qualigen warrants repriced due to acquisition | 696 | — | ||||||
Fair value of Qualigen prefunded warrant issued in exchange for NanoSynex stock | 1,746,816 | — | ||||||
Fair value of Qualigen common stock issued in exchange for NanoSynex stock | 1,844,500 | — | ||||||
Net cash acquired in business combination (Note 3) | $ | 135,354 | $ | — | ||||
Cash and restricted cash included in the accompanying balance sheet was as follows: | ||||||||
Cash | $ | 6,618,141 | $ | 12,319,809 | ||||
Restricted cash | 5,624 | — | ||||||
Total cash and restricted cash | $ | 6,623,765 | $ | 12,319,809 |
2023 | 2022 | |||||||
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (11,310,001 | ) | $ | (12,503,183 | ) | ||
Loss from discontinued operations, net of tax | (1,302,553 | ) | (2,207,864 | ) | ||||
Loss from continuing operations | (10,007,448 | ) | (10,295,319 | ) | ||||
Adjustments to reconcile loss from continuing operations to net cash used in operating activities: | ||||||||
Depreciation and amortization | — | 9,122 | ||||||
Stock-based compensation | 1,028,841 | 4,099,952 | ||||||
Change in fair value of warrant liabilities | (1,377,855 | ) | (1,019,342 | ) | ||||
Loss on voluntary conversion of convertible debt | 1,077,287 | — | ||||||
Accretion of discount on convertible debt | 1,247,198 | — | ||||||
Loss on disposal of fixed assets | 21,747 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | (640,105 | ) | (378,498 | ) | ||||
Accounts payable | 952,269 | (291,166 | ) | |||||
Accrued expenses and other current liabilities | 443,330 | (728,233 | ) | |||||
Net cash used in operating activities - continuing operations | (7,254,736 | ) | (8,603,484 | ) | ||||
Net cash provided by (used in) operating activities - discontinued operations | 2,622,059 | (2,406,331 | ) | |||||
Net cash used in operating activities | (4,632,677 | ) | (11,009,815 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Net cash provided by investing activities - discontinued operations | 3,980,541 | 60,612 | ||||||
Net cash provided by investing activities | 3,980,541 | 60,612 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from warrant exercises | — | 7,173 | ||||||
Payments on convertible notes payable | (440,000 | ) | — | |||||
Net cash (used in)/provided by financing activities- continuing operations | (440,000 | ) | 7,173 | |||||
Net cash used in financing activities - discontinued operations | — | — | ||||||
Net cash (used in)/provided by financing activities | (440,000 | ) | 7,173 | |||||
Net change in cash and restricted cash | (1,092,136 | ) | (10,942,030 | ) | ||||
Effect of exchange rate changes on cash and restricted cash | — | 27,523 | ||||||
Cash and restricted cash - beginning of period | 3,165,985 | 17,538,272 | ||||||
Cash and restricted cash - end of period | $ | 2,073,849 | $ | 6,623,765 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | — | $ | — | ||||
Taxes | $ | 4,900 | $ | 3,501 | ||||
NONCASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
Net transfers to equipment held for lease from inventory | $ | 83,271 | $ | — | ||||
Fair value of warrant liabilities on date of exercise | $ | — | $ | 858 | ||||
Voluntary conversion of convertible debt into common stock | $ | 1,112,582 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
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 Physician Office Laboratory (“POL”) market quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and was reincorporated in Delaware in 1999. In May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and(our predecessor) was formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. In September 2008, this company converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc. On May 22, 2020, upon completing a “reverse recapitalization” transaction with Qualigen, Inc., Ritter Pharmaceuticals, Inc. was renamed Qualigen Therapeutics, Inc. All(“Qualigen” or the “Company”). Qualisys Diagnostics, Inc. was formed as a Minnesota corporation in 1996, reincorporated to become a Delaware corporation in 1999, and then changed its name to Qualigen, Inc. in 2000. Qualigen, Inc. was a wholly-owned subsidiary of the Company. On July 20, 2023, we sold all of the issued and outstanding shares of 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 onof Qualigen, Inc. to Chembio Diagnostics, Inc. (“Chembio”), a wholly-owned subsidiary of Biosynex, S.A. (“Biosynex”). Following the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, onconsummation of this transaction, Qualigen, Inc. became a post-reverse-stock-split adjusted basis, under the trading symbol “QLGN” on May 26, 2020. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment.wholly-owned subsidiary of Chembio (see Note 5 – Discontinued Operations).
.
On May 26, 2022, the Company acquired 3,314,641331,464 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share.These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, the Company also purchased shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex. The Company envisions future synergies from the integration of its own proprietary results-proven FastPack diagnostics platform with the innovative NanoSynex technology.(the “NanoSynex Acquisition”). NanoSynex is a micro-biologicsnanotechnology diagnostics company domiciled in Israel. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex (the “NanoSynex Amendment”), which amended the Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, by and between the Company and NanoSynex (the “NanoSynex Funding Agreement”), to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement. Pursuant to the terms of the NanoSynex Amendment, the Company lost its controlling interest in NanoSynex (see Note 5 -Discontinued Operations). shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”), a related party, in exchange for reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase
Basis of Presentation
The unauditedaccompanying condensed consolidated financial statements of the Company have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), Regulation S-X and the rules and regulations 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities Exchange Commission on March 31, 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 2021 Annual Report have been omitted. The accompanying condensed consolidated balance sheet at December 31, 2021 has been derived from the audited balance sheet at December 31, 2021 contained in the 2021 Annual Report.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its former wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar, however fordollar. For NanoSynex, the functional currency iswas the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex arewere translated into U.S. dollars andwith the effects of foreign currency translation adjustments are reflected as a component of accumulated other comprehensive income within the Company’s consolidated statements of changes in stockholders’ equity.
As of July 20, 2023, NanoSynex was deconsolidated from these financial statements as the transactions contemplated by the NanoSynex Amendment resulted in a loss of control of a subsidiary that constitutes a business under ASC 810. The retained investment in NanoSynex is accounted for prospectively as an equity method investment. See Note 5 – Discontinued Operations for further information.
Discontinued Operations
On July 20, 2023, the Company completed the sale of Qualigen, Inc. to Chembio Diagnostics, Inc. The sale of Qualigen Inc. constituted a significant disposition and as such, the Company concluded that the disposition of ownership in Qualigen, Inc. represented a strategic shift that had a major effect on its operations and financial results. Therefore, Qualigen, Inc. is classified as discontinued operations for all periods presented herein.
On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (“NanoSynex”) (the “NanoSynex Amendment”), which amended the Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, by and between the Company and NanoSynex (the “NanoSynex Funding Agreement”), a former majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex. The disposition represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the business of NanoSynex is classified as discontinued operations for all periods presented herein.
See Note 5 - Discontinued Operations for further information.
Equity Method Investments
Following deconsolidation of NanoSynex on July 20, 2023, the Company accounts for its retained investment under the equity method of accounting as it retained the ability to exercise significant influence over the operating and financial policies of the investee. Under the equity method, the Company recognizes its proportionate share earnings or losses each reporting period with an adjustment to the carrying value of the investment. As of September 30, 2023, the carrying value of the retained investment was zero, and therefore the Company has suspended application of the equity method as the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods. See Note 5 – Discontinued Operations for further information.
Accounting Estimates
Management uses estimates and assumptions in preparing its 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 in-process research and development, goodwill, warrant liabilities, and stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs.compensation. Actual results could vary from the estimates that were used.
7
7 |
Cash,Reverse Stock Split
On November 23, 2022, the Company effected a 1-for-10, reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash equivalentsin lieu of fractional shares was paid to stockholders. All share and restricted cashper share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
Cash
The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents. Restricted cash includes cash that is restricted due to Israeli banking regulations.
The Company maintains the majority of its cash in bank deposits whichgovernment money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed federally insured limitsthe FDIC insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and could potentially be subjectSignature Bank, and more recently in May 2023, First Republic Bank, were closed due to significant concentrationsliquidity concerns and taken over by the Federal Deposit Insurance Corporation (FDIC). While the Company did not have an account at any of credit risk on cash. The Company reviewsthese banks, in the event of failure of any of the financial stability ofinstitutions where the Company maintains its depository institutions oncash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a regular basis,timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and has not experienced any losses in such accounts.financial position.
Inventory, Net
Inventory is recorded at the lowerImpairment 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 reserves for inventory components identified as excess or obsolete.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. During the three and nine months ended September 30, 20222023 and 2021,2022, no such impairment losses have been recorded.
Accounts Receivable, NetSegment Reporting
The Company grants credit to domestic physicians, clinics,Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and distributors. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. Customers can purchase certain products through a financing agreement thatassessing performance. To date, the Company has with an outside leasing company. Underviewed its operations and managed its business as one segment operating primarily within the agreement, the leasing company evaluates the credit worthiness of the customer. Upon acceptance of the product by the customer, the leasing company remits paymentUnited States (and in Israel prior to the Company at a discount. This financing arrangement is without recourse to the Company.NanoSynex deconsolidation).
The Company records 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
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts Receivable | $ | 763,766 | $ | 1,070,196 | ||||
Less Allowances | (160,475 | ) | (247,845 | ) | ||||
Accounts receivable, net | $ | 603,291 | $ | 822,351 |
Research and Development
Except for acquired in process research and development (IPR&D), the Company expenses research and development costs as incurred including therapeutics license costs.
R&D Grants
NanoSynex has received R&D grants from Israel Innovation Authority (IIA) and from the European Commission. These grants may provide cash funding to NanoSynex from time to time in advance of the applicable costs being incurred. When such cash funding is received from these grants in advance, the proceeds are recorded as a current or non-current R&D grant liability based on the time from the condensed consolidated balance sheets date to the expected future date of recognition as a reduction to research and development expenses.
Shipping and HandlingPatent Costs
The Company includes shippingexpenses all costs as incurred in connection with patent applications (including direct application fees, and handling fees billedthe legal and consulting expenses related to customers in net sales. Shippingmaking such applications) and handlingsuch costs associated with inbound and outbound freight are generally recorded in cost of sales which totaled approximately $91,000 and $29,000, respectively, for the three months ended September 30, 2022 and 2021, and approximately $201,000 and $88,000, respectively, for the nine months ended September 30, 2022 and 2021. Other shipping and handling costs included in general and administrative research and development, and sales and marketing expenses totaled approximately $4,000 and $3,000 forin the three months ended September 30, 2022 and 2021, respectively, and approximately $12,000 and $8,000 for the nine months ended September 30, 2022 and 2021, respectively.
condensed consolidated statement of operations.
Revenue from Contracts with Customers
We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or 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.
8
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 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.
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 fulfill 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 September 30, 2022 and 2021, the Company recognized no license revenue, and during the nine months ended September 30, 2022 and 2021, the Company recognized license revenue of $0 and approximately $479,000, respectively.
Contract Asset and Liability 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 performance of the related services, the Company records deferred revenue until the performance obligations are satisfied.
Multiple performance obligations include contracts that combine both the Company’s analyzer and a customer’s future reagent purchases under a single contract. In some sales contracts, the Company provides analyzers at no charge to customers. Title to the analyzer is maintained by the Company and the analyzer is returned by the customer to the Company at the end of the purchase agreement.
9
During the three months ended September 30, 2022 and 2021, product sales are stated net of an allowance for estimated returns of approximately $56,000 and $0, respectively. During the nine months ended September 30, 2022 and 2021, product sales are stated net of an allowance for estimated returns of approximately $109,000 and $1,000, respectively.
Deferred Revenue
Payments received in advance from customers pursuant to certain collaborative research 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 sheets date to the future date of revenue recognition.
Operating Leases
Effective April 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). 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. (See Note 12- Commitments and Contingencies for more information).
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
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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 include 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.
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASBFinancial Accounting Standards Board’s (“FASB”) ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in Qualigen’sthe Company’s financial results beginning on the respective acquisition dates,date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “Purchase Price”“purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired, when accounted for using the purchase method of accounting. Goodwill has an indefinite useful life and is not amortized but is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.
In testing for impairment, the fair value of the reporting unit is compared to the carrying value. If the net assets assigned to the reporting unit exceed the fair value of the reporting unit, an impairment loss equal to the difference is recorded.
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Intangible Assets
In Process R&D
Acquired in process R&D (IPR&D) represents the fair value assigned to the research and development assets that have not reached technological feasibility. The value assigned to IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing the new product. Additionally, projections consider relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions. The rates utilized to discount the net cash flow to its present value are commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections. Upon the acquisition of acquired IPR&D, an assessment is completed as to whether the acquisition constitutes an acquisition of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.
If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s condensed consolidated statements of operations and other comprehensive (loss) as they are incurred.
IPR&D is evaluated for impairment annually using the same methodology as described above for calculating fair value. If the carrying value of the acquired IPR&D exceeds the fair value, then the intangible asset is written down to its fair value, with the resulting adjustment recorded as a charge to operations. Changes in estimates and assumptions used in determining the fair value of acquired IPR&D could result in an impairment.
Other Intangible Assets, Net
Other intangible assets consist of patent-related costs and costs for license agreements. Management reviews the carrying value of other 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 other 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 license costs are charged to operations if it is determined that the patent or license will not be obtained.
Derivative Financial Instruments and Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and other comprehensive income (loss). Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 10-7 - Warrant Liabilities)Liabilities and Note 8 - Convertible Debt-Related Party).
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Fair Value Measurements
The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
● | Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; | |
● | Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active; and | |
● | Level 3 - Inputs that are unobservable. |
Fair Value of Financial Instruments
Cash, accounts receivable, prepaids, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.
Comprehensive Loss
Comprehensive loss consists of net income and foreign currency translation adjustments related to the discontinued operations of NanoSynex. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity for all periods presented.
Stock-Based Compensation
Stock-based compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility, lower risk-free interest rates, and longer expected lives would result in an increase to stock-based compensation expense to employees and non-employees determined at the date of grant.
Income Taxes
Deferred income taxes are recognized for temporary differences in the basis of assets and liabilities for financial statement and income tax reporting that arise due to net operating loss carry forwards, research and development credit carry forwards and from using different methods and periods to calculate depreciation and amortization, allowance for doubtful accounts, accrued vacation, research and development expenses, and state taxes. A provision has been made for income taxes due on taxable income and for the deferred taxes on the temporary differences.
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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.
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 $137,000 and $60,000, respectively, as of September 30, 2022 and December 31, 2021 and are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Warranty costs were approximately $91,000 and $28,000 for the three months ended September 30, 2022 and 2021, respectively, and approximately $41,000 and $72,000 for the nine months ended September 30, 2022 and 2021, respectively, and are included in cost of product sales in the condensed consolidated statements of operations and other comprehensive loss.
Foreign Currency Translation
The functional currency for the Company is the U.S. dollar. The functional currency for the discontinued operations of NanoSynex the Company’s newly acquired majority owned subsidiary, iswas the New Israeli Shekel (NIS). The financial statements of NanoSynex arewere translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex iswas reflected as a separate component of other comprehensive income (loss) (see Note 5 - Discontinued Operations).
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Other comprehensive loss related to the effects of foreign currency translation adjustments attributable to NanoSynex was $88,523 at September 30, 2022.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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 tradeOngoing Wars in Ukraine 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 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.
Global Economic Conditions
Russia’s Invasion of UkraineIsrael
In February 2022, Russia invaded Ukraine. While the Company has limitedno direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
In October 2023, Hamas conducted several terrorist attacks in Israel resulting in ongoing war across the country. In addition, there continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Popular uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect our minority interest in NanoSynex, its results of operations, financial condition, cash flows and prospects (see Note 5 - Discontinued Operations).
Inflationary Cost EnvironmentInflation and Global Economic Conditions
During fiscal 2021the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, our business would be adversely affected.
OngoingImpact of COVID-19 Pandemic
The COVID-19 pandemic has had a dramatic impact on businesses globally and ouron the Company’s business as well. OurDuring the height of the pandemic, sales of diagnostic products felldecreased significantly during 2020 and ourthe Company’s net loss increased significantly, asclinics and small hospitals’ demand for Qualigen, Inc.’s FastPack™ diagnostic test kits reduced sharply, largely due to deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. Since thenoffices. In July 2023 we have experienced some recovery in demand. To mitigate risks, we continuesold Qualigen, Inc., our wholly-owned subsidiary, to evaluate the extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.Chembio (see Note 5 - Discontinued Operations).
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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.
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NOTE 2 — LIQUIDITY AND GOING CONCERN
As of September 30, 2022, the Company2023, we had approximately $6.62.1 million in cash and an accumulated deficit of $97.0114.4 million. For the nine months ended September 30, 2023 and 2022, and the year ended December 31, 2021, the Companywe used cash of $11.04.6 million and $14.711.0 million, respectively, in operations.
On July 20, 2023, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Chembio Diagnostics, Inc. (“Chembio”), Biosynex, S.A. (“Biosynex”) and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock (collectively, the “Shares”) of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business (the “Transaction”). The Transaction closed on July 20, 2023. Following the consummation of the Transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.
The aggregate net purchase price paid to the Company for the Shares was $5.2 million in cash, based on a base purchase price of $ million, subject to certain post-closing adjustments, upward or downward, as applicable, for: (i) cash held by Qualigen, Inc. as of the closing of the Transaction; (ii) net working capital of Qualigen, Inc. as of the closing of the Transaction, (iii) certain indebtedness of Qualigen, Inc. as of the closing of the Transaction, and (iv) certain Transaction expenses as of the closing of the Transaction. Of the $5.2 million in cash, $450,000 is being held in escrow to satisfy certain Company indemnification obligations (the “Indemnity Escrow”). Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to the Company within five business days following the date that is 18 months after the closing. A post-closing adjustment resulting in a receivable from the Transaction of approximately $235,000 is reflected in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet as of September 30, 2023.
The Company’s cash balances as of the date that these financial statements were issued along with the proceeds from the above sale to Chembio, without additional financing, are expected to fund operations into the thirdfirst quarter of 2023.2024. The Company anticipates that it willexpects to continue to incurhave net losses for the foreseeable future.and negative cash flow from operations, which over time will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.
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 ourits business plan, wethe Company will require significant additional financing for planned research and development activities, capital expenditures, clinical and pre-clinical testing for its QN-302 clinical trials to continueand preclinical development of RAS, and QN-247, and to continue funding the NanoSynex operations (See Note 3-Acquisition), as well as commercialization activities.
Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2021, the Company raised $8.828.8 million from the issuance of common stock to several institutional investors.investors, and in December 2022 the Company raised $3.0 million from the sale of an 8% Senior Convertible Debenture (the “Debenture”) to a Alpha Capital (see Note 8 - Convertible Debt - Related Party). There can be no assurance that further financing can be obtained on favorable terms, or at all. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.
As a condition to the NanoSynex closing,On July 20, 2023, the Company agreed to provideentered into an Amendment and Settlement Agreement with NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described inLtd. (“NanoSynex”) (the “NanoSynex Amendment”), which amended the Master Funding Agreement for the Operational and TechnologicalTechnology Funding of NanoSynex (the “Funding Agreement”) entered into with NanoSynex. These funding commitments are in the form of convertible promissory notes to be issued to Ltd., dated May 26, 2022, by and between the Company withand NanoSynex (the “NanoSynex Funding Agreement”), a face value equal to the amount paid byformer majority owned subsidiary of the Company, to, NanoSynex upon satisfactionamong other things, provide for the further funding of the applicable performance milestone, bearing interest at the rate of 9% per annum on the principal balance from time to time outstanding under the particular promissory note, convertible at the option ofNanoSynex. However, the Company intointends to forfeit shares in lieu of additional shares of NanoSynex in order for the Company to maintain at least a 50.1% controlling ownership interest in NanoSynex, should NanoSynex issue additional shares. The principal of the convertible notes are due and payable upon the sooner to occur of: i) five years from the date of issuance of the particular promissory note; ii) the acquisition by any person or entity of all or substantially all of the share capital of NanoSynex, through share purchase, issuance or shares or merger of NanoSynex, or the purchase of all or substantially all of the assets of NanoSynex; or iii) the initial public offering of NanoSynex. The Company provided funding to NanoSynex of $1.5 million on July(see Note 5 2022 pursuant to this agreement. The Company may terminate the Funding Agreement after October 29, 2022 upon 120 days’ notice.- Discontinued Operations).
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To the extent that we raisethe Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of ourits common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raisethe Company raises additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, weit may have to relinquish valuable rights to ourits technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.the Company. Additional funding may not be available to the Company on acceptable terms, or at all. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha Capital, the holder of the Debenture, or trigger certain adjustments to the Debenture and/or warrants held by Alpha Capital.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.
statements
NOTE 3 — ACQUISITION
Business Combination
The Company acquired a 52.8% voting equity interest in NanoSynex on May 26, 2022 (the “Acquisition Date”) through: (1) the purchase of shares Preferred A-1 Stock of NanoSynex from Alpha Capital for shares of the Company’s common stock and a prefunded warrant to purchase shares of the Company’s common stock at a purchase price of $0.001 per share and, (2) the purchase of shares of Series B preferred stock of NanoSynex from NanoSynex in exchange for $600,000.
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The acquisition of the majority interest of NanoSynex was accounted for as a business combination using the acquisition method, in accordance with FASB ASC Topic 805. A summary of the consideration transferred and provisional fair value of assets acquired and liabilities assumed in the NanoSynex acquisition is as follows:
SCHEDULE OF CONSIDERATION TRANSFERRED
Consideration transferred, net of cash acquired | ||||
Cash paid for NanoSynex preferred stock: | $ | 600,000 | ||
Purchase of NanoSynex preferred stock: | ||||
Price per share of Qualigen Stock on May 26, 2022 | $ | 0.527 | ||
FMV of | shares of Qualigen stock issued to Alpha Capital Anstalt$ | 1,844,500 | ||
FMV of | shares of Qualigen stock related to prefunded warrant issued to Alpha Capital Anstalt$ | 1,746,816 | ||
Total consideration paid for NanoSynex preferred stock | $ | 3,591,316 | ||
FMV of consideration related to related to repricing of | shares of Alpha Capital/Qualigen warrants *$ | 696 | ||
NanoSynex cash acquired | (735,354 | ) | ||
Total consideration transferred, net of cash acquired | $ | 3,456,658 |
SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES
Purchase Price Allocation | ||||
Accounts receivable | $ | 75,336 | ||
Property and equipment | 120,942 | |||
In process R&D | 5,700,000 | |||
Accounts payable | (4,588 | ) | ||
Accrued expenses and other payables | (291,093 | ) | ||
R&D grant liability | (1,362,264 | ) | ||
Short term debt | (941,898 | ) | ||
Deferred tax liability | (736,000 | ) | ||
Noncontrolling interest assumed | (4,000,000 | ) | ||
Identifiable net assets acquired | (1,439,565 | ) | ||
Goodwill | 4,896,223 | |||
Total consideration transferred, net of cash acquired | $ | 3,456,658 |
The purchase accounting adjustments are preliminary and subject to revision within the measurement period provided by ASC Topic 805. Qualigen transaction costs, which were immaterial, have been expensed as incurred and charged to the Company’s consolidated statements of operations and other comprehensive loss. There was no provision for reimbursement of transaction costs from Qualigen to NanoSynex.
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired as of the acquisition date. Goodwill represents the value of the future technology to be developed in excess of the identifiable assets as well as the operational synergies of the combined companies to be recognized. Goodwill has an indefinite useful life and is not amortized.
As a condition to the closing, the Company agreed to provide NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Funding Agreement entered into with NanoSynex. (See Note 2-Liquidity for further details regarding the terms and conditions of the Funding Agreement).
The Company’s condensed consolidated statement of operations and other comprehensive loss for three and nine months ended September 30, 2022 include $488,914 and $497,636, respectively, of net loss associated with the results of operations of NanoSynex from the Acquisition Date to September 30, 2022.
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The following pro forma information has been prepared as if the NanoSynex acquisition occurred on January 1, 2021. The following unaudited supplemental pro forma consolidated results do not purport to reflect what the combined Company’s results of operations would have been, nor do they project the future results of operations of the combined Company. The unaudited supplemental pro forma consolidated results reflect the historical financial information of Qualigen and NanoSynex, adjusted to give effect to the NanoSynex acquisition as if it had occurred on January 1, 2021, as well as to record NanoSynex stock compensation expense and to record the net loss related to the noncontrolling interest, in accordance with generally accepted accounting principles:
SCHEDULE OF PRO FORMA INFORMATION
Consolidated Pro Forma Financial | ||||||||
Results for the Nine Months Ending | ||||||||
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Net revenue | $ | 3,593,628 | $ | 4,172,496 | ||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (12,748,015 | ) | $ | (14,026,542 | ) |
NOTE 4 — INVENTORY, NET
Inventory, net consisted of the following at September 30, 2022 and December 31, 2021:
SCHEDULE OF INVENTORY
September 30, 2022 | December 31, 2021 | |||||||
Raw materials | $ | 1,023,263 | $ | 823,315 | ||||
Work in process | 228,882 | 188,135 | ||||||
Finished goods | 229,379 | 44,428 | ||||||
Total inventory | $ | 1,481,524 | $ | 1,055,878 |
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at September 30, 20222023 and December 31, 2021:2022:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Prepaid insurance | $ | 1,564,161 | $ | 1,197,726 | $ | 740,770 | $ | 1,329,033 | ||||||||
Prepaid manufacturing expenses | 38,056 | 67,410 | ||||||||||||||
Other prepaid expenses | 90,255 | 114,760 | 53,787 | 37,671 | ||||||||||||
Receivable from sale of Qualigen, Inc. | 235,402 | — | ||||||||||||||
Prepaid research and development expenses | 345,771 | — | ||||||||||||||
Prepaid expenses and other current assets | $ | 1,692,472 | $ | 1,379,896 | $ | 1,375,730 | $ | 1,366,704 |
Prepaid expenses attributable to Qualigen, Inc. and NanoSynex were disposed of as discontinued operations (see Note 5 - Discontinued Operations).
NOTE 64 — PROPERTY AND EQUIPMENT, NETOTHER NON-CURRENT ASSETS
Property and equipment, netOther non-current assets consisted of the following at September 30, 2022 and December 31, 2021:2023:
SCHEDULE OF OTHER NON CURRENT ASSETS
September 30, | ||||
2023 | ||||
Funds held in escrow | $ | 450,000 | ||
Long-term research and development deposits | 416,481 | |||
Other non-current assets | $ | 866,481 |
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NOTE 5 — DISCONTINUED OPERATIONS
Sale of Qualigen Inc.
On July 20, 2023, the Company completed the sale of Qualigen, Inc. to Chembio Diagnostics, Inc. for cash consideration of $5.5 million, of which $SCHEDULE OF PROPERTY AND EQUIPMENT4.7 million was received at closing and $450,000 is being held in escrow to satisfy certain Company indemnification obligations. An additional $235,402 post-closing working capital adjustment is presented in Other Current Assets on the condensed consolidated balance sheet. The Company received the post-closing working capital adjustment payment on November 2, 2023.
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Machinery and equipment | $ | 2,506,367 | $ | 2,482,841 | ||||
Computer equipment | 506,034 | 345,117 | ||||||
Leasehold improvements | 333,271 | 333,271 | ||||||
Molds and tooling | 260,002 | 260,002 | ||||||
Furniture and fixtures | 144,832 | 143,013 | ||||||
Equipment held for lease, net | 74 | 296 | ||||||
Property and equipment, gross | 3,750,580 | 3,564,540 | ||||||
Accumulated depreciation | (3,439,049 | ) | (3,360,324 | ) | ||||
Property and equipment, net | $ | 311,531 | $ | 204,216 |
Depreciation expense relatingThe assets and liabilities classified in discontinued operations for Qualigen, Inc. as of December 31, 2022 are as follows:
ASSETS AND LIABILITIES CLASSIFIED IN DISCONTINUED OPERATIONS
December 31, | ||||
2022 | ||||
Cash | $ | 2,246,482 | ||
Accounts receivable, net | 512,088 | |||
Inventory, net | 1,586,297 | |||
Prepaid expenses and other current assets | 104,132 | |||
Total current assets of discontinued operations | 4,448,999 | |||
Right-of-use assets | 1,422,538 | |||
Property and equipment, net | 289,696 | |||
Intangible assets, net | 145,702 | |||
Other assets | 18,334 | |||
Total non-current assets of discontinued operations | 1,876,270 | |||
Total assets of discontinued operations of Qualigen, Inc. | $ | 6,325,269 | ||
Accounts payable | $ | 236,470 | ||
Accrued vacation | 187,906 | |||
Accrued expenses and other current liabilities | 518,766 | |||
Deferred revenue, current portion | 116,161 | |||
Operating lease liability, current portion | 240,645 | |||
Total current liabilities of discontinued operations | 1,299,948 | |||
Operating lease liability, net of current portion | 1,301,919 | |||
Deferred revenue, net of current portion | 49,056 | |||
Total non-current liabilities of discontinued operations | 1,350,975 | |||
Total liabilities of discontinued operations of Qualigen, Inc. | $ | 2,650,923 |
The Company reclassified the following operations to property and equipment was approximately $24,000 and $19,000discontinued operations for the three months ended September 30, 2022 and 2021, respectively, and $72,000 and $51,000 for the nine months ended September 30, 2023 and 2022, and 2021, respectively.respectively:
2023 | 2022 | 2023 | 2022 | |||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
REVENUES | ||||||||||||||||
Net product sales | $ | 426,920 | $ | 1,441,065 | $ | 3,661,121 | $ | 3,593,628 | ||||||||
Total revenues | 426,920 | 1,441,065 | 3,661,121 | 3,593,628 | ||||||||||||
EXPENSES | ||||||||||||||||
Cost of product sales | 269,747 | 1,278,029 | 2,551,114 | 3,206,553 | ||||||||||||
General and administrative | 26,346 | 78,632 | 610,559 | 471,804 | ||||||||||||
Research and development | 2,612 | 268,127 | 206,819 | 942,484 | ||||||||||||
Sales and marketing | 37,288 | 239,865 | 405,626 | 683,291 | ||||||||||||
Total expenses | 335,993 | 1,864,653 | 3,774,118 | 5,304,132 | ||||||||||||
OTHER EXPENSE (INCOME), NET | ||||||||||||||||
Loss on disposal of equipment held for lease | — | — | 63,302 | — | ||||||||||||
Other expense (income), net | 149 | (1,139 | ) | (4,898 | ) | (795 | ) | |||||||||
Loss on fixed asset disposal | — | — | 300 | — | ||||||||||||
Total other expense (income), net | 149 | (1,139 | ) | 58,704 | (795 | ) | ||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE DISPOSAL | 90,778 | (422,449 | ) | (171,701 | ) | (1,709,709 | ) | |||||||||
Gain on sale of Qualigen, Inc. | 3,859,465 | — | 3,859,465 | — | ||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC. | $ | 3,950,243 | $ | (422,449 | ) | $ | 3,687,764 | $ | (1,709,709 | ) |
16
13 |
NOTE 7 — GOODWILL, IPR&D AND OTHER INTANGIBLES
SCHEDULE OF GOODWILL AND OTHER INTANGIBLE
September 30, | December 31, | |||||||||
2022 | 2021 | |||||||||
Estimated Useful Lives | Gross carrying amounts | Gross carrying amounts | ||||||||
Goodwill | $ | 4,896,223 | $ | - | ||||||
Finite-lived intangible assets: | ||||||||||
Developed-product-technology rights | 8 - 17 years | 479,103 | 479,103 | |||||||
Licensing rights | 10 years | 418,836 | 418,836 | |||||||
Less: Accumulated amortization | (745,865 | ) | (726,749 | ) | ||||||
Total finite-lived intangible assets, net | 152,074 | 171,190 | ||||||||
Indefinite-lived intangible assets: | ||||||||||
In-process research and development | 5,700,000 | — | ||||||||
Total other intangible assets, net | $ | 5,852,074 | $ | 171,190 |
The carrying valueIn connection with this transaction, the Company recorded a gain on the sale of the patents of approximately $145,000 and $159,000 at September 30, 2022 and December 31, 2021, respectively, are stated net of accumulated amortization of approximately $334,000 and $320,000, respectively. Amortization of patents charged to operationsQualigen, Inc. in its condensed consolidated financial statements for the three months ended September 30, 2022 and 2021 was approximately $5,000, respectively, and for the nine months ended September 30, 20222023:
Gain on sale of Qualigen, Inc. | ||||
Fair value of consideration received | $ | 5,489,337 | ||
Working capital adjustment | 235,402 | |||
Total Assets of discontinued operations | (4,225,562 | ) | ||
Total Liabilities of discontinued operations | 3,005,407 | |||
Transaction expenses | (645,119 | ) | ||
Gain on sale of Qualigen, Inc. | $ | 3,859,465 |
Amendment and 2021 was approximately $14,000 and $12,000, respectively. Total future estimated amortization of patent costs for the five succeeding years is approximately $5,000 for the remaining three months in the year ending December 31, 2022, approximately $18,000 for year 2023, approximately $15,000 for year 2024, and approximately $14,000 for years 2025, 2026 and 2027.Settlement Agreement with NanoSynex Ltd.
The carrying valueOn July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex (the “NanoSynex Funding Agreement”), pursuant to which the Company agreed to, among other things, forfeit Series B Preferred Shares of NanoSynex held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.7% of the in-licensesvoting equity of NanoSynex. In addition, the Company agreed to cancel approximately $ million of promissory notes issued to the Company under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to the Company with respect to such notes. The surrender of shares reducing the Company’s interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023.
The NanoSynex Amendment supersedes any payment obligations contemplated by the original NanoSynex Funding Agreement and amended the Company’s obligations to provide funding to NanoSynex, except that Company agreed to provide future funding as follows: (i) $12,000560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024, in each case issued in the form of a promissory note to the Company with a face value in the amount of such funding. However, in lieu of fulfilling such obligations, the Company may, and intends to, instead forfeit shares of Series A-1 Preferred Stock of NanoSynex in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that the Company should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that the Company originally paid in consideration for its Preferred A-1 shares of NanoSynex to the previous holder thereof, being $ per share.
The surrender of Series B Preferred Shares of NanoSynex was accounted for as a loss of control of a subsidiary that constitutes a business under ASC 810. As a result, on July 20, 2023, the Company deconsolidated NanoSynex’s related assets, liabilities, accumulated other comprehensive income, and the noncontrolling interest. Subsequently, the retained investment in NanoSynex is accounted for as an equity method investment. On the date of deconsolidation, the Company recognized its retained investment at September 30, 2022fair value, which during the preparation of these financial statements was determined to be de minimis based on various economic, industry, and other factors. As a result, the Company has discontinued recognition of its proportionate share of equity method losses following the date of initial recognition. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods.
Based upon the magnitude of the disposition and because the Company is exiting certain research and development operations, the disposition represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the business of NanoSynex is classified as discontinued operations for all periods presented herein.
14 |
The assets and liabilities classified in discontinued operations for NanoSynex as of December 31, 2021, respectively,2022 are stated net of accumulated amortization of approximately $as follows:
412,000 ASSETS AND LIABILITIES CLASSIFIED IN DISCONTINUED OPERATIONS
December 31, | ||||
2022 | ||||
Cash | $ | 1,621,967 | ||
Accounts receivable, net | 26,499 | |||
Prepaid expenses and other current assets | 190,384 | |||
Total current assets of discontinued operations | 1,838,850 | |||
Restricted cash | 5,690 | |||
Property and equipment, net | 29,149 | |||
Intangible assets, net | 5,700,000 | |||
Goodwill | 625,602 | |||
Total non-current assets of discontinued operations | 6,360,441 | |||
Total assets of discontinued operations of NanoSynex | $ | 8,199,291 | ||
Accounts payable | $ | 1,273 | ||
Accrued vacation | 115,002 | |||
Accrued expenses and other current liabilities | 293,571 | |||
R&D grant liability | 780,682 | |||
Short term debt-related party | 950,722 | |||
Total current liabilities of discontinued operations | 2,141,250 | |||
Deferred tax liability | 357,757 | |||
Total non-current liabilities of discontinued operations | 357,757 | |||
Total liabilities of discontinued operations of NanoSynex | $ | 2,499,007 |
and $
407,000, respectively, and amortization of licenses chargedThe Company reclassified the following operations to bothdiscontinued operations for the three months ended September 30, 2022 and 2021 was approximately $2,000. Amortization of licenses charged to operations for both the nine months ended September 30, 2023 and 2022, and 2021 was approximately $5,000. Total future estimated amortization of license costs is approximately $2,000 for the remaining three months in the year ending December 31, 2022, and approximately $5,000 for the year ending December 31, 2023.respectively:
2023 | 2022 | 2023 | 2022 | |||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
EXPENSES | ||||||||||||||||
Research and development | $ | 81,640 | $ | 489,433 | $ | 869,064 | $ | 498,155 | ||||||||
Total expenses | 81,640 | 489,433 | 869,064 | 498,155 | ||||||||||||
Loss on disposal of discontinued operations | 4,479,010 | — | 4,479,010 | — | ||||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES | (150,369 | ) | — | (357,757 | ) | — | ||||||||||
LOSS FROM DISCONTINUED OPERATIONS | (4,410,281 | ) | (489,433 | ) | (4,990,317 | ) | (498,155 | ) | ||||||||
Loss attributable to noncontrolling interest | (1,276,969 | ) | (230,767 | ) | (1,578,481 | ) | (234,883 | ) | ||||||||
NET LOSS ATTRIBUTABLE TO STOCKHOLDERS | $ | (3,133,312 | ) | $ | (258,666 | ) | $ | (3,411,836 | ) | $ | (263,272 | ) |
In connection with this transaction, the Company recorded a loss on deconsolidation of NanoSynex in its condensed consolidated financial statements for the three and nine months ended September 30, 2023:
Loss on deconsolidation of NanoSynex | ||||
Fair value of NanoSynex interest retained | $ | — | ||
Net assets deconsolidated | (2,768,403 | ) | ||
Non-controlling interest share | ||||
Accumulated OCI attributable to NanoSynex | 131,891 | |||
Forgiveness of debt | (3,077,941 | ) | ||
Loss from deconsolidation of NanoSynex | $ | (4,479,010 | ) |
15 |
NOTE 86 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at September 30, 20222023 and December 31, 2021:2022:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Board compensation | $ | 26,500 | $ | 17,500 | ||||
Franchise, sales and use taxes | 22,685 | 14,090 | ||||||
Income taxes | 4,356 | 3,620 | ||||||
Payroll | 225,270 | 682,036 | ||||||
Professional fees | 76,555 | 225,308 | ||||||
Research and development | 210,419 | 232,712 | ||||||
Royalties | 13,009 | 10,152 | ||||||
Vacation | 439,324 | 282,910 | ||||||
Warranty liability | 137,293 | 60,281 | ||||||
Other | 315,916 | 265,292 | ||||||
Accrued liabilities | $ | 1,471,327 | $ | 1,793,901 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Board compensation | $ | 40,833 | 70,000 | |||||
Interest (Convertible debt - related party) | 68,322 | 2,829 | ||||||
License fees | 167,200 | 150,130 | ||||||
Payroll | 35,939 | 1,247 | ||||||
Professional fees | 506,080 | 136,203 | ||||||
Research and development | 278,024 | 329,412 | ||||||
Other | 47,790 | 9,698 | ||||||
Accrued expenses and other current liabilities | $ | 1,144,188 | $ | 699,519 |
Other accrued liabilities attributable to Qualigen Inc, and NanoSynex were disposed of as discontinued operations (see Note 5 - Discontinued Operations).
17
NOTE 9 – SHORT TERM DEBT-RELATED PARTY
NanoSynex has four separate Notes Payable (the “Notes”) outstanding to Alpha Capital, dated between March 26, 2020 and September 2, 2021, aggregating to a total principal outstanding balance of $905,000, and aggregate accrued interest of $36,261 for a total outstanding balance of $941,261 as of September 30, 2022. The Notes all accrue interest at 2.62% per annum, accrued daily, and provide that the full amount of principal and interest under each Note shall be due immediately prior to a Liquidation Event (the Maturity Date) unless due earlier in accordance with the terms of the Notes. “Liquidation Event” means either i) the merger or consolidation of NanoSynex into any other entity, other than one in control or under control of NanoSynex or NanoSynex’s majority shareholder; ii) a transaction or series of transactions resulting in the transfer of all or substantially all of NanoSynex’s assets or issued and outstanding share capital (other than to a company under the control of NanoSynex or NanoSynex’s majority shareholders; or iii) an underwritten public offering by NanoSynex of its ordinary shares. Notwithstanding the above, if NanoSynex receives subsequent debt, convertible debt, or equity funding with gross proceeds of USD $3,000,000 or more, then these Notes shall be due and payable upon the actual receipt of such funding.
NOTE 107 – 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.
In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase an aggregate of 4,713,490 shares of the Company’s common stock at approximately $0.727.195 per share, subject to adjustment. As of September 30, 2022, the warrants received in exchange for2023, the Series C Warrants havehad remaining terms ranging from 1.150.14 to 1.740.74 years. The warrantsSeries C Warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, resulting frombased on the inclusion of a leveraged ratchet provision for subsequent dilutive issuances. On April 25, 2022, the Series C warrants were repriced from $0.71957.195 to $0.606.00 with an additional ratchet shares issued, and onWarrants issued. On May 26, 2022, the Series C warrants were repriced from $0.606.00 to $0.51365.136 with an additional ratchet sharesWarrants issued. As a result of these repricings, warrants were forfeited and warrants were reissuedreissued. On December 22, 2022, the Series C warrants were repriced again from $5.136 to $1.32 with additional ratchet Warrants issued.
Additionally, on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha Capital (see Note 8 – Convertible Debt – Related Party), the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the current $ exercise price.Alpha Warrant. The fair value of this warrant is included in Warrant liabilities-related party on the company’s condensed consolidated balance sheet.
The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2023:
SCHEDULE OF WARRANTS ACTIVITY
Common Stock Warrants | ||||||||||||||||
Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
Total outstanding – December 31, 2022 | 3,849,571 | $ | 1.53 | $ | 1.32 - $1.65 | |||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | — | — | — | — | ||||||||||||
Expired | — | — | — | — | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Total outstanding – September 30, 2023 | 3,849,571 | $ | 1.53 | $ | 1.32 - $1.65 | |||||||||||
Exercisable | 3,849,571 | $ | 1.53 | $ | 1.32 - $1.65 |
16 |
The following table summarizes the activity in the Common Stock Warrants (received in exchange for the Series C Warrants)liability classified warrants for the nine months ended September 30, 2022:
SCHEDULE OF WARRANTS ACTIVITY
Common Stock Warrants (received in exchange for the Series C Warrants) | Common Stock Warrants | |||||||||||||||||||||||||||||||
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, 2021 | 2,481,614 | $ | 0.72 | |||||||||||||||||||||||||||||
Total outstanding –December 31, 2021 | 248,161 | $ | 7.20 | |||||||||||||||||||||||||||||
Exercised | (5,363 | ) | 0.72 | (536 | ) | 7.20 | ||||||||||||||||||||||||||
Forfeited | (2,476,251 | ) | 0.72 | (247,625 | ) | 7.20 | ||||||||||||||||||||||||||
Expired | — | — | — | — | ||||||||||||||||||||||||||||
Granted | 3,468,958 | 0.51 | 346,896 | 5.10 | ||||||||||||||||||||||||||||
Total outstanding – September 30, 2022 | 3,468,958 | $ | 0.51 | 346,896 | $ | 5.10 | ||||||||||||||||||||||||||
Exercisable | 3,468,958 | $ | 0.51 | $ | 0.51 | 346,896 | $ | 5.10 | $ | 5.10 |
18
The following table summarizes the activity in the Common Stock Warrants (received in exchange for the Series C Warrants) activity for the nine months ended September 30, 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 | (722,618 | ) | 0.72 | |||||||||||||
Forfeited | (36,097 | ) | 0.72 | |||||||||||||
Expired | — | — | ||||||||||||||
Granted | — | — | ||||||||||||||
Total outstanding – September 30, 2021 | 2,619,881 | $ | 0.72 | |||||||||||||
Exercisable | 2,619,881 | $ | 0.72 | $ | 0.72 |
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 September 30, 2022:2023:
SCHEDULE OF FAIR VALUE HIERARCHY FOR WARRANT LIABILITIES
Quoted | Quoted | |||||||||||||||||||||||||||||||
Market | Significant | Market | Significant | |||||||||||||||||||||||||||||
Prices for | Other | Significant | Prices for | Other | Significant | |||||||||||||||||||||||||||
Identical | Observable | Unobservable | Identical | Observable | Unobservable | |||||||||||||||||||||||||||
Assets | Inputs | Inputs | Assets | Inputs | Inputs | |||||||||||||||||||||||||||
Common Stock Warrant liabilities | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||||
Balance as of December 31, 2021 | $ | — | $ | — | $ | 1,686,200 | $ | 1,686,200 | ||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | — | $ | — | $ | 3,622,647 | $ | 3,622,647 | ||||||||||||||||||||||||
Exercises | — | — | (858 | ) | (858 | ) | — | — | — | — | ||||||||||||||||||||||
Gain on change in fair value of warrant liabilities | — | — | (1,019,342 | ) | (1,019,342 | ) | — | — | (1,377,855 | ) | (1,377,855 | ) | ||||||||||||||||||||
Balance as of September 30, 2022 | $ | — | $ | — | $ | 666,000 | $ | 666,000 | ||||||||||||||||||||||||
Balance as of September 30, 2023 | $ | — | $ | — | $ | 2,244,792 | $ | 2,244,792 |
There were no transfers of financial assets or liabilities between category levels for the three and nine months ended September 30, 2022.2023.
The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.
19
The following table showsare the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of September 30, 20222023 and 2021:2022:
SCHEDULE OF ASSUMPTIONS OF WARRANT LIABILITIES
September 30, 2022 | September 30, 2021 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||||||||
Range | Weighted Average | Range | Weighted Average | Range | Weighted Average | Range | Weighted Average | |||||||||||||||||||||||||
Risk-free interest rate | 3.99% — 4.09% | 4.01 | % | 0.31% — 0.46% | 0.34 | % | 4.523% — 5.401 | % | 4.83 | % | 3.99% — 4.09 | % | 4.01 | % | ||||||||||||||||||
Expected volatility (peer group) | 91% — 93% | 92 | % | 82% — 86% | 85 | % | 57.9% — 134.5 | % | 108.41 | % | 91% — 93 | % | 92.0 | % | ||||||||||||||||||
Term of warrants (in years) | 1.14 — 1.74 | 1.26 | 2.14 — 2.74 | 2.25 | .14 — 4.73 | 3.16 | 1.14 — 1.74 | 1.26 | ||||||||||||||||||||||||
Expected dividend yield | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
17 |
NOTE 8 — CONVERTIBLE DEBT - RELATED PARTY
On December 22, 2022, the Company issued to Alpha Capital an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the Debenture is no longer outstanding, at Alpha Capital’s option, into shares of common stock of the Company (the “Conversion Shares”), at a price equal to $1.32 per share, subject to adjustment as described in the Debenture (the “Conversion Price”) and other terms and conditions described in the Debenture, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023. Additionally, on December 22, 2022, the Company issued to Alpha Capital a liability classified warrant (the “Alpha Warrant”) to purchase 2,500,000 shares of the Company’s common stock (see Note 7 - Warrant Liabilities). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the Conversion Price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.
The proceeds from the transaction were used to advance the Company’s QN-302 Investigative New Drug candidate towards clinical trials and other working capital purposes.
Commencing June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the Debenture (each such date, a “Monthly Redemption Date”), the Company must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, the Company may elect to pay all or a portion of a Monthly Redemption Amount in shares of common stock of the Company, based on a Conversion Price equal to the lesser of (i) the then Conversion Price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The Company may also redeem some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to 105% of the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. The Company’s election to pay monthly redemptions in Conversion Shares or to effect an optional redemption is subject to the satisfaction of the Equity Conditions (as defined in the Debenture), including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.
The Debenture accrues interest at the rate of 8% per annum, which does not begin accruing until December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock of the Company or a combination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions have been satisfied, including the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders on July 13, 2023.
Both the Debenture and the Alpha Warrant provide for adjustments to the Conversion Price and exercise price, respectively, in connection with stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain fundamental transactions. Both the Debenture and the Alpha Warrant include a beneficial ownership blocker of 9.99%, which may only be waived by Alpha Capital upon 61 days’ notice to the Company.
The Company filed a resale registration statement on Form S-3 (File Number 333-269088) on December 30, 2022 registering the resale by Alpha Capital of up to shares of common stock of the Company which could be issued to Alpha Capital pursuant to the Debenture and the Alpha Warrant, which registration statement was declared effective by the SEC on January 5, 2023 (the “Original Registration Statement”). The Company later became ineligible to use the Original Registration Statement as a result of its failure to timely file its annual report on Form 10-K for the fiscal year ended December 31, 2022. Therefore, the Company filed a Post-Effective Amendment No. 1 to Form S-3 on Form S-1 (No. 333-269088)(the “Post-Effective Amendment No. 1”) on September 1, 2023 in order to maintain the registration of the resale by Alpha Capital of up to shares of common stock of the Company issuable under the Debenture and the Alpha Warrant., which Post-Effective Amendment No. 1 was declared effective by the SEC on September 7, 2023. On September 29, 2023, we filed the final resale prospectus on Form 424(b)(3).
The Company evaluated the Debenture and the Alpha Warrant and determined that the Alpha Warrant is a freestanding financial instrument. The Alpha Warrant is not considered indexed to the Company’s own stock, because the settlement amount would not equal the difference between the fair value of a fixed number of the Company’s equity shares and a fixed strike price and all of the adjustment features in Section 3(b) of the Alpha Warrant are not down round provisions, as defined in ASU 2017-11. Accordingly, the Alpha Warrant is classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.
The proceeds from the Debenture were allocated to the initial fair value of the Alpha Warrant, with the residual balance allocated to the initial carrying value of the Debenture. The Company has not elected the fair value option for the Debenture. The Debenture was recognized as proceeds received after allocating the proceeds to the Alpha Warrant, and then allocating remaining proceeds to a suite of bifurcated embedded derivative features (conversion option, contingent acceleration upon an Event of Default, and contingent interest upon an Event of Default), with the resulting difference, if any, allocated to the loan host instrument. The suite of derivative features was measured and determined to have no fair value.
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The original issue discount of $0.3 million, the initial fair value of the Alpha Warrant of $2.8 million, the initial fair value of the suite of bifurcated embedded derivative features of $0, and the fees and costs paid to Alpha Capital and other third parties of $0.1 million comprised the debt discount upon issuance. The debt discount is amortized to interest expense over the expected term of the Debenture using the effective interest method, in accordance with ASC 835-30. The debt host instrument of the Debenture will subsequently be measured at amortized cost using the effective interest method to accrete interest over its term to bring the Debenture’s initial carrying value to the principal balance at maturity.
Between January 9 and 12, 2023, the Company issued 1.32 per share for a total of $1,111,078 principal. Upon conversion, the Company recognized a loss on conversion of convertible debt of approximately $1.1 million, recorded to other expenses in the condensed consolidated statements of operations. shares of common stock upon Alpha Capital’s partial conversion of the Debenture at $
On September 22, 2023, the Company entered into a consent and waiver (the “Waiver”) with Alpha Capital. Pursuant to the Waiver, Alpha Capital consented to the Company’s election to pay all of the Monthly Redemption Amount for October 2023 in Conversion Shares (the “October Payment”) and waived the requirement of satisfaction of the Equity Conditions in relation to the October Payment only. On October 3, 2023 the Company issued shares of common stock to Alpha Capital in satisfaction of the October Payment.
During the three and nine months ended September 30, 2023, the Company recorded interest of approximately $368,000 and $1.3 million, respectively (of which approximately $350,000 and $1.2 million was attributable to discount amortization, respectively) in other expenses in the condensed consolidated statements of operations. As of September 30, 2023, the fair value of the Alpha Warrant was approximately $2.2 million, and the fair value of the suite of bifurcated embedded derivative features was $0.
Convertible debt-related party is comprised of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF SENIOR SECURED CONVERTIBLE DEBT
September 30, 2023 | December 31, 2022 | |||||||
Senior secured convertible debenture | $ | 1,748,922 | $ | 3,300,000 | ||||
Discount on convertible debenture | (916,822 | ) | (3,239,803 | ) | ||||
Total convertible debt-related party | $ | 832,100 | $ | 60,197 |
As of September 30, 2023, there were no events of default or violation of any covenants under our financing obligations, except for the Equity Conditions in relation to the Company’s ability to elect to pay all of the Monthly Redemption Amount for October 2023 in Conversion Shares as described above.
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.
SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss used for basic earnings per share | $ | (3,825,109 | ) | $ | (3,037,482 | ) | $ | (12,268,300 | ) | $ | (13,678,278 | ) | ||||
Basic weighted-average common shares outstanding | 39,444,058 | 29,026,211 | 37,154,623 | 28,683,972 | ||||||||||||
Dilutive potential shares issuable from stock options and warrants | — | — | — | — | ||||||||||||
Diluted weighted-average common shares outstanding | 39,444,058 | 29,026,211 | 37,154,623 | 28,683,972 |
SCHEDULE OF DILUTIVE SECURITIES EXCLUDED FROM DILUTED NET LOSS PER SHARE
As of September 30, | As of September 30, | As of September 30, | ||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Shares of common stock subject to outstanding options | 6,071,750 | 4,133,856 | 416,215 | 607,175 | ||||||||||||
Shares of common stock subject to outstanding warrants | 10,808,739 | 9,360,302 | 4,059,934 | 1,080,873 | ||||||||||||
Shares of common stock subject to conversion of Series Alpha Convertible Preferred Stock | — | 243,418 | ||||||||||||||
Total common stock equivalents | 16,880,489 | 13,737,576 | 4,476,149 | 1,688,048 |
NOTE 1210 — COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under a long-term operating lease 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.
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The tables below show the operating lease right-of-use assets and operating lease liabilities as of September 30, 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, 2021 | $ | 1,645,568 | ||
Less amortization of operating lease right-of-use assets | (165,950 | ) | ||
Operating lease right-of-use assets at September 30, 2022 | $ | 1,479,618 |
Operating lease liabilities | ||||
Lease liabilities at December 31, 2021 | $ | 1,676,655 | ||
Less principal payments on operating lease liabilities | (112,823 | ) | ||
Lease liabilities at September 30, 2022 | 1,563,832 | |||
Less non-current portion | (1,365,459 | ) | ||
Current portion at September 30, 2022 | $ | 198,373 |
As of September 30, 2022, the Company’s operating leases have a weighted-average remaining lease term of 5.2 years and a weighted-average discount rate of 8.9%.
As of September 30, 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 | |||
2022 (three months) | $ | 55,721 | ||
2023 | 368,341 | |||
2024 | 379,392 | |||
2025 | 390,773 | |||
2026 | 402,497 | |||
2027 | 379,165 | |||
Total | 1,975,889 | |||
Less present value discount | (412,056 | ) | ||
Operating lease liabilities | $ | 1,563,832 |
Total lease expense was approximately $114,000 and $83,000 for the three months ended September 30, 2022 and 2021, respectively, and approximately $348,000 and $255,000, respectively, for the nine months ended September 30, 2022 and 2021. 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, the Company has a 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.
NanoSynex Funding Commitment
As a condition to the closing,On July 20, 2023, the Company agreed to provideentered into an Amendment and Settlement Agreement with NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described inLtd. (“NanoSynex”) (the “NanoSynex Amendment”), which amended the Master Funding Agreement entered into with NanoSynex. (See Note 2-Liquidity for further details regarding the termsOperational and conditionsTechnology Funding of NanoSynex Ltd., dated May 26, 2022, by and between the Company and NanoSynex (the “NanoSynex Funding Agreement”), a majority owned subsidiary of the Funding Agreement)Company, to, among other things, provide for the further funding of NanoSynex. However, the Company intends to forfeit shares in lieu of additional funding (see Note 5 - Discontinued Operations).
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Litigation and Other Legal Proceedings
On November 9, 2021, the Company was named as a defendant in an action brought by Mediant Communications Inc. (“Mediant”) in the U.S. District Court for the Southern District of New York. The complaint alleged that Qualigen entered into an implied contract with Mediant, whereby Qualigen retained Mediant to distribute proxy materials and subsequently conduct shareholder vote tabulations. The Company filed a Motion to Dismiss with the District Court and on March 14, 2022 a hearing was held during which the presiding judge ruled in favor of the Motion to Dismiss. The Company and Mediant settled the litigation on April 5, 2022 in the amount of $96,558, at which time the amount was paid.
NOTE 1311 — RESEARCH AND LICENSE AGREEMENTS
The University of Louisville Research Foundation
In March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with University of Louisville Research Foundation (“ULRF”)ULRF for development of several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company agreed to reimburse ULRF for sponsored research expenses of initially up to $693,000 for this program. InThis agreement was amended in February 2021, March 2022 and October 2022,August 2023, with the Company extended thecurrent term of this agreement until Septemberset to expire in December 2023 and increased the aggregate amount that the Company willwould reimburse ULRF for sponsored research expenses increased to approximately $2.72.9 million. In July 2020, the Company entered into an exclusive license agreement with ULRF for RAS interaction inhibitor drug candidates. Under the agreement, the Company took over development, regulatory approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to July 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones.milestones. Milestone payments for the first therapeutic indication would be $50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $20,000 to $100,000) for such year.
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Sponsored research expenses related to this agreementthese agreements for the three months ended September 30, 20222023 and 20212022 were approximately $196,000101,000 and $264,000196,000, respectively, and for the nine months ended September 30, 20222023 and 20212022 were approximately $601,000657,000 and $469,000601,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs related to these agreements for the three months ended September 30, 20222023 and 20212022 were approximately $27,00018,000 and $18,00027,000, respectively, and for the nine months ended September 30, 20222023 and 20212022 were approximately $44,00047,000 and $58,00044,000, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
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Between June 2018 and April 2022, the Company entered into license and sponsored research agreements with ULRFthe 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 taketook over development, regulatory approval and commercialization of the compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received a $50,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock, and the Company agreed to reimburse ULRF for sponsored research expenses of up to approximately $805,000 and prior patent costs of up to $200,000. In addition, the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of anti-nucleolin agent-conjugated nanoparticles, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the last to expire of the licensed patents, (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2018, and (iv) payments ranging from $100,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $100,000 for first dosing in a Phase 1 clinical trial, $200,000 for first dosing in a Phase 2 clinical trial, $350,000 for first dosing in a Phase 3 clinical trial, $500,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales; thesales. The Company would also agreed to pay another $500,000 milestone payment for any additional regulatory marketing approval for each additional therapeutic (or diagnostic) indication. The Company must also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $10,000 to $50,000) for such year.
SponsoredThe sponsored research agreement for QN-247 expired in August 2022 and there were no sponsored research expenses related to this agreement for the three months ended September 30, 20222023 and 2021 were $0 and $83,000, respectively, and for2022. For the nine months ended September 30, 2023 and 2022 were $0 and 2021 were approximately $$164,000 in sponsored research expenses related to these agreements164,000 and $235,000, respectively, and these amounts are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs were $0 and approximately $5,000 and $50,000 related to these agreements for the three months ended September 30, 20222023 and 2021,2022, respectively, and approximately $74,00022,000 and $103,00074,000 related to these agreements for the nine months ended September 30, 20222023 and 2021,2022, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
In June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of QN-165 as a treatment for COVID-19. Under the agreement, the Company took over development, regulatory approval and commercialization of the compound (for such use) from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $24,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company was required to enter into a separate sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) for at least $250,000. In November 2020, the Company executed a sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) supporting up to approximately $430,000 in research which satisfied this requirement. This sponsored research agreement expired in November 2021.
In addition,2021 and the Company 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 ULRFexclusive 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.
The license agreement with ULRF for its intellectual property in the use of QN-165 as a treatment for COVID-19 was terminated effectiveon October 31, 2022.
SponsoredThere were no sponsored research expenses related to this agreement for the three months ended September 30, 2022 and 2021 were $0 and approximately $12,000, respectively, and for the nine months ended September 30, 2022 and 2021 were $0 and $106,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. Licenseor license costs related to these agreements for the three months ended September 30, 2023 and 2022, and 2021 were $0 and $11,000, respectively, andor for the nine months ended September 30, 20222023 and 2021 were $0 and $27,000, respectively.
Advanced Cancer Therapeutics
In December 2018, the Company entered into a license agreement with Advanced Cancer Therapeutics, LLC (“ACT”), granting the Company exclusive rights to develop and commercialize QN-165, an aptamer-based drug candidate. In return, ACT received a $25,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock. In addition, the Company agreed to pay ACT (i) royalties, on net sales associated with the commercialization of QN-165, of 2% (only if patent-covered and only on net sales above a cumulative $3,000,000) or 1% (if not patent-covered, but only on net sales above a cumulative $3,000,000), until the 15th anniversary of the ACT license agreement and (ii) milestone payments of $100,000 for the Company raising a cumulative total of $2,000,000 in new equity financing after the date of the ACT license agreement, $100,000 upon any first QN-165-based licensed product receiving the CE Mark or similar FDA status, and $500,000 upon cumulative worldwide QN-165-based licensed product net sales reaching $3,000,000. For the three months ended September 30, 2022 and 2021, there were no license costs, and for the nine months ended September 30, 2022 and 2021, there were $0 and approximately $2,000, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
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 Physician Office Laboratory (POL) market. The Company recognizes development revenue and product sales over the performance period of the contract. For both the three and nine months ended September 30, 2022 and 2021, there was no collaborative research revenue related to this agreement.
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Sekisui Diagnostics
In March 2018, the Company extended a strategic partnership entered into in May 2016 with 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.
Under the terms of the arrangement, there were product sales to Sekisui of $0 and $810,000, respectively, for the three months ended September 30, 2022 and 2021, and $403,000 and $2.5 million, respectively, for the nine months ended September 30, 2022 and 2021.
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.
The Company will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. The 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 three months ended September 30, 2022 and 2021, respectively. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.
The Company gave Yi Xin the exclusive rights for China – which is a market the Company has not otherwise entered – both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of the Company’s existing FastPack product lines. Yi Xin will also have the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack products). After March 31, 2022, Yi Xin has 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-U.S. customers of those products), 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 U.S. customers of those products); the Company did not license Yi Xin to sell in the U.S. market any Yi Xin-manufactured versions of those legacy FastPack 1.0, IP and PRO product lines. In the Technology Transfer Agreement, the Company also confirmed that it would not, after March 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 Good Manufacturing Practice 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.
Research and development expenses related to this agreement for the three months ended September 30, 2022 and 2021 were $0 and $118,000, respectively, and for the nine months ended September 30, 2022 and 2021 were approximately $9,000 and $3.2 million, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
UCL Business Limited
In January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is now being developed at Qualigen under the name QN-302 as a candidate for treatment for pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The License Agreement required a $150,000 upfront payment, reimbursement of past patent prosecution expenses (approximately $160,000), and (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments and a percentage of any non-royalty sublicensing consideration paid to Qualigen.
For both the three months ended September 30, 20222023 and 2021,2022, there were license costs of $12,000 and $0, respectively and for the nine months ended September 30, 20222023 and 20212022, there were license costs of approximately $310,00028,000 and $0310,000, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
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QN-302 Phase 1 Study
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In June 2023, the Company entered into a Master Clinical Research Services Agreement with Translational Drug Development, LLC (“TD2”) whereby TD2 agreed to perform certain clinical research and development services for the Company including but not limited to trial management, side identification and selection, site monitoring/management, medical monitoring, project management, data collection, statistical programming or analysis, quality assurance auditing, scientific and medical communications, regulatory affairs consulting and submissions, strategic consulting, and/or other related services. From time to time, the Company shall enter into statements of work with TD2 for the performance of specific services under this Master Clinical Research Services Agreement.
In June 2023, the Company entered into a Master Laboratory Services Agreement with MLM Medical Labs, LLC (“MLM”) whereby MLM agreed to perform certain clinical research and development services for the Company including but not limited to laboratory, supply, testing, validation, data management, and storage services. From time to time, the Company shall enter into work orders with MLM for the performance of specific services under this Master Laboratory Services Agreement.
In June 2023, the Company entered into a Master Services Agreement with Clinigen Clinical Supplies Management, Inc. (“Clinigen”) whereby Clinigen agreed to provide certain pharmaceutical products and/or services. From time to time, the Company shall enter into statements of work with Clinigen for the performance of specific services under this Master Services Agreement.
In July 2023, pursuant to the above agreements, the Company entered into work orders and statements of work for clinical trial services for the conduct of the QN-302 Phase 1 study. The project timeline started in July 2023 and is expected to continue until approximately July 2026. The total amount to be paid under these work orders and statements of work is currently expected to be approximately $7.6 million over the term of the QN-302 Phase 1 study, subject to available funding.
NOTE 1412 — STOCKHOLDERS’ EQUITY (DEFICIT)
As of September 30, 20222023 and December 31, 2021,2022, the Company had two classes of authorized 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 September 30, 2022 any remaining assets wouldwill be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series Alpha convertibleany 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.
On December 22, 2022, the Company issued to Alpha Capital an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the Debenture is no longer outstanding, at Alpha Capital’s option, into shares of common stock of the Company, at a price equal to $1.32 per share, subject to adjustment and other terms and conditions described in the Debenture (see Note 8 - Convertible Debt - Related Party). As part of this transaction, the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock (see Note 7 - Warrant Liabilities). Between January 9 and 12, 2023, Alpha Capital voluntarily converted $1,111,078 of its outstanding the Debenture principal into shares of common stock at a conversion price of $1.32 per share.
At September 30, 2022,2023, the Company has reserved shares of authorized but unissued common stock for possible future issuance.
SCHEDULE OF RESERVED SHARES
Exercise of issued and future grants of stock options | ||||
Exercise of stock warrants | ||||
Total |
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Series Alpha Convertible
Preferred Stock
As ofAt September 30, 20222023 and December 31, 2021,2022, there were shares of Series Alpha convertible preferred stock outstanding.
Stock Options and Warrants
Stock Options
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 non-statutory common stock options and other types of awards to qualified employees, officers, directors, consultants and other service providers. At September 30, 20222023 and December 31, 20212022, there were and outstanding stock options, respectively, under the 2020 Plan and on such dates there were and shares reserved under the 2020 Plan, 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 .
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, 2021 | 4,841,856 | $ | 6.07 | $ — $ | ||||||||||||||||||||||||||||
Total outstanding – December 31, 2022 | 608,012 | $ | 35.02 | $ | - $ | |||||||||||||||||||||||||||
Granted | 1,329,750 | 0.51 | - | — | — | — | — | |||||||||||||||||||||||||
Expired | (93,856 | ) | 93.59 | - | — | — | — | — | — | |||||||||||||||||||||||
Forfeited | (6,000 | ) | 3.55 | - | — | (191,797 | ) | 34.02 | - | — | ||||||||||||||||||||||
Total outstanding – September 30, 2022 | 6,071,750 | $ | 3.51 | $ — $ | ||||||||||||||||||||||||||||
Total outstanding – September 30, 2023 | 416,215 | $ | 35.50 | $ | — $ | |||||||||||||||||||||||||||
Exercisable (vested) | 2,660,163 | $ | 4.84 | $ — $ | 330,544 | $ | 42.38 | $ | — $ | |||||||||||||||||||||||
Non-Exercisable (non-vested) | 3,411,587 | $ | 3.68 | $ — $ | 8.82 | 85,671 | $ | 8.97 | $ | - $ | 8.52 |
There was approximately $20222023 and 2021,2022, respectively. As of September 30, 2022,2023, there was approximately $ million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of years. and $ million of compensation cost related to outstanding stock options for the nine months ended September 30,
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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 | $ - $ | ||||||||||||||||||||||||||||
Total outstanding – December 31, 2021 | 484,186 | $ | 60.70 | $ | — $ | |||||||||||||||||||||||||||
Granted | 127,000 | 2.12 | — | 132,975 | 5.10 | - | ||||||||||||||||||||||||||
Expired | — | — | — | (9,386 | ) | 935.90 | - | — | ||||||||||||||||||||||||
Forfeited | (4,500 | ) | 3.68 | — | — | (600 | ) | 35.50 | - | — | ||||||||||||||||||||||
Total outstanding – September 30, 2021 | 4,133,856 | $ | 6.90 | $ - $ | ||||||||||||||||||||||||||||
Total outstanding – September 30, 2022 | 607,175 | $ | 35.10 | $ | — $ | |||||||||||||||||||||||||||
Exercisable (vested) | 1,314,194 | $ | 11.41 | $ — $ | 266,016 | $ | 48.40 | $ | — $ | |||||||||||||||||||||||
Non-Exercisable (non-vested) | 2,819,662 | $ | 4.80 | $ — $ | 8.79 | 341,159 | $ | 36.80 | $ | — $ | 8.82 |
. 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 nine months ended September 30, 2022 was $.
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Fair Value of Equity Awards
The Company utilizes the Black-Scholes option pricing model to value awards under its Plans.equity 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 |
SCHEDULE OF ASSUMPTIONSASSUMPTION USED IN BLACK-SCHOLES OPTION-PRICING METHOD
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Expected dividend yield | 0.00 | % | 0.00 | % | ||||
Expected stock-price volatility | 103 | % | 102 | % | ||||
Risk-free interest rate | — | — | ||||||
Expected average term of options (in years) | ||||||||
Stock price | $ | 0.52 | $ | 2.12 |
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For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Expected dividend yield | 0.00 | % | 0.00 | % | ||||
Expected stock-price volatility | — | 103 | ||||||
Risk-free interest rate | — | — | % | |||||
Expected average term of options (in years) | — | |||||||
Stock price | $ | — | $ | 0.52 |
SCHEDULE OF SHARE-BASED COMPENSATION EXPENSE
2022 | 2021 | 2023 | 2022 | |||||||||||||
For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
General and administrative | $ | 3,522,108 | $ | 3,329,310 | $ | 881,365 | $ | 3,522,108 | ||||||||
Research and development | 577,844 | 533,096 | 140,674 | 577,844 | ||||||||||||
Total | $ | 4,099,952 | $ | 3,862,406 | $ | 1,022,039 | $ | 4,099,952 |
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 811,43181,143 reverse split adjusted shares of the Company’s common stock at ana reverse split adjusted exercise price of $1.1111.10 per share. The issuance cost of these warrants was charged to additional paid-in capital, and did not result in expense in the Company’s condensed consolidated statements of operations and other comprehensive loss.
In addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier for the purchase of 66,802 reverse split adjusted shares of Company common stock (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 $2.3423.40 per share. These are to be differentiated from the Series C Warrants described in Note 10-7 - Warrant Liabilities.
During the year ended December 31, 2021, the Company issued equity classified compensatory warrants to a service provider for the purchase of 600,00060,000 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $1.3213.20 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 condensed consolidated statements of operations and other comprehensive loss. On April 25, 2022, 600,00060,000 warrants were repriced from $ to a reverse split adjusted exercise price of $0.606.00 and extended from June 3, 2023 to September 14, 2023, when they expired. The increase in fair value of $67,370 using a Monte Carlo pricing model for the modification of these warrants was charged to general and administrative expenses in the Company’s condensed consolidated statements of operations and other comprehensive loss. On April 25, 2022 and May 26, 2022 an additional 676,19467,619 reverse split adjusted warrants were repriced from a reverse split adjusted exercise price of $1.1111.10 to $0.51365.136. The increase in fair value of $31,010 using a Monte Carlo pricing model for the modification of these warrants was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and othercomprehensive loss. On December 22, 2022, 67,620 warrants were repriced from a reverse split adjusted exercise price of $5.136 to $1.32. The increase in fair value of $8,548 using a Monte Carlo pricing model for the modification of these warrants was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss.
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No compensatory warrants were issued during the nine months ended September 30, 2022.2023.
The following table summarizes the activity in the common stock equity classified compensatory warrants for the nine months ended September 30, 2023:
SCHEDULE OF WARRANT ACTIVITY
Common Stock | ||||||||||||||||
Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
Total outstanding – December 31, 2022 | 179,046 | $ | 9.12 | $ | 1.32 — $25.40 | |||||||||||
Granted to advisor and its designees | — | — | ||||||||||||||
Exercised | — | — | ||||||||||||||
Expired | (60,000 | ) | 6.00 | 6.00 | ||||||||||||
Forfeited | — | — | ||||||||||||||
Total outstanding – September 30, 2023 | 119,046 | $ | 10.69 | $ | 1.32 — $25.40 | |||||||||||
Exercisable | 119,046 | $ | 10.69 | $ | 1.32 — $25.40 | |||||||||||
Non-Exercisable | — | $ | — | $ | — | — |
The following table summarizes the activity in the common stock equity classified compensatory warrants for the nine months ended September 30, 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, 2021 | 1,790,648 | $ | 1.52 | $1.11 — $2.54 | 179,065 | $ | 15.20 | $ | 11.10 — $25.40 | |||||||||||||||||||||||
Granted to advisor and its designees | — | — | — | — | ||||||||||||||||||||||||||||
Exercised | — | — | — | — | ||||||||||||||||||||||||||||
Expired | — | — | — | — | ||||||||||||||||||||||||||||
Forfeited | — | — | — | — | ||||||||||||||||||||||||||||
Total outstanding – September 30, 2022 | 1,790,648 | $ | 1.06 | $0.5136 — $2.54 | 179,065 | $ | 10.60 | $ | 5.14 — $25.40 | |||||||||||||||||||||||
Exercisable | 1,790,648 | $ | 1.06 | $0.5136 — $2.54 | 179,065 | $ | 10.60 | $ | 5.14 — $25.40 | |||||||||||||||||||||||
Non-Exercisable | — | $ | — | $ | — | — | — | $ | — | $ | — | — |
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The following table summarizes the activity in the common stock equity classified compensatory warrants for the nine months ended September 30, 2021:
Common Stock | ||||||||||||||||
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 | — | — | ||||||||||||||
Exercised | (38,390 | ) | 2.09 | |||||||||||||
Expired | — | — | ||||||||||||||
Forfeited | (65,179 | ) | 2.07 | |||||||||||||
Total outstanding – September 30, 2021 | 1,190,648 | $ | 1.62 | |||||||||||||
Exercisable | 1,190,648 | $ | 1.62 | $ | 1.11—$2.54 | |||||||||||
Non-Exercisable | - | - | - |
There were $ in compensation costs related to outstanding equity classified compensatory warrants for the nine months ended September 30, 20222023 and $ for the nine months ended September 30, 2021.2022.
Noncompensatory Equity Classified Warrants
In May 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to an investorAlpha Capital (a related party) for the purchase of 270,47827,048 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $1.1111.10 per share (of which warrants for 200,00020,000 shares were subsequently exercised in December 2020). In July 2020, the Company issued noncompensatory equity classified warrants to such investorAlpha Capital for the purchase of 780,19878,019 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $0.0010.01 per share (which were subsequently exercised in July 2020), and 1,920,678192,068 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $5.2552.50 per share. In August 2020, the Company issued noncompensatory equity classified warrants to such investorAlpha Capital for the purchase of 1,287,829128,783 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $6.0060.00 per share. In December 2020, the Company issued noncompensatory equity classified warrants to such investorAlpha Capital for the purchase of 1,000,000100,000 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $0.010.10 per share (which were exercised in February 2021) and 2,191,010219,101 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $4.0740.70 per share. In May 2022, the Company issued noncompensatory equity classified warrants to such investorAlpha Capital for the purchase of 3,314,641331,464 reverse split adjusted shares of Company common stock at ana reverse split adjusted exercise price of $0.0010.01 per share.
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During the year ended December 31,
On November 29, 2021, with the exception of the warrants to purchase 270,47827,048 reverse split adjusted shares of the Company’s common stock at ana reverse split adjusted exercise price of $1.1111.10 per share, the exercise prices of all outstanding warrants to purchase a total of 5,399,517539,951 reverse split adjusted shares of the Company’s common stock were modified to ana reverse split adjusted exercise price of $2.0020.00 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 condensed consolidated statements of operations and other comprehensive loss. In May 2022, pre-funded warrants to purchase 3,314,641331,464 reverse split adjusted shares of the Company’s common stock at ana reverse split adjusted exercise price of $0.0010.01 per share with no expiration date were issued. These warrants were subsequently exercised during the period ended September 30, 2022.
In conjunction with the NanoSynex acquisition,Acquisition, on April 25, 2022 the exercise price of 70,4787,048 reverse split adjusted outstanding warrants at $1.11 was modified towith an exercise price of $0.6011.10 per share was modified to a reverse split adjusted exercise price of $6.00. The increase in fair value of $2,533, using a Monte Carlo pricing model for the modification of these warrants, was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and other comprehensive loss. On May 26, 2022, the reverse split adjusted exercise price of these warrants was modified again to $0.51365.136, and the increase in fair value of $696, using a Monte Carlo pricing model for the modification of these warrants, was included in consideration transferred in the NanoSynex acquisition (See Note 3-Acquisition)Acquisition. On December 22, 2022, the exercise price of these warrants was modified again to $1.32. The increase in fair value of $891, using a Monte Carlo pricing model for the modification of those warrants, was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss.
No noncompensatory equity classified warrants were issued during the nine months ended September 30, 2023.
The following table summarizes the noncompensatory equity classified warrant activity for the nine months ended September 30, 2023:
SCHEDULE OF WARRANT ACTIVITY
Common Stock | ||||||||||||||||
Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
Total outstanding – December 31, 2022 | 547,003 | $ | 19.76 | $1.32 - $20.00 | ||||||||||||
Legacy Ritter warrants | — | — | ||||||||||||||
Granted | — | — | ||||||||||||||
Exercised | — | — | ||||||||||||||
Expired | (455,685 | ) | 20.00 | 20.00 | ||||||||||||
Forfeited | — | — | ||||||||||||||
Total outstanding – September 30, 2023 | 91,318 | $ | 18.56 | |||||||||||||
Exercisable | 91,318 | $ | 18.56 | $1.32 — $20.00 | ||||||||||||
Non-Exercisable | — | $ | — | $ | — | — |
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The following table summarizes the noncompensatory equity classified warrant activity for the nine months ended September 30, 2022:
Common Stock | ||||||||||||||||
Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
Total outstanding – December 31, 2021 | 554,914 | $ | 20.10 | |||||||||||||
Legacy Ritter warrants | — | — | ||||||||||||||
Granted | 331,464 | 0.01 | 0.01 | |||||||||||||
Exercised | (331,464 | ) | 0.01 | 0.01 | ||||||||||||
Expired | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Total outstanding – September 30, 2022 | 554,914 | $ | 20.10 | |||||||||||||
Exercisable | 554,914 | $ | 20.10 | $5.10 — $37.70 | ||||||||||||
Non-Exercisable | — | $ | — | $ | — | — |
SCHEDULE OF WARRANT ACTIVITY
Common Stock | ||||||||||||||||
Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
Total outstanding – December 31, 2021 | 5,549,137 | $ | 2.01 | |||||||||||||
Granted | 3,314,641 | 0.001 | 0.001 | |||||||||||||
Exercised | (3,314,641 | ) | 0.001 | 0.001 | ||||||||||||
Expired | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Total outstanding – September 30, 2022 | 5,549,137 | 2.01 | ||||||||||||||
Exercisable | 5,549,137 | $ | 2.01 | $0.51 — $3.77 | ||||||||||||
Non-Exercisable | — | $ | — | $ | — | — |
NOTE 15 -13 — QUARTERLY FINANCIAL DATA (UNAUDITED)RELATED PARTY TRANSACTIONS
Convertible Debt
As disclosed
See Note 8 – Convertible Debt – Related Party for additional information concerning convertible debt - related party transactions. On December 22, 2022, the Company issued to Alpha Capital, an 8% Senior Convertible Debenture in the 2021 Annual Report,aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture is convertible, at any time, and from time to time, at Alpha Capital’s option, into shares of common stock of the Company, at a price equal to $1.32 per share, subject to adjustment as described in the Debenture and other terms and conditions described in the Debenture.
Warrant Liabilities
Additionally, on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha Capital, the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s management identified an errorcommon stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the previously issued March 31, 2021, June 30, 2021 and September 30, 2021 unaudited interim condensed consolidated financial statements in which theAlpha Warrant. The fair value of this warrant is included in Warrant liabilities-related party on the Company’s 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.balance sheets (see Note 7 - Warrant Liabilities).
SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS
As reported | Corrected | As reported | Corrected | |||||||||||||
For the Quarter Ended September 30, 2021 | For the Nine Months Ended September 30, 2021 | |||||||||||||||
As reported | Corrected | As reported | Corrected | |||||||||||||
Gain on change in fair value of warrant liabilities | $ | (1,942,900 | ) | $ | (1,763,936 | ) | $ | (6,140,900 | ) | $ | (4,299,000 | ) | ||||
Net loss | $ | (2,858,518 | ) | $ | (3,037,482 | ) | $ | (11,836,378 | ) | $ | (13,678,278 | ) | ||||
Net loss per common share | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.41 | ) | $ | (0.48 | ) |
NOTE 1614 — SUBSEQUENT EVENTS
In October 2023, Hamas conducted several terrorist attacks in Israel resulting in ongoing war across the country. In addition, there continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Popular uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect our minority interest in NanoSynex, its results of operations, financial condition, cash flows and prospects (see Note 5 - Discontinued Operations).
On October 28, 2022,3, 2023 the Company held its reconvened 2022 annual meetingissued shares of stockholders, andcommon stock to Alpha Capital in satisfaction of the stockholders approved Proposal 4, a proposal to approve an amendmentOctober Payment pursuant to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effectDebenture (see Note 8 - Convertible Debt - Related Party).
On November 7, 2023 the Company announced that first patient dosing occurred for its QN-302 Phase 1a clinical trial which triggered a reverse stock split$100,000 milestone payment obligation of the outstanding shares ofCompany under the Company’s common stock, at a ratio within a range of 1-for-5 to 1-for-10, as determined by the Company’s board of directors.exclusive license agreement with UCL Business Limited (see Note 11 - Research and License Agreements).
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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 (this “Quarterly Report”) and the audited financial statements and notes thereto as of and for the twelve months ended December 31, 2021,2022, which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022 (asMay 2, 2023, as amended by Amendment No. 1 filed with the “2021SEC on July 7, 2023 ( the “2022 Annual Report”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 Company that involve risks and uncertainties and reflect ourthe Company’s judgment as of the date of this Quarterly Report. These statements generally relate to future events or ourthe Company’s 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 ourthe Company’s 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 due to a number of factors.expectations.
These forward-looking statements include, but are not limitedSome of the factors that we believe could cause actual results to statements about:differ from those anticipated or predicted include:
there can be no assurance that we will successfully develop any drugs or therapeutic devices; | |||
● | there can be no assurance that preclinical or clinical development of our | ||
there can be no assurance that clinical trials will be approved to | |||
there can be no assurance that clinical trials will complete enrollment as contemplated by any projected timeline; | |||
● | there can be no assurance that future clinical trial data will be favorable or that such trials will confirm any improvements over other products or lack negative impacts; | ||
● | there can be no assurance that any of our | ||
there can be no assurance that we will be able to procure or earn sufficient working capital to complete the development, testing and launch of our prospective candidate drugs therapeutic products; | |||
there can be no assurance that patents will issue on our owned and in-licensed patent applications; | |||
● | there can be no assurance that such patents, if any, and our |
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.
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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.
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Overview
We are a diversified life sciencesclinical stage therapeutics company focused on developing treatments for adult and pediatric cancers of high unmet medical need with potential for Orphan Drug designation, while also commercializing diagnostics. designation.
Our cancer therapeutics pipeline includes QN-302, RAS (previously called “RAS-F”),our Pan-RAS Inhibitor platform (formerly RAS-F) and QN-247.
Our investigationallead oncology therapeutics program, QN-302, compound is a high potency small molecule G4 selective transcription inhibitor with strong binding affinity to G4sG-Quadruplexes (G4s) prevalent in cancer cells. SuchBy binding could, byto, and stabilizing the G4s against “unwinding,” QN-302 could potentially help inhibit cancer cell proliferation. RAS isproliferation and induce cancer cell death. QN-302 has received Investigational New Drug (IND) clearance from the U.S. Food and Drug Administration (FDA) to proceed with its Phase 1 clinical trial. Earlier this year, QN-302 also received Orphan Drug Designation (ODD) from FDA for the indication of pancreatic cancer.
Our Pan-RAS portfolio consists of a family of RAS oncogene protein-protein interactionPan-RAS inhibitor small molecules for preventingbelieved to inhibit or block mutated RAS genes’ proteins from binding to their effector proteins; preventingproteins. Preventing this binding could potentially stop tumor growth, especially in RAS-driven tumors such as pancreatic, colorectal and lung cancers.QN-247 is a DNA coated gold nanoparticle cancer drug candidate that may have the potential to target various types of cancer, including Triple Negative Breast Cancer (TNBC), Acute Myeloid Leukemia (AML) and Glioblastoma (GBM). The foundational aptamer of QN-247 is QN-165 (formerly referred to as AS1411), which the Company has deprioritized as a drug candidate for treating COVID-19 and other viral-based infectious diseases. We are also seeking strategic partnering opportunities for STARS, a DNA/RNA-based therapeutic device product concept for removing precisely targeted tumor-produced and viral compounds from circulating blood.cancers.
Our FastPack System diagnostic instruments and test kits are sold commercially primarilyinvestigational oligonucleotide-based drug candidate QN-247 binds nucleolin, a key multi-functional regulatory phosphoprotein that is overexpressed in cancer cells. Such binding could potentially inhibit the United States, as well as certain European countries. The FastPack System menu includes a rapid, highly accurate immunoassay diagnostic testing system for cancer men’s health, hormone function, and vitamin D status.cells’ proliferation in nucleolin-expressing malignancies. We provide analyzershave de-prioritized deploying our internal resources to our customers (physician offices, clinicsQN-247 program and small hospitals) at low cost in orderare seeking a partner to increase sales volumes of higher-margin test kits. Prior to March 31, 2022, most of our FastPack product sales were through our partner Sekisui pursuant to a distribution agreement, 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 United States, with 40 locations. The distribution agreement with Sekisui expired on March 31, 2022, at which time the services previously 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 and other markets outside of the United States in which the Company does not currently sell.further its development.
On May 26,November 23, 2022, we effected a 1-for-10, reverse stock split of our outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced our shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in this Quarterly Report on Form 10-Q have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
We do not expect to be profitable before products from our therapeutics pipeline are commercialized. To experience losses while therapeutic products are still under development is, of course, typical for biotechnology companies.
Recent Developments
FDA IND Clearance to Initiate Phase 1 Clinical Trial of QN-302
On August 1, 2023, we announced that the FDA has cleared our IND application for QN-302. Based on this clearance, we chose TD2 to serve as our contract research organization (“CRO”) to conduct a Phase 1 clinical trial in patients with advanced or metastatic solid tumors. The Phase 1 trial (NCT06086522) is a multicenter, open-label, dose escalation, safety, pharmacokinetic, and pharmacodynamic study with dose expansion to evaluate safety, tolerability, and antitumor activity of QN-302 in patients with advanced solid tumors that have not responded to or that have recurred following treatment with available therapies. On November 7, 2023, we announced that the first patient had been enrolled and dosed in the dose escalation (Phase 1a) portion of the study. Subject to available funding, we anticipate that Phase 1a of the trial can be completed by the end of 2024, funded in part by proceeds received by the divestiture of the Company’s diagnostics business in July 2023 as described immediately below. The exact number of patients to be enrolled in the trial will depend on the observed safety profile, which will determine the number of patients per dose level, as well as the number of dose escalations required to meet the Maximum Tolerated Dose (“MTD”). Once the MTD has been established in dose escalation, dose expansion will begin.
Sale of Diagnostics Business
On July 20, 2023, we sold all of the issued and outstanding shares of common stock of Qualigen, Inc., a wholly-owned subsidiary and the legal entity operating our FastPack™ diagnostic business, to Chembio Diagnostics, Inc. (“Chembio”), a subsidiary of Biosynex, S.A. As consideration for the shares of Qualigen, Inc., we received a cash payment of approximately $4.7 million, which payment is subject to post-closing adjustments. An additional $450,000 was delivered by Chembio to an escrow account to satisfy our indemnification obligations. Any amounts remaining in the escrow account that have not been offset or reserved for claims will be released to us within five business days following the date that is 18 months after the closing of the transaction. A post-closing adjustment resulting in a receivable from the Transaction of approximately $235,000 is reflected in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet as of September 30, 2023. Following the consummation of the transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.
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Amendment and Settlement Agreement with NanoSynex Ltd.
On July 20, 2023, the Company acquired 2,232,861entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex (the “NanoSynex Funding Agreement”), pursuant to which the Company agreed to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.7% of the voting equity of NanoSynex. In addition, the Company agreed to cancel approximately $3.0 million of promissory notes issued to the Company under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to the Company with respect to such notes. The surrender of shares reducing the Company’s interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023.
The NanoSynex Amendment supersedes any payment obligations contemplated by the original NanoSynex Funding Agreement and amended the Company’s obligations to provide funding to NanoSynex, except that Company agreed to provide future funding as follows: (i) $560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024, in each case issued in the form of a promissory note to the Company with a face value in the amount of such funding. However, in lieu of fulfilling such obligations, the Company may, and intends to, instead forfeit shares of Series A-1 Preferred Stock of NanoSynex Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”) in exchangea number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that the Company should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that the Company originally paid in consideration for 3,500,000its Preferred A-1 shares of NanoSynex to the Company’s common stock and a prefunded warrant to purchase 3,314,641 shares of the Company’s common stock at an exercise price of $0.001previous holder thereof, being $1.5716 per share. Concurrently with this transaction, the Company also purchased 381,786 shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex. The Company envisions future synergies from the integration of its own proprietary results-proven FastPack diagnostics platform with the innovative NanoSynex technology. NanoSynex is a micro-biologics diagnostics company domiciled in Israel.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements dohistorically have not separate outseparated our diagnostics-related activities andfrom our therapeutics-related activities. Although to date allAll of our historically reported revenue is diagnostics-related,was diagnostics-related. Prior to the current quarter, our reported expenses representrepresented the total of our diagnostics-related and therapeutics-related expenses. Beginning in the current quarter, all diagnostics-related revenues and diagnostics-related expenses.expenses have been reclassified to discontinued operations (See Note 5 - Discontinued Operations).
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DistributionThis discussion and Development Agreementanalysis is based on our condensed consolidated financial statements, which have been prepared in accordance with SekisuiU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to impairment of goodwill and other intangible assets, fair value of warrant liabilities, and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
In May 2016, throughWhile our wholly-owned diagnostics subsidiary Qualigen, Inc.significant accounting policies are more fully described in Note 1 - Organization And Summary Of Significant Accounting Policies And Estimates to our condensed consolidated financial statements appearing in “Item 1. Condensed Consolidated Financial Statements (Unaudited),” we entered into a Distributionbelieve that the following accounting policies are the most critical to aid you in fully understanding and Development Agreement (the “Sekisui Distribution Agreement”) with Sekisui. Under the Sekisui Distribution Agreement, Sekisui served as the exclusive worldwide distributor for FastPack products (although we retained certain specific accounts for direct transactions). Sekisui’s exclusive distribution arrangements expired on March 31, 2022.evaluating our financial condition and results of operations:
Under the Sekisui 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 related to this product line.
We conducted a clinical trial of FastPack 2.0 in March 2019, and determined in May 2019 that it was uncertain whether the results of the trial would enable the test to receive FDA approval. As a result, we discontinued our FastPack 2.0 project with 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 as described below.
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 aggregate net cash payments of $670,000, of which we recognized approximately $38,000 in product sales and $632,000 in license revenue during 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. We recognized no product sales or license revenue for the three months and nine months ended September 30, 2022. We recognized no product sales or license revenue in the three months ended September 30, 2021 and $38,000 in product sales and $479,000 in license revenue in the condensed consolidated statement of operations and other comprehensive loss for the nine months ended September 30, 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 also has 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). In addition, after March 31, 2022, Yi Xin has 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-U.S. customers of those products). Also, after March 31, 2022, Yi Xin has 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 U.S. 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 March 31, 2022.
In the Technology Transfer Agreement, we also confirmed that we would not, after the March 31, 2022 expiration of the Sekisui Distribution Agreement, seek new FastPack customers outside the United States.
Yi Xin is a newly-formed company and its operations are 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.
● | Convertible debt | |
● | Research and development | |
● | Discontinued operations | |
● | Impairment of long-lived assets | |
● | Business combination | |
● | Derivative financial instruments and warrant liabilities | |
● | Stock-based compensation | |
● | Income taxes |
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 containedcontain a provision that if Qualigen, Inc. issueswe issue shares (except in certain defined scenarios) at a price below the warrants’ exercise price, the exercise price will be re-set to such new price and the number of shares underlying the warrants will be increased in the same proportion as the exercise price decrease. For accounting purposes, this provision givessuch warrants give rise to “warrant liabilities” (even though there is not any “liability”warrant liabilities. The operation of the “double-ratchet” provisions in these warrants in connection with the sense that we would be obligatedNanoSynex Acquisition and the convertible debenture financing transaction in December 2022 now allow the holders to pay any cash sum to anyone).exercise for a significantly higher number of shares than before. Accounting principles generally accepted in the United States of America (“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 condensed consolidated statementsStatements of operationsOperations. The estimated fair value of these warrant liabilities was $0.1 million and other comprehensive income.$0.8 million at September 30, 2023 and December 31, 2022, respectively. There were 1,349,571 of these warrants outstanding at September 30, 2023 and December 31, 2022.
On December 22, 2022, as part of the convertible debenture financing, the Company issued to Alpha Capital a common stock warrant for 2,500,000 shares of common stock of the Company (the “Alpha Warrant”). The exercise price of the Alpha Warrant liabilities were $0.7is $1.65. The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time before June 22, 2028. U.S. GAAP requires us to recognize the fair value of this warrant as a warrant liability on our condensed consolidated balance sheets and to reflect period-to-period changes in the fair value of the warrant liability on our condensed consolidated statements of operations. The estimated fair value of this warrant liability was approximately $2.2 million and $2.8 million at September 30, 2023 and December 31, 2022, andrespectively.
Because the change in fair value was $1.0 million forof the nine months ended September 30, 2022. Because fair valueabove liability classified warrants will be determined each quarter on a “mark-to-market” basis, this item will usuallyit could result in significant variability in our future quarterly and annual statementsconsolidated statement 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 aan increase (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 decrease (possibly quite large) decrease in the fair value of the warrant liabilities. There were 3,468,958 and 2,481,614 of these warrants outstanding at September 30, 2022 and December 31, 2021, respectively.
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Global Economic Conditions
Russia’s Invasion of Ukraine
In February 2022, Russia invaded Ukraine. While the Company has limited exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
Inflationary Cost Environment
During fiscal 2021 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure.
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 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. To mitigate risks, we continue to evaluate the extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.
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Results of Operations
Comparison of the Three Months Ended September 30, 20222023 and 20212022
The following table summarizes our results of operations for the three months ended September 30, 20222023 and 2021:2022:
For the Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
REVENUES | ||||||||
Net product sales | $ | 1,441,065 | $ | 1,155,065 | ||||
License revenue | — | — | ||||||
Total revenues | 1,441,065 | 1,155,065 | ||||||
EXPENSES | ||||||||
Cost of product sales | 1,278,029 | 993,120 | ||||||
General and administrative | 2,618,021 | 2,756,323 | ||||||
Research and development | 1,688,096 | 2,083,315 | ||||||
Sales and marketing | 239,865 | 130,217 | ||||||
Total expenses | 5,824,011 | 5,962,975 | ||||||
LOSS FROM OPERATIONS | (4,382,946 | ) | (4,807,910 | ) | ||||
OTHER INCOME, NET | ||||||||
Gain on change in fair value of warrant liabilities | 321,300 | 1,763,936 | ||||||
Interest income, net | 4,631 | 6,801 | ||||||
Other income, net | 1,139 | 702 | ||||||
Total other income, net | 327,070 | 1,771,439 | ||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (4,055,876 | ) | (3,036,471 | ) | ||||
PROVISION FOR INCOME TAXES | — | 1,011 | ||||||
NET LOSS | (4,055,877 | ) | (3,037,482 | ) | ||||
Net loss attributable to noncontrolling interest | (230,767 | ) | — | |||||
Net loss attributable to Qualigen, Inc. | $ | (3,825,109 | ) | $ | (3,037,482 | ) | ||
Other comprehensive loss, net of tax | ||||||||
Net loss | $ | (4,055,877 | ) | $ | (3,037,482 | ) | ||
Foreign currency translation adjustment | 88,523 | — | ||||||
Other comprehensive loss | (3,967,354 | ) | (3,037,482 | ) | ||||
Comprehensive loss attributable to noncontrolling interest | (230,767 | ) | — | |||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. stockholders | $ | (3,736,587 | ) | $ | (3,037,482 | ) |
For the Three Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
EXPENSES | ||||||||
General and administrative | $ | 1,336,765 | $ | 2,539,389 | ||||
Research and development | 1,441,598 | 930,536 | ||||||
Total expenses | 2,778,363 | 3,469,925 | ||||||
LOSS FROM OPERATIONS | (2,778,363 | ) | (3,469,925 | ) | ||||
OTHER EXPENSE (INCOME), NET | ||||||||
Loss (gain) on change in fair value of warrant liabilities | 101,112 | (321,300 | ) | |||||
Interest (income) expense, net | 367,257 | (4,631 | ) | |||||
Loss on fixed asset disposal | 21,747 | — | ||||||
Other income (expense), net | (33,454 | ) | — | |||||
Total other expense (income), net | 456,662 | (325,931 | ) | |||||
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (3,235,025 | ) | (3,143,994 | ) | ||||
(BENEFIT) PROVISION FOR INCOME TAXES | — | — | ||||||
NET LOSS FROM CONTINUING OPERATIONS | (3,235,025 | ) | (3,143,994 | ) | ||||
DISCONTINUED OPERATIONS | ||||||||
Income (loss) from discontinued operations before income taxes | 159,507 | (911,882 | ) | |||||
Loss on disposal of discontinued operations | (619,545 | ) | — | |||||
LOSS FROM DISCONTINUED OPERATIONS | (460,038 | ) | (911,882 | ) | ||||
NET LOSS | (3,695,063 | ) | (4,055,876 | ) | ||||
Net loss attributable to non-controlling interest from discontinued operations | (38,526 | ) | (230,767 | ) | ||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (3,656,537 | ) | $ | (3,825,109 | ) | ||
Net loss per common share, basic and diluted - continuing operations | $ | (0.64 | ) | $ | (0.80 | ) | ||
Net loss per common share, basic and diluted - discontinued operations | $ | (0.08 | ) | $ | (0.17 | ) | ||
Weighted—average number of shares outstanding, basic and diluted | 5,052,463 | 3,944,406 | ||||||
Other comprehensive loss, net of tax | ||||||||
Net loss | $ | (3,695,063 | ) | $ | (4,055,876 | ) | ||
Foreign currency translation adjustment from discontinued operations | — | 88,523 | ||||||
Other comprehensive loss | (3,695,063 | ) | (3,967,353 | ) | ||||
Comprehensive loss attributable to noncontrolling interest from discontinued operations | (38,526 | ) | (230,767 | ) | ||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (3,656,537 | ) | $ | (3,736,586 | ) |
Revenues
Net product sales
Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the three-month periods ended September 30, 2022 and 2021 were approximately $1.4 million and $1.2 million, respectively, representing an increase of approximately $0.3 million, or 25%. This increase was due to the expiration of the Sekisui Distribution Agreement on March 31, 2022, at which time the services previously provided by Sekisui reverted to the Company, which resulted in the Company recognizing 100% of the revenue from direct sales of our FastPack diagnostic instruments and test kits.
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Expenses
Cost of Product Sales
Cost of product sales increased during the three months ended September 30, 2022, to $1.3 million, or 89% of net product sales, compared to approximately $1.0 million, or 86% of net product sales, during the three months ended September 30, 2021. This increase of $0.3 million, and increase as a percentage of sales, was due primarily to higher instrument repair costs and increases in freight charges.
General and Administrative Expenses
General and administrative expenses decreased 5%by 47% from $2.8$2.5 million, during the three months ended September 30, 2021,2022, to $2.6$1.3 million during the three months ended September 30, 2022. This decrease was2023, primarily due to a $0.2 million decrease in wages/bonuses and related payroll taxes.stock-based compensation of approximately $1.1 million, as well as a decrease in professional fees of approximately $0.1 million. The decrease in stock-based compensation was due to the January 2023 reduction in force as well as certain option grants from prior years becoming fully vested.
Research and Development Costs
Research and development costs include therapeutic and diagnostic research and product development costs. Research and development costs decreasedincreased from $2.1$0.9 million for the three months ended September 30, 20212022 to $1.7approximately $1.4 million for the three months ended September 30, 2022. Of the $1.7 million of research and development costs for the three months ended September 30, 2022, $0.9 million (56%) was attributable to therapeutics and $0.8 million (44%) was attributable to diagnostics. Of the $2.1 million of research and development costs for the three months ended September 30, 2021, $1.7 million (83%) was attributable to therapeutics and $0.4 million (17%) was attributable to diagnostics.
The decrease2023. This increase in therapeutics research and development costs during the three months ended September 30, 20222023 compared to the three months ended September 30, 20212022 was primarily due to an increase of $0.4 million in pre-clinical research costs for QN-302, which we acquired in January 2022, offset by a $0.5 million decrease in pre-clinical research costs related to the potential application of QN-165 for the treatment of COVID-19 (which has since been deprioritized to a non-core program), a decrease of $0.4 million in pre-clinical research costs for QN-247, a $0.1 million decrease in legal expenses and a $0.1 decreaseincrease in preclinical research costs for RAS.
The increase in diagnostics research and developments costs during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was due primarily to an increase of $0.5 million of research and development expenses related to NanoSynex, offset by a $0.1 million reduction in research and development expenses related to the supply agreement with Prediction Biosciences.
For the future, we expect our therapeutic research and development costs to continue to outweigh our diagnostic research and development 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 were approximately $0.2 million for the three months ended September 30, 2022, an increase of $0.1 million, or 84%, from the three months ended September 30, 2021. This increase was primarily due to a $0.1 million increase in payroll expenses related to the assumption of Sekisui sales personnel in the second quarter of 2022.QN-302.
Other Income (Expense), Net
Change in Fair Value of Warrant Liabilities
During the three months ended September 30, 20222023 and 2021,2022, we experienced a loss of approximately $0.1 million and a gain of approximately $0.3 million and $1.8 million, respectively, on change in fair value of warrant liabilities, primarily due to declineschanges in our stock price and reduction in the remaining terms of the warrants. Typically, a decline in our stock price would result in a decline in the fair value of our warrant liabilities, generating a 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 consolidated 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 $5,000 and $7,000 in interest incomeInterest expense, net during the three months ended September 30, 2022 and 2021, respectively.2023 was approximately $367,000 due to accrued interest on the convertible debt, compared to interest income, net of approximately $5,000 during the three months ended September 30, 2022.
Loss On Fixed Asset Disposal
Loss on fixed asset disposal during the three months ended September 30, 2023 was approximately $22,000 due to a write off of equipment, compared to $0 during the three months ended September 30, 2022.
Other Income, Net
Other income was immaterial$33,000 during the three months ended September 30, 2023 compared to $0 during the three months ended September 30, 2022 and 2021.due to dividend income on cash invested in money market funds during the current period.
NetDiscontinued Operations
Income from discontinued operations during the three months ended September 30, 2023 was approximately $160,000 compared to loss attributablefrom discontinued operations of approximately $912,000 during the three months ended September 30, 2022. Of the $160,000 income from discontinued operations during the three months ended September 30, 2023, approximately $91,000 was due to noncontrolling interestnet income from our former Qualigen, Inc. subsidiary, and $69,000 in income from NanoSynex, inclusive of a $150,000 benefit in provision for income taxes. The $912,000 loss from discontinued operations during the three months ended September 30, 2022 consisted of approximately $422,000 from our former Qualigen, Inc. subsidiary and approximately $489,000 from NanoSynex.
NetIn addition, the Company recorded a loss attributable to noncontrolling interest was $230,767of approximately $0.6 million on disposal of discontinued operations during the three months ended September 30, 2023, and $0 during the three months ended September 30, 2022 and 2021.
Other comprehensive income-foreign currency translation adjustment
Other comprehensive income-foreign currency translation adjustment was $88,523 for2022. The loss during the three months ended September 30, 2022 as compared to $0 for the three months ended September 30, 2021. The increase2023 consisted of $88,523 was due to the acquisitionapproximately $4.5 million from deconsolidation of NanoSynex, in May 2022 andoffset by a gain of approximately $3.9 million from the translationsale of their September 30, 2022 financial statements into U.S. dollars from New Israeli Shekels.the Company’s former Qualigen, Inc. subsidiary.
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Comparison of the Nine Months Ended September 30, 20222023 and 20212022
The following table summarizes our results of operations for the nine months ended September 30, 20222023 and 2021:2022:
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
REVENUES | ||||||||
Net product sales | $ | 3,593,628 | $ | 3,693,842 | ||||
License revenue | — | 478,654 | ||||||
Total revenues | 3,593,628 | 4,172,496 | ||||||
EXPENSES | ||||||||
Cost of product sales | 3,206,553 | 3,112,224 | ||||||
General and administrative | 8,177,627 | 8,582,361 | ||||||
Research and development | 5,059,067 | 10,091,155 | ||||||
Sales and marketing | 683,291 | 402,347 | ||||||
Total expenses | 17,126,538 | 22,188,087 | ||||||
LOSS FROM OPERATIONS | (13,532,910 | ) | (18,015,591 | ) | ||||
OTHER INCOME, NET | ||||||||
Gain on change in fair value of warrant liabilities | 1,019,342 | 4,299,000 | ||||||
Interest income, net | 15,763 | 36,863 | ||||||
Other income, net | 795 | 3,596 | ||||||
Total other income, net | 1,035,900 | 4,339,459 | ||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (12,497,010 | ) | (13,676,132 | ) | ||||
PROVISION FOR INCOME TAXES | 6,173 | 2,146 | ||||||
NET LOSS | (12,503,183 | ) | (13,678,278 | ) | ||||
Net loss attributable to noncontrolling interest | (234,883 | ) | — | |||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (12,268,300 | ) | $ | (13,678,278 | ) | ||
Other comprehensive loss, net of tax | ||||||||
Net loss | $ | (12,503,183 | ) | $ | (13,678,278 | ) | ||
Foreign currency translation adjustment | 154,063 | — | ||||||
Other comprehensive loss | (12,349,120 | ) | (13,678,278 | ) | ||||
Comprehensive loss attributable to noncontrolling interest | (234,883 | ) | — | |||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. stockholders | $ | (12,114,237 | ) | $ | (13,678,278 | ) |
Revenues
Net product sales
Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the nine month periods ended September 30, 2022 and 2021 were approximately $3.6 million and $3.7 million, respectively, representing a decrease of approximately $0.1 million, or 3%. This decrease was primarily due to the expiration of the Sekisui Distribution Agreement on March 31, 2022, which caused Sekisui to reduce its purchases from us during the first quarter of 2022, as it sold off its remaining inventory prior to the expiration of the agreement. However, this reduction in Sekisui purchases during the first quarter was partially offset by higher direct sales of FastPack diagnostic instruments and test kits during the second and third quarters of 2022 and the Company recognizing 100% of the revenue from these sales, compared to the second and third quarters of 2021.
License Revenue
There was no license revenue for the nine months ended September 30, 2022. During the nine months ended September 30, 2021 there was approximately $0.5 million, due to the recognition of revenue from Yi Xin under the Technology Transfer Agreement.
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
EXPENSES | ||||||||
General and administrative | $ | 5,132,834 | $ | 7,705,823 | ||||
Research and development | 3,898,061 | 3,618,428 | ||||||
Total expenses | 9,030,895 | 11,324,251 | ||||||
LOSS FROM OPERATIONS | (9,030,895 | ) | (11,324,251 | ) | ||||
OTHER EXPENSE (INCOME), NET | ||||||||
(Gain) loss on change in fair value of warrant liabilities | (1,377,855 | ) | (1,019,342 | ) | ||||
Interest expense (income), net | 1,288,908 | (15,763 | ) | |||||
Loss on voluntary conversion of convertible debt | 1,077,287 | — | ||||||
Loss on fixed asset disposal | 21,747 | — | ||||||
Other income, net | (33,534 | ) | — | |||||
Total other expense (income), net | 976,553 | (1,035,105 | ) | |||||
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (10,007,448 | ) | (10,289,146 | ) | ||||
(BENEFIT) PROVISION FOR INCOME TAXES | — | 6,173 | ||||||
NET LOSS FROM CONTINUING OPERATIONS | (10,007,448 | ) | (10,295,319 | ) | ||||
DISCONTINUED OPERATIONS | ||||||||
Loss from discontinued operations before income taxes | (683,008 | ) | (2,207,864 | ) | ||||
Loss on disposal of discontinued operations | (619,545 | ) | — | |||||
LOSS FROM DISCONTINUED OPERATIONS | (1,302,553 | ) | (2,207,864 | ) | ||||
NET LOSS | (11,310,001 | ) | (12,503,183 | ) | ||||
Net loss attributable to non-controlling interest from discontinued operations | (343,038 | ) | (234,883 | ) | ||||
Net loss attributable to Qualigen Therapeutics, Inc. | $ | (10,966,963 | ) | $ | (12,268,300 | ) | ||
Net loss per common share, basic and diluted - continuing operations | $ | (1.99 | ) | $ | (2.77 | ) | ||
Net loss per common share, basic and diluted - discontinued operations | $ | (0.19 | ) | $ | (0.53 | ) | ||
Weighted—average number of shares outstanding, basic and diluted | 5,021,691 | 3,715,462 | ||||||
Other comprehensive loss, net of tax | ||||||||
Net loss | $ | (11,310,001 | ) | $ | (12,503,183 | ) | ||
Foreign currency translation adjustment from discontinued operations | (50,721 | ) | 154,063 | |||||
Other comprehensive loss | (11,360,722 | ) | (12,349,120 | ) | ||||
Comprehensive loss attributable to noncontrolling interest from discontinued operations | (343,038 | ) | (234,883 | ) | ||||
Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (11,017,684 | ) | $ | (12,114,237 | ) |
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Expenses
Cost of Product Sales
Cost of product sales increased during the nine months ended September 30, 2022, to $3.2 million, or 89% of net product sales, compared to approximately $3.1 million, or 84% of net product sales, during the nine months ended September 30, 2021. This increase of $0.1 million, and increase as a percentage of sales, was due primarily to higher instrument repair costs and increases in freight charges.
General and Administrative Expenses
General and administrative expenses decreased 33% from $8.6$7.7 million, during the nine months ended September 30, 20212022 to approximately $8.2$5.1 million during the nine months ended September 30, 2022, a decrease of $0.42023, This $2.6 million or 5%. This decrease was primarily due to a $0.7$2.6 million decrease in investor relations, accounting, and consulting expenses, a $0.2 million decreasestock-based compensation expense due to the January 2023 reduction in insurance expenses, partially offset by a $0.2 million increase in legal fees, a $0.2 million increase in stock based compensation, and a $0.1 million increase in payroll and related expenses.force as well as certain option grants from prior years becoming fully vested.
Research and Development Costs
Research and development costs include therapeutic and diagnostic research and product development costs. Research and development costs decreasedincreased from $10.1$3.6 million for the nine months ended September 30, 20212022 to $5.1$3.9 million for the nine months ended September 30, 2022. Of the $5.12023. The $0.3 million of research and development costs for the nine months ended September 30, 2022, $3.6 million (72%) was attributable to therapeutics and $1.4 million (28%) was attributable to diagnostics. Of the $10.1 million of research and development costs for the nine months ended September 30, 2021, $9.1 million (90%) was attributable to therapeutics and $1.0 million (10%) was attributable to diagnostics.
The decreaseincrease in therapeutics research and development costs during the nine months ended September 30, 20222023 compared to the nine months ended September 30, 20212022 was primarily due to a $6.5 million decrease in pre-clinical research costs related to the potential application of QN-165 for the treatment of COVID-19 (which has since been deprioritized to a non-core program), a decrease in legal expenses of $0.3 million, offset by an increase of $0.8$1.5 million in pre-clinicalpreclinical research costs for QN-302, which we acquiredoffset by a $0.9 million decrease in January 2022, an increase of $0.3 million in pre-clinicalQN-247 preclinical research costs, for RAS, an increase of $0.1 million in pre-clinical research costs for QN-247, and a $0.1 million increase in payroll and related expenses.
The $0.4 million increase in diagnostics research and development costs during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was due primarily to an increase of $0.5 million of research and development expenses related to NanoSynex, offset by a $0.1 million decrease in supplies and legal expenses.
For the future, we expect our therapeuticRAS preclinical research and development costs, to continue to outweigh our diagnostica $0.1 million decrease in QN-165 preclinical research and development 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 were approximately $0.7a $0.1 million for the nine months ended September 30, 2022, an increase of $0.3 million, or 70%, from the nine months ended September 30, 2021. This increase was primarily due to a $0.2 million increasedecrease in payroll expense related to the assumption of Sekisui sales personnel in the current period and also due to increased spending for advertising, conventions and tradeshows of $0.1 million.expenses.
Other Income (Expense), Net
Change in Fair Value of Warrant Liabilities
During the nine months ended September 30, 20222023 and 2021,2022, we experienced a gaingains of $1.0$1.4 million and $4.3$1.0 million, respectively, on change in fair value of warrant liabilities, primarily due to declines in our stock price, and reductions in the remaining terms of the warrants during both periods, and warrant exercises during the prior period.periods. Typically, a decline in our stock price would result in a decline in the fair value of our warrant liabilities, generating a 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.
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Interest Income,Expense (Income), Net
There was approximately $16,000 and $37,000 in interest incomeInterest expense, net during the nine months ended September 30, 2022 and 2021, respectively.2023 was approximately $1.3 million due to accrued interest on the convertible debt, compared to interest income, net of approximately $16,000 during the nine months ended September 30, 2022.
Loss on Voluntary Conversion of Convertible Debt
During the nine months ended September 30, 2023, we recognized a $1.1 million loss due to a voluntary conversion by Alpha Capital of approximately $1.1 million of convertible debt into 841,726 shares of common stock (see Note 8 - Convertible Debt - Related Party to our condensed consolidated financial statements). We did not have any outstanding convertible debt for the nine months ended September 30, 2022.
Loss on Fixed Asset Disposal
Loss on fixed asset disposal during the nine months ended September 30, 2023 was approximately $22,000 due to a write off of equipment, compared to $0 during the nine months ended September 30, 2022.
Other Income, Net
Other income was immaterial$33,000 during the nine months ended September 30, 2023, compared to $0 during the nine months ended September 30, 2022, and 2021.
Net loss attributabledue to noncontrolling interestdividend income on cash invested in money market funds during the current period.
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Net
Discontinued Operations
Loss from discontinued operations for the nine months ended September 30, 2023 was approximately $0.7 million compared to loss attributable to noncontrolling interest was $234,883from discontinued operations of approximately $2.2 million during the nine months ended September 30 2022. The $0.7 million loss from discontinued operations during the nine months ended September 30, 2023 consisted of approximately $0.2 million from our former Qualigen, Inc. subsidiary and approximately $0.5 million from NanoSynex. The $2.2 million loss from discontinued operations during the nine months ended September 30, 2022 consisted of approximately $1.7 million from our former Qualigen, Inc. subsidiary and approximately $0.5 million from NanoSynex.
In addition, the Company recorded a loss of approximately $0.6 million on disposal of discontinued operations during the nine months ended September 30, 2023, and $0 during the nine months ended September 30, 2021.
Other comprehensive income-foreign currency translation adjustment2022. This loss consisted of approximately $4.5 million from deconsolidation of NanoSynex, offset by a gain of approximately $3.9 million from the sale of our former Qualigen, Inc. subsidiary.
Other comprehensive income-foreign currency translation adjustment was $154,063 for the nine months ended September 30, 2022 as compared to $0 for the nine months ended September 30, 2021. The increase of $154,063 was due to the acquisition of NanoSynex in May 2022 and the translation of their September 30, 2022 financial statements into U.S. dollars from New Israeli Shekels.
Liquidity and Capital Resources
As of September 30, 2022,2023, we had approximately $6.6$2.1 million in cash. The Company has incurred recurring losses from operationscash and has an accumulated deficit at September 30, 2022. The Company expects to continue to incur losses subsequent to the condensed consolidated balance sheet date of September 30, 2022.$114.4 million. For the nine months ended September 30, 2023 and 2022, and the year ended December 31, 2021, the Companywe used cash of $11.0approximately $4.6 million and $14.7$11.0 million, respectively, in operations.
On July 20, 2023, we entered into the NanoSynex Amendment with NanoSynex, which amended the NanoSynex Funding Agreement. See “Contractual Obligations and Commitments” below.
On July 25, 2023, we received a cash payment of approximately $4.7 million from Chembio for all of the outstanding shares of common stock of Qualigen, Inc., which payment is subject to post-closing adjustments, upward or downward, as applicable, for: (i) cash held by the Subsidiary as of the closing of the Transaction; (ii) net working capital of the Subsidiary as of the closing of the Transaction, (iii) certain indebtedness of the Subsidiary as of the closing of the Transaction, and (iv) certain Transaction expenses as of the closing of the Transaction. At September 30, 2023 an additional $235,000 relating to a post-closing true-up adjustment is reflected in other current assets on the Company’s condensed consolidated balance sheet, and an additional $450,000 reflected in other assets on the Company’s condensed consolidated balance sheet is being held in an escrow account to satisfy certain indemnification obligations. Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to us within five business days following the date that is 18 months after the closing of the Transaction.
The Company’s cash balances as of the date that the accompanying financial statements were issued along with the proceeds from the above sale of Qualigen, Inc. to Chembio, without additional financing, are expected to fund operations into the thirdfirst quarter of 2023.2024. The Company anticipates that it willexpects to continue to incurhave net losses for the foreseeable future.and negative cash flow from operations, which over time will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.
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, we will require significant additional financingfunding for planned research and development activities, capital expenditures, clinical and pre-clinical testing for our QN-302 clinical trials, to continue preclinical development of RAS and QN-247, and to continue funding the NanoSynex operations (See Note 3-Acquisition), as well as commercialization activities.
Historically, the Company’sour principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2021, the Company2022 we raised $8.82$3.0 million from several institutional investors.the sale of a convertible debt instrument (see Note 8 - Convertible Debt - Related Party to our condensed consolidated financial statements). There can be no assurance that further financing canwill 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.
As a condition to the NanoSynex closing, the Company agreed to provide NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Master Agreement for the Operational and Technological Funding of NanoSynex (the“Funding Agreement”) entered into with NanoSynex. These funding commitments are in the form of convertible promissory notes to be issued to the Company with a face value equal to the amount paid by the Company to NanoSynex upon satisfaction of the applicable performance milestone, bearing interest at the rate of 9% per annum on the principal balance from time to time outstanding under the particular promissory note, convertible at the option of the Company into additional shares of NanoSynex in order for the Company to maintain at least a 50.1% controlling ownership interest in NanoSynex, should NanoSynex issue additional shares. The principal of the convertible notes are due and payable upon the sooner to occur of: i) five years from the date of issuance of the particular promissory note; ii) the acquisition by any person or entity of all or substantially all of the share capital of NanoSynex, through share purchase, issuance or shares or merger of NanoSynex, or the purchase of all or substantially all of the assets of NanoSynex; or iii) the initial public offering of NanoSynex. The Company provided funding to NanoSynex of $1.5 million on July 5, 2022 pursuant to this agreement. The Company may terminate the Funding Agreement after October 29, 2022 upon 120 days’ notice.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
The accompanying financial statements have been prepared assuming that the Companywe will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Companywe be unable to continue as a going concern, and therefore, be required to liquidate itsour assets and discharge itsour liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.
Our condensed consolidated balance sheet at September 30, 20222023 includes $0.7$2.2 million of warrant liabilities. We do not consider the warrant liabilities to constrain our liquidity, as a practical matter. Our current liabilities at September 30, 20222023 include $0.6 $1.6 million of accounts payable, $1.5$1.1 million of accrued expenses and other current liabilities, and $0.9$0.2 million in short termof accrued vacation, $0.8 million convertible debt to a related party.
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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 12-Commitments and Contingencies of the consolidated financial statements for additional details.
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We have no material contractual obligations that are not fully recorded on our condensed consolidated balance sheets or fully disclosed in the notes to the condensed consolidated financial statements.
License and Sponsored Research Agreements
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.
License and Sponsored Research Agreements with ULRF
We have multiple license and sponsored research agreements with UofL Research Foundation (“ULRF”).ULRF. Under these agreements, we have taken over development, regulatory approval and commercialization of various drug compounds from ULRF and are responsible for maintenance of the related intellectual property portfolio. For example, we agreed to reimburse ULRF for sponsored research expenses of up to $2.9 million and prior patent costs of up to $112,000 for RAS. As of September 30, 2023, there was approximately $181,000 remaining due to ULRF under this sponsored research agreement for RAS. We also agreed to reimburse ULRF for sponsored research expenses of up to $830,000 and prior patent costs of up to $200,000 for QN-247. As of September 30, 2022,2023, there were no remaining un-expensed amounts due to ULRF 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 September 30, 2022 we had up to $993,000 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 September 30, 2022 we had no remaining un-expensed amounts under this sponsored research agreement for QN-165,QN-247 and the agreement was terminated effective OctoberAugust 31, 2022. Under the terms of 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 furtheris being developed at Qualigenby us under the name QN-302 as a candidate for treatment of 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.the Company. On November 7, 2023 the Company announced that first patient dosing occurred for the Company’s QN-302 clinical trial which triggered a $100,000 milestone payment obligation under this exclusive license agreement.
Termination of Sekisui Distribution AgreementAlpha Convertible Debt
FollowingOn December 22, 2022, we issued an 8% Senior Convertible Debenture in the expirationaggregate principal amount of $3,300,000 (the “Debenture”) to Alpha Capital for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the Debenture is no longer outstanding, at Alpha Capital’s option, into shares of our common stock, at a price equal to $1.32 per share, subject to adjustment and other terms and conditions described in the Debenture, including the Company’s receipt of the Sekisui Distribution Agreement,necessary stockholder approvals, which were obtained at our 2023 annual meeting of stockholders on July 13, 2023.
In January 2023 Alpha Capital converted $1,111,078 of the Debenture principal into 841,726 shares of common stock at a conversion price of $1.32 per share.
Commencing June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the Debenture (each such date, a “Monthly Redemption Date”), we must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, we may elect to pay all or a portion of a Monthly Redemption Amount in shares of common stock, based on a conversion price equal to the lesser of (i) the then applicable conversion price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the fourth quarterDebenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. We may also redeem some or all of 2022the then outstanding principal amount of the Debenture at any time for cash in an amount equal to 105% of the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. Our election to pay monthly redemptions in shares of common stock or to effect an optional redemption is subject to the satisfaction of the Equity Conditions (as defined in the Debenture), including our receipt of the necessary stockholder approvals, which we obtained at our 2023 annual meeting of stockholders on July 13, 2023.
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The Debenture accrues interest at the rate of 8% per annum, which does not begin accruing until December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock of the Company hasor a commitmentcombination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions have been satisfied, including our receipt of the necessary stockholder approvals, which we obtained at our 2023 annual meeting of stockholders.
During the three and nine months ended September 30, 2023, we recognized an extinguishment loss on voluntary conversion of convertible debt of $0 and approximately $1.1 million, respectively, and recorded accrued interest of approximately $368,000 and $1.3 million, respectively (of which approximately $350,000 and $1.2 million was a reduction to purchase leased FastPack rental systems back from Sekisui at Sekisui’s net bookthe discount, respectively) in other expenses in the condensed consolidated statements of operations. During the three and nine months ended September 2023 we paid Monthly Redemption Amounts of $330,000 and $440,000, respectively in cash, and as of September 30, 2023 the remaining Debenture principal balance was approximately $1.7 million, the remaining discount was approximately $0.9 million, the fair value of the amountAlpha Warrant was approximately $2.2 million, and the fair value of which has not yet been determined.the suite of bifurcated embedded derivative features was $0.
MasterNanoSynex Funding Agreement for the Operational and Technological Funding of NanoSynex
As a condition to the closing ofNanoSynex Acquisition, we entered into the NanoSynex transaction on May 26, 2022, the Company entered into a MasterFunding Agreement for the Operational and Technological Funding ofwith NanoSynex, (the “Funding Agreement”) pursuant to which we agreed to fund NanoSynex up to an aggregate of approximately $10.4 million over the next three years,a three-year period, subject to NanoSynex’s achievement of certain performance milestones specified in the NanoSynex Funding Agreement and the satisfaction of other terms and conditions described in the NanoSynex Funding Agreement.
These funding commitments were to be made in the form of convertible promissory notes to be issued to us with a face value equal to the amount paid by us to NanoSynex upon satisfaction of the applicable performance milestone, bearing interest at the rate of 9% per annum on the principal balance from time to time outstanding under the particular promissory note, convertible at our option into additional shares of NanoSynex in order for us to maintain at least a 50.1% controlling ownership interest in NanoSynex, should NanoSynex issue additional shares. During the year ended December 31, 2022, a total of approximately $2.4 million was funded to NanoSynex, and for the nine months ended September 30, 2023 an additional $0.5 million was funded to NanoSynex under the NanoSynex Funding Agreement.
On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex (the “NanoSynex Funding Agreement”), pursuant to which the Company agreed to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.7% of the voting equity of NanoSynex. In addition, the Company agreed to cancel approximately $3.0 million of promissory notes issued to the Company under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to the Company with respect to such notes. The surrender of shares reducing the Company’s interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023.
The NanoSynex Amendment supersedes any payment obligations contemplated by the original NanoSynex Funding Agreement and amended the Company’s obligations to provide funding to NanoSynex, except that Company agreed to provide future funding as follows: (i) $560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024, in each case issued in the form of a promissory note to the Company with a face value in the amount of such funding. However, in lieu of fulfilling such obligations, the Company may, terminateand intends to, instead forfeit shares of Series A-1 Preferred Stock of NanoSynex in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that the Company should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that the Company originally paid in consideration for its Preferred A-1 shares of NanoSynex to the previous holder thereof, being $1.5716 per share.
The NanoSynex Amendment supersedes any payments contemplated by the NanoSynex Funding Agreement, after October 29, 2022 upon 120 days’ notice.such that except as described in the NanoSynex Amendment, we will have no further payment obligations to NanoSynex under the NanoSynex Funding Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and NanoSynex will have no further payment obligations to us for advances previously received under the NanoSynex Funding Agreement.
Other Service Agreements
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.
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Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below:
For the Nine Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Net cash (used in) provided by: | ||||||||||||||||
Operating activities | $ | (11,009,814 | ) | $ | (11,817,410 | ) | $ | (4,632,677 | ) | $ | (11,009,815 | ) | ||||
Investing activities | 60,611 | (124,356 | ) | 3,980,541 | 60,612 | |||||||||||
Financing activities | 7,173 | 285,005 | (440,000 | ) | 7,173 | |||||||||||
Net decrease in cash | $ | (10,942,030 | ) | $ | (11,656,761 | ) | ||||||||||
Effect of exchange rate on cash | — | 27,523 | ||||||||||||||
Net decrease in cash and restricted cash | $ | (1,092,136 | ) | $ | (10,914,507 | ) |
Net Cash Used in Operating Activities
During the nine months ended September 30, 2023, operating activities used $4.6 million of cash, primarily resulting from a loss from continuing operations of $10.0 million. Cash flows from operating activities for the nine months ended September 30, 2023 were positively impacted by adjustments for a $1.1 million non cash loss on voluntary conversion of convertible debt, accretion of discount of $1.2 million on convertible debt, $1.0 million in stock-based compensation expense, a $1.0 million increase in accounts payable, a $0.4 million increase in accrued expenses and other current liabilities, and cash provided by discontinued operations of $2.6 million. Cash flows from operating activities for the nine months ended September 30, 2023 were negatively impacted by adjustments for a $1.4 million decrease in fair value of warrant liabilities and a $0.6 million increase in prepaid expenses and other assets.
During the nine months ended September 30, 2022, operating activities used $11.0 million of cash, primarily resulting from a net loss from continuing operations of $12.5$10.3 million. Cash flows from operating activities (as opposed to net loss) for the nine months ended September 30, 2022 benefitted fromwere positively impacted by an adjustment for $4.1 million in stock-based compensation expense, a $0.2 million decrease in accounts receivable, and depreciation and amortization of $0.3 million. Cash flows from operating activities (as opposed to net loss) for the nine months ended September 30, 2022 were negatively impacted by cash used in discontinued operations of $2.4 million, a $1.0 million decrease in fair value of warrant liabilities, a $0.5$0.7 million decrease in accrued expenses and other current liabilities, a $0.4$0.3 million decrease in R&D grant liability,accounts payable, and a $0.4 million increase in net inventory, a $0.3 million increase in prepaid expenses and other assets, a $0.3 million decrease in accounts payable, a $0.1 million decrease in operating lease liability, and a $0.1 million decrease in deferred revenue.
During the nine months ended September 30, 2021, operating activities used $11.8 million of cash, primarily resulting from a net loss of $13.7 million. Cash flows from operating activities (as opposed to net loss) for the nine months ended September 30, 2021 benefitted from a $3.9 million increase in employee/director stock-based compensation expense, a $1.1 million decrease in prepaid expenses and other assets, a $1.1 million increase in accrued expenses and other current liabilities and a $0.4 million increase in accounts payable, due to higher costs related to therapeutics research and development. The decrease in prepaid expenses was primarily due to the expensing during the period of $1.1 million of previous prepayments to STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, our manufacturer of QN-165 for our anticipated clinical trials. Cash flows from operating activities (as opposed to net loss) for the nine months ended September 30, 2021 were negatively impacted by a $4.3 million decrease in fair value of warrant liabilities and a $0.3 million decrease in deferred revenue.assets.
Net Cash Provided by (Used in) Investing Activities
During the nine months ended September 30, 2023, net cash provided by investing activities was approximately $4.0 million from discontinued operations, due to $4.7 million in proceeds received from the sale of Qualigen, Inc., offset by $0.5 million advanced to NanoSynex, and $0.2 million in purchases of property and equipment prior to deconsolidation.
During the nine months ended September 30, 2022, net cash provided by investing activities was approximately $0.1 million from discontinued operations, primarily due to $0.7 million in cash acquired in the NanoSynex transaction, offset by the $0.6 million purchase of NanoSynex stock.
During the nine months ended September 30, 2021, net cash used in investing activities was approximately $0.1 million, primarily related to the purchase of property and equipment.
Net Cash Provided by Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2023 was approximately $0.4 million, due to monthly redemption payments on convertible notes payable.
Net cash provided by financing activities for the nine months ended September 30, 2022 was approximately $7,000, due to net proceeds from the exercise of warrants.
Net cash provided by financing activities for the nine months ended September 30, 2021 was approximately $0.3 million, due to approximately $0.4 million of net proceeds from exercise of warrants, offset by approximately $0.1 million in principal payments on notes payable.
Critical Accounting Estimates
We believe the estimates, assumptions and judgments involved in the accounting policies described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) are most critical to understanding and evaluating our reported financial results. During the three and nine months ended September 30, 2022, other than the business combinations, IPR&D, and goodwill accounting policies described below, there have been no material changes to the critical accounting policies and estimates as described in Item 7 of our 2021 Annual Report.
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The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company’s financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
IPR&D represents the fair value assigned to the research and development assets that have not reached technological feasibility. The value assigned to IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing the new product. Additionally, projections consider relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions. The rates utilized to discount the net cash flow to its present value are commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections. Upon the acquisition of acquired IPR&D, an assessment is completed as to whether the acquisition constitutes an acquisition of the purchase of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.
If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s consolidated statements of income as they are incurred.
IPR&D is evaluated for impairment annually using the same methodology as described above for calculating fair value. If the carrying value of the acquired IPR&D exceeds the fair value, then the intangible asset is written down to its fair value, with the resulting adjustment recorded as a charge to operations. Changes in estimates and assumptions used in determining the fair value of acquired IPR&D could result in an impairment.
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired, when accounted for using the purchase method of accounting. Goodwill has an indefinite useful life and is not amortized but is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.
In testing for impairment, the fair value of the reporting unit is compared to the carrying value. If the net assets assigned to the reporting unit exceed the fair value of the reporting unit, an impairment loss equal to the difference is recorded.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
AsWe are a “smallersmaller reporting company”company as defined by Item 10Rule 12b-2 of Regulation S-K, wethe Exchange Act and are not required to provide the information otherwise required by Item 3.under this Item.
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ITEM 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 September 30, 2022,2023, 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, due to the material weakness described below, our disclosure controls and procedures as of September 30, 20222023 were not 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, 2021,2022, 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, (the “2013 Framework”).or 2013 Framework. Based on this assessment, our management concluded that, as of December 31, 2021,2022, 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, as further described in our 2021 Annual Report.principles. We have taken and are takingcontinue to take 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,
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.
Except as described above, there were no changes to the Company’s internal control over financial reporting made during the quarter ended September 30, 2022 that we believe materially affected, 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forthWe are not currently involved in “Litigationany legal matters. From time to time, we could become involved in disputes and Other Legal Proceedings”various litigation matters that arise in Note 11the normal course of business. These may include disputes and lawsuits related to the condensed consolidated financial statements included in this Quarterly Report is incorporated herein by reference.intellectual property, licensing, contract law and employee relations matters.
ITEM 1A. RISK FACTORS
The 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 20212022 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. Other than the following additional risk factors related to the acquisition of NanoSynex, Ltd., thereThere have been no material changes to the Company’s risk factors since the 20212022 Annual Report.
Risks Related to the Acquisition of NanoSynex, Ltd. (“NanoSynex”)
The NanoSynex acquisition may not be successful in achieving its intended benefits and may disrupt our current operations.
We acquired a majority interest in NanoSynex. This acquisition poses a number of potential integration risks that may result in negative consequences to our business, financial condition, and results of operations. These risks include, but are not limited to:
In addition, while we are based in Carlsbad, California, NanoSynex’ operations are located in Ness Ziona, Israel, which could further stretch our resources and management’s time, and we will need to rely, to a large extent, on the existing executive team of NanoSynex. Failure to adequately integrate our operations and personnel could adversely affect our combined business and our ability to achieve our objectives and strategy. No assurance can be given that we will realize synergies in the areas we currently operate.
Our Master Agreement for the Operational and Technological Funding of NanoSynex obligates us to make milestone payments to NanoSynex.
As a condition to the closing with NanoSynex, we entered into a Master Agreement for the Operational and Technological Funding of NanoSynex (the “Funding Agreement”) with NanoSynex pursuant to which we have agreed to fund NanoSynex up to an aggregate of approximately $10.4 million over the next 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.
The requirement to make any payments under the Funding Agreement will reduce our liquidity. Furthermore, there can be no assurance that we will have the funds necessary to make the required payments to NanoSynex, if required, or be able to raise such funds when needed on terms acceptable to us, or at all. As a result, we may be required to delay our product development or future commercialization efforts. In addition, our inability to make any required payments to NanoSynex could negatively impact NanoSynex’s ability to further its development efforts, which will ultimately have a negative impact on our business and results of operations due to our majority interest in NanoSynex. We may terminate this agreement after October 29, 2022, but only after providing 120 days’ notice.
Under the terms of the Funding Agreement, we will receive in exchange for any payment made to NanoSynex under the Funding Agreement one or more promissory notes (which may contain convertible features) with a face value equal to the amount paid by us to NanoSynex upon satisfaction of the applicable performance milestones. Any promissory notes issued to us by NanoSynex under the Funding Agreement will bear interest at a rate of 9.00% per annum on the principal balance from time to time outstanding under the promissory note. If NanoSynex is unable to make the required payments of principal or interest under any promissory notes that are issued, our liquidity will be negatively impacted, which may require us to delay our product development or future commercialization efforts.
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Because a significant portion of NanoSynex’s total assets are represented by goodwill, indefinite-lived intangible assets, and definite-lived intangible assets, we could be required to write off some or all of this goodwill and other intangibles, which may adversely affect our financial condition and results of operations.
We used the acquisition method of accounting to account for the acquisition of a majority interest in NanoSynex consummated on May 26, 2022. A portion of the purchase price for this business is allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of acquisition. Goodwill is measured indirectly as the excess of the sum of (1) the consideration transferred (including contingent consideration, if any) and (2) the fair value of any noncontrolling interest in the acquiree over the net assets acquired and liabilities assumed. The purchase price allocation resulted in a goodwill value of $4.9 million and a value of $5.7 million related to other intangible assets. The carrying value of these assets as of September 30, 2022, was $4.9 million and $5.7 million, respectively. When we perform impairment tests, it is possible that the carrying value of goodwill or other intangible assets could exceed their implied fair value and therefore would require adjustment. Such adjustment would result in a charge to operating income in that period. Once adjusted, there can be no assurance that there will not be further adjustments for impairment in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Unregistered Sales of Equity Securities
None
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
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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. | |
104 | Cover page Interactive Data File (embedded within the Inline XBRL document) |
* Filed or furnished herewith.
** Furnished herewith.
+ 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.
QUALIGEN THERAPEUTICS, INC. | ||
November 14, 2023 | By: | /s/ Michael S. Poirier |
Name: | Michael S. Poirier | |
Title: | Chief Executive Officer (Principal Executive Officer) | |
November 14, 2023 | ||
By: | /s/ Christopher L. Lotz | |
Name: | Christopher L. Lotz | |
Title: | Vice President of Finance, Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) |
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