| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES | NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES Organization Qualigen,
Inc., a subsidiary of Qualigen Therapeutics, Inc., was incorporated in Minnesota in 1996 to design, develop, manufacture and sell
point-of-care quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and
was reincorporated in Delaware in 1999. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment. In
May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and
Ritter was renamed Qualigen Therapeutics, Inc. All shares of Qualigen, Inc.’s capital stock were exchanged for Qualigen Therapeutics,
Inc.’s capital stock in the merger. Ritter/Qualigen Therapeutics common stock, which was previously traded on the Nasdaq Capital
Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, on a post-reverse-stock-split adjusted
basis, under the trading symbol “QLGN” on May 26, 2020. On
May 26, 2022, the Company acquired 2,232,861 shares
of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”),
a related party, in exchange for 350,000 reverse
split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse
split adjusted shares of the Company’s common stock at an exercise price of $ 0.001 per
share. These warrants were
subsequently exercised on September 13, 2022 .
Concurrently with this transaction, the Company also purchased 381,786 shares
of Series B preferred stock from NanoSynex for a total purchase price of $ 600,000 .
The transactions resulted in the Company acquiring a 52.8 %
interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a micro-biologics diagnostics company domiciled in
Israel. Amendment and Settlement Agreement with NanoSynex Ltd. Basis
of Presentation The
accompanying condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”), Regulation S-X and rules and regulations of the Securities and Exchange
Commission (“SEC”). Principles
of Consolidation The
accompanying condensed consolidated financial statements include the accounts of the Company and its 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 for NanoSynex, the functional currency is the local currency,
New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex are translated into U.S. dollars and 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. Accounting
Estimates Management
uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported
revenues and expenses. The most significant estimates relate to the estimated fair value of in-process research and development, goodwill,
warrant liabilities, stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and
returns, and warranty costs. Actual results could vary from the estimates that were used. Reverse
Stock Split On
November 23, 2022, the Company effected a 1-for-10, as determined by the Company’s board of directors, 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 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 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 government money market mutual funds and in accounts at banking institutions in the U.S.
that are of high quality. Cash held in these accounts often exceed the FDIC insurance limits. If such banking institutions were to fail,
the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and
Signature Bank, and more recently in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the Federal
Deposit Insurance Corporation (FDIC). While the Company did not have an account at any of these banks, in the event of failure of any
of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would
be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely
affect our business and financial position. Inventory,
Net Inventory
is recorded at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company reviews
the components of its inventory on a periodic basis for excess or obsolete inventory, and records reserves for inventory components identified
as excess or obsolete. Impairment
of Long-Lived Assets The
Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate
that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows
is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between
the net book value of the assets and their estimated fair values. During the three and six months ended June 30, 2023 and 2022,
no Segment
Reporting Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company
has viewed its operations and managed its business as one segment operating primarily within the United States and Israel. Accounts
Receivable, Net The
Company grants credit to domestic physicians, clinics, and distributors. The Company performs ongoing credit evaluations of its customers
and generally requires no collateral. Customers can purchase certain products through a financing agreement that the Company has with
an outside leasing company. Under the agreement, the leasing company evaluates the credit worthiness of the customer. Upon acceptance
of the product by the customer, the leasing company remits payment to the Company at a discount. This financing arrangement is without
recourse to the Company. The
Company 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
June 30, 2023 December 31, 2022
Accounts Receivable $ 733,964 $ 726,449
Less Reserves and Allowances (54,584 ) (187,862 )
Accounts receivable,
net $ 679,380 $ 538,587 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. Patent
Costs The
Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting
expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated
statement of operations. Shipping
and Handling Costs The
Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound and
outbound freight are generally recorded in cost of sales which totaled approximately $ 78,000 72,000 144,000 111,000 0 4,000 and
approximately $ 4,000 8,000 Revenue
from Contracts with Customers The
Company applies 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. 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, 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. 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. During
the three months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $ 28,000 10,000 33,000 53,000 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
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
Machinery and equipment 5
Computer equipment 3
Molds and tooling 5
Furniture and fixtures 5 Leasehold
improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company occasionally
designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other direct costs attributable
to the construction, are capitalized as construction in progress. No provision for depreciation is made on construction in progress until
the relevant assets are completed and placed in service. The
Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or when
conditions are present that indicate impairment. Business
Combinations 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 Qualigen’s financial results beginning on the respective acquisition
date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired
in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions
about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant.
Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred
(the “purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets
acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a
period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all
other acquisition-related costs are expensed when incurred. 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. As a result of the annual goodwill impairment analysis, the Company recognized a $ 4,239,000 no 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 income (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 17 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 9- Warrant Liabilities). 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. 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. 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 $ 140,000 138,000 63,000 22,000 104,000 41,000 Foreign
Currency Translation The
functional currency for the Company is the U.S. dollar. The functional currency for NanoSynex, the Company’s newly acquired majority
owned subsidiary, is the New Israeli Shekel (NIS). The financial statements of NanoSynex are 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 is reflected as a separate component of other comprehensive income (loss). Other
comprehensive loss related to the effects of foreign currency translation adjustments attributable to NanoSynex was ($56,747) 65,540 for the three months ending June 30, 2023 and 2022, respectively, and $119,473 and $65,540 for the six months ending June 30, 2023 and 2022, respectively. War
in Ukraine In
February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor
any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the
conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the
conflict and its impact on regional and global economic conditions. Inflation
and Global Economic Conditions During
the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary
pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect
to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its 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. Impact
of COVID-19 Pandemic The
COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of
the pandemic sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as deferral
of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests.
For 2023 we continue to experience recovery in demand. Other
accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s
condensed consolidated financial statements. |
