SEC Form 10-Q filed by Qualigen Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Or
For the transition period from _____________ to _____________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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n/a
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| The
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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. ☒
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). ☒
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 | ☐ |
| ☒ | 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
As of November 12, 2024, there were shares of the registrant’s common stock, par value $ per share, outstanding.
TABLE OF CONTENTS
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Short-term note receivable - Marizyme | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Convertible debt | ||||||||
| Convertible debt - related party | ||||||||
| Derivative liabilities | ||||||||
| Derivative liabilities - related party | ||||||||
| Total current liabilities | ||||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Stockholders’ Deficit | ||||||||
| Qualigen Therapeutics, Inc. stockholders’ equity (deficit): | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities & Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| EXPENSES | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER EXPENSE (INCOME), NET | ||||||||||||||||
| (Gain) loss on change in fair value of warrant liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on change in fair value of derivative liabilities | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ||||||||||||
| Loss on issuance of convertible debt | ||||||||||||||||
| (Gain) loss on voluntary conversion of convertible debt into common stock | ( | ) | ||||||||||||||
| Loss on monthly redemptions of convertible debt into common stock | ||||||||||||||||
| Gain on settlements of accounts payable | ( | ) | ( | ) | ||||||||||||
| Loss on fixed asset disposal | ||||||||||||||||
| Other income, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense (income), net | ||||||||||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (BENEFIT) PROVISION FOR INCOME TAXES | ( | ) | ||||||||||||||
| NET LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Loss on disposal of discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| GAIN (LOSS) FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interest from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss available to Qualigen Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividend arising from warrant down-round provision | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net loss attributable to Qualigen Therapeutics, Inc | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share, basic and diluted - continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Net income (loss) per common share, basic and diluted - discontinued operations | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Total net loss per common share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted-average number of shares outstanding, basic and diluted | ||||||||||||||||
| Other comprehensive loss, net of tax | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustment from discontinued operations | ( | ) | ||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to noncontrolling interest from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Monthly redemptions of convertible debt into common stock | ||||||||||||||||||||
| Fair value of warrant modification for professional services | — | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Voluntary conversion of convertible debt into common stock | ||||||||||||||||||||
| Monthly redemptions of convertible debt into common stock | ||||||||||||||||||||
| Stock issued upon partial exercise of warrants | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issuance of common stock and prefunded warrants in public offering | ||||||||||||||||||||
| Voluntary conversion of convertible debt into common stock | ||||||||||||||||||||
| Fair value of warrant modification for professional services | — | |||||||||||||||||||
| Stock issued upon partial exercise of warrants | ||||||||||||||||||||
| Restricted share settlements issued to former Board members | ||||||||||||||||||||
| Fair value of warrants reclassified from equity to liabilities | — | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Qualigen Therapeutics, Inc. Stockholders’ | Noncontrolling | Total Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Voluntary conversion of convertible debt into common stock | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Deconsolidation of discontinued operations | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile loss from continuing operations to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ||||||||
| Accrued interest on short-term note receivable - Marizyme | ( | ) | ||||||
| (Gain) loss on voluntary conversion of convertible debt | ( | ) | ||||||
| Loss on monthly redemptions of convertible debt into common stock | ||||||||
| Accretion of discount on convertible debt | ||||||||
| Loss on issuance of convertible debt | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Fair value of warrant modification for professional services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities - discontinued operations | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Issuance of short-term note receivable - Marizyme | ( | ) | ||||||
| Net cash provided by investing activities - discontinued operations | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from the issuance of convertible notes payable | ( | ) | ||||||
| Proceeds from issuance of common shares and prefunded warrants in public offering | ||||||||
| Net proceeds from issuance of short term debt | ||||||||
| Proceeds from warrant exercises | ||||||||
| Payments on short term debt | ( | ) | ||||||
| Net cash provided by (used in) financing activities - continuing operations | ( | ) | ||||||
| Net cash provided by (used in) financing activities - discontinued operations | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents from continuing operations- beginning of period | ||||||||
| Cash and cash equivalents from continuing operations - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| NONCASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Monthly redemptions of convertible debt into common stock | $ | $ | ||||||
| Voluntary conversion of convertible debt into common stock | $ | $ | ||||||
| Deemed dividend arising from warrant down-round provision | $ | $ | ||||||
| Exchange of derivative liability for warrant and convertible debt | $ | $ | ||||||
| Net transfers to equipment held for lease from inventory | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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QUALIGEN THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Organization
Ritter Pharmaceuticals, Inc. (the Company’s 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. (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, the Company sold all of the issued and outstanding shares of common stock of Qualigen, Inc. to Chembio Diagnostics, Inc. (“Chembio”), a wholly-owned subsidiary of Biosynex, S.A. (“Biosynex”). Following the consummation of this transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio (see Note 5 – Discontinued Operations).
On
May 26, 2022, the Company acquired shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha
Capital Anstalt (“Alpha”), a related party, in exchange for reverse split adjusted shares of the Company’s
common stock and a prefunded warrant to purchase
Reverse Stock Split
On
October 28, 2024, the Company filed a Certificate of Amendment to its Amended and Restated Certificate
of Incorporation, as amended (the “Amendment”) with the Secretary of State of Delaware to effect a
All share and per share information shown herein has been retroactively adjusted to reflect the effect of the Reverse Stock Split Amendment for all periods presented.
Basis of Presentation
Certain information or footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results, and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2023 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The interim results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.
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 GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar. For NanoSynex, the functional currency was the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex were translated into U.S. dollars with the effects of foreign currency translation adjustments reflected as a component of accumulated other comprehensive loss within the Company’s condensed consolidated statements of changes in stockholders’ equity (deficit).
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.
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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 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, forfeit Series B Preferred Shares of NanoSynex held by the Company, resulting in the deconsolidation 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 December 31, 2023, the carrying value of the retained investment was zero, and therefore the Company has suspended application of the equity method as the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods. See Note 5 – Discontinued Operations for further information.
Accounting Estimates
Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of warrant liabilities, convertible debentures, derivative liabilities, and stock-based compensation. Actual results could materially vary from the estimates that were used.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents.
The Company maintains 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 Federal Deposit Insurance Corporation (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 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 the Company’s business and financial position.
Impairment of Long-Lived Assets
The
Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate
that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows
is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between
the net book value of the assets and their estimated fair values. During the nine months ended September 30, 2024 and 2023,
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily within the United States (and in Israel prior to the NanoSynex deconsolidation).
| 8 |
Research and Development
Except for acquired in process research and development (IPR&D), the Company expenses research and development costs as incurred including therapeutics license costs.
Patent Costs
The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated statement of operations.
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 comprehensive loss. Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 7-Warrant Liabilities and Note 8- Convertible Debt).
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 (deficit) 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.
| 9 |
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.
Foreign Currency Translation
The functional currency for the Company is the U.S. dollar. The functional currency for the discontinued operations of NanoSynex was the New Israeli Shekel (NIS). The financial statements of NanoSynex were translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex was reflected as a separate component of other comprehensive income (loss) (see Note 5 - Discontinued Operations).
Global Economic Conditions
Ongoing Wars in Ukraine and Israel
In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
In October 2023, Hamas conducted terrorist attacks in Israel resulting in ongoing war. There continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which have 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 the Company’s minority interest in NanoSynex, its results of operations, financial condition, cash flows and prospects (see Note 5 – Discontinued Operations).
Inflation and Global Economic Conditions
During the year ended 2023 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to government stimulus and recovery programs, government deficit spending and supply chain issues. 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, the Company’s business may 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 clinics and small hospitals’ demand for Qualigen, Inc.’s FastPack™ diagnostic test kits was reduced sharply, largely due to deferral of patients’ non-emergency visits to physician offices. In July 2023 the Company sold Qualigen, Inc., its wholly-owned subsidiary, to Chembio (see Note 5 - Discontinued Operations).
| 10 |
Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update, among other things, requires disclosure of certain significant segment expenses. We will adopt the updated accounting guidance in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the adoption of the new accounting guidance will have a material impact to our consolidated financial statements.
In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.
NOTE 2 — LIQUIDITY AND GOING CONCERN
As
of September 30, 2024, we had approximately $
The Company’s cash balances as of the date that these financial statements were issued, without additional financing, are expected to fund operations through the fourth quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued. There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis.
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. Between February 2024 and April 2024 the Company raised $
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.
NOTE 3 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Other prepaid expenses | ||||||||
| Prepaid consulting | ||||||||
| Prepaid research and development expenses | ||||||||
| $ | $ | |||||||
| 11 |
NOTE 4 — SHORT-TERM NOTE RECEIVABLE - MARIZYME
Other current assets consisted of the following at September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Short-term note receivable - Marizyme | $ | $ | ||||||
| $ | $ | |||||||
On
July 15, 2024, the Company advanced to Marizyme, Inc., $
Under ASC 326-20, known as the current expected credit loss ("CECL") model, the Company was required to estimate credit losses expected over the life of an exposure (or pool of exposures) based on historical information, current information, and reasonable and supportable forecasts. The conclusion was that if the Company were to demand repayment of the loan mentioned above, management expects that the Company would be able to recover substantially all of its investment in a presumed liquidation of Marizyme’s assets, as the Company has seniority in any future bankruptcy or insolvency proceeding. As such, management estimates the expected credit losses on the Marizyme Note to be zero as of September 30, 2024.
The Company is also party to a Co-Development Agreement with Marizyme (see Note 11 - Research and License Agreements).
NOTE 5 — DISCONTINUED OPERATIONS
The summary of gain (loss) from discontinued operations, net of tax, for the three and nine months ended September 30, 2024 are as follows:
| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||
| Qualigen, Inc. | NanoSynex | Total | Qualigen, Inc. | NanoSynex | Total | Qualigen, Inc. | NanoSynex | Total | Qualigen, Inc. | NanoSynex | Total | |||||||||||||||||||||||||||||||||||||
| Loss on disposal of discontinued operations, net of tax | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| GAIN (LOSS) FROM DISCONTINUED OPERATIONS | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
Sale of Qualigen Inc.
On
July 20, 2023, the Company completed the sale of Qualigen, Inc., its formerly wholly-owned subsidiary, to Chembio Diagnostics, Inc. for
net cash consideration of $
There were no assets and liabilities remaining related to Qualigen, Inc. as of September 30, 2024 or December 31, 2023.
| 12 |
The Company reclassified the following statement of operations items to discontinued operations for the three and nine months ended September 30, 2023:
| For the Three Months Ended September 30, | For the Nine Months | |||||||
| 2023 | 2023 | |||||||
| REVENUES | ||||||||
| Net product sales | $ | $ | ||||||
| Total revenues | ||||||||
| EXPENSES | ||||||||
| Cost of product sales | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| Total expenses | ||||||||
| OTHER EXPENSE (INCOME), NET | ||||||||
| Loss on disposal of equipment held for lease | ||||||||
| Other expense (income), net | ( | ) | ||||||
| Loss on fixed asset disposal | ||||||||
| Total other expense (income), net | ||||||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC. | ( | ) | ||||||
| Gain on sale of Qualigen, Inc. | ||||||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS OF QUALIGEN, INC. | $ | $ | ||||||
Amendment and Settlement Agreement with NanoSynex Ltd.
On
July 20, 2023, the Company entered into and effectuated the NanoSynex Amendment, reducing its ownership from approximately
On the date of deconsolidation, the Company recognized its retained investment at fair value, which during the preparation of these financial statements was determined to be de minimis based on various economic, industry, and other factors. As a result, the Company has discontinued recognition of its proportionate share of equity method losses following the date of initial recognition. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods.
There were no assets and liabilities recognized related to NanoSynex as of September 30, 2024 or December 31, 2023.
| 13 |
There was no activity related to NanoSynex during the three and nine months ended September 30, 2024. The Company reclassified the following statement of operations items to discontinued operations for the three and nine months ended September 30, 2023:
For the Three Months Ended | For the Nine Months | |||||||
| 2023 | 2023 | |||||||
| EXPENSES | ||||||||
| Research and development | $ | $ | ||||||
| Total expenses | ||||||||
| Loss on disposal of discontinued operations | ||||||||
| (BENEFIT) PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| LOSS FROM DISCONTINUED OPERATIONS OF NANOSYNEX, LTD. | ( | ) | ( | ) | ||||
| Loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Board compensation | $ | $ | ||||||
| Interest (Convertible debt) | ||||||||
| License fees | ||||||||
| Payroll | ||||||||
| Professional fees | ||||||||
| Research and development | ||||||||
| Vacation | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 7 — WARRANT LIABILITIES
In
2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a
private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse
recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company. The Series C Warrants were
determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, based on the inclusion of a leveraged ratchet
provision for subsequent dilutive issuances. As of December 31, 2022 there were
On
December 22, 2022, in conjunction with the issuance of the Debenture to Alpha (see Note 8 – Convertible Debt), the Company issued
to Alpha a warrant to purchase
On
November 24, 2023, Series C Warrants expired, and on December 5, 2023 the remaining Series C Warrants were repriced from an
exercise price of $
| 14 |
On
February 27, 2024, these Series C Warrants were repriced again as a result of a down-round provision triggered by a Securities Purchase
Agreement with Alpha for the purchase of the February 2024 Debenture, from an exercise price of $
On
April 12, 2024, in connection with an
As
a result of a partial voluntary conversion of the 2024 Alpha Debenture on September 9, 2024, as of September 30, 2024 the Company no
longer had sufficient shares to settle the 2024 Alpha Warrant in full until shareholder approval was obtained, and a portion (
The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2024:
| Common Stock Warrants | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Reclassified from equity | $ | $ | ||||||||||||||
| Expired | ( | ) | $ | $ | — | |||||||||||
| Forfeited | — | — | ||||||||||||||
| Total outstanding – September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
The following table summarizes the activity in liability classified warrants for the nine months ended September 30, 2023:
| Common Stock Warrants | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding –December 31, 2022 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Expired | — | — | ||||||||||||||
| Forfeited | — | — | ||||||||||||||
| Total outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
| 15 |
The following table presents the Company’s fair value hierarchy for its warrant liabilities measured at fair value on a recurring basis as of September 30, 2024:
| Quoted | ||||||||||||||||
| Market | Significant | |||||||||||||||
| Prices for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Common Stock Warrant Liabilities | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Reclassified from equity | ||||||||||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ||||||||||||
During the three and nine months
ended September 30, 2024, warrants forcommon shares with an exercise price of $
The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.
The following are the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of September 30, 2024 and 2023:
September 30, 2024 | September 30, 2023 | |||||||||||||||
| Actual | Weighted Average | Range | Weighted Average | |||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Expected volatility (peer group) | % | % | % | % | ||||||||||||
| Term of warrants (years) | ||||||||||||||||
| Expected dividend yield | % | % | % | % | ||||||||||||
| 16 |
NOTE 8 — CONVERTIBLE DEBT
2022 Convertible Debenture (Related party)
On
December 22, 2022, we issued to Alpha an
During the three and nine months ending September 30, 2024, we issued and shares of common stock, respectively to Alpha in lieu of cash for monthly redemption payments on and voluntary conversions of the 2022 Debenture at a weighted average conversion price of $ and $ per share, respectively, and a weighted average fair value of $ and $ per share, respectively.
During the three and nine months ending September 30, 2023, we issued and shares of common stock, respectively to Alpha in lieu of cash for monthly redemption payments on, and voluntary conversions of the 2022 Debenture at a weighted average conversion price of $ and $ per share, respectively, and a weighted average fair value of $ and $ per share, respectively.
Commencing
June 1, 2023 (the “Initial Monthly Redemption Date”) 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 2022 Debenture (each such date, a “Monthly Redemption Date”),
we must redeem $
The
2022 Debenture accrued interest at the rate of
In December 2022, pursuant to the terms of the 2022 Securities Purchase Agreement, we entered into a registration rights agreement with Alpha (the “Registration Rights Agreement”), pursuant to which we agreed to file one or more registration statements, as necessary, and to the extent permissible, to register under the Securities Act the resale of the remaining shares (underlying the 2022 Debenture and the 2022 Warrant) not otherwise registered under the Company’s registration statement on Form S-3 (File No. 333-266430). The Registration Rights Agreement requires that the Company file, within 30 days after signing, a resale registration statement and use commercially reasonable efforts to cause the resale registration statement to be declared effective by the SEC on or before the 60th calendar day following the date of signing of the Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC). We filed a resale registration statement on Form S-3 pursuant to the requirements of the Registration Rights Agreement on December 2022 (File Number 333-269088), which registration statement was declared effective by the SEC on January 5, 2023. On September 1, 2023, we filed a Post-Effective Amendment No. 1 to Form S-3 on Form S-1 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on September 7, 2023. On May 1, 2024, we filed a Post-Effective Amendment No. 2 to Form S-1 on Form S-3 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on May 2, 2024.
The Company evaluated the 2022 Debenture and the 2022 Warrant and determined that the 2022 Warrant is a freestanding financial instrument. Initially, the 2022 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 2022 Warrant was classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.
The proceeds from the 2022 Debenture were allocated to the initial fair value of the 2022 Warrant, with the residual balance allocated to the initial carrying value of the 2022 Debenture. The Company has not elected the fair value option for the 2022 Debenture. The 2022 Debenture was recognized as proceeds received after allocating the proceeds to the 2022 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.
The
original issue discount of $
| 17 |
On
December 5, 2023, the Company and Alpha executed Amendment No. 1 with regard to Securities Purchase Agreement (the “SPA Amendment”),
pursuant to which the Company and Alpha agreed to, among other things, reduce the Conversion Price of the 2022 Debenture from $
In
accordance with ASC 470-50, the Company determined that the modified terms of the 2022 Debenture were substantially different when compared
to the original terms that existed prior to the SPA Amendment, and thus the event was required to be accounted for as a debt extinguishment.
Accordingly, the Company derecognized the net carrying value of the original Debenture, and recorded the new debt instrument at its fair
value of $
During
the three and nine months ended September 30, 2024, the Company recognized a gain of approximately $
During
the three and nine months ended September 30, 2023, the Company recorded interest of approximately $
On July 3, 2024 and July 5, 2024 Alpha voluntarily converted the remainder of the 2022 Debenture.
2024 Convertible Debenture (Related party)
On
February 27, 2024, upon our receipt of a cash purchase price payment of $
We
also granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional
On September 9, 2024 we issued shares
of common stock upon Alpha’s partial voluntary conversion of the 2024 Alpha Debenture at a conversion price of $
During
the three and nine months ending September 30, 2024 in connection with the 2024 Alpha Debenture, the Company recorded initial
derivative liabilities with a fair value of $
The
Securities Purchase Agreement related to the issuance of 2024 Alpha Debenture resulted in down-round provisions of various warrants being
triggered which resulted in reductions of the exercise price of these warrants from $
| 18 |
2024 Convertible Debenture
In
April 2024, Alpha assigned its option to Chen and Chen exercised the option in full, in exchange for $
During
the three and nine months ending September 30, 2024 in connection with the 2024 Chen Debenture, the Company recorded initial
derivative liabilities with a fair value of $
Convertible debt is comprised of the following as of September 30, 2024 and December 31, 2023:
September 30, 2024 | December 31, 2023 | |||||||
| Convertible debt | $ | $ | ||||||
| Discount on convertible debt | ( | ) | ||||||
| Total convertible debt | $ | $ | ||||||
September 30, 2024 | December 31, 2023 | |||||||
| Convertible debt - related party | ||||||||
| Discount on convertible debt - related party | ( | ) | ( | ) | ||||
| Total convertible debt - related party | $ | $ | ||||||
As of September 30, 2024, there were no events of default or violation of any covenants under our financing obligations.
The following table presents the Company’s fair value hierarchy for its derivative liabilities arising from the issuance of convertible debt measured at fair value on a recurring basis as of September 30, 2024:
| Derivative Liabilities Arising From Issuance of Convertible Debt | Quoted Market Prices for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Granted | ||||||||||||||||
| Loss on change in fair value of derivative liabilities | ||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ |
The following are the weighted average and the range of assumptions used in estimating the fair value of derivative liabilities arising from the issuance of convertible debt as of September 30, 2024:
| September 30, 2024 | ||||||||
| Actual | Weighted Average | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility (peer group) | % | % | ||||||
| Remaining term (years) | ||||||||
| Expected dividend yield | % | % | ||||||
Basic loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted EPS is computed based on the sum of the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock options and warrants. The Company has included pre-funded warrants in its computation of basic net loss per share based on the nominal exercise price.
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Shares of common stock subject to outstanding options | ||||||||
| Shares of common stock subject to outstanding warrants | ||||||||
| Shares of common stock subject to outstanding convertible debt | ||||||||
| Total common stock equivalents | ||||||||
| 19 |
NOTE 10 — COMMITMENTS AND CONTINGENCIES
Litigation and Other Legal Proceedings
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of September 30, 2024, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
NOTE 11 — RESEARCH AND LICENSE AGREEMENTS
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 the Company under the name QN-302 as a candidate
for treatment for pancreatic ductal adenocarcinoma, which represents the vast majority of pancreatic cancers. The License Agreement required
a $
For
both the three months ended September 30, 2024 and 2023, there were license costs of $
QN-302 Phase 1 Study
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 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, Inc. (“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 $
| 20 |
Sponsored
research expenses related to these agreements for the three months ended September 30, 2024 and 2023 were $
Between
June 2018 and April 2022, the Company entered into license and sponsored research agreements with ULRF for QN-247, a novel aptamer-based
compound that has shown promise as an anticancer drug. Under the agreements, the Company took over development, regulatory approval and
commercialization of the compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return,
ULRF received a $
Sponsored
research expenses related to these agreements for the three months ended September 30, 2024 and 2023 were both $
Marizyme
On
April 11, 2024, we entered into a Co-Development Agreement with Marizyme. Under the Co-Development Agreement (as amended on August 6,
2024), we agreed to pay Marizyme a Funding Payment of up to $
| 21 |
NOTE 12 — STOCKHOLDERS’ EQUITY
As of September 30, 2024 and December 31, 2023, the Company had two classes of authorized capital stock: common stock and 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, any remaining assets will be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of any preferred stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions.
At September 30, 2024, the Company has reserved shares of authorized but unissued common stock for possible future issuance. At September 30, 2024, shares were reserved in connection with the following:
| Exercise of issued and future grants of stock options | ||||
| Conversion of convertible debt | ||||
| Exercise of stock warrants | ||||
| Total |
Preferred Stock
At September 30, 2024 and December 31, 2023, there were shares of 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, 2024 and December 31, 2023, 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.
| Shares | Weighted– Average Exercise Price | Range
of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2023 | $ | $ | — $ | |||||||||||||
| Granted | — | — | ||||||||||||||
| Expired | — | — | ||||||||||||||
| Forfeited | ( | ) | $ | $ | — $ | — | ||||||||||
| Total outstanding – September 30, 2024 | $ | $ | — $ | |||||||||||||
| Exercisable (vested) | $ | $ | — $ | |||||||||||||
| Non-Exercisable (non-vested) | $ | $ | — $ | |||||||||||||
There was approximately $ and $ million of compensation cost related to outstanding stock options for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there was approximately $ 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.
| 22 |
The exercise price for an option issued under the 2020 Plan is determined by the Board of Directors, but will be (i) in the case of an incentive stock option (A) granted to an employee who, at the time of grant of such option, is a 10% stockholder, no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair market value per share on the date of grant; and (ii) in the case of a non-statutory stock option, no less than 100% of the fair market value per share on the date of grant. The options awarded under the 2020 Plan will vest as determined by the Board of Directors but will not exceed a ten-year period. A forfeiture is recognized as incurred if the option holder does not exercise after 90 days following termination of service.
Fair Value of Equity Awards
The Company utilizes the Black-Scholes option pricing model to value awards under its 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, because the Company does not have sufficient stock price history over 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 SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. |
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Equity Classified Compensatory Warrants
As part of the May 2020 reverse recapitalization transaction, the Company issued equity classified compensatory common stock warrants to an advisor and its designees. In addition, various service providers hold equity classified compensatory common stock warrants issued in 2017 and earlier (originally exercisable to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock). These are to be differentiated from the Series C Warrants described in Note 7- Warrant Liabilities.
On
February 27, 2024, as a result of a down-round provision triggered by a Securities Purchase Agreement with Alpha for the purchase of
the February 2024 Debenture,
| 23 |
compensatory warrants were issued during the three and nine months ended September 30, 2024 and September 30, 2023.
The following table summarizes the activity in the common stock equity classified compensatory warrants for the nine months ended September 30, 2024:
| Common Stock | ||||||||||||||||
| Shares | Weighted–
Average Exercise Price | Range
of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | — | |||||||||||||||
| Exercised | — | — | ||||||||||||||
| Expired | ( | ) | $ | $ | — | |||||||||||
| Forfeited | — | — | ||||||||||||||
| Total outstanding –September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
| Non-Exercisable | — | |||||||||||||||
The following table summarizes the activity in the common stock equity classified compensatory warrants for the nine months ended September 30, 2023:
| Common Stock | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2022 | $ | $ | ||||||||||||||
| Exercised | — | — | — | |||||||||||||
| Expired | ( | ) | $ | $ | — | |||||||||||
| Forfeited | — | — | — | |||||||||||||
| Total outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
| Non-Exercisable | — | |||||||||||||||
There was approximately $ and $ in compensation cost related to outstanding equity classified compensatory warrants for the three and nine months ended September 30, 2024 respectively, and $ for both the three and nine months ended September 30, 2023. As of September 30, 2024 and September 30, 2023, there was no unrecognized compensation cost related to nonvested warrants.
Noncompensatory Equity Classified Warrants
On
May 22, 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to Alpha (a related party) for the purchase
of common stock. of these warrants remain outstanding and exercisable as of September 30, 2024 and may be exercised in whole or
in part, at any time before May 22, 2025. On December 22, 2022, in conjunction with the issuance of a debenture to Alpha (see Note 8
– Convertible Debt), the Company issued to Alpha a warrant to purchase
| 24 |
On
February 27, 2024 the Company entered into a new Securities Purchase Agreement with Alpha for the purchase of the February 2024 Debenture
(see Note 8 – Convertible Debt). This Securities Purchase Agreement resulted in the reduction of the exercise price of the December
22, 2022 warrant and the May 2020 warrant from $
On
September 6, 2024 as a result of the down-round provision triggered by shares sold in a public offering, the above warrants were repriced from $
On
September 6, 2024, upon the closing of a public offering, the Company issued pre-funded warrants to purchase
On September 6, 2024, upon the closing of a public offering, warrants were issued to the placement agent. These warrants are not exercisable until March 5, 2025 and expire on September 6, 2029.
As
a result of a partial voluntary conversion of the 2024 Alpha Debenture on September 9, 2024, as of September 30, 2024 the Company no
longer had sufficient shares to settle the 2024 Alpha Warrant in full until shareholder approval was obtained, and a portion (
The following table summarizes the non compensatory equity classified warrant activity for the nine months ended September 30, 2024:
| Common Stock | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Pre-funded investor warrants issued | $ | $ | n/a | |||||||||||||
| Exercised | ( | ) | $ | $ | — | |||||||||||
| Reclassified to liabilities | ( | ) | $ | $ | ||||||||||||
| Expired | — | |||||||||||||||
| Forfeited | — | |||||||||||||||
| Total outstanding – September 30, 2024 | $ | $ | n/a | |||||||||||||
| Exercisable | $ | $ |
| n/a | ||||||||||||
| Non-Exercisable | $ | $ | ||||||||||||||
| 25 |
The following table summarizes the non compensatory equity classified warrant activity for the nine months ended September 30, 2023:
| Common Stock | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2022 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Expired | ( | ) | $ | $ | — $ | — | ||||||||||
| Forfeited | — | — | ||||||||||||||
| Total outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
| Non-Exercisable | — | — | ||||||||||||||
NOTE 13 — RELATED PARTY TRANSACTIONS
Convertible Debt
On
December 22, 2022, the Company issued to Alpha, an
On
February 27, 2024, the Company issued to Alpha, an
See Note 8 – Convertible Debt for additional information concerning convertible debt – related party transactions.
Warrants
On May 22, 2020, as a commitment fee, the Company issued warrants to Alpha for the purchase of common stock. As of September 30, 2024, of these warrants remain outstanding and exercisable, and may be exercised in whole or in part, at any time before May 22, 2025. During the three and nine months ended September 30, 2024 and September 30, 2023, there were exercises of this warrant.
On
December 22, 2022, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha a warrant to purchase
On
February 27, 2024, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha a warrant to purchase
As
of September 30, 2024, the exercise price of all of the above warrants issued to Alpha was $
The above warrants are included in equity on the Company’s condensed consolidated balance sheets (see Note 12 – Stockholders’ Equity (Deficit)), except for 2,314 shares of the warrant issued on February 27, 2024, which was reclassified to liabilities as of September 30, 2024, until shareholder approval is obtained for the company to issue the shares (see Note 7 - Warrant Liabilities).
NOTE 14 — SUBSEQUENT EVENTS
Annual Shareholder Meeting
On October 9, 2024, the nominating committee of the Board of Directors (the “Board”) nominated Braeden Lichti as a board member. At the Annual Shareholder Meeting on October 27, 2024, Mr. Lichti along with all other board member nominees was elected to serve as a director until the Company’s annual meeting of stockholders in 2025, or until such person’s successor is duly elected and qualified or until such person’s earlier resignation, death, or removal. All other proposals in the Company’s proxy were also approved.
Reverse Stock Split
On October 28, 2024, the
New Chairperson of the Audit Committee and Independent Member of the Board
On October 8, 2024, the Board of Directors (the “Board”) appointed Braeden Lichti as an independent member of the Board, effective immediately. On October 8, 2024, the Board appointed Robert Lim as the chairperson of the Audit Committee, effective immediately.
| 26 |
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, 2023, which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 5, 2024. 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 the Company’s judgment as of the date of this Report. These statements generally relate to future events or the 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 the 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.
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
| ● | our ability to procure sufficient working capital to continue and complete the development, testing and launch of our prospective drug products; | |
| ● | our ability to successfully develop any drugs; | |
| ● | our ability to progress our drug candidates through preclinical and clinical development; | |
| ● | our ability to obtain the requisite regulatory approvals for our clinical trials and to begin and complete such trials according to any projected timeline; | |
| ● | our ability to complete enrollment in our clinical trials as contemplated by any projected timeline; | |
| ● | the likelihood that future clinical trial data will be favorable or that such trials will confirm any improvements over other products or lack negative impacts; | |
| ● | our ability to successfully commercialize any drugs; | |
| ● | the likelihood that patents will issue on our in-licensed patent applications; | |
| ● | our ability to protect our intellectual property; and | |
| ● | our ability to compete. |
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. 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.
Future filings with the Securities and Exchange Commission (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 an early-clinical-stage therapeutics company focused on developing treatments for adult and pediatric cancer. Our business now consists of one early-clinical-stage therapeutic program (QN-302) and one preclinical therapeutic program (Pan-RAS).
Our lead program, QN-302, is an investigational small molecule G-quadruplexes (G4)-selective transcription inhibitor with strong binding affinity to G4s prevalent in cancer cells (such as pancreatic cancer). Such binding could, by stabilizing the G4s against DNA “unwinding,” help inhibit cancer cell proliferation. QN-302 is undergoing a Phase 1a clinical trial at START Midwest in Grand Rapids, Michigan, and HonorHealth in Scottsdale, Arizona.
Our Pan-RAS program, which is currently at the preclinical stage, consists of a family of RAS oncogene protein-protein interaction inhibitor small molecules believed to inhibit or block mutated RAS genes’ proteins from binding to their effector proteins thereby leaving the proteins from the mutated RAS unable to cause further harm. In theory, such mechanism of action may be effective in the treatment of about one quarter of all cancers, including certain forms of pancreatic, colorectal, and lung cancers. The investigational compounds within our Pan-RAS portfolio are designed to suppress the interaction of endogenous RAS with c-RAF, upstream of the KRAS, HRAS and NRAS effector pathways.
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.
In addition, under a Co-Development Agreement dated April 11, 2024 with Marizyme, Inc. (“Marizyme”), we are entitled to receive quarterly a 33% payment in the nature of royalties (capped at double the amount of Funding Payment cash we provide to Marizyme) on any Net Sales (as defined with a meaning tantamount to gross profit on net sales) of Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting surgery. No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative total of $500,000 of DuraGraft Net Sales have been made in the United States. To date we have provided $1,750,000 of Funding Payments to Marizyme (inclusive of a $1,250,000 demand promissory note dated July 15, 2024 which bears interest at 18% per annum).
Recent Developments
Marizyme
On April 11, 2024, we entered into a Co-Development Agreement with Marizyme. Under the Co-Development Agreement (as amended on August 6, 2024), we agreed to pay Marizyme a Funding Payment of up to $1,750,000 and an Exclusivity Fee of $200,000. The Exclusivity Fee of $200,000 and a Funding Payment of $500,000 was paid to Marizyme on April 12, 2024. The Exclusivity Fee entitles us to an exclusivity period until May 31, 2024 for purposes of proposing and outlining a broader strategic relationship with Marizyme with regard to Marizyme’s DuraGraft business. The Funding Payment is designed to provide financial support for commercialization of Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting surgery. In return for the Funding Payment we will receive quarterly a 33% payment in the nature of royalties on any Net Sales (as defined with a meaning tantamount to gross profit on net sales) of DuraGraft, capped at double the amount of the Funding Payment cash provided. No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative total of $500,000 of DuraGraft Net Sales have been made in the United States.
On July 15, 2024, the Company advanced $1,250,000 to Marizyme, Inc., a Nevada corporation (“Marizyme”), against which Marizyme had previously delivered its demand promissory note to the Company of like principal amount dated July 12, 2024 (the “Marizyme Note”). The Marizyme Note bears interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding principal or interest of the Marizyme Note at any time and from time to time, in whole or in part, without premium or penalty.
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements historically have not separated our diagnostics-related activities from our therapeutics-related activities. All of our historically reported revenue was diagnostics-related. Before the third quarter of 2023, our reported expenses represented the total of our diagnostics-related and therapeutics-related expenses. In this Quarterly Report, all diagnostics-related revenues and expenses have been reclassified to discontinued operations (See Note 5 - Discontinued Operations).
This discussion and analysis is based on our condensed consolidated financial statements, which have been prepared in accordance with U.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.
While our significant accounting policies are more fully described in Note 1 to our condensed consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations:
| ● | Research and development | |
| ● | Discontinued operations | |
| ● | Derivative financial instruments and warrant liabilities | |
| ● | Stock-based compensation | |
| ● | Income taxes |
Derivative Financial Instruments and Warrant Liabilities
On April 12, 2024, in connection with an 8% Convertible Debenture in the principal amount of $1,100,000 issued to Yi Hua Chen (“Chen”) (see Note 7 Warrant Liabilities), we issued a liability classified warrant to Chen purchase 36,001 shares of our common stock, exercisable until February 27, 2029, which remains outstanding and exercisable as of September 30, 2024.
As a result of a partial voluntary conversion of the 2024 Alpha Debenture on September 9, 2024, as of September 30, 2024 the Company no longer had sufficient shares to settle the 2024 Alpha Warrant in full until shareholder approval was obtained, and a portion (2,314 warrant shares) was reclassified to liabilities (see Note 7 Warrant Liabilities and Note 12 - Stockholders’ Equity).
The fair value of liability classified warrants will be determined each quarter on a “mark-to-market” basis, it could result in significant variability in our future quarterly and annual consolidated statement of operations and 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 an increase in the fair value of the warrant liabilities and a quarter-to-quarter decrease in our stock price would result in a decrease in the fair value of the warrant liabilities.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:
| For the Three Months September 30, | ||||||||
| 2024 | 2023 | |||||||
| EXPENSES | ||||||||
| General and administrative | $ | 1,145,152 | $ | 1,336,765 | ||||
| Research and development | 123,429 | 1,441,598 | ||||||
| Total expenses | 1,268,581 | 2,778,363 | ||||||
| LOSS FROM OPERATIONS | (1,268,581 | ) | (2,778,363 | ) | ||||
| OTHER EXPENSE (INCOME), NET | ||||||||
| (Gain) loss on change in fair value of warrant liabilities | (1,231 | ) | 101,112 | |||||
| Loss on change in fair value of derivative liabilities | 495,693 | — | ||||||
| Interest expense | 408,359 | 367,257 | ||||||
| Interest income | (48,082 | ) | — | |||||
| Loss on voluntary conversion of convertible debt into common stock | 27,790 | — | ||||||
| Gain on settlements of accounts payable | (348,305 | ) | — | |||||
| Loss on fixed asset disposal | — | 21,747 | ||||||
| Other income, net | (6,547 | ) | (33,454 | ) | ||||
| Total other expense (income), net | 527,677 | 456,662 | ||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (1,796,258 | ) | (3,235,025 | ) | ||||
| (BENEFIT) PROVISION FOR INCOME TAXES | (2,198 | ) | — | |||||
| NET LOSS FROM CONTINUING OPERATIONS | (1,794,060 | ) | (3,235,025 | ) | ||||
| DISCONTINUED OPERATIONS | ||||||||
| Income from discontinued operations, net of tax | — | 159,507 | ||||||
| Loss on disposal of discontinued operations, net of tax | (619,545 | ) | ||||||
| GAIN (LOSS) FROM DISCONTINUED OPERATIONS | — | (460,038 | ) | |||||
| NET LOSS | (1,794,060 | ) | (3,695,063 | ) | ||||
| Net loss attributable to non-controlling interest from discontinued operations | — | (38,526 | ) | |||||
| Net loss available to Qualigen Therapeutics, Inc. | $ | (1,794,060 | ) | $ | (3,656,537 | ) | ||
| Deemed dividend arising from warrant down-round provision | $ | (27,587 | ) | $ | — | |||
| Net loss attributable to Qualigen Therapeutics, Inc | (1,821,647 | ) | (3,656,537 | ) | ||||
| Net loss per common share, basic and diluted - continuing operations | $ | (4.70 | ) | $ | (32.01 | ) | ||
| Net loss per common share, basic and diluted - discontinued operations | $ | — | $ | (4.17 | ) | |||
| Total net loss per common share, basic and diluted | $ | (4.70 | ) | $ | (36.18 | ) | ||
| Weighted—average number of shares outstanding, basic and diluted | 387,878 | 101,049 | ||||||
| Other comprehensive loss, net of tax | ||||||||
| Net loss | $ | (1,794,060 | ) | $ | (3,695,063 | ) | ||
| Foreign currency translation adjustment from discontinued operations | — | (56,747 | ) | |||||
| Other comprehensive loss | (1,794,060 | ) | (3,751,810 | ) | ||||
| Comprehensive loss attributable to noncontrolling interest from discontinued operations | — | (38,526 | ) | |||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (1,794,060 | ) | $ | (3,713,284 | ) | ||
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Expenses
General and Administrative Expenses
General and administrative expenses decreased from $1.3 million for the three months ended September 30, 2023, to $1.1 million for the three months ended September 30, 2024, a decrease of $0.2 million or 15%. This is primarily due to decreases in payroll of $0.2 million, professional fees of $0.1 million and insurance of $0.1 million offset by an increase in investor relations expenses of $0.2 million.
Research and Development Costs
Research and development expenses decreased from $1.4 million for the three months ended September 30, 2023, to $0.1 million for the three months ended September 30, 2024, a decrease of $1.3 million or 91%. This was primarily due to decreases in QN-302 program expenses of $0.8 million, a decrease in RAS program expenses of $0.2 million, a decrease in payroll of $0.2 million and a decrease in stock-based compensation of $0.1 million.
Other Expense (Income), Net
Gain on Change in Fair Value of Warrant Liabilities
During the three months ended September 30, 2024 and 2023, we experienced a gain of approximately $1,000 and a loss of approximately $0.1 million, respectively, on change in fair value of warrant liabilities, primarily due to changes in our stock price and expiration of warrants during the current period, and changes in our stock price in the prior period. 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.
Gain on Change in Fair Value of Derivative Liabilities
During the three months ended September 30, 2024 we experienced a gain of approximately $0.5 million on change in fair value of derivative liabilities, compared to $0 for the three months ended September 30, 2023. The fair value of derivative liabilities declined during the current period due to changes in our stock price and a reduction in the remaining term of the underlying instruments. Derivative liabilities in the prior period had no fair value.
Interest Expense, Net
Interest expense during the three months ended September 30, 2024 and September 30, 2023 remained the same.
Loss on Voluntary Conversion of Convertible Debt Into Common Stock
During the three months ended September 30, 2024, we issued 30,378 shares of common stock with a fair value of approximately $394,000, upon Alpha’s partial voluntary conversion of the 2022 Alpha Debenture at a weighted average share price of $13.00. Upon conversion to shares, we recognized a gain on voluntary conversion of convertible debt into common stock of approximately $1,000.
In addition, we issued 7,842 shares of common stock with a fair value of approximately $61,000, upon Alpha’s partial voluntary conversion of the 2024 Alpha Debenture at a weighted average share price of $6.50. Upon conversion to shares, we recognized a loss on voluntary conversion of convertible debt into common stock of approximately $29,000.
There were no voluntary conversions of convertible debt for the three months ended September 30, 2023.
Gain on Settlements of Accounts Payable
During the three months ended September 30, 2024, we settled $395,000 of our outstanding accounts payable for a gain of $348,000. No such events in 2023.
Other Income, Net
Other income, net was immaterial during the three months ended September 30, 2024 and 2023.
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Discontinued Operations
Income from discontinued operations during the three months ended September 30, 2024 was $0 compared to loss from discontinued operations of approximately $160,000 during the three months ended September 30, 2023. Of the $160,000 income from discontinued operations during the three months ended September 30, 2023, approximately $91,000 was due to net 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.
In addition, the Company recorded a loss of 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, 2024. The loss during the three months ended September 30, 2023 consisted of approximately $4.5 million from deconsolidation of NanoSynex, offset by a gain of approximately $3.9 million from the sale of the Company’s former Qualigen, Inc. subsidiary.
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:
Expenses
| For the Nine Months September 30, | ||||||||
| 2024 | 2023 | |||||||
| EXPENSES | ||||||||
| General and administrative | $ | 3,186,575 | $ | 5,132,834 | ||||
| Research and development | 1,242,101 | 3,898,061 | ||||||
| Total expenses | 4,428,676 | 9,030,895 | ||||||
| LOSS FROM OPERATIONS | (4,428,676 | ) | (9,030,895 | ) | ||||
| OTHER EXPENSE (INCOME), NET | ||||||||
| Gain on change in fair value of warrant liabilities | (361,137 | ) | (1,377,855 | ) | ||||
| Loss on change in fair value of derivative liabilities | 321,080 | — | ||||||
| Interest expense | 808,477 | 1,288,908 | ||||||
| Interest income | (48,082 | ) | — | |||||
| Loss on issuance of convertible debt | 358,279 | — | ||||||
| (Gain) loss on voluntary conversion of convertible debt into common stock | (56,010 | ) | 1,077,287 | |||||
| Loss on monthly redemptions of convertible debt into common stock | 208,852 | — | ||||||
| Gain on settlements of accounts payable | (348,305 | ) | — | |||||
| Loss on fixed asset disposal | — | 21,747 | ||||||
| Other income, net | (9,262 | ) | (33,534 | ) | ||||
| Total other expense (income), net | 873,891 | 976,553 | ||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (5,302,568 | ) | (10,007,448 | ) | ||||
| (BENEFIT) PROVISION FOR INCOME TAXES | 800 | — | ||||||
| NET LOSS FROM CONTINUING OPERATIONS | (5,303,368 | ) | (10,007,448 | ) | ||||
| DISCONTINUED OPERATIONS | ||||||||
| Loss from discontinued operations, net of tax | — | (683,008 | ) | |||||
| Loss on disposal from discontinued operations, net of tax | (100,000 | ) | (619,545 | ) | ||||
| LOSS FROM DISCONTINUED OPERATIONS | (100,000 | ) | (1,302,553 | ) | ||||
| NET LOSS | (5,403,368 | ) | (11,310,001 | ) | ||||
| Net loss attributable to non-controlling interest from discontinued operations | — | (343,038 | ) | |||||
| Net loss available to Qualigen Therapeutics, Inc. | $ | (5,403,368 | ) | $ | (10,966,963 | ) | ||
| Deemed dividend arising from warrant down-round provision | $ | (87,604 | ) | $ | — | |||
| Net loss attributable to Qualigen Therapeutics, Inc | (5,490,972 | ) | (10,966,963 | ) | ||||
| Net loss per common share, basic and diluted - continuing operations | $ | (24.48 | ) | $ | (99.64 | ) | ||
| Net loss per common share, basic and diluted - discontinued operations | $ | (0.45 | ) | $ | (9.55 | ) | ||
| Total net loss per common share, basic and diluted | $ | (24.93 | ) | $ | (109.19 | ) | ||
| Weighted—average number of shares outstanding, basic and diluted | 220,221 | 100,434 | ||||||
| Other comprehensive loss, net of tax | ||||||||
| Net loss | $ | (5,403,368 | ) | $ | (11,310,001 | ) | ||
| Foreign currency translation adjustment from discontinued operations | — | (50,721 | ) | |||||
| Other comprehensive loss | — | (11,360,722 | ) | |||||
| Comprehensive loss attributable to noncontrolling interest from discontinued operations | (5,403,368 | ) | (343,038 | ) | ||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | — | $ | (11,017,684 | ) | |||
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General and Administrative Expenses
General and administrative expenses decreased from approximately $5.1 million, during the nine months ended September 30, 2023 to approximately $3.2 million during the nine months ended September 30, 2024, a decrease of approximately $1.9 million or 38%. This decrease was primarily due to a $0.8 million decrease in stock-based compensation expense, $0.7 million decrease in payroll expenses, a $0.5 million decrease in professional fees, and a $0.1 million decrease in insurance, offset by an increase in investor relations expenses of $0.2 million.
Research and Development Costs
Research and development expenses decreased from approximately $3.9 million for the nine months ended September 30, 2023, to approximately $1.2 million for the nine months ended September 30, 2024, a decrease of $2.7 million or 68%. This was primarily due to an decrease in QN-302 program costs of $2.0 million, a decrease in RAS program expenses of $0.8 million, a decrease in wages of $0.4 million, a decrease in stock-based compensation of $0.1 million and a decrease in legal expenses of $0.1 million, offset by an increase of $0.7 million in expenses under the Marizyme co-development agreement.
Other Expense (Income), Net
Gain on Change in Fair Value of Warrant Liabilities
During the nine months ended September 30, 2024 and 2023, we experienced a gain of approximately $0.4 million, and a gain of approximately $1.4 million, respectively, on change in fair value of warrant liabilities, primarily due to changes in our stock price and expiration of warrants during the current period, and changes in our stock price in the prior period. 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.
Loss on Change in Fair Value of Derivative Liabilities
During the nine months ended September 30, 2024, we experienced a loss of approximately $0.3 million on change in fair value of derivative liabilities, compared to $0 for the nine months ended September 30, 2023. The fair value of derivative liabilities declined during the current period due to changes in our stock price and a reduction in the remaining term of the underlying instruments. Derivative liabilities in the prior period had no fair value.
Interest Expense
Interest expense during the nine months ended September 30, 2024 was approximately $0.8 million, compared to interest expense of approximately $1.3 million during the nine months ended September 30, 2023, The decrease was primarily due to reduced accretion of discount on convertible debt during the current period.
Loss on Issuance of Convertible Debt
During the nine months ended September 30, 2024 we incurred a loss on issuance of convertible debt of approximately $358,000 due to the fair value of the 2024 Alpha Debenture and derivative liabilities exceeding the cash proceeds.
(Gain) Loss on Voluntary Conversion of Convertible Debt Into Common Stock
During the nine months ended September 30, 2024, we issued 58,378 shares of common stock with a fair value of approximately $674,000, upon partial voluntary conversion of the 2022 Alpha Debenture at a weighted average share price of $13.00. Upon redemption in shares, we recognized a gain on voluntary conversion of convertible debt into common stock of approximately $85,000.
During the nine months ended September 30, 2024, we issued 7,842 shares of common stock with a fair value of approximately $61,000, upon Alpha’s partial voluntary conversion of the 2024 Alpha Debenture at a weighted average share price of $6.50. Upon conversion to shares, we recognized a loss on voluntary conversion of convertible debt into common stock of approximately $29,000.
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 16,834 shares of common stock.
Loss on Monthly Redemptions of Convertible Debt into Common Stock
During the nine months ended September 30, 2024, we issued 45,496 shares of common stock with a fair value of approximately $903,000, in lieu of cash for monthly redemptions of $660,000 principal and approximately $34,000 accrued interest redeemed, pursuant to the terms of the 2022 Alpha Debenture at a weighted average share price of $14.51. Upon redemption in shares, we recognized a loss on monthly redemptions of convertible debt into common stock of approximately $209,000.
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Gain on Settlements of Accounts Payable
During the three months ended September 30, 2024, we settled $395,000 of our outstanding accounts payable for a gain of $348,000. No such events in 2023.
Loss on Fixed Asset Disposal
Loss on fixed asset disposal during the nine months ended September 30, 2024 was $0, compared to approximately $22,000 due to a write off of equipment during the nine months ended September 30, 2023.
Other Income, Net
Other income, net was immaterial during the nine months ended September 30, 2024 and 2023.
Discontinued Operations
There was a loss from discontinued operations of $0.1 million during the nine months ended September 30, 2024, compared to a loss from discontinued operations of approximately $0.7 million during the nine months ended September 30, 2023. The $0.1 million loss from discontinued operations during the nine months ended September 30, 2024 was generated from the early settlement of an escrow account from the sale of Qualigen, Inc. 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.
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, 2024. 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 (See Note 5 - Discontinued Operations).
Liquidity and Capital Resources
As of September 30, 2024, we had approximately $338,000 in cash and an accumulated deficit of $122.2 million. For the nine months ended September 30, 2024 and year ended December 31, 2023, we used cash of $4.0 million and $11 million, respectively, in operations.
We currently expect our cash balances to fund operations into the fourth quarter of 2024. We expect to continue to have net losses and negative cash flow from operations, which will challenge our liquidity. These factors raise substantial doubt regarding our ability to continue as a going concern for the one-year period following the date that the financial statements in this Quarterly Report were issued. There is no assurance that we will ever achieve profitable operations, or, if achieved, could be sustained on a continuing basis.
Historically, our principal sources of cash have, in addition to previous revenue from product sales and license revenues from the FastPack product of line of Qualigen, Inc. (which we divested in July 2023), included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. 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, and we could be unable to continue operations.
During the nine months ended September 30, 2024 we raised approximately $1.5 million less expenses, in convertible debt. In February 2024 we issued to Alpha Capital Anstalt (“Alpha”) an 8% Convertible Debenture (the “2024 Alpha Debenture”) with a principal amount of $550,000; in connection with this issuance, we also issued to Alpha a 5-year common stock purchase warrant to purchase (at $13.00 per share) 18,001 shares of our common stock. We also granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional 8% Convertible Debentures, of like tenor, with face amounts of up to an aggregate of $1,100,000 (and with a proportional number of accompanying common stock warrants of like tenor, up to a total of 36,001 additional warrants). In April 2024, Alpha assigned this option to Yi Hua Chen (“Chen”) and Chen exercised the option in full; in exchange for $1,000,000 (less expenses) we issued to Chen an 8% Convertible Debenture with a principal amount of $1,100,000; in connection with this issuance, we also issued to Chen a 5-year common stock purchase warrant to purchase 0 per share) 36,001 shares of our common stock with an exercise price of $6.50 as of September 30, 2024.
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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 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. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha and Chen under the terms of the Debentures and/or trigger certain adjustments to the Debentures or warrants held by Alpha and Chen.
In June 2024, by way of a negotiated early release of escrow, we received $350,000 from the $450,000 escrow account established in connection with our July 2023 sale of Qualigen, Inc. The escrow account had originally been subject to release in January 2025. In exchange for the early release, $100,000 from the escrow account was paid to Chembio Diagnostics, Inc., the buyer of Qualigen, Inc.
The Company and an institutional investor entered into a Securities Purchase Agreement dated July 5, 2024 (the “Agreement”), providing for the Company to issue to the investor at par an unsecured, nonconvertible $2,000,000 18% senior note (the “Senior Note”) with a scheduled maturity date of July 8, 2025. The Senior Note includes a requirement for partial prepayments from a percentage of any future Company financings. Otherwise, principal and interest on the Senior Note is not payable until maturity. On July 12, 2024, the investor funded the $2,000,000 loan to the Company and the Company issued the Senior Note to the investor.
Delisting of our common stock from Nasdaq would have a serious negative effect on any future financing efforts. A hearing before a Nasdaq Hearing Panel was held on July 16, 2024. On August 2, 2024, the Company received the Panel decision which granted the Company an extension until November 19, 2024 to regain compliance with the Bid Price Rule and the Equity Rule. If the Company is unable to regain compliance with the listing standards of Nasdaq by November 19, 2024, the Company’s securities may be delisted from The Nasdaq Stock Market.
The accompanying financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments that would be necessary should we 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.
Our current liabilities at September 30, 2024 include approximately $1.6 million of accounts payable, $1.9 million of convertible debt and derivative liabilities, $0.6 million of accrued expenses and other current liabilities, $0.3 million in warrant liabilities.
Contractual Obligations and Commitments
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 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 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.
We have multiple license agreements with 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. 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, but we will be required to pay ULRF a percentage of any sublicense income.
In January 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.) We are further developing the program’s lead compound under the name QN-302. The License Agreement requires (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments, and sharing of a percentage of any non-royalty sublicensing consideration paid to the Company. In November 2023, we became obligated to pay $100,000 to UCL Business Limited upon the first patient dosing of QN-302, which was paid in January 2024.
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2022 Convertible Debenture
On December 22, 2022, we issued to Alpha 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 “2022 Securities Purchase Agreement”). The 2022 Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the 2022 Debenture is no longer outstanding, at Alpha’s option, into shares of our common stock (the “Conversion Shares”), at a price initially equal to $1.32 per share, subject to adjustment as described in the 2022 Debenture and other terms and conditions described in the 2022 Debenture. On July 13, 2023, we obtained stockholder approval, for purposes of complying with Nasdaq Listing Rule 5635(d), for the issuance to Alpha of more than 20% of our issued and outstanding shares of common stock pursuant to the terms and conditions of (a) the 2022 Debenture, and (b) the common stock purchase warrant dated December 22, 2022 issued by us to Alpha. Between January 9 - 12, 2023, we issued 16,834 shares of common stock upon Alpha’s partial conversion of the 2022 Debenture at $66.00 per share for a total of $1,111,078 in principal. In October and December 2023, we issued 6,193 shares of common stock to Alpha in lieu of cash for monthly redemption payments on the 2022 Debenture at a weighted average price of $35.52 per share. During the three and nine months ending September 30, 2024, we issued 30,378 and 103,865 shares of common stock, respectively to Alpha in lieu of cash for monthly redemption payments on and voluntary conversions of the 2022 Debenture at a weighted average conversion price of $13.00 and $13.66 per share, respectively, and a weighted average fair value of $12.97 and $15.19 per share, respectively.
2024 Convertible Debentures
On February 27, 2024, upon our receipt of a cash purchase price payment of $500,000 (less expenses), we issued to Alpha an 8% Convertible Debenture (the “2024 Alpha Debenture”) in the principal amount of $550,000. The 2024 Alpha Debenture matures no later than December 31, 2024 and is convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at $30.56 per share, subject to adjustment as described in the 2024 Alpha Debenture. Except in respect of an Exempt Issuance, the 2024 Alpha Debenture contains a “ratchet” antidilution provision, with a $5.82 per share floor. The 2024 Alpha Debenture accrues interest on its outstanding principal balance at the rate of 8% per annum, payable at maturity. In connection with this issuance, we also issued to Alpha a 5-year common stock purchase warrant to purchase 18,001 shares of our common stock with an exercise price of $6.50 per share as of September 30, 2024.
We also granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional 8% Convertible Debentures, of like tenor, with face amounts of up to an aggregate of $1,100,000 (and with a proportional number of accompanying common stock warrants of like tenor, up to a total of 36,002 additional warrants). On April 11, 2024, Alpha assigned this option to Yi Hua Chen, who exercised it in full on April 12, 2024 (see Note 8 - Convertible Debt to the Company’s condensed consolidated financial statements).
NanoSynex Funding Agreement
As a condition to our acquisition of a majority voting equity interest in NanoSynex from Alpha and NanoSynex, we entered into a Master Agreement for the Operational and Technological Funding of NanoSynex (the “Funding Agreement”), on May 26, 2022, pursuant to which we agreed to fund NanoSynex up to an aggregate of approximately $10.4 million, 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.
On July 20, 2023, we entered into the NanoSynex Amendment, which amended the 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 our ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the voting equity of NanoSynex. In addition, we agreed to cancel approximately $3.0 million of promissory notes which NanoSynex had issued to us under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to us with respect to such notes. The surrender of shares reducing our interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023. Accordingly, NanoSynex was deconsolidated from our financial statements as of July 20, 2023, and is reported as Discontinued Operations in this Quarterly Report.
The NanoSynex Amendment superseded any payment obligations contemplated by the original Funding Agreement and amended our obligations to provide funding to NanoSynex, except we 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, on November 22, 2023, in full settlement of any additional funding obligations to NanoSynex, we forfeited certain of our shares of Series A-1 Preferred Stock of NanoSynex in an amount that reduced our ownership in NanoSynex from approximately 49.97% to 39.90%. Our investment in NanoSynex will be accounted as an equity method investment prospectively from the July 20, 2023 deconsolidation date.
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Marizyme
On April 11, 2024, we entered into a Co-Development Agreement with Marizyme, Inc. (“Marizyme”). Under the Co-Development Agreement (as amended on August 6, 2024), we agreed to pay Marizyme a Funding Payment of up to $1,750,000 and an Exclusivity Fee of $200,000. The Exclusivity Fee of $200,000 and a Funding Payment of $500,000 was paid to Marizyme on April 12, 2024. The Exclusivity Fee entitled us to an exclusivity period until May 31, 2024 for purposes of proposing and outlining a broader strategic relationship with Marizyme with regard to Marizyme’s DuraGraft business. The Funding Payment is designed to provide financial support for commercialization of Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting surgery. In return for the Funding Payment we will receive quarterly a 33% payment in the nature of royalties on any Net Sales (as defined with a meaning tantamount to gross profit on net sales) of DuraGraft, capped at double the amount of the Funding Payment cash provided. No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative total of $500,000 of DuraGraft Net Sales have been made in the United States.
On July 15, 2024, the Company advanced to Marizyme, Inc., a Nevada corporation (“Marizyme”) $1,250,000 against which Marizyme had previously delivered its demand promissory note to the Company of like principal amount dated July 12, 2024 (the “Marizyme Note”). The Marizyme Note bears interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding principal or interest of the Marizyme Note at any time and from time to time, in whole or in part, without premium or penalty.
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.
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 | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (4,057,980 | ) | $ | (4,632,677 | ) | ||
| Investing activities | (900,000 | ) | 3,980,541 | |||||
| Financing activities | 4,944,329 | (440,000 | ) | |||||
| Effect of exchange rate on cash | — | — | ||||||
| Net decrease in cash and restricted cash | $ | (13,651 | ) | $ | (1,092,136 | ) | ||
Net Cash Used in Operating Activities
During the nine months ended September 30, 2024, operating activities used $4.0 million of cash, primarily resulting from a loss from continuing operations of $5.3 million. Cash flows from operating activities for the nine months ended September 30, 2024 were positively impacted by adjustments for $0.4 million loss on issuance of convertible debt, $0.1 million in stock-based compensation expense, $0.4 million in accretion of discount on convertible debt, $0.2 million loss on monthly redemptions of convertible debt into common stock, a $0.3 million loss on change in fair value of derivative liabilities, and a $0.6 million decrease in prepaid expenses and other assets and a $0.2 million increase in accrued expenses and other current liabilities. Cash flows from operating activities for the nine months ended September 30, 2024 were negatively impacted by adjustments for a $0.4 million gain on change in fair value of warrant liabilities, a $0.1 million gain on voluntary conversion of convertible debt into common stock and a $0.6 million decrease in accounts payable.
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.
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Net Cash Provided by (Used in) Investing Activities
During the nine months ended September 30, 2024, net cash provided by investing activities resulting from advances to Marizyme of $1.3 million and the disposal of discontinued operations was $0.4 million, due to the early release of escrow from the sale of Qualigen, Inc.
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.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $4.9 million, of which $3.0 million was resulting from the proceeds from issuance of common shares and prefunded warrants in public offering, $1.5 million was due to issuances of convertible debt, and $0.4 million was due to warrant exercises.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
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, 2024, 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, 2024 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.
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 consolidated financial statements for external purposes in accordance with U.S. GAAP. As of December 31, 2023, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework, or 2013 Framework. In connection with the audit of our financial statements as of and for the year ended December 31, 2023, we identified material weaknesses related to a lack of sufficient number of personnel within our accounting function to adequately segregate duties, and we have not designed and implemented effective Information Technology General Controls (“ITGC”) related to access controls to financial accounting systems. We lack the resources to employ additional personnel to help mitigate these material weaknesses and we foresee that these material weaknesses will not be remediated until we receive additional funding to support our accounting department. We cannot assure you that these or other measures will fully remediate the material weakness in a timely manner.
There was no change in our internal control over financial reporting in the third quarter of 2024.
Notwithstanding the identified material weakness, our management believes that the condensed consolidated financial statements included in this Quarterly Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP. Nonetheless, we also believe that an internal control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal control can provide absolute assurance that all internal control issues and instances of fraud, if any, within a company are detected.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently involved in any legal matters. From time to time, we could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters.
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 2023 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. Except as described below, there have been no material changes to the Company’s risk factors since the 2023 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
During the nine months ended September 30, 2024, we issued to Alpha Capital Anstalt 64,312 shares of unregistered common stock for monthly redemptions and voluntary conversions of $807,901 principal and $24,532 accrued interest redeemed, pursuant to the terms of the 2022 Debenture at a weighted average share price of $12.94.
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.
+ 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.
| November 14, 2024 | QUALIGEN THERAPEUTICS, INC. | |
| By: | /s/ Kevin A. Richardson | |
| Name: | Kevin A. Richardson | |
| Title: | Interim Chief Executive Officer and Chief Financial Officer | |
| 42 |