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)
(Registrant’s telephone number, including area code)
n/a
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| 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 August 10, 2023, there were shares of the registrant’s common stock, par value $0.001 per share, outstanding.
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TABLE OF CONTENTS
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued vacation | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| R&D grant liability | ||||||||
| Deferred revenue, current portion | ||||||||
| Operating lease liability, current portion | ||||||||
| Short term debt-related party | ||||||||
| Warrant liabilities | ||||||||
| Warrant liabilities - related party | ||||||||
| Convertible debt - related party | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 12) | ||||||||
| Stockholders’ equity | ||||||||
| Qualigen Therapeutics, Inc. stockholders’ equity: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Qualigen Therapeutics, Inc. stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities & Stockholders’ Equity | $ | $ | ||||||
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 June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | ||||||||||||||||
| Net product sales | $ | $ | $ | $ | ||||||||||||
| Total revenues | ||||||||||||||||
| EXPENSES | ||||||||||||||||
| Cost of product sales | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER EXPENSE (INCOME), NET | ||||||||||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense (income), net | ( | ) | ( | ) | ||||||||||||
| Loss on voluntary conversion of convertible debt | ||||||||||||||||
| Loss on disposal of equipment held for lease | ||||||||||||||||
| Other income, net | ( | ) | ( | ) | ||||||||||||
| Loss on fixed asset disposal | ||||||||||||||||
| Total other expense (income), net | ( | ) | ( | ) | ( | ) | ||||||||||
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (BENEFIT) PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to Qualigen Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 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 | ( | ) | ||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Total | ||||||||||||||||||||||||||||||||
| Qualigen | ||||||||||||||||||||||||||||||||
| Additional | Accumulated Other | Therapeutics, Inc. | Total | |||||||||||||||||||||||||||||
| Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | Noncontrolling | Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
| Balance at December 31, 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Additional | Other | Therapeutics, Inc. | Total | |||||||||||||||||||||||||||||
| Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | Noncontrolling | Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount $ | Capital | Income | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | | $ | $ | $ | ( | ) | $ | $ | $ | | |||||||||||||||||||||
| Stock issued upon exercise of warrants | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Common stock issued for business acquisition | ||||||||||||||||||||||||||||||||
| Prefunded warrants issued for business acquisition | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Estimated fair value of noncontrolling interest related to business acquisition | — | |||||||||||||||||||||||||||||||
| Fair value of warrant modification for business acquisition | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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QUALIGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Accounts receivable reserves and allowances | ( | ) | ( | ) | ||||
| Inventory reserves | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Loss on voluntary conversion of convertible debt | ||||||||
| Accretion of discount on convertible debt | ||||||||
| Loss on disposal of fixed assets and equipment held for lease | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory and equipment held for lease | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| R&D grant liability | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Deferred tax liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash acquired in business combination | ||||||||
| Net cash (used in)/provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from warrant exercises | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and restricted cash | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash - beginning of period | ||||||||
| Cash and restricted cash - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| NONCASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Net transfers to equipment held for lease from inventory | $ | $ | ||||||
| Fair value of warrant liabilities on date of exercise | $ | $ | ||||||
| Voluntary conversion of convertible debt into common stock | $ | $ | ||||||
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
Qualigen, Inc., a subsidiary of Qualigen Therapeutics, Inc., was incorporated in Minnesota in 1996 to design, develop, manufacture and sell point-of-care quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and was reincorporated in Delaware in 1999. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment. In May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and Ritter was renamed Qualigen Therapeutics, Inc. All shares of Qualigen, Inc.’s capital stock were exchanged for Qualigen Therapeutics, Inc.’s capital stock in the merger. Ritter/Qualigen Therapeutics common stock, which was previously traded on the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, on a post-reverse-stock-split adjusted basis, under the trading symbol “QLGN” on May 26, 2020.
On
May 26, 2022, the Company acquired shares
of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”),
a related party, in exchange for reverse
split adjusted shares of the Company’s common stock and a prefunded warrant to purchase
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), Regulation S-X and rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar, however for NanoSynex, the functional currency is the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex are translated into U.S. dollars and the effects of foreign currency translation adjustments are reflected as a component of accumulated other comprehensive income within the Company’s consolidated statements of changes in stockholders’ equity.
Accounting Estimates
Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of in-process research and development, goodwill, warrant liabilities, stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs. Actual results could vary from the estimates that were used.
Reverse Stock Split
On November 23, 2022, the Company effected a 1-for-10, as determined by the Company’s board of directors, reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
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Cash
The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents. Restricted cash includes cash that is restricted due to Israeli banking regulations.
The Company maintains the majority of its cash in government money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed the FDIC insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and Signature Bank, and more recently in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the Federal Deposit Insurance Corporation (FDIC). While the Company did not have an account at any of these banks, in the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
Inventory, Net
Inventory is recorded at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company reviews the components of its inventory on a periodic basis for excess or obsolete inventory, and records reserves for inventory components identified as excess or obsolete.
Impairment of Long-Lived Assets
The
Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate
that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows
is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between
the net book value of the assets and their estimated fair values. During the three and six months ended June 30, 2023 and 2022,
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily within the United States and Israel.
Accounts Receivable, Net
The Company grants credit to domestic physicians, clinics, and distributors. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. Customers can purchase certain products through a financing agreement that the Company has with an outside leasing company. Under the agreement, the leasing company evaluates the credit worthiness of the customer. Upon acceptance of the product by the customer, the leasing company remits payment to the Company at a discount. This financing arrangement is without recourse to the Company.
The Company records an allowance for doubtful accounts and returns equal to the estimated uncollectible amounts or expected returns. The Company’s estimates are based on historical collections and returns and a review of the current status of trade accounts receivable.
Accounts receivable, net is comprised of the following at:
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts Receivable | $ | $ | ||||||
| Less Reserves and Allowances | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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.
| 8 |
R&D Grants
NanoSynex has received R&D grants from Israel Innovation Authority (IIA) and from the European Commission. These grants may provide cash funding to NanoSynex from time to time in advance of the applicable costs being incurred. When such cash funding is received from these grants in advance, the proceeds are recorded as a current or non-current R&D grant liability based on the time from the condensed consolidated balance sheets date to the expected future date of recognition as a reduction to research and development expenses.
Patent Costs
The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated statement of operations.
Shipping and Handling Costs
The
Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound and
outbound freight are generally recorded in cost of sales which totaled approximately $
Revenue from Contracts with Customers
The Company applies the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Product Sales
The Company generates revenue from selling FastPack System analyzers, accessories and disposable products used with the FastPack System. Disposable products include reagent packs, which are diagnostic tests for prostate-specific antigen, testosterone, thyroid disorders, pregnancy, and Vitamin D.
The Company provides disposable products and equipment in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposable products and equipment at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment (“analyzer”) has been provided to the customer. The initial delivery of the equipment and reagent packs represents a single performance obligation and is completed upon receipt by the customer. The delivery of each subsequent individual reagent pack represents a separate performance obligation because the reagent packs are standardized, are not interrelated in any way, and the customer can benefit from each reagent pack without any other product. There are no significant discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 days.
The performance obligation arising from the delivery of the equipment is satisfied upon the delivery of the equipment to the customer. The disposable products are shipped Free on Board (“FOB”) shipping point. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, thus the customer obtains control and revenue is recognized at that point in time.
The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfill the promise to transfer the disposable products and not as a separate performance obligation.
The Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.
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Contract Asset and Liability Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by the Company’s customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the performance of the related services, the Company records deferred revenue until the performance obligations are satisfied.
Multiple performance obligations include contracts that combine both the Company’s analyzer and a customer’s future reagent purchases under a single contract. In some sales contracts, the Company provides analyzers at no charge to customers. Title to the analyzer is maintained by the Company and the analyzer is returned by the customer to the Company at the end of the purchase agreement.
During
the three months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $
Deferred Revenue
Payments received in advance from customers pursuant to certain collaborative research license agreements, deposits against future product sales, multiple element arrangements and extended warranties are recorded as a current or non-current deferred revenue liability based on the time from the condensed consolidated balance sheets date to the future date of revenue recognition.
Operating Leases
Effective April 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842. (See Note 12 - Commitments and Contingencies for more information).
Property and Equipment, Net
Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:
| Machinery and equipment | ||||
| Computer equipment | ||||
| Molds and tooling | ||||
| Furniture and fixtures |
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company occasionally designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other direct costs attributable to the construction, are capitalized as construction in progress. No provision for depreciation is made on construction in progress until the relevant assets are completed and placed in service.
The Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or when conditions are present that indicate impairment.
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in Qualigen’s financial results beginning on the respective acquisition date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
| 10 |
Goodwill
Goodwill
represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets
acquired, when accounted for using the purchase method of accounting. Goodwill has an indefinite useful life and is not amortized
but is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the
goodwill may not be recoverable. In testing for impairment, the fair value of the reporting unit is compared to the carrying value.
If the net assets assigned to the reporting unit exceed the fair value of the reporting unit, an impairment loss equal to the
difference is recorded. As a result of the annual goodwill impairment analysis, the Company recognized a $
Intangible Assets
In Process R&D
Acquired in process R&D (IPR&D) represents the fair value assigned to the research and development assets that have not reached technological feasibility. The value assigned to IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing the new product. Additionally, projections consider relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions. The rates utilized to discount the net cash flow to its present value are commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections. Upon the acquisition of acquired IPR&D, an assessment is completed as to whether the acquisition constitutes an acquisition of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.
If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s condensed consolidated statements of operations and other comprehensive income (loss) as they are incurred.
IPR&D is evaluated for impairment annually using the same methodology as described above for calculating fair value. If the carrying value of the acquired IPR&D exceeds the fair value, then the intangible asset is written down to its fair value, with the resulting adjustment recorded as a charge to operations. Changes in estimates and assumptions used in determining the fair value of acquired IPR&D could result in an impairment.
Other Intangible Assets, Net
Other intangible assets consist of patent-related costs and costs for license agreements. Management reviews the carrying value of other intangible assets that are being amortized on an annual basis or sooner when there is evidence that events or changes in circumstances may indicate that impairment exists. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized can be recovered.
If the Company determines that the carrying value of other intangible assets will not be recovered from the undiscounted future cash flows expected to result from the use and eventual disposition of the underlying assets, the Company considers the carrying value of such intangible assets as impaired and reduces them by a charge to operations in the amount of the impairment.
Costs
related to acquiring patents and licenses are capitalized and amortized over their estimated useful lives, which is generally
| 11 |
Derivative Financial Instruments and Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and other comprehensive income (loss). Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 9- Warrant Liabilities).
Fair Value Measurements
The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
| ● | Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; | |
| ● | Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active; and | |
| ● | Level 3 - Inputs that are unobservable. |
Fair Value of Financial Instruments
Cash, accounts receivable, prepaids, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.
Comprehensive Loss
Comprehensive loss consists of net income and foreign currency translation adjustments. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity for all periods presented.
Stock-Based Compensation
Stock-based compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility, lower risk-free interest rates, and longer expected lives would result in an increase to stock-based compensation expense to employees and non-employees determined at the date of grant.
Income Taxes
Deferred income taxes are recognized for temporary differences in the basis of assets and liabilities for financial statement and income tax reporting that arise due to net operating loss carry forwards, research and development credit carry forwards and from using different methods and periods to calculate depreciation and amortization, allowance for doubtful accounts, accrued vacation, research and development expenses, and state taxes. A provision has been made for income taxes due on taxable income and for the deferred taxes on the temporary differences.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of the deferred income tax asset is dependent on generating sufficient taxable income in future years.
| 12 |
Sales and Excise Taxes
Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with corresponding tax payable. These balances are removed from the condensed consolidated balance sheet as cash is collected from customers and remitted to the tax authority.
Warranty Costs
The Company’s warranty policy generally provides for one year of coverage against defects and nonperformance within published specifications for sold analyzers and for the term of the contract for equipment held for lease. The Company accrues for estimated warranty costs in the period in which the revenue is recognized based on historical data and the Company’s best estimates of analyzer failure rates and costs to repair.
Accrued
warranty liabilities were approximately $
Foreign Currency Translation
The functional currency for the Company is the U.S. dollar. The functional currency for NanoSynex, the Company’s newly acquired majority owned subsidiary, is the New Israeli Shekel (NIS). The financial statements of NanoSynex are translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex is reflected as a separate component of other comprehensive income (loss).
Other
comprehensive loss related to the effects of foreign currency translation adjustments attributable to NanoSynex was ($56,747) and $
War in Ukraine
In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
Inflation and Global Economic Conditions
During the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, our business would be adversely affected.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of the pandemic sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. For 2023 we continue to experience recovery in demand.
Other accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s condensed consolidated financial statements.
| 13 |
NOTE 2 — LIQUIDITY
As
of June 30, 2023, we had approximately $
On July 20, 2023, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Chembio Diagnostics, Inc. (“Chembio”), Biosynex, S.A. and Qualigen, Inc., a wholly-owned subsidiary of the Company (see Note 16 - Subsequent Events). Pursuant to the Purchase Agreement, the Company agreed to sell to the Buyer all of the issued and outstanding shares of common stock (collectively, the “Shares”) of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business (the “Transaction”). The Transaction closed on July 20, 2023. Following the consummation of the Transaction, our Qualigen, Inc. subsidiary became a wholly-owned subsidiary of Chembio.
The
aggregate net purchase price paid to the Company for the Shares was $
The Company’s cash balances as of the date that these financial statements were issued along with the proceeds from the above sale to Chembio, without additional financing, are expected to fund operations into the first quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which over time will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.
There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis. In order to fully execute its business plan, the Company will require significant additional financing for planned research and development activities, capital expenditures, clinical testing for its QN-302 clinical trials, preclinical development of RAS and QN-247, and funding for NanoSynex operations, as well as commercialization activities.
Historically,
the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from
the issuance of debt. In December 2021, the Company raised $
On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $ per share.
| 14 |
To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of its 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 the Company raises additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company. Additional funding may not be available to the Company on acceptable terms, or at all. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha Capital, the holder of the Debenture, or trigger certain adjustments to the Debenture or warrants held by Alpha Capital.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements
NOTE 3— INVENTORY, NET
Inventory, net consisted of the following at June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid manufacturing expenses | ||||||||
| Other prepaid expenses | ||||||||
| Prepaid research and development expenses | ||||||||
| Other current assets | ||||||||
| $ | $ | |||||||
NOTE 5 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Leasehold improvements | ||||||||
| Molds and tooling | ||||||||
| Furniture and fixtures | ||||||||
| Equipment held for lease | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed asset impairment | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense relating to property and equipment was approximately $
Upon
termination of the Sekisui Distribution Agreement on March 31, 2022, the Company had a commitment to purchase leased FastPack rental
systems back from Sekisui at Sekisui’s net book value, which was determined to be approximately $
| 15 |
NOTE 6 — GOODWILL, IPR&D AND OTHER INTANGIBLES
| June 30, | December 31, | |||||||||
| 2023 | 2022 | |||||||||
| Estimated Useful Lives | Gross carrying amounts | Gross carrying amounts | ||||||||
| Goodwill | $ | $ | ||||||||
| Finite-lived intangible assets: | ||||||||||
| Developed-product-technology rights | $ | $ | ||||||||
| Licensing rights | ||||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||||
| Total finite-lived intangible assets, net | ||||||||||
| Indefinite-lived intangible assets: | ||||||||||
| In-process research and development | ||||||||||
| Total other intangible assets, net | $ | $ | ||||||||
The
Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. Goodwill is attributable to the
NanoSynex Acquisition. Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed,
from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements,
primarily for goodwill and intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of long-lived
assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination
of fair value. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company determined that
the fair value of the reporting unit was less than the carrying value. In addition to continued losses in the reporting unit, the Company
considered macroeconomic conditions including a deterioration in the equity markets evidenced by sustained declines in the Company’s
stock price, peer companies, and major market indices since the acquisition date. The Company engaged independent valuation experts to
assist in determining the fair value of the reporting unit. As a result of this analysis, the Company recorded a $
The
carrying value of the patents of approximately $
The
carrying value of the in-licenses of approximately $
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. (see Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A.). Therefore, there is no future estimated amortization of patent and license costs for the succeeding years.
| 16 |
NOTE 7 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||||
| Board compensation | $ | |||||||
| Equipment held for lease | ||||||||
| Franchise, sales and use taxes | ||||||||
| Income taxes | ||||||||
| Interest (Convertible debt - related party) | ||||||||
| License fees | ||||||||
| Payroll | ||||||||
| Professional fees | ||||||||
| Research and development | ||||||||
| Royalties | ||||||||
| Warranty liability | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 8 – SHORT TERM DEBT-RELATED PARTY
NanoSynex
has four separate Notes Payable (‘the Notes”) outstanding to Alpha Capital, dated between March 26, 2020 and September 2, 2021,
aggregating to a total principal outstanding balance of $
NOTE 9 – WARRANT LIABILITIES
In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, pursuant to the Series C Warrant terms as adjusted.
In
exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase shares of the
Company’s common stock at $
Additionally,
on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha Capital (see Note 10 – Convertible Debt –
Related Party), the Company issued to Alpha Capital a warrant to purchase
| 17 |
The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2023:
| Common Stock Warrants | ||||||||||||||||
| Shares | Weighted– Average Exercise Price | Range of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding – December 31, 2022 | $ | $ | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | — | — | ||||||||||||||
| Expired | — | — | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Total outstanding – June 30, 2023 | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2022:
| Common Stock Warrants | ||||||||||||||||
| Shares | Weighted–
Average Exercise Price | Range
of Exercise Price | Weighted– Average Remaining Life (Years) | |||||||||||||
| Total outstanding –December 31, 2021 | $ | | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||
| Granted | ||||||||||||||||
| Total outstanding – June 30, 2022 | $ | |||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
The following table presents the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis as of June 30, 2023:
| 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, 2022 | $ | $ | $ | $ | ||||||||||||
| Exercises | ||||||||||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ||||||||||||
There were no transfers of financial assets or liabilities between category levels for the three and six months ended June 30, 2023.
The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.
| 18 |
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 June 30, 2023 and 2022:
| June 30, 2023 | June 30, 2022 | ||||||||||||
| Range | Weighted Average |
Range | Weighted Average |
||||||||||
| Risk-free interest rate | % | % | |||||||||||
| Expected volatility (peer group) | % | % | |||||||||||
| Term of warrants (in years) | |||||||||||||
| Expected dividend yield | % | % | % | % | |||||||||
NOTE 10 — CONVERTIBLE DEBT- RELATED PARTY
On
December 22, 2022, the Company issued to Alpha Capital, an
The proceeds from the transaction are being used to advance the Company’s QN-302 Investigative New Drug candidate towards clinical trials and other working capital purposes.
Commencing
June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption
of the Debenture (each such date, a “Monthly Redemption Date”), the Company will redeem $110,000 plus accrued but unpaid
interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly
Redemption Amount will be paid in cash; provided that after the first two monthly redemptions, the Company may elect to pay all or a
portion of a Monthly Redemption Amount in shares of common stock of the Company, based on a Conversion Price equal to the lesser of (i)
the then Conversion Price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the Debenture) for the five consecutive
trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The Company may also redeem
some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to
The
Debenture accrues interest at the rate of
Both
the Debenture and the Alpha Warrant provide for adjustments to the Conversion Price and exercise price, respectively, in connection with
stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain fundamental transactions.
Both the Debenture and the Alpha Warrant include a beneficial ownership blocker of
The Company filed a registration statement on Form S-3 (No. 333-269088) with the Securities and Exchange Commission on December 30, 2022 registering the resale by Alpha Capital of an aggregate of shares of the Company’s common stock, which may be issuable to Alpha Capital pursuant to the terms of the Debenture and the Alpha Warrant.
The Company evaluated the Debenture and the Alpha Warrant and determined that the Alpha Warrant is a freestanding financial instrument. The Alpha Warrant is not considered indexed to the Company’s own stock, because the settlement amount would not equal the difference between the fair value of a fixed number of the Company’s equity shares and a fixed strike price and all of the adjustment features in Section 3(b) of the warrant agreement are not down round provisions, as defined in ASU 2017-11. Accordingly, the Alpha Warrant is classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.
| 19 |
The proceeds from the Debenture were allocated to the initial fair value of the Alpha Warrant, with the residual balance allocated to the initial carrying value of the Debenture. The Company has not elected the fair value option for the Debenture. The Debenture was recognized as proceeds received after allocating the proceeds to the Alpha Warrant, and then allocating remaining proceeds to a suite of bifurcated embedded derivative features (conversion option, contingent acceleration upon an Event of Default, and contingent interest upon an Event of Default), with the resulting difference, if any, allocated to the loan host instrument. The suite of derivative features was measured and determined to have no fair value.
The
original issue discount of $
Between
January 9 and 12, 2023, the Company issued shares of common stock upon Alpha Capital’s partial conversion of the Debenture
at $
Convertible debt-related party is comprised of the following as of June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||||
| Senior secured convertible debenture | $ | $ | ||||||
| Discount on convertible debenture | ( | ) | ( | ) | ||||
| Total convertible debt-related party | $ | $ | ||||||
As of June 30, 2023, there were no events of default or violation of any covenants under our financing obligations.
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.
| 20 |
| As of June 30, | ||||||||
| 2023 | 2022 | |||||||
| Shares of common stock subject to outstanding options | ||||||||
| Shares of common stock subject to outstanding warrants | ||||||||
| Total common stock equivalents | ||||||||
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases its facilities under a long-term operating lease agreement. On December 15, 2021, our wholly-owned subsidiary Qualigen,
Inc. entered into a Second Amendment to Lease with Bond Ranch LP. This Amendment extended the Company’s triple-net leasehold on
the Company’s existing
The tables below show the operating lease right-of-use assets and operating lease liabilities as of June 30, 2023, including the changes during the periods:
| Operating lease right-of-use assets | ||||
| Net right-of-use assets at December 31, 2022 | $ | |||
| Less amortization of operating lease right-of-use assets | ( | ) | ||
| Operating lease right-of-use assets at June 30, 2023 | $ | |||
| Operating lease liabilities | ||||
| Lease liabilities at December 31, 2022 | $ | |||
| Less principal payments on operating lease liabilities | ( | ) | ||
| Lease liabilities at June 30, 2023 | ||||
| Less non-current portion | ( | ) | ||
| Current portion at June 30, 2023 | $ | |||
As
of June 30, 2023, the Company’s operating leases have a weighted-average remaining lease term of
As of June 30, 2023, future minimum payments during the next five fiscal years and thereafter are as follows:
| Year Ending December 31, | Amount | |||
| 2023 (six months) | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | ||||
| Less present value discount | ( | ) | ||
| Operating lease liabilities | $ | |||
Total
lease expense was approximately $
| 21 |
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The lease commitments described above transferred to Chembio upon the closing of this transaction. (see Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. ).
NanoSynex Funding Commitment
On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $per share.
The Nanosynex Amendment supersedes any payments contemplated by the Original Nanosynex Agreement, such that except as described in the Nanosynex Amendment, the Company will have no further payment obligations to NanoSynex under the Original Nanosynex Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and Nanosynex will have no further payment obligations to the Company for advances previously received under the Original Nanosynex Agreement.
Litigation and Other Legal Proceedings
On
November 9, 2021, the Company was named as a defendant in an action brought by Mediant Communications Inc. (“Mediant”) in
the U.S. District Court for the Southern District of New York. The complaint alleged that Qualigen entered into an implied contract with
Mediant, whereby Qualigen retained Mediant to distribute proxy materials and subsequently conduct shareholder vote tabulations. The Company
filed a Motion to Dismiss with the District Court and on March 14, 2022 a hearing was held during which the presiding judge ruled in
favor of the Motion to Dismiss. The Company and Mediant settled the litigation on April 5, 2022 in the amount of $
NOTE 13 — RESEARCH AND LICENSE AGREEMENTS
The University of Louisville Research Foundation
Between
June 2018 and April 2022, the Company entered into license and sponsored research agreements with the University of Louisville Research
Foundation (“ULRF”) for QN-247, a novel aptamer-based compound that has shown promise as an anticancer drug. Under the agreements,
the Company 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 June 30, 2023 and 2022 were approximately $
| 22 |
In
March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with ULRF for development of
several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company agreed to reimburse
ULRF for sponsored research expenses of up to $
Sponsored
research expenses related to these agreements for the three months ended June 30, 2023 and 2022 were approximately $
In
June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of QN-165 as a
treatment for COVID-19. Under the agreement, the Company took over development, regulatory approval and commercialization of the compound
(for such use) from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received
approximately $
In
addition, under the exclusive license agreement
There were no sponsored research expenses or license costs related to these agreements for the three months ended June 30, 2023 and 2022, or for the six months ended June 30, 2023 and 2022.
| 23 |
Yi Xin
In October 2020, through its wholly-owned diagnostics subsidiary Qualigen, Inc., the Company entered into a Technology Transfer Agreement with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi Xin”), of Suzhou, China, for Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on the Company’s core FastPack technology. In addition, the Technology Transfer Agreement authorizes Yi Xin to manufacture and sell the Company’s current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.
The
Company will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin.
Under the Technology Transfer Agreement, during the fiscal year ended December 31, 2021 we recognized revenues of approximately $
The Company gave Yi Xin the exclusive rights for China, which is a market it has not otherwise entered, both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of our existing FastPack product lines. Yi Xin also has the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack products). After March 31, 2022, Yi Xin has the right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-US customers of those products), as well as the right to buy Qualigen-manufactured FastPack 1.0, IP and PRO products from us at distributor prices for resale in and for the United States (but not to or toward current U.S. customers of those products). The Company did not license Yi Xin to sell in the U.S. market any Yi Xin-manufactured versions of those legacy FastPack 1.0, IP and PRO product lines. In the Technology Transfer Agreement the Company also confirmed that after March 31, 2022 it would not seek new FastPack customers outside the United States, European Union, Canada and Mexico.
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The Technology Transfer Agreement with Yi Xin described above transferred to Chembio upon the closing of this transaction. See Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. to our unaudited condensed consolidated financial statements for additional details.
UCL Business Limited
In
January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a
genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London,
including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for
University College London.) The program’s lead compound is now being developed at Qualigen under the name QN-302 as a candidate
for treatment for pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The License Agreement
required a $
For
both the three months ended June 30, 2023 and 2022, there were license costs of $
Prediction Biosciences
In
November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences SAS to develop and manufacture
diagnostic tests for use in the stroke Physician Office Laboratory (POL) market. The Company recognizes development revenue and product
sales over the performance period of the contract. Product sales related to this agreement for the three months ended June 30, 2023
and 2022 were $
QN-302 Phase 1 Study
In June 2023, the Company entered into a Master Clinical Research Services Agreement with Translational Drug Development, LLC (“TD2”) where 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 (“SOW”) with TD2 for the performance of specific services under this Master Clinical Research Services Agreement (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
In June 2023, the Company entered into a Master Laboratory Services Agreement with MLM Medical Labs, LLC (“MLM”) where 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 (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
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In June 2023, the Company entered into a Master Services Agreement with Clinigen Clinical Supplies Management, Inc. (“Clinigen”) where Clinigen agreed to provide certain pharmaceutical products and/or services. From time to time, the Company shall enter into Statements of Work (“SOW”) with Clinigen for the performance of specific services under this Master Services Agreement (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
NOTE 14 — STOCKHOLDERS’ EQUITY
As of June 30, 2023 and December 31, 2022, 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.
On
December 22, 2022, the Company issued to Alpha Capital, an
At June 30, 2023, the Company has reserved shares of authorized but unissued common stock for possible future issuance. At June 30, 2023, shares were reserved in connection with the following:
| Exercise of issued and future grants of stock options | ||||
| Exercise of stock warrants | ||||
| Total |
Preferred Stock
At June 30, 2023 and December 31, 2022, there were no 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 June 30, 2023 and December 31, 2022, 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.
| 25 |
| Shares | Weighted– Average Exercise Price |
Range of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2022 | $ | $ - $ | |||||||||||
| Granted | — | — | |||||||||||
| Expired | — | — | |||||||||||
| Forfeited | ( |
) | - | — | |||||||||
| Total outstanding – June 30, 2023 | $ | $ — $ | |||||||||||
| Exercisable (vested) | $ | $ — $ | |||||||||||
| Non-Exercisable (non-vested) | $ | $ - $ | |||||||||||
There was approximately $ and $ million of compensation cost related to outstanding stock options for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $ million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of years.
| Shares | Weighted– Average Exercise Price |
Range of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2021 | $ | $ — $ | |||||||||||
| Granted | |||||||||||||
| Expired | ( |
) | - | — | |||||||||
| Forfeited | ( |
) | - | — | |||||||||
| Total outstanding – June 30, 2022 | $ | $ — $ | |||||||||||
| Exercisable (vested) | $ | $ — $ | |||||||||||
| Non-Exercisable (non-vested) | $ | $ — $ | |||||||||||
. The options awarded under the 2020 Plan will vest as determined by the Board of Directors but will not exceed a ten-year period.
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. |
| ● | 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. |
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| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Expected dividend yield | % | % | ||||||
| Expected stock-price volatility | % | |||||||
| Risk-free interest rate | % — | % | ||||||
| Expected average term of options (in years) | — | |||||||
| Stock price | $ | $ | ||||||
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| General and administrative | $ | $ | ||||||
| Research and development | ||||||||
| Total | $ | $ | ||||||
Equity Classified Compensatory Warrants
In
connection with the $
In
addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier for the purchase of
During
the year ended December 31, 2021, the Company issued equity classified compensatory warrants to a service provider for the purchase of
No compensatory warrants were issued during the six months ended June 30, 2023.
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The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2023:
| Common Stock | |||||||||||||
| Shares | Weighted–
Average Exercise Price |
Range
of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2022 | $ | |
$ |
||||||||||
| Granted to advisor and its designees | |||||||||||||
| Exercised | |||||||||||||
| Expired | |||||||||||||
| Forfeited | |||||||||||||
| Total outstanding – June 30, 2023 | $ | $ |
|||||||||||
| Exercisable | $ | $ |
|||||||||||
| Non-Exercisable | $ | $ | — | ||||||||||
The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2022:
| Common Stock | |||||||||||||
| Shares | Weighted–
Average Exercise Price |
Range
of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2021 | $ | $ |
|||||||||||
| Granted to advisor and its designees | |||||||||||||
| Exercised | |||||||||||||
| Expired | |||||||||||||
| Forfeited | |||||||||||||
| Total outstanding – June 30, 2022 | $ | $ |
|||||||||||
| Exercisable | $ | $ |
|||||||||||
| Non-Exercisable | $ | $ | — | ||||||||||
There were compensation costs related to outstanding equity classified compensatory warrants for the six months ended June 30, 2023 and $ for the six months ended June 30, 2022.
Noncompensatory Equity Classified Warrants
In
May 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to Alpha Capital (a related party) for the
purchase of
On
November 29, 2021, with the exception of the warrants to purchase
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In
conjunction with the NanoSynex Acquisition, on April 25, 2022 the exercise price of
No noncompensatory equity classified warrants were issued during the six months ended June 30, 2023.
The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2023:
| Common Stock | |||||||||||||
| Shares | Weighted– Average Exercise Price |
Range
of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2022 | $ | $ |
|||||||||||
| Legacy Ritter warrants | — | ||||||||||||
| Granted | |||||||||||||
| Exercised | |||||||||||||
| Expired | ( |
) | |||||||||||
| Forfeited | |||||||||||||
| Total outstanding – June 30, 2023 | $ | ||||||||||||
| Exercisable | $ | $ |
|||||||||||
| Non-Exercisable | $ | $ | — | — | |||||||||
The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2022:
| Common Stock | |||||||||||||
| Shares | Weighted– Average Exercise Price |
Range
of Exercise Price |
Weighted– Average Remaining Life (Years) |
||||||||||
| Total outstanding – December 31, 2021 | $ | ||||||||||||
| Legacy Ritter warrants | — | ||||||||||||
| Granted | |||||||||||||
| Exercised | |||||||||||||
| Expired | |||||||||||||
| Forfeited | |||||||||||||
| Total outstanding – June 30, 2022 | $ | ||||||||||||
| Exercisable | $ | $ |
|||||||||||
| Non-Exercisable | $ | $ | — | — | |||||||||
NOTE 15 — RELATED PARTY TRANSACTIONS
Convertible Debt
On
December 22, 2022, the Company issued to Alpha Capital, an
| 29 |
Short-Term Debt
NanoSynex
has four separate notes payable outstanding to Alpha Capital, issued between March 26, 2020 and September 2, 2021, aggregating to a total
principal outstanding balance of $
NanoSynex Acquisition
The
Company acquired a
NOTE 16 — SUBSEQUENT EVENTS
QN-302 Phase 1 Study
Between
July 5-13, 2023, pursuant to the Master Clinical Research Services Agreement with TD2, Master Services Agreement with Clinigen, and
Master Laboratory Services Agreement with MLM (see Note 13 - Research and License Agreements), the Company entered into work orders
with these vendors to provide clinical trial services for the conduct of the QN-302 Phase 1 study. The estimated project timeline
was set to start in July 2023 and continue until July 2026. The total amount to be paid under these work orders is currently
expected to be approximately $
Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A.
On July 20, 2023, the Company entered into the Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business. The Transaction closed on July 20, 2023. Following the consummation of the Transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.
The aggregate net purchase price paid to the Company for the Shares was $
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Amendment and Settlement Agreement with NanoSynex Ltd.
On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement.
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $ per share.
The NanoSynex Amendment supersedes any payments contemplated by the Original NanoSynex Agreement, such that except as described in the NanoSynex Amendment, the Company will have no further payment obligations to NanoSynex under the Original NanoSynex Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and NanoSynex will have no further payment obligations to the Company for advances previously received under the Original NanoSynex Agreement.
Stockholder Approval of Alpha Stock Issuance Proposal
On July 13, 2023, the Company held its 2023 annual meeting of stockholders, at which the issuance to Alpha Capital of common stock pursuant to the terms and conditions of (a) the Debenture and (b) the Alpha Warrant were approved in accordance with Nasdaq Listing Rule 5635(d), which requires stockholder approval prior to the issuance of more than 20% of the Company’s issued and outstanding common stock.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and the audited financial statements and notes thereto as of and for the twelve months ended December 31, 2022, which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 2, 2023, as amended by Amendment No. 1 filed with the SEC on July 7, 2023 ( the “2022 Annual Report.) As used in this Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “Qualigen” refer to Qualigen Therapeutics, Inc. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
Cautionary Note Regarding Forward Looking Statements
This Quarterly Report contains forward-looking statements by the 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.
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
| ● | there can be no assurance that we will successfully develop any drugs or therapeutic devices; |
| ● | there can be no assurance that preclinical or clinical development of our candidate drugs or therapeutic devices will be successful; |
| ● | there can be no assurance that clinical trials will be approved to begin by or will actually begin by or will proceed as contemplated by any projected timeline; |
| ● | there can be no assurance that clinical trials will complete enrollment as contemplated by any projected timeline; |
| ● | there can be no assurance that future clinical trial data will be favorable or that such trials will confirm any improvements over other products or lack negative impacts; |
| ● | there can be no assurance that any of our candidate drugs or therapeutic devices will receive the required regulatory approvals or that they will be commercially successful; |
| ● | there can be no assurance that we will be able to procure or earn sufficient working capital to complete the development, testing and launch of our prospective candidate drugs therapeutic products; |
| ● | there can be no assurance that patents will issue on our owned and in-licensed patent applications; |
| ● | there can be no assurance that such patents, if any, and our current owned and in-licensed patents would prevent competition; |
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent in some future periods with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in other future periods.
Future filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
| 32 |
Overview
We are a diversified life sciences company focused on developing treatments for adult and pediatric cancers with potential for Orphan Drug designation.
Our cancer therapeutics pipeline includes QN-302, RAS and QN-247.
Our lead oncology therapeutics program, QN-302, is an investigational small molecule G4-selective transcription inhibitor with strong binding affinity to G4s prevalent in cancer cells. Such binding could, by stabilizing the G4s against DNA “unwinding,” help inhibit cancer cell proliferation. QN-302 is currently undergoing Good Laboratory Practice (GLP) toxicology studies.
Our Pan-RAS portfolio 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. Preventing this binding could stop tumor growth, especially in RAS-driven tumors such as pancreatic, colorectal and lung cancers.
Our investigational QN-247 compound binds nucleolin, a key multi-functional regulatory phosphoprotein that is overexpressed in cancer cells. Such binding could inhibit the cancer cells’ proliferation. The foundational aptamer of QN-247 is QN-165 (formerly referred to as AS1411), which the Company has deprioritized as a drug candidate for treating COVID-19 and other viral-based infectious diseases.
On November 23, 2022, we effected a 1-for-10, as determined by our board of directors, reverse stock split of our outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced our shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in this section and the accompanying financial statements and related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
On May 26, 2022, we acquired 2,232,861 shares of Series A-1 Preferred Stock of NanoSynex Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”) in exchange for 350,000 shares of our common stock and a prefunded warrant to purchase 331,464 shares of our common stock at an exercise price of $0.001 per share. These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, we also purchased 381,786 shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in our acquiring a 52.8% interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a micro-biologics diagnostics company domiciled in Israel.
We do not expect to be profitable before products from our therapeutics pipeline are commercialized. To experience losses while therapeutic products are still under development is, of course, typical for biotechnology companies.
Recent Developments
FDA Clearance of IND Application for QN-302
On August 1, 2023, the Company announced that the U.S. Food and Drug Administration has cleared the Company’s investigational new drug (IND) application for QN-302, allowing us to commence our Phase 1 clinical trial for QN-302.
Sale of FastPack™ Diagnostics Business
On July 20, 2023, we sold all of the issued and outstanding shares of common stock of our wholly-owned subsidiary, Qualigen, Inc., which was the legal entity operating our FastPack™ diagnostics business, to Chembio Diagnostics, Inc. (“Chembio”), a wholly-owned subsidiary of Biosynex, S.A. (the “Transaction”). The aggregate net purchase price paid to us for the shares was $5.2 million in cash, based on a base purchase price of $5.8 million, subject to certain post-closing adjustments, upward or downward, as applicable. Of the $5.2 million, $450,000 is being held in escrow to satisfy certain indemnification obligations. Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to us within five business days following the date that is 18 months after the closing. Following the consummation of the Transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.
Amendment and Settlement Agreement with NanoSynex Ltd.
On July 20, 2023, we entered into an Amendment and Settlement Agreement with Nanosynex (the “NanoSynex Amendment”), which amended the Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd. (the “NanoSynex Funding Agreement”) with NanoSynex and our payment obligations to NanoSynex under such agreement. See “Contractual Obligations and Commitments” below.
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements do not separate our diagnostics-related activities from our therapeutics-related activities. Although to date all of our reported revenue is diagnostics-related, our reported expenses represent the total of our diagnostics-related and therapeutics-related expenses.
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, stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs. 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 - Organization And Summary Of Significant Accounting Policies And Estimates to our unaudited condensed consolidated financial statements appearing in “Item 1. Condensed Consolidated Financial Statements (Unaudited),” 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:
| ● | Convertible debt |
| ● | Research and development |
| ● | Revenue recognition |
| ● | Allowance for doubtful accounts and returns |
| ● | Inventory |
| ● | Impairment of long-lived assets |
| ● | Business combination |
| ● | Goodwill |
| ● | In Process R&D |
| ● | Derivative financial instruments and warrant liabilities |
| ● | Stock-based compensation |
| ● | Income taxes |
Warrant Liabilities
In 2004, Qualigen, Inc. issued Series C preferred stock warrants to investors and brokers in connection with a private placement. These warrants were subsequently extended and survived the May 2020 Ritter reverse recapitalization transaction and are now exercisable for Qualigen Therapeutics common stock. These warrants contain a provision that if we issue shares (except in certain defined scenarios) at a price below the warrants’ exercise price, the exercise price will be re-set to such new price and the number of shares underlying the warrants will be increased in the same proportion as the exercise price decrease. For accounting purposes, such warrants give rise to warrant liabilities. The operation of the “double-ratchet” provisions in these warrants in connection with the NanoSynex Acquisition and the convertible debenture financing transaction in December 2022 now allow the holders to exercise for a significantly higher number of shares than before. Accounting principles generally accepted in the United States of America (“U.S. GAAP”) require us to recognize the fair value of these warrants as warrant liabilities on our condensed consolidated balance sheets and to reflect period-to-period changes in the fair value of the warrant liabilities on our condensed consolidated Statements of Operations. The estimated fair value of these warrant liabilities was $0.1 million and $0.8 million at June 30, 2023 and December 31, 2022, respectively. There were 1,349,571 of these warrants outstanding at June 30, 2023 and December 31, 2022.
On December 22, 2022, as part of the convertible debenture financing, the Company issued to Alpha Capital a common stock warrant for 2,500,000 shares of common stock of the Company (the “Alpha Warrant”). The exercise price of the Alpha Warrant is $1.65. The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time on or after June 22, 2023 and before June 22, 2028. U.S. GAAP requires us to recognize the fair value of this warrant as a warrant liability on our condensed consolidated balance sheets and to reflect period-to-period changes in the fair value of the warrant liability on our condensed consolidated statements of operations. The estimated fair value of this warrant liability was $2.0 million and $2.8 million at June 30, 2023 and December 31, 2022, respectively.
Because the fair value of the above 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 (possibly quite large) in the fair value of the warrant liabilities and a quarter-to-quarter decrease in our stock price would result in a decrease (possibly quite large) in the fair value of the warrant liabilities.
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Results of Operations
Comparison of the Three Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022:
| For the Three Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES | ||||||||
| Net product sales | $ | 1,627,031 | $ | 1,430,534 | ||||
| Total revenues | 1,627,031 | 1,430,534 | ||||||
| EXPENSES | ||||||||
| Cost of product sales | 1,016,542 | 1,099,677 | ||||||
| General and administrative | 2,665,849 | 2,660,857 | ||||||
| Research and development | 1,326,544 | 1,506,227 | ||||||
| Sales and marketing | 169,223 | 305,103 | ||||||
| Total expenses | 5,178,158 | 5,571,864 | ||||||
| LOSS FROM OPERATIONS | (3,551,127 | ) | (4,141,330 | ) | ||||
| OTHER EXPENSE (INCOME), NET | ||||||||
| Gain on change in fair value of warrant liabilities | (440,294 | ) | (14,800 | ) | ||||
| Interest expense (income), net | 377,416 | (4,823 | ) | |||||
| Loss on disposal of equipment held for lease | 63,302 | — | ||||||
| Other income, net | (5,680 | ) | 376 | |||||
| Total other expense (income), net | (5,256 | ) | (19,247 | ) | ||||
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (3,545,871 | ) | (4,122,082 | ) | ||||
| (BENEFIT) PROVISION FOR INCOME TAXES | (38,182 | ) | 5,438 | |||||
| NET LOSS | (3,507,689 | ) | (4,127,520 | ) | ||||
| Net loss attributable to noncontrolling interest | (43,484 | ) | (4,116 | ) | ||||
| Net loss attributable to Qualigen Therapeutics, Inc. | $ | (3,464,205 | ) | $ | (4,123,404 | ) | ||
| Other comprehensive loss, net of tax | ||||||||
| Net loss | $ | (3,507,689 | ) | $ | (4,127,520 | ) | ||
| Foreign currency translation adjustment | (56,747 | ) | 65,540 | |||||
| Other comprehensive loss | (3,564,436 | ) | (4,061,980 | ) | ||||
| Comprehensive loss attributable to noncontrolling interest | (43,484 | ) | (4,116 | ) | ||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (3,520,952 | ) | $ | (4,057,864 | ) | ||
Revenues
Net product sales
Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the three-month periods ended June 30, 2023 and 2022 were approximately $1.6 million and $1.4 million, respectively, representing an increase of approximately $0.2 million, or 14%. This increase was primarily due to growth in sales volumes and higher average unit selling prices.
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Expenses
Cost of Product Sales
Cost of product sales decreased during the three months ended June 30, 2023, to $1.0 million, or 62% of net product sales, compared to approximately $1.1 million, or 77% of net product sales, during the three months ended June 30, 2022. This decrease of $0.1 million, and decrease as a percentage of sales was primarily due to a reduction in force implemented in January 2023.
General and Administrative Expenses
General and administrative expenses remained the same at $2.7 million, for the three months ended June 30, 2023 and 2022.
Research and Development Costs
Research and development costs include therapeutic and diagnostic research and product development costs. Research and development costs decreased from $1.5 million for the three months ended June 30, 2022 to $1.3 million for the three months ended June 30, 2023. Of the $1.3 million of research and development costs for the three months ended June 30, 2023, approximately $1.2 million (89%) was attributable to therapeutics and $0.2 million (11%) was attributable to diagnostics. Of the $1.5 million of research and development costs for the three months ended June 30, 2022, $1.1 million (73%) was attributable to therapeutics and $0.4 million (27%) was attributable to diagnostics.
The $0.1 million increase in therapeutics research and development costs during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to an increase of $0.5 million in preclinical research costs for QN-302, offset by a decrease of $0.4 million in preclinical research costs for QN-247.
The $0.2 million decrease in diagnostics research and development costs during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to a $0.2 million decrease in stock-based compensation expense and a $0.1 million decrease in payroll expenses related to FastPack due to the January 2023 reduction in force, offset by an increase of $0.1 million in research and development expenses for NanoSynex.
For the future, we expect our therapeutic research and development costs to be relatively lower in periods when we are focusing on preclinical activities and meaningfully higher in periods when we are provisioning for and conducting clinical trials, if any.
Sales and Marketing Expenses
Sales and marketing expenses were approximately $0.2 million for the three months ended June 30, 2023, a decrease of $0.1 million or 45%, from the three months ended June 30, 2022. This decrease was primarily due to reduced payroll expenses related to the January 2023 reduction in force.
Other Income (Expense), Net
Change in Fair Value of Warrant Liabilities
During three months ended June 30, 2023 we experienced a $0.4 million gain on change in fair value of warrant liabilities arising from our liability classified warrants described above. The estimated fair value of these warrants decreased to $2.1 million as of June 30, 2023 from $3.6 million as of December 31, 2022, primarily due to a reduction in our stock price and shorter remaining outstanding life of the warrants.
Because the fair value of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to continue to result in significant variability in our future quarterly and annual consolidated statements of operations based on unpredictable changes in our public market common stock price and the number of warrants outstanding at the end of each quarter.
Interest Expense (Income), Net
Interest expense, net during the three months ended June 30, 2023 was approximately $377,000 due to accrued interest on the convertible debt, as compared to interest income, net of approximately $5,000 during the three months ended June 30, 2022.
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Loss on Disposal of Equipment Held for Lease
Loss on disposal of equipment held for lease during the three months ended June 30, 2023 was $63,000, compared to $0 during the three months ended June 30, 2022. This increase of $63,000 was due to a write off of discontinued FastPack analyzers that were acquired from Sekisui.
Other Income, Net
Other income was immaterial during the three months ended June 30, 2023 and 2022.
Comparison of the Six Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022:
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES | ||||||||
| Net product sales | $ | 3,234,201 | $ | 2,152,563 | ||||
| Total revenues | 3,234,201 | 2,152,563 | ||||||
| EXPENSES | ||||||||
| Cost of product sales | 2,281,368 | 1,928,524 | ||||||
| General and administrative | 4,380,283 | 5,559,608 | ||||||
| Research and development | 3,448,095 | 3,370,972 | ||||||
| Sales and marketing | 368,337 | 443,426 | ||||||
| Total expenses | 10,478,083 | 11,302,530 | ||||||
| LOSS FROM OPERATIONS | (7,243,882 | ) | (9,149,967 | ) | ||||
| OTHER EXPENSE (INCOME), NET | ||||||||
| Gain on change in fair value of warrant liabilities | (1,478,967 | ) | (698,042 | ) | ||||
| Interest expense (income), net | 921,652 | (11,132 | ) | |||||
| Loss on voluntary conversion of convertible debt | 1,077,287 | — | ||||||
| Loss on disposal of equipment held for lease | 63,302 | — | ||||||
| Other income, net | (10,559 | ) | 341 | |||||
| Loss on fixed asset disposal | 300 | — | ||||||
| Total other expense (income), net | 573,015 | (708,833 | ) | |||||
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (7,816,897 | ) | (8,441,134 | ) | ||||
| (BENEFIT) PROVISION FOR INCOME TAXES | (201,959 | ) | 6,173 | |||||
| NET LOSS | (7,614,938 | ) | (8,447,307 | ) | ||||
| Net loss attributable to noncontrolling interest | (304,512 | ) | (4,116 | ) | ||||
| Net loss attributable to Qualigen Therapeutics, Inc. | $ | (7,310,426 | ) | $ | (8,443,191 | ) | ||
| Other comprehensive loss, net of tax | ||||||||
| Net loss | $ | (7,614,938 | ) | $ | (8,447,307 | ) | ||
| Foreign currency translation adjustment | 119,473 | 65,540 | ||||||
| Other comprehensive loss | (7,495,465 | ) | (8,381,767 | ) | ||||
| Comprehensive loss attributable to noncontrolling interest | (304,512 | ) | (4,116 | ) | ||||
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | $ | (7,190,953 | ) | $ | (8,377,651 | ) | ||
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Revenues
Net product sales
Net product sales are primarily generated from sales of diagnostic tests. Net product sales during the six-month periods ended June 30, 2023 and 2022 were approximately $3.2 million and $2.2 million, respectively, representing an increase of approximately $1.0 million, or 50%. This increase was primarily due to the expiration of the Sekisui Distribution Agreement on March 31, 2022, at which time the distribution services previously provided by Sekisui reverted to us, which resulted in our recognizing 100% of the revenue from sales of our FastPack diagnostic test kits and instruments beginning in the second quarter of 2022.
Expenses
Cost of Product Sales
Cost of product sales increased during the six months ended June 30, 2023 to $2.3 million, or 71% of net product sales, compared to approximately $1.9 million, or 90% of net product sales, during the six months ended June 30, 2022. This increase of $0.4 million, and decrease as a percentage of sales was relative to the increase in sales volumes and higher average unit selling prices due to the termination of the Sekisui agreement on March 31, 2022 as well as a reduction in force implemented in January 2023.
General and Administrative Expenses
General and administrative expenses decreased from $5.6 million, during the six months ended June 30, 2022 to approximately $4.4 million during the six months ended June 30, 2023, a decrease of $1.2 million or 21%. This decrease was primarily due to a $1.5 million decrease in stock-based compensation expense due to the January 2023 reduction in force, partially offset by an increase in accounting fees of $0.3 million.
Research and Development Costs
Research and development costs include therapeutic and diagnostic research and product development costs. Research and development costs remained approximately the same at $3.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Of the $3.4 million of research and development costs for the six months ended June 30, 2023, $2.4 million (71%) was attributable to therapeutics and $1.0 million (29%) was attributable to diagnostics. Of the $3.4 million of research and development costs for the six months ended June 30, 2022, $2.7 million (80%) was attributable to therapeutics and $0.7 million (20%) was attributable to diagnostics.
The $0.3 million decrease in therapeutics research and development costs during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to a decrease of $0.9 million of preclinical research costs for our QN-247 program, a decrease of $0.1 million in RAS preclinical research costs, a $0.2 million decrease in payroll-related expenses, and a $0.1 million decrease in preclinical research costs for QN-165, offset by an increase of $1.0 million in preclinical research costs for QN-302.
The $0.3 million increase in diagnostics research and developments costs during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was due to an increase of $0.8 million in research and development expenses for NanoSynex, offset by a reduction of offset by a reduction of $0.5 million in FastPack research and development expenses due to the January 2023 reduction in force.
For the future, we expect our therapeutic research and development costs to be relatively lower in periods when we are focusing on preclinical activities and meaningfully higher in periods when we are provisioning for and conducting clinical trials, if any.
Sales and Marketing Expenses
Sales and marketing expenses were approximately $0.4 million for the six months ended June 30, 2023, a decrease of $0.1 million or 17% from the six months ended June 30, 2022. This decrease was primarily due to lower payroll costs as a result of the January 2023 reduction in force.
Other Income (Expense), Net
Change in Fair Value of Warrant Liabilities
During six months ended June 30, 2023 we experienced a $1.5 million gain on change in fair value of warrant liabilities arising from our liability classified warrants described above. The estimated fair value of these warrants decreased to $2.1 million as of June 30, 2023 from $3.6 million as of December 31, 2022, primarily due to a reduction in our stock price and shorter remaining outstanding life of the warrants.
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Because the fair value of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to continue to result in significant variability in our future quarterly and annual statements of operations based on unpredictable changes in our public market common stock price and the number of liability classified warrants outstanding at the end of each quarter.
Interest Expense (Income), Net
Interest expense, net during the six months ended June 30, 2023 was approximately $921,000 due to accrued interest on the convertible debt, as compared to interest income, net of approximately $11,000 during the six months ended June 30, 2022.
Loss on Voluntary Conversion of Convertible Debt
During the six months ended June 30, 2023, we recognized a $1.1 million loss due to a voluntary conversion by Alpha Capital of approximately $1.1 million of convertible debt into 841,726 shares of common stock (see Note 10 - Convertible Debt - Related Party to our condensed consolidated financial statements). We did not have any outstanding convertible debt for the six months ended June 30, 2022.
Loss on Disposal of Equipment Held for Lease
Loss on disposal of equipment held for lease during the six months ended June 30, 2023, was $63,000, compared to $0 during the six months ended June 30, 2022. This increase of $63,000 was due to a write off of discontinued FastPack analyzers that were acquired from Sekisui.
Other Income, Net
Other income was immaterial during the six months ended June 30, 2023 and 2022.
Liquidity and Capital Resources
As of June 30, 2023, we had approximately $1.3 million in cash and an accumulated deficit of $110.7 million. For the six months ended June 30, 2023 and the year ended December 31, 2022, we used cash of $5.6 million and $13.2 million, respectively, in operations.
On July 25, 2023, we received a cash payment of $4.7 million from Chembio for all of the outstanding shares of common stock of Qualigen, Inc., which payment is subject to post-closing adjustments, upward or downward, as applicable, for: (i) cash held by the Subsidiary as of the closing of the Transaction; (ii) net working capital of the Subsidiary as of the closing of the Transaction, (iii) certain indebtedness of the Subsidiary as of the closing of the Transaction, and (iv) certain Transaction expenses as of the closing of the Transaction. An additional $450,000 is being held in an escrow account to satisfy certain indemnification obligations. Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to us within five business days following the date that is 18 months after the closing of the Transaction.
On July 20, 2023, we entered into the NanoSynex Amendment with NanoSynex, which amended the NanoSynex Funding Agreement. See “Contractual Obligations and Commitments” below.
The Company’s cash balances as of the date that the accompanying financial statements were issued along with the proceeds from the above sale to Chembio, without additional financing, are expected to fund operations into the first quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which over time will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.
There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis. In order to fully execute our business plan, we will require significant additional funding for planned research and development activities, capital expenditures, clinical testing for our QN-302 clinical trials, preclinical development of RAS and QN-247, as well as commercialization activities.
Historically, our principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2022 we raised $3.0 million from the sale of a convertible debt instrument (see Note 10-Convertible Debt - Related Party to our unaudited condensed consolidated financial statements). There can be no assurance that further financing will be obtained on favorable terms, or at all. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.
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 our assets and discharge our liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.
Our condensed consolidated balance sheet at June 30, 2023 includes $2.1 million of warrant liabilities. We do not consider the warrant liabilities to constrain our liquidity, as a practical matter. Our current liabilities at June 30, 2023 include $1.8 million of accounts payable, $2.0 million of accrued expenses and other current liabilities, a $0.2 million R&D grant liability, $0.3 million of accrued vacation, $1.8 million in short term debt and convertible debt to a related party.
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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 unaudited condensed consolidated financial statements.
Lease Agreement with Bond Ranch LP
On December 15, 2021, our wholly-owned subsidiary Qualigen, Inc. entered into a Second Amendment to Lease with Bond Ranch LP. This Amendment extended our triple-net leasehold on our existing 22,624-square-foot headquarters/manufacturing facility at 2042 Corte del Nogal, Carlsbad, California for the 61-month period of November 1, 2022 to November 30, 2027. Over the 61 months, the base rent payable will total $1,950,710; however, the base rent for the first 12 months of the 61-month period will be only $335,966. Additionally, Qualigen, Inc. was entitled to a $339,360 tenant improvement allowance. On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The lease commitments described above transferred to Chembio upon the closing of this transaction. See Note 12 - Commitments and Contingencies and Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. to our unaudited condensed consolidated financial statements for additional details.
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 and sponsored research 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. For example, we agreed to reimburse ULRF for sponsored research expenses of up to $2.7 million and prior patent costs of up to $112,000 for RAS. As of June 30, 2023, there was approximately $239,000 remaining due to ULRF under this sponsored research agreement for RAS. We also agreed to reimburse ULRF for sponsored research expenses of up to $830,000 and prior patent costs of up to $200,000 for QN-247. As of June 30, 2023, there were no remaining un-expensed amounts due to ULRF under this sponsored research agreement for QN-247 and the agreement was terminated effective August 31, 2022. Under the terms of these agreements, we are required to make patent maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $5 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under these agreements, and we will be required to pay a percentage of any sublicense income.
On January 13, 2022, we entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is being developed by us under the name QN-302 as a candidate for treatment of pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The Agreement requires (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments, and a percentage of any non-royalty sublicensing consideration paid to the Company.
Technology Transfer Agreement with Yi Xin
Through our wholly-owned diagnostics subsidiary Qualigen, Inc., we entered into a Technology Transfer Agreement, dated as of October 7, 2020, with Yi Xin of Suzhou, China, which authorizes Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on our core FastPack technology. In addition, the Technology Transfer Agreement authorizes Yi Xin to manufacture and sell our current generations of FastPack System diagnostic products (1.0, IP and PRO) in China. We have provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.
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Under the terms of the Technology Transfer Agreement, we have provided Yi Xin the exclusive rights for China, which is a market we have not otherwise entered, both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of our existing FastPack product lines. Yi Xin has the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of our existing generations of FastPack products); provided that any non-China sales would, until March 31, 2022, need to be through Sekisui. As of April 1, 2022, Yi Xin has right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-US customers of those products). Yi Xin also has the right, as of April 1, 2022, to buy Qualigen-manufactured FastPack 1.0, IP and PRO products from us at distributor prices for resale in and for the United States (but not to or toward current U.S. customers of those products). We did not license Yi Xin to sell in the United States market any Yi Xin-manufactured versions of those legacy FastPack product lines, even after March 31, 2022. We agreed in the Technology Transfer Agreement that we would not, after March 31, 2022, seek new FastPack customers outside the United States, European Union, Canada, and Mexico.
Under the Technology Transfer Agreement, during the fiscal year ended December 31, 2021 we recognized revenues of approximately $670,000. There were no revenues under this agreement for the six months ended June 30, 2023, and the six months ended June 30, 2022. We will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin.
Yi Xin is a newly-formed company and is subject to many risks. There can be no assurance that Yi Xin will successfully commercialize any products or that we will receive any royalties from Yi Xin.
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The Technology Transfer Agreement with Yi Xin described above transferred to Chembio upon the closing of this transaction. See Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. to our unaudited condensed consolidated financial statements for additional details.
Alpha Convertible Debt
On December 22, 2022, we issued an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 (“the Debenture”) to Alpha Capital for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture is convertible, at any time, and from time to time, at Alpha Capital’s option, into shares of our common stock, at a price equal to $1.32 per share, subject to adjustment as described in the Debenture and other terms and conditions described in the Debenture, including the Company’s receipt of the necessary stockholder approvals, which were obtained at our 2023 annual meeting of stockholders.
In January 2023 Alpha Capital converted $1,111,078 of the Debenture principal into 841,726 shares of common stock at a conversion price of $1.32 per share.
Commencing June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the Debenture (each such date, a “Monthly Redemption Date”), we must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, we may elect to pay all or a portion of a Monthly Redemption Amount in shares of common stock, based on a conversion price equal to the lesser of (i) the then applicable conversion price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. We may also redeem some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to 105% of the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. Our election to pay monthly redemptions in shares of common stock or to effect an optional redemption is subject to the satisfaction of the Equity Conditions (as defined in the Debenture), including our receipt of the necessary stockholder approvals, which we obtained at our 2023 annual meeting of stockholders.
The Debenture accrues interest at the rate of 8% per annum, which does not begin accruing until December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock of the Company or a combination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions have been satisfied, including our receipt of the necessary stockholder approvals, which we obtained at our 2023 annual meeting of stockholders.
During the three and six months ended June 30, 2023, we recognized an extinguishment loss on voluntary conversion of convertible debt of $0 and approximately $1.1 million, respectively, and recorded accrued interest of approximately $383,000 and $945,000, respectively (of which approximately $364,000 and $898,000 was a reduction to the discount, respectively) in other expenses in the condensed consolidated statements of operations. In June 2023 we paid the first Monthly Redemption Amount of $110,000 in cash, and as of June 30, 2023 the remaining Debenture principal balance was approximately $2.1 million, the remaining discount was approximately $1.3 million, the fair value of the Alpha Warrant was approximately $2.0 million, and the fair value of the suite of bifurcated embedded derivative features was $0.
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NanoSynex Funding Agreement
As a condition to the NanoSynex Acquisition, we entered into the Funding Agreement with NanoSynex, pursuant to which we agreed to fund NanoSynex up to an aggregate of approximately $10.4 million over a three year period, subject to NanoSynex’s achievement of certain performance milestones specified in the NanoSynex Funding Agreement and the satisfaction of other terms and conditions described in the NanoSynex Funding Agreement.
These funding commitments were to be made in the form of convertible promissory notes to be issued to us with a face value equal to the amount paid by us to NanoSynex upon satisfaction of the applicable performance milestone, bearing interest at the rate of 9% per annum on the principal balance from time to time outstanding under the particular promissory note, convertible at our option into additional shares of NanoSynex in order for us to maintain at least a 50.1% controlling ownership interest in NanoSynex, should NanoSynex issue additional shares. During the year ended December 31, 2022, a total of approximately $2.4 million was funded to NanoSynex, and for the six months ended June 30, 2023 an additional $0.5 million was funded to NanoSynex under the Funding Agreement.
On July 20, 2023, we entered into the NanoSynex Amendment with NanoSynex, which amended the NanoSynex Funding Agreement and our payment obligations under such agreement. Pursuant to the terms of the Nanosynex Amendment, we will make an initial payment of $380,000 to NanoSynex by surrendering the Preferred B shares of NanoSynex held by us, resulting in our ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex. In addition, we also agreed to (i) advance $560,000 to NanoSynex on or before November 30, 2023 (the “First Advance”), against which NanoSynex will issue a promissory note to us with a face value in the amount of such funding, and (ii) advance $670,000 to NanoSynex on or before March 31, 2024 (the “Second Advance,” and, together with the First Advance, the “New Advances”), against which NanoSynex will issue a promissory note to us with a face value in the amount of such funding. In addition, $2,880,000 in promissory notes delivered by NanoSynex to us for advances previously made by us to NanoSynex under the NanoSynex Funding Agreement were canceled.In the event we fail to make the New Advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $1.5716 per share.
The NanoSynex Amendment supersedes any payments contemplated by the NanoSynex Funding Agreement, such that except as described in the NanoSynex Amendment, we will have no further payment obligations to NanoSynex under the NanoSynex Funding Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and NanoSynex will have no further payment obligations to us for advances previously received under the NanoSynex Funding Agreement.
Other Service Agreements
We enter into contracts in the normal course of business, including with clinical sites, contract research organizations, and other professional service providers for the conduct of clinical trials, contract manufacturers for the production of our product candidates, contract research service providers for preclinical research studies, professional consultants for expert advice and vendors for the sourcing of clinical and laboratory supplies and materials. These contracts generally provide for termination on notice, and therefore are cancelable contracts.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (5,562,416 | ) | $ | (7,827,798 | ) | ||
| Investing activities | (246,418 | ) | 71,871 | |||||
| Financing activities | — | 3,859 | ||||||
| Effect of exchange rate on cash | 115,803 | (34,228 | ) | |||||
| Net decrease in cash and restricted cash | $ | (5,693,031 | ) | $ | (7,786,296 | ) | ||
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Net Cash Used in Operating Activities
During the six months ended June 30, 2023, operating activities used $5.6 million of cash, primarily resulting from a net loss of $7.6 million. Cash flows from operating activities (as opposed to net loss) for the six months ended June 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 $0.8 million on convertible debt, $0.9 million in stock-based compensation expense, a $0.9 million increase in accounts payable, a $0.4 million increase in accrued expenses and other current liabilities, a $0.4 million decrease in prepaid expenses and other assets, and depreciation and amortization of $0.2 million. Cash flows from operating activities (as opposed to net loss) for the six months ended June 30, 2023 were negatively impacted by adjustments for a $1.5 million decrease in fair value of warrant liabilities, a $0.2 million decrease in accounts receivable and inventory reserves and allowances, a $0.6 million decrease in R&D grant liability, a $0.2 million decrease in deferred tax liability, and a $0.1 million decrease in operating lease liability.
During the six months ended June 30, 2022, operating activities used $7.8 million of cash, primarily resulting from a net loss of $8.4 million. Cash flows from operating activities (as opposed to net loss) for the six months ended June 30, 2022 benefitted from $2.7 million in stock-based compensation expense, a $0.2 million decrease in net accounts receivable, and depreciation and amortization of $0.2 million. Cash flows from operating activities (as opposed to net loss) for the six months ended June 30, 2022 were negatively impacted by a $0.8 million decrease in accrued expenses and other current liabilities, a $0.6 million increase in prepaid expenses and other assets, $0.3 million increase in net inventory, a $0.7 million decrease in fair value of warrant liabilities and a $0.1 million decrease in operating lease liability.
Net Cash Provided by (Used in) Investing Activities
During the six months ended June 30, 2023, net cash used in investing activities was approximately $0.2 million, due to the purchase of property and equipment.
During the six months ended June 30, 2022, net cash provided by investing activities was approximately $0.1 million, primarily due to $0.7 million in cash acquired in the NanoSynex transaction, offset by the $0.6 million purchase of NanoSynex stock.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2023 was $0.
Net cash provided by financing activities for the six months ended June 30, 2022 was approximately $4,000, due to net proceeds from exercise of warrants.
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 June 30, 2023, the end of the period covered by this Quarterly Report.
Based on this evaluation, our principal executive officer and principal financial officer have concluded that, due to the material weakness described below, our disclosure controls and procedures as of June 30, 2023 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.
| 43 |
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, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework, or 2013 Framework. Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective because of a material weakness in our internal control over financial reporting related to the lack of accounting department resources and/or policies and procedures to ensure recording and disclosure of items in compliance with generally accepted accounting principles. We have taken and continue to take steps to remediate the material weakness, including implementing additional procedures and utilizing external consulting resources with experience and expertise in U.S. GAAP and public company accounting and reporting requirements to assist management with its accounting and reporting of complex and/or non-recurring transactions and related disclosures.
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 2022 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 2022 Annual Report.
We may be classified as a transient investment company.
We are not engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. Under the Investment Company Act, however, a company may be deemed an investment company under Section 3(a)(1)(C) of the Investment Company Act if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis.
We have recently divested certain shares of NanoSynex Ltd. (“NanoSynex”) which has resulted in our ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex. Since we no longer hold a controlling interest in NanoSynex, the investment securities we hold, including our minority interest in NanoSynex, could exceed 40% of our total assets, exclusive of government securities cash items, on an unconsolidated basis, and, accordingly, we could determine that we have become a transient investment company.
A transient investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, Rule 3a-2 under the Investment Company Act, allows a transient investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We are in the process of performing a valuation of our minority investment in Nanosynex to determine whether we need to invoke the grace period. We may take actions to cause the investment securities held by us to be less than 40% of our total assets, which may include acquiring assets with our cash on hand or liquidating our investment securities.
As Rule 3a-2 is available to a company no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being a transient investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of our operations, and we would be very constrained in the kind of business we could do as a registered investment company. Further, we would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in our incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct our operations.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
| 47 |
| 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.
| 48 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| August 14, 2023 | QUALIGEN THERAPEUTICS, INC. | |
| By: | /s/ Michael S. Poirier | |
| Name: | Michael S. Poirier | |
| Title: | Chief Executive Officer | |
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Exhibit 10.1
SEPARATION AGREEMENT AND GENERAL RELEASE
| 1. | Purpose of Agreement: The intent of this Separation Agreement and General Release (“Agreement”) is to amicably and finally resolve and compromise all issues and claims surrounding the employment of Amy Broidrick (“Employee”) with Qualigen, Inc. (“Employer”) and the termination thereof. This Agreement becomes effective on the eighth day after it is executed by Employee (“Effective Date”). |
| 2. | Termination of Employment and Receipt of Compensation and Benefits: Employee’s employment with Employer is terminated on June 16, 2023 (“Termination Date”). Employee acknowledges that on the Termination Date Employee was paid for all unpaid salary and unused vacation time earned through the Termination Date. As of the Termination Date, Employee is no longer eligible to receive further compensation of any kind, including payments for wages, salary, vacation or benefits, and will not represent herself as an employee, officer, agent, or representative of Employer for any purpose. Employee will also no longer serve as a member of Employer’s Board of Directors, or as a member of the Board of Directors of any of Employer’s subsidiaries. |
| 3. | Employer’s Consideration for Agreement: In exchange for the release and agreements that Employee is making in this Agreement, Employer will provide Employee with the following: |
| a) | Base Termination Payments: (A) The total gross amount of $16,636.79, less applicable withholdings for federal and state income and employment taxes, which represents an amount in cash equal to Employee’s accrued but unpaid salary and vacation pay through the Termination Date, and (B) Reimbursement of any expenses incurred by Employee under Section 4 of her Employment Agreement and in accordance with Employer’s expense reimbursement policies. |
Base Terminations Payments will be made in a lump sum within 15 business days of the Effective Date of this Agreement.
| b) | Severance in the form of continued salary pay to Employee at the rate then in effect on the Termination Date for a period of 12 months following the Termination Date, subject to applicable withholdings and otherwise in accordance with Employer’s general payroll practices and policies. |
| c) | Payment or reimbursement to Employee for the cost of COBRA continuation medical and dental insurance coverage for the Employee for a 12 month period following the Termination Date (less any required taxes or withholdings). |
| d) | Any other rights or benefits, to the extent earned and vested as of the Termination Date, under Employer’s employee benefit plans such as Restricted Stock, Stock Bonus, Stock Appreciation Right, Restricted Stock Unit or Performance Awards (“Options”). Employee’s right to exercise her Options ends three (3) months from the Termination Date as described in Employee’s Stock Option Agreement (“Option Agreement”). No additional rights or benefits shall vest after the Termination Date |
| 4. | Employee’s Consideration for Agreement: Employee acknowledges and agrees but for Employee’s execution of this Agreement, Employee would not otherwise be entitled to the benefits described in Section 3. Employee represents and warrants that Employee has returned to Employer all items of property paid for and/or provided for Employee’s use during employment with Employer including, but not limited to, cameras, camera equipment, access badges, keys, books, manuals, laptop, peripherals, smartphone, corporate credit card, software, and company information and documents. Employee also warrants and represents that Employee has returned to Employer all documents (electronic or paper) created and received by Employee during employment with Employer, and that Employee has not retained any such documents, copies, summaries, or excerpts of such documents, except Employee may keep Employee’s personal copies of documents evidencing Employee’s hire, compensation and employee benefits and benefit plan participation, and this letter. |
| 5. | Release of Claims: Employee agrees that the benefits provided for in this Agreement represent settlement in full of all outstanding obligations owed to Employee by Employer and its officers, managers, supervisors, members, agents, and employees. Employee, on Employee’s own behalf, and on behalf of Employee’s heirs, representatives, executors, administrators, attorneys, family members, executors, agents, successors in interest, and assigns, hereby fully, knowingly and forever releases Employer and its past, present and future owners, parents, subsidiaries, divisions, affiliates, future affiliates, related entities, joint ventures, partners and members, including but not limited to Qualigen Therapeutics, Inc., as well as each of their respective past, present and future directors, officers, investors, shareholders, administrators, agents, associates, representatives, employees, attorneys, predecessors, successors and assigns, and any and all of them (the “Releasees”) from any and all liability, actions, causes of action, claims, charges, complaints, demands, grievances, promises, obligations, losses, damages, injuries and legal responsibilities, of any type whatsoever, whether known or unknown, unforeseen, unanticipated, unsuspected or latent, that are based upon, relate to or arise out of any matters of any kind (collectively, “Claims”), that Employee may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation: |
| a) | Any and all claims for wrongful discharge, constructive discharge, or wrongful demotion; |
| b) | Any and all claims relating to any contracts of employment, express or implied, or breach of the covenant of good faith and fair dealing, express or implied; |
| c) | Any and all tort claims of any nature, including but not limited to claims for negligence, defamation, misrepresentation, fraud, or negligent or intentional infliction of emotional distress; |
| d) | Any and all claims for wages, compensation, incentive equity or equity based awards, other benefits, and associated penalties and interest, including but not limited to claims under the state labor laws, state wage orders, and the federal Fair Labor Standards Act; |
| e) | Any and all claims for retaliation or for discrimination or harassment based on sex, race, age, color, national origin, sexual orientation, gender identity and expression, religion, disability, marital status, veteran’s or military status, medical condition, or any other protected characteristic under federal, state or municipal statutes or ordinances; and any and all other employment-related claims whatsoever, including but not limited to claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. Section 1981, the Americans With Disabilities Act, the Employment Retirement Income Security Act, the Family and Medical Leave Act, the Equal Pay Act, the Fair Credit Reporting Act, the Age Discrimination in Employment Act of 1967, the Older Workers’ Benefit Protection Act, the Worker Adjustment and Retraining Notification (WARN) Act and any similar state laws, the Immigration Reform and Control Act, the Occupational Safety and Health Administration, the California Family Rights Act, the California Fair Employment and Housing Act, and the California Labor Code, the California Civil Code, the California Business & Professions Code, the Code of Federal Regulations, the California Code of Regulations, the California Unruh Act, the California Equal Pay Act, and any applicable California Industrial Welfare Commission Order, and any other federal, state, local, or foreign law (statutory, regulatory, or otherwise) that may be legally waived and released; and |
| f) | Any and all claims for attorneys’ fees or costs. |
This release is not intended to encompass claims for workers’ compensation, unemployment benefits, or COBRA rights. Nor is this release intended to prevent Employee from filing a statutory claim concerning employment with Employer or the termination thereof with the federal Equal Employment Opportunity Commission, the National Labor Relations Board, the California Civil Rights Department, or similar government agencies. However, if Employee does so, or if any such claim is prosecuted in Employee’s name before any court or administrative agency, Employee waives and agrees not to take any award of money or other damages from such suit (excepting only any monetary award to which Employee may become entitled pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act).
| 6. | Waiver of Unknown Claims; Civil Code Section 1542: This Agreement is a general release of claims and applies not only to known claims based on facts Employee is currently aware of but also to unknown claims based on facts Employee is not aware of. Employee hereby elects to assume all risks for claims that now exist in his or her favor, known or unknown, arising from the subject matter of this Agreement. Employee confirms that it is Employee’s intention in executing this Agreement to waive and relinquish all rights and benefits to all claims whether presently known or unknown, including any claims that Employee does not know or suspect to exist in his or her favor which, if known by him or her, would have materially affected Employee’s decision to enter into this Agreement. |
Employee represents that Employee is not aware of any claim by Employee other than the claims that are released by this Agreement. Employee acknowledges that Employee has had the opportunity to be advised by legal counsel and is familiar with the provisions of California Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
Employee, being aware of said code section, agrees to expressly waive any rights Employee may have thereunder, as well as under any other statute or common law principles of similar effect.
| 7. | Confidential Information: Employee agrees not to, except as authorized by Employer in writing, or as required by any law, rule, or regulation after providing prior written notice to Employer with sufficient time for Employer to object to production or disclosure, or to quash subpoenas related to the same, disclose to any other person, firm, company, or any other entity any confidential and proprietary information, knowledge, or data of Employer or that of third parties obtained by Employee during her employment with Employer. “Confidential and proprietary information” includes, but is not limited to, know-how, trade secrets, and technical, business and financial information and any other non-public information in any way learned by Employee during her employment with Employer, including, but not limited to (i) prices, renewal dates and other detailed terms of customer or supplier contracts and proposals; (ii) information concerning Employer’s customers, clients, referral sources and vendors, and potential customers, clients, referral sources and vendors, including, but not limited to, names of these entities or their employees or representatives, preferences, needs or requirements, purchasing or sales histories, or other customer or client-specific information; (iii) supplier and distributor lists; (iv) pricing policies, methods of delivering services and products, and marketing and sales plans or strategies; (v) products, product know-how, product technology and product development strategies and plans; (vi) employee personnel or payroll records or information (except as to Employee herself); (vii) forecasts, budgets and other non-public financial information; (viii) expansion plans, management policies and other business strategies; (ix) inventions, research, development, manufacturing, purchasing, finance processes, technologies, machines, computer software, computer hardware, automated systems, engineering, marketing, merchandising, and selling; and (x) any information whatsoever about the business and practices of Employer that was obtained by Employee during the course of her employment with Employer. |
| 8. | Confidentiality of Agreement: Employee agrees that the terms and conditions of this Agreement are strictly confidential. Employee shall not disclose, discuss or reveal the existence or the terms of this Agreement to any persons, entities or organizations except as follows: (a) as required by court order; (b) to Employee’s spouse; or (c) to Employee’s attorneys or accountants. Employee understands and agrees that all prior confidentiality agreements between Employee and Employer shall continue and will remain in full force and effect at all times after the Termination Date. Notwithstanding the foregoing, nothing in this Agreement prevents Employee from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that Employee has reason to believe is unlawful. |
Further, Employee shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, in the event that Employee files a lawsuit for retaliation by Employer for reporting a suspected violation of law, Employee may disclose the trade secret to Employee’s attorney and use the trade secret information in the court proceeding, if Employee: (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
| 9. | Interpretation and Construction of Agreement: This Agreement shall in all respects be interpreted, enforced, and governed by and in accordance with the internal substantive laws (and not the laws of choice of laws) of the state of California. Regardless of which party initially drafted this Agreement, it shall not be construed against any one party, and shall be construed and enforced as a mutually prepared Agreement. |
| 10. | No Admission of Liability: By entering into this Agreement, Employer is not admitting to any liability, wrongdoing or legal violation whatsoever with regard to the employment relationship between the parties or with respect to any claims released herein. Employer expressly denies any and all such liability and wrongdoing. |
| 11. | Acknowledgement of Waiver of Claims Under ADEA; Waiting Period: Pursuant to the Age Discrimination in Employment Act of 1967 (the “ADEA”) and the Older Workers’ Benefit Protection Act, Employer hereby advises Employee to consult with an attorney prior to signing this Agreement. Employer also advises Employee that Employee has up to forty-five (45) days within which to consider whether Employee should sign this Agreement (and the parties agree that changes, whether material or immaterial, do not restart the running of this forty-five (45) day period). To the extent that Employee takes less than forty-five (45) days to consider this Agreement prior to execution, Employee acknowledges that Employee had sufficient time to consider this Agreement and that Employee expressly, voluntarily and knowingly waives any additional time. In addition, should Employee choose to sign the Agreement, Employee shall have seven (7) days following the date on which she signed the Agreement to revoke it, by delivering written notice of the revocation to Qualigen, Inc. Attn: Chris Lotz, 2042 Corte Del Nogal Ste. B, Carlsbad, CA 92011 (clotz@qualigeninc.com), for receipt within the seven-day period. This Agreement does not become effective until after this seven-day period has elapsed. Nothing in this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs from doing so, unless specifically authorized by federal law. |
| 12. | Non-disparagement: Employee agrees that Employee will not, nor will cause or cooperate with others to, publicly criticize, ridicule, disparage or defame the Employer or its products, services, policies, directors, officers, managers, members, shareholders, or employees, or any other Releasees, with or through any written or oral statement or image, including, but not limited to, any statements made via websites, blogs, postings to the internet, or emails, whether or not they are made anonymously or through the use of a pseudonym. Employee agrees to provide full cooperation and assistance in assisting the Employer to investigate such statements if the Employer reasonably believes that the Employee is the source of the statements. The foregoing does not apply to statutorily privileged statements made to governmental or law enforcement agencies. Additionally, Employee agrees Employee shall not visit the office or facility locations, nor contact members of the Employer without prior written permission from/by the Chief Executive Officer or Employer’s authorized representative. Notwithstanding the foregoing, nothing in this Agreement prevents Employee from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that Employee has reason to believe is unlawful. |
| 13. | Complete and Voluntary Agreement: Employee acknowledges that Employee has read and understands this Agreement; that Employee has had the opportunity to seek legal counsel of Employee’s own choosing and to have the terms of the Agreement fully explained to Employee; that Employee is not executing this Agreement in reliance on any promises, representations or inducements other than those contained herein; and that Employee is executing this Agreement voluntarily, free of any duress or coercion. Employee specifically understands that by entering into this Agreement Employee is forever foreclosed from pursuing any of the claims Employee has waived in Section 5 above. |
| 14. | Savings Clause: Should any of the provisions of this Agreement be determined to be invalid or unenforceable by a court or government agency of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of the other provisions herein. |
| 15. | Scope of Agreement: This Agreement constitutes the entire understanding of the parties on the subjects covered. Except as expressly provided herein, this Agreement supersedes and renders null and void any and all prior agreements between Employee and Employer. |
| 16. | Waiver: The failure of Employer or Employee to insist upon strict adherence to any term of this Agreement on any occasion will not be considered a waiver thereof, or deprive that Party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. |
| 17. | Attorneys’ Fees and Costs: Employer and Employee agree that they will bear their own respective costs and fees, including attorneys’ fees, in connection with the negotiation and execution of this Agreement. |
| 18. | Arbitration: The parties agree that any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of or relating to this Agreement or the breach thereof will be submitted to and settled by final and binding arbitration before the American Arbitration Association (AAA) pursuant to its employment arbitration rules and procedures, in accordance with the Federal Arbitration Act, with the arbitration to take place in the state of California. Each side will bear its own attorneys’ fees in any such arbitration, and the arbitrator shall not have authority to award attorneys’ fees unless a statutory section at issue in the dispute authorizes the award of attorneys’ fees to the prevailing party, in which case the arbitrator has the authority to make such award as permitted by the statute in question. The parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury. |
PLEASE READ CAREFULLY. THIS AGREEMENT CONTAINS A FULL RELEASE OF LEGAL CLAIMS, BOTH KNOWN CLAIMS AND UNKNOWN CLAIMS. EMPLOYEE ACKNOWLEDGES THAT HER SIGNATURE WILL NOT BE AFFIXED TO THIS AGREEMENT PRIOR TO HER TERMINATION DATE.
| Dated: ___6/17/2023_________ | ______/s/ Amy Broidrick_____________ Employee Signature ______Amy Broidrick_______________ Employee Name (Printed) |
| Dated: ___6/20/2023_________ | ______/s/ Christopher Lotz____ Employer Representative Signature
Christopher Lotz Employer Representative Signature (Printed) |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael S. Poirier, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Qualigen Therapeutics, Inc., a Delaware corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 14, 2023 | By: | /s/ Michael S. Poirier |
| Name: | Michael S. Poirier | |
| Title: | Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher L. Lotz, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Qualigen Therapeutics, Inc., a Delaware corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 14, 2023 | By: | /s/ Christopher L. Lotz |
| Name: | Christopher L. Lotz | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, Michael S. Poirier, Chief Executive Officer of Qualigen Therapeutics, Inc., a Delaware corporation (the “Company”), and Christopher L. Lotz, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, to his knowledge (1) the quarterly report on Form 10-Q of the Company for the three months ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 14, 2023
| By: | /s/ Michael S. Poirier | |
| Name: | Michael S. Poirier | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
August 14, 2023
| By: | /s/ Christopher L. Lotz | |
| Name: | Christopher L. Lotz | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
These certifications accompanying and being “furnished” with this Report, shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 225,000,000 | 225,000,000 |
| Common stock, shares issued | 5,052,463 | 4,210,737 |
| Common stock, shares outstanding | 5,052,463 | 4,210,737 |
Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| REVENUES | ||||
| Total revenues | $ 1,627,031 | $ 1,430,534 | $ 3,234,201 | $ 2,152,563 |
| EXPENSES | ||||
| Cost of product sales | 1,016,542 | 1,099,677 | 2,281,368 | 1,928,524 |
| General and administrative | 2,665,849 | 2,660,857 | 4,380,283 | 5,559,608 |
| Research and development | 1,326,544 | 1,506,227 | 3,448,095 | 3,370,972 |
| Sales and marketing | 169,223 | 305,103 | 368,337 | 443,426 |
| Total expenses | 5,178,158 | 5,571,864 | 10,478,083 | 11,302,530 |
| LOSS FROM OPERATIONS | (3,551,127) | (4,141,330) | (7,243,882) | (9,149,967) |
| OTHER EXPENSE (INCOME), NET | ||||
| Gain on change in fair value of warrant liabilities | (440,294) | (14,800) | (1,478,967) | (698,042) |
| Interest expense (income), net | 377,416 | (4,824) | 921,652 | (11,132) |
| Loss on voluntary conversion of convertible debt | 1,077,287 | |||
| Loss on disposal of equipment held for lease | 63,302 | 63,302 | ||
| Other income, net | (5,680) | 376 | (10,559) | 341 |
| Loss on fixed asset disposal | 300 | |||
| Total other expense (income), net | (5,256) | (19,248) | 573,015 | (708,833) |
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (3,545,871) | (4,122,082) | (7,816,897) | (8,441,134) |
| (BENEFIT) PROVISION FOR INCOME TAXES | (38,182) | 5,438 | (201,959) | 6,173 |
| Net loss | (3,507,689) | (4,127,520) | (7,614,938) | (8,447,307) |
| Net loss attributable to noncontrolling interest | (43,484) | (4,116) | (304,512) | (4,116) |
| Net loss attributable to Qualigen Therapeutics, Inc. | $ (3,464,205) | $ (4,123,404) | $ (7,310,426) | $ (8,443,191) |
| Net loss per common share, basic | $ (0.69) | $ (1.12) | $ (1.46) | $ (2.35) |
| Net loss per common share, diluted | $ (0.69) | $ (1.12) | $ (1.46) | $ (2.35) |
| Weighted—average number of shares outstanding, basic | 5,052,463 | 3,668,016 | 5,006,050 | 3,599,093 |
| Weighted-average number of shares outstanding, diluted | 5,052,463 | 3,668,016 | 5,006,050 | 3,599,093 |
| Other comprehensive loss, net of tax | ||||
| Foreign currency translation adjustment | $ (56,747) | $ 65,540 | $ 119,473 | $ 65,540 |
| Other comprehensive loss | (3,564,436) | (4,061,980) | (7,495,465) | (8,381,767) |
| Comprehensive loss attributable to noncontrolling interest | (43,484) | (4,116) | (304,512) | (4,116) |
| Comprehensive loss attributable to Qualigen Therapeutics, Inc. | (3,520,952) | (4,057,864) | (7,190,953) | (8,377,651) |
| Net Product Sales [Member] | ||||
| REVENUES | ||||
| Total revenues | $ 1,627,031 | $ 1,430,534 | $ 3,234,201 | $ 2,152,563 |
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
AOCI Attributable to Parent [Member] |
Retained Earnings [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 35,290 | $ 101,274,073 | $ (84,744,629) | $ 16,564,734 | $ 16,564,734 | ||
| Balance, shares at Dec. 31, 2021 | 3,529,018 | ||||||
| Stock-based compensation | 1,267,166 | 1,267,166 | 1,267,166 | ||||
| Net loss | (4,319,787) | (4,319,787) | (4,319,787) | ||||
| Stock issued upon exercise of warrants | $ 5 | 4,711 | 4,716 | 4,716 | |||
| Stock issued upon exercise of warrants, shares | 536 | ||||||
| Ending balance, value at Mar. 31, 2022 | $ 35,295 | 102,545,950 | (89,064,416) | 13,516,829 | 13,516,829 | ||
| Balance, shares at Mar. 31, 2022 | 3,529,554 | ||||||
| Beginning balance, value at Dec. 31, 2021 | $ 35,290 | 101,274,073 | (84,744,629) | 16,564,734 | 16,564,734 | ||
| Balance, shares at Dec. 31, 2021 | 3,529,018 | ||||||
| Net loss | (8,447,307) | ||||||
| Ending balance, value at Jun. 30, 2022 | $ 38,795 | 107,557,744 | 65,540 | (93,187,820) | 14,474,259 | 3,995,884 | 18,470,143 |
| Balance, shares at Jun. 30, 2022 | 3,879,554 | ||||||
| Beginning balance, value at Mar. 31, 2022 | $ 35,295 | 102,545,950 | (89,064,416) | 13,516,829 | 13,516,829 | ||
| Balance, shares at Mar. 31, 2022 | 3,529,554 | ||||||
| Stock-based compensation | 1,423,282 | 1,423,282 | 1,423,282 | ||||
| Foreign currency translation adjustment | 65,540 | 65,540 | 65,540 | ||||
| Net loss | (4,123,404) | (4,123,404) | (4,116) | (4,127,520) | |||
| Common stock issued for business acquisition | $ 3,500 | 1,841,000 | 1,844,500 | 1,844,500 | |||
| Common stock issued shares for business acquisition | 350,000 | ||||||
| Prefunded warrants issued for business acquisition | 1,746,816 | 1,746,816 | 1,746,816 | ||||
| Estimated fair value of noncontrolling interest related to business acquisition | 4,000,000 | 4,000,000 | |||||
| Fair value of warrant modification for business acquisition | 696 | 696 | 696 | ||||
| Ending balance, value at Jun. 30, 2022 | $ 38,795 | 107,557,744 | 65,540 | (93,187,820) | 14,474,259 | 3,995,884 | 18,470,143 |
| Balance, shares at Jun. 30, 2022 | 3,879,554 | ||||||
| Beginning balance, value at Dec. 31, 2022 | $ 42,110 | 110,528,050 | 50,721 | (103,385,172) | 7,235,709 | 1,530,881 | 8,766,590 |
| Balance, shares at Dec. 31, 2022 | 4,210,737 | ||||||
| Voluntary conversion of convertible debt into common stock | $ 842 | 1,111,740 | 1,112,582 | 1,112,582 | |||
| Voluntary conversion of convertible debt into common stock, shares | 841,726 | ||||||
| Stock-based compensation | 247,657 | 247,657 | 4,569 | 252,226 | |||
| Foreign currency translation adjustment | 119,723 | 119,723 | 56,497 | 176,220 | |||
| Net loss | (3,846,221) | (3,846,221) | (261,028) | (4,107,249) | |||
| Ending balance, value at Mar. 31, 2023 | $ 42,952 | 111,887,447 | 170,444 | (107,231,393) | 4,869,450 | 1,330,919 | 6,200,369 |
| Balance, shares at Mar. 31, 2023 | 5,052,463 | ||||||
| Beginning balance, value at Dec. 31, 2022 | $ 42,110 | 110,528,050 | 50,721 | (103,385,172) | 7,235,709 | 1,530,881 | 8,766,590 |
| Balance, shares at Dec. 31, 2022 | 4,210,737 | ||||||
| Net loss | (7,614,938) | ||||||
| Ending balance, value at Jun. 30, 2023 | $ 42,952 | 112,554,830 | 131,891 | (110,695,598) | 2,034,075 | 1,273,969 | 3,308,044 |
| Balance, shares at Jun. 30, 2023 | 5,052,463 | ||||||
| Beginning balance, value at Mar. 31, 2023 | $ 42,952 | 111,887,447 | 170,444 | (107,231,393) | 4,869,450 | 1,330,919 | 6,200,369 |
| Balance, shares at Mar. 31, 2023 | 5,052,463 | ||||||
| Stock-based compensation | 667,383 | 667,383 | 4,728 | 672,111 | |||
| Foreign currency translation adjustment | (38,553) | (38,553) | (18,194) | (56,747) | |||
| Net loss | (3,464,205) | (3,464,205) | (43,484) | (3,507,689) | |||
| Ending balance, value at Jun. 30, 2023 | $ 42,952 | $ 112,554,830 | $ 131,891 | $ (110,695,598) | $ 2,034,075 | $ 1,273,969 | $ 3,308,044 |
| Balance, shares at Jun. 30, 2023 | 5,052,463 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES | NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Organization
Qualigen, Inc., a subsidiary of Qualigen Therapeutics, Inc., was incorporated in Minnesota in 1996 to design, develop, manufacture and sell point-of-care quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and was reincorporated in Delaware in 1999. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment. In May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and Ritter was renamed Qualigen Therapeutics, Inc. All shares of Qualigen, Inc.’s capital stock were exchanged for Qualigen Therapeutics, Inc.’s capital stock in the merger. Ritter/Qualigen Therapeutics common stock, which was previously traded on the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, on a post-reverse-stock-split adjusted basis, under the trading symbol “QLGN” on May 26, 2020.
On May 26, 2022, the Company acquired shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”), a related party, in exchange for reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share. These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, the Company also purchased shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a micro-biologics diagnostics company domiciled in Israel. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), Regulation S-X and rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar, however for NanoSynex, the functional currency is the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex are translated into U.S. dollars and the effects of foreign currency translation adjustments are reflected as a component of accumulated other comprehensive income within the Company’s consolidated statements of changes in stockholders’ equity.
Accounting Estimates
Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of in-process research and development, goodwill, warrant liabilities, stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs. Actual results could vary from the estimates that were used.
Reverse Stock Split
On November 23, 2022, the Company effected a 1-for-10, as determined by the Company’s board of directors, reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
Cash
The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents. Restricted cash includes cash that is restricted due to Israeli banking regulations.
The Company maintains the majority of its cash in government money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed the FDIC insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and Signature Bank, and more recently in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the Federal Deposit Insurance Corporation (FDIC). While the Company did not have an account at any of these banks, in the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
Inventory, Net
Inventory is recorded at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company reviews the components of its inventory on a periodic basis for excess or obsolete inventory, and records reserves for inventory components identified as excess or obsolete.
Impairment of Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. During the three and six months ended June 30, 2023 and 2022, no such impairment losses have been recorded.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily within the United States and Israel.
Accounts Receivable, Net
The Company grants credit to domestic physicians, clinics, and distributors. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. Customers can purchase certain products through a financing agreement that the Company has with an outside leasing company. Under the agreement, the leasing company evaluates the credit worthiness of the customer. Upon acceptance of the product by the customer, the leasing company remits payment to the Company at a discount. This financing arrangement is without recourse to the Company.
The Company records an allowance for doubtful accounts and returns equal to the estimated uncollectible amounts or expected returns. The Company’s estimates are based on historical collections and returns and a review of the current status of trade accounts receivable.
Accounts receivable, net is comprised of the following at:
Research and Development
Except for acquired in process research and development (IPR&D), the Company expenses research and development costs as incurred including therapeutics license costs.
R&D Grants
NanoSynex has received R&D grants from Israel Innovation Authority (IIA) and from the European Commission. These grants may provide cash funding to NanoSynex from time to time in advance of the applicable costs being incurred. When such cash funding is received from these grants in advance, the proceeds are recorded as a current or non-current R&D grant liability based on the time from the condensed consolidated balance sheets date to the expected future date of recognition as a reduction to research and development expenses.
Patent Costs
The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated statement of operations.
Shipping and Handling Costs
The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound and outbound freight are generally recorded in cost of sales which totaled approximately $78,000 and $72,000, respectively, for the three months ended June 30, 2023 and 2022, and approximately $144,000 and $111,000, respectively, for the six months ended June 30, 2023 and 2022. Other shipping and handling costs included in general and administrative, research and development, and sales and marketing expenses were $0 and $4,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $4,000 and $8,000 for the six months ended June 30, 2023 and 2022, respectively.
Revenue from Contracts with Customers
The Company applies the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Product Sales
The Company generates revenue from selling FastPack System analyzers, accessories and disposable products used with the FastPack System. Disposable products include reagent packs, which are diagnostic tests for prostate-specific antigen, testosterone, thyroid disorders, pregnancy, and Vitamin D.
The Company provides disposable products and equipment in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposable products and equipment at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment (“analyzer”) has been provided to the customer. The initial delivery of the equipment and reagent packs represents a single performance obligation and is completed upon receipt by the customer. The delivery of each subsequent individual reagent pack represents a separate performance obligation because the reagent packs are standardized, are not interrelated in any way, and the customer can benefit from each reagent pack without any other product. There are no significant discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 days.
The performance obligation arising from the delivery of the equipment is satisfied upon the delivery of the equipment to the customer. The disposable products are shipped Free on Board (“FOB”) shipping point. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, thus the customer obtains control and revenue is recognized at that point in time.
The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfill the promise to transfer the disposable products and not as a separate performance obligation.
The Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.
Contract Asset and Liability Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by the Company’s customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the performance of the related services, the Company records deferred revenue until the performance obligations are satisfied.
Multiple performance obligations include contracts that combine both the Company’s analyzer and a customer’s future reagent purchases under a single contract. In some sales contracts, the Company provides analyzers at no charge to customers. Title to the analyzer is maintained by the Company and the analyzer is returned by the customer to the Company at the end of the purchase agreement.
During the three months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $28,000 and $10,000, respectively. During the six months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $33,000 and $53,000, respectively.
Deferred Revenue
Payments received in advance from customers pursuant to certain collaborative research license agreements, deposits against future product sales, multiple element arrangements and extended warranties are recorded as a current or non-current deferred revenue liability based on the time from the condensed consolidated balance sheets date to the future date of revenue recognition.
Operating Leases
Effective April 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842. (See Note 12 - Commitments and Contingencies for more information).
Property and Equipment, Net
Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company occasionally designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other direct costs attributable to the construction, are capitalized as construction in progress. No provision for depreciation is made on construction in progress until the relevant assets are completed and placed in service.
The Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or when conditions are present that indicate impairment.
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in Qualigen’s financial results beginning on the respective acquisition date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired, when accounted for using the purchase method of accounting. Goodwill has an indefinite useful life and is not amortized but is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. In testing for impairment, the fair value of the reporting unit is compared to the carrying value. If the net assets assigned to the reporting unit exceed the fair value of the reporting unit, an impairment loss equal to the difference is recorded. As a result of the annual goodwill impairment analysis, the Company recognized a $4,239,000 non-cash goodwill and fixed asset impairment charge in the valuation of its business acquisition of NanoSynex for the fiscal year ended December 31, 2022. There were no impairment losses during the three and six months ended June 30, 2023 and 2022.
Intangible Assets
In Process R&D
Acquired in process R&D (IPR&D) represents the fair value assigned to the research and development assets that have not reached technological feasibility. The value assigned to IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing the new product. Additionally, projections consider relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions. The rates utilized to discount the net cash flow to its present value are commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections. Upon the acquisition of acquired IPR&D, an assessment is completed as to whether the acquisition constitutes an acquisition of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.
If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s condensed consolidated statements of operations and other comprehensive income (loss) as they are incurred.
IPR&D is evaluated for impairment annually using the same methodology as described above for calculating fair value. If the carrying value of the acquired IPR&D exceeds the fair value, then the intangible asset is written down to its fair value, with the resulting adjustment recorded as a charge to operations. Changes in estimates and assumptions used in determining the fair value of acquired IPR&D could result in an impairment.
Other Intangible Assets, Net
Other intangible assets consist of patent-related costs and costs for license agreements. Management reviews the carrying value of other intangible assets that are being amortized on an annual basis or sooner when there is evidence that events or changes in circumstances may indicate that impairment exists. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized can be recovered.
If the Company determines that the carrying value of other intangible assets will not be recovered from the undiscounted future cash flows expected to result from the use and eventual disposition of the underlying assets, the Company considers the carrying value of such intangible assets as impaired and reduces them by a charge to operations in the amount of the impairment.
Costs related to acquiring patents and licenses are capitalized and amortized over their estimated useful lives, which is generally 5 to 17 years, using the straight-line method. Amortization of patents and licenses commences once final approval of the patent or license has been obtained. Patent and license costs are charged to operations if it is determined that the patent or license will not be obtained.
Derivative Financial Instruments and Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and other comprehensive income (loss). Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 9- Warrant Liabilities).
Fair Value Measurements
The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Fair Value of Financial Instruments
Cash, accounts receivable, prepaids, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.
Comprehensive Loss
Comprehensive loss consists of net income and foreign currency translation adjustments. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity for all periods presented.
Stock-Based Compensation
Stock-based compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility, lower risk-free interest rates, and longer expected lives would result in an increase to stock-based compensation expense to employees and non-employees determined at the date of grant.
Income Taxes
Deferred income taxes are recognized for temporary differences in the basis of assets and liabilities for financial statement and income tax reporting that arise due to net operating loss carry forwards, research and development credit carry forwards and from using different methods and periods to calculate depreciation and amortization, allowance for doubtful accounts, accrued vacation, research and development expenses, and state taxes. A provision has been made for income taxes due on taxable income and for the deferred taxes on the temporary differences.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of the deferred income tax asset is dependent on generating sufficient taxable income in future years.
Sales and Excise Taxes
Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with corresponding tax payable. These balances are removed from the condensed consolidated balance sheet as cash is collected from customers and remitted to the tax authority.
Warranty Costs
The Company’s warranty policy generally provides for one year of coverage against defects and nonperformance within published specifications for sold analyzers and for the term of the contract for equipment held for lease. The Company accrues for estimated warranty costs in the period in which the revenue is recognized based on historical data and the Company’s best estimates of analyzer failure rates and costs to repair.
Accrued warranty liabilities were approximately $140,000 and $138,000, respectively, as of June 30, 2023 and December 31, 2022 and are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Warranty costs were approximately $63,000 and $22,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $104,000 and $41,000 for the six months ended June 30, 2023 and 2022, respectively, and are included in cost of product sales in the condensed consolidated statements of operations and other comprehensive loss.
Foreign Currency Translation
The functional currency for the Company is the U.S. dollar. The functional currency for NanoSynex, the Company’s newly acquired majority owned subsidiary, is the New Israeli Shekel (NIS). The financial statements of NanoSynex are translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex is reflected as a separate component of other comprehensive income (loss).
Other comprehensive loss related to the effects of foreign currency translation adjustments attributable to NanoSynex was ($56,747) and $65,540 for the three months ending June 30, 2023 and 2022, respectively, and $119,473 and $65,540 for the six months ending June 30, 2023 and 2022, respectively.
War in Ukraine
In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
Inflation and Global Economic Conditions
During the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, our business would be adversely affected.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of the pandemic sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. For 2023 we continue to experience recovery in demand.
Other accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s condensed consolidated financial statements.
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LIQUIDITY |
6 Months Ended |
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Jun. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| LIQUIDITY | NOTE 2 — LIQUIDITY
As of June 30, 2023, we had approximately $1.3 million in cash and an accumulated deficit of $110.7 million. For the six months ended June 30, 2023 and year ended December 31, 2022, we used cash of $5.6 million and $13.2 million, respectively, in operations.
On July 20, 2023, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Chembio Diagnostics, Inc. (“Chembio”), Biosynex, S.A. and Qualigen, Inc., a wholly-owned subsidiary of the Company (see Note 16 - Subsequent Events). Pursuant to the Purchase Agreement, the Company agreed to sell to the Buyer all of the issued and outstanding shares of common stock (collectively, the “Shares”) of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business (the “Transaction”). The Transaction closed on July 20, 2023. Following the consummation of the Transaction, our Qualigen, Inc. subsidiary became a wholly-owned subsidiary of Chembio.
The aggregate net purchase price paid to the Company for the Shares was $5.2 million in cash, based on a base purchase price of $ million, subject to certain post-closing adjustments, upward or downward, as applicable, for: (i) cash held by Qualigen, Inc. as of the closing of the Transaction; (ii) net working capital of Qualigen, Inc. as of the closing of the Transaction, (iii) certain indebtedness of Qualigen, Inc. as of the closing of the Transaction, and (iv) certain Transaction expenses as of the closing of the Transaction. Of the $5.2 million in cash, $450,000 is being held in escrow to satisfy certain Company indemnification obligations (the “Indemnity Escrow”). Any amounts remaining in the Indemnity Escrow that have not been offset or reserved for claims will be released to the Company within five business days following the date that is 18 months after the closing.
The Company’s cash balances as of the date that these financial statements were issued along with the proceeds from the above sale to Chembio, without additional financing, are expected to fund operations into the first quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which over time will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.
There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis. In order to fully execute its business plan, the Company will require significant additional financing for planned research and development activities, capital expenditures, clinical testing for its QN-302 clinical trials, preclinical development of RAS and QN-247, and funding for NanoSynex operations, as well as commercialization activities.
Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2021, the Company raised $8.8 million from the issuance of common stock to several institutional investors, and in December 2022 the Company raised $3.0 million from the sale of an 8% Senior Convertible Debenture (the “Debenture”) to a related party (see Note 10 - Convertible Debt - Related Party). There can be no assurance that further financing can be obtained on favorable terms, or at all. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.
On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex.
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $ per share.
To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of its 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 the Company raises additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company. Additional funding may not be available to the Company on acceptable terms, or at all. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha Capital, the holder of the Debenture, or trigger certain adjustments to the Debenture or warrants held by Alpha Capital.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements
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INVENTORY, NET |
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY, NET | NOTE 3— INVENTORY, NET
Inventory, net consisted of the following at June 30, 2023 and December 31, 2022:
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PREPAID EXPENSES AND OTHER CURRENT ASSETS |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES AND OTHER CURRENT ASSETS | NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at June 30, 2023 and December 31, 2022:
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PROPERTY AND EQUIPMENT, NET |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, NET | NOTE 5 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at June 30, 2023 and December 31, 2022:
Depreciation expense relating to property and equipment was approximately $19,000 and $24,000 for the three months ended June 30, 2023 and 2022, respectively, and $37,000 and $48,000 for the six months ended June 30, 2023 and 2022, respectively.
Upon termination of the Sekisui Distribution Agreement on March 31, 2022, the Company had a commitment to purchase leased FastPack rental systems back from Sekisui at Sekisui’s net book value, which was determined to be approximately $154,000. An assignment agreement was executed by the parties on June 26, 2023 to legally transfer title to this equipment from Sekisui to the Company, and this amount is included in accounts payable at June 30, 2023.
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GOODWILL, IPR&D AND OTHER INTANGIBLES |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL, IPR&D AND OTHER INTANGIBLES | NOTE 6 — GOODWILL, IPR&D AND OTHER INTANGIBLES
The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. Goodwill is attributable to the NanoSynex Acquisition. Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed, from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for goodwill and intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company determined that the fair value of the reporting unit was less than the carrying value. In addition to continued losses in the reporting unit, the Company considered macroeconomic conditions including a deterioration in the equity markets evidenced by sustained declines in the Company’s stock price, peer companies, and major market indices since the acquisition date. The Company engaged independent valuation experts to assist in determining the fair value of the reporting unit. As a result of this analysis, the Company recorded a $4,239,000 goodwill and fixed asset impairment charge associated with the reporting unit for fiscal year ended December 31, 2022. There were no impairment losses during the three and six months ended June 30, 2023 and 2022.
The carrying value of the patents of approximately $131,000 and $140,000 at June 30, 2023 and December 31, 2022, respectively, are stated net of accumulated amortization of approximately $348,000 and $339,000, respectively. Amortization of patents charged to operations for the three months ended June 30, 2023 and 2022 was approximately $9,000 and $5,000 respectively, and for the six months ended June 30, 2023 and 2022 was approximately $9,000 and $9,000, respectively.
The carrying value of the in-licenses of approximately $2,000 and $5,000 at June 30, 2023 and December 31, 2022, respectively, are stated net of accumulated amortization of approximately $417,000 and $414,000, respectively, and amortization of licenses charged to both the three months ended June 30, 2023 and 2022 was approximately $3,000. Amortization of licenses charged to operations for both the six months ended June 30, 2023 and 2022 was approximately $3,000.
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. (see Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A.). Therefore, there is no future estimated amortization of patent and license costs for the succeeding years.
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
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| ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | NOTE 7 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at June 30, 2023 and December 31, 2022:
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SHORT TERM DEBT-RELATED PARTY |
6 Months Ended |
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Jun. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| SHORT TERM DEBT-RELATED PARTY | NOTE 8 – SHORT TERM DEBT-RELATED PARTY
NanoSynex has four separate Notes Payable (‘the Notes”) outstanding to Alpha Capital, dated between March 26, 2020 and September 2, 2021, aggregating to a total principal outstanding balance of $905,000, and aggregate accrued interest of $60,155 for a total outstanding balance of $965,155 as of June 30, 2023. The Notes all accrue interest at 2.62% per annum, accrued daily, and provide that the full amount of principal and interest under each Note shall be due immediately prior to a Liquidation Event (the Maturity Date) unless due earlier in accordance with the terms of the Notes. “Liquidation Event” means either i) the merger or consolidation of NanoSynex into any other entity, other than one in control or under control of NanoSynex or NanoSynex’s majority shareholder; ii) a transaction or series of transactions resulting in the transfer of all or substantially all of NanoSynex’s assets or issued and outstanding share capital (other than to a company under the control of NanoSynex or NanoSynex’s majority shareholders; or iii) an underwritten public offering by NanoSynex of its ordinary shares. Notwithstanding the above, if NanoSynex receives subsequent debt, convertible debt, or equity funding with gross proceeds of USD $3,000,000 or more, then the unused portion of these Notes shall be due and payable upon the actual receipt of such funding. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
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WARRANT LIABILITIES |
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| Warrant Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WARRANT LIABILITIES | NOTE 9 – WARRANT LIABILITIES
In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, pursuant to the Series C Warrant terms as adjusted.
In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase shares of the Company’s common stock at $7.195 per share, subject to adjustment. As of June 30, 2023, the Series C Warrants have remaining terms ranging from .40 to .99 years. 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. On April 25, 2022, the Series C Warrants were repriced from $7.195 to $6.00 with additional ratchet Warrants issued, and on May 26, 2022, the Series C Warrants were repriced from $6.00 to $5.136 with additional ratchet Warrants issued. As a result of these repricings, warrants were forfeited and warrants were reissued. On December 22, 2022, the Series C Warrants were repriced again from $5.136 to $1.32 with additional ratchet Warrants issued.
Additionally, on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha Capital (see Note 10 – Convertible Debt – Related Party), the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time on or after June 22, 2023 and before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant, including the Company’s receipt of the necessary stockholder approvals.
The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2023:
The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2022:
The following table presents the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis as of June 30, 2023:
There were no transfers of financial assets or liabilities between category levels for the three and six months ended June 30, 2023.
The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.
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 June 30, 2023 and 2022:
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CONVERTIBLE DEBT- RELATED PARTY |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| CONVERTIBLE DEBT- RELATED PARTY | NOTE 10 — CONVERTIBLE DEBT- RELATED PARTY
On December 22, 2022, the Company issued to Alpha Capital, an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture is convertible, at any time, and from time to time, at Alpha Capital’s option, into shares of common stock of the Company (the “Conversion Shares”), at a price equal to $1.32 per share, subject to adjustment as described in the Debenture (the “Conversion Price”) and other terms and conditions described in the Debenture, including the Company’s receipt of the necessary stockholder approvals. Additionally, on December 22, 2022, the Company issued to Alpha Capital a liability classified warrant to purchase 2,500,000 shares of the Company’s common stock (see Note 9 - Warrant Liabilities). The exercise price of the Alpha Warrant is $1.65 (equal to 125% of the Conversion Price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha Capital, in whole or in part, at any time on or after June 22, 2023 and before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant, including the Company’s receipt of the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders.
The proceeds from the transaction are being used to advance the Company’s QN-302 Investigative New Drug candidate towards clinical trials and other working capital purposes.
Commencing June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the Debenture (each such date, a “Monthly Redemption Date”), the Company will redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount will be paid in cash; provided that after the first two monthly redemptions, the Company may elect to pay all or a portion of a Monthly Redemption Amount in shares of common stock of the Company, based on a Conversion Price equal to the lesser of (i) the then Conversion Price of the Debenture and (ii) 85% of the average of the VWAPs (as defined in the Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The Company may also redeem some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to 105% of the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. The Company’s election to pay monthly redemptions in Conversion Shares or to effect an optional redemption is subject to the satisfaction of the Equity Conditions (as defined in the Debenture), including the Company’s receipt of the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders.
The Debenture accrues interest at the rate of 8% per annum, which does not begin accruing until December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock of the Company or a combination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions have been satisfied, including the Company’s receipt of the necessary stockholder approvals, which the Company obtained at its 2023 annual meeting of stockholders.
Both the Debenture and the Alpha Warrant provide for adjustments to the Conversion Price and exercise price, respectively, in connection with stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain fundamental transactions. Both the Debenture and the Alpha Warrant include a beneficial ownership blocker of 9.99%, which may only be waived by Alpha Capital upon 61 days’ notice to the Company.
The Company filed a registration statement on Form S-3 (No. 333-269088) with the Securities and Exchange Commission on December 30, 2022 registering the resale by Alpha Capital of an aggregate of shares of the Company’s common stock, which may be issuable to Alpha Capital pursuant to the terms of the Debenture and the Alpha Warrant.
The Company evaluated the Debenture and the Alpha Warrant and determined that the Alpha Warrant is a freestanding financial instrument. The Alpha Warrant is not considered indexed to the Company’s own stock, because the settlement amount would not equal the difference between the fair value of a fixed number of the Company’s equity shares and a fixed strike price and all of the adjustment features in Section 3(b) of the warrant agreement are not down round provisions, as defined in ASU 2017-11. Accordingly, the Alpha Warrant is classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.
The proceeds from the Debenture were allocated to the initial fair value of the Alpha Warrant, with the residual balance allocated to the initial carrying value of the Debenture. The Company has not elected the fair value option for the Debenture. The Debenture was recognized as proceeds received after allocating the proceeds to the Alpha Warrant, and then allocating remaining proceeds to a suite of bifurcated embedded derivative features (conversion option, contingent acceleration upon an Event of Default, and contingent interest upon an Event of Default), with the resulting difference, if any, allocated to the loan host instrument. The suite of derivative features was measured and determined to have no fair value.
The original issue discount of $0.3 million, the initial fair value of the Warrant of $2.8 million, the initial fair value of the suite of bifurcated embedded derivative features of $0, and the fees and costs paid to Alpha Capital and other third parties of $0.1 million comprised the debt discount upon issuance. The debt discount is amortized to interest expense over the expected term of the Debenture using the effective interest method, in accordance with ASC 835-30. The debt host instrument of the Debenture will subsequently be measured at amortized cost using the effective interest method to accrete interest over its term to bring the Debenture’s initial carrying value to the principal balance at maturity.
Between January 9 and 12, 2023, the Company issued shares of common stock upon Alpha Capital’s partial conversion of the Debenture at $1.32 per share for a total of $1,111,078 principal. Upon conversion, the Company recognized a loss on conversion of convertible debt of approximately $1.1 million, recorded to other expenses in the condensed consolidated statements of operations. During the three and six months ended June 30, 2023, the Company recorded accrued interest of approximately $383,000 and $945,000, respectively (of which approximately $364,000 and $898,000 was attributable to discount amortization, respectively) in other expenses in the condensed consolidated statements of operations. As of June 30, 2023, the fair value of the Alpha Warrant was approximately $2.0 million, and the fair value of the suite of bifurcated embedded derivative features was $0.
Convertible debt-related party is comprised of the following as of June 30, 2023 and December 31, 2022:
As of June 30, 2023, there were no events of default or violation of any covenants under our financing obligations.
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EARNINGS (LOSS) PER SHARE |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS (LOSS) PER SHARE |
Basic loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted EPS is computed based on the sum of the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock options and warrants.
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COMMITMENTS AND CONTINGENCIES |
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | NOTE 12 — COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under a long-term operating lease agreement. On December 15, 2021, our wholly-owned subsidiary Qualigen, Inc. entered into a Second Amendment to Lease with Bond Ranch LP. This Amendment extended the Company’s triple-net leasehold on the Company’s existing 22,624-square-feet headquarters/manufacturing facility at 2042 Corte del Nogal, Carlsbad, California for the 61-month period of November 1, 2022 to November 30, 2027. Over the 61 months, the base rent payable by Qualigen, Inc. will total $1,950,710; however, the base rent for the first 12 months of the 61-month period will be only $335,966. Additionally, under the Second Amendment to Lease, Qualigen, Inc. is entitled to a $339,360 tenant improvement allowance.
The tables below show the operating lease right-of-use assets and operating lease liabilities as of June 30, 2023, including the changes during the periods:
As of June 30, 2023, the Company’s operating leases have a weighted-average remaining lease term of 4.3 years and a weighted-average discount rate of 8.9%.
As of June 30, 2023, future minimum payments during the next five fiscal years and thereafter are as follows:
Total lease expense was approximately $114,000 and $119,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $230,000 and $233,000, respectively, for the six months ended June 30, 2023 and 2022. Lease expense was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The lease commitments described above transferred to Chembio upon the closing of this transaction. (see Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. ).
NanoSynex Funding Commitment
On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex.
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $per share.
The Nanosynex Amendment supersedes any payments contemplated by the Original Nanosynex Agreement, such that except as described in the Nanosynex Amendment, the Company will have no further payment obligations to NanoSynex under the Original Nanosynex Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and Nanosynex will have no further payment obligations to the Company for advances previously received under the Original Nanosynex Agreement.
Litigation and Other Legal Proceedings
On November 9, 2021, the Company was named as a defendant in an action brought by Mediant Communications Inc. (“Mediant”) in the U.S. District Court for the Southern District of New York. The complaint alleged that Qualigen entered into an implied contract with Mediant, whereby Qualigen retained Mediant to distribute proxy materials and subsequently conduct shareholder vote tabulations. The Company filed a Motion to Dismiss with the District Court and on March 14, 2022 a hearing was held during which the presiding judge ruled in favor of the Motion to Dismiss. The Company and Mediant settled the litigation on April 5, 2022 in the amount of $96,558, at which time the amount was paid.
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RESEARCH AND LICENSE AGREEMENTS |
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Jun. 30, 2023 | |
| Research And License Agreements | |
| RESEARCH AND LICENSE AGREEMENTS | NOTE 13 — RESEARCH AND LICENSE AGREEMENTS
The University of Louisville Research Foundation
Between June 2018 and April 2022, the Company entered into license and sponsored research agreements with the University of Louisville Research Foundation (“ULRF”) for QN-247, a novel aptamer-based compound that has shown promise as an anticancer drug. Under the agreements, the Company 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 $50,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock, and the Company agreed to reimburse ULRF for sponsored research expenses of up to approximately $805,000 and prior patent costs of up to $200,000. In addition, the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of anti-nucleolin agent-conjugated nanoparticles, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the last to expire of the licensed patents, (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2018, and (iv) payments ranging from $100,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $100,000 for first dosing in a Phase 1 clinical trial, $200,000 for first dosing in a Phase 2 clinical trial, $350,000 for first dosing in a Phase 3 clinical trial, $500,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also agreed to pay another $500,000 milestone payment for any additional regulatory marketing approval for each additional therapeutic (or diagnostic) indication. The Company must also pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $10,000 to $50,000) for such year.
Sponsored research expenses related to these agreements for the three months ended June 30, 2023 and 2022 were approximately $0 and $77,000, respectively, and for the six months ended June 30, 2023 and 2022 were approximately $0 and $164,000, respectively, and these amounts are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs were approximately $1,000 and $14,000 related to these agreements for the three months ended June 30, 2023 and 2022, respectively, and approximately $22,000 and $69,000 related to these agreements for the six months ended June 30, 2023 and 2022, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
In March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with ULRF for development of several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company agreed to reimburse ULRF for sponsored research expenses of up to $693,000 for this program. In February 2021 and March 2022, the Company extended the term of this agreement until January 2023 and increased the amount that the Company will reimburse ULRF for sponsored research expenses to approximately $2.7 million. In July 2020, the Company entered into an exclusive license agreement with ULRF for RAS interaction inhibitor drug candidates. Under the agreement, the Company took over development, regulatory approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to July 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be $50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $20,000 to $100,000) for such year.
Sponsored research expenses related to these agreements for the three months ended June 30, 2023 and 2022 were approximately $333,000 and $220,000, respectively, and for the six months ended June 30, 2023 and 2022 were approximately $556,000 and $405,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss. License costs related to these agreements for the three months ended June 30, 2023 and 2022 were approximately $15,000 and $16,000, respectively, and for the six months ended June 30, 2023 and 2022 were approximately $29,000 and $18,000, respectively, and are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
In June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of QN-165 as a treatment for COVID-19. Under the agreement, the Company took over development, regulatory approval and commercialization of the compound (for such use) from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $24,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company was required to enter into a separate sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) for at least $250,000. In November 2020, the Company executed a sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) supporting up to approximately $430,000 in research which satisfied this requirement. This sponsored research agreement expired in November 2021.
In addition, under the exclusive license agreement the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of QN-165 as a treatment for COVID-19, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patents, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments would be $50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company must also pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $5,000 to $50,000) for such year.
There were no sponsored research expenses or license costs related to these agreements for the three months ended June 30, 2023 and 2022, or for the six months ended June 30, 2023 and 2022.
Yi Xin
In October 2020, through its wholly-owned diagnostics subsidiary Qualigen, Inc., the Company entered into a Technology Transfer Agreement with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi Xin”), of Suzhou, China, for Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on the Company’s core FastPack technology. In addition, the Technology Transfer Agreement authorizes Yi Xin to manufacture and sell the Company’s current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.
The Company will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. Under the Technology Transfer Agreement, during the fiscal year ended December 31, 2021 we recognized revenues of approximately $670,000. There were no revenues under this agreement for the three months ended June 30, 2023, and the three months ended June 30, 2022. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.
The Company gave Yi Xin the exclusive rights for China, which is a market it has not otherwise entered, both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of our existing FastPack product lines. Yi Xin also has the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack products). After March 31, 2022, Yi Xin has the right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-US customers of those products), as well as the right to buy Qualigen-manufactured FastPack 1.0, IP and PRO products from us at distributor prices for resale in and for the United States (but not to or toward current U.S. customers of those products). The Company did not license Yi Xin to sell in the U.S. market any Yi Xin-manufactured versions of those legacy FastPack 1.0, IP and PRO product lines. In the Technology Transfer Agreement the Company also confirmed that after March 31, 2022 it would not seek new FastPack customers outside the United States, European Union, Canada and Mexico.
On July 20, 2023, the Company entered into a Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc. The Technology Transfer Agreement with Yi Xin described above transferred to Chembio upon the closing of this transaction. See Note 16 - Subsequent Events: Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A. to our unaudited condensed consolidated financial statements for additional details.
UCL Business Limited
In January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is now being developed at Qualigen under the name QN-302 as a candidate for treatment for pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The License Agreement required a $150,000 upfront payment, reimbursement of past patent prosecution expenses (approximately $160,000), and (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments and a percentage of any non-royalty sublicensing consideration paid to Qualigen.
For both the three months ended June 30, 2023 and 2022, there were license costs of $0, and for the six months ended June 30, 2023 and 2022, there were license costs of approximately $0 and $310,000, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.
Prediction Biosciences
In November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences SAS to develop and manufacture diagnostic tests for use in the stroke Physician Office Laboratory (POL) market. The Company recognizes development revenue and product sales over the performance period of the contract. Product sales related to this agreement for the three months ended June 30, 2023 and 2022 were $0 for both periods, and for the six months ended June 30, 2023 and 2022 were approximately $86,000 and $0, respectively, and are recorded in net product sales in the condensed consolidated statements of operations and other comprehensive loss.
QN-302 Phase 1 Study
In June 2023, the Company entered into a Master Clinical Research Services Agreement with Translational Drug Development, LLC (“TD2”) where 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 (“SOW”) with TD2 for the performance of specific services under this Master Clinical Research Services Agreement (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
In June 2023, the Company entered into a Master Laboratory Services Agreement with MLM Medical Labs, LLC (“MLM”) where 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 (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
In June 2023, the Company entered into a Master Services Agreement with Clinigen Clinical Supplies Management, Inc. (“Clinigen”) where Clinigen agreed to provide certain pharmaceutical products and/or services. From time to time, the Company shall enter into Statements of Work (“SOW”) with Clinigen for the performance of specific services under this Master Services Agreement (see Note 16 - Subsequent Events: QN-302 Phase 1 Study).
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| STOCKHOLDERS’ EQUITY | NOTE 14 — STOCKHOLDERS’ EQUITY
As of June 30, 2023 and December 31, 2022, 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.
On December 22, 2022, the Company issued to Alpha Capital, an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture is convertible, at any time, and from time to time, at Alpha Capital’s option, into shares of common stock of the Company, at a price equal to $1.32 per share, and other terms and conditions described in the Debenture (see Note 10 - Convertible Debt - Related Party). As part of this transaction, the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock (see Note 9 - Warrant Liabilities). Between January 9 and 12, 2023, Alpha Capital voluntarily converted $1,111,078 of its outstanding the Debenture principal into shares of common stock at a conversion price of $1.32 per share.
At June 30, 2023, the Company has reserved shares of authorized but unissued common stock for possible future issuance. At June 30, 2023, shares were reserved in connection with the following:
Preferred Stock
At June 30, 2023 and December 31, 2022, there were no 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 June 30, 2023 and December 31, 2022, 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.
There was approximately $ and $ million of compensation cost related to outstanding stock options for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $ million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of years.
. The options awarded under the 2020 Plan will vest as determined by the Board of Directors but will not exceed a ten-year period.
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:
Equity Classified Compensatory Warrants
In connection with the $4.0 million equity capital raise as part of the May 2020 reverse recapitalization transaction, the Company issued common stock warrants to an advisor and its designees for the purchase of 81,143 reverse split adjusted shares of the Company’s common stock at a reverse split adjusted exercise price of $11.10 per share. The issuance cost of these warrants was charged to additional paid-in capital, and did not result in expense in the Company’s condensed consolidated statements of operations and comprehensive loss.
In addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier for the purchase of 66,802 reverse split adjusted shares of Company common stock (originally exercisable to purchase Series C convertible preferred stock) at a weighted average exercise price of $23.40 per share. These are to be differentiated from the Series C Warrants described in Note 9 - Warrant Liabilities.
During the year ended December 31, 2021, the Company issued equity classified compensatory warrants to a service provider for the purchase of 60,000 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $13.20 per share. The fair value issuance cost of approximately $0.3 million using the Black-Scholes options pricing model for these warrants was charged to general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive loss. On April 25, 2022, 60,000 warrants were repriced from $ to a reverse split adjusted exercise price of $6.00 and extended from June 3, 2023 to September 14, 2023. The increase in fair value of $67,370 using a Monte Carlo pricing model for the modification of these warrants was charged to general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive loss. On April 25, 2022 and May 26, 2022 an additional 67,619 reverse split adjusted warrants were repriced from a reverse split adjusted exercise price of $11.10 to $5.136. The increase in fair value of $31,010 using a Monte Carlo pricing model for the modification of these warrants was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss. On December 22, 2022, 67,620 warrants were repriced from a reverse split adjusted exercise price of $5.136 to $1.32. The increase in fair value of $8,548 using a Monte Carlo pricing model for the modification of these warrants was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss.
No compensatory warrants were issued during the six months ended June 30, 2023.
The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2023:
The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2022:
There were compensation costs related to outstanding equity classified compensatory warrants for the six months ended June 30, 2023 and $ for the six months ended June 30, 2022.
Noncompensatory Equity Classified Warrants
In May 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to Alpha Capital (a related party) for the purchase of 27,048 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $11.10 per share (of which warrants for 20,000 shares were subsequently exercised in December 2020). In July 2020, the Company issued noncompensatory equity classified warrants to Alpha Capital for the purchase of 78,019 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $0.01 per share (which were subsequently exercised in July 2020), and 192,068 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $52.50 per share. In August 2020, the Company issued noncompensatory equity classified warrants to Alpha Capital for the purchase of 128,783 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $60.00 per share. In December 2020, the Company issued noncompensatory equity classified warrants to Alpha Capital for the purchase of 100,000 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $0.10 per share (which were exercised in February 2021) and 219,101 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $40.70 per share. In May 2022, the Company issued noncompensatory equity classified warrants to Alpha Capital for the purchase of 331,464 reverse split adjusted shares of Company common stock at a reverse split adjusted exercise price of $0.01 per share.
On November 29, 2021, with the exception of the warrants to purchase 27,048 reverse split adjusted shares of the Company’s common stock at a reverse split adjusted exercise price of $11.10 per share, the exercise prices of all outstanding warrants to purchase a total of 539,951 reverse split adjusted shares of the Company’s common stock were modified to a reverse split adjusted exercise price of $20.00 per share and each of their remaining terms extended by six months. The fair value of the modification cost of these warrant modifications of approximately $2.3 million was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss. In May 2022, pre-funded warrants to purchase 331,464 reverse split adjusted shares of the Company’s common stock at a reverse split adjusted exercise price of $0.01 per share with no expiration date were issued. These warrants were subsequently exercised during the period ended September 30, 2022.
In conjunction with the NanoSynex Acquisition, on April 25, 2022 the exercise price of 7,048 reverse split adjusted outstanding warrants with an exercise price of $11.10 per share was modified to a reverse split adjusted exercise price of $6.00. The increase in fair value of $2,533, using a Monte Carlo pricing model for the modification of these warrants, was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss. On May 26, 2022, the reverse split adjusted exercise price of these warrants was modified again to $5.136, and the increase in fair value of $696, using a Monte Carlo pricing model for the modification of these warrants, was included in consideration transferred in the NanoSynex Acquisition. On December 22, 2022, the exercise price of these warrants was modified again to $1.32. The increase in fair value of $891, using a Monte Carlo pricing model for the modification of those warrants, was charged to additional paid-in capital and did not result in expense on the Company’s condensed consolidated statements of operations and comprehensive loss.
No noncompensatory equity classified warrants were issued during the six months ended June 30, 2023.
The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2023:
The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2022:
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RELATED PARTY TRANSACTIONS |
6 Months Ended |
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Jun. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 15 — RELATED PARTY TRANSACTIONS
Convertible Debt
On December 22, 2022, the Company issued to Alpha Capital, an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. The Debenture is convertible, at any time, and from time to time, at Alpha Capital’s option, into shares of common stock of the Company, at a price equal to $1.32 per share, subject to adjustment as described in the Debenture and other terms and conditions described in the Debenture, including the Company’s receipt of the necessary stockholder approvals (See Note 10 - Convertible Debt - Related Party). Between January 9 and 12, 2023, Alpha Capital voluntarily converted $1,111,078 of the Debenture principal into shares of common stock at a conversion price of $1.32 per share.
Short-Term Debt
NanoSynex has four separate notes payable outstanding to Alpha Capital, issued between March 26, 2020 and September 2, 2021, aggregating to a total principal outstanding balance of $905,000, and aggregate accrued interest of $60,155 for a total outstanding balance of $965,155 as of June 30, 2023. The Notes all accrue interest at 2.62% per annum, accrued daily, and provide that the full amount of principal and interest under each Note shall be due immediately prior to a Liquidation Event (the Maturity Date) unless due earlier in accordance with the terms of the Notes. “Liquidation Event” means either (i) the merger or consolidation of NanoSynex into any other entity, other than one in control or under control of NanoSynex or NanoSynex’s majority shareholder; (ii) a transaction or series of transactions resulting in the transfer of all or substantially all of NanoSynex’s assets or issued and outstanding share capital (other than to a company under the control of NanoSynex or NanoSynex’s majority shareholders; or (iii) an underwritten public offering by NanoSynex of its ordinary shares. Notwithstanding the above, if NanoSynex receives subsequent debt, convertible debt, or equity funding with gross proceeds of USD $3,000,000 or more, then the unused portion of these Notes shall be due and payable upon the actual receipt of such funding (See Note 8 - Short-Term Debt - Related Party).
NanoSynex Acquisition
The Company acquired a 52.8% voting equity interest in NanoSynex on May 26, 2022 through: (1) the purchase of shares Preferred A-1 Stock of NanoSynex from Alpha Capital (a related party) for reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse split adjusted shares of the Company’s common stock at a purchase price of $0.001 per share (these warrants were subsequently exercised on September 13, 2022), and (2) the purchase of shares of Series B preferred stock of NanoSynex from NanoSynex in exchange for $600,000.
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SUBSEQUENT EVENTS |
6 Months Ended |
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Jun. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 16 — SUBSEQUENT EVENTS
QN-302 Phase 1 Study
Between July 5-13, 2023, pursuant to the Master Clinical Research Services Agreement with TD2, Master Services Agreement with Clinigen, and Master Laboratory Services Agreement with MLM (see Note 13 - Research and License Agreements), the Company entered into work orders with these vendors to provide clinical trial services for the conduct of the QN-302 Phase 1 study. The estimated project timeline was set to start in July 2023 and continue until July 2026. The total amount to be paid under these work orders is currently expected to be approximately $7.6 million over the term of the QN-302 Phase 1 study.
Stock Purchase Agreement with Chembio Diagnostics, Inc. and Biosynex, S.A.
On July 20, 2023, the Company entered into the Purchase Agreement with Chembio, Biosynex, S.A. (“Biosynex”), and Qualigen, Inc., a wholly-owned subsidiary of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to Chembio all of the issued and outstanding shares of common stock of Qualigen, Inc., which was the legal entity operating the Company’s FastPack™ diagnostics business. The Transaction closed on July 20, 2023. Following the consummation of the Transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio.
On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the NanoSynex Funding Agreement with NanoSynex, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement.
Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex.
In the event we fail to make any future advances, we have agreed to forfeit additional shares in a number that will be equal to a fraction, the numerator of which is the amount of the default (i.e., the amount that we should have, but failed, to advance to NanoSynex pursuant to the terms of the NanoSynex Amendment), and the denominator of which shall be the price per share that we originally paid in consideration for our Preferred A-1 shares of NanoSynex to the previous holder thereof, being $ per share.
The NanoSynex Amendment supersedes any payments contemplated by the Original NanoSynex Agreement, such that except as described in the NanoSynex Amendment, the Company will have no further payment obligations to NanoSynex under the Original NanoSynex Agreement or otherwise (including by way of equity investment, loan financing or credit lines), and NanoSynex will have no further payment obligations to the Company for advances previously received under the Original NanoSynex Agreement.
Stockholder Approval of Alpha Stock Issuance Proposal
On July 13, 2023, the Company held its 2023 annual meeting of stockholders, at which the issuance to Alpha Capital of common stock pursuant to the terms and conditions of (a) the Debenture and (b) the Alpha Warrant were approved in accordance with Nasdaq Listing Rule 5635(d), which requires stockholder approval prior to the issuance of more than 20% of the Company’s issued and outstanding common stock. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES (Policies) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||
| Organization | Organization
Qualigen, Inc., a subsidiary of Qualigen Therapeutics, Inc., was incorporated in Minnesota in 1996 to design, develop, manufacture and sell point-of-care quantitative immunoassay diagnostic products for use in physician offices and other point-of-care settings worldwide, and was reincorporated in Delaware in 1999. Qualigen Therapeutics, Inc. (the “Company”) operates in one business segment. In May 2020, Qualigen, Inc. completed a reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) and Ritter was renamed Qualigen Therapeutics, Inc. All shares of Qualigen, Inc.’s capital stock were exchanged for Qualigen Therapeutics, Inc.’s capital stock in the merger. Ritter/Qualigen Therapeutics common stock, which was previously traded on the Nasdaq Capital Market under the ticker symbol “RTTR,” commenced trading on the Nasdaq Capital Market, on a post-reverse-stock-split adjusted basis, under the trading symbol “QLGN” on May 26, 2020.
On May 26, 2022, the Company acquired shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”), a related party, in exchange for reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share. These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, the Company also purchased shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a micro-biologics diagnostics company domiciled in Israel. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex Ltd. (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 majority owned subsidiary of the Company, to, among other things, provide for the further funding of NanoSynex, as contemplated by the NanoSynex Funding Agreement (see Note 16 - Subsequent Events: Amendment and Settlement Agreement with NanoSynex Ltd. ).
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| Basis of Presentation | Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), Regulation S-X and rules and regulations of the Securities and Exchange Commission (“SEC”).
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| Principles of Consolidation | Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar, however for NanoSynex, the functional currency is the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex are translated into U.S. dollars and the effects of foreign currency translation adjustments are reflected as a component of accumulated other comprehensive income within the Company’s consolidated statements of changes in stockholders’ equity.
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| Accounting Estimates | Accounting Estimates
Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of in-process research and development, goodwill, warrant liabilities, stock-based compensation, amortization and depreciation, inventory reserves, allowances for doubtful accounts and returns, and warranty costs. Actual results could vary from the estimates that were used.
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| Reverse Stock Split | Reverse Stock Split
On November 23, 2022, the Company effected a 1-for-10, as determined by the Company’s board of directors, reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
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| Cash | Cash
The Company considers all highly liquid investments purchased with an initial maturity of 90 days or less and money market funds to be cash equivalents. Restricted cash includes cash that is restricted due to Israeli banking regulations.
The Company maintains the majority of its cash in government money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed the FDIC insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and Signature Bank, and more recently in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the Federal Deposit Insurance Corporation (FDIC). While the Company did not have an account at any of these banks, in the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
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| Inventory, Net | Inventory, Net
Inventory is recorded at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company reviews the components of its inventory on a periodic basis for excess or obsolete inventory, and records reserves for inventory components identified as excess or obsolete.
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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. During the three and six months ended June 30, 2023 and 2022, no such impairment losses have been recorded.
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| Segment Reporting | Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily within the United States and Israel.
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| Accounts Receivable, Net | Accounts Receivable, Net
The Company grants credit to domestic physicians, clinics, and distributors. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. Customers can purchase certain products through a financing agreement that the Company has with an outside leasing company. Under the agreement, the leasing company evaluates the credit worthiness of the customer. Upon acceptance of the product by the customer, the leasing company remits payment to the Company at a discount. This financing arrangement is without recourse to the Company.
The Company records an allowance for doubtful accounts and returns equal to the estimated uncollectible amounts or expected returns. The Company’s estimates are based on historical collections and returns and a review of the current status of trade accounts receivable.
Accounts receivable, net is comprised of the following at:
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| Research and Development | 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.
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| R&D Grants | R&D Grants
NanoSynex has received R&D grants from Israel Innovation Authority (IIA) and from the European Commission. These grants may provide cash funding to NanoSynex from time to time in advance of the applicable costs being incurred. When such cash funding is received from these grants in advance, the proceeds are recorded as a current or non-current R&D grant liability based on the time from the condensed consolidated balance sheets date to the expected future date of recognition as a reduction to research and development expenses.
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| Patent 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.
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| Shipping and Handling Costs | Shipping and Handling Costs
The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound and outbound freight are generally recorded in cost of sales which totaled approximately $78,000 and $72,000, respectively, for the three months ended June 30, 2023 and 2022, and approximately $144,000 and $111,000, respectively, for the six months ended June 30, 2023 and 2022. Other shipping and handling costs included in general and administrative, research and development, and sales and marketing expenses were $0 and $4,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $4,000 and $8,000 for the six months ended June 30, 2023 and 2022, respectively.
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| Revenue from Contracts with Customers | Revenue from Contracts with Customers
The Company applies the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Product Sales
The Company generates revenue from selling FastPack System analyzers, accessories and disposable products used with the FastPack System. Disposable products include reagent packs, which are diagnostic tests for prostate-specific antigen, testosterone, thyroid disorders, pregnancy, and Vitamin D.
The Company provides disposable products and equipment in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposable products and equipment at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment (“analyzer”) has been provided to the customer. The initial delivery of the equipment and reagent packs represents a single performance obligation and is completed upon receipt by the customer. The delivery of each subsequent individual reagent pack represents a separate performance obligation because the reagent packs are standardized, are not interrelated in any way, and the customer can benefit from each reagent pack without any other product. There are no significant discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 days.
The performance obligation arising from the delivery of the equipment is satisfied upon the delivery of the equipment to the customer. The disposable products are shipped Free on Board (“FOB”) shipping point. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, thus the customer obtains control and revenue is recognized at that point in time.
The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfill the promise to transfer the disposable products and not as a separate performance obligation.
The Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.
Contract Asset and Liability Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by the Company’s customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the performance of the related services, the Company records deferred revenue until the performance obligations are satisfied.
Multiple performance obligations include contracts that combine both the Company’s analyzer and a customer’s future reagent purchases under a single contract. In some sales contracts, the Company provides analyzers at no charge to customers. Title to the analyzer is maintained by the Company and the analyzer is returned by the customer to the Company at the end of the purchase agreement.
During the three months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $28,000 and $10,000, respectively. During the six months ended June 30, 2023 and 2022, product sales are stated net of an allowance for estimated returns of approximately $33,000 and $53,000, respectively.
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| Deferred Revenue | Deferred Revenue
Payments received in advance from customers pursuant to certain collaborative research license agreements, deposits against future product sales, multiple element arrangements and extended warranties are recorded as a current or non-current deferred revenue liability based on the time from the condensed consolidated balance sheets date to the future date of revenue recognition.
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| Operating Leases | Operating Leases
Effective April 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842. (See Note 12 - Commitments and Contingencies for more information).
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| Property and Equipment, Net | Property and Equipment, Net
Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company occasionally designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other direct costs attributable to the construction, are capitalized as construction in progress. No provision for depreciation is made on construction in progress until the relevant assets are completed and placed in service.
The Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or when conditions are present that indicate impairment.
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| Business Combinations | Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in Qualigen’s financial results beginning on the respective acquisition date, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “purchase price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
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| Goodwill | Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired, when accounted for using the purchase method of accounting. Goodwill has an indefinite useful life and is not amortized but is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. In testing for impairment, the fair value of the reporting unit is compared to the carrying value. If the net assets assigned to the reporting unit exceed the fair value of the reporting unit, an impairment loss equal to the difference is recorded. As a result of the annual goodwill impairment analysis, the Company recognized a $4,239,000 non-cash goodwill and fixed asset impairment charge in the valuation of its business acquisition of NanoSynex for the fiscal year ended December 31, 2022. There were no impairment losses during the three and six months ended June 30, 2023 and 2022.
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| Intangible Assets | Intangible Assets
In Process R&D
Acquired in process R&D (IPR&D) represents the fair value assigned to the research and development assets that have not reached technological feasibility. The value assigned to IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flow to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing the new product. Additionally, projections consider relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions. The rates utilized to discount the net cash flow to its present value are commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections. Upon the acquisition of acquired IPR&D, an assessment is completed as to whether the acquisition constitutes an acquisition of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.
If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s condensed consolidated statements of operations and other comprehensive income (loss) as they are incurred.
IPR&D is evaluated for impairment annually using the same methodology as described above for calculating fair value. If the carrying value of the acquired IPR&D exceeds the fair value, then the intangible asset is written down to its fair value, with the resulting adjustment recorded as a charge to operations. Changes in estimates and assumptions used in determining the fair value of acquired IPR&D could result in an impairment.
Other Intangible Assets, Net
Other intangible assets consist of patent-related costs and costs for license agreements. Management reviews the carrying value of other intangible assets that are being amortized on an annual basis or sooner when there is evidence that events or changes in circumstances may indicate that impairment exists. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized can be recovered.
If the Company determines that the carrying value of other intangible assets will not be recovered from the undiscounted future cash flows expected to result from the use and eventual disposition of the underlying assets, the Company considers the carrying value of such intangible assets as impaired and reduces them by a charge to operations in the amount of the impairment.
Costs related to acquiring patents and licenses are capitalized and amortized over their estimated useful lives, which is generally 5 to 17 years, using the straight-line method. Amortization of patents and licenses commences once final approval of the patent or license has been obtained. Patent and license costs are charged to operations if it is determined that the patent or license will not be obtained.
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| Derivative Financial Instruments and Warrant Liabilities | Derivative Financial Instruments and Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and other comprehensive income (loss). Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 9- Warrant Liabilities).
Fair Value Measurements
The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
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| Fair Value of Financial Instruments | 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.
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| Comprehensive Loss | Comprehensive Loss
Comprehensive loss consists of net income and foreign currency translation adjustments. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity for all periods presented.
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| Stock-Based Compensation | 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.
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| Income Taxes | 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.
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| Sales and Excise Taxes | Sales and Excise Taxes
Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with corresponding tax payable. These balances are removed from the condensed consolidated balance sheet as cash is collected from customers and remitted to the tax authority.
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| Warranty Costs | Warranty Costs
The Company’s warranty policy generally provides for one year of coverage against defects and nonperformance within published specifications for sold analyzers and for the term of the contract for equipment held for lease. The Company accrues for estimated warranty costs in the period in which the revenue is recognized based on historical data and the Company’s best estimates of analyzer failure rates and costs to repair.
Accrued warranty liabilities were approximately $140,000 and $138,000, respectively, as of June 30, 2023 and December 31, 2022 and are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Warranty costs were approximately $63,000 and $22,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $104,000 and $41,000 for the six months ended June 30, 2023 and 2022, respectively, and are included in cost of product sales in the condensed consolidated statements of operations and other comprehensive loss.
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| Foreign Currency Translation | Foreign Currency Translation
The functional currency for the Company is the U.S. dollar. The functional currency for NanoSynex, the Company’s newly acquired majority owned subsidiary, is the New Israeli Shekel (NIS). The financial statements of NanoSynex are translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex is reflected as a separate component of other comprehensive income (loss).
Other comprehensive loss related to the effects of foreign currency translation adjustments attributable to NanoSynex was ($56,747) and $65,540 for the three months ending June 30, 2023 and 2022, respectively, and $119,473 and $65,540 for the six months ending June 30, 2023 and 2022, respectively.
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| War in Ukraine | War in Ukraine
In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.
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| Inflation and Global Economic Conditions | Inflation and Global Economic Conditions
During the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues. The Company is subject to inflationary pressures with respect to raw materials, labor and transportation. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, our business would be adversely affected.
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| Impact of COVID-19 Pandemic | Impact of COVID-19 Pandemic
The COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of the pandemic sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. For 2023 we continue to experience recovery in demand.
Other accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s condensed consolidated financial statements. |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS RECEIVABLE | Accounts receivable, net is comprised of the following at:
|
||||||||||||||||||||||||||||||||||||
| SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT | Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:
|
||||||||||||||||||||||||||||||||||||
INVENTORY, NET (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVENTORY | Inventory, net consisted of the following at June 30, 2023 and December 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS | Prepaid expenses and other current assets consisted of the following at June 30, 2023 and December 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT | Property and equipment, net consisted of the following at June 30, 2023 and December 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL, IPR&D AND OTHER INTANGIBLES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF GOODWILL AND OTHER INTANGIBLES |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | Accrued expenses and other current liabilities consisted of the following at June 30, 2023 and December 31, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
WARRANT LIABILITIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANTS ACTIVITY | The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2023:
The following table summarizes the activity in liability classified warrants for the six months ended June 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FAIR VALUE HIERARCHY FOR WARRANT LIABILITIES | The following table presents the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis as of June 30, 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ASSUMPTIONS OF WARRANT LIABILITIES | 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 June 30, 2023 and 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONVERTIBLE DEBT- RELATED PARTY (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SENIOR SECURED CONVERTIBLE DEBT | Convertible debt-related party is comprised of the following as of June 30, 2023 and December 31, 2022:
|
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EARNINGS (LOSS) PER SHARE (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DILUTIVE SECURITIES EXCLUDED FROM DILUTED NET LOSS PER SHARE |
|
|||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATING LEASE RIGHT OF USE ASSETS AND OPERATING LEASE LIABILITIES | The tables below show the operating lease right-of-use assets and operating lease liabilities as of June 30, 2023, including the changes during the periods:
|
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| SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES | As of June 30, 2023, future minimum payments during the next five fiscal years and thereafter are as follows:
|
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STOCKHOLDERS’ EQUITY (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RESERVED SHARES |
|
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| SCHEDULE OF STOCK OPTION ACTIVITY |
There was approximately $ and $ million of compensation cost related to outstanding stock options for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $ million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of years.
|
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| SCHEDULE OF ASSUMPTION USED IN BLACK-SCHOLES OPTION-PRICING METHOD |
|
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| SCHEDULE OF SHARE-BASED COMPENSATION EXPENSE |
|
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| Compensatory Warrant Activity [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANT ACTIVITY | The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2023:
The following table summarizes the activity in the common stock equity classified compensatory warrants for the six months ended June 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non Compensatory Warrant Activity [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANT ACTIVITY | The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2023:
The following table summarizes the noncompensatory equity classified warrant activity for the six months ended June 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF ACCOUNTS RECEIVABLE (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| Accounts Receivable | $ 726,449 | $ 733,964 | |
| Less Reserves and Allowances | (187,862) | (54,584) | |
| Accounts receivable, net | $ 538,587 | $ 679,380 | $ 538,587 |
SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT (Details) |
Jun. 30, 2023 |
|---|---|
| Machinery and Equipment [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property and equipment, useful life | 5 years |
| Computer Equipment [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property and equipment, useful life | 3 years |
| Molds and Tooling [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property and equipment, useful life | 5 years |
| Furniture and Fixtures [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property and equipment, useful life | 5 years |
LIQUIDITY (Details Narrative) - USD ($) |
1 Months Ended | 6 Months Ended | 12 Months Ended | 13 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|---|
Jul. 20, 2023 |
Dec. 31, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Mar. 31, 2024 |
Nov. 30, 2023 |
Jan. 12, 2023 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||
| Cash | $ 5,200,000 | $ 7,034,434 | $ 1,341,659 | $ 7,034,434 | |||||
| Accumulated deficit | 103,385,172 | 110,695,598 | 103,385,172 | ||||||
| Net cash used in operating activities | 5,562,416 | $ 7,827,798 | $ 13,200,000 | ||||||
| Share based compensation | $ 5,800,000 | 906,145 | $ 2,690,447 | ||||||
| Escrow deposit | $ 450,000 | ||||||||
| Proceeds from issuance of common stock | $ 8,800,000 | ||||||||
| Proceeds from issuance of debt | $ 3.0 | ||||||||
| Aggregrate amount | $ 1,111,078 | ||||||||
| Subsequent Event [Member] | |||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||
| Sale of stock price per share | $ 1.5716 | ||||||||
| Subsequent Event [Member] | Amendment and Settlement Agreement [Member] | |||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||
| Aggregrate amount | $ 380,000 | ||||||||
| Subsequent Event [Member] | Amendment and Settlement Agreement [Member] | NanoSynex Ltd [Member] | |||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||
| Aggregrate amount | $ 1,610,000 | $ 670,000 | $ 560,000 | ||||||
| NanoSynex Ltd [Member] | Subsequent Event [Member] | |||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||
| Business acquisition, description of acquired entity | Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex. | ||||||||
SCHEDULE OF INVENTORY (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 1,027,455 | $ 949,796 |
| Work in process | 177,591 | 200,318 |
| Finished goods | 358,353 | 436,183 |
| Total inventory | $ 1,563,399 | $ 1,586,297 |
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Prepaid insurance | $ 938,106 | $ 1,377,323 |
| Prepaid manufacturing expenses | 51,710 | 43,820 |
| Other prepaid expenses | 65,288 | 227,451 |
| Prepaid research and development expenses | 211,337 | |
| Other current assets | 11,636 | 12,626 |
| Prepaid expenses and other current assets | $ 1,278,077 | $ 1,661,220 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Mar. 31, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Depreciation expense | $ 19,000 | $ 24,000 | $ 37,000 | $ 48,000 | |
| Payments to acquire assets | $ 246,418 | $ 63,483 | |||
| Sekisui Distribution Agreement [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Payments to acquire assets | $ 154,000 | ||||
GOODWILL, IPR&D AND OTHER INTANGIBLES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Jul. 20, 2023 |
|
| Finite-Lived Intangible Assets [Line Items] | ||||||
| Goodwill, impairment loss | $ 4,239,000 | |||||
| Impairment of intangible assets | $ 0 | $ 0 | $ 0 | $ 0 | ||
| Accumulated amortization | 764,869 | 764,869 | 752,237 | |||
| Estimated useful life | 5 years | |||||
| Patents [Member] | ||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||
| Finite lived intangible assets gross | 131,000 | 131,000 | 140,000 | |||
| Accumulated amortization | 348,000 | 348,000 | 339,000 | |||
| Amortization of intangible assets | 9,000 | 5,000 | 9,000 | 9,000 | ||
| License [Member] | ||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||
| Finite lived intangible assets gross | 2,000 | 2,000 | 5,000 | |||
| Accumulated amortization | 417,000 | 417,000 | $ 414,000 | |||
| Amortization of intangible assets | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 | ||
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Board compensation | $ 84,000 | $ 70,000 |
| Equipment held for lease | 154,433 | |
| Franchise, sales and use taxes | 30,407 | 27,531 |
| Income taxes | 6,921 | 4,663 |
| Interest (Convertible debt - related party) | 50,101 | 2,829 |
| License fees | 100,026 | 150,130 |
| Payroll | 484,048 | 209,303 |
| Professional fees | 368,032 | 238,211 |
| Research and development | 523,490 | 322,987 |
| Royalties | 16,383 | 13,158 |
| Warranty liability | 140,370 | 137,568 |
| Other | 176,777 | 181,043 |
| Accrued expenses and other current liabilities | $ 1,980,555 | $ 1,511,856 |
SHORT TERM DEBT-RELATED PARTY (Details Narrative) - USD ($) |
17 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 02, 2021 |
Jun. 30, 2023 |
Jan. 12, 2023 |
Dec. 31, 2022 |
Dec. 22, 2022 |
|
| Short-Term Debt [Line Items] | |||||
| Short term debt principal outstanding | $ 1,111,078 | ||||
| Accrued interest | $ 50,101 | $ 2,829 | |||
| Short term debt outstanding balance | 965,155 | $ 950,722 | |||
| Accrued interest rate | 8.00% | ||||
| Notes Payable [Member] | Nano Synex Ltd [Member] | |||||
| Short-Term Debt [Line Items] | |||||
| Short term debt principal outstanding | $ 905,000 | ||||
| Accrued interest | 60,155 | ||||
| Short term debt outstanding balance | $ 965,155 | ||||
| Accrued interest rate | 2.62% | ||||
| Proceeds from related party debt | $ 3,000,000 |
WARRANT LIABILITIES (Details Narrative) - $ / shares |
Dec. 22, 2022 |
May 26, 2022 |
Apr. 25, 2022 |
Jun. 30, 2023 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|---|---|---|---|
| Exercise price of warrant | $ 13.20 | $ 40.70 | ||||
| Warrant to purchase shares | 60,000 | |||||
| Minimum [Member] | Series C Warrants [Member] | ||||||
| Exercise price of warrant | $ 1.32 | $ 5.136 | $ 6.00 | |||
| Warrants and rights outstanding term | 4 months 24 days | |||||
| Maximum [Member] | Series C Warrants [Member] | ||||||
| Exercise price of warrant | $ 5.136 | $ 6.00 | $ 7.195 | |||
| Warrants and rights outstanding term | 11 months 26 days | |||||
| Series C Warrants [Member] | ||||||
| Exercise price of warrant | $ 7.195 | |||||
| Warrants issued | 1,002,717 | 49,952 | 49,318 | |||
| Warrants forfeited | 247,625 | |||||
| Warrants reissued | 346,896 | |||||
| Series C Warrants [Member] | Alpha Capital [Member] | ||||||
| Exercise price of warrant | $ 1.65 | |||||
| Warrant to purchase shares | 2,500,000 | |||||
| Conversion price percentage | 125.00% |
SCHEDULE OF SENIOR SECURED CONVERTIBLE DEBT (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Total convertible debt-related party | $ 812,419 | $ 60,197 |
| Senior Secured Convertible Debt [Member] | ||
| Short-Term Debt [Line Items] | ||
| Senior secured convertible debenture | 2,078,922 | 3,300,000 |
| Discount on convertible debenture | (1,266,503) | (3,239,803) |
| Total convertible debt-related party | $ 812,419 | $ 60,197 |
SCHEDULE OF DILUTIVE SECURITIES EXCLUDED FROM DILUTED NET LOSS PER SHARE (Details) - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total common stock equivalents | 4,565,097 | 1,889,121 |
| Shares of Common Stock Subject to Outstanding Options [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total common stock equivalents | 445,163 | 476,783 |
| Shares of Common Stock Subject to Outstanding Warrants [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total common stock equivalents | 4,119,934 | 1,412,338 |
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES (Details) |
Jun. 30, 2023
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2023 (six months) | $ 184,171 |
| 2024 | 379,392 |
| 2025 | 390,773 |
| 2026 | 402,497 |
| 2027 | 379,164 |
| Total | 1,735,997 |
| Less present value discount | (310,189) |
| Operating lease liabilities | $ 1,425,808 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) |
3 Months Ended | 6 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Jul. 20, 2023
USD ($)
$ / shares
|
Apr. 05, 2022
USD ($)
|
Dec. 15, 2021
USD ($)
ft²
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2022
USD ($)
|
Mar. 31, 2024
USD ($)
|
Nov. 30, 2023
USD ($)
|
Jan. 12, 2023
USD ($)
|
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Area of land | ft² | 22,624 | |||||||||
| Operating lease term | 61 months | |||||||||
| Operating lease term description | November 1, 2022 to November 30, 2027 | |||||||||
| Payments for Rent | $ 1,950,710 | |||||||||
| Tenant improvement allowance | 339,360 | |||||||||
| Weighted-average remaining lease term | 4 years 3 months 18 days | 4 years 3 months 18 days | ||||||||
| Weighted-average discount rate | 8.90% | 8.90% | ||||||||
| Operating lease expense | $ 114,000 | $ 119,000 | $ 230,000 | $ 233,000 | ||||||
| Aggregrate amount | $ 1,111,078 | |||||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 96,558 | |||||||||
| Subsequent Event [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Sale of Stock, Price Per Share | $ / shares | $ 1.5716 | |||||||||
| Subsequent Event [Member] | Amendment and Settlement Agreement [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Aggregrate amount | $ 380,000 | |||||||||
| Subsequent Event [Member] | Amendment and Settlement Agreement [Member] | NanoSynex Ltd [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Aggregrate amount | $ 1,610,000 | $ 670,000 | $ 560,000 | |||||||
| NanoSynex Ltd [Member] | Subsequent Event [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Business acquisition, description of acquired entity | Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex. | |||||||||
| First 12 Months [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||
| Payments for Rent | $ 335,966 | |||||||||
RESEARCH AND LICENSE AGREEMENTS (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 13 Months Ended | 47 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 |
Jan. 31, 2022 |
Feb. 28, 2021 |
Nov. 30, 2020 |
Jul. 31, 2020 |
Jun. 30, 2020 |
Mar. 31, 2019 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2023 |
Apr. 30, 2022 |
Dec. 31, 2021 |
|
| Proceeds from convertible debt | $ 3.0 | |||||||||||||
| Research and development expense | $ 1,326,544 | $ 1,506,227 | $ 3,448,095 | $ 3,370,972 | ||||||||||
| Revenue from contract with customer excluding assessed tax | 1,627,031 | 1,430,534 | 3,234,201 | 2,152,563 | ||||||||||
| Yi Xin Zhen Duan Jishu Ltd [Member] | ||||||||||||||
| Deferred revenue | 0 | 0 | 0 | 0 | $ 670,000 | |||||||||
| Prediction Biosciences SAS [Member] | Product [Member] | ||||||||||||||
| Revenue from contract with customer excluding assessed tax | 0 | 86,000 | 0 | |||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | ||||||||||||||
| Proceeds from convertible debt | $ 50,000 | |||||||||||||
| Reimbursement of research expenses | 805,000 | |||||||||||||
| Patent costs | $ 200,000 | |||||||||||||
| Agreement term payment description | In addition, the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of anti-nucleolin agent-conjugated nanoparticles, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the last to expire of the licensed patents, (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2018, and (iv) payments ranging from $100,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. | |||||||||||||
| Marketing approval expenses | $ 500,000 | |||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Licensed Product Sales [Member] | ||||||||||||||
| Cumulative sales | $ 5,000,000 | 5,000,000 | ||||||||||||
| Regulatory marketing approval, expenses | 500,000 | |||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Phase 1 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 50,000 | 100,000 | ||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Phase 2 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 100,000 | 200,000 | ||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Phase 3 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 150,000 | 350,000 | ||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Minimum [Member] | ||||||||||||||
| Milestone payment | 50,000 | 100,000 | ||||||||||||
| Shortfall payments | 10,000 | |||||||||||||
| License and Sponsored Research Agreements [Member] | University of Louisville Research Foundation [Member] | Maximum [Member] | ||||||||||||||
| Milestone payment | $ 5,000,000 | 5,000,000 | ||||||||||||
| Shortfall payments | 50,000 | |||||||||||||
| Sponsored Research and License Agreement [Member] | ||||||||||||||
| Research and development expense | 0 | 77,000 | 0 | 164,000 | ||||||||||
| License cost | 1,000 | 14,000 | 29,000 | 18,000 | ||||||||||
| Sponsored Research and License Agreement [Member] | University of Louisville Research Foundation [Member] | ||||||||||||||
| Reimbursement of research expenses | $ 2,700,000 | $ 2,700,000 | $ 693,000 | |||||||||||
| Agreement term payment description | In July 2020, the Company entered into an exclusive license agreement with ULRF for RAS interaction inhibitor drug candidates. Under the agreement, the Company took over development, regulatory approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to July 2020, | |||||||||||||
| Marketing approval expenses | $ 300,000 | |||||||||||||
| Revenue | 500,000,000 | $ 500,000,000 | ||||||||||||
| Sponsored Research and License Agreement [Member] | University of Louisville Research Foundation [Member] | Minimum [Member] | ||||||||||||||
| Upfront license fee | 20,000 | |||||||||||||
| Sponsored Research and License Agreement [Member] | University of Louisville Research Foundation [Member] | Maximum [Member] | ||||||||||||||
| Upfront license fee | $ 100,000 | |||||||||||||
| Sponsored Research Agreements And License [Member] | ||||||||||||||
| Research and development expense | 333,000 | 220,000 | 556,000 | 405,000 | ||||||||||
| License cost | 15,000 | 16,000 | 22,000 | 69,000 | ||||||||||
| License Agreement [Member] | ||||||||||||||
| License cost | $ 0 | $ 0 | $ 0 | $ 310,000 | ||||||||||
| Reimbursement of patent | $ 160,000 | |||||||||||||
| License Agreement [Member] | Upfront Payment [Member] | ||||||||||||||
| Reimbursement of patent | $ 150,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | ||||||||||||||
| Agreement term payment description | the Company agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of QN-165 as a treatment for COVID-19, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patents, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. | |||||||||||||
| Marketing approval expenses | $ 300,000 | |||||||||||||
| Revenue | 500,000,000 | |||||||||||||
| Upfront license fee | 24,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Licensed Product Sales [Member] | ||||||||||||||
| Cumulative sales | 5,000,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Phase 1 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 50,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Phase 2 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 100,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Phase 3 Clinical Trial [Member] | ||||||||||||||
| Milestone payment | 150,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Minimum [Member] | ||||||||||||||
| Milestone payment | 50,000 | |||||||||||||
| Research and development expense | $ 430,000 | 250,000 | ||||||||||||
| Upfront license fee | 5,000 | |||||||||||||
| License Agreement [Member] | University of Louisville Research Foundation [Member] | Maximum [Member] | ||||||||||||||
| Milestone payment | 5,000,000 | |||||||||||||
| Upfront license fee | $ 50,000 | |||||||||||||
SCHEDULE OF RESERVED SHARES (Details) |
Jun. 30, 2023
shares
|
|---|---|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Total | 4,565,097 |
| Equity Option [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Total | 445,163 |
| Warrant [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Total | 4,119,934 |
SCHEDULE OF ASSUMPTION USED IN BLACK-SCHOLES OPTION-PRICING METHOD (Details) - $ / shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Equity [Abstract] | ||
| Expected dividend yield | 0.00% | 0.00% |
| Expected stock-price volatility | 102.00% | |
| Risk-free interest rate, minimum | 1.58% | |
| Risk-free interest rate, maximum | 1.67% | |
| Expected average term of options (in years) | 6 years | |
| Share price | $ 1.05 | |
SCHEDULE OF SHARE-BASED COMPENSATION EXPENSE (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Total | $ 906,145 | $ 2,690,447 |
| General and Administrative Expense [Member] | ||
| Total | 807,980 | 2,329,418 |
| Research and Development Expense [Member] | ||
| Total | $ 98,165 | $ 361,029 |
SUBSEQUENT EVENTS (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Jul. 20, 2023 |
Jul. 13, 2023 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Mar. 31, 2024 |
Nov. 30, 2023 |
Jan. 12, 2023 |
Dec. 31, 2022 |
|
| Subsequent Event [Line Items] | ||||||||||
| Research and Development Expense | $ 1,326,544 | $ 1,506,227 | $ 3,448,095 | $ 3,370,972 | ||||||
| Cash | $ 5,200,000 | 1,341,659 | 1,341,659 | $ 7,034,434 | ||||||
| Escrow | $ 450,000 | $ 450,000 | ||||||||
| Aggregrate amount | $ 1,111,078 | |||||||||
| Subsequent Event [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Sale of stock price per share | $ 1.5716 | |||||||||
| Subsequent Event [Member] | NanoSynex Ltd [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Business acquisition, description of acquired entity | Pursuant to the terms of the NanoSynex Amendment, the Company agreed to advance to NanoSynex an aggregate amount of $1,610,000 as follows: (i) $380,000 within five business days of the execution of the NanoSynex Amendment, (ii) $560,000 on or before November 30, 2023, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding, and (iii) $670,000 on or before March 31, 2024, against which NanoSynex will issue a promissory note to the Company with a face value in the amount of such funding. The NanoSynex Amendment further provides that the initial payment of $380,000 will be satisfied by the Company’s surrender of the 281,000 Preferred B Shares of NanoSynex currently held by the Company, resulting in the Company’s ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the issued and outstanding voting equity of NanoSynex. | |||||||||
| Master Laboratory Services Agreement [Member] | Subsequent Event [Member] | MLM Medical Labs [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Research and Development Expense | $ 7,600,000 | |||||||||
| Stock Purchase Agreement [Member] | Subsequent Event [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Cash | $ 5,200,000 | |||||||||
| Purchase Price | 5,800,000 | |||||||||
| Escrow | 450,000 | |||||||||
| Amendment and Settlement Agreement [Member] | Subsequent Event [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Aggregrate amount | 380,000 | |||||||||
| Amendment and Settlement Agreement [Member] | Subsequent Event [Member] | NanoSynex Ltd [Member] | ||||||||||
| Subsequent Event [Line Items] | ||||||||||
| Aggregrate amount | $ 1,610,000 | $ 670,000 | $ 560,000 | |||||||
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