Qualigen Therapeutics, Inc. - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Qualigen Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

2042 Corte Del Nogal, Carlsbad, California 92011

(Address of principal executive offices) (Zip Code)

(760) 918-9165

(Registrant’s telephone number, including area code)

n/a

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

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

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

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

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

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

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

As of August 15, 2022, there were 38,795,541 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(Unaudited)

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

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

QUALIGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

QUALIGEN THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Organization

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

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On May 26, 2022, the Company acquired 2,232,861 shares of Series A-1 Preferred Stock of NanoSynex, Ltd, (“NanoSynex”) from Alpha Capital Anstalt (“Alpha Capital”) in exchange for 3,500,000 shares of the Company’s common stock and a prefunded warrant to purchase 3,314,641 shares of the Company’s common stock at an exercise price of $0.001 per share. Concurrently with this transaction, the Company also purchased 381,786 shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex. The Company envisions future synergies from the integration of its own proprietary results-proven FastPack diagnostics platform with the innovative NanoSynex technology. NanoSynex is a micro-biologics diagnostics company domiciled in Israel.

Basis of Presentation

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

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its 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 unaudited condensed 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.

Cash, cash equivalents and restricted 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 its cash in bank deposits which exceed federally insured limits and could potentially be subject to significant concentrations of credit risk on cash. The Company reviews the financial stability of its depository institutions on a regular basis, and has not experienced any losses in such accounts.

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.

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, 2022 and 2021, no such impairment losses have been recorded.

Accounts Receivable, Net

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

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

Accounts receivable, net is comprised of the following at:

 SCHEDULE OF ACCOUNTS RECEIVABLE

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.

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 $72,000 and $28,000, respectively, for the three months ended June 30, 2022 and 2021, and approximately $111,000 and $58,000, respectively, for the six months ended June 30, 2022 and 2021. Other shipping and handling costs included in general and administrative, research and development, and sales and marketing expenses totaled approximately $4,000 for both the three months ended June 30, 2022 and 2021, and approximately $8,000 and $5,000 for the six months ended June 30, 2022 and 2021, respectively.

Revenue from Contracts with Customers

We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Product Sales

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

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

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

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

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

License Revenue

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

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable upfront fees allocated to the license when the license is transferred to the customer and the customer can benefit from the license. For licenses that are bundled with other performance obligations, management uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue recognition. During the three months ended June 30, 2022 and 2021, the Company recognized no license revenue, and during the six months ended June 30, 2022 and 2021, the Company recognized license revenue of $0 and approximately $479,000, respectively.

Contract Asset and Liability Balances

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

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

During the three months ended June 30, 2022 and 2021, product sales are stated net of an allowance for estimated returns of approximately $10,000 and $0, respectively. During the six months ended June 30, 2022 and 2021, product sales are stated net of an allowance for estimated returns of approximately $53,000 and $0, respectively.

Deferred Revenue

Payments received in advance from customers pursuant to certain collaborative research license agreements, deposits against future product sales, multiple element arrangements and extended warranties are recorded as a current or non-current deferred revenue liability based on the time from the condensed consolidated balance sheets date to the future date of revenue recognition.

Operating Leases

Effective April 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). In accordance with the guidance in Topic 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of Topic 842 (see Note 12 – Commitments and Contingencies for more information).

Property and Equipment, Net

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

 SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT

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 dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

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 would be recorded.

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 the purchase of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance, and the Company’s rationale for entering into the transaction.

If a business is acquired, as defined under the applicable accounting standards, then the acquired IPR&D is capitalized as an intangible asset. If an asset or group of assets is acquired that do not meet the definition under the applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense in the Company’s 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 10 – 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.

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 $101,000 and $60,000, respectively, as of June 30, 2022 and December 31, 2021 and are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Warranty costs were approximately $22,000 and $20,000 for the three months ended June 30, 2022 and 2021, respectively, and approximately $41,000 and $41,000 for the six months ended June 30, 2022 and 2021, respectively, and are included in cost of product sales in the condensed consolidated statements of operations and other comprehensive loss.

Foreign Currency Translation

The functional currency for the Company is the U.S. dollar. The functional currency for 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 $65,540 at June 30, 2022.

Recent Accounting Pronouncements

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

Impact of the COVID-19 Pandemic

Events surrounding the SARS-CoV-2 virus that emerged in late 2019 and the ensuing global pandemic have had a dramatic impact on businesses globally and our business as well. Our sales of diagnostic products fell significantly during 2020 and our net loss increased significantly, as deferral of patients’ non-emergency visits to physician offices, clinics and small hospitals sharply reduced demand for FastPack tests. Since then we have experienced some recovery in demand. The severity and duration of the pandemic and economic repercussions of the virus and government actions taken in response to the pandemic remain uncertain and will ultimately depend on many factors, including the speed of global dissemination and effectiveness of the vaccination and containment efforts throughout the world, the duration and spread of the virus, as well as seasonality, variants or new outbreaks.

In the United States, federal, state, and local government directives and policies have been put in place throughout the course of the pandemic to manage public health concerns and address the economic impacts of the pandemic, including reduced business activity and overall uncertainty presented by this new healthcare challenge. Similar actions have been taken by governments around the world. Our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates or as a result of the pandemic. To mitigate risks, we continue to evaluate the extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.

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

NOTE 2 — LIQUIDITY

The Company has incurred recurring losses from operations and has an accumulated deficit at June 30, 2022. The Company expects to continue to incur losses subsequent to the condensed consolidated balance sheet date of June 30, 2022. In December 2021, the Company raised $8.82 million through a Securities Purchase Agreement with several institutional investors.

Based on the Company’s current cash position, and assuming currently planned expenditures and level of operations, the Company believes it has sufficient capital to fund operations for the 12-month period subsequent to the issuance of the accompanying unaudited condensed financial statements. We will need substantial additional funding to continue our operations, particularly for QN-302 clinical trials, to continue preclinical development of QN-247 and RAS-F, and to continue funding the NanoSynex operations. (see Note 3 - Acquisition)

As a pre-clinical development-stage therapeutics biotechnology company, we expect to continue to have net losses and negative cash flow from operations, which over time will challenge our liquidity. There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis. In order to fully execute our business plan, we will require significant additional financing for planned research and development activities, capital expenditures, clinical and pre-clinical testing and commercialization activities. 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.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

As a condition to the NanoSynex closing, the Company agreed to provide NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Master Agreement for the Operational and Technological Funding of NanoSynex (the “Funding Agreement”) entered into with NanoSynex. These funding commitments are in the form of convertible promissory notes to be issued to the Company with a face value equal to the amount paid by the Company to NanoSynex upon satisfaction of the applicable performance milestone, bearing interest at the rate of 9% per annum on the principal balance from time to time outstanding under the particular promissory note, convertible at the option of the Company into additional shares of NanoSynex in order for the Company to maintain at least a 50.1% controlling ownership interest in NanoSynex, should NanoSynex issue additional shares. The principal of the convertible notes are due and payable upon the sooner to occur of: i) five years from the date of issuance of the particular promissory note; ii) the acquisition by any person or entity of all or substantially all of the share capital of NanoSynex, through share purchase, issuance or shares or merger of NanoSynex, or the purchase of all or substantially all of the assets of NanoSynex; or iii) the initial public offering of NanoSynex. The Company provided funding to NanoSynex of $1.5 million on July 5, 2022 pursuant to this agreement. The Company may terminate the Funding Agreement after October 29, 2022 upon 120 days’ notice.

NOTE 3 — ACQUISITION

Business Combination

The Company acquired a 52.8% voting equity interest in NanoSynex on May 26, 2022 (the “Acquisition Date”) through: (1) the purchase of 2,232,861 shares Preferred A-1 Stock of NanoSynex for 3,500,000 shares of the Company’s common stock and a prefunded warrant to purchase 3,314,641 shares of the Company’s common stock at a purchase price of $0.001 per share and, (2) the purchase of 381,786 shares of Series B preferred stock of NanoSynex from NanoSynex in exchange for $600,000.

The acquisition of the majority interest of NanoSynex was accounted for as a business combination using the acquisition method, in accordance with FASB ASC Topic 805. A summary of the consideration transferred and recorded fair value of assets acquired and liabilities assumed in the NanoSynex acquisition is as follows:

 SCHEDULE OF CONSIDERATION TRANSFERRED

 SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES

The purchase accounting adjustments are preliminary and subject to revision within the measurement period provided by ASC Topic 805. Qualigen transaction costs, which were immaterial, have been expensed as incurred and charged to the Company’s consolidated statements of operations and other comprehensive loss. There was no provision for reimbursement of transaction costs from Qualigen to NanoSynex.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired as of the acquisition date. Goodwill represents the value of the future technology to be developed in excess of the identifiable assets as well as the operational synergies of the combined companies to be recognized. Goodwill has an indefinite useful life and is not amortized.

As a condition to the closing, the Company agreed to provide NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Funding Agreement entered into with NanoSynex (see Note 2 - Liquidity for further details regarding the terms and conditions of the Funding Agreement).

The Company’s condensed consolidated statement of operations and other comprehensive loss for the three and six months ended June 30, 2022 includes $8,722 of net loss associated with the results of operations of NanoSynex from the Acquisition Date to June 30, 2022.

The following pro forma information has been prepared as if the NanoSynex acquisition occurred on January 1, 2021. The following unaudited supplemental pro forma consolidated results do not purport to reflect what the combined Company’s results of operations would have been, nor do they project the future results of operations of the combined company. The unaudited supplemental pro forma consolidated results reflect the historical financial information of Qualigen and NanoSynex, adjusted to give effect to the NanoSynex acquisition as if it had occurred on January 1, 2021, as well as to record NanoSynex stock compensation expense and to record the net loss related to the noncontrolling interest, in accordance with generally accepted accounting principles.:

 SCHEDULE OF PRO FORMA INFORMATION

NOTE 4 — INVENTORY, NET

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

 SCHEDULE OF INVENTORY

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS 

NOTE 6 — PROPERTY AND EQUIPMENT, NET

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

 SCHEDULE OF PROPERTY AND EQUIPMENT

Depreciation expense relating to property and equipment was approximately $24,000 and $17,000 for the three months ended June 30, 2022 and 2021, respectively, and $48,000 and $32,000 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 7 — GOODWILL, IPR&D AND OTHER INTANGIBLES

 SCHEDULE OF GOODWILL AND OTHER INTANGIBLE

The carrying value of the patents of approximately $150,000 and $159,000 at June 30, 2022 and December 31, 2021, respectively, are stated net of accumulated amortization of approximately $329,000 and $320,000, respectively. Amortization of patents charged to operations for the three months ended June 30, 2022 and 2021 was approximately $5,000 and $4,000 respectively, and for the six months ended June 30, 2022 and 2021 was approximately $9,000 and $7,000, respectively. Total future estimated amortization of patent costs for the five succeeding years is approximately $9,000 for the remaining six months in the year ending December 31, 2022, approximately $18,000 for year 2023, approximately $15,000 for year 2024, approximately $14,000 for years 2025, 2026 and 2027.

The carrying value of the in-licenses of approximately $9,000 and $12,000 at June 30, 2022 and December 31, 2021, respectively, are stated net of accumulated amortization of approximately $410,000 and $407,000, respectively, and amortization of licenses charged to operations for both the three months ended June 30, 2022 and 2021 was approximately $2,000. Amortization of licenses charged to operations for both the six months ended June 30, 2022 and 2021 was approximately $3,000. Total future estimated amortization of license costs is approximately $4,000 for the remaining six months in the year ending December 31, 2022, and approximately $5,000 for the year ending December 31, 2023.

NOTE 8 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

 SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

NOTE 9 – SHORT TERM DEBT-RELATED PARTY

NanoSynex has four separate Notes Payable (‘the Notes”) outstanding to Alpha Capital, dated between March 26, 2020 and September 2, 2021, aggregating to a total principal outstanding balance of $905,000, and aggregate accrued interest of $34,919 for a total outstanding balance of $939,919 as of June 30, 2022. The Notes all accrue interest at 2.62% per annum, accrued daily and provide that the full amount of principal and interest under each Note shall be due immediately prior to a Liquidation Event (the Maturity Date) unless due earlier in accordance with the terms of the Notes. “Liquidation Event” means either i) the merger or consolidation of NanoSynex into any other entity, other than one in control or under control of NanoSynex or NanoSynex’s majority shareholder; ii) a transaction or series of transactions resulting in the transfer of all or substantially all of NanoSynex’s assets or issued and outstanding share capital (other than to a company under the control of NanoSynex or NanoSynex’s majority shareholders; or iii) an underwritten public offering by NanoSynex of its ordinary shares. Notwithstanding the above, if NanoSynex receives subsequent debt, convertible debt, or equity funding with gross proceeds of USD $3,000,000 or more, then these Notes shall be due and payable upon the actual receipt of such funding.

NOTE 10 – WARRANT LIABILITIES

In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, pursuant to the Series C Warrant terms as adjusted.

In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase an aggregate of 4,713,490 shares of the Company’s common stock at approximately $0.72 per share, subject to adjustment. As of June 30, 2022, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 1.4 to 1.9 years. The warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, resulting from inclusion of a leveraged ratchet provision for subsequent dilutive issuances. On April 25, 2022 the warrants were repriced from $0.7195 to $0.60 with an additional 493,187 ratchet shares issued, and on May 26, 2022 the warrants were repriced from $0.60 to $0.5136 with an additional 499,520 ratchet shares issued. As a result of these repricings, 2,476,251 warrants were forfeited and 3,468,958 warrants were reissued at the current $0.5136 exercise price.

The following table summarizes the activity in the Common Stock Warrants (received in exchange for the Series C Warrants) for the six months ended June 30, 2022:

SCHEDULE OF WARRANTS ACTIVITY

The following table summarizes the activity in the Common Stock Warrants (received in exchange for the Series C Warrants) activity for the six months ended June 30, 2021:

The following table presents the Company’s fair value hierarchy for its warrant liabilities and exercises (all of which arise under the warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis using Level 3 inputs as of June 30, 2022:

SCHEDULE OF FAIR VALUE HIERARCHY FOR WARRANT LIABILITIES

There were no transfers of financial assets or liabilities between category levels for the three and six months ended June 30, 2022.

The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.

The following table shows the range of assumptions used in estimating the fair value of warrant liabilities as of June 30, 2022 and 2021:

SCHEDULE OF ASSUMPTIONS OF WARRANT LIABILITIES

NOTE 11 — 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.

The following table reconciles net loss and the weighted-average shares used in computing basic and diluted EPS in the respective periods:

SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED

The following potentially dilutive securities have been excluded from diluted net loss per share as of June 30, 2022 and 2021 because their effect would be antidilutive:

SCHEDULE OF DILUTIVE SECURITIES EXCLUDED FROM DILUTED NET LOSS PER SHARE

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, 2022, including the changes during the periods:

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

As of June 30, 2022, the Company’s operating leases have a weighted-average remaining lease term of 5.4 years and a weighted-average discount rate of 8.9%.

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

SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES

Total lease expense was approximately $119,000 and $86,000 for the three months ended June 30, 2022 and 2021, respectively, and approximately $233,000 and $172,000, respectively, for the six months ended June 30, 2022 and 2021. Lease expense was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.

Termination of Sekisui Distribution Agreement

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

NanoSynex Funding Commitment

As a condition to the closing, the Company agreed to provide NanoSynex with up to $10.4 million of future funding based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Funding Agreement entered into with NanoSynex (see Note 2 – Liquidity for further details regarding the terms and conditions of the Funding Agreement).

Litigation and Other Legal Proceedings

On November 9, 2021, the Company was named as a defendant in an action brought by Mediant Communications Inc. (“Mediant”) in the U.S. District Court for the Southern District of New York. The complaint alleged that Qualigen entered into an implied contract with Mediant, whereby Qualigen retained Mediant to distribute proxy materials and subsequently conduct shareholder vote tabulations. The Company filed a Motion to Dismiss with the District Court and on March 14, 2022 a hearing was held during which the presiding judge ruled in favor of the Motion to Dismiss. The Company and Mediant settled the litigation on April 5, 2022 in the amount of $96,558, at which time the amount was paid.

NOTE 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 will take over development, regulatory approval and commercialization of the compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received a $50,000 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 would also pay another $500,000 milestone payment for any additional regulatory marketing approval for each additional therapeutic (or diagnostic) indication. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $10,000 to $50,000) for such year.

Sponsored research expenses related to these agreements for the three months ended June 30, 2022 and 2021 were approximately $77,000 and $89,000, respectively, and for the six months ended June 30, 2022 and 2021 were approximately $164,000 and $152,000, 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 $14,000 and $17,000 related to these agreements for the three months ended June 30, 2022 and 2021, respectively, and approximately $69,000 and $53,000 related to these agreements for the six months ended June 30, 2022 and 2021, 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, 2022 and 2021 were approximately $220,000 and $99,000, respectively, and for the six months ended June 30, 2022 and 2021 were approximately $405,000 and $206,000, 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, 2022 and 2021 were approximately $16,000 and $0, respectively, and for the six months ended June 30, 2022 and 2021 were approximately $18,000 and $40,000, 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, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of QN-165 as a treatment for COVID-19, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patents, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to June 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments would be $50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000 of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $5,000 to $50,000) for such year.

Sponsored research expenses related to these agreements for the three months ended June 30, 2022 and 2021 were $0 and approximately $25,000, respectively, and for the six months ended June 30, 2022 and 2021 were $0 and $94,000, 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, 2022 and 2021 were $0 and $16,000, respectively, and for the six months ended June 30, 2022 and 2021 were $0 and $16,000, respectively.

Advanced Cancer Therapeutics

In December 2018, the Company entered into a license agreement with Advanced Cancer Therapeutics, LLC (“ACT”), granting the Company exclusive rights to develop and commercialize QN-165, an aptamer-based drug candidate. In return, ACT received a $25,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s common stock. In addition, the Company agreed to pay ACT (i) royalties, on net sales associated with the commercialization of QN-165, of 2% (only if patent-covered and only on net sales above a cumulative $3,000,000) or 1% (if not patent-covered, but only on net sales above a cumulative $3,000,000), until the 15th anniversary of the ACT license agreement and (ii) milestone payments of $100,000 for the Company raising a cumulative total of $2,000,000 in new equity financing after the date of the ACT license agreement, $100,000 upon any first QN-165-based licensed product receiving the CE Mark or similar FDA status, and $500,000 upon cumulative worldwide QN-165-based licensed product net sales reaching $3,000,000. For the three months ended June 30, 2022 and 2021, there were no license costs, and for the six months ended June 30, 2022 and 2021, there were $0 and approximately $2,000, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.

Prediction Biosciences

In November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences SAS to develop and manufacture diagnostic tests for use in the stroke point-of-care market. The Company recognizes development revenue and product sales over the performance period of the contract. For both the three and six months ended June 30, 2022 and 2021, there was no collaborative research revenue related to this agreement.

Sekisui Diagnostics

In March 2018, the Company extended a strategic partnership entered into in May 2016 with Sekisui. The Company appointed Sekisui as its diagnostics commercial partner and exclusive worldwide distributor with the exception of certain customer accounts retained by Qualigen. Sekisui’s distribution arrangement expired on March 31, 2022.

Under the terms of the arrangement, there were product sales to Sekisui of $0 and approximately $701,000, respectively, for the three months ended June 30, 2022 and 2021, and approximately $403,000 and $1.72 million, respectively, for the six months ended June 30, 2022 and 2021.

Yi Xin

In October 2020, the Company entered into a Technology Transfer Agreement with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi Xin”), of Suzhou, China, for Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on the Company’s core FastPack technology. In addition, the Technology Transfer Agreement authorized Yi Xin to manufacture and sell the Company’s current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.

The Company will receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. The Company recognized $0 and approximately $38,000 in product sales and $0 and approximately $479,000 in license revenue included in the statement of operations for the three months ended June 30, 2022 and 2021, respectively. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization.

The Company gave Yi Xin the exclusive rights for China – which is a market the Company has not otherwise entered – both for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of the Company’s existing FastPack product lines. Yi Xin will also have the right to sell its new generations of FastPack-based diagnostic test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack products). After March 31, 2022, Yi Xin has the right to sell Yi Xin-manufactured versions of existing FastPack 1.0, IP and PRO product lines worldwide (other than in the United States and other than to or toward current non-U.S. customers of those products), as well as the right to buy Company-manufactured FastPack 1.0, IP and PRO products from the Company at distributor prices for resale in and for the United States (but not to or toward current U.S. customers of those products); the Company did not license Yi Xin to sell in the United States market any Yi Xin-manufactured versions of those legacy FastPack 1.0, IP and PRO product lines. In the Technology Transfer Agreement, the Company also confirmed that it would not, after March 31, 2022, seek new FastPack customers outside the United States.

STA Pharmaceutical

In November 2020, the Company entered into a contract with STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, for GMP production of QN-165, which was the Company’s lead drug candidate for the treatment of COVID-19 and other viral diseases, for potential clinical trials in 2021.

Research and development expenses related to this agreement for the three months ended June 30, 2022 and 2021 were $0 and $1.9 million, respectively, and for the six months ended June 30, 2022 and 2021 were approximately $9,000 and $3.1 million, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.

UCL Business Limited

In January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is now being developed at Qualigen under the name QN-302 as a candidate for treatment for pancreatic ductal adenocarcinoma (PDAC), which represents the vast majority of pancreatic cancers. The License Agreement required a $150,000 upfront payment, reimbursement of past patent prosecution expenses (approximately $160,000), and (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments and a percentage of any non-royalty sublicensing consideration paid to Qualigen.

For both the three months ended June 30, 2022 and 2021, there were license costs of $0, and for the six months ended June 30, 2022 and 2021 there were license costs of approximately $310,000 and $0, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations and other comprehensive loss.