Qualigen Therapeutics Inc

(Unaudited)

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

Organization

Ritter Pharmaceuticals, Inc. (the Company’s predecessor) was formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. In September 2008, this company converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc. On May 22, 2020, upon completing a “reverse recapitalization” transaction with Qualigen, Inc., Ritter Pharmaceuticals, Inc. was renamed Qualigen Therapeutics, Inc. (the “Company”). Qualisys Diagnostics, Inc. was formed as a Minnesota corporation in 1996, reincorporated to become a Delaware corporation in 1999, and then changed its name to Qualigen, Inc. in 2000. Qualigen, Inc. was a wholly-owned subsidiary of the Company. On July 20, 2023, the Company sold all of the issued and outstanding shares of common stock of Qualigen, Inc. to Chembio Diagnostics, Inc. (“Chembio”), a wholly-owned subsidiary of Biosynex, S.A. (“Biosynex”). Following the consummation of this transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio (see Note 5 – Discontinued Operations).

On May 26, 2022, the Company acquired 2,232,861 shares of Series A-1 Preferred Stock of NanoSynex, Ltd. (“NanoSynex”) from Alpha Capital Anstalt (“Alpha”), a related party, in exchange for 350,000 reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share. These warrants were subsequently exercised on September 13, 2022. Concurrently with this transaction, the Company also entered into a Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, with NanoSynex (the “NanoSynex Funding Agreement”), to, among other things, provide for the further funding of NanoSynex, and purchased 381,786 shares of Series B preferred stock from NanoSynex for a total purchase price of $600,000. The transactions resulted in the Company acquiring a 52.8% interest in NanoSynex (the “NanoSynex Acquisition”). NanoSynex is a nanotechnology diagnostics company domiciled in Israel. On July 20, 2023, the Company entered into an Amendment and Settlement Agreement with NanoSynex (the “NanoSynex Amendment”), which amended the NanoSynex Funding Agreement, to, among other things, eliminate most of the Company obligation for the further funding of NanoSynex. Pursuant to the terms of the NanoSynex Amendment, the Company lost its controlling interest in NanoSynex (see Note 5 -Discontinued Operations).

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 former wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. In general, the functional currency of the Company and its subsidiaries is the U.S. dollar. For NanoSynex, the functional currency was the local currency, New Israeli Shekels (NIS). As such, assets and liabilities for NanoSynex were translated into U.S. dollars with the effects of foreign currency translation adjustments reflected as a component of accumulated other comprehensive loss within the Company’s condensed consolidated statements of changes in stockholders’ equity (deficit).

As of July 20, 2023, NanoSynex was deconsolidated from these financial statements as the transactions contemplated by the NanoSynex Amendment resulted in a loss of control of a subsidiary that constitutes a business under ASC 810. The retained investment in NanoSynex is accounted for prospectively as an equity method investment. See Note 5 – Discontinued Operations for further information.

Discontinued Operations

On July 20, 2023, the Company completed the sale of Qualigen, Inc. to Chembio Diagnostics, Inc. The sale of Qualigen Inc. constituted a significant disposition and as such, the Company concluded that the disposition of ownership in Qualigen, Inc. represented a strategic shift that had a major effect on its operations and financial results. Therefore, Qualigen, Inc. is classified as discontinued operations for all periods presented herein.

On July 20, 2023, the Company entered into the NanoSynex Amendment, which amended the Master Funding Agreement for the Operational and Technology Funding of NanoSynex Ltd., dated May 26, 2022, by and between the Company and NanoSynex (the “NanoSynex Funding Agreement”), a former majority owned subsidiary of the Company, to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in the deconsolidation of NanoSynex. The disposition represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the business of NanoSynex is classified as discontinued operations for all periods presented herein.

See Note 5 - Discontinued Operations for further information.

Equity Method Investments

Following deconsolidation of NanoSynex on July 20, 2023, the Company accounts for its retained investment under the equity method of accounting as it retained the ability to exercise significant influence over the operating and financial policies of the investee. Under the equity method, the Company recognizes its proportionate share earnings or losses each reporting period with an adjustment to the carrying value of the investment. As of December 31, 2023, the carrying value of the retained investment was zero, and therefore the Company has suspended application of the equity method as the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods. See Note 5 – Discontinued Operations for further information.

Accounting Estimates

Management uses estimates and assumptions in preparing its condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of derivative financial instruments, warrant liabilities, and stock-based compensation. Actual results could vary from the estimates that were used.

Reverse Stock Split

On November 23, 2022, the Company effected a 1-for-10 reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced the Company’s shares of outstanding common stock, stock options, and warrants to purchase shares of common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash 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.

The Company maintains the majority of its cash in government money market mutual funds and in accounts at banking institutions in the U.S. that are of high quality. Cash held in these accounts often exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. If such banking institutions were to fail, the Company could lose all or a portion of amounts held in excess of such insurance limitations. In March 2023, Silicon Valley Bank and Signature Bank, and in May 2023, First Republic Bank, were closed due to liquidity concerns and taken over by the FDIC. While the Company did not have an account at any of these banks, in the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect the Company’s business and financial position.

Impairment of Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that assets may not be recoverable. An impairment loss would be recognized when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The amount of impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. During the three months ended March 31, 2024 and 2023, 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 in Israel prior to the NanoSynex deconsolidation).

Research and Development

Except for acquired in process research and development (IPR&D), the Company expenses research and development costs as incurred including therapeutics license costs.

Patent Costs

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the condensed consolidated statement of operations.

Business Combinations

The Company accounts for business combinations using the acquisition method pursuant to Financial Accounting Standards Board’s (“FASB”) ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company’s financial results beginning on the respective acquisition 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.

Derivative Financial Instruments and Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations and comprehensive loss. Depending on the features of the derivative financial instrument, the Company uses either the Black-Scholes option-pricing model or a Monte-Carlo simulation to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 7-Warrant Liabilities and Note 8- Convertible Debt - Related Party).

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 related to the discontinued operations of NanoSynex. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity (deficit) for all periods presented.

Stock-Based Compensation

Stock-based compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line method, over the requisite service period (generally the vesting period of the equity grant). If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility, lower risk-free interest rates, and longer expected lives would result in an increase to stock-based compensation expense to employees and non-employees determined at the date of grant.

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.

In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.

Foreign Currency Translation

The functional currency for the Company is the U.S. dollar. The functional currency for the discontinued operations of NanoSynex was the New Israeli Shekel (NIS). The financial statements of NanoSynex were translated into U.S. dollars using exchange rates in effect at each period end for assets and liabilities; using exchange rates in effect during the period for results of operations; and using historical exchange rates for certain equity accounts. The adjustment resulting from translating the financial statements of NanoSynex was reflected as a separate component of other comprehensive income (loss) (see Note 5 - Discontinued Operations).

Global Economic Conditions

Ongoing Wars in Ukraine and Israel

In February 2022, Russia invaded Ukraine. While the Company has no direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact to the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on regional and global economic conditions.

In October 2023, Hamas conducted terrorist attacks in Israel resulting in ongoing war. There continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which have resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Popular uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect the Company’s minority interest in NanoSynex, its results of operations, financial condition, cash flows and prospects (see Note 5 – Discontinued Operations).

Inflation and Global Economic Conditions

During the year ended 2022 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to government stimulus and recovery programs, government deficit spending and supply chain issues. The Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, the global economy suffers from slowing growth and rising interest rates, and some economists believe that there may be a global recession in the near future. If the global economy slows, the Company’s business may be adversely affected.

Impact of COVID-19 Pandemic

The COVID-19 pandemic has had a dramatic impact on businesses globally and on the Company’s business as well. During the height of the pandemic, sales of diagnostic products decreased significantly and the Company’s net loss increased significantly, as clinics and small hospitals’ demand for Qualigen, Inc.’s FastPack™ diagnostic test kits was reduced sharply, largely due to deferral of patients’ non-emergency visits to physician offices. In July 2023 the Company sold Qualigen, Inc., its wholly-owned subsidiary, to Chembio (see Note 5 - Discontinued Operations).

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.

NOTE 2 —LIQUIDITY

As of March 31, 2024, we had approximately $0.1 million in cash and an accumulated deficit of $118.8 million. For the three months ended March 31, 2024 and 2023, we used cash of $0.8 million and $2.6 million, respectively, in operations.

The Company’s cash balances as of the date that these financial statements were issued, without additional financing, are expected to fund operations only into the third quarter of 2024. The Company expects to continue to have net losses and negative cash flow from operations, which will challenge its liquidity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued. There is no assurance that profitable operations will ever be achieved, or, if achieved, could be sustained on a continuing basis.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2022 the Company raised $3.0 million from the sale of an 8% Senior Convertible Debenture to Alpha and between February 2024 and April 2024 the Company raised $1.5 million from the sale of an additional Convertible Debentures (see Note 8 - Convertible Debt - Related Party and Note 14 - Subsequent Events). There can be no assurance that further financing can be obtained on favorable terms, or at all. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect the Company’s business prospects.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements.

NOTE 3 —PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following at March 31, 2024 and December 31, 2023:

NOTE 4 —OTHER NON-CURRENT ASSETS

Other non-current assets consisted of the following at December 31, 2023:

NOTE 5 —DISCONTINUED OPERATIONS

The summary of gain (loss) from discontinued operations, net of tax, for the three months ended March 31, 2024 and 2023 are as follows:

Sale of Qualigen, Inc.

On July 20, 2023, the Company completed the sale of Qualigen, Inc., its formerly wholly-owned subsidiary, to Chembio Diagnostics, Inc. for net cash consideration of $5.4 million, of which $4.9 million was received during the year ended December 31, 2023, and $450,000 was being held in escrow until January 20, 2025 to provide an available fund for payment of potential Company indemnification obligations. On June 4, 2024, the escrow account (reflected in prepaid expenses and other current assets on the Company’s March 31, 2024 balance sheet), was settled early by mutual agreement of the Company and the buyer. (See Note 14 - Subsequent Events.)

There were no assets and liabilities remaining related to Qualigen, Inc. as of March 31, 2024 or December 31, 2023.

There was no activity related to Qualigen, Inc. during the three months ended March 31, 2024. The Company reclassified the following statement of operations items to discontinued operations for the three months ended March 31, 2023:

Amendment and Settlement Agreement with NanoSynex Ltd.

On July 20, 2023, the Company entered into and effectuated the NanoSynex Amendment, reducing its ownership from approximately 52.8% to approximately 49.97% of the voting equity of NanoSynex, and deconsolidation of the subsidiary. On November 22, 2023, the Company further agreed to eliminate the Company’s obligations to lend additional funds to NanoSynex by surrendering shares of Series A-1 Preferred Stock of NanoSynex in an amount that reduced the Company’s ownership in NanoSynex voting equity from approximately 49.97% to 39.90%.

On the date of deconsolidation, the Company recognized its retained investment at fair value, which during the preparation of these financial statements was determined to be de minimis based on various economic, industry, and other factors. As a result, the Company has discontinued recognition of its proportionate share of equity method losses following the date of initial recognition. Future equity method earnings, if any, will not be recognized until the amount exceeds the unrecognized net losses in prior periods.

There were no assets and liabilities recognized related to NanoSynex as of March 31, 2024 or December 31, 2023.

There was no activity related to NanoSynex during the three months ended March 31, 2024. The Company reclassified the following statement of operations items to discontinued operations for the three months ended March 31, 2023:

NOTE 6 —ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at March 31, 2024 and December 31, 2023:

NOTE 7 –WARRANT LIABILITIES

In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company. The Series C Warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, based on the inclusion of a leveraged ratchet provision for subsequent dilutive issuances. As of December 31, 2022 there were 1,349,570 Series C Warrants outstanding with an exercise price of $1.32 per share.

On December 22, 2022, in conjunction with the issuance of the Debenture to Alpha (see Note 8 – Convertible Debt – Related Party), the Company issued to Alpha a warrant to purchase 2,500,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant was $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha, in whole or in part, on or after June 22, 2023 and at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant. The fair value of this Alpha Warrant was included in Warrant liabilities-related party on the Company’s consolidated balance sheet as of December 31, 2022. On December 5, 2023, the Company entered into an Amendment No. 1 with regard to a Securities Purchase Agreement, with Alpha. This Amendment eliminated certain adjustment provisions of the Warrant. The Company determined the event resulted in equity classification for the Warrant and, accordingly, the Company remeasured the warrant liabilities to fair value, and reclassified to equity.

On November 24, 2023,1,097,599 Series C Warrants expired, and on December 5, 2023 the remaining Series C Warrants were repriced from an exercise price of $1.32 per share to an exercise price of $0.73 per share, with 203,652 additional ratchet Series C Warrants issued, resulting in 455,623 of these Series C Warrants outstanding and exercisable as of December 31, 2023.

On February 27, 2024, these Series C Warrants were repriced again as a result of a down-round provision triggered by a Securities Purchase Agreement with Alpha for the purchase of the February 2024 Debenture, from an exercise price of $0.73 per share to an exercise price of $0.26 per share, with 823,633 additional ratchet Series C Warrants issued, resulting in 1,279,256 of these Series C Warrants outstanding and exercisable as of March 31, 2024, with a remaining term of 0.24 years.

The following table summarizes the activity in liability classified warrants for the three months ended March 31, 2024:

The following table summarizes the activity in liability classified warrants for the three months ended March 31, 2023:

The following table presents the Company’s fair value hierarchy for its Common Stock Warrant liabilities measured at fair value on a recurring basis as of March 31, 2024:

There were no transfers of financial assets or liabilities between category levels for the three months ended March 31, 2024.

The value of the warrant liabilities was based on a valuation received from an independent valuation firm. 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 assumptions used in estimating the fair value of warrant liabilities as of March 31, 2024, and the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities as of March 31, 2023:

NOTE 8 —CONVERTIBLE DEBT - RELATED PARTY

2022 Convertible Debenture

On December 22, 2022, we issued to Alpha an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022 (the “2022 Securities Purchase Agreement”). The 2022 Debenture has a maturity date of December 22, 2025 and is convertible, at any time, and from time to time, until the 2022 Debenture is no longer outstanding, at Alpha’s option, into shares of our common stock (the “Conversion Shares”), at a price initially equal to $1.32 per share, subject to adjustment as described in the 2022 Debenture and other terms and conditions described in the 2022 Debenture. On July 13, 2023, we obtained stockholder approval, for purposes of complying with Nasdaq Listing Rule 5635(d), for the issuance to Alpha of more than 20% of our issued and outstanding shares of common stock pursuant to the terms and conditions of (a) the 2022 Debenture, and (b) the common stock purchase warrant dated December 22, 2022 issued by us to Alpha. Between January 9 and 12, 2023, we issued 841,726 shares of common stock upon Alpha’s partial conversion of the 2022 Debenture at $1.32 per share for a total of $1,111,078 principal. In October and December 2023, we issued 309,665 shares of common stock to Alpha in lieu of cash for monthly redemption payments on the 2022 Debenture at a weighted average price of $0.71 per share. In January, February, and March 2024, we issued 1,138,535 shares of common stock to Alpha in lieu of cash for monthly redemption payments on the 2022 Debenture at a weighted average price of $0.33 per share. As of March 31, 2024, approximately 3,995,854 shares of common stock were issuable under the 2022 Debenture, based on the $0.26 per share figure. The 2022 Debenture includes a beneficial ownership blocker of 9.99%, which may only be waived by Alpha upon 61 days’ notice to us. Except in respect of an Exempt Issuance (as defined in the 2022 Securities Purchase Agreement), the 2022 Debenture contains a “ratchet” antidilution provision, with a $0.26 floor.

Commencing June 1, 2023 (the “Initial Monthly Redemption Date”) and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the 2022 Debenture (each such date, a “Monthly Redemption Date”), we must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the 2022 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 our common stock, based on a conversion price equal to the lesser of (i) the then conversion price of the 2022 Debenture and (ii)85% of the average of the VWAPs (as defined in the 2022 Debenture) for the five consecutive trading days ending on the trading day that is immediately before the applicable Monthly Redemption Date, subject to the Equity Conditions (as defined in the 2022 Debenture) having been satisfied or waived.

The 2022 Debenture accrues interest at the rate of 8% per annum, which did not begin accruing until December 1, 2023, and will be payable on a monthly or quarterly basis. Interest may be paid in cash or shares of our common stock or a combination thereof at our option;provided thatinterest may only be paid in shares if the Equity Conditions have been satisfied or waived.

In December 2022, pursuant to the terms of the 2022 Securities Purchase Agreement, we entered into a registration rights agreement with Alpha (the “Registration Rights Agreement”), pursuant to which we agreed to file one or more registration statements, as necessary, and to the extent permissible, to register under the Securities Act the resale of the remaining shares (underlying the 2022 Debenture and the 2022 Warrant) not otherwise registered under the Company’s registration statement on Form S-3 (File No. 333-266430). The Registration Rights Agreement requires that the Company file, within 30 days after signing, a resale registration statement and use commercially reasonable efforts to cause the resale registration statement to be declared effective by the SEC on or before the 60 thcalendar day following the date of signing of the Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC). We filed a resale registration statement on Form S-3 pursuant to the requirements of the Registration Rights Agreement on December 2022 (File Number 333-269088), which registration statement was declared effective by the SEC on January 5, 2023. On September 1, 2023, we filed a Post-Effective Amendment No. 1 to Form S-3 on Form S-1 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on September 7, 2023. On May 1, 2024, we filed a Post-Effective Amendment No. 2 to Form S-1 on Form S-3 (File No. 333-269088), which Post-Effective Amendment was declared effective by the SEC on May 2, 2024.

The Company evaluated the 2022 Debenture and the 2022 Warrant and determined that the 2022 Warrant is a freestanding financial instrument. Initially, the 2022 Warrant is not considered indexed to the Company’s own stock, because the settlement amount would not equal the difference between the fair value of a fixed number of the Company’s equity shares and a fixed strike price and all of the adjustment features in Section 3(b) of the Alpha Warrant are not down round provisions, as defined in ASU 2017-11. Accordingly, the 2022 Warrant was classified as a liability and recognized at fair value, with subsequent changes in fair value recognized in earnings.

The proceeds from the 2022 Debenture were allocated to the initial fair value of the 2022 Warrant, with the residual balance allocated to the initial carrying value of the 2022 Debenture. The Company has not elected the fair value option for the 2022 Debenture. The 2022 Debenture was recognized as proceeds received after allocating the proceeds to the 2022 Warrant, and then allocating remaining proceeds to a suite of bifurcated embedded derivative features (conversion option, contingent acceleration upon an Event of Default, and contingent interest upon an Event of Default), with the resulting difference, if any, allocated to the loan host instrument. The suite of derivative features was measured and determined to have no fair value.

The original issue discount of $0.3 million, the initial fair value of the 2022 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 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 2022 Debenture using the effective interest method, in accordance with ASC 835-30. The debt host instrument of the 2022 Debenture will subsequently be measured at amortized cost using the effective interest method to accrete interest over its term to bring the 2022 Debenture’s initial carrying value to the principal balance at maturity.

On December 5, 2023, the Company and Alpha executed Amendment No. 1 with regard to Securities Purchase Agreement (the “SPA Amendment”), pursuant to which the Company and Alpha agreed to, among other things, reduce the Conversion Price of the 2022 Debenture from $1.32 per share to $0.73 per share and reduce the exercise price of the 2022 Warrant from $1.65 per share to $0.73 per share, in each case subject to certain adjustments. In addition, the SPA Amendment revised certain provisions of the 2022 Warrant to (i) limit the circumstances which would trigger a potential adjustment to the exercise price of the 2022 Warrant and (ii) clarify the treatment of the 2022 Warrant upon a Fundamental Transaction. The purpose of these revisions was to remove the terms that caused the 2022 Warrant to be liability-classified under U.S. GAAP. The Company performed an assessment and concluded that all remaining adjustment features in the revised language meet the FASB’s definition of a down-round feature. In addition, the 2022 Warrant was determined to meet all of the additional requirements for equity classification. Accordingly, as of December 5, 2023, the Company remeasured the 2022 Warrant to its fair value immediately prior to the modification and recognized the change in fair value in earnings. The incremental fair value impact from the 2022 Warrant modification of $0.09 million was included in the Company’s evaluation of the 2022 Debenture modification under ASC 470, discussed further below. The Company then reclassified the 2022 Warrant liability to equity at its post-modification fair value of $1.6 million.

In accordance with ASC 470-50, the Company determined that the modified terms of the 2022 Debenture were substantially different when compared to the original terms that existed prior to the SPA Amendment, and thus the event was required to be accounted for as a debt extinguishment. Accordingly, the Company derecognized the net carrying value of the original Debenture, and recorded the new debt instrument at its fair value of $1.4 million, and recorded a $0.6 million loss on debt extinguishment. The difference between the remaining 2022 Debenture principal and its fair value on December 5, 2023 was recorded as a debt discount and will be amortized to interest expense over the expected term of the Debenture using the effective interest method, in accordance with ASC 835-30.

During the three months ended March 31, 2024, the Company recognized an extinguishment loss of approximately $147,000 upon debenture share redemptions, and recorded interest expense of approximately $68,000 in other expenses in the condensed consolidated statements of operations related to the 2022 Debenture.

2024 Alpha Debenture

On February 27, 2024, upon our receipt of a cash purchase price payment of $500,000 less expenses, we issued to Alpha an 8% Convertible Debenture (the “2024 Alpha Debenture”) in the principal amount of $550,000. The 2024 Alpha Debenture matures no later than December 31, 2024 and is convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at $0.6111 per share, subject to adjustment as described in the 2024 Alpha Debenture. Except in respect of an Exempt Issuance, the 2024 Alpha Debenture contains a “ratchet” antidilution provision, with an $0.1164 floor. The 2024 Alpha Debenture accrues interest on its outstanding principal balance at the rate of 8% per annum, payable at maturity. In connection with this issuance, we also issued to Alpha a 5-year common stock purchase warrant to purchase (at $0.26 per share)900,016 shares of our common stock. We also granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional 8% Convertible Debentures, of like tenor, with face amounts of up to an aggregate of $1,100,000 (and with a proportional number of accompanying common stock warrants of like tenor, up to a total of 1,800,032 additional warrants).

During the three months ending March 31, 2024 in connection with the 2024 Alpha Debenture, the Company recorded initial derivative liabilities with a fair value of $858,279, and recorded interest expense of $64,673 in other expenses in the condensed consolidated statements of operations related to the 2024 Alpha Debenture. The Securities Purchase Agreement related to the issuance of 2024 Alpha Debenture resulted in down-round provisions of various warrants being triggered which resulted in reductions of the exercise price of these warrants from $0.73 per share to $0.26 per share (see Note 7 - Warrant Liabilities and Note 12 - Stockholders Equity (Deficit).

As of March 31, 2024, there were no unwaived events of default or violation of any covenants under the Company’s financing obligations.

The following comprises the convertible debt-related party:

Derivative Liabilities

As of March 31, 2024, the fair value of derivative liabilities related to the 2024 Alpha Debenture was $693,782.

NOTE 9 —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.

The following potentially dilutive securities have been excluded from diluted net loss per share as of March 31, 2024 and 2023 because their effect would be anti-dilutive:

NOTE 10 —COMMITMENTS AND CONTINGENCIES

Litigation and Other Legal Proceedings

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of March 31, 2024, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.

NOTE 11 —RESEARCH AND LICENSE AGREEMENTS

UCL Business Limited

In January 2022, the Company entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound is now being developed at the Company under the name QN-302 as a candidate for treatment for pancreatic ductal adenocarcinoma, which represents the vast majority of pancreatic cancers. The License Agreement required a $150,000 upfront payment, reimbursement of past patent prosecution expenses of 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 the Company.

For the three months ended March 31, 2024 and 2023, there were license costs of approximately $2,000 and $5,000, respectively, related to this agreement which are included in research and development expenses in the condensed consolidated statements of operations.

QN-302 Phase 1 Study

In June 2023, the Company entered into a Master Clinical Research Services Agreement with Translational Drug Development, LLC (“TD2”) whereby TD2 agreed to perform certain clinical research and development services for the Company including but not limited to trial management, side identification and selection, site monitoring/management, medical monitoring, project management, data collection, statistical programming or analysis, quality assurance auditing, scientific and medical communications, regulatory affairs consulting and submissions, strategic consulting, and/or other related services. From time to time, the Company shall enter into statements of work with TD2 for the performance of specific services under this Master Clinical Research Services Agreement.

In June 2023, the Company entered into a Master Laboratory Services Agreement with MLM Medical Labs, LLC (“MLM”) whereby MLM agreed to perform certain clinical research and development services for the Company including but not limited to laboratory, supply, testing, validation, data management, and storage services. From time to time, the Company shall enter into work orders with MLM for the performance of specific services under this Master Laboratory Services Agreement.

In June 2023, the Company entered into a Master Services Agreement with Clinigen Clinical Supplies Management, Inc. (“Clinigen”) whereby Clinigen agreed to provide certain pharmaceutical products and/or services. From time to time, the Company shall enter into statements of work with Clinigen for the performance of specific services under this Master Services Agreement.

In July 2023, pursuant to the above agreements, the Company entered into work orders and statements of work for clinical trial services for the conduct of the QN-302 Phase 1 study.

The University of Louisville Research Foundation

In March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with University of Louisville Research Foundation, Inc. (“ULRF”) for development of several small-molecule RAS interaction inhibitor drug candidates. Under the terms of this agreement, the Company agreed to reimburse ULRF for sponsored research expenses of initially up to $693,000 for this program. This agreement was amended in February 2021, March 2022 and August 2023, with the current term of this agreement set to expire in December 2023 and the aggregate amount that the Company would reimburse ULRF for sponsored research expenses increased to approximately $2.9 million. In July 2020, the Company entered into an exclusive license agreement with ULRF for RAS interaction inhibitor drug candidates. Under the agreement, the Company took over development, regulatory approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization, of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution and maintenance of licensed patents, incurred prior to July 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the achievement of certain regulatory and commercial milestones. 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 RAS agreements for the three months ended March 31, 2024 and 2023 were zero and $223,000, respectively, and are recorded in research and development expenses in the condensed consolidated statements of operations. License costs related to these agreements for the three months ended March 31, 2024 and 2023 were approximately $25,000 and $14,000, respectively, and are included in research and development expenses in the condensed consolidated statements of operations.

Between June 2018 and April 2022, the Company entered into license and sponsored research agreements with ULRF for QN-247, a novel aptamer-based compound that has shown promise as an anticancer drug. Under the agreements, the Company took over development, regulatory approval and commercialization of the compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received a $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.

There wereno sponsored research expenses related to these QN-247 agreements for the three months ended March 31, 2024 and 2023. License costs were approximately $1,000 and $21,000 related to these QN-247 agreements for the three months ended March 31, 2024 and 2023, respectively, and are included in research and development expenses in the condensed consolidated statements of operations.

NOTE 12 —STOCKHOLDERS’ EQUITY (DEFICIT)

As of March 31, 2024 and December 31, 2023, the Company had two classes of capital stock: common stock and preferred stock.

Common Stock

Holders of common stock generally vote as a class with the holders of the preferred stock and are entitled to one vote for each share held. Subject to the rights of the holders of the preferred stock to receive preferential dividends, the holders of common stock are entitled to receive dividends when and if declared by the Board of Directors. Following payment of the liquidation preference of the preferred stock, any remaining assets will be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of any preferred stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions.

At March 31, 2024, the Company has reserved 10,449,689 shares of authorized but unissued common stock for possible future issuance as follows:

Preferred Stock

At March 31, 2024 and December 31, 2023, there wereno 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 both March 31, 2024 and December 31, 2023, there were 398,924 outstanding stock options under the 2020 Plan and on both such dates there were 356,791 shares reserved under the 2020 Plan for future grant.

The following represents a summary of the options granted under the 2020 Plan to employees and non-employee service providers that are outstanding at March 31, 2024, and changes during the three-month period then ended:

The following represents a summary of the options granted to employees and non-employee service providers that were outstanding at March 31, 2023, and changes during the three-month period then ended:

There was approximately $59,000 and $252,000 of compensation cost related to outstanding stock options for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was approximately $155,000 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 1.16 years.

The exercise price for an option issued under the 2020 Plan is determined by the Board of Directors, but will be (i) in the case of an incentive stock option (A) granted to an employee who, at the time of grant of such option, is a 10% stockholder, no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair market value per share on the date of grant; and (ii) in the case of a non-statutory stock option, no less than 100% of the fair market value per share on the date of grant. The options awarded under the 2020 Plan will vest as determined by the Board of Directors but will not exceed a 10-year period.

No stock options were granted or exercised during the three months ended March 31, 2024 and March 31, 2023.

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:

The Company recorded stock-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

Equity Classified Compensatory Warrants

As part of the May 2020 reverse recapitalization transaction, the Company issued equity classified compensatory common stock warrants to an advisor and its designees. In addition, various service providers hold equity classified compensatory common stock warrants issued in 2017 and earlier (originally exercisable to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock). These are to be differentiated from the Series C Warrants described in Note 7- Warrant Liabilities.

On February 27, 2024, as a result of a down-round provision triggered by a Securities Purchase Agreement with Alpha for the purchase of the February 2024 Debenture,67,620 warrants were repriced from $0.73 per share exercise price to $0.26 per share exercise price. The increase in fair value of $9,737 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.

No compensatory warrants were issued during the three months ended March 31, 2024 and March 31, 2023.

The following table summarizes the activity in the common stock equity classified compensatory warrants for the three months ended March 31, 2024:

The following table summarizes the activity in the common stock equity classified compensatory warrants for the three months ended March 31, 2023:

There were $9,737 in compensation costs related to outstanding warrants for the quarter ended March 31, 2024 and $0 for the quarter ended March 31, 2023. As of March 31, 2024 and March 31, 2023, there was no unrecognized compensation cost related to nonvested warrants.

Noncompensatory Equity Classified Warrants

On May 22, 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to Alpha (a related party) for the purchase of common stock.7,048 of these warrants remain outstanding and exercisable as of March 31, 2024 and may be exercised in whole or in part, at any time before May 22, 2025. On December 22, 2022, in conjunction with the issuance of a debenture to Alpha (see Note 8 – Convertible Debt – Related Party), the Company issued to Alpha a warrant to purchase 2,500,000 shares of the Company’s common stock. The exercise price of this warrant was initially $1.65, and may be exercised in whole or in part, on or after June 22, 2023 and at any time before June 22, 2028. On December 5, 2023, the Company entered into an Amendment No. 1 with regard to the related Securities Purchase Agreement, with Alpha. This Amendment reduced the Exercise Price of the December 22, 2022 warrant from $1.65 per share to $0.73 per share. The Amendment also revised certain provisions of the warrant which resulted in reclassification of the warrant from liabilities to equity.

On February 27, 2024 the Company entered into a new Securities Purchase Agreement with Alpha for the purchase of the February 2024 Debenture (see Note 8 – Convertible Debt – Related Party). This Securities Purchase Agreement resulted in the reduction of the exercise price of the December 22, 2022 warrant and the May 2020 warrant from $0.73 per share to $0.26 per share. The company recognized a deemed dividend of $60,017, which represents the incremental fair value of the outstanding warrants as a result of the down-round provision. As the Company has an accumulated deficit, the deemed dividend was recorded as a reduction in additional paid-in capital, resulting in a net impact of zero to additional paid-in capital in the condensed consolidated statements of changes in stockholders’ equity. In addition, on February 27, 2024, the Company issued to Alpha a warrant to purchase 900,016 shares of the Company’s common stock at an exercise price of $0.26 per share, which may be exercised in whole or in part, at any time before February 27, 2029.

No noncompensatory equity classified warrants were issued during the three months ended March 31, 2023.

The following table summarizes the noncompensatory equity classified warrant activity for the three months ended March 31, 2024:

The following table summarizes the noncompensatory equity classified warrant activity for the three months ended March 31, 2023:

NOTE 13 —RELATED PARTY TRANSACTIONS

Convertible Debt

On December 22, 2022, the Company issued to Alpha, an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. As of March 31, 2024 the Debenture had a remaining principal balance of $1,038,922, and was convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at a price equal to $0.26 per share, subject to adjustment as described in the Debenture and other terms and conditions described in the Debenture.

On February 27, 2024, the Company issued to Alpha, an 8% Convertible Debenture in the principal amount of $550,000 for a purchase price of $500,000 less expenses pursuant to the terms of a Securities Purchase Agreement dated February 26, 2024. As of March 31, 2024 the Debenture had a remaining principal balance of $550,000, and was convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at a price equal to $0.6111 per share, subject to adjustment as described in the Debenture and other terms and conditions described in the Debenture.

See Note 8 – Convertible Debt – Related Party for additional information concerning convertible debt – related party transactions.

Warrants

On May 22, 2020, as a commitment fee, the Company issued warrants to Alpha for the purchase of common stock.7,048 of these warrants remain outstanding and exercisable as of March 31, 2024 and may be exercised in whole or in part, at any time before May 22, 2025.

On December 22, 2022, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha a warrant to purchase 2,500,000 shares of the Company’s common stock. As of March 31, 2024, the exercise price of this warrant was $0.26. This warrant may be exercised by Alpha, in whole or in part, on or after June 22, 2023 and at any time before June 22, 2028, subject to certain terms and conditions described in the warrant.

On February 27, 2024, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha a warrant to purchase 900,016 shares of the Company’s common stock. As of March 31, 2024, the exercise price of the Alpha Warrant was $0.26. The Alpha Warrant may be exercised by Alpha, in whole or in part, at any time before February 27, 2029, subject to certain terms and conditions described in the warrant.

The above warrants are included in equity on the Company’s condensed consolidated balance sheets (see Note 12 – Stockholders’ Equity (Deficit)).

NanoSynex

Pursuant to a Share Purchase Agreement dated April 29, 2022, the Company acquired 2,232,861 shares of NanoSynex Series A-1 Preferred Stock from Alpha in exchange for 350,000 reverse split adjusted shares of the Company’s common stock and a prefunded warrant to purchase 331,464 reverse split adjusted shares of the Company’s common stock at an exercise price of $0.001 per share.

NOTE 14 —SUBSEQUENT EVENTS

Convertible Debenture and Common Stock Warrant

On February 27, 2024 we granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional 8% Convertible Debentures, of like tenor, with face amounts of up to an aggregate of $1,100,000 with a proportional number of accompanying common stock warrants of like tenor, up to a total of 1,800,032 additional warrants. (See Note 8 – Convertible Debt – Related Party).

On April 11, 2024, Alpha assigned the option to Yi Hua Chen (“Chen”) and Chen exercised the option in full on that date. On April 12, 2024, against Chen’s Option exercise price of $1,000,000 paid to us, we delivered to Chen an 8% Convertible Debenture in the principal amount of $1,100,000, of like tenor as the 2024 Alpha Debenture except for the principal amount; and a common stock purchase warrant to purchase 1,800,032 shares of our common stock, exercisable until February 27, 2029, and otherwise of like tenor as the warrant issued to Alpha on February 27, 2024.

Co-Development Agreement

On April 11, 2024, we entered into a Co-Development Agreement with Marizyme, Inc. (“Marizyme”). Under the Co-Development Agreement, we agreed to pay Marizyme a Funding Payment of up to $1,500,000 and an Exclusivity Fee of $200,000. The Exclusivity Fee of $200,000 and a Funding Payment of $500,000 was paid to Marizyme on April 12, 2024. The Exclusivity Fee entitled us to an exclusivity period until May 31, 2024 for purposes of proposing and outlining a broader strategic relationship with Marizyme with regard to Marizyme’s DuraGraft business. The Funding Payment is designed to provide financial support for commercialization of Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting surgery. In return for the Funding Payment we will receive quarterly a 33% payment in the nature of royalties on any Net Sales (as defined with a meaning tantamount to gross profit on net sales) of DuraGraft, capped at double the amount of the Funding Payment cash provided. No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative total of $500,000 of DuraGraft Net Sales have been made in the United States.

Alpha Warrant Exercises

On May 16 and June 4, 2024, Alpha partially exercised an equity classified warrant for 288,462 shares at an exercise price of $0.26 per share on each date for a total of 576,924 shares, which resulted in combined total cash proceeds to the company of $150,000.

Possible Nasdaq Delisting

On May 23, 2024, the Company received written notice (the “Delist Notice”) from The Nasdaq Stock Market (“Nasdaq”) indicating the Company’s continued non-compliance with Nasdaq’s minimum bid price requirement, pursuant to Nasdaq Listing Rule 5550(b)(2).

On November 20, 2023, the Company had received a letter (the “Bid Price Deficiency Notice”) from Nasdaq notifying the Company that, because the closing bid price for its common stock has been below $1.00 per share for 30 consecutive business days, it no longer complies with the minimum bid price requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive business days.

Further, the Company had also received a letter from Nasdaq on November 21, 2023 notifying the Company that it did not comply with the $2,500,000 minimum stockholders’ equity requirement, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Equity Rule”). On January 12, 2024, Nasdaq granted the Company an extension of time until May 21, 2024, to regain compliance with the Equity Rule. The Company did not regain compliance with the Equity Rule by May 21, 2024 (and to date still has not regained compliance with the Equity Rule). As such, the Delist Notice states that this matter also serves as a separate and additional basis for delisting the Company’s securities from The Nasdaq Stock Market.

On May 30, 2024, the Company requested a hearing before a Nasdaq Hearings Panel (the “Panel”), and the suspension of trading in the Company’s securities on Nasdaq has been stayed pending the hearing date, which is currently scheduled for July 16, 2024.

The Company is working to evidence compliance with all applicable Nasdaq requirements for continued listing of the Company’s common stock on the Nasdaq Capital Market and intends to present its plan to the Panel as part of the hearing process; however, there can be no assurance the Panel will grant any request for continued listing or that the Company will be able to regain compliance with the applicable listing criteria within the period of time that may be granted by the Panel.

Sale of Qualigen, Inc. - Escrow Disbursement

On June 4, 2024, the $450,000 escrow account from the sale of Qualigen, Inc. (reflected in prepaid expenses and other current assets on the Company’s March 31, 2024 balance sheet) originally subject to release to the Company in January 2025, was settled early and liquidated by mutual agreement of the Company and the buyer (Chembio). In exchange for the early settlement, $350,000 was paid to the Company, and $100,000 was paid to Chembio. This settlement will result in a loss from discontinued operations in the second quarter of 2024.