AIxCrypto Holdings, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable to smaller reporting companies. Item 8. Consolidated Financial Statements and Supplementary Data 34 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 23) To the Board of Directors and Stockholders of Qualigen Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Qualigen Therapeutics, Inc. (the “Company”) as of December 31, 2021 and December 31, 2020 , the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2021 and for the nine months ended December 31, 2020 , and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020 , and the results of its operations and its cash flows for the year ended December 31, 2021 and for the nine months ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Warrant Liabilities Critical Audit Matter Description As described in Note 7 to the consolidated financial statements, the Company’s warrant liability balance was $1.7 million at December 31, 2021. Certain of the warrants for the purchase of shares of common stock issued by the Company require liability classification and are recorded at fair value each reporting period. The Company determines the fair value of the warrants classified as liabilities utilizing a Monte Carlo simulation model. We identified the warrant liabilities as a critical matter because, auditing the Company’s valuation of its warrant liabilities was especially challenging as the fair value is based on various inputs and significant assumptions used in Monte Carlo simulation models and certain of the assumptions were based on management’s judgement, and therefore are not objectively verifiable. How We Addressed the Matter in Our Audit The primary procedures we performed to address the critical audit matter included: ● Obtaining an understanding of the Company’s processes related to the determination of the fair value of the warrants. ● Assessing the methodology used by the Company to estimate the fair value by using a valuation specialist to review the Monte Carlo simulation models and assumptions used by the Company for reasonableness. ● Testing the accuracy and completeness of the underlying data used by the Company. ● Evaluating the reasonableness of management’s inputs by tracing the inputs to contracts and comparing third-party data and analyses. ● Analyzing changes in the fair value by comparing to prior periods and performing sensitivity analyses to evaluate the reasonable changes in the Company’s assumptions. /s/ BAKER TILLY US, LLP We have served as the Company’s auditor since 2018. San Diego, California March 31, 2022 35 QUALIGEN THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2021 2020 ASSETS Current assets Cash $ 17,538,272 $ 23,976,570 Accounts receivable, net 822,351 615,757 Inventory, net 1,055,878 953,458 Prepaid expenses and other current assets 1,379,896 2,678,894 Total current assets 20,796,397 28,224,679 Right-of-use assets 1,645,568 430,795 Property and equipment, net 203,920 247,323 Equipment held for lease, net 296 17,947 Intangible assets, net 171,190 187,694 Other assets 18,334 18,334 Total Assets $ 22,835,705 $ 29,126,772 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 886,224 $ 500,768 Accrued expenses and other current liabilities 1,793,901 746,738 Notes payable, current portion — 131,766 Deferred revenue, current portion 135,063 486,031 Operating lease liability, current portion 134,091 254,739 Warrant liabilities 1,686,200 8,310,100 Total current liabilities 4,635,479 10,430,142 Notes payable, net of current portion — 6,973 Operating lease liability, net of current portion 1,542,564 236,826 Deferred revenue, net of current portion 92,928 158,271 Total liabilities 6,270,971 10,832,212 Commitments and contingencies (Note 9) - Stockholders’ equity Series Alpha convertible preferred stock, $ 0.001 par value; 7,000 shares authorized; 0 and 180 shares issued and outstanding as of December 31, 2021 and December 31, 2020 — 1 Common stock, $ 0.001 par value; 225,000,000 shares authorized; 35,290,178 and 27,296,061 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 35,290 27,296 Additional paid-in capital 101,274,073 85,114,755 Accumulated deficit ( 84,744,629 ) ( 66,847,492 ) Total stockholders’ equity 16,564,734 18,294,560 Total Liabilities & Stockholders’ Equity $ 22,835,705 $ 29,126,772 The accompanying notes are an integral part of these consolidated financial statements. 36 QUALIGEN THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, For the Nine Months Ended December 31, 2021 2020 REVENUES Net product sales $ 5,021,721 $ 2,849,561 License revenue 632,004 — Total revenues 5,653,725 2,849,561 EXPENSES Cost of product sales 4,332,485 2,640,148 General and administrative 11,724,964 7,105,337 Research and development 11,716,718 3,316,099 Sales and marketing 542,594 307,903 Impairment loss on construction in progress — 1,376,000 Total expenses 28,316,761 14,745,487 LOSS FROM OPERATIONS ( 22,663,036 ) ( 11,895,926 ) OTHER (INCOME) EXPENSE, NET (Gain) loss on change in fair value of warrant liabilities ( 4,723,187 ) 8,310,100 Gain on loan extinguishment — ( 451,345 ) Interest (income) expense, net ( 42,693 ) 48,039 Other income, net ( 5,446 ) ( 256,354 ) Total other (income) expense, net ( 4,771,326 ) 7,650,440 LOSS BEFORE PROVISION FOR INCOME TAXES ( 17,891,710 ) ( 19,546,366 ) PROVISION FOR INCOME TAXES 5,427 — NET LOSS $ ( 17,897,137 ) $ ( 19,546,366 ) Net loss per common share, basic and diluted $ ( 0.61 ) $ ( 1.12 ) Weighted—average number of shares outstanding, basic and diluted 29,334,865 17,431,714 The accompanying notes are an integral part of these consolidated financial statements. 37 QUALIGEN THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Series A Convertible Series B Convertible Series C Convertible Series D Convertible Series D-1 Convertible Series Alpha Convertible Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock Additional Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Paid-In Capital Accumulated Deficit Total Balance at December 31, 2020 — $ — — $ — — $ — — $ — — $ — 180 $ 1 27,296,061 $ 27,296 $ 85,114,755 $ ( 66,847,492 ) $ 18,294,560 Stock issued upon cash-exercise of warrants — — — — — — — — — — — — 1,618,297 1,619 2,358,570 — 2,360,189 Stock issued upon net-exercise of warrants — — — — — — — — — — — — 227,404 227 ( 227 ) — — Issuance of Series Alpha preferred shares upon closing of private placement Issuance of Series Alpha preferred shares upon closing of private placement, shares Issuance of Series Alpha preferred stock for conversion of notes payable Issuance of Series Alpha preferred stock for conversion of notes payable, shares Issuance of common stock for conversion of preferred stock — — — — — — — — — — ( 180 ) ( 1 ) 243,416 243 ( 243 ) — ( 1 ) Issuance of common stock for conversion of notes payable and accrued interest Issuance of common stock for conversion of notes payable and accrued interest , shares Effect of reverse recapitalization Effect of reverse recapitalization , shares Shares and warrants issued to advisor upon closing of private placement Shares and warrants issued to advisor upon closing of private placement , shares Fair value of shares issued to advisor upon closing of private placement Fair value of warrants issued to advisor upon closing of private placement Shares and warrants issued pursuant to Securities Purchase Agreements Shares and warrants issued pursuant to Securities Purchase Agreements , shares Fair value of warrants issued for professional services — — — — — — — — — — — — — — 298,651 — 298,651 Shares issued pursuant to Securities Purchase Agreements — — — — — — — — — — — — 5,880,000 5,880 8,814,120 — 8,820,000 Commission and offering costs of Securities Purchase Agreements — — — — — — — — — — — — — — ( 2,960,465 ) — ( 2,960,465 ) Fair value of warrant modifications pursuant to Securities Purchase Agreements — — — — — — — — — — — — — — 2,253,536 — 2,253,536 Stock issued for professional services — — — — — — — — — — — — 25,000 25 101,725 — 101,750 Warrants exercised Warrants exercised , shares Stock-based compensation — — — — — — — — — — — — — — 5,293,651 — 5,293,651 Net Loss — — — — — — — — — — — — — — — ( 17,897,137 ) ( 17,897,137 ) Balance at December 31, 2021 — $ — — $ — — $ — — $ — — $ — — $ — 35,290,178 $ 35,290 $ 101,274,073 $ ( 84,744,629 ) $ 16,564,734 Series A Convertible Series B Convertible Series C Convertible Series D Convertible Series D-1 Convertible Series Alpha Convertible Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock Additional Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Shares Amount $ Paid-In Capital Accumulated Deficit Total Balance at March 31, 2020 2,412,887 $ 24,129 7,707,736 $ 77,077 3,300,715 $ 33,007 1,508,305 $ 15,083 643,511 $ 6,435 $ — $ — 5,602,214 $ 56,026 $ 45,161,599 $ ( 47,301,126 ) $ ( 1,927,770 ) Issuance of Series Alpha preferred shares upon closing of private placement — — — — — — — — — — 5,010 5 — — 4,009,995 — 4,010,000 Issuance of Series Alpha preferred stock for conversion of notes payable — — — — — — — — — — 350 — — — 350,000 — 350,000 Issuance of common stock for conversion of preferred stock ( 2,412,887 ) ( 24,129 ) ( 7,707,736 ) ( 77,077 ) ( 3,300,715 ) ( 33,007 ) ( 1,508,305 ) ( 15,083 ) ( 643,511 ) ( 6,435 ) ( 5,180 ) ( 4 ) 13,046,931 13,046 142,690 — — Issuance of common stock for conversion of notes payable and accrued interest — — — — — — — — — — — — 1,775,096 1,775 1,582,633 — 1,584,408 Effect of reverse recapitalization — — — — — — — — — — — — ( 2,095,826 ) ( 52,519 ) 863,405 — 810,886 Shares and warrants issued to advisor upon closing of private placement — — — — — — — — — — — — 1,217,147 1,217 1,103,891 — 1,105,108 Fair value of shares issued to advisor upon closing of private placement — — — — — — — — — — — — — — ( 902,250 ) — ( 902,250 ) Fair value of warrants issued to advisor upon closing of private placement — — — — — — — — — — — — — — ( 202,858 ) — ( 202,858 ) Shares and warrants issued pursuant to Securities Purchase Agreements — — — — — — — — — — — — 6,008,660 6,009 29,994,771 — 30,000,781 Commission and offering costs of Securities Purchase Agreements — — — — — — — — — — — — — — ( 1,360,800 ) — ( 1,360,800 ) Stock issued for professional services — — — — — — — — — — — — 46,967 47 239,953 — 240,000 Warrants exercised — — — — — — — — — — — — 1,694,872 1,695 1,330,875 — 1,332,570 Stock-based compensation — — — — — — — — — — — — — — 2,800,851 — 2,800,851 Net Loss — — — — — — — — — — — — — — — ( 19,546,366 ) ( 19,546,366 ) Balance at December 31, 2020 — $ — — $ — — $ — — $ — — $ — 180 $ 1 27,296,061 $ 27,296 $ 85,114,755 $ ( 66,847,492 ) $ 18,294,560 The accompanying notes are an integral part of these consolidated financial statements. 38 QUALIGEN THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended For the Nine Months Ended December 31, 2021 December 31, 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 17,897,137 ) $ ( 19,546,366 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 113,218 88,383 Amortization of right-of-use assets 225,059 154,717 Impairment loss on construction in progress — 1,376,000 Gain on CARES Act loan extinguishment — ( 449,050 ) Accounts receivable reserves and allowances ( 247,845 ) ( 12,669 ) Inventory reserves ( 108,138 ) 10,060 Common stock issued for professional services 101,750 — Warrants issued for professional services 298,651 — Stock-based compensation 5,293,651 2,800,851 (Gain) loss on change in fair value of warrant liabilities ( 4,723,187 ) 8,310,100 Write off of patents and licenses — 374,618 Changes in operating assets and liabilities: Accounts receivable 41,250 104,214 Inventory and equipment held for lease 111,422 ( 297,637 ) Prepaid expenses and other assets 1,298,998 ( 1,531,056 ) Accounts payable 385,455 ( 378,496 ) Accrued expenses and other current liabilities 1,047,163 ( 333,665 ) Due to related party — ( 926,385 ) Operating lease liability ( 254,740 ) ( 171,545 ) Deferred revenue ( 416,312 ) 264,991 Net cash used in operating activities ( 14,730,742 ) ( 10,162,935 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 134,471 ) ( 208,464 ) Payments for patents and licenses ( 6,893 ) ( 6,455 ) Cash and cash equivalents acquired in reverse recapitalization — 149,825 Net cash used in investing activities ( 141,364 ) ( 65,094 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Series Alpha preferred shares upon closing of private placement — 4,010,000 Net proceeds from warrant exercises 459,476 1,332,570 Net proceeds from the issuance of notes payable — 1,392,463 Proceeds from issuance of shares and warrants pursuant to Securities Purchase Agreements 8,820,000 30,000,781 Offering costs of Securities Purchase Agreements ( 706,929 ) ( 1,360,800 ) Principal payments on notes payable ( 138,739 ) ( 1,323,536 ) Net cash provided by financing activities 8,433,808 34,051,478 Net change in cash ( 6,438,298 ) 23,823,449 CASH - beginning of period 23,976,570 153,121 CASH - end of period $ 17,538,272 $ 23,976,570 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 1,233 $ 32,692 Taxes $ 5,133 $ 4,774 NONCASH FINANCING AND INVESTING ACTIVITIES: Issuance of common stock for professional services $ — $ 240,000 Issuance of common stock for conversion of debt and accrued interest $ — $ 1,584,408 Issuance of common stock for conversion of preferred stock before closing of reverse recapitalization $ — $ 148,690 Issuance of preferred stock for conversion of debt $ — $ 350,000 Fair value of shares issued to advisor upon closing of private placement $ — $ 902,250 Fair value of warrants issued to advisor upon closing of private placement $ — $ 202,858 Effect of reverse recapitalization $ — $ 810,886 Issuance of common stock for conversion of preferred stock after closing of reverse recapitalization $ 243 $ 6,000 Right-of-use assets obtained in exchange for operating lease liabilities $ 1,439,830 $ 663,110 CARES Act loan interest forgiven $ — $ 2,295 Fair value of shares issued for cashless warrant exercises $ 764,657 $ 101,187 Net transfers to inventory from equipment held for lease $ 1,304 $ 5,743 Warrant modifications pursuant to Securities Purchase Agreements $ 2,253,536 $ — Fair value of warrant liabilities on date of exercise $ 1,900,713 $ — The accompanying notes are an integral part of these consolidated financial statements. 39 QUALIGEN THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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., recognized as a reverse recapitalization. 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. Qualigen, Inc. was determined to be the accounting acquirer in a reverse recapitalization based upon the terms of the merger and other factors. All references to financial figures of the Company presented in the accompanying consolidated financial statements and in these Notes through May 22, 2020 are to those of Qualigen, Inc. All references to financial figures after May 22, 2020 are to those of Qualigen Therapeutics, Inc. and Qualigen, Inc. Basis of Presentation The accompanying 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”). Accounting Periods During 2020, the Company changed its fiscal year end from March 31st to December 31st. In this annual report we show the twelve-month year ended December 31, 2021 (“Fiscal 2021”) and nine months ended December 31, 2020 (the “Transition Period”). All references in this report to the Transition Period are to the nine months ended December 31, 2020; and references to Fiscal 2021 are to the calendar 12-month fiscal year ending December 31, 2021. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. 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. All long-lived assets of the Company reside in the US. Accounting Estimates Management uses estimates and assumptions in preparing its consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The most significant estimates relate to the estimated fair value of warrant liabilities, stock-based compensation, write-off of patents and licenses, 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 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 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 40 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 nine months ended December 31, 2020, the Company recognized $ 1.4 million of such impairment losses on the construction-in-progress on a FastPack pouch filling machine project. During the year ended December 31, 2021, no such impairment losses were 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 is comprised of the following at: SCHEDULE OF ACCOUNTS RECEIVABLE December 31, 2021 December 31, 2020 Accounts Receivable $ 958,448 $ 629,630 Less Allowances ( 136,097 ) ( 13,873 ) Accounts receivable, net $ 822,351 $ 615,757 Research and Development 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; such shipping and handling costs totaled approximately $ 113,000 and $ 84,000 , respectively, for the year ended December 31, 2021 and nine months ended December 31, 2020 . Other shipping and handling costs included in general and administrative, research and development, and sales and marketing expenses totaled approximately $ 12,000 and $ 9,000 for the year ended December 31, 2021 and nine months ended December 31, 2020 , 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 the 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. 41 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 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 year ended December 31, 2021 and the nine months ended December 30, 2020, the Company recognized license revenue of approximately $ 632,004 and $ 0 , 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 provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. 42 Multiple element arrangements 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 year ended December 31, 2021 and nine months ended December 31, 2020 , product sales are stated net of an allowance for estimated returns of approximately $ 150,000 and $ 18,300 , 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 Consolidated Balance Sheet date to the future date of revenue recognition. Research and Development The Company expenses research and development costs as incurred. Operating Leases Effective April 1, 2020, the Company adopted Accounting Standard Update (“ASU”) No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”). The Company determines if a contract contains a lease at inception. The Company’s material operating lease consists of a single office/manufacturing/warehouse/laboratory space. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company used the incremental secured borrowing rate for an existing secured loan corresponding to the maturities of the leases. The Company’s leases typically contain rent escalations over the lease term. The Company recognizes rent expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when received and reduce the Company’s right-of-use (“ROU”) asset related to the lease. These are amortized through the ROU asset as reductions of expense over the lease term. The Company’s office/manufacturing/warehouse/laboratory lease agreement does not contain any material residual value guarantees or material restrictive covenants. Related to the adoption of Topic 842, the Company’s policy elections were as follows: ● The Company has used the practical expedients under U.S. GAAP which allow it to not reassess whether any expired or existing contracts are considered a lease, along with grandfathering lease classifications, and treatment of indirect costs; ● The Company has elected to exclude short-term leases having initial terms of 12 months or less; ● The Company has elected not to separate non-lease components from its leases to account for them separately; ● The Company has elected not to avail itself of the practical expedient of using hindsight to determine the lease term; and ● The Company has elected the alternative transition option, by recognizing a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption (as of April 1, 2020, the adoption of Topic 842 did not have a material effect on retained earnings). 43 Property and Equipment, Net Property and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows: SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT Machinery and equipment 5 years Computer equipment 3 years Molds and tooling 5 years Furniture and fixtures 5 years 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. Intangible Assets, Net Intangibles consist of patent-related costs and costs for license agreements. Management reviews the carrying value of 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 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 licenses costs are charged to operations if it is determined that the patent or license will not be obtained. The carrying value of the patents of approximately $ 159,000 and $ 169,000 at December 31, 2021 and December 31, 2020 , respectively, are stated net of accumulated amortization of approximately $ 320,000 and $ 303,000 , respectively. Amortization of patents charged to operations for the year ended December 31, 2021 and the nine months ended December 31, 2020 were approximately $ 17,000 and $ 10,000 , respectively. Total future estimated amortization of patent costs for the five succeeding years is approximately $ 19,000 for the year ending December 31, 2022, approximately $ 18,000 for the year ending December 31, 2023, approximately $ 15,000 for year 2024, approximately $ 14,000 for years 2025 and 2026, and approximately $ 79,000 thereafter. The carrying value of the licenses of approximately $ 12,000 and $ 19,000 at December 31, 2021 and December 31, 2020 are stated net of accumulated amortization of approximately $ 407,000 and $ 400,000 , respectively. Amortization of licenses charged to operations for the year ended December 31, 2021 and nine months ended December 31, 2020 was approximately $ 7,000 and $ 5,000 , respectively. Total future estimated amortization of license costs for the five succeeding years is approximately $ 7,000 for the year ending December 31, 2022 and $ 5,000 for the year 2023. 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 Consolidated Statements of Operations. 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). 44 Fair value measurements The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows: ● Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date; ● Level 2 - Inputs other than quoted prices that are observable for the assets or liabilities either directly or indirectly, including inputs in markets that are not considered to be active; and ● Level 3 - Inputs that are unobservable. Fair Value of Financial Instruments Cash, accounts receivable, accounts payable, accrued liabilities, and debt are carried at amortized 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 balance 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 $ 60,000 and $ 25,000 , respectively, at December 31, 2021 and December 31, 2020 and are included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. Warranty costs were approximately $ 57,000 and $ 54,000 for the year ended December 31, 2021 and nine months ended December 31, 2020 , respectively, and are included in cost of product sales in the Consolidated Statements of Operations. 45 Recent Accounting Pronouncements In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), “ Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” : Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force), which contains amendments that clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments set forth in this ASU are effective for all entities for annual periods beginning after December 15, 2021. Early application of the amendments in this ASU is permitted for all entities. The amendments in this ASU should be applied prospectively. The Company early adopted ASU No. 2021-04 on January 1, 2021. In August 2020, the FASB issued ASU No. 2020-06, “ Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company early adopted ASU No. 2020-06 on January 1, 2021. In August 2018, the FASB issued ASU No. 2018-13, “ Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, ” an amendment to the accounting guidance on fair value measurements. The guidance modifies the disclosure requirements on fair value measurements, including the removal of disclosures of the amount of and reasons for transfers between Level 1 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The guidance also adds certain disclosure requirements related to Level 3 fair value measurements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2018-13 on April 1, 2020 and the adoption of this guidance did not have a material impact on its financial statements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”), which provides for an alternative transition method by allowing companies to continue to use the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption of the new leases standard and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. The Company adopted the standard as of April 1, 2020 and the most significant impact was the recognition of a ROU asset and lease liability for the Company’s sole operating lease—the Company had no finance leases. Adoption of the Topic 842 did not require the Company to restate previously reported results as it elected to apply a modified retrospective approach at the beginning of the period of adoption rather than at the beginning of the earliest comparative period presented. 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 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 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 has had a dramatic impact on businesses globally and our business as well. 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. 46 In the United States, federal, state, and local government directives and policies have been put in place to manage public health concerns and address the economic impacts, 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 consolidated financial statements. NOTE 2 — LIQUIDITY The Company has incurred recurring losses from operations and has an accumulated deficit at December 31, 2021. The Company expects to continue to incur losses subsequent to the Consolidated Balance Sheet date of December 31, 2021. The Company’s reverse recapitalization transaction with Ritter closed in May 2020 together with an associated new equity capital raise of approximately $ 4.0 million, and approximately $ 1.9 million in convertible notes payable were converted into shares of the Company’s capital stock. In July, August and December 2020, the Company raised an additional $ 30.0 million through three Securities Purchase Agreements with a single institutional investor, and in December 2021, the Company raised an additional $ 8.82 million through a Securities Purchase Agreement with several institutional investors (see Note 11). 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 consolidated financial statements. However, there is no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. Also, beyond such 12-month period, planned research and development activities, capital expenditures, clinical and pre-clinical testing, and commercialization activities of the Company’s products are expected to require significant additional financing. Additional financing may not be available on acceptable terms or at all. NOTE 3 — INVENTORY, NET Inventory, net consisted of the following at December 31, 2021 and December 31, 2020 : SCHEDULE OF INVENTORY December 31, 2021 December 31, 2020 Raw materials $ 823,315 $ 579,765 Work in process 188,135 309,826 Finished goods 44,428 63,867 Total inventory $ 1,055,878 $ 953,458 NOTE 4 — PREPAID EXPENSES Prepaid expenses consisted of the following at December 31, 2021 and December 31, 2020 : SCHEDULE OF PREPAID EXPENSES December 31, 2021 December 31, 2020 Prepaid insurance $ 1,197,726 $ 1,307,864 Prepaid manufacturing expenses 67,410 1,181,029 Prepaid investor relations expenses — 150,000 Other prepaid expenses 114,760 40,001 Prepaid expenses $ 1,379,896 $ 2,678,894 47 NOTE 5 — PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following at December 31, 2021 and December 31, 2020 : SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2021 December 31, 2020 Machinery and equipment $ 2,482,841 $ 2,401,470 Construction in progress–equipment — 104,400 Computer equipment 345,117 443,865 Leasehold improvements 333,271 321,033 Molds and tooling 260,002 260,002 Furniture and fixtures 143,013 138,699 3,564,244 3,669,469 Less Accumulated depreciation ( 3,360,324 ) ( 3,422,146 ) $ 203,920 $ 247,323 Depreciation expense relating to property and equipment was approximately $ 73,000 and $ 33,000 for the year ended December 31, 2021 and nine months ended December 31, 2020 , respectively. NOTE 6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following at December 31, 2021 and December 31, 2020 : SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES December 31, 2021 December 31, 2020 Board compensation $ 17,500 $ 15,091 Franchise, sales and use taxes 14,090 30,353 Income taxes 3,620 3,326 Patent and license fees — 7,204 Payroll 682,036 4,566 Professional fees 225,308 58,261 Research and development 232,712 237,504 Royalties 10,152 491 Vacation 282,910 230,457 Warranty liability 60,281 24,871 Other 265,292 134,614 Accrued liabilities $ 1,793,901 $ 746,738 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, 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 $ 0.72 per share, subject to adjustment. As of December 31, 2021, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 1.9 to 2.5 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. 48 The following table summarizes the activity in the Common Stock Warrants received in exchange for the Series C Warrants for the year ended December 31, 2021: SCHEDULE OF WARRANTS ACTIVITY Common Stock Warrants (received in exchange for the Series C Warrants) Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – December 31, 2020 3,378,596 $ 0.72 Series C preferred stock warrants exchanged for common stock warrants upon reverse recapitalization — — Exercised ( 807,311 ) 0.72 Forfeited ( 89,671 ) 0.72 Expired — — Granted — — Total outstanding – December 31, 2021 2,481,614 $ 0.72 Exercisable 2,481,614 $ 0.72 $ 0.72 2.00 Non-Exercisable — $ — $ — — The following table presents the Company’s fair value hierarchy for its Common Stock Warrant liabilities (all of which arise under the warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis as of December 31, 2021: SCHEDULE OF FAIR VALUE HIERARCHY FOR WARRANT LIABILITIES Quoted Market Significant Prices for Other Significant Identical Observable Unobservable Assets Inputs Inputs Common Stock Warrant liabilities (Level 1) (Level 2) (Level 3) Total Balance as of December 31, 2020 $ — $ — $ 8,310,100 $ 8,310,100 Exercises — — ( 1,900,713 ) ( 1,900,713 ) Gain on change in fair value of warrant liabilities — — ( 4,723,187 ) ( 4,723,187 ) Balance as of December 31, 2021 $ — $ — $ 1,686,200 $ 1,686,200 There were no transfers of financial assets or liabilities between category levels for the year ended December 31, 2021. 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. 49 The following are the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of December 31, 2021: SCHEDULE OF ASSUMPTIONS OF WARRANT LIABILITIES December 31, 2021 Range Weighted Average Risk-free interest rate 0.69 % — 0.84 % 0.72 % Expected volatility (peer group) 84 % — 87 % 84.6 % Term of warrants (in years) 1.9 — 2.5 2.01 Expected dividend yield 0.00 % 0.00 % The value of the warrant liabilities is based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. NOTE 8 — EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share (“EPS”) is computed by dividing net income (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 For the Year Ended December 31, For the Nine Months Ended December 31, 2021 2020 Net loss used for basic earnings per share $ ( 17,897,137 ) $ ( 19,546,366 ) Basic weighted-average common shares outstanding 29,334,865 17,431,714 Dilutive potential shares issuable from stock options and warrants — — Diluted weighted-average common shares outstanding 29,334,865 17,431,714 Potentially dilutive common shares excluded from the calculation above represent stock options and warrants because their effect is anti-dilutive. NOTE 9 — 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. 50 The tables below show the operating lease right-of-use assets and operating lease liabilities as of initial measurement at April 1, 2020 and the balances as of December 31, 2021 , including the changes during the periods: SCHEDULE OF OPERATING LEASE RIGHT OF USE ASSETS AND OPERATING LEASE LIABILITIES Operating lease right-of-use assets Net right-of-use assets at December 31, 2020 $ 430,795 Additional operating lease right-of-use assets at December 31, 2021 1,439,830 Less amortization of operating lease right-of-use assets ( 225,057 ) Operating lease right-of-use assets at December 31, 2021 $ 1,645,568 Operating lease liabilities Lease liabilities arising from obtaining right-of-use assets at April 1, 2020: $ 491,565 Additional operating lease liabilities at December 31, 2021 1,439,830 Less principal payments on operating lease liabilities ( 254,740 ) Lease liabilities at December 31, 2021 1,676,655 Less non-current portion ( 1,542,564 ) Current portion at December 31, 2021 $ 134,091 As of December 31, 2021, the Company’s operating leases have a weighted-average remaining lease term of 5.8 years and a weighted-average discount rate of 8.8 %. As of December 31, 2021, the maturities of operating lease liabilities are as follows: SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Year Ending December 31, Amount 2022 $ 277,192 2023 368,341 2024 379,392 2025 390,773 2026 402,497 2027 379,165 Total 2,197,360 Less present value discount ( 520,705 ) Operating lease liabilities $ 1,676,655 Total lease expense was approximately $ 342,000 and $ 259,000 , respectively, for the year ended December 31, 2021 and nine months ended December 31, 2020 . Lease expense was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses. Litigation and Other Legal Proceedings On November 9th, 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 alleges 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 believes that the claims from Mediant are without merit and intends to vigorously defend the case. 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 are currently conducting settlement negotiations. NOTE 10 — RESEARCH AND LICENSE AGREEMENTS The University of Louisville Research Foundation Between June 2018 and September 2020, 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 $ 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. 51 Sponsored research expenses related to these agreements for the year ended December 31, 2021 and nine months ended December 31, 2020 were approximately $ 325,000 and $ 14,000 , respectively, and these amounts are recorded in research and development expenses in the Consolidated Statements of Operations. Minimum annual royalties of $ 0 and $ 10,000 related to these agreements are included in research and development expenses in the Consolidated Statements of Operations for the year ended December 31, 2021 and nine months ended December 31, 2020 , respectively. License costs were approximately $ 118,000 and $ 470,000 related to these agreements the year ended December 31, 2021 and nine months ended December 31, 2020 , respectively, and are included in research and development expenses in the Consolidated Statements of Operations. 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 will reimburse ULRF for sponsored research expenses of up to $ 693,000 for this program. In February 2021, the Company extended the term of this agreement for an additional 18 months (expires July 2022) and increased the amount that the Company will reimburse ULRF for sponsored research expenses from $ 693,000 to approximately $ 1.8 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 will take 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 year ended December 31, 2021 and nine months ended December 31, 2020 were approximately $ 646,000 and $ 283,000 , respectively, and are recorded in research and development expenses in the Consolidated Statements of Operations. License costs related to these agreements for the year ended December 31, 2021 and nine months ended December 31, 2020 were approximately $ 60,000 and $ 160,000 , respectively, and are included in research and development expenses in the Consolidated Statements of Operations. 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 will take 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. 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. 52 Sponsored research expenses related to these agreements for the year ended December 31, 2021 and nine months ended December 31, 2020 were approximately $ 243,000 and $ 14,000 , respectively, and are recorded in research and development expenses in the statements of operations. License costs related to these agreements for the year ended December 31, 2021 and nine months ended December 31, 2020 were approximately $ 28,000 and $ 24,000 , respectively, and are included in research and development expenses in the statements of operations. 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 year ended December 31, 2021 and the nine months ended December 31, 2020, there were approximately $ 2,000 and $ 285,000 , respectively in costs related to this agreement which are included in research and development expenses in the Consolidated Statements of Operations. 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 year ended December 31, 2021 and nine months ended December 31, 2020, 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 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 is currently set to expire on March 31, 2022. The agreement contains a right of first refusal for Sekisui against any potential acquisition of the Company; the right of first refusal is currently set to expire on March 31, 2022. There were product sales to Sekisui of approximately $ 3.5 million and $ 1.6 million, respectively, for the year ended December 31, 2021 and nine months ended December 31, 2020 , related to this agreement. 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. Under the Technology Transfer Agreement, we received net cash payments of $ 250,000 in the final quarter of the Transition Period classified as deferred revenue as of the Consolidated Balance Sheet date of December 31, 2020, and $ 420,000 in the first quarter of 2021. The Company will also receive low- to mid-single-digit royalties on any future new-generations and current-generations product sales by Yi Xin. Of these amounts, the Company recognized approximately $ 38,000 in product sales and $ 632,000 in license revenue included in the statement of operations for the year ended December 31, 2021. The Company provided technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and commercialization. 53 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); any such non-China sales would, until March 31, 2022, need to be through Sekisui. In addition, after March 31, 2022, Yi Xin will have 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). Also, after March 31, 2022, Yi Xin will have 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, even after March 31, 2022. In the Technology Transfer Agreement, the Company confirmed that it would not, after March 31, 2022, seek new FastPack customers outside the United States. All of the March 31, 2022 dates in this paragraph are as established by an August 2021 amendment of the Technology Transfer Agreement. 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. In connection with this agreement, the Company paid an upfront deposit of approximately $ 1.1 million which was classified as a prepaid expense on the December 31, 2020 Consolidated Balance Sheet date, and all of which was included in research and development expenses in the statement of operations for the twelve months ended December 31, 2021. Research and development expenses related to this agreement for the year ended December 31, 2021 and the nine months ended 2020 were approximately $ 3.2 million and $ 0 , respectively, and are recorded in research and development expenses in the Consolidated Statements of Operations. NOTE 11 — STOCKHOLDERS’ EQUITY As of December 31, 2021, and 2020 the Company had two classes of capital stock: common stock and Series Alpha convertible preferred stock. As of April 1, 2020 the Company had two classes of capital stock with one being divided into five series: common stock and preferred stock (Series A convertible preferred stock, Series B convertible preferred stock, Series C convertible preferred stock, Series D convertible preferred stock and Series D-1 convertible 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, as of March 31, 2020 any remaining assets would be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series C convertible preferred stock, Series D convertible preferred stock and Series D-1 convertible preferred stock) upon liquidation, dissolution or winding up of the affairs of the Company. Following payment of the liquidation preference of the preferred stock, as of December 31, 2021 any remaining assets would be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series Alpha convertible preferred stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions. On December 1, 2021, the Company closed a Securities Purchase Agreement (dated November 29, 2021) with several institutional investors for the purchase and sale of 5,880,000 shares of Company common stock to purchase shares of Company common stock for an exercise price of $ 1.50 per share, for aggregate gross proceeds of $ 8.82 million. At December 31, 2021, the Company has reserved 14,663,251 shares of authorized but unissued common stock for possible future issuance. At December 31, 2021, 14,663,251 shares were reserved as follows: SCHEDULE OF RESERVED SHARES Exercise of issued and future grants of stock options 4,841,856 Exercise of stock warrants 9,821,395 Total 14,663,251 54 Series A, B, C, D, D-1, Alpha Convertible Preferred Stock At December 31, 2021 and 2020, there were no shares of Series A, B, C, D, D-1 convertible preferred stock outstanding. All shares of Series A, B, C, D, D-1 convertible preferred stock were converted into common stock at the time of the May 2020 reverse recapitalization transaction. At December 31, 2021, there were no shares of Series Alpha convertible preferred stock outstanding. During the year ended December 31, 2021, the holder of Series Alpha convertible preferred stock converted 180 of its shares of Series Alpha convertible preferred stock into an aggregate of 243,416 shares of the Company’s common stock. In the nine months ended December 31, 2020 , the holder of Series Alpha convertible preferred stock converted 5,180 of its shares of Series Alpha convertible preferred stock into an aggregate of 7,004,983 shares of the Company’s common stock, and there were 180 shares of Series Alpha convertible preferred stock outstanding at December 31, 2020 . Alpha Securities Purchase Agreements On July 10, 2020, the Company closed a Securities Purchase Agreement (dated July 8, 2020) with a single institutional investor for the purchase and sale for $ 8.0 million of (i) 1,140,570 shares of Company common stock, (ii) 780,198 pre-funded warrants ( i.e. , warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) and (iii) 1,920,768 two-year warrants to purchase shares of Company common stock for an exercise price of $ 5.25 per share. Both sets of warrants included a 9.99 % beneficial-ownership blocker provision. The 780,198 pre-funded warrants were then exercised on July 21 and 22, 2020. On August 4, 2020, the Company closed a Securities Purchase Agreement (dated August 2, 2020) with a single institutional investor for the purchase and sale for $ 10.0 million of (i) 1,717,106 shares of Company common stock, and (ii) 1,287,829 two-year warrants to purchase shares of Company common stock for an exercise price of $ 6.00 per share. The warrants included a 9.99 % beneficial-ownership blocker provision. On December 18, 2020, the Company closed a Securities Purchase Agreement (dated December 16, 2020) with a single institutional investor for the purchase and sale for $ 12.0 million of (i) 2,370,786 shares of Company common stock, (ii) 1,000,000 pre-funded warrants ( i.e. , warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid), (iii) 1,348,314 two-year warrants to purchase shares of Company common stock for an exercise price of $ 4.07 per share, and (iv) 842,696 warrants (first exercisable 6 months after issuance, and with an expiration date 30 months after issuance) to purchase shares of Company common stock for an exercise price of $ 4.07 per share. The warrants included a 9.99 % beneficial-ownership blocker provision. Stock Options and Equity Classified Warrants Stock Options The Company recognizes all compensatory stock-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 to qualified employees, officers, directors, consultants and other service providers. At December 31, 2021 and December 31, 2020 there were 4,748,000 and 3,917,500 outstanding options, respectively, under the 2020 Plan and there were 2,809,157 and 139,657 of Plan shares available, respectively, for future grant. The shares available for future grant at December 31, 2021 reflect a 2020 Plan amendment approved by the Company’s stockholders on August 9, 2021 where the number of shares of common stock available for issuance under the 2020 Plan was increased by 3,500,000 shares. 55 The following represents a summary of the options granted to employees and non-employee service providers that were outstanding at December 31, 2021 , and changes during the twelve months then ended: SCHEDULE OF STOCK OPTION ACTIVITY Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – December 31, 2020 4,011,356 $ 7.05 $ 3.52 — 1,465.75 9.29 Legacy Ritter options 95,124 92.80 $ 5.75 — $ 1,465.75 1.39 Granted 835,000 1.37 $ 1.24 — $ 3.29 9.79 Expired — — — Forfeited ( 4,500 ) 3.68 $ 3.52 — $ 4.97 Total outstanding – December 31, 2021 4,841,856 $ 6.07 $ 1.24 — $ 1,465.75 8.52 Exercisable (vested) 1,408,195 $ 10.88 $ 3.52 — $ 1,465.75 7.94 Non-Exercisable (non-vested) 3,433,661 $ 4.10 $ 1.24 — $ 5.13 8.81 The following represents a summary of the options granted (under the 2020 Plan and otherwise) to employees and non-employee service providers that were outstanding at December 30, 2020, and changes during the nine-month period then ended: Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – March 31, 2020 — $ — $ — Legacy Ritter options 95,124 92.80 $ 5.75 — $ 1,465.75 1.39 Granted 3,917,500 4.97 $ 3.52 — $ 5.13 9.46 Expired ( 1,268 ) 35 $ 15.00 — $ 562.50 Forfeited — — Total outstanding – December 31, 2020 4,011,356 $ 7.05 $ 3.52 — $ 1,465.75 9.29 Exercisable (vested) 108,856 $ 81.38 $ 3.52 — $ 1,465.75 2.50 Non-Exercisable (non-vested) 3,902,500 $ 4.97 $ 3.52 — $ 5.13 9.47 There was approximately $ 5.3 million and $ 2.8 million of compensation costs related to outstanding options for the year ended December 31, 2021 and nine months ended December 31, 2020 , respectively. As of December 31, 2021, there was approximately $ 8.2 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.58 years. No stock options were exercised during the year ended December 31, 2021 or nine months ended December 31, 2020. 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, for no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, for 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, for 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. The weighted average grant date fair value per share of the shares underlying options granted during the year ended December 31, 2021 was $ 1.10 and during the nine months ended December 31, 2020 was $ 4.97 . 56 Fair Value of Equity Awards The Company utilizes the Black-Scholes option pricing model to value awards under the 2020 Plan, and for equity classified compensatory warrants. Key valuation assumptions include: ● Expected dividend yield. The expected dividend is assumed to be zero, as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock. ● Expected stock-price volatility. The Company’s expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term. ● Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term. ● Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. The material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted for the periods presented were as follows: SCHEDULE OF ASSUMPTIONS USED IN BLACK-SCHOLES OPTION-PRICING METHOD For the Year Ended December 31, 2021 Expected dividend yield 0.00 % Expected stock-price volatility 102 % Risk-free interest rate 0.84 % — 1.51 % Expected average term of options (in years) 6.27 Stock price 1.24 — 3.29 The Company recorded stock-based compensation expense and classified it in the Consolidated Statements of Operations as follows: SCHEDULE OF SHARE-BASED COMPENSATION EXPENSE For the Year Ended December 31, 2021 For the Nine Months Ended December 31, 2020 General and administrative $ 4,465,911 $ 2,388,380 Research and development 827,740 412,471 Total $ 5,293,651 $ 2,800,851 Equity Classified Compensatory Warrants During the year ended December 31, 2021, the Company issued equity classified compensatory warrants to a service provider for the purchase of 600,000 shares of Company common stock at an exercise price of $ 1.32 per share. The fair value issuance cost of approximately $ 0.3 million using the Black-Scholes options pricing model for these warrants was charged to general and administrative expenses in the Company’s Consolidated Statements of Operations. During the nine months ended December 31, 2020, in connection with the $ 4.0 million equity capital raise as part of the May 2020 reverse recapitalization transaction, the Company issued common stock warrants to an advisor and its designees for the purchase of 811,431 shares of the Company’s common stock at an exercise price of $ 1.11 per share. The issuance cost of these warrants was charged to additional paid-in capital, and did not result in expense on the Company’s Consolidated Statements of Operations. In addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier (originally exercisable to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock) for the purchase of shares 514,451 of Company common stock at a weighted average exercise price of $ 2.30 per share. These are to be differentiated from the Series C Warrants described in Note 7 and there was no recognized or unrecognized compensation cost relating to these outstanding warrants for the year ended December 31, 2021 and nine months ended December 31, 2020. 57 The following table summarizes the equity classified compensatory warrant activity for the year ended December 31, 2021: SCHEDULE OF WARRANT ACTIVITY Common Stock Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – December 31, 2020 1,294,217 $ 1.67 Series C preferred stock compensatory warrants exchanged for common stock warrants upon reverse recapitalization 668,024 2.25 Legacy Ritter warrants — — Granted to advisor and its designees 600,000 1.32 Exercised ( 38,390 ) 2.09 Expired — — Forfeited ( 65,179 ) 2.07 Total outstanding – December 31, 2021 1,790,648 1.52 1.11 — 2.54 2.64 Exercisable 1,790,648 1.52 1.11 — 2.54 2.64 Non-Exercisable — $ — $ — — The following table summarizes the compensatory warrant activity for nine months ended December 31, 2020 : Common Stock Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – March 31, 2020 — $ — Series C preferred stock compensatory warrants exchanged for common stock warrants upon reverse recapitalization 668,024 2.25 Granted to advisor and its designees 811,431 1.11 Exercised ( 159,978 ) 1.26 Expired — — Forfeited ( 25,260 ) 2.07 Total outstanding – December 31, 2020 1,294,217 $ 1.6670 Exercisable 1,290,621 $ 1.66 $ 1.11 — $ 2.54 4.17 Non-Exercisable 3,596 $ 2.54 $ 2.54 5.72 There was a total of approximately $ 0.3 million of compensation costs related to outstanding warrants for the year ended December 31, 2021 and $ 0 for the nine months ended December 31, 2020 . As of December 31, 2021 and December 31, 2020 , there was no unrecognized compensation cost related to nonvested warrants. Noncompensatory Equity Classified Warrants No new noncompensatory equity classified warrants were issued during the twelve months ended December 31, 2021. During the nine months ended December 31, 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to an investor for the purchase of 270,478 shares of Company common stock at an exercise price of $ 1.11 per share. In addition, in July 2020 the Company issued noncompensatory equity classified warrants to an investor for the purchase of 2,700,966 shares of Company common stock at an exercise price of $ 5.25 per share, and in August 2020 the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,287,829 shares of Company common stock at an exercise price of $ 6.00 per share. Lastly, in December 2020, the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,000,000 shares of Company common stock at an exercise price of $ 0.01 per share and 2,191,000 shares of Company common stock at an exercise price of $ 4.07 per share. Warrants to purchase 1,000,000 shares of Company common stock at an exercise price of $ 0.01 per share were exercised in February 2021. During the year ended December 31, 2021, with the exception of the warrants to purchase 270,478 shares of the Company’s common stock at an exercise price of $ 1.11 per share, the exercise prices of all outstanding warrants to purchase a total of 5,399,517 shares of the Company’s common stock were all modified to an exercise price of $ 2.00 per share on November 29, 2021 and each of their remaining terms extended by six months. The fair value of the modification cost of these warrant modifications of approximately $ 2.3 million was charged to additional paid-in capital and did not result in expense on the Company’s Consolidated Statements of Operations. 58 The following table summarizes the noncompensatory equity classified warrant activity for the year ended December 31, 2021: SCHEDULE OF WARRANT ACTIVITY Common Stock Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – December 31, 2020 6,549,777 $ 4.36 Legacy Ritter warrants — — Granted — — Exercised ( 1,000,000 ) 0.01 Expired ( 640 ) 2,325 Forfeited — — Total outstanding – December 31, 2021 5,549,137 2.01 Exercisable 5,549,137 2.01 1.11 — 3.77 1.32 Non-Exercisable — $ — $ — — The following table summarizes the noncompensatory equity classified warrant activity for the nine months ended December 31, 2020: Common Stock Shares Weighted– Average Exercise Price Range of Exercise Price Weighted– Average Remaining Life (Years) Total outstanding – March 31, 2020 — $ — Legacy Ritter warrants 81,455 21.94 Granted 7,450,193 4.18 Exercised ( 980,198 ) 1.11 Expired ( 1,673 ) 1,562.50 Forfeited — — Total outstanding – December 31, 2020 6,549,777 4.36 Exercisable 5,707,081 4.40 0.01 — $ 2,325.00 1.43 Non-Exercisable 842,696 $ 4.07 $ 4.07 $ 3.00 NOTE 12 — INCOME TAXES A reconciliation of the statutory income tax rates and the Company’s effective tax rate is as follows: SCHEDULE OF RECONCILIATION OF STATUTORY INCOME TAX RATE December 31, 2021 December 31, 2020 Statutory federal income tax rate 21.00 % 21.0 % State taxes, net of federal tax benefit 6.63 % 2.5 % Non-deductible expenses ( 1.19 )% ( 0.5 )% NOL Expiration ( 2.71 )% 0.0 % Tax Credit 0.86 % ( 2.8 )% Change in fair value of warrant liability 5.54 % ( 8.9 )% True-up ( 2.72 )% ( 1.1 )% Change in valuation allowance ( 27.44 )% ( 10.3 )% Income taxes provision ( 0.03 )% ( 0.1 )% 59 Income tax expense for the year ended December 31, 2021 and nine months ended December 31, 2020 consisted of the following: SCHEDULE OF PROVISION FOR INCOME TAXES December 31, 2021 December 31, 2020 Current Federal $ — $ — State 5,000 1,000 Total current provision 5,000 1,000 Deferred Federal ( 1,268,000 ) ( 1,634,000 ) State ( 3,641,000 ) ( 384,000 ) Total deferred benefit ( 4,909,000 ) ( 2,018,000 ) Change in valuation allowance 4,909,000 2,017,000 Total provision for income taxes $ 5,000 $ — The components of deferred tax assets and liabilities are as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES December 31, 2021 December 31, 2020 Deferred tax assets: Net operating loss $ 33,362,000 $ 28,914,000 Research and development credits 6,185,000 5,464,000 Accrued expenses 757,000 292,000 Patent 262,000 422,000 Impairment loss — 361,000 Stock compensation 2,747,000 2,654,000 Other — 84,000 Fixed assets 282,000 44,000 Total deferred income tax assets 43,595,000 38,235,000 Deferred tax liabilities: Intangible assets ( 34,000 ) ( 18,000 ) Right-of-use asset ( 436,000 ) — Total deferred income tax liabilities ( 470,000 ) ( 18,000 ) Net deferred income tax assets 43,125,000 38,217,000 Valuation allowance ( 43,125,000 ) ( 38,217,000 ) Deferred tax asset, net of allowance $ — $ — Based on the available objective evidence, including the Company’s history of cumulative losses, management believes it is likely that the net deferred tax assets will not be realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2021 and December 31, 2020 . At December 31, 2021, the Company has federal and state net operating loss carryforwards of approximately $ 126,225,000 and $ 100,290,000 , respectively, which are available to offset future taxable income. Federal and State carryovers began to expire in 2020. As a result of the May 2020 reverse recapitalization an ownership change has occurred. The Company has not completed an Internal Revenue Code Section 382 analysis. As a result, there could be substantial limitations on the Company’s ability to utilize its pre-ownership change net operating loss and tax credit carryforwards. These substantial limitations may result in both a permanent loss of certain tax benefits related to net operating loss carryforwards and federal research and development credits, and an annual utilization limitation. Due to the full valuation allowance already in place, the Company does not anticipate any change in the Company’s effective tax rate. The Company also has research and development credit carryforwards for federal and state tax purposes of approximately $ 4,508,000 and $ 1,677,000 , respectively. The research and development credit carryforwards began to expire in 2020 for federal tax purposes and have an indefinite life for state tax purposes. The Company files income tax returns in the U.S. federal jurisdiction and in various states. The Company’s federal income tax returns for the years 2016 and beyond remain subject to examination by the Internal Revenue Service. The Company’s California income tax returns for the years 2015 and beyond remain subject to examination by the California Franchise Tax Board. In addition, all of the net operating losses, research and development credit and other tax credit carryforwards that may be used in future years are still subject to adjustment. 60 Generally accepted accounting principles clarify the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribe thresholds for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provide guidance on de-recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted these provisions effective April 1, 2009. The Company did no t have any unrecognized tax benefits as of December 31, 2021 and December 31, 2020 and does not expect this to change significantly over the next 12 months. In accordance with generally accepted accounting principles, the Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2021, the Company has no t accrued any interest or penalties related to uncertain tax positions. NOTE 13 — TRANSITION PERIOD COMPARATIVE DATA The following table presents certain comparative transition period financial information for the year ended December 31, 2021 and the twelve months ended December 31, 2020, respectively . TRANSITION PERIOD COMPARATIVE DATA For the Twelve Months Ended December 31, 2021 For the Twelve Months Ended December 31, 2020 (unaudited) Revenues $ 5,653,725 $ 4,306,316 Gross profit on product sales $ 689,236 $ 629,517 Net loss before income taxes $ ( 17,891,710 ) $ ( 20,419,561 ) Net loss $ ( 17,897,137 ) $ ( 20,421,979 ) Net loss per share – basic and fully diluted $ ( 0.61 ) $ ( 1.17 ) Weighted average shares used in computing basic and diluted net loss per share 29,334,865 17,431,714 NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) In connection with our year-end financial close process and related preparation of our 2021 Annual Report on Form 10-K, our management identified an error in the previously issued March 31, 2021, June 30, 2021, and September 30, 2021 unaudited interim condensed consolidated financial statements in which the fair value of its exercised liability classified warrants had been inadvertently excluded from reclassification into shareholders’ equity. This error resulted in a $ 1.9 million overstatement of the gain on change in fair value of warrant liabilities included on the condensed Consolidated Statement of Operations. We assessed the materiality of this error in accordance with SEC Staff Accounting Bulletin: No. 108 – Financial Statement Misstatement and concluded to correct the misstatement in the accompanying condensed Consolidated Statement of Operations as of December 31, 2021. All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error. SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS For the Quarter Ended March 31, 2021 As reported Corrected Gain on change in fair value of warrant liabilities $ ( 2,122,900 ) $ ( 552,808 ) Net loss $ ( 3,672,627 ) $ ( 5,242,719 ) Net loss per common share $ ( 0.13 ) $ ( 0.19 ) For the Quarter Ended June 30, 2021 For the Six Months Ended June 30, 2021 As reported Corrected As reported Corrected Gain on change in fair value of warrant liabilities $ ( 2,075,100 ) $ ( 1,982,256 ) $ ( 4,198,000 ) $ ( 2,535,064 ) Net loss $ ( 5,305,233 ) $ ( 5,398,077 ) $ ( 8,977,860 ) $ ( 10,640,796 ) Net loss per common share $ ( 0.18 ) $ ( 0.19 ) $ ( 0.31 ) $ ( 0.37 ) For the Quarter Ended September 30, 2021 For the Nine Months Ended September 30, 2021 As reported Corrected As reported Corrected Gain on change in fair value of warrant liabilities $ ( 1,942,900 ) $ ( 1,763,936 ) $ ( 6,140,900 ) $ ( 4,299,000 ) Net loss $ ( 2,858,518 ) $ ( 3,037,482 ) $ ( 11,836,378 ) $ ( 13,678,278 ) Net loss per common share $ ( 0.10 ) $ ( 0.10 ) $ ( 0.41 ) $ ( 0.48 ) NOTE 15 — SUBSEQUENT EVENTS On January 13, 2022, we entered into a License Agreement with UCL Business Limited to obtain an exclusive worldwide in-license of a genomic quadruplex (G4)-selective transcription inhibitor drug development program which had been developed at University College London, including lead and back-up compounds, preclinical data and a patent estate. (UCL Business Limited is the commercialization company for University College London.) The program’s lead compound will be further 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 Agreement requires 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. On March 4, 2022, the Company received a letter (the “Notice”) from The Nasdaq Stock Market 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 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. The Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq Capital Market. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has been provided an initial compliance period of 180 calendar days, or until August 31, 2022 to regain compliance with the Minimum Bid Price Requirement. During the compliance period, the Company’s shares of common stock will continue to be listed and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $ 1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period. In the event the Company is not in compliance with the Minimum Bid Price Requirement by August 31, 2022, the Company may be afforded a second 180 calendar day grace period. To qualify, the Company would be required to meet the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement. In addition, the Company would be required to provide written notice of its intention to cure the minimum bid price deficiency during this second 180-day compliance period by effecting a reverse stock split, if necessary. The Company intends to actively monitor the bid price for its common stock between now and August 31, 2022 and will consider available options to regain compliance with the Minimum Bid Price Requirement. On March 7, 2022, the Company extended an amendment to its sponsored research agreement with ULRF for development of several small-molecule RAS interaction inhibitor drug candidates and increased the amount that the Company will reimburse ULRF for sponsored research expenses from $ 1.8 million to approximately $ 2.7 million (see Note 10). 61 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.