AIxCrypto Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements” for additional information. Unless otherwise indicated, all information in this Annual Report on Form 10-K gives effect to a 1-for-10 reverse stock split of our common stock that became effective on November 23, 2022, and all references to shares of common stock outstanding and per share amounts give effect to the reverse stock split. Overview We are an early-clinical-stage therapeutics company focused on developing treatments for adult and pediatric cancer. Our business now consists of one early-clinical-stage therapeutic program (QN-302) and one preclinical therapeutic program (Pan-RAS). Our lead program, QN-302, is an investigational small molecule G-quadruplexes (G4)-selective transcription inhibitor with strong binding affinity to G4s prevalent in cancer cells (such as pancreatic cancer). Such binding could, by stabilizing the G4s against DNA “unwinding,” help inhibit cancer cell proliferation. QN-302 is currently undergoing a Phase 1a clinical trial at START Midwest in Grand Rapids, Michigan, and HonorHealth in Scottsdale, Arizona. Our Pan-RAS program, which is currently at the preclinical stage, consists of a family of RAS oncogene protein-protein interaction inhibitor small molecules believed to inhibit or block mutated RAS genes’ proteins from binding to their effector proteins thereby leaving the proteins from the mutated RAS unable to cause further harm. In theory, such mechanism of action may be effective in the treatment of about one quarter of all cancers, including certain forms of pancreatic, colorectal, and lung cancers . The investigational compounds within our Pan-RAS portfolio are designed to suppress the interaction of endogenous RAS with c-RAF, upstream of the KRAS, HRAS and NRAS effector pathways. 23 On November 23, 2022, we effected a 1-for-10, reverse stock split of our outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduced our shares of outstanding common stock, stock options, and warrants to purchase shares of our common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share and cash in lieu of fractional shares was paid to stockholders. All share and per share data for all periods presented in this Annual Report on Form 10-K have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged. We do not expect to be profitable before products from our therapeutics pipeline are commercialized. To experience losses while therapeutic products are still under development is, of course, typical for biotechnology companies. Recent Developments Phase 1 Clinical Trial of QN-302 On August 1, 2023, we announced that the FDA has cleared our IND application for QN-302. Based on this clearance, we chose Translational Drug Development, LLC (“TD2”) to serve as our contract research organization to conduct a Phase 1 clinical trial in patients with advanced or metastatic solid tumors. The Phase 1 trial (NCT06086522) is designed as a multicenter, open-label, dose escalation, safety, pharmacokinetic, and pharmacodynamic study with dose expansion to evaluate safety, tolerability, and antitumor activity of QN-302 in patients with advanced solid tumors that have not responded to or that have recurred following treatment with available therapies. On November 7, 2023, we announced that the first patient had been enrolled and dosed in the dose escalation (Phase 1a) portion of the study. Subject to available funding (which is, however, not all currently in hand), we anticipate that Phase 1a of the trial can be completed by the end of 2024. The exact number of patients to be enrolled in the trial will depend on the observed safety profile, which will determine the number of patients per dose level, as well as the number of dose escalations required to meet the Maximum Tolerated Dose (“MTD”). Once the MTD has been established in dose escalation, dose expansion will begin. Sale of Diagnostics Business On July 20, 2023, we sold all of the issued and outstanding shares of common stock of Qualigen, Inc., a wholly-owned subsidiary and the legal entity operating our FastPack™ diagnostic business, to Chembio Diagnostics, Inc. (“Chembio”), a subsidiary of Biosynex, S.A. As consideration for the shares of Qualigen, Inc., we received cash payments of approximately $4.9 million, which payment is subject to post-closing adjustments. An additional $450,000 was delivered by Chembio to an escrow account to satisfy our indemnification obligations. Any amounts remaining in the escrow account that have not been offset or reserved for claims will be released to us within five business days following January 20, 2025. Following the consummation of the transaction, Qualigen, Inc. became a wholly-owned subsidiary of Chembio. Amendment and Settlement Agreement with NanoSynex Ltd. On July 20, 2023, we entered into and effectuated the NanoSynex Amendment, by which we agreed to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by us, resulting in our ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the voting equity of NanoSynex. In addition, we agreed to cancel approximately $3.0 million of promissory notes which NanoSynex had issued to us under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to us with respect to such notes. The NanoSynex Amendment superseded any NanoSynex Funding Agreement obligations to provide funding to NanoSynex, except we agreed to provide future loans as follows: (i) $560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024. However, on November 22, 2023, in full settlement of any additional funding obligations to NanoSynex, we forfeited certain of our shares of Series A-1 Preferred Stock of NanoSynex in an amount that reduced our ownership in NanoSynex from approximately 49.97% to 39.90%. Accordingly, NanoSynex was deconsolidated from our financial statements as of July 20, 2023, and is reported as Discontinued Operations in this Annual Report. Our investment in NanoSynex will be accounted for in the future as an equity method investment. Critical Accounting Policies and Estimates Our consolidated financial statements historically have not separated our diagnostics-related activities from our therapeutics-related activities. All of our historically reported revenue was diagnostics-related. Before the third quarter of 2023, our reported expenses represented the total of our diagnostics-related and therapeutics-related expenses. In this Annual Report, all diagnostics-related revenues and expenses have been reclassified to discontinued operations (See Note 5 - Discontinued Operations). 24 This discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to impairment of goodwill and other intangible assets, fair value of warrant liabilities, and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements appearing in “Item 8. Financial Statements and Supplementary Data,” we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations: ● Research and development ● Discontinued operations ● Impairment of long-lived assets ● Business combinations ● Derivative financial instruments and warrant liabilities ● Stock-based compensation ● Income taxes Warrant Liabilities In 2004, Qualigen, Inc. issued Series C preferred stock warrants to investors and brokers in connection with a private placement. These warrants were subsequently extended and survived the May 2020 Ritter reverse recapitalization transaction and are now exercisable for Qualigen Therapeutics common stock. These warrants contain a provision that if the Company issues shares (except in certain defined scenarios) at a price below the warrants’ exercise price, the exercise price will be re-set to such new price and the number of shares underlying the warrants will be increased in the same proportion as the exercise price decrease. For accounting purposes, such warrants give rise to warrant liabilities. Accounting principles gene rally accepted in the United States of America (“U.S. GAAP”) require us to recognize the fair value of these warrants as warrant liabilities on our Consolidated Balance Sheets and to reflect period-to-period changes in the fair value of the warrant liabilities on our Consolidated Statements of Operations. The estimated fair value of these warrant liabilities was approximately $0.1 million and $3.6 million at December 31, 2023 and 2022, respectively. There were 455,623 of these warrants outstanding at December 31, 2023 and 1,349,571 of these warrants outstanding at December 31, 2022. Because the fair value of the above liability classified warrants will be determined each quarter on a “mark-to-market” basis , significant variability in our future quarterly and annual Consolidated Statement of Operations and Consolidated Balance Sheets could occur based on changes in our public market common stock price. Pursuant to U.S. GAAP, a quarter-to-quarter increase in our stock price would result in an increase in the fair value of the warrant liabilities and a quarter-to-quarter decrease in our stock price would result in a decrease in the fair value of the warrant liabilities. On December 22, 2022, as part of the 2022 Debenture financing, we issued to Alpha a common stock warrant (exercisable from June 22, 2023 through June 22, 2028) to purchase 2,500,000 shares of our common stock. The exercise price of the warrant was modified from $1.65 to $0.73 on December 5, 2023, and was further modified to $0.26 on February 27, 2024. The warrant may be exercised by Alpha, in whole or in part before June 22, 2028. The warrant was originally liability classified, but was modified on December 5, 2023 to allow for equity classification. The estimated fair value of this warrant upon reclassification from warrant liabilities to equity was approximately $1.6 million and the estimated fair value of this warrant which was included in warrant liabilities-related party on December 31, 2022 was approximately $2.8 million. 25 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 For the Years Ended December 31, 2023 2022 EXPENSES General and administrative $ 6,095,607 10,274,600 Research and development 5,209,250 4,486,120 Total expenses 11,304,857 14,760,720 LOSS FROM OPERATIONS (11,304,857 ) (14,760,720 ) OTHER EXPENSE (INCOME), NET Gain on change in fair value of warrant liabilities (2,035,469 ) (907,203 ) Interest expense, net 1,524,722 34,397 Loss on voluntary conversion of convertible debt 1,077,287 — Loss on debt extinguishment 625,653 — Loss on fixed asset disposal 21,747 — Other income, net (38,994 ) Total other expense (income), net 1,174,946 (872,806 ) LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES (12,479,803 ) (13,887,914 ) (BENEFIT) PROVISION FOR INCOME TAXES (4,793 ) 6,548 NET LOSS FROM CONTINUING OPERATIONS (12,475,010 ) (13,894,462 ) DISCONTINUED OPERATIONS Loss from discontinued operations, net of tax (683,008 ) (7,140,181 ) Loss on disposal of discontinued operations, net of tax (602,232 ) — LOSS FROM DISCONTINUED OPERATIONS (1,285,240 ) (7,140,181 ) NET LOSS (13,760,250 ) (21,034,643 ) Net loss attributable to non-controlling interest from discontinued operations (343,038 ) (2,394,100 ) Net loss attributable to Qualigen Therapeutics, Inc. $ (13,417,212 ) $ (18,640,543 ) Net loss per common share, basic and diluted - continuing operations $ (2.46 ) $ (3.62 ) Net loss per common share, basic and diluted - discontinued operations $ (0.19 ) $ (1.24 ) Weighted—average number of shares outstanding, basic and diluted 5,072,709 3,840,340 Other comprehensive loss, net of tax Net loss $ (13,760,250 ) $ (21,034,643 ) Foreign currency translation adjustment from discontinued operations 119,473 50,721 Other comprehensive loss (13,640,777 ) (20,983,922 ) Comprehensive loss attributable to noncontrolling interest from discontinued operations (304,735 ) (2,394,100 ) Comprehensive loss attributable to Qualigen Therapeutics, Inc. $ (13,336,042 ) $ (18,589,822 ) 26 Expenses General and Administrative Expenses General and administrative expenses decreased from $10.3 million for the year ended December 31, 2022 to $6.1 million for the year ended December 31, 2023. This decrease was due to a $3.8 million decrease in stock-based compensation expense, a $0.4 million decrease in payroll related expenses, a $0.3 million decrease in insurance expenses, and a $0.2 million decrease in license fees, offset by an increase of $0.5 million in professional fees. (The foregoing comparison, and all other comparisons presented in this Item, exclude Qualigen, Inc. and NanoSynex, Ltd. results for both years.) Research and Development Costs Research and development expenses increased from $4.5 million for the year ended December 31, 2022 to approximately $5.2 million for year ended December 31, 2023. This increase in research and development expenses for the year ended December 31, 2023 compared to for the year ended December 31, 2022 was primarily due to a $2.1 million increase in pre-clinical and clinical research costs for QN-302, offset by a $1.0 million decrease in pre-clinical research costs for QN-247 a $0.3 million decrease in preclinical research costs for Pan-RAS, and a $0.1 million decrease in preclinical research costs for QN-165. Other Expense (Income) Change in Fair Value of Warrant Liabilities During the year ended December 31, 2023 we experienced a $2.0 million gain in other income because of the change in fair value of the warrant liabilities arising from our liability classified warrants described above. The estimated fair value of these warrant liabilities decreased to $0.1 million as of December 31, 2023 from $3.6 million as of December 31, 2022 due to a reduction in fair value of the warrant liabilities resulting from an associated decrease in the market price of our common stock, and the reclassification at fair value of a liability classified warrant to equity of $1.6 million. For the year ended December 31, 2022, the gain on change in fair value of warrant liabilities was $0.9 million due to an associated decrease in the market price of our common stock. Typically, a decline in our stock price would result in a decline in the fair value of our warrant liabilities, generating a gain, while an increase in our stock price would result in an increase in the fair value of our warrant liabilities, generating a loss. The remaining liability classified warrants expire on June 26, 2024. Because the fair value of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to, until then, continue to result in variability in our future quarterly Consolidated Statements of Operations based on unpredictable changes in our public market common stock price and the number of warrants outstanding at the end of each quarter. Interest (Income) Expense, Net There was $1.5 million in net interest expense during the year ended December 31, 2023 compared to net interest income of $34,000 during the year ended December 31, 2022. The increase was due to the interest on the 2022 Debenture. Loss on Voluntary Conversion of Convertible Debt During the year ended December 31, 2023 we issued 841,726 shares of common stock upon Alpha’s partial voluntary conversion of the 2022 Debenture at $1.32 per share for a total of $1,111,078 principal converted. Upon conversion, we recognized a loss on voluntary conversion of convertible debt of approximately $1.1 million. Loss on Debt Extinguishment During the year ended December 31, 2023, we issued 309,665 shares of common stock in lieu of cash for the October and December 2023 monthly redemptions, for a total of $220,000 principal redeemed, pursuant to the terms of the 2022 Debenture at a weighted average share price of $0.71. Upon redemption in shares, we recognized a loss on partial debt extinguishment of $34,315. The modification of the 2022 Debenture during the year ended December 31, 2023 met the criteria to be accounted for as a debt extinguishment in the amount of $591,338. Accordingly, we recognized an additional loss on partial debt extinguishment of that amount. Loss on Fixed Asset Disposal During the year ended December 31, 2023, we incurred a $21,747 loss on fixed asset disposal due to disposal of research and development equipment previously used for QN-165. Liquidity and Going Concern Our financial position is weak. As of December 31, 2023, we had approximately $0.4 million in cash and net accounts payable of over $2.2 million. We are in arrears on accounts payable to important partners. We have incurred recurring losses from operations and have an accumulated deficit of $116.8 million at December 31, 2023. We expect to continue to incur losses subsequent to the consolidated balance sheet date of December 31, 2023. For the years ended December 31, 2023 and 2022, we used cash of $10.3 million and $13.2 million, respectively, in operations. We sold our Qualigen, Inc. FastPack® diagnostics products business in 2023. 27 On February 26, 2024, we entered into a Securities Purchase Agreement (“Agreement”) with Alpha. The transactions contemplated by the Agreement closed on February 27, 2024, at which time we delivered to Alpha a new Debenture and warrant, as described in this paragraph, and Alpha paid the Company a cash purchase price of $500,000 (less expenses). Pursuant to the Agreement, we issued to Alpha an 8% Convertible Debenture (the “2024 Debenture”) in the principal amount of $550,000. The 2024 Debenture has a maturity date of December 31, 2024 and is convertible, at any time, and from time to time, at Alpha’s option, into shares of common stock of the Company, at $0.6111 per share, subject to adjustment as described in the 2024 Debenture. The 2024 Debenture accrues interest on its outstanding principal balance at the rate of 8% per annum, payable at maturity. Pursuant to the terms of the Agreement, we also issued to Alpha a 5-year common stock purchase warrant to purchase (at $0.26 per share) 900,016 shares of common stock of the Company. We also granted to Alpha an option, exercisable until July 1, 2024, to purchase from us additional 8% Convertible Debentures, of like tenor, with face amounts of up to an aggregate of $1,100,000 (and with a proportional number of accompanying common stock warrants of like tenor, up to a total of 1,800,032 additional warrants), which would (if and when Alpha exercises such option) provide us up to an additional $1.0 million in cash proceeds (less expense reimbursement, and not including any possible cash proceeds from any future exercise of the additional warrants). We currently expect our cash balances to fund operations only into the second quarter of 2024. We expect to continue to have net losses and negative cash flow from operations, which will challenge our liquidity. These factors raise substantial doubt regarding our ability to continue as a going concern for the one-year period following the date that the financial statements in this Annual Report were issued. There is no assurance that we will ever achieve profitable operations, or, if achieved, could be sustained on a continuing basis. In order to fully execute our business plan, we will require significant additional financing for planned research and development activities, capital expenditures, QN-302 clinical trials, and preclinical development of Pan-RAS, as well as commercialization activities. Historically, our principal sources of cash have, in addition to revenue from FastPack product sales and license revenues (see Note 5 - Discontinued Operations), included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. In December 2022 and February 2024 we raised approximately $3.0 million and $0.5 million, respectively from the sale of convertible debentures to Alpha. There can be no assurance that further financing can be obtained on favorable terms, or at all. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, and we could be unable to continue operations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. In addition, any future financing (depending on the terms and conditions) may be subject to the approval of Alpha under the terms of the Debentures and/or trigger certain adjustments to the Debentures or warrants held by Alpha. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying financial statements. Our current liabilities at December 31, 2023 include $2.2 million of accounts payable, $0.6 million of accrued expenses and other current liabilities, $0.1 million in warrant liabilities, and $1.3 million of convertible debt to a related party. Contractual Obligations and Commitments We have no material contractual obligations that are not fully recorded on our consolidated balance sheets or fully disclosed in the notes to the financial statements. License and Sponsored Research Agreements We have obligations under various license and sponsored research agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing for product approval with the FDA or other regulatory agencies, product approval by the FDA or other regulatory agencies, product launch or product sales) or on the sublicense of our rights to another party. We have not included these commitments on our balance sheet because the achievement and timing of these events is not determinable. Certain milestones are in advance of receipt of revenue from the sale of products and, therefore, we may require additional debt or equity capital to make such payments. 28 We have multiple license and sponsored research agreements with ULRF. Under these agreements, we have taken over development, regulatory approval and commercialization of various drug compounds from ULRF and are responsible for maintenance of the related intellectual property portfolio. We agreed to reimburse ULRF for sponsored research expenses of up to $2.7 million and prior patent costs of up to $112,000 for Pan-RAS. As of December 31, 2023, there were no remaining un-expensed amounts under this sponsored research agreement for Pan-RAS. Under the terms of these agreements, we are required to make patent maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $5 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under these agreements, but we will be required to pay ULRF a percentage of any sublicense income. We previously had sponsored research agreements with ULRF for QN-247 and QN-165. As of December 31, 2023, there were no remaining un-expensed amounts under these sponsored research agreements and the agreements were terminated effective August 31, 2022, and November 30, 2021 respectively. 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.) We are further developing the program’s lead compound under the name QN-302. The License Agreement requires (if and when applicable) tiered royalty payments in the low to mid-single digits, clinical/regulatory/sales milestone payments, and sharing of a percentage of any non-royalty sublicensing consideration paid to the Company. In November 2023, we became obligated to pay $100,000 to UCL Business Limited upon the first patient dosing of QN-302, which is included in accounts payable in our consolidated balance sheet. Alpha Convertible Debt On December 22, 2022, pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022 (the “Alpha Purchase Agreement”), we issued to Alpha, in exchange for $3,000,000 in cash (less $50,000 for expense reimbursement), the 2022 Debenture with an original face amount of $3,300,000 due on December 22, 2025, plus 2,500,000 common stock warrants exercisable (from June 22, 2023 through June 22, 2028) at $1.65 per share. Commencing June 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) December 22, 2025 and (ii) the full redemption of the 2022 Debenture, we must redeem $110,000 plus accrued but unpaid interest, liquidated damages and any amounts then owing under the 2022 Debenture. The Monthly Redemption Amount must be paid in cash; provided that after the first two monthly redemptions, we may (if the Equity Conditions, as defined in the 2022 Debenture, are then satisfied or have been waived) elect to pay all or a portion of a Monthly Redemption Amount in shares of our common stock, based on a conversion price equal to the lesser of (i) the then applicable conversion price of the 2022 Debenture and (ii) 85% of the average of the VWAPs (as defined in the 2022 Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The 2022 Debenture accrues interest at the rate of 8% per annum, which began accruing on December 1, 2023, and will be payable on a quarterly basis. Interest may be paid in cash or shares of common stock or a combination thereof at our option; provided that the Equity Conditions have been satisfied. Alpha has waived the Equity Conditions for certain Monthly Redemption Amounts, but Alpha is not required to continue such waivers beyond May 2024. For the foreseeable future, we do not expect to be able to satisfy the Equity Conditions; as a result, where there is no waiver of the Equity Conditions we would not have the opportunity to make 2022 Debenture payments in the form of stock rather than in the form of cash, even for types of payments for which payment in the form of stock would have been allowed. The 2022 Debenture is convertible into our common stock at any time at the holder’s option; the conversion price was originally $1.32 but pursuant to a Securities Purchase Agreement amendment it was reduced to $0.73 on December 5, 2023 and then on February 27, 2024 it was adjusted downward to $0.26 per share by virtue of the operation of a “ratchet” antidilution provision. (The exercise price of the warrants issued with the 2022 Debenture was originally $1.65 but pursuant to the Securities Purchase Agreement amendment it was reduced to $0.73 on December 5, 2023 and then on February 27, 2024 it was adjusted downward to $0.26 per share by virtue of the operation of a “ratchet” antidilution provision.) Both the 2022 Debenture and the accompanying warrants provide for “ratchet” antidilution adjustments to their conversion price and exercise price. Both the 2022 Debenture and the accompanying warrants include a beneficial ownership blocker of 9.99%, which may only be waived by Alpha upon 61 days’ notice to the Company. 29 We granted Alpha resale registration rights for the common shares underlying the 2022 Debenture and the accompanying warrants. On December 5, 2023, we entered into an Amendment No. 1 with regard to Securities Purchase Agreement, with Alpha, which, among other things, revised certain provisions of the 2,500,000 warrants to clarify the intention that such 2,500,000 warrants would not be liability-classified for GAAP purposes. During the year ended December 31, 2023, we recognized an extinguishment loss on voluntary conversion of convertible debt of approximately $1.1 million, an extinguishment loss of $0.6 million upon October and December 2023 share redemptions and the modification of the 2022 Debenture in December 2023, and recorded accrued interest of approximately $1.5 million, in other expenses in the consolidated statements of operations. During the year ended December 31, 2023 we paid Monthly Redemption Amounts of $550,000 in cash and $220,000 in common stock, and as of December 31, 2023 the remaining 2022 Debenture principal balance was approximately $1.4 million, the remaining discount was approximately $0.1 million, and the fair value of the suite of bifurcated embedded derivative features was $0. Reference is also made to the 2024 Debenture, which was issued to Alpha after the end of the 2023 fiscal year and is described above. NanoSynex Funding Agreement As a condition to our acquisition of a majority voting equity interest in NanoSynex from Alpha and NanoSynex, we entered into a Master Agreement for the Operational and Technological Funding of NanoSynex (the “Funding Agreement”), on May 26, 2022, pursuant to which we agreed to fund NanoSynex up to an aggregate of approximately $10.4 million, subject to NanoSynex’s achievement of certain performance milestones specified in the Funding Agreement and the satisfaction of other terms and conditions described in the Funding Agreement. During the year ended December 31, 2022, we funded a total of approximately $2.4 million and in February 2023 we funded an additional $0.5 million to NanoSynex under the Funding Agreement. On July 20, 2023, we entered into the NanoSynex Amendment, which amended the Funding Agreement, pursuant to which the Company agreed to, among other things, forfeit 281,000 Series B Preferred Shares of NanoSynex held by the Company, resulting in our ownership in NanoSynex being reduced from approximately 52.8% to approximately 49.97% of the voting equity of NanoSynex. In addition, we agreed to cancel approximately $3.0 million of promissory notes which NanoSynex had issued to us under the NanoSynex Funding Agreement, relieving NanoSynex of any repayment obligations to us with respect to such notes. The surrender of shares reducing our interest in NanoSynex from approximately 52.8% to approximately 49.97% occurred on July 20, 2023. Accordingly, NanoSynex was deconsolidated from our financial statements as of July 20, 2023, and is reported as Discontinued Operations in this Annual Report. The NanoSynex Amendment superseded any payment obligations contemplated by the original Funding Agreement and amended our obligations to provide funding to NanoSynex, except we agreed to provide future funding as follows: (i) $560,000 on or before November 30, 2023, and (ii) $670,000 on or before March 31, 2024, in each case issued in the form of a promissory note to the Company with a face value in the amount of such funding. However, on November 22, 2023, in full settlement of any additional funding obligations to NanoSynex, we forfeited certain of our shares of Series A-1 Preferred Stock of NanoSynex in an amount that reduced our ownership in NanoSynex from approximately 49.97% to 39.90%. Our investment in NanoSynex will be accounted as an equity method investment prospectively from the July 20, 2023 deconsolidation date. Other Service Agreements We enter into contracts in the normal course of business, including with clinical sites, contract research organizations, and other professional service providers for the conduct of clinical trials, contract manufacturers for the production of our product candidates, contract research service providers for preclinical research studies, professional consultants for expert advice and vendors for the sourcing of clinical and laboratory supplies and materials. These contracts generally provide for termination on notice, and therefore are cancelable contracts. 30 Cash Flows The following table sets forth the significant sources and uses of cash for the periods set forth below: For the Twelve Months Ended December 31, 2023 2022 Net cash (used in) provided by: Operating activities $ (10,304,263 ) $ (13,247,541 ) Investing activities 4,215,943 (183,763 ) Financing activities (550,000 ) 2,910,515 Effect of exchange rate on cash — 22,639 Net decrease in cash and restricted cash $ (6,638,320 ) $ (10,498,150 ) Net Cash Used in Operating Activities During the year ended December 31, 2023, operating activities used $10.3 million of cash, primarily resulting from a loss from continuing operations of $12.5 million. Cash flows from operating activities for the year ended December 31, 2023 were positively impacted by adjustments for a $1.1 million non cash loss on voluntary conversion of convertible debt, a $0.6 million non cash loss on convertible debt extinguishment, accretion of discount of $1.5 million on convertible debt, a $1.6 million increase in accounts payable, and $1.1 million in non cash stock-based compensation expense. Cash flows from operating activities for the year ended December 31, 2023 were negatively impacted by adjustments for a $2.0 million decrease in fair value of warrant liabilities, a $0.3 million increase in prepaid expenses and other assets, a $0.2 million decrease in accrued expenses and other current liabilities, and cash used in discontinued operations of $1.2 million. During the year ended December 31, 2022, operating activities used $13.2 million of cash, primarily resulting from a loss from continuing operations of $13.9 million. Cash flows from operating activities for the year ended December 31, 2022 were positively impacted by an adjustment for $4.8 million in non cash stock-based compensation expense. Cash flows from operating activities for the year ended December 31, 2022 were negatively impacted by cash used in discontinued operations of $2.6 million, a $0.9 million decrease in fair value of warrant liabilities, a $0.5 million decrease in accrued expenses and other current liabilities, and a $0.1 million increase in prepaid expenses. Net Cash Provided By Investing Activities During the year ended December 31, 2023, net cash provided by investing activities was approximately $4.2 million resulting from discontinued operations due to $4.9 million in proceeds received from the sale of Qualigen, Inc., offset by $0.5 million advanced to NanoSynex, and $0.2 million in purchases of property and equipment prior to deconsolidation. During the year ended December 31, 2022, net cash used in investing activities was approximately $0.2 million, due to capital expenditures offset by cash acquired in the NanoSynex acquisition. Net Cash Provided by Financing Activities Net cash provided by financing activities for the year ended December 31, 2023, was approximately $0.6 million, due to monthly redemption payments which we made in the form of stock (rather than in the form of cash) on the 2022 Debenture. Net cash provided by financing activities for the year ended December 31, 2022, was approximately $2.9 million, due to the issuance of convertible debt to Alpha.